Severance Agreement - Martha Stewart Living Omnimedia LLC and Sharon Patrick
[LETTERHEAD OF MARTHA STEWART LIVING OMNIMEDIA LLC]
September 23, 1999
Ms. Sharon Patrick
Martha Stewart Living Omnimedia LLC
20 West 43rd Street
New York, NY 10036
Dear Sharon:
This letter sets forth the terms of your severance if your employment
with Martha Stewart Living Omnimedia LLC or any successor entity ("MSLO")
terminates under certain circumstances at any time during the period from the
date of the Initial Public Offering until the fourth anniversary thereof (the
"Term").
1. Severance. In the event that during the Term (a) your employment
with MSLO is terminated by MSLO without Cause (as defined in Paragraph 3), or by
you for Good Reason (as defined in Paragraph 4), or (b) you terminate your
employment within 30 days following a Change in Control (as defined in Paragraph
5) (a "Change in Control Termination"), (i) you shall promptly be paid any
accrued but unpaid salary, accrued but unused vacation time, un-reimbursed
expenses which otherwise would be reimbursed in the normal course and vested
benefits under any MSLO benefit plan in which you are then a participant, (ii)
you shall promptly be paid an annual bonus with respect to the year in which
your employment is terminated, pro-rated to your date of termination at a rate
equal to your target bonus, as well as any bonus previously declared but not yet
paid with respect to a completed year of service, provided that in the event no
bonus has yet been declared with respect to a completed year of service as of
the date of your termination of employment, you shall promptly receive a bonus
equal to your target bonus with respect to such completed year, (iii) the
outstanding options granted to you on or before the date hereof and any other
unvested MSLO options which may be granted to you after the date hereof that are
scheduled to vest during the forty-eight months immediately following the date
of your termination (the "Options") shall be treated as set forth in Paragraph 2
hereof, and (iv) you shall promptly be paid twelve months of your base salary
and an amount equal to your then target bonus. The entitlements set forth in
clauses (i) through (iv) above are cumulative.
2. Options. Upon a termination of your employment during the Term by
MSLO without Cause or by you for Good Reason, or upon the occurrence of a Change
in Control of MSLO, any portion of any of your Options that is not then vested
shall become fully vested and exercisable. If you incur a termination of
employment other than for Cause during the 24-
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month period following a Change in Control, any portion of any of your Options
may thereafter be exercised by you, to the extent it was vested and exercisable
at the time of termination, including on such accelerated basis as provided
above, for one year from such date of termination or, if earlier, until the
tenth anniversary of the grant date for the applicable Option.
3. Cause. "Cause" shall mean (i) your failure to perform your material
duties as President of MSLO after written notice and a reasonable opportunity to
cure, (ii) your willful, intentional misconduct that results in material damage
to MSLO's business or reputation, (iii) your commission of a type of felony with
respect to which incarceration is a typical punishment, (iv) your fraud or
misappropriation of MSLO property (other than incidental property), or (v) your
failure to comply with MSLO's employment policies and rules after written notice
and a reasonable opportunity to cure, provided that, pursuant to the standard
policies of MSLO in effect at the time (and any disciplinary procedures set
forth therein) such failure to comply with MSLO's employment policies and rules
would otherwise give rise to termination. Any termination for Cause must be
approved by the Board of Directors.
4. Good Reason. "Good Reason" shall mean (i)(A) your title as President
of MSLO or salary is diminished, (B) your responsibilities are diminished or
modified in a manner that is inconsistent in any material respect with your
position as President of MSLO, except that this clause shall not apply in the
event MSLO creates a new entity (such as a spin-off company or a tracking stock
business) which it is necessary or appropriate, in view of potential conflicts,
legal or other fiduciary matters, to operate as a separate business with a
separate management from MSLO, so long as you are offered to be a member of the
board of directors of that entity or (C), in the event the Company hires a new
Chief Operating Officer, such person does not report to you in a significant
respect, provided that you understand that such executive would also report to
other members of the Company's executive office, (ii) you give MSLO notice of
your intent to exercise your rights under this provision within 10 business days
after you become aware of an event described in (i) above, (iii) MSLO fails to
fully cure such event within 10 business days after receiving such notice, and
(iv) you terminate your employment with MSLO within 10 business days after
conclusion of the 10-business-day period afforded to MSLO to fully cure such
event.
5. Change in Control. "Change in Control" shall mean the happening of
any of the following events:
(i) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of both (A) 30% or more of either (1) the then outstanding shares
of common stock of MSLO (the "Outstanding Company Common Stock") or (2) the
combined voting power of the then outstanding voting securities of MSLO entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Power") and (B) more than both the Outstanding Company Common Stock and the
Outstanding Company Voting Power owned or controlled directly or indirectly by
Martha Stewart and/or her controlled affiliates, heirs, estate, legal
representative and/or beneficiaries (collectively, "Stewart"); provided,
however, that for purposes of this subsection (i), the following
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acquisitions shall not constitute a Change in Control: (1) any acquisition
directly from MSLO, (2) any acquisition by MSLO, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by MSLO or any
corporation controlled by MSLO or (4) any acquisition by any corporation
pursuant to a transaction which complies with clauses (1), (2) and (3) of
subsection (iii) of this Paragraph 5; or
(ii) individuals who, as of the effective date of this
Agreement, constitute the Board of Directors of MSLO (the "Incumbent Board")
cease for any reason not to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent to the
effective date of this Agreement whose election, or nomination for election by
MSLO's stockholders, was approved by Martha Stewart and her controlled
affiliates (so long as such affiliates are controlled by her) at a time when
such entities controlled at least a majority of the Outstanding Company Voting
Power or by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board of Directors of MSLO; or
(iii) consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of MSLO (a "Business Combination"), in each case, unless, following such
Business Combination: (1) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Power immediately prior to
such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns MSLO or all or
substantially all of MSLO's assets either directly or through one or more
subsidiaries of MSLO), (2) in the event that Stewart does not own or control at
least 50% of the Outstanding Company Voting Power upon the consummation of the
Business Combination, no Person (excluding any employee benefit plan (or related
trust) of MSLO or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation (and such amount exceeds the amount owned or
controlled by Stewart) except to the extent that such person had such ownership
of the Outstanding Company Common Stock or Outstanding Company Voting Power
immediately prior to the Business Combination and (3) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board of Directors
of MSLO, providing for such Business Combination; provided, that, the conversion
of MSLO whether by merger, share exchange or otherwise, into a corporation in
anticipation of an Initial Public Offering shall not be deemed a Change in
Control; or
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(iv) approval by the shareholders of MSLO of a complete
liquidation or dissolution of MSLO.
6. Initial Public Offering. "Initial Public Offering" shall mean the
completion of the initial public sale of shares of the common stock of MSLO
pursuant to an effective registration statement under the Securities Act of
1933, as amended, following which shares of Class A Common Stock of Martha
Stewart Living Omnimedia, Inc. with a market value of at least $50 million are
publicly held and freely transferable.
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If the foregoing accurately sets forth our agreement, please
sign this letter and return it to me.
Very truly yours,
MARTHA STEWART LIVING OMNIMEDIA LLC
By: /s/ Martha Stewart
_________________________________
Name: Martha Stewart
Title: Chief Executive Officer
ACCEPTED AND AGREED:
/s/ Sharon Patrick
______________________________
Sharon Patrick
Date: September 23, 1999
_______________________
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