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Sample Business Contracts

Nonqualified Class A LLC Unit/Stock Option Plan - Martha Stewart Living Omnimedia LLC

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                       MARTHA STEWART LIVING OMNIMEDIA LLC
                 NONQUALIFIED CLASS A LLC UNIT/STOCK OPTION PLAN

ARTICLE I - GENERAL

1.01  PURPOSE

The purposes of the Martha Stewart Living Omnimedia Nonqualified Class A LLC
Unit/Stock Option Plan (the "Plan") are to: (1) closely associate the interests
of executives, key employees, and outside consultants of Martha Stewart Living
Omnimedia LLC (MSLO) with those of MSLO Class A, Class B, and Class C LLC
unitholders by reinforcing the relationship between participants' rewards and
unitholder gains; (2) recognize, through participation in the Plan, key
performers for their contributions to building the assets of MSLO; (3) motivate
key performers to continue to achieve "over and above" performance in the future
to result in enhanced MSLO profitability and value; and (4) provide an incentive
to executives and key employees for continued employment with MSLO.

1.02  ADMINISTRATION

(a)   The Plan shall be administered by the Board of Directors or a committee
      thereof (hereinafter referred to as "the Board"), and by Martha Stewart as
      provided herein. Martha Stewart may delegate any of her administrative
      duties hereunder to the Board.

(b)   Martha Stewart, subject to the approval of the Board, shall have the
      authority to, from time to time:

      (i)   designate the employees or classes of employees, and the outside
            consultants eligible to participate in the Plan;

      (ii)  grant awards provided for in the Plan in such form and amount as the
            Board shall determine; and

      (iii) impose such limitations, restrictions and conditions upon any such
            award as the Board shall deem appropriate.

(c)   Decisions and determinations of Martha Stewart and the Board on all
      matters relating to the Plan shall be in their sole discretion and shall
      be conclusive.


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1.03  ELIGIBILITY FOR PARTICIPATION

Individuals eligible to be Plan participants are those executives, key
employees, and outside consultants that added significant value to the
businesses that were previously contributed to or acquired by MSLO and, with
respect to employees, were employed in these predecessor businesses before
January 1, 1996, with the exception of corporate officers employed after January
1, 1996. Corporate officers employed after January 1, 1996 who occupy
responsible managerial or professional positions and who have the capability of
making a substantial contribution to the success of MSLO will also be eligible
to participate in the Plan.

Participants in the Plan shall be selected by Martha Stewart, subject to
approval by the Board, based on the purposes of the Plan. In making this
selection and in determining the number of Options to be awarded under the Plan,
Martha Stewart will consider factors deemed relevant by her, including an
individual's functions, responsibilities, value of services to MSLO and an
individual's contributions to MSLO's profitability and sound growth.

1.04  TYPES OF AWARDS UNDER THE PLAN

Awards to be made under the Plan will be in the form of Nonqualified Class A LLC
Unit/Stock Option awards, as further described in Article II, Section 2.01
below, and hereinafter referred to as "Option(s)."

1.05  AGGREGATE LIMITATIONS ON AWARDS

(a)   Class A LLC units which may be issued under the Plan upon Option exercise
      prior to an IPO (as defined in Article III, Section 3.10(d) below) shall
      be Class A LLC units of MSLO. Shares of MSLO common stock which may be
      issued under the Plan upon Option exercise after an IPO shall be
      authorized shares of MSLO common stock. The maximum number of Class A LLC
      units (or shares of MSLO common stock into which such LLC units may be
      converted) which may be issued under the Plan shall be equivalent to
      approximately 5% of the number of outstanding LLC units of all classes as
      of the Effective Date (as defined in Article I, Section 1.06) of the Plan
      (or shares of MSLO common stock into which such Class A LLC units may be
      converted).

(b)   Any Class A LLC units/shares of MSLO common stock subject to an Option,
      which for any reason is forfeited, terminated unexercised, or expires,
      shall again be available for issuance under the Plan.

1.06  EFFECTIVE DATE AND TERM OF PLAN

The Plan shall become effective on the date (the "Effective Date") it is
approved by the Board and approved by other holders of LLC interests, to the
extent required by law or the Second Amended and Restated Operating Agreement of
the LLC. The term of the Plan is ten years from its


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Effective Date, provided that any Options granted shall remain outstanding
consistent with the terms of the Plan and the related Option Agreement.

ARTICLE II - CLASS A LLC UNITS/STOCK OPTIONS

2.01  CLASS A LLC UNIT/STOCK OPTION AWARDS

Martha Stewart (subject to the provisions of the Plan and to approval by the
Board) may award to any eligible individual in the Plan one or more Options to
purchase Class A LLC units (if exercise occurs prior to an IPO), or shares of
MSLO common stock (if exercise occurs after an IPO). The date on which an Option
is awarded shall mean the date selected by the Board when the Board approves its
grant of an Option with respect to a specific number of Class A LLC units/shares
of MSLO common stock to a participant pursuant to the Plan.

In the event of an IPO, all unexercised Options will automatically convert to
Options to purchase a number of shares of MSLO common stock, and the related
Option Price shall also be adjusted. The Options shall be adjusted so that, upon
exercise, each Option would be exercisable for the same number of shares of MSLO
common stock that the holder would have received had the Option been exercised
immediately prior to the IPO (without regard to vesting or exercisability). The
per share Option Price shall be adjusted such that the aggregate Option Price
for each Option immediately prior to the IPO equals the aggregate Option Price
for the Option thereafter. The Board shall make the determination regarding the
foregoing adjustments and shall notify each holder of an Option of the
adjustments. After the IPO, all other terms of the Options shall continue to be
governed by the terms of this Plan and the related Option Agreement.

2.02  NONQUALIFIED CLASS A LLC UNIT/STOCK OPTION AGREEMENTS

The award of an Option shall be evidenced by a written Nonqualified Class A LLC
Unit/Stock Option Agreement ("Option Agreement"), executed by MSLO and the
holder of an Option (the "Optionee"), stating the number of Class A LLC
units/shares of MSLO common stock subject to the Option(s) evidenced thereby,
and in such form as the Board may from time to time determine. Each Option shall
be governed by the terms of the Option Agreement and this Plan.

2.03  NONQUALIFIED CLASS A LLC UNIT/STOCK OPTION PRICE

The Option Price (as defined in Article III, Section 3.10(f) below) per Class A
LLC unit/share of MSLO common stock deliverable upon the exercise of an Option
shall be determined by the Board as of the date of grant and shall be set forth
in the Option Agreement governing such Option.

2.04 TERM, VESTING AND EXERCISABILITY


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Options vest pursuant to the following vesting schedule (whether or not an IPO
occurs) unless otherwise modified or accelerated by Martha Stewart and approved
by the Board, or as otherwise provided in a specific Option Agreement:

      -     10% calendar year end 1998

      -     10% calendar year end 1999

      -     20% calendar year end 2000

      -     20% calendar year end 2001

      -     40% calendar year end 2002

Vesting of Options pursuant to the above provisions is contingent upon the
Optionee's continued employment with MSLO (or, with respect to outside
consultants, engagement to perform services for MSLO) through the scheduled
vesting dates. Vested options are not exercisable except as provided below.

Vested Options become fully exercisable at the earlier of Termination of service
with MSLO Without Cause (as defined in Article III, Section 3.10(h) below), or
the completion of an IPO (as defined in Article III, Section 3.10(d) below). All
Options which vest after an IPO shall be exercisable upon vesting.

The term of the Option(s) is ten years beginning at the effective date of the
Plan and subject to the terms of the Plan. No Option shall be exercisable after
the expiration of the respective Option term. If an IPO or Termination of
service Without Cause does not occur within the ten-year term of the Plan,
Options will expire unexercised. Upon Termination of service Without Cause (as
defined in Article III, Section 3.10(h) below), vested Options as of the date of
termination will expire and no longer be exercisable 90 days following
termination (except for extended exercise periods upon death, retirement, or
disability), and unvested Options as of the date of the termination will expire
immediately without exercise. In the event that a Plan participant is Terminated
for Cause (as defined in Article III, Section 3.10(g) below), both his/her
vested and unvested Options will expire immediately without exercise. (See
Article II, Section 2.10 for a discussion of termination due to the Death of
Optionee. See Article II, Section 2.11 for a discussion of termination due to
Retirement or Disability of an Optionee.)


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2.05  MANNER OF PAYMENT

The Optionee shall exercise options by written notice to MSLO, which notice
shall specify the number of LLC units/shares to be purchased, and which (except
as provided below) shall be accompanied by a check in full payment of the Option
Price for such LLC units/shares. Until such payment, the Optionee shall have no
rights in the underlying LLC units/shares.

The Optionee may exercise Options after an IPO (as defined in Article III,
Section 3.10(d) below) in the manner discussed above, or may direct a broker, as
specified by MSLO, to execute a cashless exercise transaction whereby Options
will be exercised, and shares of MSLO common stock sufficient to cover the
Option Price will be sold. The resulting shares of MSLO common stock, net of the
shares sold to cover the Option Price, will be issued to the Optionee. The
broker will remit the Option Price to MSLO.

Alternatively, the Optionee may direct the broker to sell all shares of MSLO
common stock subject to the Options exercised, to withhold and remit to MSLO the
Option Price, and to remit the sales proceeds net of the above to the Optionee
in cash.

After an IPO, payment of the Option Price may be made in whole or in part, in
the form of unrestricted shares of MSLO common stock already owned by the
Optionee based on the Fair Market Value (as defined in Article III, Section
3.10(c)(ii) below) of the common stock on the date of exercise, provided that
such shares of MSLO common stock have been held by the Optionee for at least six
months at the time of exercise.

2.06  NON-TRANSFERABILITY OF CLASS A LLC UNITS

CLASS A LLC UNITS ISSUED UNDER THIS PLAN SHALL NOT BE TRANSFERABLE BY THE
OPTIONEE FOR A PERIOD OF SIX MONTHS FOLLOWING THE DATE OF EXERCISE, UNLESS
OTHERWISE PERMITTED BY THE BOARD, EXCEPT BY WILL OR BY THE LAWS OF DESCENT AND
DISTRIBUTION. HOLDERS OF CLASS A LLC UNITS PURSUANT TO EXERCISED OPTIONS SHALL
GENERALLY HAVE NO VOTING RIGHTS IN SUCH UNITS AND STEWART SHALL VOTE SUCH UNITS
PURSUANT TO THE LLC AGREEMENT.

THEREAFTER, TRANSFERABILITY OF CLASS A LLC UNITS WILL BE DETERMINED BY THE
PROVISIONS OF THE THIRD AMENDED AND RESTATED OPERATING AGREEMENT OF THE MSLO
LIMITED LIABILITY COMPANY, AS AMENDED FROM TIME TO TIME (THE "LLC AGREEMENT"),
WHICH IMPOSES SUBSTANTIAL LIMITATIONS ON TRANSFERABILITY.

2.07  RESTRICTIONS ON CLASS A LLC UNITS

As soon as practicable after receipt of payment upon exercise of an Option prior
to an IPO (as defined in Article III, Section 3.10(d) below), MSLO shall deliver
to the Optionee a certificate or certificates for such Class A LLC units. The
Optionee shall become a Unitholder of MSLO with respect to Class A LLC units
represented by unit certificates so issued, and as such shall be entitled to all
rights of a Class A Unitholder in respect of his/her unitholdings, subject to
the following restrictions:


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(a)   LEGEND:

The certificates for Class A LLC units purchased under this Plan upon Option
exercise shall bear the following restrictive legend, (and other appropriate
language regarding limitations on transfer):

     "The MSLO Class A LLC units represented by this certificate have not been
     registered by MSLO under the Securities Act of 1933 or state securities
     laws. They are subject to an Option Plan of, and related Option Agreement
     with, MSLO and they may not be sold or otherwise transferred except as
     therein provided, or as provided in the Third Amended and Restated
     Operating Agreement of the MSLO Limited Liability Company (or any successor
     agreement), and any sale or other transfer in violation thereof shall be
     void and of no effect. A copy of such Agreement is on file at MSLO's
     principal office."

(b)   VOTING RIGHTS:

Class A LLC units purchased under this Option by the Optionee will be subject to
a proxy pursuant to which Martha Stewart, or in the event of her death or
disability, her legally designated representative, the majority Class A LLC
unitholder will exercise all voting rights over such Class A LLC units with
respect to all matters submitted for the vote or consent of holders of Class A
LLC units. Such proxy shall be irrevocable and coupled with an interest for
purposes of Delaware law. Each Option holder agrees, as a condition to the
receipt of an Option, to execute any additional documents that may be required
to effect such proxy.

(c)   Class A LLC units purchased pursuant to exercise of an Option under this
      Plan may be re-acquired by MSLO as follows, or disposed of as allowed by
      the provisions of the Third Amended and Restated Operating Agreement of
      the MSLO Limited Liability Corporation.

      (i)   MSLO CALL OPTION EXERCISE

            The Optionee is obligated to resell Class A LLC units to MSLO when
            "called" upon to do so. Upon receipt of written notification from
            MSLO of its decision to exercise its "Call Option" with respect to
            such units, the Optionee agrees to sell all Class A LLC units
            purchased at the lower of their Book Value (as defined in Article
            III, Section 3.10(a) below) and their Fair Market Value (as defined
            in Article III, Section 3.10(c)(i) below) on the "Call Date" (as
            defined in Article II, Section 2.07 (c)(A) below).


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      (A) DELIVERY OF CERTIFICATES AND PAYMENT FOLLOWING A CALL

      The date on which written notification from MSLO of its decision to
      exercise its "Call Option" is received by the Optionee will be considered
      the "Call Date". The certificates for any Class A LLC units to be sold to
      MSLO pursuant to this Plan will be delivered by the Optionee or her/his
      legal representative to MSLO at its principal office, duly assigned to
      MSLO with signature guaranteed, on a date not less than ten (10) nor more
      than thirty (30) days following the giving of written notice by MSLO of
      intention to "call" pursuant to the provisions thereof. In exchange
      therefore, MSLO will pay to the Optionee the lower of the Book Value (as
      defined in Article III, Section 3.10(a) below) or the Fair Market Value
      (as defined in Article III, Section 3.10(c)(i) below), of the Class A LLC
      units on the "Call Date". Payment for such Class A LLC units will either
      be made in cash or made in the form of a promissory note of MSLO, as
      provided below. Settlement in cash is subject to any and all restrictions
      pursuant to indebtedness of MSLO whether owed to financial institution or
      other parties. In the event that Units would be settled in cash but for
      the restrictions in such indebtedness, MSLO shall settle such Class A LLC
      units by delivering to the participant a promissory note of MSLO, payable
      promptly, when such restrictions are no longer applicable, with the note
      bearing interest at a rate of 5% per annum, compounded annually. The
      applicability of the immediately preceding sentence will be determined in
      the sole discretion of the Board. MSLO will pay all transfer taxes, if
      any, due in connection with such sale.

      (B) DURATION OF CALL OPTION

      The "Call Option" will remain in effect until one of the following events
      occurs: (a) the consummation of an IPO; or (b) a Change in Control of
      MSLO, defined as follows:

      (i)   a sale of all or substantially all of the assets of MSLO to an
            entity not controlled by Martha Stewart and/or her affiliates
            (collectively, "Stewart"), or

      (ii)  a merger, tender offer, exchange offer, recapitalization, spin-off
            or other extraordinary corporate transaction (or a sale of LLC units
            or shares of MSLO common stock) (each a "Transaction") which results
            in Stewart and her affiliates beneficially owning or controlling in
            the aggregate (whether by proxy, shareholders agreement or similar
            arrangement) immediately following such transaction: (a) less than
            50% of the outstanding voting power of the entity resulting from
            such transaction and another person or entity becoming the
            beneficial owner of more than the percentage of the aggregate
            outstanding voting power beneficially owned or controlled by Stewart
            and her affiliates, or (b) less than 30% of the outstanding voting
            power, or

      (iii) a majority of the members of the Board is replaced during any
            12-month period by individuals whose appointment or election is not
            endorsed by a majority of the members of the Board prior to the date
            of the appointment or election.

            The determination of the Board as to the occurrence of a Change in
            Control shall be final, and it shall promptly notify the Optionee
            thereof. Upon the occurrence of any of the foregoing events, the
            obligation of the Unitholder or his/her legal representative to sell
            to MSLO any Class A LLC units acquired by the Unitholder hereunder
            shall terminate.


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2.08  ADJUSTMENTS UPON CHANGES IN CAPITALIZATION

(a)   CLASS A LLC UNITS AND SHARES OF COMMON STOCK AVAILABLE FOR AWARDS AND
      OPTIONS

      In the event of any change in the number of LLC units/shares of MSLO
      common stock outstanding by reason of any recapitalization, merger,
      consolidation, combination, stock dividend or split, reverse stock split,
      spin-off, split-up or exchange of LLC units/shares of MSLO common stock or
      similar corporate event, the maximum aggregate number of Class A LLC
      units/shares of MSLO common stock with respect to which the Board may
      award Options shall be appropriately adjusted by the Board and the Board
      shall likewise appropriately adjust the number of LLC units/shares and the
      Option Price of any outstanding Option. In the event of any change in the
      number of LLC units/shares of MSLO common stock outstanding by reason of
      any other event or transaction, the Board may, but need not, make such
      adjustments in the number and class of LLC units/shares of MSLO common
      stock with respect to which Options may be awarded as the Board may deem
      appropriate.

(b)   OUTSTANDING CLASS A LLC UNITS AND SHARES OF COMMON STOCK

      The Board shall appropriately adjust any issuance of Class A LLC
      units/shares of MSLO common stock, subject to an outstanding Option, to
      reflect any recapitalization, merger, consolidation, combination, stock
      dividend or split, reverse stock split, spin-off, exchange of LLC
      units/shares or similar corporate change as the Board may deem appropriate
      to prevent the enlargement or dilution of rights of Optionees under the
      award.

(c)   OUTSTANDING CLASS A LLC UNITS AND OPTIONS - CERTAIN MERGERS AND CHANGE
      IN CONTROL TRANSACTIONS

      In the event of a merger, consolidation or similar event pursuant to which
      LLC Units/MSLO shares are exchanged for or converted into other securities
      or property, or with respect to which holders of LLC units/MSLO shares
      receive any other form of consideration (an "Extraordinary Transaction"),
      the Board shall appropriately adjust each outstanding Option (including
      the number of Class A LLC units/shares subject to the Option and the
      Option Price, as appropriate) such that, upon exercise thereof, each
      Option will entitle the holder to receive the securities and/or property
      that such holder would have received had the Option been exercised
      immediately prior to the Extraordinary Transaction upon payment of the
      applicable Option Price. Notwithstanding the foregoing, in the event an
      Extraordinary Transaction is also a Change in Control, the provisions of
      the penultimate paragraph of this Section 2.08(c) shall apply in lieu of
      this paragraph.

      In the event of an IPO (as defined in Article III, Section 3.10(d) below),
      a Unitholder's Class A LLC interests shall be treated in the same manner
      as Class A LLC interests not issued pursuant to the Plan, as set forth in
      the LLC Agreement.


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      In the event of a Change in Control (as defined in (B) above), pursuant to
      the discretion of the Board, at least one of the following alternatives
      shall apply: (i) each outstanding Option shall become immediately and
      fully exercisable and shall remain exercisable pursuant to the terms of
      the Plan; (ii) each outstanding Option shall become immediately and fully
      exercisable, and shall terminate as of a date to be fixed by the Board,
      and not less than 30 days written notice of such date shall be given to
      each Optionee; (iii) each outstanding Option shall be canceled in exchange
      for a payment in an amount equal to the excess of the highest price paid
      per Class A LLC Unit in the Change in Control transaction, over the Option
      Price of the Option (any such payment shall be made by a promissory note
      if required by Article II, Section 2.07(c)(i)(A)); the Board shall
      appropriately adjust each outstanding Option pursuant to Article II,
      Section 2.08 to preserve the value of such Option following the Change in
      Control transaction, and may provide that, upon exercise thereof, each
      Option will entitle the holder to receive the securities and/or property
      that such holder would have received had the Option been exercised
      immediately as of the date of termination, prior to the Change in Control
      and the holder had been permitted to sell his/her Class A LLC Units in the
      Change in Control transaction.

      The determination of the Board as to the occurrence, and adjustment with
      respect to, of any of the events specified in this paragraph shall be
      final, and it shall promptly notify the Optionee and/or Unitholder
      thereof.

(d)   NO OTHER RIGHTS

      Except as expressly provided in the Plan, no Optionee shall have any
      rights by reason of any subdivision or consolidation of LLC units/shares
      of stock of any class, any increase or decrease in the number of LLC
      units/shares of stock of any class or any dissolution, liquidation, merger
      or consolidation of MSLO or any other corporation. Except as expressly
      provided in the Plan, no issuance by MSLO of LLC units/shares of stock of
      any class, or securities convertible into LLC units/shares of stock of any
      class, shall affect, and no adjustment by reason thereof shall be made
      with respect to, the number of Class A LLC units/shares of MSLO common
      stock subject to an Option.


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2.09  CONFIDENTIALITY

Optionees shall not, during the period of employment (or, with respect to
outside consultants, the period of engagement), or at any time thereafter
(irrespective of the circumstances under which Optionee's employment or
engagement by MSLO terminates), except as required by law, directly or
indirectly give any Confidential Records or Information (as defined in Article
III, Section 3.10(b) below) to, or permit any inspection or copying of
Confidential Records or Information by, any individual or entity.

2.10  DEATH OF OPTIONEE

Upon the death of the Optionee, any vested and exercisable Options, on the date
of death, may be exercised by the participant's estate, or by a person who
acquires the right to exercise such Options, by bequest or inheritance or by
reason of the death of the Optionee within twelve months following termination
due to death of the Optionee.

2.11  RETIREMENT OR DISABILITY

Upon termination of the Optionee's employment (or, with respect to outside
consultants, engagement) by reason of retirement (pursuant to the retirement
policies of MSLO in effect from time to time), or disability (as determined by
the Board), the Optionee may exercise any Options within twelve months following
termination due to retirement or disability of the Optionee to the extent such
Options were vested and exercisable as of the date of retirement or disability.

2.12  TERMINATION FOR OTHER REASONS

Except as otherwise determined by the Board, all unvested Options shall expire
without exercise upon the termination of the Optionee's employment (or
engagement) for any reason. In the event an Optionee's employment with (or, with
respect to outside consultants, engagement by) MSLO Terminates Without Cause (as
defined in Article III, Section 3.10(h) below), vested Options as of the date of
termination, will become immediately exercisable for a period of 90 days
following such termination. In the event the Optionee's service with MSLO is
Terminated for Cause, (as defined in Article III, Section 3.10(g) below), vested
as well as unvested Options as of the date of such termination shall expire
without exercise immediately upon the termination of the Optionee's employment
(or, with respect to outside consultants, engagement).


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ARTICLE III - MISCELLANEOUS

3.01  GENERAL RESTRICTION

Each award under the Plan shall be subject to the requirement that, if at any
time the Board shall determine that (i) the listing, registration or
qualification of the Class A LLC units or shares of MSLO common stock subject or
related thereto upon any securities exchange or under any Federal or State law,
or (ii) the consent or approval of any government regulatory body, or (iii) an
agreement by the Optionee of an Option with respect to the disposition of Class
A LLC units or shares of MSLO common stock is, in each case, necessary or
desirable as a condition of, or in connection with, the awarding of such Option
or the issue or purchase of Class A LLC units or shares of MSLO common stock
thereunder, such issue or purchase may not be consummated in whole or in part
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained free of any conditions not acceptable to
the Board.

3.02  NON-ASSIGNABILITY

No award under the Plan shall be assignable or transferable by the recipient
thereof, except by will or by the laws of descent and distribution. During the
life of the recipient, such award shall be exercisable only by such person or by
such person's guardian or legal representative.

3.03  WITHHOLDING TAXES

Whenever MSLO is required to issue or transfer Class A LLC units or shares of
MSLO common stock under the Plan, MSLO shall have the right to require the
Optionee to remit to MSLO an amount sufficient to satisfy any Federal, State
and/or Local withholding tax requirements prior to the delivery of any
certificate or certificates for such Class A LLC units or shares of MSLO common
stock. Alternatively, in the sole discretion of the Board, MSLO may issue or
transfer such Class A LLC units or MSLO shares of common stock net of the number
of Class A LLC units or shares of MSLO common stock sufficient to satisfy the
withholding tax requirement, or the Optionee may deliver to MSLO previously
owned shares of MSLO common stock sufficient to satisfy the withholding
liability. In the case of a cashless exercise transaction, a broker (as
specified by MSLO) may issue or transfer shares of MSLO common stock net of the
number of shares of MSLO common stock sufficient to satisfy the withholding tax
requirements. For withholding tax purposes, the Fair Market Value of Class A LLC
units (as defined in Article III, Section 3.10(c) (i) below) and the Fair Market
Value of shares of MSLO common stock (as defined in Article III, Section 3.10(c)
(ii) below) shall be determined on the date the tax withholding obligation is
incurred.


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3.04  RIGHT TO TERMINATE EMPLOYMENT OR ENGAGEMENT

Nothing in the Plan, the Option Agreements, or any other agreements entered into
pursuant to the Plan shall confer upon any participant the right to continue in
the employment of MSLO (or, with respect to outside consultants, to be engaged
by MSLO), or effect any right which MSLO may have to terminate the employment
(or, with respect to outside consultants, the engagement) of such participant.

3.05  NON-UNIFORM DETERMINATIONS

Determinations by the Board and/or Martha Stewart under the Plan (including
without limitation determinations of the persons to receive awards, the form,
amount and timing of such awards, the terms and provisions of such awards and
the agreements evidencing same) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, awards under
the Plan.

3.06  RIGHTS AS A UNITHOLDER/SHAREHOLDER

The recipient of any award under the Plan shall have no rights as a
unitholder/shareholder with respect thereto unless and until she/he has given
written notice of exercise and has paid the Option Price in full, and has
satisfied all applicable tax withholding requirements.

The rights and privileges of LLC unitholders are governed by the LLC Agreement,
as amended from time to time, except as specifically modified herein, and Class
A LLC units purchased pursuant to an Option shall also be subject to the proxy
described in Section 2.07(b) of this Plan.

3.07  LEAVES OF ABSENCE

The Board shall be entitled to make such rules, regulations and determinations
as it deems appropriate under the Plan in respect of any employee leave of
absence taken by the Optionee. Without limiting the generality of the foregoing,
the Board shall be entitled to determine (i) whether or not any such leave of
absence shall constitute a termination of employment within the meaning of the
Plan and pursuant to its Termination Policy, as described in Section I, (E) of
MSLO House Rules and Etiquette and (ii) the impact, if any, of any such leave of
absence on awards under the Plan theretofore made to any Optionee who takes such
leave of absence.


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3.08  NEWLY ELIGIBLE OPTIONEES

The Board and Martha Stewart shall be entitled to make such rules, regulations,
determinations and awards as it deems appropriate in respect of any individual
who becomes eligible to participate in the Plan, or any portion thereof, after
the commencement of an award or incentive period.

3.09  AMENDMENT OF THE PLAN

(a)   Except as set forth in Section 3.09(b) below, the Board may, without
      further action by Class A, Class B and Class C LL unitholders (or
      shareholders following an IPO), and without receiving further
      consideration from the participants, terminate the Plan or amend the
      provisions of this Plan or condition or modify awards under this Plan for
      any reason whatsoever, except that no termination, amendment or
      modification that adversely affects a participant's rights under an award
      previously awarded to him or her may be made without such participant's
      consent unless it is in response to changes in tax, securities or other
      laws or rules, regulations or regulatory interpretations thereof
      applicable to this Plan or to comply with exchange rules or requirements.

(b)   Without LLC unitholder approval (or, if after an IPO, shareholder
      approval), the Board may not (i) increase the maximum number of Class A
      LLC units or shares of MSLO common stock which may be issued under the
      Plan (other than increases pursuant to Article III, Section 2.08 above),
      (ii) extend the period during which any award may be awarded or exercised,
      (iii) extend the term of the Plan or (iv) modify or amend the provisions
      of Article II, Section 2.07 above.

3.10  DEFINITIONS

In this Plan, the following definitions shall apply:

(a)   "Book Value" of Class A LLC units in all cases will be determined by the
      Board on a semi-annual basis, to the extent necessary, in its sole
      discretion based on generally accepted accounting principles (GAAP) as
      consistently applied. In the event that transactions that require a
      determination of Book Value fall in between the Board's semi-annual
      determinations of Book Value, the determination of Book Value made on the
      semi-annual valuation date immediately preceding such transactions shall
      be used. The Board's determination as to any matter relating to Book Value
      hereunder, will be final and binding on both MSLO and any Optionee.

(b)   "Confidential Records or Information" means all MSLO LLC, LLC unitholder,
      and general business correspondence, memoranda, files, manuals, books,
      lists, financial, operating or marketing records, magnetic tape, or
      electronic or other media or equipment of any kind, or confidential or
      proprietary information which may be in the Optionee's possession or under
      his/her control or accessible to him/her. "Confidential Records or
      Information" will not include information that has become publicly
      available other than due to a breach by the Optionee of the obligation
      herein.


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(c)   (i)   "Fair Market Value" of Class A LLC units will in all cases be
            determined by the Board, in its sole discretion, on a semi-annual
            basis, to the extent necessary, based on consultation with
            investment bankers or other financial advisors. In the event that
            transactions that require a determination of Fair Market Value fall
            in between semi-annual valuation dates, the determination of Fair
            Market Value made on the semi-annual valuation date immediately
            preceding such a transaction shall be used. The Board's
            determination as to any matter relating to Fair Market Value
            hereunder, including without limitation, the method of valuation to
            be applied, will be final and binding on both MSLO and the Optionee.

      (ii)  "Fair Market Value" as of any date in respect of any shares of MSLO
            common stock shall be defined as: (i) the average of the closing bid
            and asked price of a share of MSLO common stock on such date if
            shares of MSLO common stock are traded on NASDAQ or, (ii) the
            average of the high and low price of a share of MSLO common stock on
            such date as reported on the composite trading system if shares of
            MSLO common stock are traded on NYSE or AMEX. If there was no such
            price (or the common stock was not traded) on such date, Fair Market
            Value shall be determined on the last preceding date or on which
            there was such a price (on which the common stock was traded).

(d)   "Initial Public Offering" ("IPO") shall mean upon the consummation of a
      public offering for shares of MSLO common stock pursuant to a registration
      statement filed with the Securities and Exchange Commission on Form S-1,
      or some similar form, that has become effective.

(e)   "Option" means an MSLO Nonqualified Class A LLC Unit/Stock Option.

(f)   "Option Price" means the purchase price per Class A LLC unit/share of MSLO
      common stock deliverable upon the exercise of a Nonqualified Class A LLC
      Unit/Stock Option.

(g)   "Termination for Cause" may occur at the option of MSLO because the
      Optionee:

      (1)   has been convicted of, or has pled guilty or nolo contendere to a
            felony or to any other crime involving moral turpitude, or

      (2)   has embezzled or misappropriated MSLO funds or property, or

      (3)   has continued use of alcohol or drugs to an extent that interferes
            with the performance by the Optionee of her/his employment (or, with
            respect to outside consultants, engagement) responsibilities, or

      (4)   has violated the Confidentiality provisions of Article II, Section
            2.09, above, or

      (5)   has been terminated for any other reason pursuant to MSLO's
            Discipline Policy, as defined in Section I, (E) of MSLO House Rules
            and Etiquette, or


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      (6)   has materially breached any employment, consulting or other
            agreement with MSLO, or

      (7)   has failed to use reasonable best efforts to perform his/her duties
            and obligations of employment with (or engagement by) MSLO.

(h)   "Termination Without Cause" is any cessation of an Optionee's employment
      with (or, with respect to outside consultants, engagement by) MSLO other
      than a Termination for Cause (as defined in Section 3.10(g) above),
      retirement or disability.

3.11  GOVERNING LAW

The Plan will be governed by and in accordance with the laws of the State of
Delaware, without regards to its conflicts of laws and principles.


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