Related Party Transactions

12 Months Ended

Dec. 31, 2013

Related Party Transactions [Abstract]

Related Party Transactions

RELATED PARTY TRANSACTIONS

In July 2013, pursuant to a Letter Agreement, the Board and Martha Stewart agreed to certain modifications to the employment agreement between Ms. Stewart and the Company, dated April 1, 2009 (the “Employment Agreement”) and the Intangible Asset License Agreement, dated as of June 13, 2008, by and between Lifestyle Research Center, LLC. ("LRC"), the successor in interest to MS Real Estate Management Company, and the Company (the “IAL”). As amended, the Employment Agreement will continue in effect until June 30, 2017 and the IAL will continue in effect until September 15, 2017.

The Company and Ms. Stewart agreed that effective as of July 1, 2013 her annual base salary under the Employment Agreement will be reduced by $0.2 million to $1.8 million, and payment or reimbursement of business and certain other expenses will be made in accordance with a new expense policy adopted by the Board.

The parties to the IAL also agreed that the annual licensing fee under the IAL will be reduced by $0.3 million to $1.7 million, effective September 15, 2013.

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 2013 and 2012, the Company reimbursed LRC $0.03 million for approved and documented household expenses. In the year ended December 31, 2011, 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. In 2013, the Company reimbursed LRC $0.02 million and $0.03 million in each of 2012 and 2011, for these expenses.

On February 28, 2001, the Company entered into a Split-Dollar Agreement with Ms. Stewart and The Martha Stewart Family Limited Partnership (the “MS Partnership”). 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. As part of the arrangement, the Company reimbursed the MS Partnership approximately $0.3 million for the premiums paid towards the policies. This amount, if determined to be taxable, would be subject to an estimated $0.3 million tax gross-up payable by the Company to the MS Partnership. Accordingly, the Company's the estimated tax gross-up payable of $0.3 million is included in accounts payable and accrued liabilities on the consolidated balance sheets as of December 31, 2013 and 2012.

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. During the second quarter of 2013, the Company granted Alexis Stewart stock appreciation rights ("SARs") in exchange for options pursuant to which she would receive shares of Class A Common Stock equal to the difference between the fair market value of Class A Common Stock on July 1, 2013 and the exercise price of her options. The SARs became fully vested on July 1, 2013. During 2012 and 2011, she was employed by the Company and served in various capacities from which she earned aggregate compensation of $0.03 million and $0.3 million in 2012 and 2011, respectively. The Company has also employed certain other members of Ms. Stewart’s family. Aggregate compensation for these employees was $0.4 million in each of 2013 and 2012, and $0.3 million in 2011.

In 2013 and 2011, the Company made charitable contributions of approximately $0.02 million and $0.03 million, respectively, to a foundation with which Ms. Stewart is affiliated. In 2012, no such contributions were made.

For the period December 6, 2011 through October 20, 2013, J.C. Penney held an approximate 16.4% investment in the Company's total Class A and Class B Common Stock outstanding and accordingly was considered a related party. The Company derives revenues from J.C. Penney, inclusive of design fees, advertising, television sponsorship and creative services. The Company recorded revenues earned from J.C. Penney of $11.6 million during the period January 1, 2013 through October 20, 2013 and $8.1 million for year ended December 31, 2012. See Note 8, Shareholders' Equity, for further discussion of J.C. Penney.