SC TO-I

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE TO

(Rule 13e-4)
Tender Offer Statement Pursuant to Section 14(d)(1) or 13(e)(1)
of the Securities Exchange Act of 1934

MARTHA STEWART LIVING OMNIMEDIA, INC.

(Name of Subject Company (Issuer) and Filing Person (Offeror))

OPTIONS TO PURCHASE CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)

591610100
(CUSIP Number of Class of Securities)
(Underlying Class A Common Stock)

Gregory R. Blatt, Esq.
Executive Vice President, Business Affairs, General Counsel and Secretary
Martha Stewart Living Omnimedia, Inc.
11 West 42nd Street
New York, New York 10036
(212) 827-8000

(Name, Address and Telephone Numbers of Person Authorized
to Receive Notices and Communications on Behalf of Filing Persons)

Copy to:
Warren S. de Wied, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8000

Calculation of Filing Fee

Transaction Valuation*	Amount of Filing Fee*
$1,325,720	$	107.25

* Calculated solely for purposes of determining the filing fee. This amount assumes that options to purchase 697,307 shares of Class A Common Stock, par value $0.01, of Martha Stewart Living Omnimedia, Inc. will be exchanged pursuant to this offer for an aggregate of $1,325,720 in cash. The amount of the filing fee, calculated in accordance with Rule 0-11(b) of the Securities Exchange Act of 1934, as amended, and Fee Advisory No. 11 for fiscal year 2003 issued by the Securities and Exchange Commission on February 21, 2003, equals $80.90 per million dollars of the value of the transaction.

[_] Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

Amount Previously Paid: N/A	Filing Party: N/A
Form or Registration Number:N/A	Date Filed: N/A

[_] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.

Check the appropriate boxes below to designate any transactions to which the statement relates:

[_] third-party tender offer subject to Rule 14d-1.

[X] issuer tender offer subject to Rule 13e-4.

[_] going private transaction subject to Rule 13e-3.

[_] amendment to Schedule 13D under Rule 13d-2.

Check the following box if the filing is a final amendment reporting the results of the tender offer: [_]

TABLE OF CONTENTS

	Item 1. Summary Term Sheet
	Item 2. Subject Company Information
	Item 3. Identity and Background of Filing Persons
	Item 4. Terms of the Transaction
	Item 5. Past Contacts, Transactions, Negotiations and Agreements
	Item 6. Purposes of the Transaction and Plans or Proposals
	Item 7. Source and Amount of Funds or Other Consideration
	Item 8. Interest in Securities of the Subject Company
	Item 9. Persons/Assets Retained, Employed, Compensated or Used
	Item 10. Financial Statements
	Item 11. Additional Information
	Item 12. Exhibits
SIGNATURES
EXHIBIT INDEX
OFFER TO EXCHANGE
FORM OF INTRODUCTORY LETTER/LETTER OF TRANSMITTAL
FORM OF E-MAIL ANNOUNCING OFFER
FORM OF ELECTION WITHDRAWAL NOTICE
FORM OF REMINDER NOTICE OF EXPIRATION OF OFFER
AMENDED AND RESTATED 1999 STOCK INCENTIVE PLAN

Item 1. Summary Term Sheet.

     The information set forth under “Summary of Terms” in the Offer to Exchange, dated September 26, 2003 (the “Offer to Exchange”), attached hereto as Exhibit (a)(1), is incorporated herein by reference.

Item 2. Subject Company Information.

     (a)  The name of the subject company is Martha Stewart Living Omnimedia, Inc., a Delaware corporation (the “Company”). The address of the Company’s principal executive offices is 11 West 42nd Street, New York, New York 10036 and its telephone number is (212) 827-8000.

     (b)  The information set forth in the Offer to Exchange under “Summary of Terms,” Section 1 (“General Terms; Purpose”), Section 2 (“Source and Amount of Consideration; Terms of Special Bonus Rights”) and Section 11 (“Status of Eligible Options Acquired by Us in the Offer; Accounting Consequences of the Offer”) is incorporated herein by reference.

     (c)  The information set forth in the Offer to Exchange under Section 9 (“Price Range of Class A Common Stock Underlying Eligible Options”) is incorporated herein by reference.

Item 3. Identity and Background of Filing Persons.

     (a)  The Company is the filing person and the subject company. The information set forth under Item 2(a) above and the information set forth in the Offer to Exchange under “Schedule A: Information Concerning Our Directors and Executive Officers” is incorporated herein by reference.

Item 4. Terms of the Transaction.

     (a)  The information set forth under Item 2(b) above and in the Offer to Exchange under “Summary of Terms,” Section 1 (“General Terms; Purpose”), Section 2 (“Source and Amount of Consideration; Terms of Special Bonus Rights”), Section 3 (“Procedures for Electing to Exchange Eligible Options; Acceptance for Exchange”), Section 4 (“Withdrawal Rights”), Section 5 (“Instructions for Submitting Documents in Connection with Offer”), Section 6 (“Material U.S. Federal Income Tax Consequences”), Section 7 (“Termination; Amendment;

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Extension of Offer”), Section 8 (“Conditions for Completion of the Offer”), Section 11 (“Status of Eligible Options Acquired by Us in the Offer; Accounting Consequences of the Offer”) and Section 12 (“Legal Matters; Regulatory Approvals”) is incorporated herein by reference.

     (b)  The information set forth in the Offer to Exchange under Section 10 (“Interests of Directors and Officers; Transactions and Arrangements Concerning Eligible Options”) is incorporated herein by reference.

Item 5. Past Contacts, Transactions, Negotiations and Agreements.

     (e)  The information set forth in the Offer to Exchange under Section 10 (“Interests of Directors and Officers; Transactions and Arrangements Concerning Eligible Options”) is incorporated herein by reference. The Company’s Amended and Restated 1999 Stock Incentive Plan attached hereto as Exhibit (d)(1) is incorporated herein by reference.

Item 6. Purposes of the Transaction and Plans or Proposals.

     (a)  The information set forth in the Offer to Exchange under “Summary of Terms” and Section 1 (“General Terms; Purpose”) is incorporated herein by reference.

     (b)  The information set forth in the Offer to Exchange under Section 11 (“Status of Eligible Options Acquired by Us in the Offer; Accounting Consequences of the Offer”) is incorporated herein by reference.

     (c)  The information set forth in the Offer to Exchange under Section 15 (“Corporate Plans, Proposals and Negotiations”) is incorporated herein by reference.

Item 7. Source and Amount of Funds or Other Consideration.

     (a)  The information set forth in the Offer to Exchange under Section 2 (“Source and Amount of Consideration; Terms of Special Bonus Rights”) and Section 13 (“Fees and Expenses”) is incorporated herein by reference.

     (b)  Not applicable.

     (d)  Not applicable.

Item 8. Interest in Securities of the Subject Company.

     (a)  The information set forth in the Offer to Exchange under Section 10 (“Interests of Directors and Officers; Transactions and Arrangements Concerning Eligible Options”) is incorporated herein by reference.

     (b)  The information set forth in the Offer to Exchange under Section 10 (“Interests of Directors and Officers; Transactions and Arrangements Concerning Eligible Options”) is incorporated herein by reference.

Item 9. Persons/Assets Retained, Employed, Compensated or Used.

     (a)  Not applicable.

Item 10. Financial Statements.

     (a)  Not applicable.

     (b)  Not applicable.

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Item 11. Additional Information.

     (a)  The information set forth in the Offer to Exchange under Section 10 (“Interests of Directors and Officers; Transactions and Arrangements Concerning Eligible Options”) and Section 12 (“Legal Matters; Regulatory Approvals”) is incorporated herein by reference.

     (b)  Not applicable.

Item 12. Exhibits.

(a)(1)	Offer to Exchange, dated September 26, 2003.
(a)(2)	Form of Introductory Letter and accompanying Letter of Transmittal.
(a)(3)	Form of e-mail to Eligible Option Holders Announcing Offer.
(a)(4)	Form of Election Withdrawal Notice.
(a)(5)	Form of Reminder Notice of Expiration of Offer.
(a)(6)	The Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2002, filed with the Securities and Exchange Commission on March 31, 2003 (incorporated herein by reference).
(a)(7)	The Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 2003, filed with the Securities and Exchange Commission on May 15, 2003 (incorporated herein by reference).
(a)(8)	The Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 2003, filed with the Securities and Exchange Commission on August 13, 2003 (incorporated herein by reference).
(a)(9)	The Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 30, 2003 (incorporated herein by reference).
(a)(10)	The Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 7, 2003 (incorporated herein by reference).
(a)(11)	The Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 11, 2003 (incorporated herein by reference).
(a)(12)	The Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 13, 2003 (incorporated herein by reference).
(a)(13)	The Company’s definitive Proxy Statement on Schedule 14A for the 2003 Annual Meeting of Stockholders, filed with the Securities and Exchange Commission on March 31, 2003 (incorporated herein by reference).
(a)(14)	A description of the Company’s Class A common stock included in the Company’s Registration Statement on Form 8-A, which was filed with the Securities and Exchange Commission on October 14, 1999 (incorporated herein by reference).
(b)	Not applicable.

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(d)(1)	The Company’s Amended and Restated 1999 Stock Incentive Plan.
(g)	Not applicable.
(h)	Not applicable.

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SIGNATURES

After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Dated:September 25, 2003

MARTHA STEWART LIVING OMNIMEDIA, INC.
By:	/s/ Gregory R. Blatt
	Gregory R. Blatt
	Executive Vice President, Business Affairs,
	General Counsel and Secretary

EXHIBIT INDEX

Exhibit	Description
(a)(1)	Offer to Exchange, dated September 26, 2003.
(a)(2)	Form of Introductory Letter and accompanying Letter of Transmittal.
(a)(3)	Form of e-mail to Eligible Option Holders Announcing Offer.
(a)(4)	Form of Election Withdrawal Notice.
(a)(5)	Form of Reminder Notice of Expiration of Offer.
(a)(6)	The Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2002, filed with the Securities and Exchange Commission on March 31, 2003 (incorporated herein by reference).
(a)(7)	The Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 2003, filed with the Securities and Exchange Commission on May 15, 2003 (incorporated herein by reference).
(a)(8)	The Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 2003, filed with the Securities and Exchange Commission on August 13, 2003 (incorporated herein by reference).
(a)(9)	The Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 30, 2003 (incorporated herein by reference).
(a)(10)	The Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 7, 2003 (incorporated herein by reference).
(a)(11)	The Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 11, 2003 (incorporated herein by reference).
(a)(12)	The Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 13, 2003 (incorporated herein by reference).
(a)(13)	The Company’s definitive Proxy Statement on Schedule 14A for the 2003 Annual Meeting of Stockholders, filed with the Securities and Exchange Commission on March 31, 2003 (incorporated herein by reference).
(a)(14)	A description of the Company’s Class A common stock included in the Company’s Registration Statement on Form 8-A, which was filed with the Securities and Exchange Commission on October 14, 1999 (incorporated herein by reference).
(b)	Not applicable.
(d)(1)	The Company’s Amended and Restated 1999 Stock Incentive Plan.
(g)	Not applicable.
(h)	Not applicable.

7 EX-99.A.1 3 y90177aexv99waw1.htm OFFER TO EXCHANGE

Exhibit (a)(1)

MARTHA STEWART LIVING OMNIMEDIA, INC.

OFFER TO EXCHANGE
OUTSTANDING ELIGIBLE OPTIONS TO PURCHASE CLASS A COMMON
STOCK UNDER THE MARTHA STEWART LIVING OMNIMEDIA, INC.
AMENDED AND RESTATED 1999 STOCK INCENTIVE PLAN

THE OFFER AND THE ASSOCIATED WITHDRAWAL RIGHTS EXPIRE ON
OCTOBER 24, 2003 AT 11:59 P.M., EASTERN STANDARD TIME,
UNLESS THE OFFER IS EXTENDED

The Date of This Offer is September 26, 2003

     Martha Stewart Living Omnimedia, Inc. (the “Company”) is offering eligible employees the opportunity to exchange all of their outstanding eligible options for the right to receive a one-time special cash bonus payment in early July 2004, as described in the materials that follow. The Company is making this offer upon the terms and subject to the conditions set forth in this document, the introductory letter and the Letter of Transmittal (which is attached to the introductory letter). For purposes of this entire document, these materials will be referred to as the “offering materials.”

     If you wish to exchange your eligible options, you must complete and sign the Letter of Transmittal in accordance with terms set forth in the offering materials and deliver it to the Company by fax to (212) 827-8008 or by mail to Martha Stewart Living Omnimedia, Inc., Attn: Lori Gonzalez, 11 West 42nd Street, New York, New York 10036. The Company will also have dropboxes, located in the reception areas of its Starrett-Lehigh and Westport offices and in the Human Resources department at its 42^nd Street location, in which your Letter of Transmittal may be deposited. Your Letter of Transmittal must be received by the Company by 11:59 P.M., Eastern Standard Time, on October 24, 2003 (or, if the Company extends the offer period, a later date the Company will specify), or it will not be given effect.

     All questions about this offer or requests for assistance or for additional copies of any offering materials should be made by email to stockoptions@marthastewart.com. The Company will attempt to respond to all questions either at the question and answer sessions organized by the Human Resources department or otherwise.

Important Notice

     Although the Company’s Board of Directors has authorized this offer, neither the Company nor the Board of Directors makes any recommendation as to whether or not you should exchange your eligible options for the special bonus. The Company also has not authorized any person to make any recommendation on its behalf as to whether you should accept this offer. You must make your own decision whether to exchange your eligible options. In doing so, you should rely only on the information contained in the offering materials, the materials referenced in Section 16 of Part II of this document, any official question and answer session organized by the Company’s Human Resources

department, or any other authorized communications from the Company made generally available to eligible employees, as no other representations or information has been authorized by the Company. You may also wish to consult with your own advisors before making any decisions regarding the offer.

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TABLE OF CONTENTS

			PAGE
I.	SUMMARY OF TERMS			1
	How the Option Exchange Works			1
	Duration of the Offer			6
	How to Elect to Exchange Your Eligible Options			7
	U.S. Federal Income Tax Considerations			8
	How to Get More Information			8
II.	THE OFFER			9
	1.	General Terms; Purpose		9
	2.	Source and Amount of Consideration; Terms of Special Bonus Rights		10
	3.	Procedures for Electing to Exchange Eligible Options; Acceptance for Exchange		11
	4.	Withdrawal Rights		12
	5.	Instructions for Submitting Documents in Connection with Offer		12
	6.	Material U.S. Federal Income Tax Consequences		13
	7.	Termination; Amendment; Extension of Offer		13
	8.	Conditions for Completion of the Offer		14
	9.	Price Range of Class A Common Stock Underlying Eligible Options		15
	10.	Interests of Directors and Officers; Transactions and Arrangements Concerning Eligible Options		16
	11.	Status of Eligible Options Acquired by Us in the Offer; Accounting Consequences of the Offer		16
	12.	Legal Matters; Regulatory Approvals		17
	13.	Fees and Expenses		17
	14.	Information Concerning Martha Stewart Living Omnimedia, Inc.		17
	15.	Corporate Plans, Proposals and Negotiations		18
	16.	Additional Information		19
	17.	Forward Looking Statements		20
	18.	Miscellaneous		21

SCHEDULE A: Information Concerning Our Directors and Executive Officers

-iii-

I

SUMMARY OF TERMS

Questions and Answers About the Offer

     Part I of this document contains a Summary that answers some of the questions that you may have about the offer. Nothing contained in this Summary or any of the documents included with it should be interpreted by you as a recommendation by the Company or its affiliates about whether or not to participate in the offer. References in the Summary to section numbers are to section numbers in Part II of this document. In Part II, you will find more complete descriptions of the topics addressed in this Summary.

     This Summary is presented in question-and-answer format. The questions and answers are grouped into the following categories:

• How the Option Exchange Works

• Duration of the Offer

• How to Elect to Exchange Your Eligible Options

• U.S. Federal Income Tax Considerations

• How to Get More Information

     References in this Summary to the “Company,” “we,” “us” and “our” mean Martha Stewart Living Omnimedia, Inc., and references to “the date the offer expires” mean October 24, 2003, or, if we extend the offer period, a later date we will specify.

How the Option Exchange Works

Q1. What is the offer?

     Beginning at 12:01 A.M., Eastern Standard Time, on September 26, 2003 and ending at 11:59 P.M., Eastern Standard Time, on October 24, 2003, unless we extend the offer, an eligible employee (described in Question 2 below) may decide to exchange all of his or her eligible options (described in Question 3 below) for a Special Bonus Right (described in Question 4 below). Participation in this offer is voluntary.

Q2. Who may participate in this offer?

     Only “eligible employees” may participate in this offer. Eligible employees are all employees of the Company who are actively employed by the Company on the date the offer expires, other than executive employees (i.e., employees with a title that includes a vice president variation, such as Assistant Vice President or Vice President). (For more information, see Section 1 of Part II.)

Q3. Which options may an eligible employee exchange in the offer?

     Only “eligible options” may be exchanged under this program. Eligible options are the options, whether or not currently vested, to purchase shares of our Class A common stock which were granted under the Company’s Amended and Restated 1999 Stock Incentive Plan (the “Plan”) with an exercise price above $8.00 per share and which are held by eligible employees. (For more information, see Section 1 of Part II.)

Q4. What is the Special Bonus Right?

     The Special Bonus Right is the right to receive a specified cash payment on the first Company payroll date in July 2004. The only condition to receive the cash payment is that you remain continuously employed with the Company through June 30, 2004, at which time the Special Bonus Right will vest.

Q5. How much will my Special Bonus Right entitle me to?

     The amount of the Special Bonus Right that you would receive if you participate in this offer is set forth in the Letter of Transmittal.

Q6. How was the amount of my Special Bonus Right determined?

     In determining the amount of your Special Bonus Right, the Company first valued your eligible options using the most established and commonly used method of valuing stock options, called “Black-Scholes” (described in Section 2 of Part II). One of the principal components of the valuation is the expected life of an option. This is the period of time one is expected to hold the option in order to realize the expected value. Because the longer one holds an option, the greater the likelihood that the stock price will rise above the exercise price, valuations using longer expected lives result in higher values than those using shorter ones. For purposes of valuing your options in connection with this offer, we used an expected life of 5 years. However, because we are providing you with the ability to realize your value in a substantially shorter period of time (approximately eight months) than the five-year time period used for valuation, and because we are eliminating all stock market risk from the equation by paying you in the form of a fixed cash payment, we then reduced the total amount of your award by 25%. In the event this methodology yielded a value of less than $1,000, the amount of your Special Bonus Right was designated as $1,000.

     Because option valuation is inherently speculative and imprecise, the Company’s determination as to the amount of your Special Bonus Right is final. (For a more detailed explanation of “Black-Scholes” and other additional information on the determination by us of your Special Bonus Right, see Section 2 of Part II.)

Q7. When will I receive my Special Bonus Right?

     Your Special Bonus Right will be granted to you, effective as of 11:59 P.M., Eastern Standard Time, on the expiration date, in exchange for your properly tendered options. We will send you a letter evidencing the Special Bonus Right promptly after the

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expiration of the offer. Thereafter, you will be entitled to a single lump sum cash payment on the first Company payroll date in July 2004 in the amount of your Special Bonus Right, so long as you have been continuously employed by the Company through June 30, 2004. Additionally, in the event of a “Change in Control” (as defined in the Plan) or your termination of employment by reason of your death or “Disability” (as defined in the Plan), the bonus associated with your Special Bonus Right will become payable on the next scheduled Company payroll date.

Q8. Can I forfeit any portion of my Special Bonus Right after receiving it?

     Yes. In the event that your employment with the Company terminates for any reason (other than your death or Disability) prior to the time your award vests, you will forfeit your entire Special Bonus Right effective immediately upon the date your employment with the Company ends.

Q9. Why is the Company conducting the offer?

     The principal reason the Company originally granted the eligible options was to provide an incentive to valued employees to create stockholder value and remain employees of the Company by allowing them to share in the stockholder value that they create through their talent and hard work. However, our stock price has generally declined relative to its levels at the time these stock option grants were made, and most of the eligible options are therefore “out of the money”. (For more information about “in the money” and “out of the money” options, see Question 12.) Due, in part, to the circumstances under which the stock price declined, we wish to provide eligible employees the opportunity to benefit from their hard work despite the loss of stockholder value, and to provide an additional incentive to remain with the Company. Accordingly, we are providing you the opportunity to obtain the more certain benefit associated with the Special Bonus Right, in lieu of the less certain, but potentially more valuable benefit, you could receive if you elect to retain your stock options. Additionally, this program reduces the number of shares of Company stock subject to equity awards, thereby reducing potential dilution to our stockholders. Whether to participate in the offer is your decision, and you are free to reject the offer if you so choose.

Q10. Will we receive additional equity grants in the future?

     The practice of granting stock options to employees throughout an organization was a practice that became prominent in the late 1990’s as a result of a strong bull market and the resulting competitive environment for attracting talent. Recently, we, like many other companies, have discontinued the practice of regular option grants to employees throughout the organization. While the Compensation and Corporate Governance Committee of the Board revisits this issue periodically, it has no current intention of resuming the practice and instead seeks to provide incentives to employees through other compensation and benefit related programs.

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Q11. Is it likely that an offer similar to this one will be made in the future?

     The Compensation and Corporate Governance Committee of the Board is making this offer, in part, as a result of the special circumstances surrounding the recent decline in the Company’s stock price. Accordingly, while the Committee evaluates the Company’s compensation programs periodically, it has no current intention to make any similar offer in the future, and expects this to be a one-time event.

Q12. Why should I consider participating in the offer?

     Currently, you hold eligible options that represent your right to purchase shares of our Class A common stock at a specified price, regardless of the actual market price at the time of your purchase. The specified purchase price for your eligible options was the market price on the date the option was granted. Due to subsequent fluctuations, the market price of a share of stock can be greater than, equal to or less than, the specified purchase price of any option. When the market price is greater than the purchase price (otherwise known as an “in the money” option), you receive value from exercising the option, because you are able to buy the stock at less than the current value and sell the resulting share for the higher price. When the market price is equal to or less than the purchase price (otherwise known as an “out of the money” option), one would not exercise the stock option.

     If you exchange your eligible options for a Special Bonus Right, your eligible options will be exchanged for the right to receive a specific amount of cash on our first payroll date in July 2004. This Special Bonus Right may or may not be more valuable to you than your eligible options in the future, depending on a number of factors, principally the performance of our Class A common stock, the timing of the performance of our Class A common stock and your continued employment with the Company through relevant vesting dates. To illustrate this, consider the following hypothetical situation.

     Assume that you hold an option to purchase 1,000 shares of Class A common stock with an exercise price of $15 per share at a time when the Class A common stock is trading at $9 per share. Further assume that the amount of your Special Bonus Award would be $1,800 if you participated in the offer. Under these circumstances, even if fully vested, your option has no currently realizable value to you because it is out of the money (i.e., the exercise price of the option ($15 per share) is equal to or greater than the price of the Company’s Class A common stock).

     To help evaluate the relative value of your eligible options and your Special Bonus Right, consider the following scenarios:

• If the price of our Class A common stock were to rise to $15 per share, the option would have no value to you because it would still be out of the money. Under these circumstances, the option would be less valuable than your $1,800 Special Bonus Right.

• If the price of our Class A common stock were to rise to $16 per share, the

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option would now be in the money (i.e., the exercise price would be less than the price of the Company’s Class A common stock). Specifically, the option would be $1 in the money per share, having an aggregate value of $1,000 (i.e, the result obtained by multiplying $1 (representing the excess of the market price of $16 over the exercise price of $15) by 1000). Under these circumstances, although the option would be in the money, it would still be less valuable than your $1,800 Special Bonus Right.

•

If the price of our Class A common stock were to rise to $17 per share, the option would be $2 in the money per share, having an aggregate value of $2,000 (i.e., the result obtained by multiplying $2 (representing the excess of the market price of $17 over the exercise price of $15) by 1000). Under these circumstances, the option would be more valuable than your $1,800 Special Bonus Right.

     The three preceding scenarios, however, do not take into account any timing component. In this regard, note that your stock options provide that 25% of each option grant vests on each of the first four anniversaries of the grant date, but that your Special Bonus Right vests in its entirety on June 30, 2004. This means that you will be exchanging some stock options that are already vested for an unvested Special Bonus Right.

     The vesting component of the Special Bonus Right is relevant because, while the value of your Special Bonus Right is fixed, it is contingent on future service. In contrast, while the value of your options is uncertain (as they are dependent on a variable stock price), it does not completely depend on your future service (as a portion of your options are already vested and currently exercisable). Based on the hypothetical situation above, imagine a scenario in which the stock price rises to $15 at the time the $1,800 bonus would be paid out. On that date, the Special Bonus Right is worth more than the options would have been. However, if the stock price rises to $17 the day after that, the stock option would have been worth more on that day than the Special Bonus Right previously paid. Conversely, if the stock price rises to $16 prior to June 30, 2004, but your employment with the Company terminates (other than by reason of your death or Disability) prior to that time, you could have realized $1,000 from the options (assuming the options are then fully vested), but you would fail to realize the anticipated $1,800 because you were not still employed on the required date.

     In evaluating this offer, you should keep in mind that the future performance of our Class A common stock will depend upon, among other factors, the future overall economic environment, the performance of the overall stock market and companies in our sector, and the performance of our own business. We recommend that you read the discussion about our business contained in the “Management’s Discussion and Analysis” section of our most recent Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission, and available at www.marthastewart.com, especially under the heading “Trends, Risks and Uncertainties.”

Q13. If I elect to exchange my eligible options pursuant to this offer, do I have to

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     exchange all of my eligible options or can I just exchange some of them?

     You must exchange all of your eligible options for the Special Bonus Right.

Q14. Can I participate in this offer if my eligible options are not currently vested?

     Yes. Vested and unvested eligible options are treated identically in the offer. As addressed more fully in Question 12, you should carefully consider the prospect of giving up any wholly or partially vested options for an unvested Special Bonus Right.

Q15. If I choose to participate, what will happen to my options that will be exchanged?

     Effective as of 11:59 P.M., Eastern Standard Time, on the date the offer expires, we will cancel all of your eligible options that are accepted by the Company for exchange. You will no longer have any rights or obligations with respect to those options. (For more information, see Section 11 of Part II.)

Q16. Are there conditions to the offer?

     The completion of the offer is subject to a number of conditions, including the conditions described in Section 8 of Part II of this document.

Q17. Is the Company making any other offers to employees?

     Yes. We are offering executive employees of the Company (other than the Chief Executive Officer and the Chief Creative Officer) the opportunity to exchange options held by them for restricted stock unit awards that vest over a two-year period. That offer is described in separate offering documents that have been filed with the Securities and Exchange Commission simultaneously with the filing of this document.

Q18. May I participate in the other offer for restricted stock unit awards?

     No. Eligible employees for this offer are not entitled to participate in the other offer, and vice versa.

Q19. Why can’t I elect to receive restricted stock units instead of cash?

     After careful review and analysis, the Compensation and Corporate Governance Committee of the Board determined that a no-risk, cash award, paid out in a relatively short period of time better suited the needs of employees generally.

Duration of the Offer

Q20. How long will this offer remain open?

     This offer begins at 12:01 A.M., Eastern Standard Time, on September 26, 2003 and is scheduled to remain open until 11:59 P.M., Eastern Standard Time, on October 24, 2003 (or, if we extend the offer period, a later date we will specify). We have no plans to

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extend the offer beyond October 24, 2003. However, if we do extend the offer, we will announce the extension no later than 9:00 A.M., Eastern Standard Time, on October 27, 2003.

Q21. If the offer is extended, how does the extension affect the date on which I receive my Special Bonus Right?

     If we extend the offer and you participate in it, you will receive your Special Bonus Right and your options will be cancelled, effective as of 11:59 P.M., Eastern Standard Time, on the date the offer expires. However, no such extension will affect the time of your bonus payment, which will occur on the first Company payroll date in July 2004.

How to Elect to Exchange Your Eligible Options

Q22. What do I need to do to participate in the offer?

     To participate, you must complete and sign the Letter of Transmittal and deliver it to the Company by fax to (212) 827-8008, or by mail to Martha Stewart Living Omnimedia, Inc., Attn: Lori Gonzalez, 11 West 42nd Street, New York, New York 10036. The Company will also have dropboxes, located in the reception areas of our Starrett-Lehigh and Westport offices and in the Human Resources department at our 42^nd Street location, in which your Letter of Transmittal may be deposited. We must receive your Letter of Transmittal by 11:59 P.M., Eastern Standard Time, on October 24, 2003 (or, if we extend the offer period, a later date we will specify), or it will not be given effect. (For more information, see Sections 3 and 5 of Part II.)

Q23. What will happen if I do not turn in an executed Letter of Transmittal by the deadline?

     You will not participate in the option exchange, and all eligible options you currently hold will remain unchanged with their original exercise price and original terms. (For more information, see Section 3 of Part II.)

Q24. What if I don’t want to accept this offer?

     You don’t have to. This offer is completely voluntary, and there are no penalties for electing not to participate in the offer. If you do not elect to participate, your outstanding options will remain outstanding under the terms and conditions under which they were granted. To elect not to participate, you do not need to contact the Company and should not submit a Letter of Transmittal.

Q25. Can I change my election?

     Yes. You may withdraw your election to exchange options by delivering to the Company (at the address delineated in Question 22) an Election Withdrawal Notice at any time before the expiration of the offer. Once you have withdrawn your election to exchange options, you may re-elect to exchange options only by again following the

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election procedure described in Question 22. (For more information, see Sections 4 and 5 of Part II.)

U.S. Federal Income Tax Considerations

Q26. Will I have to pay U.S. federal income taxes at the time of the exchange if I participate in the offer?

     You will incur no immediate U.S. federal income tax consequences upon the exchange.

Q27. What are the U.S. federal income and withholding tax consequences of the vesting and payment of the Special Bonus Right?

     The payment of the Special Bonus Right will be treated just like your regular bonus payments. As such, you will recognize ordinary income in the year in which your Special Bonus Right is paid to you. The ordinary income resulting from the payment of your Special Bonus Right will be reflected in the Form W-2 reported to the Internal Revenue Service for the year in which the payment is made. At the time you recognize ordinary income, you will also have an income and payroll withholding tax obligation with respect to that income, and the Company will withhold this obligation from your award payment. (For more information, see Section 6 of Part II.)

Q28. Are there any other tax consequences to which I may be subject?

     Depending on where you live, there may be additional state or local tax imposed on your exchange. You should consult with a tax advisor to determine the specific tax considerations and tax consequences relevant to your participation in this offer.

How to Get More Information

Q29. What should I do if I have additional questions about this offer?

     If you have any other questions about this offer, you may email them to stockoptions@marthastewart.com. The Company will attempt to respond to all questions either at the question and answer sessions organized by the Human Resources department or otherwise.

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II

THE OFFER

1. General Terms; Purpose

          General Terms Used in Offer. For purposes of this document and other materials that relate to this offer, the following terms have the following meanings.

     “Company,” “we,” “us” and “our” refer to Martha Stewart Living Omnimedia, Inc.

     “Eligible employees” means all employees of the Company who are actively employed by the Company on the date the offer expires, other than executive employees (i.e., employees with a title that includes a vice president variation, such as Assistant Vice President or Vice President).

     “Eligible options” are all options, whether or not vested, which were granted under the Company’s Amended and Restated 1999 Stock Incentive Plan (the “Plan”) to purchase shares of our Class A common stock with an exercise price above $8.00 per share and which are held by eligible employees. As of September 23, 2003, there were 697,307 eligible options outstanding under the Plan.

     “Special Bonus Right” is defined in Section 2.

     “The date the offer expires” means October 24, 2003, or, if we extend the offer period, a later date we will specify.

          Purpose of Offer. The principal reason the Company originally granted the eligible options was to provide incentives to valued employees to create stockholder value and remain employees of the Company by allowing them to share in the stockholder value that they create through their talent and hard work. However, our stock price has generally declined relative to its levels at the time these stock option grants were made, and most of the eligible options are therefore out of the money. (For more information about “in the money” and “out of the money” options, see Question 12 of the Summary provided in Part I of this document.) Due, in part, to the circumstances under which the stock price declined, we wish to provide eligible employees the opportunity to benefit from their hard work despite the loss of stockholder value, and to provide an additional incentive to remain with the Company. Accordingly, we are providing you the opportunity to obtain the more certain benefit associated with the Special Bonus Right, in lieu of the less certain, but potentially more valuable benefit, you could receive if you elect to retain your stock options. Additionally, this program reduces the number of shares of Company stock subject to equity awards, thereby reducing potential dilution to our stockholders.

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2. Source and Amount of Consideration; Terms of Special Bonus Rights

     Consideration. Any eligible employee whose eligible options are accepted for exchange will receive a Special Bonus Right. The “Special Bonus Right” represents the right to receive a specified cash payment on the first Company payroll date in July 2004, so long as you are continuously employed by the Company through June 30, 2004. The cash payment will be funded out of cash on hand of the Company.

     In determining the amount of your Special Bonus Right, the Company first valued your eligible options using the most established and commonly used method of valuing stock options, called “Black-Scholes.” One of the principal components of the valuation is the expected life of an option. This is the period of time one is expected to hold the option in order to realize the expected value. Because the longer one holds an option, the greater the likelihood that the stock price will rise above the exercise price, valuations using longer expected lives result in higher values than those using shorter ones. For purposes of valuing your options in connection with this offer, we used an expected life of 5 years. However, because we are providing you with the ability to realize your value in a substantially shorter period of time (approximately eight months) than the five-year time period used for valuation, and because we are eliminating all stock market risk from the equation by paying you in the form of a fixed cash payment, we then reduced the total amount of your award by 25%. In the event this methodology yielded a value of less than $1,000, the amount of your Special Bonus Right was designated as $1,000.

     “Black-Scholes” uses the following factors in valuing options: (i) stock price, (ii) the exercise price of the option, (iii) the current risk-free interest rate, (iv) the volatility of the relevant stock price, (v) the expected dividend yield of the stock, and (vi) the expected life of the option. Some of these inputs are objectively determinable, while others, such as appropriate volatility measures, require some judgment. For purposes of this calculation, the Company has used the following measures:

(i)	Stock price: the average closing stock price of our Class A common stock over the three-month period ending on September 19, 2003, or $8.849.
(ii)	Exercise price: the actual exercise price of the option being valued;
(iii)	Risk-free interest rate: 3.075%
(iv)	Volatility: 50%
(v)	Dividend yield: 0
(vi)	Expected life of option: 5 years

     Some of these values are different from those the Company is required to use in valuing Company options for financial accounting purposes, and therefore the resulting option value for purposes of determining your Special Bonus Right is less than the value reflected in its financial statements. The principal reason for this difference is the Company’s use of a lower volatility rate for purposes of the offer. The Company has

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chosen this lower rate based on its belief that long-term historical volatility is not the best measurement of the Company’s prospective volatility, and it has instead relied on a number of alternative measures, principally the stock’s recent volatility and the volatility of stock prices in the Company’s peer group. Because option valuation is inherently speculative and imprecise, the Company’s determination as to the amount of your Special Bonus Right is final.

     The amount of your specific Special Bonus Right is set forth in the Letter of Transmittal. Examples that illustrate how potential movements in the stock price and other considerations may affect your decision to participate in this offer are contained in Question 12 of the Summary provided in Part I of this document. The granting of Special Bonus Rights under this offer will not create any contractual or other right to receive any future grants of awards, options or other benefits or to continued employment with the Company.

     Vesting; Forfeiture. Your Special Bonus Right is subject to the sole condition that you remain continuously employed by the Company through June 30, 2004, at which time the award will vest. Only after such vesting condition is met will payment of the bonus underlying your Special Bonus Right be made to you. In the event that your employment with the Company terminates for any reason before your award vests on June 30, 2004, your Special Bonus Right will be forfeited immediately upon the date your employment with the Company ends. You should carefully consider the prospect of giving up any wholly or partially vested options for an unvested Special Bonus Right.

     Notwithstanding the foregoing, in the event of a “Change in Control” (as defined in the Plan) or your termination of employment by reason of your death or “Disability” (as defined in the Plan), the vesting condition will lapse and the bonus associated with your Special Bonus Right will be payable on the next scheduled Company payroll date.

3. Procedures for Electing to Exchange Eligible Options; Acceptance for Exchange

     Making an Election to Exchange. To elect to exchange your eligible options pursuant to this offer, you must properly complete, duly execute and deliver to us the Letter of Transmittal in accordance with this Section and Section 5. Unless we request it, you do not need to return your stock option agreement(s) evidencing your eligible options to accept the offer as they will be automatically cancelled as of the date the offer expires if we accept your eligible options for exchange. If we do not actually receive your properly completed election form by the expiration of the offer, you will not participate in the option exchange, and all eligible options you currently hold will remain unchanged at their original exercise price and terms.

     Making an Election Not to Exchange. If you do not want to participate in the offer, you need not do anything. The effect of your inaction will be that your current eligible options will continue under the terms and conditions under which they were granted, including their current exercise prices.

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     Acceptance for Exchange. For purposes of this offer, we will be deemed to have accepted eligible options that are validly tendered and not properly withdrawn if and when we give a written notice to holders of eligible options of our acceptance of such options promptly following the expiration of the offer. Subject to our rights to terminate the offer described in Section 7, we currently expect that we will accept promptly after the expiration of the offer all eligible options properly elected to be exchanged, and not validly withdrawn.

4. Withdrawal Rights

     You may withdraw your election to exchange eligible options only if you comply with the provisions of this Section 4.

     To validly withdraw your election, you must deliver to us a completed and signed Election Withdrawal Notice (enclosed with these offering materials), in accordance with the terms set forth in this Section and Section 5, at any time prior to the expiration of the offer. Additionally, if your options have not been accepted for exchange by November 24, 2003, you will have the right to withdraw them.

     An option holder who elects to exchange his or her eligible options (which are subsequently to be withdrawn) must sign the notice of withdrawal exactly as such option holder’s name appears on the Letter of Transmittal. You may not rescind any Election Withdrawal Notice properly submitted to the Company, and any options you withdraw will thereafter be deemed not properly elected for exchange for purposes of the offer. However, prior to the expiration of the offer, you may submit another Letter of Transmittal to re-elect to exchange all of your eligible options by following the procedures described in Sections 3 and 5, in which case your Election Withdrawal Notice will be deemed void.

5. Instructions for Submitting Documents in Connection with Offer

     Unless specifically provided otherwise in an official Company communication, all documents required to be submitted to the Company in connection with this offer must be delivered to the Company by fax to (212) 827-8008 or by mail to Martha Stewart Living Omnimedia, Inc., Attn: Lori Gonzalez, 11 West 42nd Street, New York, New York 10036. The Company will also have dropboxes, located in the reception areas of our Starrett-Lehigh and Westport offices and in the Human Resources department at our 42^nd Street location, in which your Letter of Transmittal, notice or other communication may be deposited. Any of such documents must be received by the Company by 11:59 P.M., Eastern Standard Time, on October 24, 2003 unless we, in our discretion, extend the offer.

     The method of delivery of all documents, including the Letter of Transmittal and any other required documents, is at the election and risk of the electing option holder. You should allow sufficient time to ensure timely delivery. Delivery will be deemed made when actually received by us.

     We reserve the right to —

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• make all determinations regarding the validity, form, eligibility, including time of receipt, and acceptance of any election to exchange eligible options or withdrawal notice;

• reject any or all eligible options tendered or elections to exchange such options to the extent that we determine that they were not properly effected or that it is unlawful to accept the eligible options for exchange;

• waive any defect or irregularity in any election with respect to any particular eligible options or any particular option holder.

     Neither we nor any other person is obligated to give notice of any defects or irregularities in any required document submitted to the Company, nor will anyone incur any liability for failure to give any such notice. Our determinations in respect of these matters will be final and binding on all parties.

     Your election to exchange options through the procedure described above constitutes your acceptance of the terms and conditions of the offer. Our acceptance of your eligible options will constitute a binding agreement between us and you upon the terms and subject to the conditions of the offer.

6. Material U.S. Federal Income Tax Consequences

     There will be no tax consequences to you upon the cancellation of your eligible options and your receipt of the Special Bonus Right. When the Special Bonus Right is settled and your bonus is paid, you will recognize ordinary income. The ordinary income resulting from the payment of your bonus will be reflected in the Form W-2 reported to the Internal Revenue Service for 2004. At the time you recognize ordinary income, you will also have an income and payroll withholding tax obligation with respect to that income. We will withhold a portion of your payment to satisfy your withholding tax obligation. We recommend that you consult your own tax advisor to determine the specific tax considerations and tax consequences relevant to your participation in this offer.

7. Termination; Amendment; Extension of Offer

     We expressly reserve the right, in our reasonable judgment, prior to the expiration of the offer, to terminate the offer upon the occurrence of any of the conditions specified in Section 8. Subject to compliance with applicable law, we further reserve the right, in our discretion, to amend the offer in any respect, including, without limitation, by decreasing or increasing the amounts of the Special Bonus Rights offered to eligible employees in the program or by decreasing or increasing the number of eligible options being sought in the offer.

     We also expressly reserve the right, in our discretion, at any time and from time to time, to extend the period of time during which the offer is open and thereby delay the acceptance for exchange of any eligible options. Any such extension will be announced no later than 9:00 A.M., Eastern Standard Time, on the next business day after the last

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previously scheduled or announced time for expiration of the offer. If we decrease or increase the amounts of the Special Bonus Rights offered to eligible employees or decrease or increase the number of eligible options being sought in the offer, we will notify you of such action, and we will extend the offer for a period of no fewer than ten business days after the date of such notice, if the offer would otherwise expire during that period.

     In the event of any termination, amendment or extension of this offer, we will provide oral, written or electronic notice to all eligible employees holding eligible options.

8. Conditions for Completion of the Offer

     Notwithstanding any other provision of the offer, we will not be required to accept any eligible options that you tender for exchange, and we may terminate or amend the offer, or postpone our acceptance and cancellation of any eligible options that you elect to exchange, in each case, subject to Rule 13e-4(f)(5) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), if we determine that, at any time on or after the commencement of the offer and prior to the expiration of the offer, any of the following events has occurred:

• Any action, proceeding or litigation has been threatened or commenced that seeks to enjoin, make illegal or delay completion of the offer or otherwise relates, in any manner, to the offer;

• Any order, stay or judgment is issued by any court or governmental, regulatory or administrative agency, or any statute, rule or regulation is proposed, promulgated, enacted or deemed to be applicable to the offer, any of which might, in our reasonable judgment, restrict or prohibit completion of the offer or materially impair the contemplated benefits of the offer to us; or

• There has occurred:

(a)	any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market;
(b)	any material increase or decrease in the market price of the shares of our Class A common stock; or
(c)	any increase or decrease in either the Dow Jones Industrial Average or the Standard and Poor’s Index of 500 Companies by an amount in excess of 10% from the date of commencement of the offer; or

• Any change occurs in the business, condition (financial or otherwise), assets, income, operations, prospects or stock ownership of the Company that, in our reasonable judgment, is or may be material to the Company.

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     The conditions to the offer are for our benefit. We may assert one or more of them in our discretion regardless of the circumstances giving rise to them prior to the expiration of the offer. We may waive one or more of them, in whole or in part, at any time and from time to time prior to the expiration of the offer, in our discretion, whether or not we waive any other condition to the offer. Our failure at any time to exercise any of these rights will not be deemed a waiver of any such rights. The waiver of any of these rights with respect to particular facts and circumstances will not be deemed a waiver with respect to any other facts and circumstances. Any determination we make concerning the events described in this Section 8 will be final, conclusive and binding upon all eligible employees.

9. Price Range of Class A Common Stock Underlying Eligible Options

     The eligible options to be exchanged pursuant to this offer are not publicly traded. However, upon exercise of an eligible option that we granted under the Plan, you would become an owner of our Class A common stock, which is currently traded on the New York Stock Exchange. Therefore, for purposes of determining whether to exchange your eligible options pursuant to this offer, you may want to obtain (and we recommend that you obtain) market quotations for our Class A common stock prior to deciding whether to participate in this offer. Our Class A common stock currently trades under the symbol “MSO.”

     For your convenience, the following table presents the high and low sales prices per share of our Class A common stock for the periods indicated as reported by the New York Stock Exchange:

Quarter Ended		High		Low
Fiscal Year 2003
	September 30, 2003 (through September 23, 2003)	$	9.49	$	7.56
	June 30, 2003		12.65		7.79
	March 31, 2003		10.48		7.10
Fiscal Year 2002
	December 31, 2002		12.30		5.26
	September 30, 2002		12.75		6.29
	June 30, 2002		19.95		9.60
	March 31, 2002		20.93		14.19

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Quarter Ended		High		Low
Fiscal Year 2001
	December 31, 2001		19.52		13.49
	September 30, 2001		23.50		12.10
	June 30, 2001		23.10		15.12
	March 31, 2001		27.56		17.11

     The last reported sale price of our Class A common stock as reported by the New York Stock Exchange on September 23, 2003 was $9.33 per share.

10. Interests of Directors and Officers; Transactions and Arrangements Concerning Eligible Options

     A list of our directors and executive officers is attached to this offer as Schedule A, and is hereby incorporated by reference. As of September 23, 2003, our directors and executive officers (14 persons) as a group held options to purchase an aggregate of 3,550,016 shares of our Class A common stock, none of which are eligible options. Neither we nor, to the best of our knowledge, any of our directors or executive officers has effected any transactions relating to eligible options during the sixty (60) days prior to September 26, 2003.

     For information regarding the amount of our securities beneficially owned by our executive officers and directors as of March 31, 2003 and any agreement, arrangement or understanding between the Company and any other person with respect to the Company’s Class A common stock, you may review our definitive proxy statement for our 2003 annual meeting of stockholders, filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2003. A copy of our proxy statement can be found on the SEC’s web site at http://www.sec.gov and on our web site at http://www.marthastewart.com.

11. Status of Eligible Options Acquired by Us in the Offer; Accounting Consequences of the Offer

     Your eligible options that we acquire through the offer will be cancelled by the Company, and your Special Bonus Right will be granted, effective as of 11:59 P.M., Eastern Standard Time, on the date that the offer expires. A letter evidencing your Special Bonus Right will be sent to you shortly thereafter. The shares of Class A common stock that could have otherwise been purchased under the cancelled eligible options will be returned to the pool of shares available under the Plan for grants of new awards without further stockholder action, except as required by applicable law or New York Stock Exchange rules or any other securities quotation system or any stock exchange on which our Class A common stock is then quoted or listed.

     A compensation expense equal to the total amount of the Special Bonus Rights awarded, net of amounts associated with forfeitures, will be recognized by us on a

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straight-line basis during the period commencing on the date the offer expires and ending on June 30, 2004. If all eligible options are tendered and accepted, the amount of that expense would be approximately $1.3 million.

12.     Legal Matters; Regulatory Approvals

     We are not aware of any license or regulatory permit that is material to our business that might be adversely affected by the offer, or of any approval or other action by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for the acquisition of the Special Bonus Rights as contemplated herein. Should any such approval or other action be required, we contemplate that we will seek such approval or take such other action, although we cannot guarantee success in doing so. We are unable to predict whether we may determine that we are required to delay the acceptance of options for exchange pending the outcome of any such matter.

13. Fees and Expenses

     We will not pay any fees or commissions to any broker, dealer or other person for soliciting elections to exchange eligible options pursuant to this offer.

14. Information Concerning Martha Stewart Living Omnimedia, Inc.

     Overview.

     We are an integrated content and commerce company that creates “how-to” content and domestic merchandise for homemakers and other consumers. Our products are generally sold under various brand labels incorporating the well-known “Martha Stewart” brand name, which we leverage across a broad range of media and retail outlets. We primarily focus on the domestic arts, providing consumers with the how-to ideas, information, merchandise and other resources they need to raise the quality of living in and around their homes. The content and merchandise we create generally span eight core areas:

• Home: decorating, collecting, and renovating.

• Cooking & Entertaining: recipes, techniques, and indoor and outdoor entertaining.

• Gardening: planting, landscape design, and outdoor living.

• Crafts: how-to projects and similar family activities and an appreciation of the natural world.

• Holidays: celebrating special days and special occasions.

• Keeping: homekeeping, organizing, petkeeping, clotheskeeping, restoring, and other types of domestic maintenance.

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• Weddings: all aspects of planning and celebrating a wedding.

• Baby & Kids: cooking, decorating, crafts, and other projects and celebrations surrounding infants and children.

     Our company comprises four business segments — Publishing, Television, Merchandising and Internet/ Direct Commerce — through which content and merchandise relating to our eight core content areas are created and distributed to consumers. As of September 19, 2003, we had approximately 550 employees.

     Our principal executive offices are located at 11 West 42nd Street, New York, New York 10036. Our telephone number is (212) 827-8000. Our website can be found on the Internet at www.marthastewart.com. The website contains additional information about us and our operations.

15. Corporate Plans, Proposals and Negotiations

     We are simultaneously offering executive employees of the Company (other than the Chief Executive Officer and the Chief Creative Officer) the opportunity to exchange options held by them for restricted stock unit awards that vest over a two-year period. That offer is described in separate offering documents that have been filed with the SEC simultaneously with the filing of this document. Employees eligible to participate in this offer are not eligible to participate in the offer for restricted stock unit awards, and vice versa.

     The Company continually evaluates and explores strategic opportunities as they arise, including business combination transactions, strategic relationships, purchases and sales of assets and similar transactions. At any given time, we may be engaged in discussions or negotiations with respect to various corporate transactions or with respect to changes in existing strategic relationships. We also may, from time to time, engage in repurchases of our outstanding common stock in either open market or privately negotiated transactions or may engage in issuances of shares of the Company’s common stock or other capital raising transactions, depending on market conditions and other relevant factors. In addition, at any given time, we may also be engaged in discussions or negotiations with potential candidates for management or board of directors positions with the Company or with existing members of management for changes in positions, responsibilities or compensation.

     Subject to the foregoing, and except as otherwise disclosed in this document or in the Company’s filings with the SEC, we have no present plans, proposals or negotiations that relate to or would result in:

• any extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of our subsidiaries;

• any purchase, sale or transfer of a material amount of our assets or the assets of any of our subsidiaries;

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• any material change in our present dividend rate or policy, or our indebtedness or capitalization (other than as contemplated in, resulting from or effected by the Company’s Offer to Exchange (describing the Company’s offer to exchange certain stock options for restricted stock unit awards) filed on Schedule TO with the SEC contemporaneously with the filing of this document);

• any change in our present board of directors or management, or change in any material term of the employment contract of any executive officer, provided that the board (i) is periodically evaluating potential director candidates with the possibility of expanding the size of the board, and (ii) the Company is establishing a bonus plan pursuant to which we will pay certain of our most senior executives (but not our Chief Executive Officer or Chief Creative Officer) certain guaranteed bonuses over the course of the next eighteen months;

• any other material change in our corporate structure or business;

• our common stock not being authorized for listing on the New York Stock Exchange;

• our common stock becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act;

• the suspension of our obligation to file reports pursuant to Section 15(d) of the Exchange Act;

• the acquisition by any person of any additional securities of the Company or the disposition of any of our securities; or

• any changes in our certificate of incorporation, bylaws of other governing instruments or any actions that could impede the acquisition of control of the Company.

16. Additional Information

     With respect to the offer, we have filed a Tender Offer Statement on Schedule TO with the SEC on September 25, 2003, of which this document is a part. This document does not contain all of the information contained in the Schedule TO and the exhibits to the Schedule TO. You may want to review the Schedule TO, including the exhibits, before making a decision on whether to tender your eligible options.

     We also recommend that, in addition to this document, the Letter of Transmittal and any authorized communications from us, you review the following materials, which we have filed with the SEC and are incorporating by reference into this document (access to which is described below), before making a decision on whether to elect to exchange your eligible options:

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• our annual report on Form 10-K for the fiscal year ended December 31, 2002, filed with the SEC on March 31, 2003;

• our quarterly reports on Form 10-Q (i) for the fiscal quarter ended March 31, 2003, filed with the SEC on May 15, 2003; and (ii) for the fiscal quarter ended June 30, 2003, filed with the SEC on August 13, 2003;

• our current reports on Form 8-K, filed with the SEC on (i) April 30, 2003; (ii) May 7, 2003; (iii) August 11, 2003; and (iv) August 13, 2003;

• the definitive proxy statement for our 2003 annual meeting of stockholders, filed with the SEC on March 31, 2003; and

• the description of our Class A common stock included in our registration statement on Form 8-A, which was filed with the SEC on October 14, 1999, including any amendments or reports we file for the purpose of updating that description.

     Any additional documents that we may file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this offer and the expiration of the offer are also incorporated by reference. These include periodic reports, such as quarterly reports on Form 10-Q and current reports on Form 8-K, as well as proxy statements.

     These filings and other reports, registration statements, proxy statements and other filings can be inspected and copied at the reference facilities maintained by the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain copies of all or any part of these documents from this office upon the payment of the fees prescribed by the SEC. You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-732-0330. These filings are also available to the public on the web site of the SEC at http://www.sec.gov and on our web site at http://www.marthastewart.com.

     We will provide without charge to any eligible employee holding eligible options, upon the written request of any such person, a copy of any or all of the documents to which we have referred you, including our reports, proxy statements and other stockholder communications, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests should be directed to: Martha Stewart Living Omnimedia, Inc., Attn: Investor Relations, 11 West 42nd Street, New York, New York 10036. You may also make a request by telephone at (212) 827-8000 between the hours of 9:00 A.M. and 5:00 P.M., Eastern Standard Time, Monday through Friday.

17. Forward Looking Statements

     We have included in this document certain “forward looking statements” as that term is defined in The Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts but instead represent only our current beliefs

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regarding future events, many of which, by their nature, are inherently uncertain and outside of our control. It is possible that our actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. These statements can be identified by terminology such as “may,” “will,” “should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “potential” or “continue” or the negative of these terms or other comparable terminology. The Company’s actual results may differ materially from those projected in these statements, and factors that could cause such differences include further adverse reaction to the prolonged and continued negative publicity relating to Martha Stewart by consumers, advertisers and business partners; a loss of the services, or diminution in the reputation, of Ms. Stewart or other key personnel; further adverse reaction by the Company’s consumers, advertisers and business partners to the uncertainty relating to the nature of the resolution of the criminal and civil proceedings pending against Ms. Stewart concerning a sale of non-Company stock by Ms. Stewart and any adverse resolution of such proceedings; adverse resolution of some or all of the Company’s ongoing litigation; downturns in national and/or local economies; an inability to execute the restructuring of our Internet/Direct Commerce segment as planned; shifts in our business strategies; a softening of the domestic advertising market; changes in consumer reading, purchasing and/or television viewing patterns; unanticipated increases in paper, postage or printing costs; operational or financial problems at any of our contractual business partners; the receptivity of consumers to our new product introductions; and changes in government regulations affecting the Company’s industries.

     The Company will not undertake and specifically declines any obligation to publicly update or revise any forward-looking statements, whether to reflect events or circumstances after the date of such statements, the occurrence of anticipated or unanticipated events, new information or otherwise. In addition, it is the Company’s policy generally not to make any specific projections as to future earnings, and the Company does not endorse any projections regarding future performance that may be made by third parties.

18. Miscellaneous

     This transaction has not been approved or disapproved by the SEC. Nor has the SEC passed upon the fairness or merits of this transaction or upon the accuracy or adequacy of the information contained in this document.

MARTHA STEWART LIVING
OMNIMEDIA, INC.

September 26, 2003

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SCHEDULE A

INFORMATION CONCERNING OUR
DIRECTORS AND EXECUTIVE OFFICERS*

Jeffrey W. Ubben, age 42, has served as one of our directors since January 2002, and as Chairman of our Board since June 2003. Mr. Ubben is a founder and Managing Partner of VA Partners, L.L.C., an investment partnership. From 1995 to 2000, Mr. Ubben was a Managing Partner of Blum Capital. 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., Per Se Technologies, Inc., and Mentor Corporation.

Arthur C. Martinez, age 64, has served as one of our directors since January 2001, and as our Lead Outside Director since June 2003. 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., International Flavors & Fragrances, Inc. and ABN AMRO Bank.

Darla D. Moore, age 49, has served as one of our directors since September 2001. Ms. Moore is the Executive Vice President of Rainwater, Inc., a private investment firm. Prior to joining Rainwater, Inc. in 1994, she was a Managing Director of Chase Bank (today JP Morgan). She is chairwoman and founder of The Palmetto Institute, a private policy research group based in South Carolina. She also serves on the board of directors of MPS Group, Inc., the JP Morgan National Advisory Board, and the Harry Ransom Humanities Research Center. In addition, Ms. Moore is vice chairman of the New York University School of Medicine Foundation Board and a member of the NYU Hospitals Board.

Sharon L. Patrick, age 60, has served as our Chief Executive Officer since June 2003. Ms. Patrick has also served as our President and as one of our directors since 1997. From 1997 until 2003, Ms. Patrick served as our Chief Operating Officer. 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 and Time, Inc., among other clients. 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.

Thomas C. Siekman, age 61, has served as one of our directors since August 2003. Mr. Siekman most recently served as “Of Counsel” to Skadden, Arps, Slate, Meagher & Flom

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LLP. Prior to joining Skadden, Arps, Mr. Siekman was Senior Vice President and General Counsel of Compaq Computer Corporation. From 1973 to 1998, he served in various capacities with Digital Equipment Corporation, most recently as Senior Vice President and General Counsel, until Digital was acquired by Compaq in 1998. He serves on the Boards of Idealab and Merrimack College, and is a past Chairman and Trustee of the New England Legal Foundation.

Martha Stewart, age 62, is the founder of our Company and has served as one of our directors since 1997. From 1997 through June 2003, Ms. Stewart served as our Chairman of the Board and Chief Executive Officer and currently serves as our Chief Creative Officer. As such, Ms. Stewart is the Company’s Editorial Director and an Executive Producer of the Company’s television operations and is the creator of Martha Stewart Living magazine and television program and numerous other Company media properties. Ms. Stewart is the author of numerous books on the domestic arts, including Entertaining, Martha Stewart’s Gardening Month by Month and Martha Stewart Weddings. Ms. Stewart is a member of the board of directors of Revlon, Inc. and the Magazine Publishers of America.

Gael Towey, age 51, 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 35, 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 47, 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 has an additional 15 years of experience in the publishing industry, including positions with Art & Antiques, Geo, Viva and Omni magazines.

Heidi Diamond, age 44, has served as our Executive Vice President, President, Television since August 2002. Previously, she served as Executive Vice President of AMC Networks and Rainbow Media since September 2001. Prior to that, she served as The Food Network’s Senior Vice President, Strategic Network Planning/ Development from January 2001 until June 2001 and as its Senior Vice President Marketing, Creative and Business Development from May 1998 until December 2000. Before joining The Food

23

Network, Ms. Diamond held executive positions in marketing at several other leading cable companies including Primedia/ Channel One and Nickelodeon.

James Follo, age 44, 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.

Margaret Roach, age 49, 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 47, 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 industry experience with Town & Country magazine, Bob Bernbach & Associates and Ogilvy & Mather.

Lauren Stanich, age 41, has served as our Executive Vice President, President, Publishing and Internet since March 2003 and as an Executive Vice President, President, Publishing since October 2000. Prior to that, she served 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, Inc.

*     The address of each director and executive officer is c/o Martha Stewart Living Omnimedia, Inc., 11 West 42nd Street, New York, New York 10036.

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EX-99.A.2 4 y90177aexv99waw2.htm FORM OF INTRODUCTORY LETTER/LETTER OF TRANSMITTAL

Exhibit (a)(2)

[MSO Letterhead]

September 26, 2003

Dear                 :

This letter is to notify you that Martha Stewart Living Omnimedia, Inc. (the “Company”) is conducting a stock option exchange program. This is a voluntary program for all employees (other than executive employees) who were granted options under the Company’s Amended and Restated 1999 Stock Incentive Plan to purchase shares of Class A common stock of the Company at an exercise price above $8.00 per share (“eligible options”). You may elect to exchange all of your eligible options for a special bonus payment that will be payable on the first payroll date following June 30, 2004, provided you are continuously employed by the Company through June 30, 2004.

The accompanying documents describe this stock option exchange program in detail, including possible benefits and risks of this program. Please take the time to review the documents and instructions enclosed with this letter and consider your decision carefully.

We are conducting this offer to provide you with an alternative means of realizing value from your existing equity awards. We make no recommendations as to whether you should participate in the option exchange program, and we recommend that you consult with your own advisors regarding your decision.

Attached to this letter as Exhibit A is a Letter of Transmittal which you must return to the Company if you choose to participate in the option exchange. The Letter of Transmittal sets forth information relating to your eligible options and the amount of the special bonus payment to which you will be entitled if you participate in the offer and satisfy the vesting condition.

If you decide to participate in the program, you need to complete and return the attached Letter of Transmittal to us in accordance with the instructions contained in the accompanying offering materials no later than 11:59 P.M., EASTERN STANDARD TIME, ON OCTOBER 24, 2003 (or, if we extend the offer period, a later date we will specify).

All questions about this offer should be emailed to stockoptions@ marthastewart.com. The Company will attempt to respond to all questions either at the question and answer sessions organized by the Human Resources department or otherwise.

Sincerely,

/s/ Sharon Patrick

Sharon Patrick

President and

Chief Executive Officer

Enclosures

EXHIBIT A

MARTHA STEWART LIVING OMNIMEDIA, INC.
(the “Company”)

LETTER OF TRANSMITTAL

To Martha Stewart Living Omnimedia, Inc.:

     I am a participant in the Company’s Amended and Restated 1999 Stock Incentive Plan and am currently employed by the Company. I have received from the Company the offering materials filed with the Securities and Exchange Commission on Schedule TO on September 25, 2003 describing the offer to exchange certain stock options for the right to receive a cash bonus (the “offering materials”), and I am eligible to participate in the offer. I have reviewed the list of my eligible options that the Company has set forth in Schedule A to this Letter of Transmittal, and understand that, by participating in the exchange offer, I agree to exchange all of these eligible options.

     In return for my eligible options, I understand that the Company will grant me a Special Bonus Right, which represents the right to receive a specified cash payment on the first Company payroll date following June 30, 2004, subject to certain conditions described in the offering materials. I also understand that the amount of the bonus associated with my Special Bonus Right will be $     .

     For purposes of participating in the exchange offer, I hereby give up my entire ownership interest in all of my eligible options, and understand that such options will become null and void as of the date that the offer expires.

     I acknowledge that I will be unable to revoke the election described in this Letter of Transmittal after the exchange offer expires, which is currently scheduled to occur at 11:59 P.M., Eastern Standard Time, on October 24, 2003.

     I hereby elect to participate in the exchange offer dated September 26, 2003 with respect to all of my eligible options.

_____________________________________________________

Signature of Holder

Print Name:____________________________________________
Home Telephone: _______________________________________
Date:_________________________________________________
Address:______________________________________________
_____________________________________________________

Schedule A
Martha Stewart Living Omnimedia, Inc.
Cash Exchange Offer

					Options		Options
Social Security Number	Last Name	First Name	Grant Date	Option Price	Granted	Exercised	Outstanding

EX-99.A.3 5 y90177aexv99waw3.htm FORM OF E-MAIL ANNOUNCING OFFER

Exhibit (a)(3)

Dear MSO employee:

Earlier today, we filed documents with the Securities and Exchange Commission relating to two exchange offers covering existing employee stock options. In one, we are providing ELIPs employees (employees with the vice president titles such as Assistant Vice President, Vice President, etc.) the opportunity to exchange options they hold with exercise prices above $8 for restricted stock units that vest over two years. In the other, we are providing non-ELIPs employees the opportunity to exchange options they hold with exercise prices above $8 for a cash payment next July. Each of these offers is subject to numerous terms and conditions described in these SEC filings.

Tomorrow morning, the Human Resources department will distribute to all eligible employees in the office a package of materials relating to the exchange offer. In the event you are not in the office, we will hold onto your materials until you pick them up in the Human Resources department at 42nd Street, unless you email us at stockoptions@marthastewart.com with alternate delivery instructions. If so instructed, we will send the materials to your home address or to your Starrett-Lehigh or Westport work address.

As these programs are governed by the federal securities laws, the materials you will receive are extremely detailed and technical. Accordingly, we have scheduled sessions in which we will provide a brief overview of the program and an opportunity to ask any questions you may have.

Meetings for New York employees will be held on Tuesday, September 30 in the American Airlines Theatre located at 227 West 42nd Street (between 7th & 8th Avenue) in the Penthouse Lobby. The non-ELIPs employee meeting will be from 9 AM until 10:30 AM and the ELIP employee meeting will be held from 11 AM until 12:30 PM. All employees wishing to attend these meetings will be required to show their MSO Picture IDs and sign in to gain access to the theatre. Please arrive at least fifteen minutes prior to the meeting for sign-in.

Meetings for Connecticut employees will be held on Tuesday, September 30 in Studio A of the Westport studio. The non-ELIP employee meeting will be held from 2 PM until 3:30 PM and the ELIPs employee meeting will be conducted as soon as the non-ELIPs meeting is completed. We would appreciate it if ELIPs employees could be available starting at 3 PM.

For those eligible employees in the outer-offices, we will hold a Conference Call on Wednesday, October 1, 2003 at 2:30 PM EST. We will place the call to your main telephone numbers at that time. Please let HR know if you will not be participating.

Please read the materials prior to the scheduled sessions. We have attempted to answer many of the questions you may have in Q & A sections of the documents themselves. To facilitate the sessions, we have set up an e-mail address to which you can send any questions in advance, and we will do our best to answer them at the meetings. That e-mail address is stockoptions@marthastewart.com. The identity of employees who asked questions by email will not be revealed at the meetings, however, if you are sending emails from an address other than a company email address, please make sure we can identify you as the sender.

We will continue to offer you a competitive compensation and benefits package, and hope that these exchange programs offer you one more way to benefit from your working experience at MSO. We look forward to seeing most of you on Tuesday.

We think these programs offer employees another way to benefit from their working experience at MSO. We hope you do, too.

EX-99.A.4 6 y90177aexv99waw4.htm FORM OF ELECTION WITHDRAWAL NOTICE

EXHIBIT (a)(4)

MARTHA STEWART LIVING OMNIMEDIA, INC.
(the “Company”)

ELECTION WITHDRAWAL NOTICE

To Martha Stewart Living Omnimedia, Inc.:

     I previously received a copy of the Company’s offering materials filed with the Securities and Exchange Commission on Schedule TO on September 25, 2003 (the “offering materials”), and signed and returned the Letter of Transmittal, in which I elected to tender all of my eligible options. I now wish to withdraw that election in its entirety. I understand that by signing this Notice and delivering it to the Company in accordance with the terms set forth in the offering materials, none of my eligible options will be exchanged and will instead continue to be governed by the Company’s Amended and Restated 1999 Stock Incentive Plan and the relevant option agreement(s) between the Company and me.

     I have completed and signed this Notice exactly as my name appears on my original Letter of Transmittal.

Date:
	Signature
	Name:
		(Please Print)

EX-99.A.5 7 y90177aexv99waw5.htm FORM OF REMINDER NOTICE OF EXPIRATION OF OFFER

Exhibit (a)(5)

Email address: ___________________

Subject: Important Notice Regarding the Stock Option Exchange Offer

     We wanted to send you this notice to remind you that the deadline of October 24, 2003 (11:59 P.M., Eastern Standard Time) is approaching for you to submit your Letter of Transmittal, which is required if you wish to participate in the offer to exchange your eligible options, as described in the offering materials filed with the Securities and Exchange Commission on Schedule TO on September 25, 2003 (the “offering materials”). As of today, we have not received your Letter of Transmittal.

     Note that your participation in the offer is completely voluntary. You are not obligated to participate in the offer, and if you do not submit your Letter of Transmittal to the Company by the deadline referred to above, any options you hold will remain subject to their present terms. Questions about the offer or requests for assistance or for additional copies of any offering materials should be made by email to stockoptions@marthastewart.com. The Company will attempt to respond to all questions.

EX-99.D.1 8 y90177aexv99wdw1.htm AMENDED AND RESTATED 1999 STOCK INCENTIVE PLAN

Exhibit (d)(1)

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.

     (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.

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     (v)  “Individual Agreement” means an employment, consulting or similar agreement between a participant and the Company or one of its Subsidiaries or Affiliates.

     (w)  “Nonqualified Stock Option” means any Stock Option that is not an Incentive Stock Option.

     (x)  “Outstanding Company Common Stock” has the meaning set forth in Section 10(b)(i).

     (y)  “Outstanding Company Voting Power” has the meaning set forth in Section 10(b)(i).

     (z)  “Qualified Performance-Based Award” means an Award of Restricted Stock or Performance Units designated as such by the Committee at the time of grant, based upon a determination that (i) the recipient is a Covered Employee and (ii) the Committee wishes such Award to qualify for the Section 162(m) Exemption.

     (aa)  “Performance Goals” means the performance goals established by the Committee in connection with the grant of Restricted Stock or Performance Units. In the case of Qualified Performance-Based Awards, (i) such goals shall be based on the attainment of specified levels of one or more of the following measures: return on equity, return on assets, operating income, earnings per share, net income and/or achievement of pre-determined, objectively defined strategic performance goals, and (ii) such Performance Goals shall be set by the Committee within the time period prescribed by Section 162(m) of the Code and related regulations. Performance Goals may be stated in the alternative or in combination.

     (bb)  “Performance Units” means an Award granted under Section 8.

     (cc)  “Performance Units Agreement” means a written agreement setting forth the terms and conditions of an award of Performance Units.

     (dd)  “Person” has the meaning set forth in Section 10(b)(i).

     (ee)  “Plan” means the Martha Stewart Living Omnimedia, Inc. 1999 Stock Incentive Plan, as set forth herein and as hereinafter amended from time to time.

     (ff)  “Restricted Stock” means an Award granted under Section 7.

     (gg)  “Restricted Stock Agreement” means a written agreement setting forth the terms and conditions of an award of Restricted Stock.

     (hh)  “Restriction Period” has the meaning set forth in Section 7(c)(ii).

     (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.

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     (jj)  “Rule 16b-3” means Rule 16b-3, as promulgated by the Commission under Section 16(b) of the Exchange Act, as amended from time to time.

     (kk)  “Section 162(m) Exemption” means the exemption from the limitation on deductibility imposed by Section 162(m) of the Code that is set forth in Section 162(m)(4)(C) of the Code.

     (ll)  “Stock Appreciation Right” means an Award granted under Section 6.

     (mm)  “Stock Option” means an Award granted under Section 5.

     (nn)  “Subsidiary” means any corporation, partnership, joint venture or other entity during any period in which at least a 50% voting or profits interest is owned, directly or indirectly, by the Company or any successor to the Company.

     (oo)  “Tandem Stock Appreciation Right” has the meaning set forth in Section 6(a).

     (pp)  “Termination of Employment” means the termination of the participant’s employment with, or performance of services for, the Company and any of its Subsidiaries or Affiliates. A participant employed by, or performing services for, a Subsidiary or an Affiliate shall also be deemed to incur a Termination of Employment if the Subsidiary or Affiliate ceases to be such a Subsidiary or an Affiliate, as the case may be, and the participant does not immediately thereafter become an employee of, or service-provider for, the Company or another Subsidiary or Affiliate. Temporary absences from employment because of illness, vacation or leave of absence and transfers among the Company and its Subsidiaries and Affiliates shall not be considered Terminations of Employment. For purposes of the Plan, a participant’s employment shall be deemed to have terminated at the close of business on the day preceding the first date on which he or she is no longer for any reason whatsoever employed by the Company or any of its Subsidiaries or Affiliates.

SECTION 2. Administration

     The Plan shall be administered by the Compensation Committee of the Board or such other committee of the Board as the Board may from time to time designate (the “Committee”), which shall be composed of not less than two directors, and shall be appointed by and serve at the pleasure of the Board.

     The Committee shall have plenary authority to grant Awards pursuant to the terms of the Plan to Eligible Individuals.

     Among other things, the Committee shall have the authority, subject to the terms of the Plan:

     (a)  To select the Eligible Individuals to whom Awards may from time to time be granted;

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     (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.

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     Any authority granted to the Committee may also be exercised by the full Board, except to the extent that the grant or exercise of such authority would cause any Award or transaction to become subject to (or lose an exemption under) Section 16(b) of the Exchange Act or cause an Award designated as a Qualified Performance-Based Award not to qualify for, or to cease to qualify for, the Section 162(m) Exemption. To the extent that any permitted action taken by the Board conflicts with action taken by the Committee, the Board action shall control.

SECTION 3. Common Stock Subject to Plan

     The maximum number of shares of Common Stock that may be delivered to participants and their beneficiaries under the Plan shall be 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.

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SECTION 5. Stock Options

     Stock Options may be granted alone or in addition to other Awards granted under the Plan and may be of two types: Incentive Stock Options and Nonqualified Stock Options. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve.

     The Committee shall have the authority to grant any optionee Incentive Stock Options, Nonqualified Stock Options or both types of Stock Options (in each case with or without Stock Appreciation Rights); provided, however, that grants hereunder are subject to the aggregate limit on grants to individual participants set forth in Section 3. Incentive Stock Options may be granted only to employees of the Company and its subsidiaries (within the meaning of Section 424(f) of the Code). To the extent that any Stock Option is not designated as an Incentive Stock Option or even if so designated does not qualify as an Incentive Stock Option on or subsequent to its grant date, it shall constitute a Nonqualified Stock Option.

     Stock Options shall be evidenced by option agreements, the terms and provisions of which may differ. An option agreement shall indicate on its face whether it is intended to be an agreement for an Incentive Stock Option or a Nonqualified Stock Option. The grant of a Stock Option shall occur on the date the Committee by resolution selects an Eligible Individual to receive a grant of a Stock Option, determines the number of shares of Common Stock to be subject to such Stock Option to be granted to such Eligible Individual and specifies the terms and provisions of the Stock Option. The Company shall notify an Eligible Individual of any grant of a Stock Option, and a written option agreement or agreements shall be duly executed and delivered by the Company to the participant. Such agreement or agreements shall become effective upon execution by the Company and the participant.

     Stock Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions as the Committee shall deem desirable:

     (a)  Option Price. The option price per share of Common Stock purchasable under a Stock Option shall be determined by the Committee and set forth in the option agreement, and shall not be less than the Fair Market Value of the Common Stock subject to the Stock Option on the date of grant unless otherwise determined by the Committee at the time of grant.

     (b)  Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than 10 years after the date the Stock Option is granted.

     (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.

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     (d)  Method of Exercise. Subject to the provisions of this Section 5, Stock Options may be exercised, in whole or in part, at any time during the option term by giving written notice of exercise to the Company specifying the number of shares of Common Stock subject to the Stock Option to be purchased.

     Such notice shall be accompanied by payment in full of the purchase price by certified or bank check or such other instrument as the Company may accept. If approved by the Committee, payment, in full or in part, may also be made in the form of unrestricted Common Stock (by delivery of such shares or by attestation) already owned by the optionee of the same class as the Common Stock subject to the Stock Option (based on the Fair Market Value of the Common Stock on the date the Stock Option is exercised); provided, however, that, in the case of an Incentive Stock Option, the right to make a payment in the form of already owned shares of Common Stock of the same class as the Common Stock subject to the Stock Option may be authorized only at the time the Stock Option is granted; and provided, further, that such already owned shares have been held by the optionee for at least six months at the time of exercise or had been purchased on the open market.

     If approved by the Committee, payment in full or in part may also be made by delivering a properly executed exercise notice to the Company, together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds necessary to pay the purchase price, and, if requested, reduced by the amount of any federal, state, local or foreign withholding taxes. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms.

     In addition, if approved by the Committee, payment in full or in part may also be made by instructing the Committee to withhold a number of such shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price of such Stock Option.

     No shares of Common Stock shall be issued until full payment therefor has been made. Except as otherwise provided in Section 5(j), an optionee shall have all of the rights of a shareholder of the Company holding the Common Stock that is subject to such Stock Option (including, if applicable, the right to vote the shares and the right to receive dividends), when the optionee has given written notice of exercise, has paid in full for such shares and, if requested, has given the representation described in Section 13(a).

     (e)  Nontransferability of Stock Options. No Stock Option shall be transferable by the optionee other than (i) by will or by the laws of descent and distribution or (ii) in the case of a Nonqualified Stock Option, as otherwise expressly permitted by the Committee including, if so permitted, pursuant to a transfer to such optionee’s immediate family, whether directly or 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

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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

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of Section 422 of the Code, such Stock Option will thereafter be treated as a Nonqualified Stock Option.

     (i)  Cashing Out of Stock Option. On receipt of written notice of exercise, the Committee may elect to cash out all or part of the portion of the shares of Common Stock for which a Stock Option is being exercised by paying the optionee an amount, in cash or Common Stock, equal to the excess of the Fair Market Value of the Common Stock over the option price times the number of shares of Common Stock for which the Option is being exercised on the effective date of such cash-out.

     (j)  Deferral of Option Shares. The Committee may from time to time establish procedures pursuant to which an optionee may elect to defer, until a time or times later than the exercise of an Option, receipt of all or a portion of the shares of Common Stock subject to such Option and/or to receive cash at such later time or times in lieu of such deferred shares, all on such terms and conditions as the Committee shall determine. If any such deferrals are permitted, then notwithstanding Section 5(d) above, an optionee who elects such deferral shall not have any rights as a stockholder with respect to such deferred shares unless and until shares are actually delivered to the optionee with respect thereto, except to the extent otherwise determined by the Committee.

SECTION 6. Stock Appreciation Rights

     (a)  Grant and Exercise. Stock Appreciation Rights may be granted without relationship to a Stock Option (each, a “Freestanding Stock Appreciation Right”) or in conjunction with all or part of any Stock Option granted under the Plan (each, a “Tandem Stock Appreciation Right”). In the case of a Nonqualified Stock Option, Tandem Stock Appreciation Rights may be granted either at or after the time of grant of such Stock Option. In the case of an Incentive Stock Option, Tandem Stock Appreciation Rights may be granted only at the time of grant of such Stock Option. A Tandem Stock Appreciation Right shall terminate and no longer be exercisable upon the termination or exercise of the related Stock Option.

     (b)  Terms of Freestanding Stock Appreciation Rights. Freestanding Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined by the Committee, including the following:

(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

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Right shall have been exercised with the Committee having the right to determine the form of payment;

(iii) a Freestanding Stock Appreciation Right shall be exercised by giving written notice of exercise to the Company or its designated agent specifying the number of shares of Common Stock as to which such Stock Appreciation Right is being exercised; and

(iv) a Freestanding Stock Option shall not be transferable other than by will or laws of descent and distribution.

     (c)  Terms of Tandem Stock Appreciation Rights. Tandem Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined by the Committee, including the following:

(i) Tandem Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the Stock Options to which they relate are exercisable in accordance with the provisions of Section 5 and this Section 6;

(ii) upon the exercise of a Tandem Stock Appreciation Right, an optionee shall be entitled to receive an amount in cash, shares of Common Stock or both, in value equal to the excess of the Fair Market Value of one share of Common Stock over the option price per share specified in the related Stock Option multiplied by the number of shares in respect of which the Stock Appreciation Right shall have been exercised, with the Committee having the right to determine the form of payment;

(iii) a Tandem Stock Appreciation Right may be exercised by an optionee in accordance with this Section 6(c) by surrendering the applicable portion of the related Stock Option in accordance with procedures established by the Committee, and upon such exercise and surrender, the optionee shall be entitled to receive an amount determined in the manner prescribed in this Section 6(c); and Stock Options which have been so surrendered shall no longer be exercisable to the extent the related Tandem Stock Appreciation Rights have been exercised;

(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).

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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; 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;

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(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.

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SECTION 8. Performance Units

     (a)  Administration. Performance Units may be awarded either alone or in addition to other Awards granted under the Plan. The Committee shall determine the Eligible Individuals to whom and the time or times at which Performance Units shall be awarded, the number of Performance Units to be awarded to any Eligible Individual, the duration of the Award Cycle and any other terms and conditions of the Award, in addition to those contained in Section 8(b).

     (b)  Terms and Conditions. Performance Units Awards shall be subject to the following terms and conditions:

(i) the Committee may, prior to or at the time of the grant, designate Performance Units as Qualified Performance-Based Awards, in which event it shall condition the settlement thereof upon the attainment of Performance Goals, except as otherwise provided in Section 8(b)(ii) or 10(a)(iii). If the Committee does not designate Performance Units as Qualified Performance-Based Awards, it may also condition the settlement thereof upon the attainment of Performance Goals. Regardless of whether Performance Units are Qualified Performance-Based Awards, the Committee may also condition the settlement thereof upon the continued service of the participant. The provisions of such Awards (including without limitation any applicable Performance Goals) need not be the same with respect to each recipient. Subject to the provisions of the Plan and the Performance Units Agreement referred to in Section 8(b)(v), Performance Units may not be sold, assigned, transferred, pledged or otherwise encumbered during the Award Cycle;

(ii) except to the extent otherwise provided in the applicable Performance Unit Agreement or Section 8(b)(iii) or 10(a)(iii), upon a participant’s Termination of Employment for any reason during the Award Cycle or before any applicable Performance Goals are satisfied, all rights to receive cash or stock in settlement of 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

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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;

(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

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(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

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(iii) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination: (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Power immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), (2) in the event that Stewart does not own or control at least 50% of the Outstanding Company Voting Power upon the consummation of the Business Combination, no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation (and such amount exceeds the amount owned or controlled by Stewart) except to the extent that such person had such ownership of the Outstanding Company Common Stock or Outstanding Company Voting Power immediately prior to the Business Combination and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(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

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granted under the Plan (subject, however, to the provisions of Section 3 hereof), (ii) reduces the exercise price at which Awards may be granted (subject, however, to the provisions of Section 3 hereof), (iii) extends the period during which Stock Options may be granted or exercised beyond the times originally prescribed, (iv) changes the persons eligible to participate in the Plan, or (v) materially increases the benefits accruing to participants under the Plan.

     Subject to the repricing restrictions in Section 2(e)(i), the Committee may amend the terms of any Stock Option or other Award theretofore granted, prospectively or retroactively, but no such amendment shall be permitted that would cause an Award that is, or is intended to be, a Qualified Performance-Based Award to fail or cease to qualify for the Section 162(m) Exemption, nor shall any such amendment impair the rights of any holder without the holder’s consent except such an amendment made to cause the Plan or Award to comply with applicable law, stock exchange rules or accounting rules.

     Subject to the above provisions, the Board shall have the authority to amend the Plan to take into account changes in law and in tax and accounting rules as well as other developments, and to grant Awards which qualify for beneficial treatment under such rules without stockholder approval.

SECTION 12. Unfunded Status of Plan

     It is presently intended that the Plan constitute an “unfunded” plan for incentive and deferred compensation. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Common Stock or make payments; provided, however, that unless the Committee otherwise determines, the existence of such trusts or other arrangements is consistent with the “unfunded” status of the Plan.

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

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(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 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.

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     (i)  Except as otherwise provided in Section 5(e) or 6(c)(v) or by the Committee, Awards under the Plan are not transferable except by will or by the laws of descent and distribution.

     (j)  In the event an Award is granted to an Eligible Individual who is employed or providing services outside the United States and who is not compensated from a payroll maintained in the United States, the Committee may, in its sole discretion, modify the provisions of the Plan as they pertain to such individual to comply with applicable foreign law.

SECTION 14. Effective Date of Plan

     The Plan shall be effective as of the date it is adopted by the Board, subject to the approval of the Company’s stockholders.

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EX-99.A.1

OFFER TO EXCHANGE

EX-99.A.2

FORM OF INTRODUCTORY LETTER/LETTER OF TRANSMITTAL

EX-99.A.3

FORM OF E-MAIL ANNOUNCING OFFER

EX-99.A.4

FORM OF ELECTION WITHDRAWAL NOTICE

EX-99.A.5

FORM OF REMINDER NOTICE OF EXPIRATION OF OFFER

EX-99.D.1

AMENDED AND RESTATED 1999 STOCK INCENTIVE PLAN