10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-15395

MARTHA STEWART LIVING OMNIMEDIA, INC.

(Exact name of registrant as specified in its charter)

Delaware	52-2187059
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
601 West 26th Street, New York, NY	10001
(Address of principal executive offices)	(Zip Code)

(Registrant’s telephone number, including area code) (212) 827-8000

(Former name, former address and former fiscal year,

if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

Class	Outstanding as of November 5, 2009
Class A, $0.01 par value		27,990,067
Class B, $0.01 par value		26,690,125
Total		54,680,192

Martha Stewart Living Omnimedia, Inc.

Index to Form 10-Q

	Page
Part I. Financial Information
Item 1. Financial Statements.		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.		29
Item 4. Controls and Procedures.		30
Part II. Other Information
Item 1. Legal Proceedings.		30
Item 1A. Risk Factors.		31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		38
Item 3. Defaults Upon Senior Securities.		38
Item 4. Submission of Matters to a Vote of Security Holders.		38
Item 5. Other Information.		38
Item 6. Exhibits.		39
Signatures		40
EX-10.1
EX-10.2
EX-10.3
EX-31.1
EX-31.2
EX-32

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

MARTHA STEWART LIVING OMNIMEDIA, INC.
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)

	September 30,			December 31,
	2009			2008
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	21,931		$	50,204
Short-term investments		12,453			9,915
Accounts receivable, net		33,805			52,500
Inventory		6,274			6,053
Deferred television production costs		4,727			4,076
Other current assets		6,399			3,752
Total current assets		85,589			126,500
RESTRICTED CASH		15,000			—
PROPERTY, PLANT AND EQUIPMENT, net		14,969			14,422
GOODWILL, net		45,107			45,107
OTHER INTANGIBLE ASSETS, net		47,560			48,205
OTHER NONCURRENT ASSETS, net		13,614			27,051
Total assets	$	221,839		$	261,285
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	21,561		$	27,877
Accrued payroll and related costs		9,858			7,525
Income taxes payable		102			142
Current portion of deferred subscription revenue		17,226			22,597
Current portion of other deferred revenue		19,345			7,582
Total current liabilities		68,092			65,723
DEFERRED SUBSCRIPTION REVENUE		5,769			6,874
OTHER DEFERRED REVENUE		4,296			13,334
LOAN PAYABLE		15,000			19,500
DEFERRED INCOME TAX LIABILITY		2,845			1,854
OTHER NONCURRENT LIABILITIES		3,179			3,005
Total liabilities		99,181			110,290
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Class A Common Stock, $.01 par value, 350,000 shares authorized; 28,034 and 28,204 shares outstanding in 2009 and 2008, respectively		280			282
Class B Common Stock, $.01 par value, 150,000 shares authorized; 26,690 shares outstanding in 2009 and 2008		267			267
Capital in excess of par value		289,636			283,248
Accumulated deficit		(167,359	)		(132,027	)
Accumulated other comprehensive income		609			—
		123,433			151,770
Less: Class A Treasury Stock — 59 shares at cost		(775	)		(775	)
Total shareholders’ equity		122,658			150,995
Total liabilities and shareholders’ equity	$	221,839		$	261,285

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MARTHA STEWART LIVING OMNIMEDIA, INC.
Condensed Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
REVENUES
Publishing	$	27,053		$	34,544		$	88,938		$	121,602
Broadcasting		11,036			14,320			31,859			36,236
Internet		2,761			3,032			9,543			9,686
Merchandising		8,931			14,616			26,867			43,931
Total revenues		49,781			66,512			157,207			211,455
OPERATING COSTS AND EXPENSES
Production, distribution and editorial		29,732			32,334			87,212			105,090
Selling and promotion		13,232			15,194			41,569			51,959
General and administrative		16,402			20,974			43,100			56,329
Depreciation and amortization		2,096			1,542			5,994			4,422
Impairment charge		—			—			12,600			—
Total operating costs and expenses		61,462			70,044			190,475			217,800
OPERATING LOSS		(11,681	)		(3,532	)		(33,268	)		(6,345	)
OTHER (EXPENSE) / INCOME
Interest (expense) / income, net		(1	)		—			(91	)		540
Income / (loss) on equity securities		—			366			(547	)		(765	)
Loss in equity interest		—			(272	)		(236	)		(486	)
Total other (expense) / income		(1	)		94			(874	)		(711	)
LOSS BEFORE INCOME TAXES		(11,682	)		(3,438	)		(34,142	)		(7,056	)
Income tax provision		(432	)		(309	)		(1,190	)		(597	)
NET LOSS	$	(12,114	)	$	(3,747	)	$	(35,332	)	$	(7,653	)
LOSS PER SHARE — BASIC AND DILUTED
Net Loss	$	(0.22	)	$	(0.07	)	$	(0.66	)	$	(0.14	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and diluted		53,865			53,590			53,817			53,256

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MARTHA STEWART LIVING OMNIMEDIA, INC.
Consolidated Statement of Shareholders’ Equity
For the Nine Months Ended September 30, 2009
(unaudited, in thousands)

	Class A						Class B										Accumulated other		Class A
	Common Stock						Common Stock				Capital in excess						comprehensive		Treasury Stock
	Shares			Amount			Shares		Amount		of par value			Accumulated deficit			income		Shares			Amount			Total
Balance at January 1, 2009		28,204		$	282			26,690	$	267	$	283,248		$	(132,027	)	$	—		(59	)	$	(775	)	$	150,995
Comprehensive loss:
Net loss		—			—			—		—		—			(35,332	)		—		—			—			(35,332	)
Other comprehensive income:		—			—			—		—		—						—		—			—
Unrealized gain on investment		—			—			—		—		—			—			609		—			—			609
Total comprehensive loss		—			—			—		—		—			—			—		—			—			(34,723	)
Issuance of shares of stock in conjunction with stock option exercises		10			—			—		—		70			—			—		—			—			70
Issuance of shares of stock and restricted stock, net of cancellations and tax withholdings		(180	)		(2	)		—		—		(282	)		—			—		—			—			(284	)
Non-cash equity compensation		—			—			—		—		6,600			—			—		—			—			6,600
Balance at September 30, 2009		28,034		$	280			26,690	$	267	$	289,636			(167,359	)	$	609		(59	)	$	(775	)	$	122,658

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MARTHA STEWART LIVING OMNIMEDIA, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)

	Nine Months Ended
	September 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(35,332	)	$	(7,653	)
Adjustments to reconcile net loss to net cash (used in) / provided by operating activities:
Non-cash revenue		(370	)		(1,600	)
Depreciation and amortization		5,994			4,422
Amortization of deferred television production costs		14,359			15,393
Impairment of cost-based investment		12,600			—
Non-cash equity compensation		6,869			6,549
Deferred income tax expense		991			—
Loss on equity securities		547			765
Other non-cash charges, net		590			1,118
Changes in operating assets and liabilities		(8,196	)		26,779
Net cash (used in) / provided by operating activities		(1,948	)		45,773
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business		—			(46,309	)
Investment in other noncurrent assets		(828	)		(4,353	)
Capital expenditures		(6,790	)		(1,266	)
Purchases of short-term investments		(13,926	)		—
Sales of short-term investments		14,649			26,745
Net cash used in investing activities		(6,895	)		(25,183	)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issuance costs		—			(721	)
Proceeds from long-term debt		—			30,000
Repayment of long-term debt		(4,500	)		(7,500	)
Proceeds received from stock option exercises		70			44
Change in restricted cash		(15,000	)		—
Net cash (used in) / provided by financing activities		(19,430	)		21,823
Net (decrease) / increase in cash		(28,273	)		42,413
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		50,204			30,536
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	21,931		$	72,949
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Acquisition of business financed by stock issuance	$	—		$	5,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Martha Stewart Living Omnimedia, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

1. General

     Martha Stewart Living Omnimedia, Inc., together with its subsidiaries, is herein referred to as “we,” “us,” “our,” or the “Company.”

     The information included in the foregoing interim condensed consolidated financial statements is unaudited. In the opinion of management, all adjustments, all of which are of a normal recurring nature and necessary for a fair presentation of the results of operations for the interim periods presented, have been reflected therein. The results of operations for interim periods do not necessarily indicate the results to be expected for the entire year. These condensed consolidated financial statements are unaudited and should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) with respect to the Company’s fiscal year ended December 31, 2008 (the “2008 10-K”) which may be accessed through the SEC’s World Wide Web site at http://www.sec.gov.

     The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Management does not expect such differences to have a material effect on the Company’s consolidated financial statements.

     The Company’s significant accounting policies are discussed in more detail in the 2008 10-K, especially under the heading “Note 2. Summary of Significant Accounting Policies.”

2. Recent accounting standards

     In the third quarter of 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” and collectively, the “Codification”), which establishes the Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. The historical GAAP hierarchy was eliminated and the Codification became the only level of authoritative GAAP, other than guidance issued by the SEC. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standard Updates (“ASUs”). ASUs will serve to update the Codification, provide background information about the guidance and provide the bases for conclusions on change(s) in the Codification. The Codification is effective for all financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of the Codification did not have an impact on our consolidated financial statements. However, references to specific accounting standards in the notes to our condensed consolidated financial statements have been changed to refer to the appropriate section of the Codification.

     In May 2009, the FASB issued ASC Topic 855, Subsequent Events (“ASC 855”). ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855 incorporates into GAAP certain guidance that previously existed under generally accepted auditing standards, which require the disclosure of the date through which subsequent events have been evaluated and whether that date is the date on which financial statements were issued or the date on which the financials statements were available to be issued. The Company adopted ASC 855 in the second quarter of 2009. We evaluated subsequent events through November 9, 2009, which is the date the financial statements were issued. The adoption of ASC 855 did not have an impact on the Company’s financial statements.

     In December 2007, the FASB issued ASC Topic 805, Business Combinations (“ASC 805”). ASC 805 requires an entity to measure a business acquired at fair value and to recognize goodwill attributable to any noncontrolling interests (previously referred to as minority interests) rather than just the portion attributable to the acquirer. ASC 805 also results in fewer exceptions to the principle of measuring assets acquired and liabilities assumed in a business combination at fair value. In addition, ASC 805 requires payments to third parties for consulting, legal, audit, and similar services associated with an acquisition to be recognized as expenses when incurred rather than

7

capitalized as part of the business combination. Also in December 2007, the FASB issued ASC Topic 810, Consolidation (“ASC 810”). ASC 810 requires that accounting and reporting for minority interests be recharacterized as noncontrolling interests and classified as a component of equity. The Company simultaneously adopted ASC 805 and ASC 810 as of January 1, 2009, as required. These standards will have no impact on the previous acquisitions recorded by the Company in the financial statements.

     In September 2006, the FASB issued FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which clarifies the definition of fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurement. ASC 820 does not require any new fair value measurements and eliminates inconsistencies in guidance found in various prior accounting pronouncements. ASC 820 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. On February 12, 2008, the FASB delayed the effective date of ASC 820 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). This partially deferred the effective date of ASC 820 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this standard. The Company adopted ASC 820 as of January 1, 2008 for financial assets and liabilities, and January 1, 2009 for nonfinancial assets and nonfinancial liabilities. The adoption of ASC 820 for financial assets and liabilities and for nonfinancial assets and nonfinancial liabilities did not have a material impact on the consolidated financial statements.

3. Other

     Production, distribution and editorial expenses; selling and promotion expenses; and general and administrative expenses are all presented exclusive of depreciation and amortization, which is shown separately within “Operating Costs and Expenses.”

     Certain prior year financial information has been reclassified to conform to 2009 financial statement presentation. Beginning in the second quarter of 2009, certain investments in equity securities previously accounted for under the equity method are accounted for under the cost method.

4. Inventory

     Inventory is comprised of paper stock. The inventory balances at September 30, 2009 and December 31, 2008 were $6.3 million and $6.1 million, respectively.

5. Investment in Other Non-Current Assets

     During the second quarter of 2008, the Company entered into a three-year agreement with TurboChef Technologies, Inc. (“TurboChef”) to provide intellectual property and promotional services in exchange for $10.0 million. In lieu of cash consideration, TurboChef provided consideration in the form of 381,049 shares of TurboChef stock and a warrant to purchase 454,000 shares of TurboChef stock for an aggregate fair value of approximately $5.0 million in the first agreement year (2008), and was to provide another $2.5 million in each of year two and three of the agreement in the form of stock or cash, at its option, for a total contract value of $10.0 million.

     On January 5, 2009, the Middleby Corporation (“Middleby”) completed its acquisition of TurboChef in a cash and stock transaction. Under the terms of the merger agreement, holders of TurboChef’s common shares received a combination of $3.67 in cash and 0.0486 shares of Middleby common stock per TurboChef share. In addition, the warrant was converted to a new warrant to purchase 22,064 shares of Middleby. The consideration upon the merger equated to $2.0 million, which represented $1.4 million in cash and 18,518 shares of Middleby common stock worth $0.5 million on January 5, 2009, as well as $0.1 million related to the warrant. In the first quarter of 2009, Middleby paid the Company $2.5 million in cash, fulfilling the second year obligation under the agreement. During the second quarter of 2009, the Company sold its 18,518 shares of Middleby common stock for $0.9 million representing a gain on sale of equity securities of $0.3 million. In July 2009, the Company and Middleby agreed to terminate the intellectual property and promotional services agreement and to cancel the related warrant. In connection with the termination agreement, Middleby paid the Company $2.0 million in cash. This cash payment plus the remaining deferred revenue of $3.6 million for a total of $5.6 million is being recognized during the third and fourth quarters of 2009 as the Company fulfills certain remaining deliverables.

8

     Prior to the cancellation of the warrant, any changes to the market value of the Middleby common stock required an adjustment to the warrant. The warrant met the definition of a derivative in accordance with ASC Topic 815, Derivatives and Hedging, and was marked to market each quarter with the adjustment recorded in other income or other expense. In the first quarter of 2009, the Company recorded $0.8 million of losses to reflect the market fluctuations of the warrant. In the second quarter of 2009, the Company recorded $0.1 million of losses to reflect the cancellation of the warrant.

     Non-cash amounts related to these agreements have been appropriately adjusted in the cash flows from operating activities in the statement of cash flows.

     In the nine-month period ended September 30, 2009, the Company recorded a non-cash impairment charge of $12.6 million to reduce the carrying value of its cost-based equity investment in United Craft MS Brands, LLC (“United Craft”).

     On October 9, 2009, Wilton Brands, Inc. and Wilton Holdings, Inc. (“Wilton Holdings”) reached an agreement to restructure the capital structure of the affiliates of United Craft. Wilton Holdings, a subsidiary of United Craft, issued new shares of its common stock, constituting a majority of its total shares, to the new debt holders of Wilton Holdings. The Company currently has merchandise agreements with Wilton Properties, Inc., a subsidiary of United Craft, for various crafts products sold under the Martha Stewart Crafts name. These agreements contain change of control provisions which stipulate that in the event of a sale of United Craft with no distributions issued to unitholders, the Company is due a make-whole payment. As a result of the restructuring transaction, the Company received a $3.0 million cash make-whole payment in October 2009.

     While the Company has recognized all declines in the value of investments that are believed to be other-than-temporary as of September 30, 2009, it is reasonably possible that individual investments in the Company’s portfolio may experience an other-than-temporary decline in value in the future if the underlying issuer experiences poor operating results or the U.S. or certain foreign equity markets experience further declines in value.

     As of September 30, 2009, the Company’s aggregate carrying value of its cost-based investments was $5.7 million. There were no indicators of impairment that required us to estimate the fair value of our cost-based investments.

6. Credit Facilities

     The Company has a line of credit with Bank of America in the amount of $5.0 million, which is generally used to secure outstanding letters of credit. The line was renewed as of June 30, 2009 for a one year period. The renewal included certain substantive changes from prior years’ terms, including a covenant to maintain $5.0 million in liquidity and the reduction of the current ratio requirement from 1.5:1.0 to 1.25:1.0. We were compliant with the debt covenants as of September 30, 2009. The Company had no outstanding borrowings under this facility as of September 30, 2009 and had letters of credit of $2.8 million.

     In April 2008, the Company entered into a loan agreement with Bank of America in the amount of $30.0 million related to the acquisition of certain assets of Emeril Lagasse. The loan agreement requires equal principal payments of $1.5 million and accrued interest to be paid by the Company quarterly for the duration of the loan term, approximately 5 years. During the first nine months of 2009, the Company prepaid $4.5 million in principal representing substantially all amounts due through September 30, 2010. Through that date, there are no principal payments due.

     On August 7, 2009, the Company amended and restated the loan agreement. As amended and restated, the loan is secured by substantially all of the assets of the Emeril business that the Company acquired, as well as cash collateral in an amount equal to the outstanding principal balance of the loan. Accordingly, the $15.0 million of cash collateralizing the $15.0 million outstanding principal balance of the term loan at September 30, 2009 is characterized as “restricted cash” on the condensed consolidated balance sheet as of that date. The cash collateral may be released at the Company’s request if the Company demonstrates that we would have been in compliance with the financial covenants outlined below for the fiscal quarter immediately preceding the requested release date had such financial covenants been applicable to us for that fiscal quarter. If the cash collateral is released, the loan terms would require the Company to be in compliance with certain financial covenants, failure with which to comply would result in an event of default and would permit Bank of America to accelerate and demand repayment of the loan in full.

9

     A summary of the most significant financial covenants is as follows:

Financial Covenant	Requirement
Tangible Net Worth	At least $40.0 million
Funded Debt to EBITDA (a)	Equal to or less than 2.0
Parent Guarantor (the Company) Basic Fixed Charge Coverage Ratio (b)	Equal to or greater than 2.75
Quick Ratio	Equal to or greater than 1.0

(a)	EBITDA is net income before interest, taxes, depreciation, amortization, non-cash equity compensation and impairment charges as defined in the amended and restated loan agreement.
(b)	Basic Fixed Charge Coverage is the ratio of EBITDA for the trailing four quarters to the sum of interest expense for the trailing four quarters and the current portion of long-term debt at the covenant testing date.

     While the loan is secured by the cash collateral, the interest rate is a floating rate of 1-month LIBOR plus 1.50%. If the cash collateral is released, the interest rate shall be equal to a floating rate of 1-month LIBOR plus 2.85%.

7. Income taxes

     The Company follows ASC Topic 740, Income Taxes (“ASC 740”). Under the asset and liability method of ASC 740, deferred assets and liabilities are recognized for the future costs and benefits attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company periodically reviews the requirements for a valuation allowance and makes adjustments to such allowances when changes in circumstances result in changes in management’s judgment about the future realization of deferred tax assets. ASC 740 places more emphasis on historical information, such as the Company’s cumulative operating results and its current year results than it places on estimates of future taxable income. Therefore, the Company has added $13.3 million to its valuation allowance in the first nine months of 2009, resulting in a cumulative balance of $81.3 million as of September 30, 2009. In addition, the Company has recorded $1.2 million of tax expense which is primarily attributable to differences between the financial statement carrying amounts of current and prior year acquisitions of certain indefinite-lived intangible assets and their respective tax bases which resulted in a net deferred tax liability of $2.8 million. The Company intends to maintain a valuation allowance until evidence would support the conclusion that it is more likely than not that the deferred tax assets could be realized.

     ASC 740 further establishes guidance on the accounting for uncertain tax positions. As of September 30, 2009, the Company had an ASC 740 liability balance of $0.2 million, of which $0.15 million represented unrecognized tax benefits, which if recognized at some point in the future would favorably impact the effective tax rate, and $0.05 million is interest. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for the years before 2005 and state examinations for the years before 2003. The Company anticipates that as a result of audit settlements and statute closures over the next twelve months, the liability will be reduced through cash payments of approximately $0.03 million.

8. Equity compensation

     Prior to May 2008, the Company had several stock incentive plans that permitted the Company to grant various types of share-based incentives to key employees, directors and consultants. The primary types of incentives granted under these plans were stock options and restricted shares of common stock. The Compensation Committee of the Board of Directors was authorized to grant up to a maximum of 10,000,000 underlying shares of Class A Common Stock under the Martha Stewart Living Omnimedia, Inc. Amended and Restated 1999 Stock Incentive Plan (the “1999 Option Plan”), and up to a maximum of 600,000 underlying shares of Class A Common Stock under the Company’s Non-Employee Director Stock and Option Compensation Plan (the “Non-Employee Director Plan”).

     In April 2008, the Company’s Board of Directors adopted the Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan (the “New Stock Plan”), which was approved by the Company’s stockholders at the Company’s 2008 annual meeting. The New Stock Plan has 10,000,000 shares available for issuance. The New Stock Plan replaced the 1999 Option Plan and Non-Employee Director Plan (together, the “Prior Plans”), which together had an aggregate of approximately 1,850,000 shares still available for issuance. Therefore, the total net effect of the replacement of the Prior Plans and adoption of the New Stock Plan was an increase of approximately 8,150,000 shares of Class A Common Stock available for issuance under the Company’s stock plans.

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     From time to time the Company makes equity awards to certain employees pursuant to the New Stock Plan. One material group of awards was granted through the nine month period ended September 30, 2009. The grants, in the aggregate, consisted of 2,719,750 options priced at $1.96 per share (the closing price on the date of issuance), which options vest over a four-year period, and 311,625 performance-based restricted stock units, each of which represents the right to a share of the Company’s Class A Common Stock if the Company achieves certain earnings targets over a performance period.

9. Comprehensive Loss

     Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss includes net loss and unrealized gains and losses on available-for-sale securities. Total comprehensive loss for the three months ended September 30, 2009 and 2008, was $11.7 million and $3.2 million, respectively.

10. Acquisition of Business

     On April 2, 2008, the Company acquired all of the assets related to the business of Chef Emeril Lagasse other than his restaurant business and Foundation in exchange for approximately $45.0 million in cash and 674,854 shares of the Company’s Class A Common Stock which equaled a value of $5.0 million. The shares issued in connection with this acquisition were not covered by the Company’s existing equity plans. The acquisition agreement also includes a potential additional payment of up to $20 million in 2013, based upon the achievement of certain operating metrics in 2011 and 2012, a portion of which may be payable, at the Company’s election, in shares of the Company’s Class A Common Stock.

     The Company acquired the assets related to chef Emeril Lagasse to further the Company’s diversification strategy and help grow the Company’s operating results. Consistent with ASC 805, this acquisition was accounted for under purchase accounting. While the primary assets purchased in the transaction were certain trade names valued at $45.2 million, as well as a television content library valued at $5.2 million, $0.9 million of the value, representing the excess purchase price over the fair market value of the assets acquired, was apportioned to goodwill. To the extent that the certain operating metrics are achieved in 2011 and 2012, the potential additional payment will be allocated to the acquisition and will be recognized as goodwill.

     Of the intangible assets acquired, only the television content library is subject to amortization over an approximate six-year period, which is expensed based upon future estimated revenues to be received. For the quarter ended September 30, 2009, $0.6 million was charged to amortization expense and accumulated amortization related to this asset.

     The results of operations for the acquisition have been included in the Company’s condensed consolidated financial statements of operations since April 2, 2008, and are recorded in the Merchandising, Broadcasting and Publishing segments in accordance with the nature of the underlying contract. The following unaudited pro forma financial information presents a summary of the results of operations assuming the acquisition occurred at the beginning of the first quarter of 2008:

	Nine Months Ended
(unaudited, in thousands, except per share amounts)	September 30, 2008
Net revenues	$	214,674
Net loss		(6,755	)
Net loss per share — basic and diluted	$	(0.13	)

     Pro forma adjustments have been made to reflect amortization using asset values recognized after applying purchase accounting adjustments, to record incremental compensation costs and to record amortization of deferred financing costs and interest expense related to the long-term debt incurred to fund a part of the acquisition. No tax adjustment was necessary due to the benefit of the Company’s net operating loss carryforwards. The pro forma loss per share amount is based on the pro forma number of shares outstanding as of the end of the first quarter of 2008 which includes the shares issued by the Company as a portion of the total consideration for the acquisition.

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     The pro forma condensed consolidated financial information is presented for information purposes only. The pro forma condensed consolidated financial information should not be construed to be indicative of the combined results of operations that might have been achieved had the acquisition been consummated at the beginning of the first quarter of 2008, nor is it necessarily indicative of the future results of the combined company.

11. Industry Segments

     The Company is an integrated media and merchandising company providing consumers with inspiring lifestyle content and programming, and well-designed, high-quality products. The Company’s business segments are Publishing, Broadcasting, Internet and Merchandising. The Publishing segment primarily consists of the Company’s magazine operations, and also those related to its book operations. The Broadcasting segment consists of the Company’s television production operations which produce television programming and other licensing revenue from programs that air in syndication and on cable, as well as the Company’s radio operations. The Martha Stewart Show airs in syndication seasonally over a 12-month period beginning and ending in the middle of September. The Internet segment primarily consists of the content-driven website marthastewart.com supported by advertising and, until the middle of the first quarter of 2008, the operations relating to the direct-to-consumer floral business. The Merchandising segment primarily consists of the Company’s operations related to the design of merchandise and related promotional and packaging materials that are distributed by its retail and manufacturing licensees in exchange for royalty income. The Merchandising segment also includes the flowers program with 1-800-Flowers.com which began in the second quarter of 2008. The accounting policies for the Company’s business segments are discussed in more detail in the 2008 10-K, especially under the heading “Note 2. Summary of Significant Accounting Policies.”

     Segment information for the quarters ended September, 2009 and 2008 is as follows:

(in thousands)	Publishing			Broadcasting		Internet			Merchandising		Corporate			Consolidated
2009
Revenues	$	27,053		$	11,036	$	2,761		$	8,931	$	—		$	49,781
Non-cash equity compensation		967			437		163			714		1,727			4,008
Depreciation and amortization		56			699		492			14		835			2,096
Operating (loss) / income		(2,480	)		757		(2,070	)		3,524		(11,412	)		(11,681	)
2008
Revenues	$	34,544		$	14,320	$	3,032		$	14,616	$	—		$	66,512
Non-cash equity compensation		791			143		22			161		1,451			2,568
Depreciation and amortization		93			290		433			23		703			1,542
Operating income / (loss)		2,088			2,546		(1,509	)		8,581		(15,238	)		(3,532	)

     Segment information for the nine months ended September 30, 2009 and 2008 is as follows:

(in thousands)	Publishing			Broadcasting		Internet			Merchandising		Corporate			Consolidated
2009
Revenues	$	88,938		$	31,859	$	9,543		$	26,867	$	—		$	157,207
Non-cash equity compensation		1,219			700		234			1,123		3,593			6,869
Depreciation and amortization		186			837		1,461			49		3,461			5,994
Impairment charge		—			—		—			12,600		—			12,600
Operating (loss) / income		(1,356	)		3,269		(4,574	)		1,058		(31,665	)		(33,268	)
Total assets		70,158			27,489		11,509			66,012		46,671			221,839
2008
Revenues	$	121,602		$	36,236	$	9,686		$	43,931	$	—		$	211,455
Non-cash equity compensation		2,214			603		173			897		2,662			6,549
Depreciation and amortization		286			700		1,302			73		2,061			4,422
Operating income/(loss)		10,922			3,575		(5,725	)		23,595		(38,712	)		(6,345	)
Total assets		85,268			45,011		10,929			55,937		82,998			280,143

Note: The third quarter of 2008 includes corporate cash and non-cash charges related to severance and other one-time expenses which negatively impacted operating loss by $3.5 million.

12. Related Party Transactions

     In April 2009, the Company entered into an amended and restated employment agreement with Martha Stewart which replaced the existing agreement between the Company and Ms. Stewart that was scheduled to expire in

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September 2009. The new agreement extends until March 31, 2012. During the term of the agreement, Ms. Stewart continues to serve as the Founder, and is entitled to talent compensation of $2.0 million per year. In addition, she is entitled to an annual bonus in an amount determined by the Compensation Committee, with a target bonus equal to $1.0 million and a maximum annual bonus of 150% of the target amount. Ms. Stewart received a $3.0 million make whole/retention payment in connection with the execution of the agreement, which amount is subject to pro-rata forfeiture in the event Ms. Stewart terminates the agreement without good reason or the Company terminates the agreement with cause.

     On February 28, 2001, the Company entered into a Split-Dollar Agreement with Martha Stewart and The Martha Stewart Family Limited Partnership (the “MS Partnership”), under which the Company agreed to pay a significant portion of the premiums on whole life policies insuring Ms. Stewart. The policies are owned by and benefit the MS Partnership. Because of uncertainty whether such arrangements constituted prohibited loans to executive officers and directors after the enactment of the Sarbanes-Oxley Act in 2002, the Split-Dollar Agreement was amended so that the Company would not be obligated to make further premium payments after 2002.

     Because the intent of the agreement was frustrated by the enactment of Sarbanes-Oxley and so that the parties may now realize the existing cash surrender value of the policies rather than risking depleting the future surrender value, the Company, Ms. Stewart and the MS Partnership terminated the Split-Dollar Agreement, as amended, effective November 9, 2009. In connection with the termination, the MS Partnership has agreed to surrender and cancel the policies subject to the Split-Dollar Agreement for their cash surrender value as of such date. As part of the arrangement the Company has agreed to reimburse the MS Partnership approximately $300,000 for the premiums paid towards the policies (which amount, if determined to be taxable, would be subject to a tax gross-up).

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-looking Statements and Risk Factors

     Except for historical information contained in this Quarterly Report, the statements in this Quarterly Report are “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 regarding future events, many of which, by their nature, are inherently uncertain and outside of our control. These statements often 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. Our actual results may differ materially from those projected in these statements, and factors that could cause such differences include the following among others:

• adverse reactions to publicity relating to Martha Stewart or Emeril Lagasse by consumers, advertisers and business partners;

• a loss of the services of Ms. Stewart or Mr. Lagasse;

• a loss of the services of other key personnel;

• a further softening of or increased competition in the domestic advertising market;

• a continued or further downturn in the economy, including particularly the housing market and other developments that limit consumers’ discretionary spending or affect the value of our assets or access to credit or other funds;

• loss or failure of merchandising and licensing programs;

• failure in acquiring or developing new brands or realizing the benefits of acquisition;

• failure to replace Kmart revenues in the Merchandising segment;

• failure to protect our intellectual property;

• changes in consumer reading, purchasing, Internet and/or television viewing patterns;

• increases in paper, postage or printing costs;

• further weakening in circulation and increased costs of magazine distribution;

• operational or financial problems at any of our contractual business partners;

• the receptivity of consumers to our new product introductions;

• failure to predict, respond to and influence trends in consumer taste;

• shifts in business strategies;

• inability to add to our partnerships or capitalize on existing partnerships; and

• changes in government regulations affecting the Company’s industries.

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     These and other factors are discussed in this Quarterly Report on Form 10-Q under the heading “Part II. Other Information, Item 1A. Risk Factors.”

     We caution you not to place undue reliance on any forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to publicly update or revise any forward-looking statements contained in this Quarterly Report, whether as a result of new information, future events or otherwise.

EXECUTIVE SUMMARY

     We are an integrated media and merchandising company providing consumers with inspiring lifestyle content and programming, and well-designed, high-quality products. Our Company is organized into four business segments with Publishing, Broadcasting and Internet representing our media platforms that are complemented by our Merchandising segment. In the third quarter of 2009, total revenues decreased approximately 25% from the same quarter the prior year due primarily to the declines in print and television advertising revenue. Revenues also decreased due to the prior year revenue true-up from Sears Canada, a relationship that expired in the third quarter of 2008 as well as the decline in sales from Kmart and lower revenue from Emeril Lagasse’s television programming.

     Our operating costs and expenses were lower in the third quarter of 2009 primarily due to one-time Corporate charges of $3.5 million in the prior-year period, as well as from savings in our Publishing and Broadcasting segments which had lower production, distribution and editorial costs and lower selling and promotion expenses. In addition, we also reduced our general and administrative expenses across all segments. These savings are partially due to an approximately 13% reduction of Company-wide headcount as compared to the third quarter of 2008. The third quarter of 2009 includes a catch-up bonus accrual which is comprised of both cash and non-cash components. We expect smaller cash and non-cash accruals and the payment of bonuses to be made in the fourth quarter of 2009.

     We ended the quarter with $34.4 million in cash, cash equivalents and short-term investments. Our overall liquidity decreased from December 31, 2008 due to cash used to collateralize and partially prepay the outstanding principal of our term loan, for capital expenditures and for general operations.

Media Update. In the third quarter of 2009, revenues from our media platforms declined from the prior-year period mostly due to decreased advertising revenues in our Publishing segment as the result of fewer pages sold, in our Broadcasting segment as the result of lower ratings and timing of advertiser spending for integrations, and in our Internet segment as the result of the timing of advertiser spending. The declines in media revenues were further affected by certain one-time payments in the prior-year period related to Emeril Lagasse’s television programming. However, based on our current outlook, we expect to see improvement in our Publishing segment advertising revenues for the fourth quarter as well as significant improvement in our Internet segment advertising revenues, although we have limited visibility beyond the fourth quarter.

Publishing

     Advertising revenues declined in the third quarter of 2009 from the same quarter of 2008 mostly due to a decrease in pages. Circulation revenues also declined as subscription revenues decreased due to lower effective rates and higher agent commission expense, partially offset by higher volume of copies served. Additionally, circulation revenues decreased from lower volume of newsstand sales fully offset by the timing of a special issue. The decline in revenues was partially offset by decreases in all expense categories including production, editorial, circulation marketing, and advertising costs. These cost savings included savings from lower page volume, lower paper costs and from reduced discretionary spending, as well as lower compensation costs from staff reductions. As we enter the fourth quarter, print advertising revenue is expected to stabilize as compared to the prior-year period.

Broadcasting

     Broadcasting segment revenues were lower in the third quarter of 2009 as compared to the prior-year period due to certain one-time payments in the prior-year period related to Emeril Lagasse’s television programming as well as from lower ratings and the timing of advertiser spending for integrations. The Martha Stewart Show continues to maintain its core audience.

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Internet

     In the third quarter of 2009, although advertising revenue decreased 9% partly due to the timing of advertiser spending, we continued to experience growth in our online audience. Our page views increased, on average, approximately 73% from the prior year quarter. For the year in total, we expect continued year-over-year growth in online advertising revenue.

Merchandising Update. In the third quarter, Merchandising segment revenues decreased due to the prior-year contribution from Sears Canada, a relationship that expired in the third quarter of 2008, as well as the decline in sales from Kmart as compared with the prior year quarter. For the fourth quarter of 2009, we expect to experience significantly lower retail sales from Kmart as compared with the prior-year periods, as the result of the continued impact of the wind down of our relationship. We do however expect total Kmart revenues to be up in the fourth quarter as compared with the prior-year period primarily due to the recognition of previously deferred royalties as described below and the recognition of the Kmart minimum guarantee. In addition, we expect Merchandising segment operating income to benefit in the fourth quarter from a $3.0 million cash make-whole payment that we received in October 2009 from our crafts manufacturing partner as the result of capital restructuring within their business.

     Our agreement with Kmart includes royalty payments based on sales, as well as minimum guarantees. The minimum guarantees have exceeded actual royalties earned from retail sales from 2003 through 2008 primarily due to store closings and lower same-store sales trends. The following are the minimum guaranteed royalty payments (in millions) over the term of the agreement for the respective years ending on the indicated dates:

	1/31/02		1/31/03		1/31/04		1/31/05		1/31/06		1/31/07		1/31/08		1/31/09		1/31/10
Minimum Royalty Amounts	$	15.3	$	40.4	$	47.5	$	49.0	$	54.0	$	59.0	$	65.0	$	20.0	$	14.0	*

* The minimum guarantee has been reduced by $1.0 million for the contract year ending January 31, 2010 in exchange for relief from exclusivity in certain product categories.

     For the contract year ended January 31, 2009, our earned royalty based on actual retail sales at Kmart was $17.9 million. Furthermore, $10.0 million of royalties previously paid have been deferred and were subject to recoupment in the period ending January 31, 2009. No royalties were recouped in 2008 for the contract year ended January 31, 2009. The $10.0 million of deferred royalties remain subject to recoupment for the period ending January 31, 2010. However, given the current trends in our Kmart retail sales, we expect to recognize the previously deferred royalties as non-cash revenue in the fourth quarter of 2009.

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Comparison of Three Months Ended September 30, 2009 to Three Months Ended September 30, 2008

PUBLISHING SEGMENT
(in thousands)

	2009			2008		Better /
	(unaudited)			(unaudited)		(Worse)
Publishing Segment Revenues
Advertising	$	15,615		$	20,419	$	(4,804	)
Circulation		11,027			12,977		(1,950	)
Books		92			878		(786	)
Licensing and other		319			270		49
Total Publishing Segment Revenues		27,053			34,544		(7,491	)
Publishing Segment Operating Costs and Expenses
Production, distribution and editorial		18,091			19,391		1,300
Selling and promotion		9,653			11,225		1,572
General and administrative		1,733			1,747		14
Depreciation and amortization		56			93		37
Total Publishing Segment Operating Costs and Expenses		29,533			32,456		2,923
Operating (Loss) / Income	$	(2,480	)	$	2,088	$	(4,568	)

     Publishing revenues decreased 22% for the three months ended September 30, 2009 from the prior-year period. Advertising revenue decreased $4.8 million due to the decrease in pages in Martha Stewart Living, Everyday Food and Body + Soul. The decrease in advertising pages was accompanied by a decrease in advertising rates at Martha Stewart Living, partially offset by modestly higher advertising rates at Body + Soul and Everyday Food driven in part by a higher circulation rate base. Circulation revenue decreased $2.0 million largely due to higher agency commissions and lower effective subscription rate per copy in the third quarter of 2009 for Martha Stewart Living, Everyday Food and Body + Soul as compared with the prior-year period, offset in part by higher subscriber volume at Everyday Food and Body + Soul. Circulation revenue also decreased as a result of lower newsstand unit volume of Martha Stewart Living and Everyday Food. The decline in newsstand revenue from these two magazines was fully offset by the publication during the third quarter of 2009 of a Halloween special issue; no special interest publications were included in the prior-year period. Revenue related to our books business decreased $0.8 million primarily due to the timing of delivery and acceptance of manuscripts related to our multi-book agreements with Clarkson Potter/Publishers for Martha Stewart books and Harper Studios for Emeril Lagasse books.

Magazine Publication Schedule

	Three months ended	Three Months ended
	September 30, 2009	September 30, 2008
Martha Stewart Living	Three Issues	Three Issues
Everyday Food	Two Issues	Two Issues
Body + Soul	Two Issues	Two Issues
Special Interest Publications	One Issue	No Issues

     Production, distribution and editorial expenses decreased $1.3 million, primarily due to savings related to lower volume of pages and lower paper costs. Additionally, art and editorial story and staff costs decreased partly due to lower headcount. Selling and promotion expenses decreased $1.6 million due to lower marketing program and advertising staff costs, lower circulation marketing costs and lower fulfillment rates associated with Martha Stewart Living. These decreases were partially offset by costs associated with the publication of a Halloween special issue in the third quarter of 2009. General and administrative expenses were essentially flat as compared to the prior-year period primarily due to lower headcount and related costs which were largely offset by higher facilities-related expenses primarily due to reallocating rent charges to reflect current utilization. The increase in our Publishing segment has offsetting decreases in our Merchandising and Corporate segments.

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BROADCASTING SEGMENT
(in thousands)

	Three Months Ended
	September 30,
	2009		2008		Better /
	(unaudited)		(unaudited)		(Worse)
Broadcasting Segment Revenues
Advertising	$	4,372	$	5,959	$	(1,587	)
Radio		1,875		1,875		—
Licensing and other		4,789		6,486		(1,697	)
Total Broadcasting Segment Revenues		11,036		14,320		(3,284	)
Broadcasting Segment Operating Costs and Expenses
Production, distribution and editorial		6,772		8,264		1,492
Selling and promotion		1,031		1,268		237
General and administrative		1,777		1,952		175
Depreciation and amortization		699		290		(409	)
Total Broadcasting Segment Operating Costs and Expenses		10,279		11,774		1,495
Operating Income	$	757	$	2,546	$	(1,789	)

     Broadcasting revenues decreased 23% for the three months ended September 30, 2009 from the prior-year period. Advertising revenue decreased $1.6 million primarily due to the decline in household ratings for The Martha Stewart Show as well as modestly lower rates. Advertising revenues also decreased due to the timing of advertiser spending for integrations. Licensing and other revenue decreased $1.7 million primarily due to lower revenue from Emeril Lagasse’s television programming as the result of certain one-time payments in the prior-year period partially offset by revenue related to the conclusion of our TurboChef relationship.

     Production, distribution and editorial expenses decreased $1.5 million due to production cost savings related to season 4 of The Martha Stewart Show which ended in September 2009, as compared to the prior year’s season 3, as well as lower distribution fees. Selling and promotion expenses decreased due to lower marketing expense for the launch of season 5 as compared to the launch of season 4 in September 2008. Depreciation and amortization increased $0.4 million due to the amortization of the content library acquired with the Emeril Lagasse businesses.

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INTERNET SEGMENT
(in thousands)

	Three Months Ended September 30,
	2009			2008			Better /
	(unaudited)			(unaudited)			(Worse)
Internet Segment Revenues
Advertising and Other	$	2,761		$	3,032		$	(271	)
Total Internet Segment Revenues		2,761			3,032			(271	)
Internet Segment Operating Costs and Expenses
Production, distribution and editorial		2,166			1,910			(256	)
Selling and promotion		1,787			1,487			(300	)
General and administrative		386			711			325
Depreciation and amortization		492			433			(59	)
Total Internet Segment Operating Costs and Expenses		4,831			4,541			(290	)
Operating Loss	$	(2,070	)	$	(1,509	)	$	(561	)

     Internet advertising revenues decreased 9% for the three months ended September 30, 2009 from the prior-year period due to the timing of advertiser spending and lower advertising rates, despite an increase in page views and sold advertising volume.

     Production, distribution and editorial costs and selling and promotion expenses both increased $0.3 million due to higher headcount and related costs. General and administrative expenses decreased $0.3 million due to reduced headcount in management staffing.

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MERCHANDISING SEGMENT
(in thousands)

	Three Months Ended
	September 30,
	2009		2008		Better /
	(unaudited)		(unaudited)		(Worse)
Merchandising Segment Revenues
Kmart earned royalty	$	1,558	$	3,927	$	(2,369	)
Other		7,373		10,689		(3,316	)
Total Merchandising Segment Revenues		8,931		14,616		(5,685	)
Merchandising Segment Operating Costs and Expenses
Production, distribution and editorial		2,703		2,766		63
Selling and promotion		761		1,214		453
General and administrative		1,929		2,032		103
Depreciation and amortization		14		23		9
Total Merchandising Segment Operating Costs and Expenses		5,407		6,035		628
Operating Income	$	3,524	$	8,581	$	(5,057	)

     Merchandising revenues decreased 39% for the three months ended September 30, 2009 from the prior-year period. Actual retail sales of our products at Kmart declined 60% on a comparable store and 61% on a total store basis mostly due to the decreased assortment of product categories as we wind down the partnership. The decrease in other revenues was due to the prior-year revenue true-up from Sears Canada, a relationship that expired in the third quarter of 2008. Other revenues were also lower due to a decrease in services that we provide to our partners for reimbursable zero-margin creative services projects.

     Selling and promotion expenses decreased $0.5 million primarily as a result of the corresponding revenue decrease in services that we provide to our partners for reimbursable creative services projects. General and administrative expenses decreased due to lower facilities-related expenses primarily due to reallocating rent charges to reflect current utilization. The decrease in our Merchandising segment has offsetting increases in our Publishing segment. Partially offsetting the decrease in general and administrative expenses are higher non-cash equity compensation and higher professional fees.

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CORPORATE
(in thousands)
 

	Three Months Ended September
	30,
	2009			2008			Better /
	(unaudited)			(unaudited)			(Worse)
Corporate Operating Costs and Expenses
General and administrative	$	10,577		$	14,535		$	3,958
Depreciation and amortization		835			703			(132	)
Total Corporate Operating Costs and Expenses		11,412			15,238			3,826
Operating Loss	$	(11,412	)	$	(15,238	)	$	3,826

     Corporate operating costs and expenses decreased 25% for the three months ended September 30, 2009 from the prior-year period. General and administrative expenses decreased largely due to non-recurring charges in the third quarter of 2008 of $3.5 million related to a company-wide reorganization that resulted in severance and other one-time expenses. General and administrative expenses also decreased due to lower facilities-related expenses primarily due to reallocating rent charges to reflect current utilization. The decrease in our Corporate segment has offsetting increases in our Publishing segment. Expenses also decreased from lower professional fees and lower travel costs partially offset by higher compensation costs.

OTHER ITEMS

Interest (expense) / income, net. Interest income, net, was approximately zero for both quarters ended September 30, 2009 and 2008. Interest income declined due to a lower average cash balance and lower interest rates on our money market funds and short-term investments. The decline in interest income was also accompanied by lower interest expense on our term loan related to the acquisition of certain assets of Emeril Lagasse.

Income / (loss) on equity securities. There was no income or loss on equity securities for the quarter ended September 30, 2009 compared to income of $0.4 million in the prior-year period. The income in the third quarter of 2008 was the result of marking certain assets to fair value in accordance with accounting principles governing derivative instruments.

Loss in equity interest. The loss in equity interest was $0.3 million for the quarter ended September 30, 2008. During the second quarter of 2009, certain investments in equity securities previously accounted for under the equity method were accounted for under the cost method. Therefore, there was no income or loss in equity interest in the third quarter of 2009.

Income tax expense. Income tax expense for the three months ended September 30, 2009 was $0.4 million, compared to a $0.3 million expense in the prior-year period. The increase is due to additional tax liability related to our indefinite-lived intangibles.

Net (Loss) / Income. Net loss was $12.1 million for the three months ended September 30, 2009 compared to net loss of $3.7 million for the three months ended September 30, 2008, as a result of the factors described above.

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Comparison of Nine Months Ended September 30, 2009 to Nine Months Ended September 30, 2008

PUBLISHING SEGMENT
(in thousands)

	2009			2008		Better /
	(unaudited)			(unaudited)		(Worse)
Publishing Segment Revenues
Advertising	$	50,652		$	71,404	$	(20,752	)
Circulation		36,680			46,330		(9,650	)
Books		875			2,895		(2,020	)
Licensing and other		731			973		(242	)
Total Publishing Segment Revenues		88,938			121,602		(32,664	)
Publishing Segment Operating Costs and Expenses
Production, distribution and editorial		53,081			65,573		12,492
Selling and promotion		32,012			39,802		7,790
General and administrative		5,015			5,019		4
Depreciation and amortization		186			286		100
Total Publishing Segment Operating Costs and Expenses		90,294			110,680		20,386
Operating (Loss) / Income	$	(1,356	)	$	10,922	$	(12,278	)

     Publishing revenues decreased 27% for the nine months ended September 30, 2009 from the prior-year period. Advertising revenue decreased $20.8 million due to the decrease in pages in Martha Stewart Living, Martha Stewart Weddings, Everyday Food and Body + Soul. The decrease in advertising pages was accompanied by a decrease in advertising rates at Martha Stewart Living and Martha Stewart Weddings partially offset by slightly higher advertising rates in Everyday Food and Body + Soul driven in part by a higher circulation rate base. Circulation revenue decreased $9.7 million due to higher agency commissions and lower effective subscription rate per copy for Martha Stewart Living, Everyday Food and Body + Soul, offset in part by a higher subscriber volume. Circulation revenue also decreased as a result of lower newsstand unit volume across all of our titles, as well as the prior year contribution of four special interest publications and a special issue of Martha Stewart Weddings as compared to two special interest publications in the first nine months of 2009. Revenue related to our books business decreased $2.0 million primarily due to the timing of delivery and acceptance of manuscripts related to our multi-book agreements with Clarkson Potter/Publishers for Martha Stewart books and Harper Studios for Emeril Lagasse books.

Magazine Publication Schedule

	Nine Months ended	Nine Months ended
	September 30, 2009	September 30, 2008
Martha Stewart Living	Nine Issues	Nine Issues
Everyday Food	Eight Issues	Eight Issues
Martha Stewart Weddings	Two Issues	Three Issues
Body + Soul	Seven Issues	Seven Issues
Special Interest Publications	Two Issues	Four Issues

     Production, distribution and editorial expenses decreased $12.5 million, primarily due to savings related to lower volume of pages and lower paper costs. Additionally, art and editorial story and staff costs decreased partly due to lower headcount and a lower bonus accrual. Selling and promotion expenses decreased $7.8 million due to lower fulfillment rates associated with Martha Stewart Living and Everyday Food, lower marketing program and advertising staff costs including a lower bonus accrual, and lower circulation marketing costs. These decreases were partially offset by higher newsstand placement expenses for Martha Stewart Living and Everyday Food. General and administrative expenses were essentially flat as compared to the prior-year period primarily due to lower headcount and related costs largely offset by higher facilities-related expenses primarily due to reallocating rent charges to reflect current utilization. The increase in our Publishing segment has offsetting decreases in our Merchandising and Corporate segments.

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BROADCASTING SEGMENT
(in thousands)

	Nine Months Ended September
	30,
	2009		2008		Better /
	(unaudited)		(unaudited)		(Worse)
Broadcasting Segment Revenues
Advertising	$	16,453	$	19,796	$	(3,343	)
Radio		5,625		5,625		—
Licensing and other		9,781		10,815		(1,034	)
Total Broadcasting Segment Revenues		31,859		36,236		(4,377	)
Broadcasting Segment Operating Costs and Expenses
Production, distribution and editorial		21,127		23,790		2,663
Selling and promotion		2,175		2,701		526
General and administrative		4,451		5,470		1,019
Depreciation and amortization		837		700		(137	)
Total Broadcasting Segment Operating Costs and Expenses		28,590		32,661		4,071
Operating Income	$	3,269	$	3,575	$	(306	)

     Broadcasting revenues decreased 12% for the nine months ended September 30, 2009 from the prior-year period. Advertising revenue decreased $3.3 million primarily due to the decline in household ratings for The Martha Stewart Show as well as modestly lower rates. This decrease was partially offset by an increase in the quantity of integrations at higher rates. Licensing and other revenue decreased $1.0 million primarily due to lower revenue from Emeril Lagasse’s television programming partially offset by revenue related to the conclusion of our TurboChef relationship.

     Production, distribution and editorial expenses decreased $2.7 million due to production cost savings related to season 4 of The Martha Stewart Show which ended in September 2009 as compared to the prior year’s season 3, as well as lower distribution fees. Selling and promotion expenses decreased $0.5 million primarily due to lower headcount and reduced spending related to the season 5 launch as compared to the prior-year period. General and administrative expenses decreased $1.0 million due to lower headcount and related costs and a lower bonus accrual.

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INTERNET SEGMENT
(in thousands)

	Nine Months Ended September
	30,
	2009			2008			Better /
	(unaudited)			(unaudited)			(Worse)
Internet Segment Revenues
Advertising	$	9,536		$	8,583		$	953
Product		7			1,103			(1,096	)
Total Internet Segment Revenues		9,543			9,686			(143	)
Internet Segment Operating Costs and Expenses
Production, distribution and editorial		5,892			7,200			1,308
Selling and promotion		5,292			4,163			(1,129	)
General and administrative		1,472			2,746			1,274
Depreciation and amortization		1,461			1,302			(159	)
Total Internet Segment Operating Costs and Expenses		14,117			15,411			1,294
Operating Loss	$	(4,574	)	$	(5,725	)	$	1,151

     Internet revenues decreased 1% for the nine months ended September 30, 2009 from the prior-year period. Advertising revenue increased $1.0 million or 11% due to an increase in page views and sold advertising volume, despite lower rates. Product revenue decreased $1.1 million due to the inclusion of revenue from Martha Stewart Flowers in the first quarter of 2008. Beginning in the second quarter of 2008, we transitioned to a co-branded agreement with 1-800-Flowers.com. Revenue and related earnings for this business are now reported in our Merchandising segment.

     Production, distribution and editorial costs decreased $1.3 million due primarily to the prior year transition of our flowers business to 1-800-Flowers.com, which eliminated inventory and shipping expenses, as well as lower compensation costs and a lower bonus accrual in the first nine months of 2009 as compared to the prior-year period. Beginning in the second quarter of 2008, costs related to our higher-margin 1-800-Flowers.com program are reported in the Merchandising segment. Selling and promotion expenses increased $1.1 million due to higher compensation expenses from increased headcount and higher commissions. General and administrative expenses decreased $1.3 million due to reduced headcount and a lower bonus accrual in the first nine months of 2009 as compared to the prior-year period.

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MERCHANDISING SEGMENT
(in thousands)

	Nine Months Ended September
	30,
	2009		2008		Better
	(unaudited)		(unaudited)		/ (Worse)
Merchandising Segment Revenues
Kmart earned royalty	$	6,716	$	14,690	$	(7,974	)
Kmart minimum true-up		939		3,806		(2,867	)
Other		19,212		25,435		(6,223	)
Total Merchandising Segment Revenues		26,867		43,931		(17,064	)
Merchandising Segment Operating Costs and Expenses
Production, distribution and editorial		7,112		8,527		1,415
Selling and promotion		2,090		5,293		3,203
General and administrative		3,958		6,443		2,485
Depreciation and amortization		49		73		24
Impairment on equity investment		12,600		—		(12,600	)
Total Merchandising Segment Operating Costs and Expenses		25,809		20,336		(5,473	)
Operating Income	$	1,058	$	23,595	$	(22,537	)

     Merchandising revenues decreased 39% for the nine months ended September 30, 2009 from the prior-year period. Actual retail sales of our products at Kmart declined 60% on a comparable store and 61% on a total store basis mostly due to the decreased assortment of product categories as we wind down the partnership. The decrease in segment revenues was also due to the reduction of our contractual minimum guarantee from Kmart. The pro-rata portion of revenues related to the contractual minimum amounts covering the specified periods is listed separately above as Kmart minimum true-up. The decrease in other revenues was due to the prior year revenue true-up from Sears Canada, a relationship that expired in the third quarter of 2008. Other revenues were also lower due to a decrease in services that we provide to our partners for reimbursable zero-margin creative services projects as well as the prior year benefit from the expansion of our crafts line with EK Success into Wal-Mart and an endorsement agreement in the prior year with no comparable revenue in the current period. These decreases in other revenues were partially offset by our partnership with 1-800-Flowers.com for our flowers program which began contributing to our revenues in the second quarter of 2008.

     Production, distribution and editorial expenses decreased $1.4 million due primarily to lower compensation costs including a lower bonus accrual, as compared to the prior-year period. Selling and promotion expenses decreased $3.2 million primarily as a result of the corresponding revenue decrease in services that we provide to our partners for reimbursable creative services projects. General and administrative costs decreased $2.5 million due to lower facilities-related expenses primarily due to reallocating rent charges to reflect current utilization. The decrease in our Merchandising segment has offsetting increases in our Publishing segment. In addition, general and administrative expenses decreased due to lower compensation expenses. In the nine months ended September 30, 2009, we recorded non-cash impairment charges of $12.6 million related to our cost-based equity investment in United Craft MS Brands, LLC.

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CORPORATE
(in thousands)

	Nine Months Ended September 30,
	2009			2008			Better /
	(unaudited)			(unaudited)			(Worse)
Corporate Operating Costs and Expenses
General and administrative	$	28,204		$	36,651		$	8,447
Depreciation and amortization		3,461			2,061			(1,400	)
Total Corporate Operating Costs and Expenses		31,665			38,712			7,047
Operating Loss	$	(31,665	)	$	(38,712	)	$	7,047

     Corporate operating costs and expenses decreased 18% for the nine months ended September 30, 2009 from the prior-year period. General and administrative expenses decreased largely due to non-recurring charges in the third quarter of 2008 of $3.5 million related to a company-wide reorganization that resulted in severance and other one-time expenses. Expenses also decreased due to lower facilities-related expenses primarily due to reallocating rent charges to reflect current utilization. The decrease in our Corporate segment has offsetting increases in our Publishing segment. General and administrative expenses also decreased due to a lower bonus accrual and lower insurance costs. In addition, general and administrative expenses decreased due to one-time non-recurring charges in the second quarter of 2008 related to severance and facility-related charges. Depreciation and amortization expenses increased $1.4 million due to accelerated depreciation charges related to relocation of our office space.

OTHER ITEMS

Interest (expense) / income, net. Interest expense, net, was $(0.1) million for the nine months ended September 30, 2009 compared to interest income, net, of $0.5 million for the prior-year period. The decrease was primarily attributable to the nine months of interest expense in 2009 from our $30 million term loan related to the acquisition of certain assets of Emeril Lagasse compared to six months of interest expense in 2008 partially offset by lower interest rates on a lower outstanding principal balance in the nine months ended September 30, 2009. The decrease was also attributable to a lower average cash balance and lower interest rates on our money market funds and short-term investments.

Loss on equity securities. Loss on equity securities was $0.5 million for the nine months ended September 30, 2009 compared to a loss of $0.8 million in the prior-year period. The loss was the result of marking certain assets to fair value in accordance with accounting principles governing derivative instruments. The losses were partially offset by our gain from the sale of certain equity securities.

Loss in equity interest. The loss in equity interest was $0.2 million for the nine months ended September 30, 2009 compared to a loss of $0.5 million in the prior-year period. Certain investments in equity securities previously accounted for under the equity method were accounted for under the cost method beginning in the second quarter of 2009.

Income tax expense. Income tax expense for the nine months ended September 30, 2009 was $1.2 million, compared to a $0.6 million expense in the prior-year period. The increase is due to recording additional tax liability related to our indefinite lived intangibles.

Net Loss. Net loss was $35.3 million for the nine months ended September 30, 2009, compared to a net loss of $7.7 million for the nine months ended September 30, 2008, as a result of the factors described above.

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Liquidity and Capital Resources

Overview

     During the first nine months of 2009, our overall cash, cash equivalents and short-term investments decreased $25.7 million from December 31, 2008 due primarily to collateralizing the outstanding balance of our term loan with Bank of America in accordance with our August 7, 2009 amendment of the loan agreement. As a result, $15.0 million of cash collateralizing the $15.0 million outstanding principal balance of the term loan at September 30, 2009 is characterized as “restricted cash” on the condensed consolidated balance sheet as of that date. The decrease in liquidity was also the result of capital expenditures related to our office relocation, principal pre-payments of the term loan and net operating expenses. These items were partially offset by the satisfaction of our 2008 year-end advertising receivables and royalty receivables. Cash, cash equivalents and short-term investments were $34.4 million and $60.1 million at September 30, 2009 and December 31, 2008, respectively.

Cash Flows from Operating Activities

     Cash flows (used in) / provided by operating activities were $(1.9) million and $45.8 million for the nine months ended September 30, 2009 and 2008, respectively. During the nine months ended September 30, 2009, cash flows used in operations reflected our operating loss, net of non-cash factors, as discussed earlier, combined with payments of previously accrued expenses. Cash used in operating activities was partially offset by the satisfaction of 2008 year-end advertising receivables as well as royalty receivables from our Merchandising segment partners.

Cash Flows from Investing Activities

     Cash flows used in investing activities were $6.9 million and $25.2 million for the nine months ended September 30, 2009 and 2008, respectively. During the nine months ended September 30, 2009, cash flow used in investing activities reflected $6.8 million paid for capital improvements in conjunction with our relocation and consolidation of certain offices. Additionally, we invested $0.8 million predominantly for a non-controlling interest in an internet company. These cash payments were partially offset by the net sales of short-term investments of $0.7 million.

Cash Flows from Financing Activities

     Cash flows (used in) / provided by financing activities were $(19.4) million and $21.8 million for the nine months ended September 30, 2009 and 2008, respectively. Cash used in financing activities during the first nine months of 2009 reflects collateralizing the $15.0 million outstanding principal balance of our term loan with an equal amount of cash in accordance with our amended and restated loan agreement. Additionally, we made $4.5 million in principal pre-payments on that term loan.

Debt

     We have a line of credit with Bank of America in the amount of $5.0 million, which is generally used to secure outstanding letters of credit. The line was renewed as of June 30, 2009 for a one-year period. The renewal included certain substantive changes from prior years’ terms, including a covenant to maintain $5.0 million in liquidity and the reduction of the current ratio requirement from 1.5:1.0 to 1.25:1.0. We were compliant with the debt covenants as of September 30, 2009. We had no outstanding borrowings under this facility as of September 30, 2009 and had letters of credit of $2.8 million.

     In April 2008, we entered into a loan agreement with Bank of America in the amount of $30.0 million related to the acquisition of certain assets of Emeril Lagasse. The loan agreement requires equal principal payments of $1.5 million and accrued interest to be paid by the Company quarterly for the duration of the loan term, approximately 5 years. During the first nine months of 2009, we prepaid $4.5 million in principal representing substantially all amounts due through September 30, 2010. Through that date, there are no principal payments due.

     On August 7, 2009, we amended and restated the loan agreement. As amended and restated, the loan is secured by substantially all of the assets of the Emeril business that we acquired, as well as cash collateral in an amount equal to the outstanding principal balance of the loan. The cash collateral may be released at our request if we demonstrate that we would have been in compliance with the financial covenants outlined below for the fiscal quarter immediately preceding the requested release date had such financial covenants been applicable to us for that fiscal quarter. If the cash collateral is released, the loan terms would require us to be in compliance with certain

26

financial covenants, failure with which to comply would result in an event of default and would permit Bank of America to accelerate and demand repayment of the loan in full.

     A summary of the most significant financial covenants is as follows:

Financial Covenant	Requirement
Tangible Net Worth	At least $40.0 million
Funded Debt to EBITDA (a)	Equal to or less than 2.0
Parent Guarantor (the Company) Basic Fixed Charge Coverage Ratio (b)	Equal to or greater than 2.75
Quick Ratio	Equal to or greater than 1.0

(a)	EBITDA is net income before interest, taxes, depreciation, amortization, non-cash equity compensation and impairment charges as defined in the amended and restated loan agreement.
(b)	Basic Fixed Charge Coverage is the ratio of EBITDA for the trailing four quarters to the sum of interest expense for the trailing four quarters and the current portion of long-term debt at the covenant testing date.

     While the loan is secured by the cash collateral, the interest rate is a floating rate of 1-month LIBOR plus 1.50%. If the cash collateral is released, the interest rate shall be equal to a floating rate of 1-month LIBOR plus 2.85%.

Seasonality and Quarterly Fluctuations

     Our businesses can experience fluctuations in quarterly performance. Our Publishing segment results can vary from quarter to quarter due to publication schedules and seasonality of certain types of advertising. Advertising revenue from our Broadcasting segment is highly dependent on ratings which fluctuate throughout the television season following general viewer trends. Ratings tend to be highest during the fourth quarter and lowest in the summer months. Certain aspects of our business related to Emeril Lagasse also fluctuate based on production schedules since this revenue is generally recognized when services are performed. In our Internet segment, advertising revenue on marthastewart.com is tied to traffic among other key factors and is typically highest in the fourth quarter of the year. Revenues from our Merchandising segment can vary significantly from quarter to quarter due to new product launches and the seasonality and performance of certain product lines. In addition, we recognize the revenue resulting from the difference, if any, between the minimum royalty amount under the Kmart contract and royalties paid on actual sales in the fourth quarter of each year, when the amount can be determined.

Off-Balance Sheet Arrangements

     Our bylaws may require us to indemnify our directors and officers against liabilities that may arise by reason of their status as such and to advance their expenses incurred as a result of any legal proceedings against them as to which they could be indemnified.

Critical Accounting Policies and Estimates

General

     Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, inventories, deferred production costs, long-lived assets and accrued losses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

     We believe that, of our significant accounting policies disclosed in our 2008 10-K, the following may involve the highest degree of judgment and complexity.

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Revenue Recognition

     We recognize revenues when realized or realizable and earned. Revenues and associated accounts receivable are recorded net of provisions for estimated future returns, doubtful accounts and other allowances.

     In an arrangement with multiple deliverables, ASC Topic 605, Revenue Recognition (“ASC 605”) provides guidance to determine a) how the arrangement consideration should be measured, b) whether the arrangement should be divided into separate units of accounting, and c) how the arrangement consideration should be allocated among the separate units of accounting. We have applied the guidance included in ASC 605 in establishing revenue recognition policies for our arrangements with multiple deliverables. For agreements with multiple deliverables, if we are unable to put forth vendor specific objective evidence required under ASC 605 to determine the fair value of each deliverable, then we will account for the deliverables as a combined unit of accounting rather than separate units of accounting. In this case, revenue will be recognized as the earnings process is completed.

     Advertising revenues in the Publishing segment are generally recorded upon release of magazines for sale to consumers and are stated net of agency commissions and cash and sales discounts. Subscription revenues are recognized on a straight-line basis over the life of the subscription as issues are delivered. Newsstand revenues are recognized based on estimates with respect to future returns and net of brokerage and newsstand-related fees. We base our estimates on our historical experience and current market conditions. Revenues earned from book publishing are recorded as manuscripts are delivered to and/or accepted by our publisher. Additional revenue is recorded as sales on a unit basis exceed the advanced royalty for the individual title or in certain cases, advances on cross-collateralized titles.

     Television advertising revenues are generally recorded when the related commercials are aired and are recorded net of agency commission and estimated reserves for television audience underdelivery. Television integration revenues are recognized when the segment featuring the related product/brand immersion is initially aired. Television revenue related to Emeril Lagasse is generally recognized when services are performed. Revenue from our radio operations is recognized evenly over the four-year life of the contract, with the potential for additional revenue based on certain subscriber and advertising based targets.

     Internet advertising revenues are generally based on the sale of impression-based advertisements, which are recorded in the period in which the advertisements are served.

     Licensing-based revenues, most of which are in our Merchandising segment, are accrued on a monthly basis based on the specific mechanisms of each contract. Payments are generally made by our partners on a quarterly basis. Generally, revenues are accrued based on actual sales, while any minimum guarantees are earned evenly over the fiscal year. Revenues related to our agreement with Kmart are recorded on a monthly basis based on actual retail sales, until the last period of the year, when we recognize a substantial majority of the true-up between the minimum royalty amount and royalties paid on actual sales. Not recognizing revenue until the fourth quarter was driven in large part by concern about whether the collectability of the minimums was reasonably assured in the wake of the Kmart Chapter 11 filing. Concern about the collectability persisted in subsequent years due to difficulties in the relationship with Kmart and numerous store closings that caused royalties to fall short of the minimums. Accordingly, the true-up payment is recorded in the fourth quarter at the time the true-up amounts are known and collected.

     We maintain reserves for all segment receivables, as appropriate. These reserves are adjusted regularly based upon actual results. We maintain allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required.

Television Production Costs

     Television production costs are capitalized and amortized based upon estimates of future revenues to be received and future costs to be incurred for the applicable television product. We base our estimates on existing contracts for programs, historical advertising rates and ratings, as well as market conditions. Estimated future revenues and costs are adjusted regularly based upon actual results and changes in market and other conditions.

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Goodwill and Indefinite-Lived Intangible Assets

     We are required to analyze our goodwill and other intangible assets on an annual basis as well as when events and circumstances indicate impairment may have occurred. Unforeseen events and changes in circumstances and market conditions and material differences in the value of long-lived assets due to changes in estimates could negatively affect the fair value of our assets and result in an impairment charge. In estimating fair value, we must make assumptions and projections regarding items such as future cash flows, future revenues, future earnings and other factors. The assumptions used in the estimate of fair value are generally consistent with the past performance of each reporting unit and are also consistent with the projections and assumptions that are used in current operating plans. Such assumptions are subject to change as a result of changing economic and competitive conditions. If these estimates or their related assumptions change in the future, we may be required to record an impairment loss for any of our intangible assets. The recording of any resulting impairment loss could have a material adverse effect on our financial statements.

Long-Lived and Definite-Lived Intangible Assets

     We review the carrying values of our long-lived assets whenever events or changes in circumstances indicate that such carrying values may not be recoverable. Unforeseen events and changes in circumstances and market conditions and material differences in the value of long-lived assets due to changes in estimates of future cash flows could negatively affect the fair value of our assets and result in an impairment charge, which could have a material adverse effect on our financial statements.

Deferred Income Tax Asset Valuation Allowance

     We record a valuation allowance to reduce our deferred income tax assets to the amount that is more likely than not to be realized. In evaluating our ability to recover our deferred income tax assets, we consider all available positive and negative evidence, including our operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction by jurisdiction basis. Our cumulative pre-tax loss in recent years represents sufficient negative evidence for us to determine that the establishment of a full valuation allowance against the deferred tax asset is appropriate. This valuation allowance offsets deferred tax assets associated with future tax deductions as well as carryforward items. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes. See Note 7 of the Notes to the unaudited condensed consolidated financial statements for additional information.

Non-Cash Equity Compensation

     We currently have a stock incentive plan that permits us to grant various types of share-based incentives to key employees, directors and consultants. The primary types of incentives granted under the plan are restricted shares of common stock and stock options. Restricted shares are valued at the market value of traded shares on the date of grant, while stock options are valued using a Black-Scholes option pricing model. The Black-Scholes option pricing model requires numerous assumptions, including expected volatility of our stock price and expected life of the option.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     We are exposed to certain market risks as the result of our use of financial instruments, in particular the potential market value loss arising from adverse changes in interest rates as well as from adverse changes in our publicly traded investment. We do not utilize financial instruments for trading purposes.

Interest Rates

     We are exposed to market rate risk due to changes in interest rates on our loan agreement with Bank of America that we entered into on April 2, 2008 under which we borrowed $30.0 million to fund a portion of the acquisition of certain assets of Emeril Lagasse. Interest rates applicable to amounts outstanding under this facility are at variable rates based on the 1-month LIBOR rate plus 1.50% so long as the facility is secured by cash or the 1-month LIBOR rate plus 2.85% if the cash securing the facility is released. A change in interest rates on this variable rate debt

29

impacts the interest incurred and cash flows but does not impact the fair value of the instrument. We had outstanding borrowings of $15.0 million on the term loan at September 30, 2009 at an average rate of 2.3% for the quarter. A one percentage point increase in the interest rate would have increased interest expense by $0.04 million for the three months ended September 30, 2009.

     We also have exposure to market rate risk for changes in interest rates as those rates relate to our investment portfolio. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest our excess cash in debt instruments of the United States Government and its agencies, in high-quality corporate issuers and, by internal policy, limit both the term and amount of credit exposure to any one issuer. As of September 30, 2009, net unrealized gains and losses on these investments were not material. We did not hold any investments in either auction rate securities or collateralized debt obligations as September 30, 2009. We attempt to protect and preserve our invested funds by limiting default, market and reinvestment risk. Our future investment income may fluctuate due to changes in interest rates, or we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates. A one percentage point decrease in average interest rates would have decreased interest income by $0.1 million for the three months ended September 30, 2009.

Stock Prices

     We have a common stock investment in a publicly traded company that is subject to market price volatility. This investment had an aggregate fair value of approximately $2.4 million as of September 30, 2009. A hypothetical decrease in the market price of this investment of 10% would result in a fair value of approximately $2.2 million. The hypothetical decrease in fair value of $0.2 million would be recorded in shareholders’ equity as other comprehensive loss, as any change in fair value of our publicly-traded equity securities are not recognized on our statement of operations, unless the loss is deemed other-than-temporary.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

     Under the supervision and with the participation of our management, including our Principal Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) required by Exchange Act Rules 13a-15(b) or 15d-15(b), as of the end of the period covered by this report. Based upon that evaluation, our Principal Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of that date to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including the Principal Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Evaluation of Changes in Internal Control over Financial Reporting

     Under the supervision and with the participation of our management, including our Principal Executive Officer and Chief Financial Officer, we have determined that, during the third quarter of fiscal 2009, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

     There have been no material changes from legal proceedings as previously disclosed in the 2008 10-K, other than the Company’s settlement and dismissal from the case captioned Datatern, Inc. v. Bank of America Corp. et al. (NO 5-08CV-70), previously reported in “Item 3. Legal Proceedings” of our 2008 10-K.

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ITEM 1A. RISK FACTORS

     A wide range of factors could materially affect our performance. Like other companies, we are susceptible to macroeconomic downturns that may affect the general economic climate and our performance, the performance of those with whom we do business, and the appetite of consumers for products and publications. Similarly, the price of our stock is impacted by general equity market conditions, the relative attractiveness of our market sector, differences in results of operations from estimates and projections, and other factors beyond our control. In addition to the factors affecting specific business operations identified in connection with the description of these operations and the financial results of these operations elsewhere in this report, the factors, listed below, could adversely affect our operations. Although the risk factors listed below are the risk factors that Company management considers significant, additional risk factors that are not presently known to Company management or that Company management presently considers insignificant may also adversely affect our operations:

     Our success depends in part on the popularity of our brands and the reputation and popularity of Martha Stewart, our founder, and Emeril Lagasse. Any adverse reactions to publicity relating to Ms. Stewart or Mr. Lagasse, or the loss of either of their services, could adversely affect our revenues, results of operations and our ability to maintain or generate a consumer base.

     While we believe there has been significant consumer acceptance for our products as stand-alone brands, the image, reputation, popularity and talent of Martha Stewart and Emeril Lagasse remain important factors.

     Ms. Stewart’s efforts, personality and leadership have been, and continue to be, critical to our success. While we have managed our business without her daily participation at times in the past, the repeated diminution or loss of her services due to disability, death or some other cause, or any repeated or sustained shifts in public or industry perceptions of her, could have a material adverse effect on our business.

     In addition, we recently acquired the assets relating Emeril Lagasse’s businesses other than his restaurants and foundation. The value of these assets is largely related to the ongoing popularity and participation of Mr. Lagasse in the activities related to exploiting these assets. The continued value of these assets would be materially adversely affected if Mr. Lagasse were to lose popularity with the public or be unable to participate in our business, forcing us potentially to write-down a significant amount of the value we paid for these assets.

     The crisis in the financial markets and sustained weakening of the economy could significantly impact our business, financial condition, results of operations and cash flows, and could adversely affect the value of our assets, hamper our ability to refinance our existing debt or raise additional funds.

     The economy has experienced extreme disruption in 2008 and 2009, including extreme volatility and declines in securities prices, severely diminished liquidity and a drastic reduction in credit availability. These events have lead to increased unemployment, declines in consumer confidence, declines in discretionary income and spending, and extraordinary and unprecedented uncertainty and instability for many companies, across all industries. This economic downturn has adversely affected consumer spending and has and could in the future severely impact many of the companies with which we do business. We cannot predict the future health and viability of the companies with which we do business and upon which we depend for royalty revenues, advertising dollars and credit.

     These economic conditions and market instability also make it difficult for us to forecast consumer and product demand trends and companies’ willingness to spend money to advertise in our media properties. We have experienced a decline in advertising revenues. An extended period of reduced cash flows could increase our need for credit, at a time when such credit may not be available due to the conditions in the financial markets. A reduction in cash flows and the inability to collateralize our term loan with cash also could also cause us to be in violation of certain debt covenants. We are not able to predict the likely duration and severity of the current disruption in the financial markets and the economic recession. If these economic conditions worsen or persist for an extended period of time, it is likely that our results of operations and cash flows will be negatively impacted leading to deterioration in our financial condition.

     In addition, we have significant goodwill, intangible and other assets recorded on our balance sheet. We have already incurred impairment charges with respect to goodwill and certain intangible assets, and with respect to our investments. We will continue to evaluate the recoverability of the carrying amount of our goodwill, intangible and other assets on an ongoing basis, and we may in the future incur additional, and possibly substantial, impairment

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charges, which would adversely affect our financial results. Impairment assessment inherently involves the exercise of judgment in determining assumptions about expected future cash flows and the impact of market conditions on those assumptions. Although we believe the assumptions we have used in testing for impairment are reasonable, significant changes in any one or our assumptions could produce a significantly different result. Future events and changing market conditions may prove assumptions to be wrong with respect to prices, costs, holding periods or other factors. Differing results may amplify impairment charges in the future.

     These effects of the current financial crisis are difficult to forecast and mitigate. As a consequence, our operating results will be difficult to predict and prior results will not likely be indicative of results to be expected in future periods. Any of the foregoing effects could have a material adverse effect on our business, results of operations, and financial condition and could adversely affect our stock price.

     Our Merchandising business and licensing programs may continue to suffer from downturns in the health and stability of the general economy and housing market, and their adverse impact on our consumers and business relationships.

     Reduction in the availability of credit, a downturn in the housing market, and other negative economic developments, including increased unemployment and negative year over year performance in the stock market, have occurred and may continue, recur or become more pronounced in the future. Each of these developments has and could further limit consumers’ discretionary spending or further affect their confidence. These and other adverse consumer trends have lead to reduced spending on general merchandise, homes and home improvement projects — categories in which we license our brands. Further, downturns in consumer spending adversely impact consumer sales overall, resulting in weaker revenues from our licensed products. These trends also may affect the viability and financial health of companies with which we conduct business. Continued slowdown in consumer spending, or going-concern problems for companies with which we do business could materially adversely impact our business, financial condition and prospects.

     Our business is largely dependent on advertising revenues in our publications, broadcasts, and online operations. The market for advertising has been adversely affected by the economic downturn. Our failure to attract or retain advertisers would have a material adverse effect on our business.

     We depend on advertising revenue in our Publishing, Broadcasting, and Internet businesses. We cannot control how much or where companies choose to advertise. We have seen a significant downturn in advertising dollars generally in the marketplace, and more competition for the reduced dollars, which has hurt our publications and advertising revenues. As a result, fewer advertisers represent a greater proportion of our advertising revenue. We cannot assure how or whether this trend might correct. If advertisers continue to spend less money, or if they advertise elsewhere in lieu of our publications, broadcasts or website, our business and revenues will be materially adversely affected.

     We face significant competition for advertising and consumer demand.

     We face significant competition from a number of print and website publishers, some of which have greater financial and other resources than we have, which may enhance their ability to compete in the markets we serve. As advertising dollars have diminished, the competition for advertising dollars has intensified. Competition for advertising revenue in publications is primarily based on advertising rates, the nature and scope of readership, reader response to the promotions for advertisers’ products and services and the effectiveness of sales teams. Other competitive factors in publishing include product positioning, editorial quality, circulation, price and customer service, which impact readership audience, circulation revenues and, ultimately, advertising revenues. Because some forms of media have relatively low barriers to entry, we anticipate that additional competitors, some of which have greater resources than we do, may enter these markets and intensify competition.

     Acquiring or developing additional brands or businesses, and integrating acquired assets, poses inherent financial and other risks and challenges.

     Last year, we acquired certain assets of Chef Emeril Lagasse. Failure to manage or integrate those assets, or exploit the Emeril brand, could adversely affect our results of operations and our ability to acquire other brands.

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     The process of consolidating and integrating acquired operations and assets takes a significant period of time, places a significant strain on resources and could prove to be more expensive and time consuming than we predicted. We may increase expenditures to accelerate the integration process with the goal of achieving longer-term cost savings and improved profitability. We also may be required to manage multiple relationships with third parties as we expand our product offerings and brand portfolio. These developments may increase expenses if we hire additional personnel to manage our growth. These investments require significant time commitments from our senior management and place a strain on their ability to manage our existing businesses.

     Part of our strategic plan is to acquire other businesses. These transactions involve challenges and risks in negotiation, execution, valuation, and integration. Moreover, competition for certain types of acquisitions is significant, particularly in the field of interactive media. Even if successfully negotiated, closed, and integrated, certain acquisitions may not advance our business strategy and may fall short of expected return on investment targets.

     Our Merchandising business has relied heavily on revenue from a single source, the reduction of revenue from which has hurt and continues to hurt our profitability.

     For the twelve months ended January 31, 2009, the minimum guaranteed royalty payment from Kmart was $20.0 million, significantly less that the $65.0 million we received for the twelve months ended January 31, 2008. This drop in guarantees from Kmart is permanent, and our agreement with Kmart continues only through January 2010. In this final year, our expected guaranteed payment is $14.0 million. In addition, in the fourth quarter of 2009, we expect to reverse the $10.0 million reserve related to Kmart royalties subject to recoupment. We have not yet earned royalties from other sources in sufficient scope to recoup the loss in guaranteed payments from Kmart. While we continue to diversify our merchandise offerings in an effort to build up alternative royalty streams, we may not be able to earn, from sources other than Kmart, revenue in excess of the reduction of guarantees from our Kmart contract. This shortfall has adversely affected our operating results and business.

     We are expanding our merchandising and licensing programs into new areas and products, the failure of any of which could diminish the perceived value of our brand, impair our ability to grow and adversely affect our prospects.

     Our growth depends to a significant degree upon our ability to develop new or expand existing retail merchandising programs. We have entered into several new merchandising and licensing agreements in the past few years and have acquired new agreements through our acquisition of the Emeril Lagasse assets. Some of these agreements are exclusive and have a duration of many years. While we require that our licensees maintain the quality of our respective brands through specific contractual provisions, we cannot be certain that our licensees, or their manufacturers and distributors, will honor their contractual obligations or that they will not take other actions that will diminish the value of our brands. Furthermore, we cannot be certain that our licensees are not adversely impacted by general economic or market conditions, including decreased consumer spending and reduced availability of credit. If these companies experience financial hardship, they may be unwilling or unable to pay us royalties or continue selling our product, regardless of their contractual obligations.

     There is also a risk that our extension into new business areas will meet with disapproval from consumers. We have limited experience in merchandising in some of these business areas. We cannot guarantee that these programs will be fully implemented, or if implemented, that they will be successful. If the licensing or merchandising programs do not succeed, we may be prohibited from seeking different channels for our products due to the exclusive nature and multi-year terms of these agreements. Disputes with new or existing licensees may arise which could hinder our ability to grow or expand our product lines. Disputes also could prevent or delay our ability to collect the licensing revenue that we expect in connection with these products. If such developments occur or our merchandising programs are otherwise not successful, the value and recognition of our brands, as well as our business, financial condition and prospects, could be materially adversely affected.

33

     If The Martha Stewart Show fails to maintain a sufficient audience, if adverse trends continue or develop in the television production business generally, or if Martha Stewart were to cease to be able to devote substantial time to our television business, that business would be adversely affected. We also derive value from Mr. Lagasse’s television shows, the popularity of which cannot be assured.

     Our television production business is subject to a number of uncertainties. Our business and financial condition could be materially adversely affected by:

     Failure of our television programming to maintain a sufficient audience

     Television production is a speculative business because revenues derived from television depend primarily upon the continued acceptance of that programming by the public, which is difficult to predict. Public acceptance of particular programming depends upon, among other things, the quality of that programming, the strength of stations on which that programming is broadcast, promotion of that programming, the quality and acceptance of competing television programming and other sources of entertainment and information. The Martha Stewart Show television program has experienced a decline in ratings that reflects both the general decline in daytime broadcast television viewers discussed below, as well as the decision by some major market stations to shift the airing of the show. These developments have negatively impacted our television advertising revenues. If ratings for the show were to further decline, it would adversely affect the advertising revenues we derive from television and may result in the show being broadcast on fewer stations. A ratings decline further than we anticipate could also make it economically inefficient to continue production of the show in the daily one-hour format or otherwise. If production of the show were to cease, we would lose a significant marketing platform for us and our products, as well as cause us to write down our capitalized programming costs. The amount of any writedown would vary depending on a number of factors, including when production ceased and the extent to which we continued to generate revenues from the use of our existing program library.

     We do not produce the television shows featuring Emeril Lagasse. Nonetheless, Emeril’s failure to maintain or build popularity would result in the loss of a significant marketing platform for us and our products, as well as the loss of anticipated revenue and profits from his television shows.

     Adverse trends in the television business generally

     Television revenues may also be affected by a number of other factors, most of which are not within our control. These factors include a general decline in daytime broadcast television viewers, pricing pressure in the television advertising industry, strength of the stations on which our programming is broadcast, general economic conditions, increases in production costs, availability of other forms of entertainment and leisure time activities and other factors. Any or all of these factors may quickly change, and these changes cannot be predicted with certainty. There has been a reduction in advertising dollars generally available and more competition for the reduced dollars across more media platforms. While we currently benefit from our ability to sell advertising on our television programs, if adverse changes occur, we cannot be certain that we will continue to be able to sell this advertising or that our advertising rates can be maintained. Accordingly, if any of these adverse changes were to occur, the revenues we generate from television programming could decline.

     We have placed emphasis on building an advertising-revenue-based website, dependent on high levels of consumer traffic and resulting page views. Failure to fulfill these undertakings would adversely affect our brand and business prospects.

     Our growth depends to a significant degree upon the continued development and growth of our Internet business. We have had failures with direct commerce in the past, and only limited experience in building an advertising-revenue-based website. When initial results from the relaunch of the marthastewart.com site in the second quarter of 2007 were below expectations, we made changes to the site. We cannot be certain that those changes will enable us to sustain growth for our website in the long term. In addition, the competition for advertising dollars has intensified as the availability of advertising dollars has diminished. In order for our Internet business to succeed, we must, among other things:

34

• significantly increase our online traffic and advertising revenue;

• attract and retain a base of frequent visitors to our website;

• expand the content, products and tools we offer over our website;

• respond to competitive developments while maintaining a distinct brand identity;

• attract and retain talent for critical positions;

• maintain and form relationships with strategic partners to attract more consumers;

• continue to develop and upgrade our technologies; and

• bring new product features to market in a timely manner.

     We cannot be certain that we will be successful in achieving these and other necessary objectives or that our Internet business will become profitable. If we are not successful in achieving these objectives, our business, financial condition and prospects could be materially adversely affected.

     If we are unable to predict, respond to and influence trends in what the public finds appealing, our business will be adversely affected.

     Our continued success depends on our ability to provide creative, useful and attractive ideas, information, concepts, programming, content and products, which strongly appeal to a large number of consumers. In order to accomplish this, we must be able to respond quickly and effectively to changes in consumer tastes for ideas, information, concepts, programming, content and products. The strength of our brands and our business units depends in part on our ability to influence tastes through broadcasting, publishing, merchandising and the Internet. We cannot be sure that our new ideas and content will have the appeal and garner the acceptance that they have in the past, or that we will be able to respond quickly to changes in the tastes of homemakers and other consumers. In addition, we cannot be sure that our existing ideas and content will continue to appeal to the public.

     New product launches may reduce our earnings or generate losses.

     Our future success will depend in part on our ability to continue offering new products and services that successfully gain market acceptance by addressing the needs of our current and future customers. Our efforts to introduce new products or integrate acquired products may not be successful or profitable. The process of internally researching and developing, launching, gaining acceptance and establishing profitability for a new product, or assimilating and marketing an acquired product, is both risky and costly. New products generally incur initial operating losses. Costs related to the development of new products and services are generally expensed as incurred and, accordingly, our profitability from year to year may be adversely affected by the number and timing of new product launches. For example, we had a cumulative loss of $15.7 million in connection with Blueprint, which we ceased publishing. Other businesses and brands that we may develop also may prove not to be successful.

     Our principal Publishing vendors are consolidating and this may adversely affect our business and operations.

     We rely on certain principal vendors in our Publishing business, and their ability or willingness to sell goods and services to us at favorable prices and other terms. Many factors outside our control may harm these relationships and the ability and willingness of these vendors to sell these goods and services to us on such terms. Our principal vendors include paper suppliers, printers, subscription fulfillment houses and national newsstand wholesalers, distributors and retailers. Each of these industries in recent years has experienced consolidation among its principal participants. Further consolidation may result in all or any of the following, which could adversely affect our results of operations:

• decreased competition, which may lead to increased prices;

• interruptions and delays in services provided by such vendors; and

• greater dependence on certain vendors.

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     We may be adversely affected by fluctuations in paper and postage costs.

     In our Publishing business, our principal raw material is paper. Paper prices have fluctuated over the past several years. We generally purchase paper from major paper suppliers who adjust the price periodically. We have not entered, and do not currently plan to enter, into long-term forward price or option contracts for paper. Accordingly, significant increases in paper prices could adversely affect our future results of operations.

     Postage for magazine distribution is also one of our significant expenses. We primarily use the U.S. Postal Service to distribute magazine subscriptions. In recent years, postage rates have increased, and a significant increase in postage prices could adversely affect our future results of operations. We may not be able to recover, in whole or in part, paper or postage cost increases.

     We may face increased costs for distribution of our magazines to newsstands and bookstores.

     Distribution of magazines to newsstands and bookstores is conducted primarily through companies, known as wholesalers. Wholesalers have in the past advised us that they intended to increase the price of their services. We have not experienced any material increase to date; however some wholesalers have experienced credit and on-going concern risks. It is possible that other wholesalers likewise may seek to increase the price of their services or discontinue operations. An increase in the price of our wholesalers’ services could have a material adverse effect on our results of operations. The need to change wholesalers could cause a disruption or delay in deliveries, which could adversely impact our results of operations.

     We may be adversely affected by a continued weakening of newsstand sales.

     The magazine industry has seen a weakening of newsstand sales during the past few years. A continuation of this decline could adversely affect our financial condition and results of operations by further reducing our circulation revenue and causing us to either incur higher circulation expense to maintain our rate bases, or to reduce our rate bases which could negatively impact our revenue.

     Our websites and networks may be vulnerable to unauthorized persons accessing our systems, which could disrupt our operations and result in the theft of our and our users’ proprietary or personal information.

     Our Internet activities involve the storage and transmission of proprietary information and personal information of our users. We endeavor to protect our proprietary information and personal information of our users from third party access. However, it is possible that unauthorized persons may be able to circumvent our protections and misappropriate proprietary or personal information or cause interruptions or malfunctions in our Internet operations. We may be required to expend significant capital and other resources to protect against or remedy any such security breaches. Accordingly, security breaches could expose us to a risk of loss, or litigation and possible liability. Our security measures and contractual provisions attempting to limit our liability in these areas may not be successful or enforceable.

     Martha Stewart controls our company through her stock ownership, enabling her to elect our board of directors, and potentially to block matters requiring stockholder approval, including any potential changes of control.

     Ms. Stewart controls all of our outstanding shares of Class B common stock, representing over 90% of our voting power. The Class B common stock has ten votes per share, while Class A common stock, which is the stock available to the public, has one vote per share. Because of this dual-class structure, Ms. Stewart has a disproportionately influential vote. As a result, Ms. Stewart has the ability to control unilaterally the outcome of all matters requiring stockholder approval, including the election and removal of our entire board of directors and any merger, consolidation or sale of all or substantially all of our assets, and the ability to control our management and affairs. While her 2006 settlement with the SEC bars Ms. Stewart for the five-year period ending in August 2011 from serving at the Company as a director, or as an officer with financial responsibilities, her concentrated control could, among other things, discourage others from initiating any potential merger, takeover or other change of control transaction that may otherwise be beneficial to our businesses and stockholders.

36

     Our intellectual property may be infringed upon or others may accuse us of infringing on their intellectual property, either of which could adversely affect our business and result in costly litigation.

     Our business is highly dependent upon our creativity and resulting intellectual property. We are also susceptible to others imitating our products and infringing our intellectual property rights. We may not be able to successfully protect our intellectual property rights, upon which we depend. In addition, the laws of many foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States. Imitation of our products or infringement of our intellectual property rights could diminish the value of our brands or otherwise adversely affect our revenues. If we are alleged to have infringed the intellectual property rights of another party, any resulting litigation could be costly, affecting our finances and our reputation. Litigation also diverts the time and resources of management, regardless of the merits of the claim. There can be no assurance that we would prevail in any litigation relating to our intellectual property. If we were to lose such a case, and be required to cease the sale of certain products or the use of certain technology or were forced to pay monetary damages, the results could adversely affect our financial condition and our results of operations.

     A loss of the services of other key personnel could have a material adverse effect on our business.

     Our continued success depends to a large degree upon our ability to attract and retain key management executives, as well as upon a number of key members of our creative staff. The loss of some of our senior executives or key members of our creative staff, or an inability to attract or retain other key individuals, could materially adversely affect us.

     We operate in four highly competitive businesses: Publishing, Broadcasting, Internet, and Merchandising, each of which subjects us to competitive pressures and other uncertainties.

     We face intense competitive pressures and uncertainties in each of our four businesses.

     Our magazines, books and related publishing products compete not only with other magazines, books and publishing products, but also with other mass media, websites, and many other types of leisure-time activities. Competition for advertising dollars in magazine operations is primarily based on advertising rates, as well as editorial and aesthetic quality, the desirability of the magazine’s demographic, reader response to advertisers’ products and services and the effectiveness of the advertising sales staff.

     Our Merchandising segment competitors consist of the competitors of the mass-market and department stores in which that segment’s products are sold, including Wal-Mart, Target, Lowe’s, Sears, JCPenney and Kohl’s, as well as other products in the respective product category. We also compete with the internet businesses of these stores and other websites that sell similar retail goods. Competition in our flower business includes other online sellers, as well as traditional floral retailers.

     Our website, marthastewart.com, competes with other how-to, food and lifestyle websites. Our challenge is to attract and retain users through an easy-to-use and content-relevant website. Competition for adverting is based on the number of unique users we attract each month, the demographic profile of that audience and the number of pages they view on our site.

     Our television programs compete directly for viewers, distribution and/or advertising dollars with other lifestyle and how-to television programs, as well as with general programming and all other competing forms of media. Overall competitive factors in Broadcasting include programming content, quality and distribution, as well as the demographic appeal of the programming. Competition for television and advertising dollars is based primarily on advertising rates, audience size and demographic composition, viewer response to advertisers’ products and services and the effectiveness of the advertising sales staff. Our radio programs compete for listeners with similarly themed programming on both satellite and terrestrial radio.

     Our failure to meet the competitive pressures in any of these segments could negatively impact our results of operations and financial condition.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(a) None.
(b) None.
(c) Issuer Purchases of Equity Securities

     The following table provides information about our purchases of our Class A Common Stock during each month of the quarter ended September 30, 2009:

						(d)
					(c)	Maximum Number (or
					Total Number of	Approximate Dollar
	(a)				Shares (or Units)	Value) of Shares (or
	Total Number of		(b)		Purchased as Part of	Units) that may yet be
	Shares (or Units)		Average Price Paid		Publicly Announced	Purchased under the
Period	Purchased (1)		per Share (or Unit)		Plans or Programs	Plans or Programs
July 2009		1,644	$	3.04	Not applicable	Not applicable
August 2009		494	$	3.81	Not applicable	Not applicable
September 2009		490	$	6.75	Not applicable	Not applicable
Total for quarter ended September 30, 2009		2,628	$	4.06	Not applicable	Not applicable

(1) Represents shares withheld by, or delivered to, us pursuant to provisions in agreements with recipients of restricted stock granted under our stock incentive plan allowing us to withhold, or the recipient to deliver to us, the number of shares of our Class A Common Stock having the fair value equal to tax withholding due.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

     On February 28, 2001, the “Company entered into a Split-Dollar Agreement with Martha Stewart and The Martha Stewart Family Limited Partnership (the “MS Partnership”), under which the Company agreed to pay a significant portion of the premiums on whole life policies insuring Ms. Stewart. The policies are owned by and benefit the MS Partnership. Because of uncertainty whether such arrangements constituted prohibited loans to executive officers and directors after the enactment of the Sarbanes-Oxley Act in 2002, the Split-Dollar Agreement was amended so that the Company would not be obligated to make further premium payments after 2002.

     Because the intent of the agreement was frustrated by the enactment of Sarbanes-Oxley and so that the parties may now realize the existing cash surrender value of the policies rather than risking depleting the future surrender value, the Company, Ms. Stewart and the MS Partnership terminated the Split-Dollar Agreement, as amended, effective November 9, 2009. In connection with the termination, the MS Partnership has agreed to surrender and cancel the policies subject to the Split-Dollar Agreement for their cash surrender value as of such date. As part of the arrangement the Company has agreed to reimburse the MS Partnership approximately $300,000 for the premiums paid towards the policies (which amount, if determined to be taxable, would be subject to a tax gross-up).

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ITEM 6. EXHIBITS.

     (a) Exhibits

Exhibit
Number	Exhibit Title
10.1	Amended and Restated Credit Agreement dated as of August 7, 2009 by and among Bank of America, N.A., MSLO Emeril Acquisition Sub LLC and Martha Stewart Living Omnimedia, Inc.†
10.2	Amendment No. 2 dated as of August 7, 2009 to Security Agreement dated as of July 31, 2008 among Martha Stewart Living Omnimedia, Inc., Emeril Acquisition Sub LLC and Bank of America, NA.
10.3	Reaffirmation of Guaranty dated as of August 7, 2009 executed by Martha Stewart Living Omnimedia, Inc., MSO IP Holdings, Inc., Martha Stewart, Inc., Body and Soul Omnimedia, Inc., MSLO Productions, Inc., MSLO Productions — Home, Inc., MSLO Productions — EDF, Inc. and Flour Production, Inc.
31.1	Certification of Principal Executive Officer
31.2	Certification of Chief Financial Officer
32	Certification of Principal Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

† Exhibits and schedules omitted. The Company undertakes to furnish supplementally any of the omitted exhibits and schedules upon request by the Securities and Exchange Commission.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MARTHA STEWART LIVING OMNIMEDIA, INC.
	Date: November 9, 2009
	/s/ Kelli Turner
	Name:	Kelli Turner
	Title:	Chief Financial Officer (Principal Financial Officer and duly authorized officer)

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EXHIBIT INDEX

Exhibit
Number	Exhibit Title
10.1	Amended and Restated Credit Agreement dated as of August 7, 2009 by and among Bank of America, N.A., MSLO Emeril Acquisition Sub LLC and Martha Stewart Living Omnimedia, Inc.†
10.2	Amendment No. 2 dated as of August 7, 2009 to Security Agreement dated as of July 31, 2008 among Martha Stewart Living Omnimedia, Inc., Emeril Acquisition Sub LLC and Bank of America, NA.
10.3	Reaffirmation of Guaranty dated as of August 7, 2009 executed by Martha Stewart Living Omnimedia, Inc., MSO IP Holdings, Inc., Martha Stewart, Inc., Body and Soul Omnimedia, Inc., MSLO Productions, Inc., MSLO Productions — Home, Inc., MSLO Productions — EDF, Inc. and Flour Production, Inc.
31.1	Certification of Principal Executive Officer
31.2	Certification of Chief Financial Officer
32	Certification of Principal Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

† Exhibits and schedules omitted. The Company undertakes to furnish supplementally any of the omitted exhibits and schedules upon request by the Securities and Exchange Commission.

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EX-10.1

Exhibit 10.1

AMENDED AND RESTATED LOAN AGREEMENT

dated as of August 7, 2009

by and among

BANK OF AMERICA, N.A.,

MSLO EMERIL ACQUISITION SUB LLC,
as Borrower

and

MARTHA STEWART LIVING OMNIMEDIA, INC.,
as Parent Guarantor

TABLE OF CONTENTS

	Page
1. Definitions and Reference Terms		1
Other Interpretive Provisions		11
2. Loan		12
2.1 Confirmation of Loan		12
2.2 Repayment Terms		12
2.3 [Reserved]		13
2.4 Interest Rate		13
2.5 Computations		13
2.6 Payment on Non-Business Days		13
2.7 Default Rate		13
3. Fees		13
3.1 [Reserved]		13
3.2 Waiver Fee		13
3.3 Late Fee		13
4. Disbursements, Payments and Costs		14
4.1 Disbursements and Payments		14
4.2 Telecopy or Electronic Mail Instructions		15
4.3 Direct Debit		15
5. Conditions Precedent		15
5.1 Conditions to Effectiveness		15
6. Representations and Warranties		16
6.1 Organization		17
6.2 Authority and Consents		17
6.3 Binding Agreement		17
6.4 Litigation		17
6.5 No Conflicts		17
6.6 Information		18
6.7 Compliance with Laws		18
6.8 Permits, Franchises		18
6.9 Other Obligations		18
6.10 Taxes		18
6.11 Investment Company		18
6.12 No Default or Event of Default		19
6.13 No Material Adverse Change		19
6.14 Insurance		19
6.15 ERISA Plans		19
6.16 Solvency		19

i

	Page
7. Affirmative Covenants		19
7.1 Use of Proceeds		19
7.2 Financial Information		20
7.3 Notices		21
7.4 Existence; Conduct of Business		21
7.5 Compliance with Laws		22
7.6 Maintenance of Properties		22
7.7 Taxes and Other Obligations		22
7.8 Books and Records; Inspection Rights		22
7.9 Concentration Account		22
7.10 Maintenance of Insurance		22
7.11 ERISA		23
7.12 Additional Subsidiaries		23
7.13 Activities of the SPE		23
7.14 [Reserved]		24
7.15 Further Assurances		24
8. Financial Covenants		24
8.1 Tangible Net Worth		24
8.2 Funded Debt to EBITDA Ratio		24
8.3 Parent Guarantor Basic Fixed Charge Coverage Ratio		24
8.4 Borrower Basic Fixed Charge Coverage Ratio		24
8.5 Quick Ratio		24
8.6 Total Assets		24
8.7 Characterization of Loan for Purposes of Financial Covenants		24
9. Negative Covenants		25
9.1 Other Debts		25
9.2 Other Liens		26
9.3 Dividends and Distributions		28
9.4 Investments		28
9.5 Loans		29
9.6 Asset Sales		30
9.7 Capital Expenditures		31
9.8 Transactions with Affiliates		31
9.9 Additional Negative Covenants		31
10. Default and Remedies		32
10.1 Failure to Pay		32
10.2 False Information; Representations and Warranties		32
10.3 Covenant Default		32
10.4 Covenant Default after Cure Period		32
10.5 Other Bank Agreements		32
10.6 Cross Default		33
10.7 Bankruptcy		33
10.8 Lien Property		33
10.9 Judgments		33

ii

	Page
10.10 Material Adverse Change		34
10.11 Governmental Action		34
10.12 ERISA Plans		34
10.13 Loan Document Ceases to be Binding		34
10.14 Breach under License		34
10.15 Change of Control		34
11. Remedies Upon Default		34
12. Notices		35
13. Miscellaneous		36
13.1 Fees and Expenses		36
13.2 Indemnification		36
13.3 Cumulative Rights and No Waiver		37
13.4 Applicable Law		37
13.5 Successors and Assigns		37
13.6 Amendment		37
13.7 Entire Agreement		38
13.8 Inconsistency		38
13.9 Headings		38
13.10 Severability; Waivers		38
13.11 Survivability		38
13.12 Counterparts		38
13.13 Dispute Resolution; Waiver of Jury Trial		38
13.14 Limitation on Interest and Charges		40
13.15 Confidentiality		41
13.16 Release		41
13.17 No Novation		41
Exhibit A       Form of Reaffirmation of Guaranty
Exhibit B       Form of Security Agreement Amendment
Schedule 9.1 Existing Debt
Schedule 9.2 Existing Liens
Schedule 9.8 Certain Affiliate Transactions

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AMENDED AND RESTATED LOAN AGREEMENT

          This Amended and Restated Loan Agreement (this “Agreement”) dated as of August 7, 2009 is entered into by and among Bank of America, N.A. (together with its successors and assigns, the “Bank”), located at 767 Fifth Avenue, Floor 12A, New York, New York 10153, and MSLO Emeril Acquisition Sub LLC, a Delaware limited liability company, the principal place of business of which is located at 11 West 42nd Street, New York, New York 10026 (the “Borrower”), and Martha Stewart Living Omnimedia, Inc., a Delaware corporation (“Parent Guarantor”).

          WHEREAS, Parent Guarantor entered into an Asset Purchase Agreement dated as of February 18, 2008 (the “Purchase Agreement”) among Emeril J. Lagasse, III (“Lagasse”), Emeril’s Food of Love Productions, L.L.C., emerils.com, LLC (collectively, the “Sellers”), Parent Guarantor and MSLO Shared IP Sub LLC, a Delaware limited liability company (“SPE”), pursuant to which the Sellers sold to Parent Guarantor and SPE, and Parent Guarantor and SPE purchased, certain assets used in connection with the Sellers’ business of licensing, marketing, distributing and selling products and services relating to Lagasse and his persona, identity and professional services in various form and media throughout the world (excluding the Restaurant Business (as defined in the Purchase Agreement)) (the “Acquisition” and, such business, the “Acquired Business”);

          WHEREAS, assets acquired under the Purchase Agreement are owned by the Borrower, a wholly owned subsidiary of Parent Guarantor, other than the Shared Intellectual Property (as defined in the Purchase Agreement), which is owned by the SPE;

          WHEREAS, pursuant to the Loan Agreement dated as of April 4, 2008 among Parent Guarantor, the Borrower and the Bank (as modified by Waiver and Omnibus Amendment No. 1 dated as of June 18, 2009, the “Existing Loan Agreement”), the Bank provided a $30,000,000 term loan to the Borrower to finance a portion of the purchase price of the Acquired Business provided under the Purchase Agreement;

          WHEREAS, Parent Guarantor and the Borrower have requested that the Bank make certain modifications to the Existing Loan Agreement and the Security Agreement, and the Bank has agreed thereto, subject to the terms and conditions set forth herein and in the Security Agreement Amendment.

          NOW THEREFORE, in consideration of the financial accommodations described below and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound hereby, the Bank, the Borrower and Parent Guarantor hereby agree to amend and restate the Existing Loan Agreement in its entirety as of the Effective Date (as defined below) as follows:

          1. Definitions and Reference Terms. In addition to any other terms defined herein, the following terms shall have the meanings set forth with respect thereto:

          “AAA” has the meaning set forth in Section 13.13(c).

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          “Accrued Amount” has the meaning set forth in Section 4.1(e).

          “Acquired Business” has the meaning set forth in the preamble to this Agreement.

          “Acquisition” has the meaning set forth in the preamble to this Agreement.

          “Act” has the meaning set forth in Section 13.13(b).

          “Affiliate” of any specified Person means (i) any Person directly or indirectly owning 10% or more of the voting stock or rights or equity interests of such Person or of which such Person directly or indirectly owns ten percent (10%) or more of such voting stock or rights or equity interests or (ii) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this Agreement, “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.

          “Agreement” has the meaning set forth in the preamble to this Agreement.

          “Applicable Margin” means (i) 1.50% per annum during the period from the Effective Date to and including the Cash Collateral Termination Date and (ii) 2.85% per annum thereafter.

          “Authorized Individual” has the meaning set forth in Section 4.1(b).

          “BBA LIBOR Daily Floating Rate” means the fluctuating rate of interest equal to the rate per annum equal to the British Bankers Association LIBOR rate (“BBA LIBOR”), as published by Reuters (or such other commercially available source providing quotations of BBA LIBOR as selected by the Bank from time to time) as determined for each Business Day at approximately 11:00 a.m. London time two (2) Business Days prior to the date in question, for Dollar deposits (for delivery on the first day of such interest period) with a one month term, as adjusted from time to time in the Bank’s sole discretion for reserve requirements, deposit insurance assessment rates and other regulatory costs. If such rate is not available at such time for any reason, then the rate for that interest period will be determined by such alternate method as reasonably selected by the Bank.

          “Bank” has the meaning set forth in the preamble to this Agreement.

          “Billed Amount” has the meaning set forth in Section 4.1(e).

          “Borrower” has the meaning set forth in the preamble to this Agreement.

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          “Business Day” means any day (i) other than a Saturday, Sunday or other day on which commercial banks in New York City, New York or Charlotte, North Carolina are authorized or required by law to close, and (ii) for purposes of determining the BBA LIBOR Daily Floating Rate, that is also a day on which dealings in Dollar deposits are carried on in London, England.

          “Capital Expenditure Limitation” has the meaning set forth in Section 9.7.

          “Capital Expenditures” means, for any period, the amount equal to all expenditures (by the expenditure of cash or the incurrence of indebtedness) made by Parent Guarantor and its consolidated Subsidiaries during such period in respect of the purchase or other acquisition or improvement of any fixed or capital asset and any other amounts which would, in accordance with GAAP, be set forth as capital expenditures on the consolidated statement of cash flows of Parent Guarantor and its Subsidiaries for such period.

          “Cash Collateral Account” has the meaning ascribed to such term in the Security Agreement.

          “Cash Collateral Termination Date” has the meaning ascribed to such term in the Security Agreement.

          “Cash Equivalents” shall mean (a) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed or insured by the United States federal government or any agency thereof, (b) certificates of deposit and time deposits with maturities of one (1) year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding one (1) year and overnight bank deposits, in each case with the Bank or any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations for underlying securities of the types described in clauses (a) and (b) above entered into with the Bank or any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than thirty (30) days with respect to securities issued or fully guaranteed or insured by the United States federal government, (d) commercial paper of a domestic issuer rated at least A-1 by S&P or P-1 by Moody’s, (e) securities with maturities of one (1) year or less from the date of acquisition backed by standby letters of credit issued by the Bank or any commercial bank satisfying the requirements of clause (b) of this definition or (f) shares of money market mutual or similar funds having assets in excess of $500,000,000 and which invest at least ninety-five percent (95%) of their assets in the types described in clauses (a) through (f) of this definition.

          “Change of Control” means the occurrence of any of the following: (i) if a majority of the members of the Board of Directors of Parent Guarantor are not Continuing Directors; (ii) any entity, “person” (within the meaning of Section 14(d) of the Exchange Act) or “group” (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), other than Martha Stewart, together with any trusts, corporations, partnerships, limited liability companies or other corporate entities “controlled” (as defined in the definition of “Affiliate” above) by Martha Stewart (it being agreed that any

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trust of which Martha Stewart is a co-trustee shall be deemed to be controlled by her for purposes of this clause (ii) and clause (iii) below) (collectively, the “MS Entities”), shall have acquired direct or indirect beneficial ownership (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), except that for purposes of this clause, such “person” or “group” shall be deemed to have beneficial ownership of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time, of twenty-five percent (25%) or more on a fully diluted basis of the voting interest in Parent Guarantor’s capital stock ordinarily entitled to vote in an election of directors; (iii) Martha Stewart, together with any MS Entities, shall fail to have direct or indirect beneficial ownership (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of more than fifty percent (50%) or more on a fully diluted basis of the voting interest in Parent Guarantor’s capital stock ordinarily entitled to vote in an election of directors; (iv) Parent Guarantor shall fail to own and control all of the outstanding equity interests of the Borrower; (v) the Borrower shall fail to own and control all of the outstanding equity interests of the SPE; or (vi) the common stock of Parent Guarantor shall cease to be listed on any of the New York Stock Exchange, the American Stock Exchange or the NASDAQ stock market.

          “Claim” has the meaning set forth in Section 13.13(a).

          “Class Action Waiver” has the meaning set forth in Section 13.13(h).

          “Code” means the Internal Revenue Code of 1986, as amended from time to time.

          “Collateral” means all property and interests therein (real and personal, tangible and intangible) in which a lien is now or hereafter granted to the Collateral Agent by any Person as security for the Obligations, including the property described in the Security Agreement.

          “Collateral Agent” has the meaning ascribed to such term in the Security Agreement.

          “Concentration Account” means the deposit account (account number ending in 1317682) maintained by the Borrower with Bank of America, N.A. (and any substitute account therefor maintained by the Borrower at the Collateral Agent).

          “Confidentiality Agreement” has the meaning set forth in Section 13.15.

          “Continuing Directors” means the directors of Parent Guarantor on the Original Closing Date, and each other director, if in each case, such other directors’ nomination for election to the board of directors of Parent Guarantor is recommended by a majority of the then Continuing Directors in his or her election by the stockholders of Parent Guarantor.

          “Copyright Grant” means the Grant of Security Interest in Copyrights dated as of July 31, 2008 made by the Borrower in favor of the Collateral Agent,

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substantially in the form of Exhibit A-1 to the Security Agreement, as the same may be amended, amended and restated, modified or supplemented from time to time.

          “Default” has the meaning set forth in Section 5.1(o).

          “Designated Account” has the meaning set forth in Section 4.1(a).

          “Dollar” means the lawful money of the United States of America.

          “Domestic Subsidiary” means any Subsidiary of Parent Guarantor that is organized or existing under the laws of the United States of America, any state thereof or the District of Columbia.

          “Due Date” has the meaning set forth in Section 4.1(e).

          “EBITDA” means, with respect to any Person for any period, net income for such period, less income or plus loss from discontinued operations and extraordinary items for such period, plus income taxes for such period, plus interest expense for such period, plus depreciation, depletion and amortization for such period determined on a consolidated basis for such Person, plus non-cash stock-based compensation expense, plus impairment losses, in each case to the extent deducted (or included, in the case of income) in the calculation of net income (without duplication). EBITDA shall be calculated on a pro forma basis to give effect to the Acquisition and any other acquisitions permitted pursuant to this Agreement consummated at any time on or after the first day of the relevant testing period thereof as if the Acquisition or such other acquisition had been effected on the first day of such testing period; provided that any such adjustment may be applied solely to the extent that such adjustments are factually supportable and (i) which would be accounted for as any adjustment pursuant to Article 11 of Regulation S-X promulgated by the SEC or (ii) are otherwise determined pursuant to calculations in form and substance reasonably satisfactory to the Bank.

          “Effective Date” means the date on which all of the conditions precedent set forth in Section 5.1 have been satisfied or, at the sole discretion of the Bank, waived.

          “ERISA” means the United States Employee Retirement Income Security Act of 1974, as amended from time to time.

          “ERISA Affiliate” means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Code. Any former ERISA controlled group member of the Borrower or any of its Subsidiaries shall continue to be considered an ERISA Affiliate with respect to the period such entity was an ERISA controlled group member of the Borrower or such Subsidiary and with respect to liabilities arising after such period for which the Borrower or such Subsidiary could be liable under the Code or ERISA.

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          “ERISA Event” means (a) any “reportable event,” as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived by regulation); (b) with respect to a Plan, the failure to satisfy the minimum funding standard of Section 412 of the Code and Section 302 of ERISA, whether or not waived; (c) the failure to make by its due date a required contribution under Section 412(m) of the Code (or Section 430(j) of the Code, as amended by the Pension Protection Act of 2006) with respect to any Plan or the failure to make any required contribution to a Multiemployer Plan; (d) the filing pursuant to Section 412 of the Code of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence by any ERISA Affiliate of any liability under Title IV of ERISA with respect to the termination of any Plan; (f) the receipt by any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or to appoint a trustee to administer any Plan, or the occurrence of any event or condition which could reasonably be expected to constitute grounds under ERISA for the termination of or the appointment of a trustee to administer any Plan; (g) the incurrence by any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; (h) the receipt by an ERISA Affiliate of any notice concerning the imposition of withdrawal liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (i) the “substantial cessation of operations” within the meaning of Section 4062(e) of ERISA with respect to a Plan; (j) the making of any amendment to any Plan which could result in the imposition of a lien or the posting of a bond or other security, (k) the occurrence of a nonexempt prohibited transaction (within the meaning of Section 4975 of the Code or Section 406 of ERISA) which could result in liability to the Borrower or any of the Subsidiaries, (l) a Plan is or becomes subject to “at risk status” under Section 430(i) of the Code or Section 303(i) of ERISA or (m) a Plan is or becomes subject to the limitations on accelerated distribution under Section 436(d) of the Code or Section 206(g)(3) of ERISA.

          “Event of Default” has the meaning set forth in Section 10.

          “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.

          “Existing Loan Agreement” has the meaning set forth in the preamble to this Agreement.

          “Financial Officer” means, with respect to any Person, the chief financial officer, treasurer or controller of such Person.

          “Foreign Subsidiary” means any Subsidiary of the Parent Guarantor other than a Domestic Subsidiary.

          “Funded Debt” means all outstanding liabilities for borrowed money and other interest-bearing liabilities, including current and long term debt, less the non-current portion of Subordinated Liabilities.

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          “GAAP” means generally accepted accounting principles in the United States as in effect from time to time.

          “Governmental Authority” means any nation or government, any federal, state, city, town, municipality, county, local or other political subdivision thereof or thereto and any department, commission, board, bureau, instrumentality, agency or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

          “Guarantors” means, collectively, Parent Guarantor, MSO IP Holdings, Inc., Martha Stewart, Inc., Body & Soul Omnimedia, Inc., MLSO Productions, Inc., MLSO Productions — Home, Inc., MLSO Productions — EDF, Inc., Flour Productions, Inc. and each other Domestic Subsidiary of Parent Guarantor that becomes party to the Guaranty in accordance with Section 7.12.

          “Guaranty” means the Continuing and Unconditional Guaranty dated as of April 4, 2008 from the Guarantors to the Bank, as the same may be amended, amended and restated, modified or supplemented from time to time.

          “Immaterial Foreign Subsidiary” means a Foreign Subsidiary that is designated by Parent Guarantor in writing as an “Immaterial Foreign Subsidiary”, but only to the extent that such Subsidiary:

          (i) (A) contributed 5.0% or less of EBITDA of Parent Guarantor and its Subsidiaries on a consolidated basis for the period of four (4) fiscal quarters most recently ended for which internal financial statements are available and (B) when taken together with each other Foreign Subsidiary that has been designated by Parent Guarantor in writing as an “Immaterial Foreign Subsidiary”, contributed 10% or less of EBITDA of Parent Guarantor and its Subsidiaries on a consolidated basis for the period of four (4) fiscal quarters most recently ended for which internal financial statements are available; and

          (ii) (A) had consolidated assets representing 5.0% or less of Total Assets determined on a consolidated basis in accordance with GAAP as shown on the most recent internal balance sheet of Parent Guarantor and (B) when taken together with each other Foreign Subsidiary that has been designated by Parent Guarantor in writing as an “Immaterial Foreign Subsidiary”, had consolidated assets representing 10% or less of Total Assets determined on a consolidated basis in accordance with GAAP as shown on the most recent internal balance sheet of Parent Guarantor.

          “Indemnitee” has the meaning set forth in Section 13.2.

          “Interest Rate Agreement” means any interest rate swap, cap, collar or hedging agreement or any other similar arrangement.

          “IRS” means the United States Internal Revenue Service, and any successor thereto.

8

          “Lagasse” has the meaning set forth in the preamble to this Agreement.

          “Loan” has the meaning set forth in Section 2.1.

          “Loan Documents” means this Agreement, the Guaranty, the Reaffirmation of Guaranty, any Interest Rate Agreements between a Loan Party and the Bank, the Security Agreement, any Copyright Grant and any Trademark Grant, and any and all other documents, instruments, certificates and agreements executed and/or delivered pursuant hereto or thereto.

          “Loan Party” means the Borrower or any Guarantor.

          “Material Adverse Effect” means a material adverse effect on (i) the business condition (financial or otherwise), operations, properties or prospects of the Loan Parties taken as a whole, (ii) their ability to perform their obligations under this Agreement or any other Loan Document or (iii) the rights and remedies of the Bank under the Loan Documents.

          “MSI” means Martha Stewart, Inc., a Connecticut corporation.

          “Multiemployer Plan” shall mean a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA (i) to which any ERISA Affiliate is then making or has an obligation to make contributions, (ii) to which any ERISA Affiliate has within the preceding six plan years made contributions, including any Person which ceased to be an ERISA Affiliate during such six year period, or (iii) with respect to which Parent Guarantor or any of its Subsidiaries could incur liability.

          “Obligations” means all obligations, liabilities and indebtedness of the Borrower to the Bank, whether now existing or hereafter created, direct or indirect, due or not, under or with respect to the Loan Documents, including, without limitation, the principal of and interest on the Loan (including interest accruing after the maturity of the Loan and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency or other similar proceeding, relating to the Borrower, whether or not a claim for post-petition interest is allowed in such proceeding) and the payment or performance of all other obligations of the Borrower to the Bank, including in each case, but not limited to, all fees, costs, expenses and indemnity obligations hereunder and thereunder.

          “Original Closing Date” means April 4, 2008.

          “Payment Date” means the last day of March, June, September and December of each year.

          “PBGC” means the Pension Benefit Guaranty Corporation.

          “Permitted Investments” has the meaning set forth in Section 9.4.

9

          “Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, Governmental Authority or any other entity.

          “Plan” means a pension, profit-sharing or stock bonus plan intended to qualify under Section 401(a) of the Code, sponsored, maintained or contributed to by Parent Guarantor or any ERISA Affiliate, including any Multiemployer Plan.

          “Quick Assets” means cash, short-term cash investments (including, without limitation, Cash Equivalents), net trade receivables and marketable securities not classified as long-term investments, including any of the foregoing held in the Cash Collateral Account.

          “Reaffirmation of Guaranty” means the Reaffirmation of Guaranty, in substantially the form of Exhibit A to this Agreement.

          “Reportable Event” means any of the events set forth in Section 4043(c) of ERISA or the regulations issued thereunder, other than events for which the thirty (30) day notice period has been waived.

          “SEC” means the United States Securities and Exchange Commission, and any successor thereto.

          “Security Agreement” means the Security Agreement dated as of July 31, 2008 between the Borrower and the Collateral Agent, as modified by the Waiver and Omnibus Amendment No. 1 dated as of June 18, 2009 and the Security Agreement Amendment, as the same may be further amended, amended and restated, modified or supplemented from time to time.

          “Security Agreement Amendment” means Amendment No. 2 to Security Agreement, substantially in the form of Exhibit B to this Agreement.

          “Sellers” has the meaning set forth in the preamble to this Agreement.

          “Shared Intellectual Property” means the intellectual property owned by the SPE, including that assigned by the Sellers to the SPE pursuant to the Purchase Agreement and set forth on Schedule A to the SPE LLC Agreement.

          “Solvent” means, with respect to any Person on a particular date, that on such date (i) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation contingent liabilities, of such Person, (ii) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person does not intend to, and does not believe that it will, incur debts and liabilities beyond such Person’s ability to pay as such debts and liabilities mature and (iv) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would

10

constitute unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

          “SPE” has the meaning set forth in the preamble to this Agreement.

          “SPE Borrower License Agreement” means a perpetual royalty-free license of the SPE’s rights in and to the Shared Intellectual Property from the SPE to the Borrower, in form and substance reasonably satisfactory to the Bank.

          “SPE LLC Agreement” means the Limited Liability Company Agreement of the SPE dated as of February 18, 2008.

          “Subordinated Liabilities” means liabilities subordinated to Parent Guarantor’s and the Borrower’s obligations to the Bank in a manner acceptable to the Bank in its sole discretion.

          “Subsidiary” means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than fifty percent (50%) of the total economic interest or voting power of shares of capital stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).

          “Tangible Net Worth” means the value of total assets (including leaseholds and leasehold improvements and reserves against assets but excluding goodwill, patents, trademarks, trade names, organization expense, unamortized debt discount and expense, capitalized or deferred research and development costs, deferred marketing expenses, and other like intangibles, and monies due from affiliates, officers, directors, employees, shareholders, members or managers) less total liabilities, including but not limited to accrued and deferred income taxes, but excluding the non-current portion of Subordinated Liabilities.

          “Termination Date” means December 7, 2012.

          “Total Assets” means, as of any date of determination, the total amount of all assets of Parent Guarantor and its Subsidiaries, determined on a consolidated basis in accordance with GAAP as shown on the balance sheet of Parent Guarantor.

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          “Trademark Grant” means the Grant of Security Interest in Trademarks dated July 31, 2008 made by the Borrower in favor of the Collateral Agent, as the same may be amended, amended and restated, modified or supplemented from time to time.

          “Trademark License Agreement” has the meaning ascribed to such term in the Purchase Agreement as in effect on the date hereof.

          “Transaction Documents” means, collectively, the Purchase Agreement, the Trademark License Agreement, the Publicity Rights License Agreement, the Employment Agreements, the Escrow Agreement, the Registration Rights Agreement, the IP Assignments, the Bill of Sale and the Assumption Agreement (as each such term is defined in the Purchase Agreement), and all other agreements and documents relating thereto, as the same may be amended, restated, supplemented or otherwise modified to the extent permitted hereunder.

          “WeddingWire” has the meaning set forth in Section 9.6(a).

          “WeddingWire Successor Assets” has the meaning set forth in Section 9.6(a).

           Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

          (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

          (b) Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.

          (c) (i) The words “herein,” “hereto,” “hereof” and “hereunder” and words of similar import when used in any Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof.

               (ii) Section, Exhibit and Schedule references are to the Loan Document in which such reference appears.

               (iii) The term “including” is by way of example and not limitation.

               (iv) The term “documents” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form.

          (d) Unless otherwise expressly provided herein, (a) references to organizational documents, agreements (including the Loan Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the

12

extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Loan Document; and (b) references to any law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such law.

          (e) Except as otherwise stated in this Agreement, all financial information provided to the Bank (other than any financial statements related to the Acquired Business provided to the Bank prior to the Original Closing Date) and all financial covenants and the terms used therein will be calculated or used in accordance with GAAP consistently applied.

          (f) For purposes of determining “pro forma compliance with the covenants set forth in Section 8” pursuant to Sections 9.3 and 9.4(e) and clause (v) of Section 9.6(a), stock purchases, redemptions, retirements, dividends, distributions, investments, capital contributions, acquisitions, transfers, sales, assignments, leases and dispositions that have been made by Parent Guarantor or any of its Subsidiaries subsequent to the applicable four-quarter reference period (or in the case of the covenants set forth in Sections 8.1, 8.5 and 8.6, subsequent to the applicable reference date) and on or prior to or simultaneously with the applicable date of determination shall be calculated on a pro forma basis assuming that all such stock purchases, redemptions, retirements, dividends, distributions, investments, capital contributions, acquisitions, transfers, sales, assignments, leases and dispositions (and any associated change in Funded Debt or fixed charges and the change in EBITDA resulting therefrom) had occurred on the first day of the reference period (or in the case of the covenants set forth in Sections 8.1, 8.5 and 8.6, on the applicable reference date).

          2. Loan.

               2.1 Confirmation of Loan. Each of the Bank, the Borrower and Parent Guarantor hereby agrees and confirms that on the date hereof $17,500,000 in principal amount remains outstanding in respect of the original $30,000,000 term loan made under the Existing Loan Agreement on April 4, 2008 (the “Loan”). Any portion of the Loan that is repaid or prepaid may not be reborrowed.

               2.2 Repayment Terms.

                    (a) The Borrower shall pay interest on each Payment Date until payment in full of any principal outstanding under the Loan.

                    (b) The Borrower shall repay principal in equal installments of $1,500,000 each on each Payment Date, with a final installment equal to the amount of any principal remaining then outstanding due on the Termination Date. In any event, the Borrower will repay in full any principal, interest or other charges outstanding on the Termination Date.

                    (c) The Borrower may, upon at least three (3) Business Days’ prior written irrevocable notice to the Bank specifying the proposed date and the

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principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding principal amount of the Loan in whole or in part, together with accrued interest to the date of such prepayment on the principal amount prepaid, without penalty or other charges. Any such prepayment shall be applied to the principal installments due under Section 2.2(b) in the inverse order of their maturity.

               2.3 [Reserved].

               2.4 Interest Rate. Interest will accrue on the Loan at a rate equal to the BBA LIBOR Daily Floating Rate plus the Applicable Margin.

               2.5 Computations. All computations of interest and of fees shall be made by the Bank on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Installments of principal which are not paid when due under this Agreement shall continue to bear interest until paid. Each determination by the Bank of the actual amount of each interest payment hereunder shall be conclusive and binding for all purposes, absent manifest error.

               2.6 Payment on Non-Business Days. Whenever any payment hereunder or any other Loan Document shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest.

               2.7 Default Rate. Upon the occurrence and during the continuance of any Default or Event of Default or after maturity or after judgment has been rendered on any obligation under this Agreement, all amounts outstanding under this Agreement, including any interest, fees, or costs which are not paid when due, will at the option of the Bank bear interest at a rate which is four percent (4.0%) higher than the rate of interest otherwise provided in this Agreement. This may result in compounding of interest. This will not constitute a waiver of any Default or Event of Default.

          3. Fees.

               3.1 [Reserved].

               3.2 Waiver Fee. If the Bank, at its discretion, agrees to waive or amend any terms of this Agreement or any other Loan Document, the Borrower will, upon written notice from the Bank to the Borrower, pay the Bank a fee for each waiver or amendment in an amount advised by the Bank at the time the Borrower requests the waiver or amendment. Nothing in this paragraph shall imply that the Bank is obligated to agree to any waiver or amendment requested by the Borrower. The Bank may impose additional requirements as a condition to any waiver or amendment.

               3.3 Late Fee. To the extent permitted by law, the Borrower agrees to pay a late fee in an amount not to exceed four percent (4.0%) of any payment

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that is more than fifteen (15) days late. The imposition and payment of a late fee shall not constitute a waiver of the Bank’s rights with respect to the default.

          4. Disbursements, Payments and Costs.

               4.1 Disbursements and Payments.

                    (a) Each payment by the Borrower will be made in Dollars and immediately available funds by debit to such of the Borrower’s accounts with the Bank as the Borrower and the Bank may agree in writing (the “Designated Account”), as described in this Agreement or otherwise authorized by the Borrower in writing.

                    (b) The Bank may honor written instructions (which for purposes of this Section 4.1(b) shall include such instructions received via electronic mail) for advances or repayments given by any one of the individuals authorized to sign loan agreements on behalf of the Borrower, or any other individual designated by any one of such authorized signers (each an “Authorized Individual”).

                    (c) For any payment under this Agreement made by debit to a Designated Account, the Borrower will maintain sufficient immediately available funds in a Designated Account to cover each debit. If there are insufficient immediately available funds in a Designated Account on the date the Bank enters any such debit authorized by this Agreement, the Bank may reverse the debit.

                    (d) Each payment by the Borrower will be evidenced by records kept by the Bank. In addition, the Bank may, at its discretion, require the Borrower to sign one or more promissory notes, provided that the form of any such promissory note shall not create any right on the part of the Bank or impose any obligation on the part of the Borrower that is not set forth in this Agreement.

                    (e) Prior to the date each payment of principal and interest and any fees from the Borrower becomes due (the “Due Date”), the Bank will deliver to the Borrower a written statement of the amounts that will be due on that Due Date (the “Billed Amount”). The calculations in the bill will be made on the assumption that no payments will be made between the date of the billing statement and the Due Date, and that there will be no changes in the applicable interest rate. If the Billed Amount differs from the actual amount due on the Due Date (the “Accrued Amount”), the discrepancy will be treated as follows:

                    (i) If the Billed Amount is less than the Accrued Amount, the Billed Amount for the following Due Date will be increased by the amount of the discrepancy. The Borrower will not be in default by reason of any such discrepancy.

                    (ii) If the Billed Amount is more than the Accrued Amount, the Billed Amount for the following Due Date will be decreased by the amount of the discrepancy.

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Regardless of any such discrepancy, interest will continue to accrue based on the actual amount of principal outstanding without compounding. The Bank will not pay the Borrower interest on any overpayment.

               4.2 Telecopy or Electronic Mail Instructions.

                    (a) The Bank may honor telecopy instructions for repayments given, or purported to be given, by any one of the Authorized Individuals.

                    (b) Repayments will be withdrawn from the Designated Account, or such other of the Borrower’s accounts with the Bank as the Bank and the Borrower may agree in writing.

                    (c) The Borrower will indemnify and hold the Bank harmless from all liability, loss, and costs in connection with any act resulting from instructions the Bank reasonably believes are made by any Authorized Individual by telecopy or electronic mail. This paragraph will survive this Agreement’s termination, and will benefit the Bank and its officers, employees, and agents.

               4.3 Direct Debit. The Borrower agrees that on each Due Date the Bank will debit the Billed Amount from the Designated Account.

          5. Conditions Precedent.

               5.1 Conditions to Effectiveness. The effectiveness of this Agreement is subject to the fulfillment of the following conditions precedent to the satisfaction of the Bank and its counsel:

                    (a) the Bank shall have received counterparts of this Agreement, duly executed by the Borrower and Parent Guarantor;

                    (b) the Bank shall have received the Reaffirmation of Guaranty, duly executed by each Guarantor;

                    (c) the Bank shall have received the Security Agreement Amendment, duly executed by the Borrower and Parent Guarantor, together with evidence reasonably satisfactory to the Bank that the Borrower shall have deposited or shall concurrently deposit by wire transfer of immediately available funds a sufficient amount to cause $17,500,000 in cash and investments permitted under Section 3.04 of the Security Agreement, as amended by the Security Agreement Amendment, to be held the Cash Collateral Account;

                    (d) the Bank shall have received evidence satisfactory to it that the Borrower shall concurrently pay the fees and expenses of Paul, Weiss, Rifkind, Wharton & Garrison LLP as of the Effective Date required to be paid under this Agreement;

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                    (e) the Bank shall have received a certificate of good standing with respect to the each Loan Party, certified as of a recent date by the appropriate office in such Loan Party’s jurisdiction of organization;

                    (f) the Bank shall have received a certificate of the Secretary or Assistant Secretary of each of Parent Guarantor, the Borrower and the SPE, dated the Effective Date and certifying (i) that such Person’s certificate of incorporation or certificate of formation has not been amended since the date of the last amendment thereto shown in the certified copy thereof (certified as of a recent date) attached to such certificate (or has not been modified since the Original Closing Date), (ii) that attached thereto is a true and complete copy of such Person’s bylaws or limited liability company operating agreement, together with all amendments and other modifications thereto, as in effect on the date of such certificate (or that the same have not been modified since the Original Closing Date), (iii) in the case of Parent Guarantor and the Borrower, that attached thereto is a true and complete copy of resolutions adopted by the directors or other appropriate persons of such Person authorizing the execution, delivery and performance of this Agreement and the Security Agreement Amendment and that such resolutions have not been modified, rescinded or amended and are in full force and effect and (iv) in the case of Parent Guarantor and the Borrower, as to the incumbency and specimen signature of each of such Loan Party’s officers executing this Agreement, the Security Agreement Amendment or any other Loan Document delivered in connection herewith or therewith;.

                    (g) the representations and warranties contained in Section 6 hereof and in the Security Agreement shall be true and correct in all material respects on and as of such date (except to the extent such representations and warranties expressly relate to an earlier date); provided that any representation and warranty that is qualified as to “materiality,” “Material Adverse Effect” or any similar language shall be true and correct in all respects on such date;

                    (h) there shall not have occurred since December 31, 2007 a material adverse change in the business condition (financial or otherwise), operations, properties or prospects of the Loan Parties taken as a whole or their ability to perform their obligations under this Agreement or any other Loan Document;

                    (i) no event shall have occurred and be continuing which, after giving effect to the Effective Date, constitutes an Event of Default under this Agreement or would constitute an Event of Default but for the requirement that notice be given or time elapse or both (any such event being a “Default”); and

                    (j) the Bank shall have received such other certificates, documents and information with respect to the Borrower or the Guarantors as the Bank may reasonably request.

          6. Representations and Warranties. In order to induce the Bank to enter into this Agreement and maintain the Loan provided for herein, each of Parent Guarantor and the Borrower hereby represents and warrants to the Bank as follows:

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               6.1 Organization. Each of Parent Guarantor and each of its Subsidiaries (other than any Immaterial Foreign Subsidiary) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has the corporate or other requisite legal power to own its assets and to transact the business in which it is presently engaged and is properly licensed, in good standing, and, where required, in compliance with fictitious name statutes, in each state in which it does business, in each case, except where the failure to so qualify or to be so licensed, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

               6.2 Authority and Consents. Each Loan Party has the requisite power and authority to execute and deliver each of each Loan Document to which it is a party (including, without limitation, this Agreement) and to incur and perform the obligations provided for herein and therein. No consent or approval of or notice to or filing with any Governmental Authority or other third party is or will be required as a condition to such Loan Party’s execution, delivery and performance of this Agreement or any other Loan Document to which such Loan Party is a party, or the validity or enforceability thereof, or the taking by such Loan Party of any other action contemplated hereby or thereby, other than such consents which have been obtained, are in full force and effect, and copies thereof have been delivered to the Bank.

               6.3 Binding Agreement. Each of this Agreement and the other Loan Documents to which a Loan Party is a party has been duly executed and delivered by such Loan Party and constitutes its valid and legally binding obligation, enforceable against the such Loan Party in accordance with its terms, except to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws, or by general principles of equity (regardless of whether considered in a proceeding in equity or at law).

               6.4 Litigation. There is no litigation, investigation or proceeding involving any Parent Guarantor or any of its Subsidiaries pending or, to the knowledge of Parent Guarantor or the Borrower, threatened by or before any court or Governmental Authority or arbitration authority, which could reasonably be expected to have a Material Adverse Effect, except as set forth on the Parent Guarantor’s most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the SEC prior to the date hereof.

               6.5 No Conflicts. The execution, delivery and performance by each Loan Party of this Agreement and any other Loan Document to which it is a party, and the taking by such Loan Party of all other actions contemplated hereby and thereby, do not contravene the organizational documents of such Loan Party or any law, statute, rule, regulation, order, writ, judgment, injunction or decree applicable to such Loan Party or any of its property, and do not constitute a default under any existing agreement, mortgage, indenture or contract binding on such Loan Party or affecting such Loan Party’s property.

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               6.6 Information. All financial information (other than forecasts, projections and other forward-looking data and statements) that has been or will be furnished by any Loan Party to the Bank in connection with the transactions contemplated by the Loan Documents is or will be accurate and complete in all material respects on the date as of which such information is furnished to the Bank and not incomplete by the omission of any fact necessary to make such information not misleading.

               6.7 Compliance with Laws. Each of Parent Guarantor and each of its Subsidiaries (other than any Immaterial Foreign Subsidiary) is in compliance in all material respects with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all Governmental Authorities in respect of the conduct of its business and the ownership of its property. The proceeds of the Loan were used solely as provided in Section 2.3 of the Existing Loan Agreement. The use of the proceeds of the Loan did not violate and was not inconsistent with the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System and no part of the proceeds of the Loan were used to purchase or carry any margin stock or to extend credit for any such purpose.

               6.8 Permits, Franchises. Each of Parent Guarantor and each of its Subsidiaries (other than any Immaterial Foreign Subsidiary) possesses all material permits, memberships, franchises, contracts and licenses required and all material trademark rights, trade name rights, patent rights, copyrights, and fictitious name rights reasonably necessary to enable it to conduct the business in which it is now engaged.

               6.9 Other Obligations. Neither Parent Guarantor nor any of its Subsidiaries (other than any Immaterial Foreign Subsidiary) is in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation, except as have been disclosed in writing to the Bank.

               6.10 Taxes. Each of Parent Guarantor and each of its Subsidiaries (other than any Immaterial Foreign Subsidiary) has filed all tax returns required to be filed by it and has paid all taxes and assessments payable by it which have become due, other than those not yet delinquent and except for those being contested in good faith by appropriate proceedings and adequately disclosed and fully provided for in the financial statements of Parent Guarantor in accordance with GAAP. There is no action, suit, proceeding, investigation, audit or claim now pending or, to the knowledge of the Borrower or Parent Guarantor, threatened by any Governmental Authority with respect to any taxes relating to any Loan Party, except that Parent Guarantor and its Subsidiaries are currently subject to an ongoing audit by the IRS related to fiscal years 2001 through 2004.

               6.11 Investment Company. No Loan Party is required to be registered an “investment company” or is a company “controlled” by a Person required to be registered as an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended.

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               6.12 No Default or Event of Default. No event has occurred and is continuing which, before or after giving effect to the Effective Date, constitutes a Default or an Event of Default.

               6.13 No Material Adverse Change. Since December 31, 2007 there has occurred no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of the Loan Parties taken as a whole or their ability to perform their obligations under this Agreement or any other Loan Document.

               6.14 Insurance. The Loan Parties have obtained, and maintained in effect, the insurance coverage required in Section 7.10.

               6.15 ERISA Plans.

                    (a) Each Plan (other than a Multiemployer Plan) is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan has received a favorable determination letter from the IRS and to the best knowledge of Parent Guarantor, nothing has occurred which would cause the loss of such qualification. Parent Guarantor has fulfilled its obligations, if any, under the minimum funding standards of ERISA and the Code with respect to each Plan, and has not incurred any material liability with respect to any Plan under Title IV of ERISA.

                    (b) There are no claims, lawsuits or actions (including by any Governmental Authority), and there has been no prohibited transaction or violation of the fiduciary responsibility rules, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect.

                    (c) With respect to any Plan subject to Title IV of ERISA, no ERISA Event has occurred, or is reasonably expected to occur, that could reasonably be expected to result in a Material Adverse Effect.

               6.16 Solvency. On and as of the Effective Date, the Loan Parties, on a consolidated basis, are Solvent.

          7. Affirmative Covenants. Until full payment and performance of all Obligations, each of Parent Guarantor and the Borrower agrees:

               7.1 Use of Proceeds. The proceeds of the credit extended under this Loan Agreement may not be used directly or indirectly to purchase or carry any “margin stock” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System, or extend credit to or invest in other parties for the purpose of purchasing or carrying any such “margin stock,” or to reduce or retire any indebtedness incurred for such purpose.

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               7.2 Financial Information. To provide the following financial information and statements in form and content reasonably acceptable to the Bank, and such additional information as reasonably requested by the Bank from time to time:

                    (a) As soon as available, but in any event within 120 days following the end of the Parent Guarantor’s fiscal year, audited consolidated financial statements for Parent Guarantor and its Subsidiaries for such fiscal year, including a consolidated balance sheet and related statements of operations, shareholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Ernst & Young LLP, or other independent public accountants of recognized national standing and reasonably acceptable to the Bank (without a “going concern” or like qualification or exception or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly, in all material respects, the financial condition and results of operations of Parent Guarantor and its Subsidiaries on a consolidated basis in accordance with GAAP;

                    (b) As soon as available, but in any event with sixty (60) days following the end of each of the first three fiscal quarters of each fiscal year of Parent Guarantor, unaudited consolidated financial statements for Parent Guarantor and its Subsidiaries for such fiscal quarter, including a consolidated balance sheet and related statements of operations, shareholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods for (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by a Financial Officer of Parent Guarantor as presenting fairly the financial condition and results of operations of Parent Guarantor and its Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end adjustments and the absence of footnotes;

                    (c) If the Cash Collateral Termination Date has occurred, concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate (a “Compliance Certificate”) of a Financial Officer of Parent Guarantor certifying (i) that no Event of Default or Default has occurred or, if an Event of Default or Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto and setting forth computations in reasonable detail satisfactory to the Bank demonstrating whether or not Parent Guarantor is in compliance with the covenants set forth in Section 8 for the applicable period and (ii) that except as set forth on a schedule thereto, since the date of the last Compliance Certificate (or the Effective Date, in the case of the first Compliance Certificate delivered hereunder) (A) no Loan Party has changed its legal name or form or jurisdiction of organization or acquired or formed a new Subsidiary and (B) neither the Borrower nor the SPE has acquired or filed a registration or application for registration for any Copyright, Patent or Trademark (as such terms are defined in the Security Agreement);

                    (d) Promptly upon sending or receipt, copies of any management letters sent or received by Parent Guarantor to or from its auditors; and

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                    (e) Promptly, such other information concerning the business, operations, properties and condition of Parent Guarantor and its Subsidiaries as the Bank may from time to time reasonably request.

          Documents required to be delivered pursuant to Section 7.2(a) or (b) may be delivered electronically and, if so delivered, shall be deemed to have been delivered on the date on which Parent Guarantor posts such documents, or provides a link thereto, on Parent Guarantor’s website on the Internet at its website address provided to the Bank; provided that Parent Guarantor shall notify the Bank by telecopy or electronic mail of the posting of any such documents and provide, if requested, to the Bank by electronic mail electronic versions of such documents; provided, further, however, that Parent Guarantor’s failure to so notify the Bank shall not give rise to a Default or Event of Default.

               7.3 Notices. To furnish the Bank prompt written notice of any of the following:

                    (a) the occurrence of any Default or Event of Default;

                    (b) the filing or commencement of, or any written threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority or in arbitration, against Parent Guarantor or any of its Subsidiaries which, if adversely determined, could reasonably be expected to have a Material Adverse Effect; or

                    (c) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.

               7.4 Existence; Conduct of Business. That it shall, and shall cause each of its Subsidiaries (other than any Immaterial Foreign Subsidiary) to, do or cause to be done all things reasonably necessary to preserve, renew and keep in full force and effect its legal existence and the rights, qualifications, licenses, permits, franchises, governmental authorizations and intellectual property rights (except as such would otherwise reasonably expire, be abandoned or permitted to lapse in the ordinary course of business), necessary in the normal conduct of its business, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted; provided, however, that (i) Parent Guarantor from time to time may cause any one or more of the Loan Parties (other than the Borrower or Parent Guarantor) to be merged into another Loan Party, (ii) Parent Guarantor may cause any Subsidiary that is not a Loan Party to be merged into another Subsidiary that is not a Loan Party and (iii) in the event from time to time that any Subsidiary (other than the Borrower) has no material assets, Parent Guarantor may cause such Subsidiary to be dissolved. Parent Guarantor shall give Bank not less than ten (10) days’ prior written notice of the occurrence of any event referenced in clauses (i), (ii) or (iii) of the immediately preceding sentence that involves a Loan Party.

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               7.5 Compliance with Laws. That it shall, and shall cause each of its Subsidiaries (other than any Immaterial Foreign Subsidiary) to, comply, in all material respects with all laws, rules, regulations, orders and requirements of any Governmental Authority applicable to it or any of its property, including without limitation, the Collateral.

               7.6 Maintenance of Properties. That it shall, and shall cause each of its Subsidiaries (other than any Immaterial Foreign Subsidiary) to, (i) at all times maintain and preserve all material property necessary to the normal conduct of its business in good repair, working order and condition, ordinary wear and tear excepted and casualty or condemnation excepted and (ii) make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto as reasonably necessary in accordance with prudent industry practice in order that the business carried on in connection therewith, if any, may be properly conducted at all times.

               7.7 Taxes and Other Obligations. That it shall, and shall cause each of its Subsidiaries (other than any Immaterial Foreign Subsidiary) to, pay all of such Person’s taxes and other obligations as the same become due and payable, except to the extent the same are being contested in good faith by appropriate proceedings in a diligent manner and such Person has set aside on its books adequate reserves with respect thereto in accordance with GAAP.

               7.8 Books and Records; Inspection Rights. (i) That it shall, and shall cause each of its Subsidiaries to, keep proper books of record and account and (ii) that it shall, and shall cause each Loan Party to, permit any representatives designated by the Bank (including employees of the Bank or any consultants, accountants, attorneys and appraisers retained by the Bank), upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times during normal business hours and as often as reasonably requested; provided that such Person may require that any such representative who is not an employee of the Bank first agree in writing to the provisions set forth in Section 13.15 or confidentiality restrictions that are substantially similar. If any property, books and records of any Loan Party are in the possession of a third party, Parent Guarantor and the Borrower hereby authorize, or agree to cause such other Loan Party to authorize, such third party to permit the Bank or its representatives to have access to perform inspections or audits and to respond to the Bank’s requests for information concerning such property, books and records.

               7.9 Concentration Account. To cause all payments with respect to, or any proceeds of insurance claims related to, the Collateral to be made directly to the Concentration Account.

               7.10 Maintenance of Insurance. To maintain insurance reasonably satisfactory to the Bank as to amount, nature and carrier covering property damage (including loss of use and occupancy) to each Loan Party’s and the SPE’s

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properties, business interruption insurance, public liability insurance including coverage for contractual liability, product liability and workers’ compensation, and any other insurance which is usual for the business of Parent Guarantor or any of its Subsidiaries (other than any Immaterial Foreign Subsidiary). Each policy with respect to the Parent Guarantor and the Borrower and its properties shall list the Collateral Agent as a loss payee on property and casualty policies with respect to the Collateral and as additional insured with respect to general liability policies and shall provide for at least thirty (30) days prior notice to the Collateral Agent of any cancellation thereof. Any key man life insurance policy insuring the life of Lagasse that is procured by Parent Guarantor or any of its Subsidiaries shall provide that the Borrower is the beneficiary thereof and list the Collateral Agent as loss payee. The Bank acknowledges and agrees that the insurance maintained by the Loan Parties on the date hereof is acceptable to the Bank as of the date hereof.

               7.11 ERISA. Promptly during each year, to pay, and cause its Subsidiaries to pay, contributions adequate to meet at least the minimum funding standards under ERISA with respect to each and every Plan that is subject to Section 412 of the Code; file each annual report required to be filed pursuant to Section 103 of ERISA in connection with each Plan for each year; and notify the Bank within ten (10) days of the occurrence of any ERISA Event which could reasonably be expected to result (alone or in connection with any other event) in aggregate liability to the Borrower equal to or greater than $2,500,000 and to comply in all material respects with the applicable provisions of ERISA and the Code with respect to each Plan and (y) upon request by the Bank to provide copies of (i) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by the Borrower or any ERISA Affiliate with the IRS with respect to each Plan; (ii) the most recent actuarial valuation report for each Plan; (iii) all notices received by the Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor or any governmental agency concerning an ERISA Event; and (iv) such other documents or governmental reports or filings relating to any Plan) as the Bank shall reasonably request.

               7.12 Additional Subsidiaries. If any Loan Party forms or acquires an additional Domestic Subsidiary, to cause such additional Domestic Subsidiary to (i) become a Guarantor as promptly thereafter as reasonably practicable, but in any event within twenty (20) days, by executing and delivering to the Bank such amendments or supplements to the Guaranty as the Bank reasonably deems necessary or advisable to cause such Subsidiary to become a party to the Guaranty and (ii) make such deliveries or take such actions of the type required for Guarantors as of the Original Closing Date by Sections 5.1(b), (e), (f) and (h) with respect to such new Guarantor, in form and substance reasonably satisfactory to the Bank.

               7.13 Activities of the SPE. To cause the SPE (i) to comply with the provisions of the SPE LLC Agreement and (ii) distribute to the Borrower on not less than a monthly basis all revenues, if any, net of ordinary course expenses of the SPE, if any, held by the SPE.

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               7.14 [Reserved].

               7.15 Further Assurances. To, and to cause each other Loan Party to, take any action reasonably requested by the Bank to carry out the intent of this Agreement.

          8. Financial Covenants. Commencing with the last day of Parent Guarantor’s fiscal quarter ending immediately preceding the Cash Collateral Termination Date and until full payment and performance of all Obligations:

               8.1 Tangible Net Worth. Parent Guarantor shall maintain, as of the last day of each fiscal quarter of Parent Guarantor, on a consolidated basis Tangible Net Worth equal to at least $40,000,000.

               8.2 Funded Debt to EBITDA Ratio. Parent Guarantor shall not permit, as of the last day of each fiscal quarter of Parent Guarantor, the ratio of (i) Funded Debt for the four (4) quarter period ending on such day to (ii) consolidated EBITDA for Parent Guarantor and its Subsidiaries for the four (4) quarter period ending on such day, to be greater than 2.0 to 1.0.

               8.3 Parent Guarantor Basic Fixed Charge Coverage Ratio. Parent Guarantor shall not permit, as of the last day of any fiscal quarter of Parent Guarantor, the ratio of (i) consolidated EBITDA for Parent Guarantor and its Subsidiaries for the four (4) quarter period ending on such day to (ii) the sum of (A) interest expense and (B) the current portion of long term debt, in each case, on a consolidated basis for Parent Guarantor and its Subsidiaries for the four (4) quarter period ending on such day, to be less than 2.75 to 1.0.

               8.4 Borrower Basic Fixed Charge Coverage Ratio. The Borrower shall not permit, as of the last day of any fiscal quarter of the Borrower, the ratio of (i) consolidated EBITDA for the Borrower and the SPE for the four (4) quarter period ending on such day to (ii) the sum of (A) interest expense and (B) the current portion of long term debt, in each case, on a consolidated basis for the Borrower and the SPE for the four (4) quarter period ending on such day, to be less than 1.0 to 1.0.

               8.5 Quick Ratio. Parent Guarantor shall maintain, as of the last day of any fiscal quarter of Parent Guarantor, on a consolidated basis with its Subsidiaries, a ratio of (i) Quick Assets as of such day to (ii) current liabilities as of such day of at least 1.0 to 1.0.

               8.6 Total Assets. Parent Guarantor shall maintain, as of the last day of any fiscal quarter of Parent Guarantor, at least 75% of Total Assets in Parent Guarantor and its Domestic Subsidiaries.

               8.7 Characterization of Loan for Purposes of Financial Covenants. For purposes of measuring Parent Guarantor’s and the Borrower’s compliance with the covenants set forth in Sections 8.3, 8.4 and 8.5, the outstanding

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principal amount of the Loan shall not be included in the “current portion of long term debt” (as used in subclause (B) of Section 8.3(ii) and subclause (B) of Section 8.4(ii)) or in “current liabilities” (as used in clause (ii) of Section 8.5).

          9. Negative Covenants. Until full payment and performance of all Obligations:

               9.1 Other Debts. Parent Guarantor shall not, and shall not permit any of its Subsidiaries (other than any Immaterial Foreign Subsidiary) to, have outstanding or incur any direct or contingent liabilities or lease obligations (other than those to the Bank), or become liable for the liabilities of others, without the Bank’s written consent. This does not prohibit:

                    (a) acquiring goods, supplies, merchandise or services on normal trade credit;

                    (b) endorsing negotiable instruments received in the usual course of business;

                    (c) obtaining surety bonds in the usual course of business;

                    (d) debt or other liabilities of (i) a Loan Party owed to another Loan Party or (ii) of a Subsidiary that is not a Loan Party (other than the SPE) to another Subsidiary that is not a Loan Party (other than the SPE);

                    (e) liabilities for taxes not yet due;

                    (f) liabilities arising under the Transaction Documents;

                    (g) lease obligations as lessee arising in the ordinary course of business;

                    (h) hedging arrangements entered into for purposes of mitigating interest rate, commodity pricing, currency exchange rate or other similar risks in the ordinary course of business (so long as such arrangements are not entered into primarily for speculative purposes)

                    (i) debt in respect of capital lease obligations or incurred to provide all or a portion of the purchase price or cost of acquiring equipment or fixtures in the ordinary course of business within the limitations set forth in clause (a)(xi) of Section 9.2; provided that the aggregate principal amount of debt outstanding under this Section 9.1(i) shall not exceed $5,000,000 at any time;

                    (j) debt, lines of credit or letter of credit facilities existing on the Original Closing Date and described in Schedule 9.1 and refinancings

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thereof or amendments or modifications thereof which do not have the effect of increasing the principal amount thereof or changing the amortization thereof (other than to extend the same) and which are otherwise on terms and conditions no less favorable to such Person or the Bank, as determined by the Bank in its reasonable discretion, than the terms of the debt being refinanced, amended or modified;

                    (k) payroll and other liabilities in respect of employees arising in the ordinary course of business;

                    (l) debt that is assumed in connection with or incurred to finance an investment, capital contribution, transfer, purchase or acquisition permitted pursuant to Section 9.4(e) in an aggregate amount not to exceed $15,000,000 at any time outstanding, and refinancings thereof which do not have the effect of increasing the principal amount thereof; provided that such debt may not (i) exceed the amount of such investment or capital contribution or the purchase price of the assets acquired or (ii) be assumed or incurred by the Borrower or the SPE;

                    (m) earn-out obligations incurred in connection with acquisitions permitted by clause (ii) of Section 9.4(e) in an aggregate amount not to exceed $15,000,000 at any time outstanding (with the amount of such earn-out obligations for purposes of this subsection (m) to be the maximum reasonably anticipated liability in respect thereof as determined by Parent Guarantor from time to time); provided that such earn-out obligations may not be incurred by the Borrower or the SPE;

                    (n) incurrence of liabilities, other than in respect of debt (including, without limitation, debt for borrowed money or in respect of hedging arrangements or letters of credit), incurred in the ordinary course of a Loan Party’s business; provided that such liabilities, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; and

                    (o) guarantees of any of the foregoing; provided, that (i) a Loan Party may not guaranty the debt or other obligations of a Subsidiary that is not a Loan Party and (ii) neither the Borrower nor the SPE may guaranty the debt or other obligations of any other Person, except that the Borrower may provide guarantees in favor of the Bank or the Collateral Agent.

               9.2 Other Liens.

                    (a) Parent Guarantor and its Subsidiaries (other than any Immaterial Foreign Subsidiary) shall not create, assume or allow any security interest or lien on any of its property, whether now or hereafter acquired, except:

          (i) liens and security interests in favor of the Bank or the Collateral Agent;

          (ii) liens for taxes not yet due;

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          (iii) existing liens disclosed in writing to the Bank prior to the Original Closing Date;

          (iv) liens of landlords and banks and rights of set-off, liens of carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other similar liens imposed by law, in each case incurred in the ordinary course of business for amounts not yet overdue;

          (v) liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, performance bonds and other similar obligations (other than obligations for the payment of borrowed money), so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Collateral on account thereof;

          (vi) leases or subleases granted to third parties in the ordinary course of business and not interfering in any material respect with the business of Parent Guarantor or any of its Subsidiaries;

          (vii) easements, rights-of-way, restrictions, encroachments, and other defects or irregularities in title, in each case which do not interfere in any material respect with the ordinary conduct of the business of Parent Guarantor or any of its Subsidiaries;

          (viii) licenses of intellectual property rights granted in the ordinary course of business;

          (ix) liens on property or assets acquired pursuant to Section 9.4(e) on the property or assets so acquired, to secure debt permitted by Section 9.1(l); provided that such liens attach only to the property or assets being financed pursuant to such debt and do not encumber any Collateral or any other property of Parent Guarantor or any of its Subsidiaries (other than any Immaterial Foreign Subsidiary);

          (x) liens in existence on the Original Closing Date and summarized in Schedule 9.2; and

          (xi) liens securing debt permitted under Section 9.1(i); provided that such liens attach only to the investments or assets the acquisition of which is financed with such debt and such lien and debt are incurred within ninety (90) days following such purchase.

                    (b) The Borrower and the SPE shall not create, assume or allow any security interest or lien (including judicial liens) on any of its property, whether now or hereafter acquired, except:

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               (i) liens and security interests in favor of the Bank or the Collateral Agent;

               (ii) liens for taxes not yet due;

               (iii) licenses of intellectual property rights permitted under the Security Agreement;

               (iv) the Trademark License Agreement; and

               (v) the SPE Borrower License Agreement.

               9.3 Dividends and Distributions. Neither Parent Guarantor nor the Borrower shall declare or pay any dividends (except dividends paid in capital stock) or distributions on, or pay any amount account of the purchase, redemption or retirement of, its equity interests, or any warrants, options or other rights to purchase or subscribe for its equity interests, whether or not presently convertible, exchangeable or exercisable; provided, that so long as (A) no Default or Event of Default then exists or would result from such payment and (B) if the Cash Collateral Termination Date shall have occurred, after giving effect to such payment, Parent Guarantor and the Borrower would be in pro forma compliance with the covenants set forth in Section 8 based on Parent Guarantor’s most recently ended four (4) fiscal quarter period for which internal financial statements are available immediately preceding the date on which such payment is to be made, (i) Parent Guarantor may purchase, redeem or retire its equity interests, and pay dividends or distributions in respect of its equity interests, in an aggregate amount of consideration, dividends and distributions paid under this clause (i) not to exceed $30,000,000 over the term of this Agreement and (ii) the Borrower may declare and pay dividends and distributions in respect of its equity interests. This Section 9.3 shall not prohibit Parent Guarantor from (i) in connection with any tax withholding obligations that may arise in connection with the vesting of restricted stock of Parent Guarantor held by the grantee thereof or the exercise of any option to acquire shares of Parent Guarantor’s stock, withholding certain shares of such stock from the grantee or optionee in satisfaction of such tax withholding obligations and (ii) permitting the holder of any options or warrants to acquire shares of Parent Guarantor’s stock and delivering the exercise price of such option or warrant, in whole or in part, by use of any “cashless exercise” feature set forth (including by reference to any related plan) in the applicable option agreement or warrant.

               9.4 Investments. Parent Guarantor shall not, and shall not permit any of its Subsidiaries (other than any Immaterial Foreign Subsidiary) to, have any existing, or make any new investments in, any Person, or make any capital contributions or other similar transfer of assets to any Person, or acquire or purchase all or substantially all of the assets any Persons, or of all or substantially all of the assets that comprise any business unit of any such Person, except for (collectively, the “Permitted Investments”):

                    (a) existing investments disclosed in writing to the Bank prior to Original Closing Date;

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                    (b) investments made by (i) Loan Parties in other Loan Parties that are Subsidiaries of such Loan Parties; (ii) the Borrower in the SPE pursuant to the Purchase Agreement; and (iii) Subsidiaries that are not Loan Parties (other than the SPE) in other Subsidiaries that are not Loan Parties (other than the SPE);

                    (c) investments in Cash Equivalents;

                    (d) investments in securities acquired in exchange for accounts receivable in connection with a bankruptcy or workout with respect to a trade creditor; and

                    (e) (i) investments, transfers, capital contributions, acquisitions and purchases not described in clause (ii) below; provided that (A) no Default or Event of Default then exists or would result from such investment and (B) if the Cash Collateral Termination Date shall have occurred, after giving effect to such investment, Parent Guarantor and the Borrower would be in pro forma compliance with the covenants set forth in Section 8 based on Parent Guarantor’s most recently ended four (4) fiscal quarter period for which internal financial statements are available immediately preceding the date on which such investment is to be made, and (ii) acquisitions or purchases of all or substantially all of the assets or all of the stock of one or more Persons, or of all or substantially all of the assets, or that comprise any business unit, of any Person, so long as (A) Parent Guarantor shall have provided the Bank with not less than ten (10) days’ prior written notice describing such transaction in reasonable detail and, if the Cash Collateral Termination Date shall have occurred, a certificate of a Financial Officer to the effect that after giving effect to such acquisition, Parent Guarantor and the Borrower would be in pro forma compliance with the covenants set forth in Section 8 based on Parent Guarantor’s most recently ended four (4) fiscal quarter period for which internal financial statements are available immediately preceding the date on which such acquisition is to be made, setting forth such pro forma calculations in reasonable detail, (B) no Default or Event of Default then exists or would result from such acquisition and (C) the Person or business unit acquired shall be in business of the same general type as conducted on the Original Closing Date by Parent Guarantor and its Subsidiaries;

provided, that notwithstanding anything herein to the contrary, after the date hereof, neither the Borrower nor the SPE shall create or acquire any new Subsidiary and the Borrower shall not make any additional investments in the SPE.

               9.5 Loans. Parent Guarantor shall not, and shall not permit any of its Subsidiaries (other than any Immaterial Foreign Subsidiary) to, make any loans, advances or other extensions of credit to any Person, except for:

                    (a) existing extensions of credit disclosed to the Bank in writing prior to the Original Closing Date;

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                    (b) extensions of credit made (i) by Loan Parties (other than the Borrower) to other Loan Parties; and (ii) Subsidiaries that are not Loan Parties (other than the SPE) to other Subsidiaries that are not Loan Parties (other than the SPE);

                    (c) advances paid to employees and directors in the ordinary course of business; and

                    (d) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods and services or the license of intellectual property in the ordinary course of business.

               9.6 Asset Sales. Parent Guarantor shall not, and shall not permit any of its Subsidiaries (other than an Immaterial Foreign Subsidiary) to:

                    (a) sell, assign, lease, transfer or otherwise dispose of any part of its business or any of its assets or enter into any agreement to do so, except (i) excluding the Borrower and the SPE, in the ordinary course of business (including sales of surplus, damaged, worn or obsolete assets, and sales of Cash Equivalents) for not less than fair market value, (ii) sales of inventory and Cash Equivalents by the Borrower in the ordinary course of business for not less than fair market value (iii) licenses of intellectual property rights permitted by Section 9.2, (iv) sales, assignments, leases, transfers or other dispositions of assets (A) from Loan Parties (other than the Borrower) to other Loan Parties and (B) from Subsidiaries that are not Loan Parties (other than SPE) to other Subsidiaries that are not Loan Parties (other than the SPE), (v) excluding the Borrower and the SPE, other sales of assets on arms-length terms, at least 75% of the consideration for which shall be in the form of cash and the aggregate fair market value of which, in the aggregate for all such sales permitted under this clause (v) from and after the Original Closing Date, does not exceed 10% of Parent Guarantor’s consolidated shareholders’ equity as of the end of the fiscal quarter most recently ended prior to the date of the proposed sale so long as, in the case of this clause (v), (A) no Default or Event of Default then exists or would result from such sale and (B) if the Cash Collateral Termination Date shall have occurred, Parent Guarantor and the Borrower would be in pro forma compliance with the covenants set forth in Section 8 based on Parent Guarantor’s most recently ended four (4) fiscal quarter period for which internal financial statements are available immediately preceding the date on which such sale is to be made and (vi) the sale of Parent Guarantor’s investment in WeddingWire, Inc. (“WeddingWire”), the conversion or exchange of such investment into or for any other asset or assets (including, without limitation, shares of any Person into which WeddingWire may be merged, the “WeddingWire Successor Assets”) and the sale of any WeddingWire Successor Assets; provided, that Parent Guarantor may not sell, assign, lease, transfer or otherwise dispose of assets comprising the Acquired Business pursuant to clause (iv) or (v) above other than to the Borrower;

                    (b) enter into any sale and leaseback agreement with respect to any of its fixed assets, other than transactions in which the value of the disposed of assets does not exceed $2,000,000 in the aggregate in any fiscal year;

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provided, that notwithstanding anything in the foregoing to the contrary, neither the Borrower nor the SPE shall be permitted to sell, assign, lease, transfer or otherwise dispose of any of its assets, other than licenses of intellectual property rights permitted by Section 9.2.

               9.7 Capital Expenditures. Parent Guarantor and its Subsidiaries (other than any Immaterial Foreign Subsidiary) shall not make Capital Expenditures which in the aggregate exceed $7,500,000 during any fiscal year (each such limitation hereafter referred to as the “Capital Expenditure Limitation”); provided, that to the extent that Parent Guarantor its Subsidiaries do not utilize the full Capital Expenditure Limit during the applicable fiscal year, then Parent Guarantor and its Subsidiaries may carry over to any subsequent fiscal year the unused portion of such Capital Expenditure Limit so long as no Event of Default exists or would result therefrom; provided, further that in no event shall Parent Guarantor and its Subsidiaries make Capital Expenditures which in the aggregate exceed $15,000,000 in any fiscal year.

               9.8 Transactions with Affiliates. Parent Guarantor shall not, and shall not permit any of its Subsidiaries to, directly or indirectly purchase, acquire or lease any property from, or sell, transfer or lease any property to, pay any management fees to or otherwise deal with, in the ordinary course of business or otherwise, any Affiliate other than transactions with Affiliates in the ordinary course of business and pursuant to the reasonable requirements of Parent Guarantor’s or such Subsidiary’s business and upon fair and reasonable terms that are no less favorable to Parent Guarantor or such Subsidiary than it would obtain in a comparable arm’s length transaction with a Person that is not its Affiliate, other than (i) transactions between any Loan Party and an Affiliate thereof pursuant to the terms of any agreements or plans described on the exhibit lists to Parent Guarantor’s Annual Report on Form 10-K for the year ended December 31, 2008 or Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009 or any agreements set forth on Schedule 9.8, (ii) any amendment or modification of, or any substitute or replacement arrangement (at any time during the term of this Agreement) with the same Affiliate or Affiliates for, any agreement described in clause (i) above, (iii) the SPE Borrower License Agreement and (iv) transactions among Loan Parties (other than the Borrower).

               9.9 Additional Negative Covenants. Parent Guarantor shall not, and shall not permit any of its Subsidiaries (other than any Immaterial Foreign Subsidiary, in the case of subsections (a), (c), (d) and (e) below) to, without the Bank’s written consent:

                    (a) enter into any consolidation, merger or other combination, or, except for Permitted Investments, become a partner in a partnership, a member of a joint venture or a member of a limited liability company, and except that (i) any Loan Party (other than the Borrower and Parent Guarantor) may merge into any other Loan Party (other than the Borrower) and (ii) any Subsidiary that is not a Loan Party (other than the SPE) may merge into any other Subsidiary that is not a Loan Party (other than the SPE).

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                    (b) engage in any business activities substantially different from that engaged in by Parent Guarantor and its Subsidiaries on the date hereof;

                    (c) wind up, liquidate or dissolve its affairs, or sell or otherwise dispose of all or substantially all of its assets, or agree to do any of the foregoing at any future time; provided that a Subsidiary (other than the Borrower ) with no material assets may be dissolved upon not less than ten (10) days’ prior written notice to the Bank;

                    (d) amend or otherwise modify the SPE LLC Agreement, the organizational documents of the Borrower, the SPE Borrower License Agreement or any of the Transaction Documents, each as in effect on the date hereof; or

                    (e) change its fiscal year or its accounting methods except for changes in accounting policies required under GAAP.

          10. Default and Remedies.

     The occurrence of any of the following events (each an “Event of Default”) shall constitute a default under this Agreement and under each of the other Loan Documents:

               10.1 Failure to Pay. The Borrower fails to make a payment of principal under this Agreement when due, or fails to make a payment of interest, any fee or other sum under this agreement within three (3) days after the date when due; or

               10.2 False Information; Representations and Warranties. The Borrower or any other Loan Party has given the Bank materially false or misleading information. Any representation or warranty made by the Borrower or the Guarantor under or in connection with any Loan Document shall prove to have been incorrect in any material respect at the time when made; or

               10.3 Covenant Default. Any Loan Party shall fail to perform or observe any agreement, covenant or obligation set forth in (i) Section 7.1, 7.2, 7.3, 7.8, 7.12, 7.14 or 9 of this Agreement or Section 3.02(a) of the Security Agreement, (ii) before the Cash Collateral Termination Date, Section 3.04 of the Security Agreement or (iii) after the Cash Collateral Termination Date, Section 8 of this Agreement; or

               10.4 Covenant Default after Cure Period. Any Loan Party shall fail to timely and properly observe, keep or perform any term, covenant or agreement contained in any Loan Document to which it is a party (other than those described in Sections 10.1 to 10.3 above), if such default shall continue unremedied for a period of fifteen (15) days; or

               10.5 Other Bank Agreements. Parent Guarantor or any or its Subsidiaries shall be in default of or fail to perform any other agreement, obligation, liability or indebtedness of Parent Guarantor or such Subsidiary to the Bank or to any

33

affiliate of Bank with respect to a monetary obligation in excess of $10,000, and such default or failure continues past any cure period provided therein; or

               10.6 Cross Default. (i) Parent Guarantor or any of its Subsidiaries (other than any Immaterial Foreign Subsidiary) shall default in any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any other indebtedness (other than the Loan or indebtedness described in Section 10.5) in an aggregate outstanding principal amount in excess of $2,500,000 beyond the period of grace (not to exceed thirty (30) days), if any, provided in the instrument or agreement under which such indebtedness was created; or (ii) any breach, default or event of default shall occur and be continuing, or any other condition shall exist under any instrument or agreement pertaining to any such indebtedness, if the effect thereof is to cause an acceleration of such indebtedness, or during the continuance of such breach, default or event of default, permit the holders of such indebtedness to accelerate the maturity of any such indebtedness or require a redemption or other repurchase of such indebtedness; or

               10.7 Bankruptcy. Parent Guarantor or any of its Subsidiaries (other than any Immaterial Foreign Subsidiary) shall (i) make a general assignment for the benefit of creditors; (ii) admit in writing its inability to pay or fails to pay its debts generally as they become due; (iii) file a petition for relief under any chapter of the Federal Bankruptcy Code or any other bankruptcy or debtor relief law, domestic or foreign, as now or hereafter in effect, or seeking the appointment of a trustee, receiver, custodian, liquidator or similar official for it or any Collateral or any of its other property; or any such action is commenced against it and it admits, acquiesces in or does not contest diligently the material allegations thereof, or the action results in entry of an order for relief against it, or it does not obtain permanent dismissal and discharge thereof before the earlier of trial thereon or sixty (60) days after commencement of the action; or (iv) make a transfer or incur an obligation which is fraudulent under any applicable law as to any creditor; or

               10.8 Lien Property. The Collateral Agent fails to have an enforceable first lien (except for Permitted Liens) on or security interest in any Collateral to the extent provided in the Loan Documents (other than as a result of any action or inaction on the part of the Collateral Agent that is not in respect of any obligations of the Loan Parties under the Loan Documents); or

               10.9 Judgments. Any judgment or order for the payment of money in excess of $2,500,000 (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) shall be rendered against Parent Guarantor or any of its Subsidiaries (other than any Immaterial Foreign Subsidiary) and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of thirty (30) consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

34

               10.10 Material Adverse Change. A material adverse change occurs, or is reasonably likely to occur, in (i) the business condition (financial or otherwise), operations, properties or prospects of the Loan Parties taken as whole, (ii) the ability of the Loan Parties to repay the Obligations, (iii) the value of the Collateral or the Bank determines that it is insecure for any other reason; or

               10.11 Governmental Action. Any Governmental Authority takes action that the Bank reasonably believes materially adversely affects the Borrower’s and the other Loan Parties’ financial condition or ability to repay the Obligations, taken as a whole; or

               10.12 ERISA Plans. Any one or more of the following events occurs with respect to a Plan of Parent Guarantor or any of the other Loan Parties or ERISA Affiliates subject to Title IV of ERISA, provided such event or events could reasonably be expected, in the judgment of the Bank, to subject Parent Guarantor or any of its Subsidiaries to any tax, penalty or liability (or any combination of the foregoing) which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect:

                    (a) a Reportable Event shall occur under Section 4043(c) of ERISA with respect to a Plan;

                    (b) any Plan termination (or commencement of proceedings to terminate a Plan) or the full or partial withdrawal from a Plan by Parent Guarantor, such other Loan Party or any ERISA Affiliate; or

                    (c) any other ERISA Event.

               10.13 Loan Document Ceases to be Binding. Any Loan Document after delivery thereof pursuant to Section 4 shall for any reason not caused by the Bank or any successor thereof cease to be valid and binding on any Loan Party that is a party to such Loan Document.

               10.14 Breach under License. (i) The Borrower or any of its Affiliates shall breach any provision of the Trademark License Agreement and shall have failed to cure such breach within thirty (30) days, (ii) the Shared Intellectual Property shall be otherwise required to be assigned to the licensees under the Trademark License Agreement pursuant to Section 5.03 of the Trademark License Agreement or otherwise or (iii) any of the Sellers shall obtain injunctive relief that adversely affects the SPE’s right to use the Shared Intellectual Property.

               10.15 Change of Control. A Change of Control shall occur.

          11. Remedies Upon Default. If an Event of Default shall occur,

               11.1 At the Bank’s option, the Loan, all interest accrued thereon and all other amounts payable by the Borrower to the Bank under any of the Loan

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Documents shall become immediately due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an Event of Default specified under Section 10.7 above, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower; and

               11.2 The Bank shall have all rights, powers and remedies available under each of the Loan Documents, or afforded by law, including, without limitation, the right to resort to any or all of the Collateral and to exercise any or all of the rights of a secured party pursuant to applicable law. All rights, powers and remedies of the Bank in connection with each of the Loan Documents may be exercised at any time by the Bank and from time to time after the occurrence and during the continuance of any Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity.

          12. Notices. Unless otherwise provided in this Agreement or in another agreement between the Bank and the Borrower, all notices required under this Agreement shall be personally delivered or sent by first class mail, postage prepaid, or by overnight courier, to the following addresses, or sent by facsimile to the fax numbers listed below, or to such other addresses as the Bank and the Borrower may specify from time to time in writing:

Any Loan Party:	Martha Stewart Living Omnimedia, Inc.
	11 West 42nd Street
	New York, NY 10036
	Attention: Chief Financial Officer
	Telecopy: 212-827-8551
with copies to:	Orrick Herrington & Sutcliffe LLP
	The Orrick Building
	405 Howard Street
	San Francisco, CA 94105-2669
	Attention: Dolph Hellman
	Telecopy: 415-773-5759
Bank:	Bank of America, N.A.
	767 Fifth Avenue, Floor 12A
	New York, New York 10153
	Attention: Jane R. Heller
	Telecopy: 212-407-5402

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with a copy to:	Paul, Weiss, Rifkind, Wharton & Garrison LLP
	1285 Avenue of the Americas
	New York, New York 10019-6064
	Attention: Stephen K. Koo
	Telecopy: 212-757-3990

Notices and other communications shall be effective (i) if mailed, upon the earlier of receipt or five (5) days after deposit in the U.S. mail, first class, postage prepaid, (ii) if telecopied, when transmitted, or (iii) if hand-delivered, by courier or otherwise (including telegram, lettergram or mailgram), when delivered.

          13. Miscellaneous. The Borrower and the Bank further covenant and agree as follows, without limiting any requirement of any other Loan Document:

               13.1 Fees and Expenses. The Borrower shall reimburse the Bank for any reasonable and documented costs and attorneys’ fees incurred by the Bank in connection with the negotiation, preparation, execution and delivery of this Agreement and the other Loan Documents, including without limitation, any due diligence conducted with respect to Parent Guarantor and its Subsidiaries and the Transaction, the enforcement or preservation of any rights or remedies under this Agreement and any other Loan Documents, and in connection with any amendment, waiver, “workout” or restructuring under this Agreement. The Borrower agrees to reimburse the Bank for the reasonable and documented costs of periodic field examinations of the Borrower’s books, records and Collateral, and appraisals of the Collateral, at such intervals as the Bank may reasonably require, which may be performed by employees of the Bank or by independent appraisers. In the event of a lawsuit or arbitration proceeding, the prevailing party is entitled to recover costs and reasonable attorneys’ fees incurred in connection with the lawsuit or arbitration proceeding, as determined by the court or arbitrator. In the event that any case is commenced by or against the Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute, the Bank is entitled to recover costs and reasonable attorneys’ fees incurred by the Bank related to the preservation, protection, or enforcement of any rights of the Bank in such a case. As used in this paragraph, “attorneys’ fees” includes the allocated costs of a party’s in-house counsel. In addition, the Borrower agrees to, upon reasonable notice from the Bank, pay any and all stamp and other taxes or fees payable or determined to be payable in connection with the execution and delivery of the Loan Documents and the other documents to be delivered hereunder, and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes or fees.

               13.2 Indemnification. The Borrower shall indemnify and hold the Bank, its parent, Subsidiaries and all of their directors, officers, employees, agents, successors, attorneys, and assigns (collectively, the “Indemnitees”) harmless from any loss, liability, damages, judgments, and costs of any kind relating to or arising directly or indirectly out of (a) this Agreement or any other Loan Document, (b) any credit extended or committed by the Bank to the Borrower hereunder, and (c) any litigation or proceeding

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related to or arising out of this Agreement, any such document, or any such credit, in each case other than arising as a result of any such Indemnitee’s gross negligence or willful misconduct.. This indemnity includes but is not limited to reasonable attorneys’ fees (including the allocated cost of in-house counsel). This indemnity shall survive repayment of the Borrower’s obligations to the Bank. All sums due to the Bank hereunder shall be obligations of the Borrower, due and payable immediately without demand. Under no circumstances shall any Indemnitee have any liability for any special, punitive, indirect or consequential damages relating to this Agreement or any other Loan Document or arising out of its activities in connection herewith or therewith (whether before or after the Original Closing Date).

               13.3 Cumulative Rights and No Waiver. Each and every right granted to the Bank under any Loan Document, or allowed it by law or equity shall be cumulative of each other and may be exercised in addition to any and all other rights of the Bank, and no delay in exercising any right shall operate as a waiver thereof, nor shall any single or partial exercise by the Bank of any right preclude any other or future exercise thereof or the exercise of any other right. The Borrower expressly waives any presentment, demand, protest or other notice of any kind, including but not limited to notice of intent to accelerate and notice of acceleration, except in the event and to the extent that any such notice is expressly required by the terms of any Loan Document. No notice to or demand on the Borrower in any case shall, of itself, entitle the Borrower to any other or future notice or demand in similar or other circumstances.

               13.4 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. To the extent that the Bank has greater rights or remedies under federal law, whether as a national bank or otherwise, this paragraph shall not be deemed to deprive the Bank of such rights and remedies as may be available under federal law.

               13.5 Successors and Assigns. This Agreement is binding on and inures to the benefit of the Borrower’s and the Bank’s successors and assignees. Each of Parent Guarantor and the Borrower agrees that it may not assign this Agreement without the Bank’s prior written consent (and any purported assignment in violation of this Section 13.5 shall be null and void). The Bank may sell participations in or assign the Loan, and may exchange information about the Borrower (including, without limitation, any information regarding any hazardous substances) with actual or potential participants or assignees; provided that such Person shall agree in writing to the provisions set forth in Section 13.15 or confidentiality restrictions that are substantially similar. If a participation is sold or the Loan is assigned, the purchaser shall have the right of set-off against the Borrower.

               13.6 Amendment. No modification, consent, amendment or waiver of any provision of this Agreement, nor consent to any departure by the Borrower therefrom, shall be effective unless the same shall be in writing and signed by an Assistant Vice President or higher level officer of the Bank and by the Borrower, and

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then shall be effective only in the specific instance and for the purpose for which given. There is no third party beneficiary of this Agreement.

               13.7 Entire Agreement. This Agreement and any other Loan Document, collectively: represent the sum of the understandings and agreements between the Bank and the Loan Parties concerning this credit;

                         (b) replace any prior oral or written agreements between the Bank and the Loan Parties concerning this credit; and

                         (c) are intended by the Bank and the Loan Parties as the final, complete and exclusive statement of the terms agreed to by them.

               13.8 Inconsistency. In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement will prevail. Any reference in any related document to a “promissory note” or a “note” executed by the Borrower and dated as of the date of this Agreement shall be deemed to refer to this Agreement, as now in effect or as hereafter amended, renewed, or restated.

               13.9 Headings. Section and paragraph headings are for reference only and shall not affect the interpretation or meaning of any provisions of this Agreement.

               13.10 Severability; Waivers. If any part of this Agreement is not enforceable, the rest of the Agreement may be enforced. The Bank retains all rights, even if it makes a loan after default. If the Bank waives a default, it may enforce a later default. Any consent or waiver under this Agreement must be in writing.

               13.11 Survivability. All covenants, agreements, representations and warranties made by Parent Guarantor or the Borrower herein or in the other Loan Documents to which Parent Guarantor or the Borrower is a party shall survive the making of the Loan and shall continue in full force and effect so long as the Obligations, or any portion thereof, are outstanding. In addition, the covenants and agreements, made by the Bank (i) in Section 13.13 shall continue in full force and effect so long as the Obligations, or any portion thereof, are outstanding and (ii) in Section 13.15 shall continue until the second anniversary of the date on which the Obligations shall have been paid in full.

               13.12 Counterparts. This Agreement may be executed in as many counterparts as necessary or convenient, and by the different parties on separate counterparts each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same agreement. Signatures may be delivered via telecopy of in PDF format via electronic mail and signatures delivered by such means shall be deemed originals for all purposes.

               13.13 Dispute Resolution; Waiver of Jury Trial. This paragraph, including the subparagraphs below, is referred to as the “Dispute Resolution Provision.”

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This Dispute Resolution Provision is a material inducement for the parties entering into this Agreement.

                    (a) This Dispute Resolution Provision concerns the resolution of any controversies or claims among the parties, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to: (i) this Agreement (including any renewals, extensions or modifications); or (ii) any other Loan Document (collectively a “Claim”). For the purposes of this Dispute Resolution Provision only, the term “parties” shall include any parent corporation, subsidiary or affiliate of Bank involved in the servicing, management or administration of any obligation described or evidenced by this Agreement.

                    (b) At the request of any party to this Agreement, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the “Act”). The Act will apply even though this Agreement provides that it is governed by the law of a specified state.

                    (c) Arbitration proceedings will be determined in accordance with the Act, the then-current rules and procedures for the arbitration of financial services disputes of the American Arbitration Association or any successor thereof (“AAA”), and the terms of this Dispute Resolution Provision. In the event of any inconsistency, the terms of this Dispute Resolution Provision shall control. If AAA is unwilling or unable to (i) serve as the provider of arbitration or (ii) enforce any provision of this arbitration clause, the Bank may designate another arbitration organization with similar procedures to serve as the provider of arbitration.

                    (d) The arbitration shall be administered by AAA and conducted, unless otherwise required by law, in any U.S. state where real or tangible personal property collateral for this credit is located or if there is no such collateral, in the state specified in the governing law section of this Agreement. All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators. All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing. However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days. The arbitrator(s) shall provide a concise written statement of reasons for the award. The arbitration award may be submitted to any court having jurisdiction to be confirmed and have judgment entered and enforced.

                    (e) The arbitrator(s) will give effect to statutes of limitation in determining any Claim and may dismiss the arbitration on the basis that the Claim is barred. For purposes of the application of any statutes of limitation, the service on AAA under applicable AAA rules of a notice of Claim is the equivalent of the filing of a lawsuit. Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s), except as set forth at subparagraph (h)

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of this Dispute Resolution Provision. The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this Agreement.

                    (f) This paragraph does not limit the right of any party to: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

                    (g) The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration.

                    (h) Any arbitration or trial by a judge of any Claim will take place on an individual basis without resort to any form of class or representative action (the “Class Action Waiver”). Regardless of anything else in this Dispute Resolution Provision, the validity and effect of the Class Action Waiver may be determined only by a court and not by an arbitrator. The parties to this Agreement acknowledge that the Class Action Waiver is material and essential to the arbitration of any disputes between the parties and is nonseverable from the agreement to arbitrate Claims. If the Class Action Waiver is limited, voided or found unenforceable, then the parties’ agreement to arbitrate shall be null and void with respect to such proceeding, subject to the right to appeal the limitation or invalidation of the Class Action Waiver. The parties acknowledge and agree that under no circumstances will a class action be arbitrated.

          By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim. Furthermore, without intending in any way to limit this Agreement to arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim. This waiver of jury trial shall remain in effect even if the Class Action Waiver is limited, voided or found unenforceable. WHETHER THE CLAIM IS DECIDED BY ARBITRATION OR BY TRIAL BY A JUDGE, THE PARTIES AGREE AND UNDERSTAND THAT THE EFFECT OF THIS AGREEMENT IS THAT THEY ARE GIVING UP THE RIGHT TO TRIAL BY JURY TO THE EXTENT PERMITTED BY LAW.

               13.14 Limitation on Interest and Charges. If, at any time, the rate of interest, together with all amounts which constitute interest and which are reserved, charged or taken by the Bank as compensation for fees, services or expenses incidental to the making, negotiating or collection of the loan evidenced hereby, shall be deemed by any competent court of law, governmental agency or tribunal to exceed the maximum rate of interest permitted to be charged by the Bank to the Borrower under applicable law, then, during such time as such rate of interest would be deemed excessive, that portion of each sum paid attributable to that portion of such interest rate that exceeds the maximum rate of interest so permitted shall be deemed a voluntary prepayment of principal. As

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used herein, the term “applicable law” shall mean the law in effect as of the date hereof; provided, however, that in the event there is a change in the law which results in a higher permissible rate of interest, then this Agreement shall be governed by such new law as of its effective date.

               13.15 Confidentiality. The Bank and Parent Guarantor are parties to a certain confidentiality agreement dated as of January 10, 2008 (the “Confidentiality Agreement”). The parties agree that the terms of the Confidentiality Agreement, excluding the last paragraph on the third page of the Confidentiality Agreement and subject to Section 13.11, shall apply with respect to all Confidential Information (as defined in the Confidentiality Agreement) that may be disclosed to the Bank pursuant to this Agreement; and in connection with information disclosed pursuant to this Agreement, each Loan Party shall be considered one of the “Covered Parties” as such term is defined in the Confidentiality Agreement.

               13.16 Release. In consideration of the agreements of the Bank contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each of the Borrower and the Parent Guarantor, on behalf of itself and its successors, assigns and other legal representatives, hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges the Bank (in its individual capacity and in its capacity as Collateral Agent) and its successors and assigns, and its present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (the Bank and all such other Persons being hereinafter referred to collectively as the “Releasees” and individually as a “Releasee”), of and from all demands, actions, causes of action, suits, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever of every name and nature, known or unknown, both at law and in equity, the Borrower or the Parent Guarantor, or any of their successors, assigns or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Agreement for or on account of, or in relation to, or in any way in connection with any of the Existing Loan Agreement, any of the other Loan Documents or any transactions thereunder or related thereto.

               13.17 No Novation. This Agreement amends and restates in its entirety the Existing Loan Agreement. Notwithstanding the foregoing, it is expressly understood and agreed by the parties hereto that this Agreement is in no way intended to constitute a novation of the obligations and liabilities existing under the Existing Loan Agreements or evidence payment of all or any of such obligations and liabilities. All references to the Existing Loan Agreement (or to any amendment or any amendment and restatement thereof) in the Loan Documents shall be deemed to refer to this Agreement.

          THIS AGREEMENT is executed as of the date stated at the top of the first page.

BANK:		BORROWER:
BANK OF AMERICA, N.A.		MSLO EMERIL ACQUISITION SUB LLC
By:	/s/ Jane R. Heller	By:	/s/ Charles Koppelman
	Name: Jane R. Heller		Name: Charles Koppelman
	Title: Managing Director		Title: President
		PARENT GUARANTOR:
		MARTHA STEWART LIVING OMNIMEDIA, INC.
		By:	/s/ Charles Koppelman
			Name: Charles Koppelman
			Title: Executive Chairman           Principal Executive Officer

USA Patriot Act Notice. Federal law requires all financial institutions to obtain, verify and record information that identifies each Person who opens an account or obtains a loan. The Bank will ask for the Borrower’s legal name, address, tax ID number or social security number and other identifying information. The Bank may also ask for additional information or documentation or take other actions reasonably necessary to verify the identity of the Borrower, the Guarantors or other related Persons.

[Signature page to Amended and Restated Loan Agreement]

EX-10.2

Exhibit 10.2

AMENDMENT NO. 2 TO SECURITY AGREEMENT

          AMENDMENT NO. 2, dated as of August 7, 2009 (this “Amendment”), relating to the SECURITY AGREEMENT, dated as of July 31, 2008 (as modified by Waiver and Omnibus Amendment No. 1, dated as of June 18, 2009, the “Security Agreement”), among MSLO EMERIL ACQUISITION SUB LLC, a Delaware limited liability company (the “Borrower”), MARTHA STEWART LIVING OMNIMEDIA, INC., a Delaware corporation (the “Parent Guarantor” and, together with the Borrower, the “Grantors”), and BANK OF AMERICA, N.A., as collateral agent (in such capacity, together with any successor collateral agent, the “Collateral Agent”) for the Secured Parties (as defined in the Security Agreement).

          WHEREAS, the Borrower and the Parent Guarantor have requested Bank of America, N.A. (the “Bank”) to modify certain terms of the Loan Agreement dated as of April 4, 2008 among the Borrower, the Parent Guarantor and the Bank as set forth in the Amended and Restated Loan Agreement being entered into on the date hereof (the “Amended and Restated Loan Agreement”); and

          WHEREAS, it is a condition precedent to the effectiveness of the Amended and Restated Loan Agreement that the Borrower and Parent Guarantor enter into this Amendment.

          NOW THEREFORE, in consideration of the premises and the agreements herein, each of the Borrower and the Parent Guarantor hereby agrees with the Bank as follows:

          1. Definitions. All terms used herein which are defined in the Security Agreement and not otherwise defined herein are used herein as defined therein.

          2. Amendment. The following amendments to the Security Agreement shall become effective on the Effective Date.

               (a) The following definitions shall be added to Section 1.02 of the Security Agreement in the appropriate alphabetical order:

‘“Aggregate Cash Collateral Value” has the meaning assigned to such term in Section 3.04.

“Cash Collateral” means the cash and investments held from time to time in the Cash Collateral Account.

“Cash Collateral Termination Date” has the meaning assigned to such term in Section 3.04.

“Collateral Table” has the meaning assigned to such term in Section 3.04.

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“Collateral Value”, with respect to (i) a money market fund, shall be determined at any given time by multiplying (A) the most recent per share net asset value of such money market fund obtained from the Wall Street Journal, or such other reputable reporting service as the Collateral Agent may reasonably select, times (B) the number of shares of such money market fund held in the Cash Collateral Account as collateral. In the event that such net asset value is not available in the Wall Street Journal, or such other reputable reporting service as the Collateral Agent may reasonably select, the Collateral Value shall be the value quoted to the Collateral Agent by a reputable brokerage firm selected by the Collateral Agent and (ii) with respect to cash, shall be the amount of such cash.

“Eligible Collateral” has the meaning assigned to such term in Section 3.04.

“Outstanding Balance” means the outstanding principal balance of the Loan from time to time.’

“Second Amendment Effective Date” means August 7, 2009.

               (b) The following shall be added as a new Section 3.04 of the Security Agreement:

“3.04 Cash Collateral Maintenance.

(a) On or before the Second Amendment Effective Date, the Borrower has deposited in the Cash Collateral Account $17,500,000 in cash. If requested by Borrower, the Collateral Agent may direct the Bank to invest amounts on deposit in the Cash Collateral Account in one or more money market funds that the Collateral Agent may approve in its sole discretion; provided, however, that any such money market fund investments are permitted pursuant to Parent Guarantor’s board approved investment policy as previously provided by Parent Guarantor to the Collateral Agent. At all times from the Second Amendment Effective Date through the Cash Collateral Termination Date, the Borrower agrees to maintain in the Cash Collateral Account, as security for the Secured Obligations, Collateral of a type described on the table set forth below this paragraph (collectively, the “Collateral Table”) and otherwise acceptable to the Collateral Agent (“Eligible Collateral”) with an Aggregate Cash Collateral Value at least equal to the Outstanding Balance. “Aggregate Cash Collateral Value” means, as of any date of determination, an amount equal to the product obtained by multiplying (i) the Collateral Value as of such date by (ii) the Margin Call Percentage

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shown on the following table (the “Collateral Table”) for the applicable type of Eligible Collateral:

Eligible Collateral Type	Margin Call Percentage
Money Market Cash	100% 100%

The Collateral Agent shall have no obligation to give any Collateral Value to any Collateral of a type not shown on the Collateral Table.

(b) If, at any time from the Second Amendment Effective Date through the Cash Collateral Termination Date, the Outstanding Balance exceeds at any time the Aggregate Collateral Value, then the Borrower shall have two (2) Business Days from the date notification (whether oral or written) of such noncompliance is delivered to the Borrower, to either deposit cash into the Cash Collateral Account, or prepay the principal of the Loan such that, after giving effect thereto, the Outstanding Balance is less than or equal to the Aggregate Cash Collateral Value as of the date on which such action is taken. Any such prepayment of the Loan shall be applied to the principal installments due under Section 2.2(b) of the Loan Agreement in the inverse order of their maturity.

(c) Subject to the other provisions of this Section 3.04 and any written agreement to the contrary with the Collateral Agent, if no Default or Event of Default has occurred and is continuing or would result from such action, upon any repayment or prepayment of the outstanding principal amount of the Loan, upon the request of the Borrower, the Collateral Agent shall release Cash Collateral from the Cash Collateral Account having Collateral Value up to the lesser of (i) the principal amount of the Loan so repaid or prepaid and (ii) the amount by which the Aggregate Cash Collateral Value exceeds the Outstanding Balance at the date of request (and direct the sale or trade of investments in the Cash Collateral Account to the extent necessary to do so); provided that, after giving effect to any such release of Cash Collateral, the Outstanding Balance is less than or equal to the Aggregate Cash Collateral Value.

(d) If the Borrower submits to the Collateral Agent and Bank a written request under this Section 3.04(d) and delivers to the Collateral Agent and Bank a certificate of a Financial Officer of Parent Guarantor certifying (i) that as of such date, no Event of

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Default or Default exists, (ii) that as of the last day of the most recently ended fiscal quarter of Parent Guarantor with respect to which Parent Guarantor shall have delivered financial statements in accordance with Section 7.2(a) or (b) of the Loan Agreement, if the covenants set forth in Section 8 of the Loan Agreement had been effective, Parent Guarantor would have been in compliance with such covenants (setting forth computations in reasonable detail satisfactory to the Bank demonstrating such compliance for the applicable period), and (iii) as of such date, the Loan Parties, on a consolidated basis, are Solvent, (A) the Bank will promptly acknowledge in writing that the conditions set forth in this Section 3.04(d) have been satisfied and that, on the date of such written acknowledgment (the “Cash Collateral Termination Date”), the effectiveness of this Section 3.04 shall be terminated and the Borrower shall no longer be required to comply with the provisions of this Section 3.04 and (B) the Collateral Agent will promptly acknowledge in writing that its Lien on any Collateral in the Cash Collateral Account is released.

          3. Condition to Effectiveness. This Amendment shall become effective on and as of the Effective Date (as defined in the Amended and Restated Loan Agreement).

          4. Continued Effectiveness of the Security Agreement. The Security Agreement, as amended by this Amendment is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that on and after the date hereof (i) all references in the Security Agreement to “this Agreement”, “hereto”, “hereof”, “hereunder” or words of like import referring to the Security Agreement shall mean the Security Agreement as amended by this Amendment and (ii) all references in the other Loan Documents to the “Security Agreement”, “thereto”, “thereof”, “thereunder” or words of like import referring to the Security Agreement shall mean the Security Agreement as amended by this Amendment.

          5. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.

          6. Headings. Section headings herein are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

          7. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.

          8. Waiver and Amendment as Loan Document. Each of the Borrower and the Parent Guarantor hereby acknowledges and agrees that this Amendment constitutes a “Loan Document.”

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          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date first above written.

COLLATERAL AGENT:		BORROWER:
BANK OF AMERICA, N.A., as Collateral Agent		MSLO EMERIL ACQUISITION SUB LLC
By:	/s/ Jane R. Heller	By:	/s/ Charles Koppelman
	Name: Jane R. Heller		Name: Charles Koppelman
	Title: Managing Director		Title: President
		PARENT GUARANTOR:
		MARTHA STEWART LIVING OMNIMEDIA, INC.
		By:	/s/ Charles Koppelman
			Name: Charles Koppelman
			Title: Executive Chairman           Principal Executive Officer

[Signature page to Security Agreement Amendment]

EX-10.3

Exhibit 10.3

REAFFIRMATION OF GUARANTY

          THIS REAFFIRMATION OF GUARANTY (this “Reaffirmation”) is made as of August 7, 2009 and entered into by MARTHA STEWART LIVING OMNIMEDIA, INC., a Delaware corporation (“Parent Guarantor”), and each of its subsidiaries listed on the signature pages to this Reaffirmation (together with Parent Guarantor, the “Guarantors”). Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to such terms in the Amended and Restated Loan Agreement (as defined below).

W I T N E S S E T H:

          WHEREAS, MSLO Emeril Acquisition Sub LLC, a Delaware limited liability company (the “Borrower”), Parent Guarantor and Bank of America, N.A. (the “Bank”) entered into that certain Loan Agreement dated as of April 4, 2008 (the “Existing Loan Agreement”);

          WHEREAS, in connection with the Existing Loan Agreement, each of the Guarantors executed and delivered a Continuing and Unconditional Guaranty dated April 4, 2008 (the “Guaranty”);

          WHEREAS, the Existing Loan Agreement is being amended and restated by the Amended and Restated Loan Agreement dated as of August 7, 2009 (the “Amended and Restated Loan Agreement”); and

          WHEREAS, as a condition precedent to the effectiveness of the Amended Loan Agreement, the Lenders have required that each Guarantor enter into this Reaffirmation to ratify and reaffirm its obligations under the Guaranty.

          NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

     Section 1. Reaffirmation of Guaranty.

               (a) Each Guarantor hereby acknowledges receipt of a copy of the Amended and Restated Loan Agreement and consents to the execution and delivery of the Amended and Restated Loan Agreement by the Borrower and Parent Guarantor and all other agreements, instruments and other documents executed in connection therewith. In connection with the execution and delivery of the Amended and Restated Loan Agreement and the Security Agreement Amendment, each Guarantor hereby acknowledges and agrees that (i) the Guaranty remains and will remain in full force and effect during the term of the Amended and Restated Loan Agreement (including any further renewals, amendments, restatements, supplements or other modifications of the Amended and Restated Loan Agreement made from time to time) or, if later, so long as any of the Obligations under the Amended and Restated Loan Agreement remain

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outstanding and (ii) ratifies and reaffirms all of its obligations, contingent or otherwise, under the Guaranty.

     Section 2. No Consent Required. Each Guarantor, other than Parent Guarantor, acknowledges and agrees that (i) notwithstanding any consent granted by it under this Reaffirmation, such Guarantor is not required by the terms of the Existing Loan Agreement or any other Loan Document to consent to the amendments contemplated under the Amended and Restated Loan Agreement and the Security Agreement Amendment and (ii) nothing in the Existing Loan Agreement, the Security Agreement Amendment or any other Loan Document shall be deemed to require the consent of such Guarantor to any future amendments to any of the Existing Loan Agreement or the Amended and Restated Loan Agreement.

     Section 3. Further Assurances. Each Guarantor hereby agrees from time to time, as and when requested by the Agent, to execute and deliver or cause to be executed and delivered all such documents, instruments and agreements, and to take or cause to be taken such further or other actions, as the Agent may deem necessary in order to carry out the intent and purposes of this Master Reaffirmation and the Loan Documents.

     Section 4. Release. In consideration of the agreements of the Bank contained in the Amended and Restated Loan Agreement and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each of the Guarantors, on behalf of itself and its successors, assigns and other legal representatives, hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges the Bank (in its individual capacity and in its capacity as Collateral Agent) and its successors and assigns, and its present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (the Bank and all such other Persons being hereinafter referred to collectively as the “Releasees” and individually as a “Releasee”), of and from all demands, actions, causes of action, suits, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever of every name and nature, known or unknown, both at law and in equity, such Guarantor, or any of its successors, assigns or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Agreement for or on account of, or in relation to, or in any way in connection with any of the Existing Loan Agreement, any of the other Loan Documents or any transactions thereunder or related thereto.

     Section 5. Successors and Assigns. This Reaffirmation shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns.

     Section 6. Counterparts. This Reaffirmation may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of

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which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.

     Section 7. Headings. Section headings herein are included for convenience of reference only and shall not constitute a part of this Reaffirmation for any other purpose.

     Section 8. Governing Law. This Reaffirmation shall be governed by, and construed in accordance with, the laws of the State of New York.

     Section 9. Reaffirmation as Loan Document. Each of the Guarantors hereby acknowledges and agrees that this Reaffirmation constitutes a “Loan Document.”

[Remainder of this page intentionally left blank.]

          IN WITNESS WHEREOF, this Reaffirmation has been duly executed as of the day and year first above written.

MARTHA STEWART LIVING OMNIMEDIA, INC.
By:	/s/ Charles Koppelman
	Name:	Charles Koppelman
	Title:	Principal Executive Officer
MSO IP HOLDINGS, INC.
By:	/s/ Charles Koppelman
	Name:	Charles Koppelman
	Title:	President
MARTHA STEWART, INC.
By:	/s/ Charles Koppelman
	Name:	Charles Koppelman
	Title:	President
BODY AND SOUL OMNIMEDIA, INC.
By:	/s/ Charles Koppelman
	Name:	Charles Koppelman
	Title:	President
MSLO PRODUCTIONS, INC.
By:	/s/ Charles Koppelman
	Name:	Charles Koppelman
	Title:	President

[Signature page to Reaffirmation of Guaranty]

MSLO PRODUCTIONS – HOME, INC.
By:	/s/ Charles Koppelman
	Name:	Charles Koppelman
	Title:	President
MSLO PRODUCTIONS – EDF, INC.
By:	/s/ Charles Koppelman
	Name:	Charles Koppelman
	Title:	President
FLOUR PRODUCTIONS, INC.
By:	/s/ Charles Koppelman
	Name:	Charles Koppelman
	Title:	President

[Signature page to Reaffirmation of Guaranty]

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Charles Koppelman, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Martha Stewart Living Omnimedia, Inc. (the “registrant”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—15(e) and 15d—15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a—15(f) and 15d—15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2009

/s/ Charles Koppelman  

Charles Koppelman 

Principal Executive Officer 

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Kelli Turner, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Martha Stewart Living Omnimedia, Inc. (the “registrant”;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—15(e) and 15d—15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a—15(f) and 15d—15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2009

/s/ Kelli Turner  

Kelli Turner 

Chief Financial Officer 

EX-32

EXHIBIT 32

CERTIFICATION
PURSUANT TO 18 U.S.C. Section 1350

In connection with the Quarterly Report of Martha Stewart Living Omnimedia, Inc. (the “registrant”) on Form 10-Q for the quarter ended September 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “report”), we, Charles Koppelman and Kelli Turner, Principal Executive Officer and Chief Financial Officer, respectively, of the registrant, certify, pursuant to 18 U.S.C. § 1350, that:

(1)	The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)	The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

Dated: November 9, 2009	/s/ Charles Koppelman
	Charles Koppelman
	Principal Executive Officer
Dated: November 9, 2009	/s/ Kelli Turner
	Kelli Turner
	Chief Financial Officer