Equity Compensation

9 Months Ended

Sep. 30, 2011

Equity Compensation [Abstract]

Equity Compensation

8. Equity compensation

Stock option awards

On June 6, August 22, and September 6, 2011 the Company made awards under the Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Compensation Plan to several new members of its executive management team, as provided for in their employment agreements. Certain awards include service period vesting triggers and consist of options to purchase 475,000 shares of Class A Common Stock at various exercise prices (the closing price on the date of grant), which options vest as to 158,333 shares on each of the second, third, and fourth anniversaries of their employment start dates. Non-cash equity compensation expense of approximately $0.05 million was recorded during the three month period ended September 30, 2011 related to these awards. The Company measured the fair value of these awards as of the date of issuance using the Black-Scholes option pricing model, which value is recognized over the remaining service period of the awards. As of September 30, 2011, there was $0.8 million of total unrecognized compensation cost related to these nonvested stock option awards to be recognized over a period of 3.7 to 3.9 years. The following table summarizes the assumptions used in the Black-Scholes option-pricing model:

Risk-free interest rates	0.511% - 0.629%
Dividend yields	Zero
Expected volatility	60.80% - 60.88%
Expected option life	3.7 years
Average fair value per option granted	$1.38 - $2.17

The Company also made awards to these employees which include price-based vesting triggers. The price-based option awards consist of options to purchase an aggregate 700,000 shares of Class A Common Stock, whereby options for 175,000 shares with an exercise price of $6 per share will vest only at such time as the trailing average closing price of the Class A Common Stock during any 30 consecutive trading days during the term of the employment agreement has been at least $6, options for 175,000 shares with an exercise price of $8 per share will vest only at such time as such trailing average has been at least $8, options for 175,000 shares with an exercise price of $10 per share will vest only at such time as such trailing average has been at least $10, and options for 175,000 shares with an exercise price of $12 per share will vest only at such time as such trailing average has been at least $12. Non-cash equity compensation expense of approximately $0.3 million was recorded during the three month period ended September 30, 2011 related to these price-based awards. The Company measured the fair value of these price-based awards as of the date of issuance using the Monte Carlo Simulation method and recognizes its fair value over the service period of the awards. As of September 30, 2011, there was $0.7 million of total unrecognized compensation cost related to these nonvested price-based option awards to be recognized over the expected service period listed below. The following table summarizes the assumptions used in the Monte Carlo Simulation method:

Risk-free interest rate	1.34% - 2.29%
Expected volatility	59.72% - 60.55%
Expected service period	0.46 - 1.97 years
Dividends	Zero
Estimated value of price-based option awards	$0.45 - $2.35

In addition to non-cash equity compensation expense recorded in connection with the new executive management option awards discussed above, non-cash equity compensation expense of approximately $0.6 million was recorded during the three month period ended September 30, 2011 related to the accelerated vesting of certain option awards previously granted to former members of executive management.

Restricted stock unit awards and restricted stock

The new members of the Company's executive management team also received certain awards of 300,000 restricted stock units ("RSUs"), each of which represents the right to one share of Class A Common Stock, with service period vesting triggers, of which approximately 100,000 RSUs vest on each of the second, third, and fourth anniversaries of their employment start dates. Non-cash equity compensation expense of approximately $0.1 million was recorded during the three month period ended September 30, 2011 related to these awards. The Company has measured the fair value of these service period based awards as of the grant date and will recognize this fair value over the remaining service periods of the awards. As of September 30, 2011, there was $1.2 million of total unrecognized compensation cost related to these nonvested RSUs to be recognized over a period of 3.7 to 3.9 years.

The Company also made RSU awards to these employees which include price-based vesting triggers. The price-based RSUs consist of the right to receive an aggregate 380,000 shares of Class A Common Stock, of which 50,000 RSUs will vest at such time as such trailing average common stock price has been at least $6, an additional 95,000 RSUs will vest at such time as such trailing average has been at least $8, an additional 95,000 RSUs will vest at such time as such trailing average has been at least $10, an additional 95,000 RSUs will vest at such time as such trailing average has been at least $12, and the final 45,000 RSUs will vest at such time as the trailing average has been at least $14. Non-cash equity compensation expense of approximately $0.3 million was recorded during the three month period ended September 30, 2011 related to these awards. The Company measured the fair value of these price-based awards as of the date of issuance using the Monte Carlo Simulation method and recognizes this fair value over the service period of the awards. As of September 30, 2011, there was $0.7 million of total unrecognized compensation cost related to these nonvested price-based restricted stock unit awards to be recognized over the expected service period listed below. The following table summarizes the assumptions used in the Monte Carlo Simulation method:

Risk-free interest rate	0.37 - 1.17%
Expected volatility	67.83% - 70.20%
Expected service period	0.42 - 1.90 years
Dividends	Zero
Estimated value of price-based restricted stock unit awards	$1.10 - $4.43

In addition to non-cash equity compensation expense recorded in connection with the new executive management RSUs discussed above, a reversal of approximately $0.9 million in non-cash equity compensation expense was recorded during the three-month period ended September 30, 2011 related to the forfeiture of certain priced-based restricted stock awards previously granted to a former member of executive management.