Nonqualified Class A LLC Unit-stock Option Plan

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.









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









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









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.)









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:









(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 ...