XML 57 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
Related Party Transactions
12 Months Ended
Dec. 31, 2012
Related Party Transactions [Abstract]  
Related Party Transactions
RELATED PARTY TRANSACTIONS
In April 2009, the Company entered into an amended and restated employment agreement (the “2009 Employment Agreement”) with Martha Stewart which replaced the existing agreement between the Company and Ms. Stewart that was scheduled to expire in September 2009. During the term of the 2009 Employment Agreement, Ms. Stewart 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. Separately, Ms. Stewart’s compensation includes a portion of personnel costs paid by the Company for individuals performing work on her behalf. The agreement was scheduled to expire in March 2012. In March 2012, the 2009 Employment Agreement was extended to June 30, 2012 to allow for additional time to negotiate a new agreement. The remaining terms of the agreement were unaffected.
In July 2012, the Company and Ms. Stewart agreed to extend the term of the 2009 Employment Agreement until June 30, 2017, rather than expiring on June 30, 2012. Pursuant to that extension, the parties agreed to negotiate mutually acceptable adjustments to the terms of the 2009 Employment Agreement to take effect at July 1, 2013 (or such earlier date as the parties may agree). Under the extension letter, if the parties do not reach an agreement regarding mutually acceptable adjustments to her employment agreement, the Company can choose to have the 2009 Employment Agreement continue in effect through June 30, 2017 or to allow it to lapse at June 30, 2013.
The extension letter changes Ms. Stewart's previous title of Founder and Chief Editorial, Media and Content Officer to Founder and Chief Creative Officer. It also provides that no additional compensation is payable to her in connection with new television programming after June 30, 2012, unless it would require Ms. Stewart to provide services, as a performer, in excess of the commitment previously required with respect to The Martha Stewart Show. References in Section 5(b) (Annual Bonus) of the employment agreement to fiscal year 2012 have been modified to refer to the fiscal year in which the term of the employment agreement lapses.

The Company is also party to an intangible asset license agreement (the “IAL agreement”) with Lifestyle Research Center, LLC ("LRC") (formerly known as MS Real Estate Management Company), an entity owned by Martha Stewart. Pursuant to the IAL, the Company pays an annual fee of $2.0 million to LRC for the perpetual, exclusive right to use Ms. Stewart’s lifestyle intangible asset in connection with Company products and services and to access various real properties owned by Ms. Stewart during the term of the agreement.
In July 2012, the parties agreed to extend the IAL agreement, between the Company and LRC, until June 30, 2013, rather than expiring on September 30, 2012. If the Company chooses to allow the 2009 Employment Agreement to continue in effect after June 30, 2013, the IAL will be automatically extended until June 30, 2017.
LRC is responsible, at its expense, to maintain and landscape the properties in a manner consistent with past practices; provided, however, that the Company is responsible for approved business expenses associated with security and telecommunications systems and security personnel related to Ms. Stewart at the properties, and must reimburse LRC for up to $0.1 million of approved and documented household expenses. In 2012, the Company reimbursed LRC $0.03 million for approved and documented household expenses. In each of the years ended December 31, 2011 and 2010, the Company reimbursed LRC $0.1 million for these expenses.
The Company also reimbursed LRC for certain costs borne by LRC associated with various Company business activities which were conducted at properties covered by the IAL. During 2012 and 2010, the Company reimbursed LRC $0.03 million and $0.1 million for these. During 2011, reimbursements for these costs were insignificant.
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 were owned by and benefited the MS Partnership. Due to uncertainty as to 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 could 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 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 reimbursed the MS Partnership approximately $0.3 million for the premiums paid towards the policies (which amount, if determined to be taxable, would be subject to a tax gross-up).
Related party compensation expense includes salary, bonus and non-cash equity compensation as determined under ASC Topic 718. Alexis Stewart, the daughter of Ms. Stewart, is a beneficial owner of more than 10% of the Company’s stock. She has been employed by the Company and has served as a co-host of a Company television show and a co-host of a Company radio show. The Company paid Alexis Stewart aggregate compensation of $0.03 million, $0.3 million and $0.4 million in 2012, 2011 and 2010, respectively. The Company has also employed certain other members of Ms. Stewart’s and Mr. Koppelman’s family. Aggregate compensation for these employees was $0.4 million in 2012 and $0.7 million in each of 2011 and 2010.
In 2011 and 2010, the Company made charitable contributions of $0.03 million and $0.02 million, respectively, to a foundation with which Ms. Stewart is affiliated.
As of December 31, 2012, J.C. Penney holds an approximate 16.4% investment in the Company's total Class A and Class B Common Stock outstanding. The Company derives revenues from J.C. Penney, inclusive of design fees, advertising, television sponsorship and creative services. For the year ended December 31, 2012, the Company recorded revenues earned from J.C. Penney of $8.1 million. As of December 31, 2012, the total accounts receivable from J.C. Penney was $0.7 million.