This Separation
Agreement (the “ Agreement ”), dated as of
June 10, 2008 (the “ Effective Date ”), is
entered into between Martha Stewart Living Omnimedia, Inc. (the
“ Company ”) and Susan Lyne (“
Ms. Lyne ”).
WHEREAS, the
parties are party to an Employment Agreement dated as of
November 11, 2004 (the “ Employment Agreement
”), pursuant to which Ms. Lyne serves as the
Company’s President and Chief Executive Officer and a member
of the Company’s Board of Directors;
WHEREAS,
Ms. Lyne has informed the Board of Directors of her intention
to resign from her positions with the Company pursuant to the terms
hereof; and
WHEREAS, the
parties desire that, subject to the terms and conditions set forth
herein, (i) Ms. Lyne shall cooperate with the Company to
assist in the transition to one or more new Chief Executive
Officer(s) (the “ Successor ”) as an advisor to
the Company until July 11, 2008 (such date, the “
Resignation Date ”); (ii) Ms. Lyne shall
resign as the Company’s President and Chief Executive Officer
as of the date hereof; and (iii) Ms. Lyne shall resign as
a member of the Company’s Board of Directors on the
Resignation Date;
NOW, THEREFORE, in
consideration of these premises and the mutual covenants
hereinafter set forth, the parties agree as follows:
(i) cooperate with
the Company and the Successor in efforts to effect an orderly
transition;
(ii) until the
Resignation Date, continue to serve as a member of the
Company’s Board of Directors;
(iii) resign as of
the date hereof as the Company’s President and Chief
Executive Officer pursuant to the terms of the Employment Agreement
(as amended hereby); and
(iv) execute and
deliver the Waiver and Release of Claims in the form attached
hereto as Exhibit A (the “ Waiver and Release
of Claims ”) on the Date of Termination as defined in the
Employment Agreement.
(b) Subject to
Section 1(c) below, the Company shall:
(i) on the
Resignation Date, pay Ms. Lyne the sum of the following
amounts: (A) the amount of her Base Salary and unused vacation
time, each prorated on a daily basis, that was accrued and unpaid
as of the Resignation Date; (B) the product obtained by
multiplying her Base Salary by a fraction, (x) the numerator
of which is the number of calendar days between the Resignation
Date, exclusive, and December 31, 2008, inclusive, and
(y) the denominator of which is 365; (C) a portion of her
expected 2008 bonus in the amount of $540,000; and
(D) reimbursement of reasonable attorneys fees in connection
with the negotiation and
execution of
this Agreement in an amount not to exceed $15,000. The parties will
cooperate to the extent required by Ms. Lyne with respect to
timing of payments hereunder for purposes of complying with
Section 409A of the Internal Revenue Code.
(ii) on the date
that the Company pays annual incentive bonuses to its senior
executives in respect of 2008 (the “ 2008 Incentive
Bonus ” for each such senior executive), but not later
than March 15, 2009, pay Ms. Lyne the amount, if any, by
which (A) the product of (x) $900,000 and (y) the
percentage multiplier applied to senior executives in the bonus
pool, exceeds (B) $540,000; and
(iii) for purposes
of clarification of Section 5 of the Nonqualified Stock Option
Agreement dated as of November 11, 2004 between the parties
(the “ 2004 Option Agreement ”), deem
Ms. Lyne’s Termination of Employment (as defined in the
2004 Option Agreement) to provide that all options which have
previously vested under the 2004 Option Agreement remain
exercisable until the fifth anniversary of the Resignation Date,
subject to Section 1(c) below;
(c)
Notwithstanding anything herein to the contrary,
(i) Ms. Lyne shall not be entitled to payment pursuant to
Section l(b)(i)(B), and Sections l(b)(ii) and (iii) of this
Agreement if she has committed a material breach (following notice
by the Company and a reasonable opportunity to cure) of her
obligations under this Agreement or under Section 10 of the
Employment Agreement (as amended pursuant to Section 2 below,
and which amended Employment Agreement shall apply to her service
to the Company as an advisor) or under the Waiver and Release of
Claims (as defined below), or if Ms. Lyne’s employment
with the Company is terminated prior to the Resignation Date by
Ms. Lyne without Good Reason or by the Company for
Cause.
2. The
parties agree that the Employment Agreement shall hereby be deemed
amended as of the Effective Date as follows:
(a) Section 9
of the Employment Agreement (Termination Payments) is deleted in
its entirety;
(b) Section 10(b)
of the Employment Agreement (Noncompetition) is deleted in its
entirety;
(c) Section 10(c)
of the Employment Agreement (Nonsolicitation) is amended as
follows: the reference therein to “12 months” is
amended to read “24 months;” and
(d) Section 10(d)
of the Employment Agreement (Nondisparagement) is amended as
follows: the reference therein to “12 months” is
amended to read “all periods.”
Without
limiting the foregoing and for avoidance of doubt, Ms. Lyne
shall not be entitled to receive any payments pursuant to
Section 9 of the Employment Agreement under any circumstances,
including but not limited to in the event her employment as an
advisor with the Company is terminated prior to the Resignation
Date by her for Good Reason or without Good Reason or by the
Company without Cause or for Cause. Without limiting anything in
this
Agreement and
notwithstanding anything in the Employment Agreement to the
contrary, the Employment Term thereunder shall not be deemed to
extend beyond July 11, 2008. Except as expressly amended by
Section 2 of this Agreement, all other terms and provisions of
the Employment Agreement shall remain unmodified and in full force
and effect, including without limitation Section 12 thereof
(Indemnification); provided however, that such Employment Agreement
shall apply to Ms. Lyne in her new capacity as an advisor to
the Company. For avoidance of doubt, Ms. Lyne’s
employment with the Company as an advisor may be terminated prior
to the Resignation Date by her for Good Reason or without Good
Reason or by the Company without Cause or for Cause pursuant to
Section 7 of the Employment Agreement; provided that if
Ms. Lyne resigns for Good Reason or is terminated without
Cause prior to the Resignation Date, Ms. Lyne shall be
entitled to the benefits set forth in Section 1(b)
above.
3. Nothing in
this Agreement shall be construed to amend or modify the terms of
any agreement executed by the parties, including without limitation
(i) the 2004 Option Agreement, (ii) the Restricted Stock
Award Agreement dated as of November 11, 2004 between the
parties and (iii) the Nonqualified Stock Option Agreement
dated as of March 3, 2008 between the parties (the agreements
referenced in clauses (i)-(iii) hereof, collectively, the “
Equity Agreements ”).
4. Ms. Lyne
acknowledges and agrees that her execution on the Date of
Termination and the enforceability of the Waiver and Release of
Claims is an integral part of, and a material inducement to the
Company to enter into, this Agreement and agrees that in the event
that either (i) Ms. Lyne fails to execute and deliver to
the Company the Waiver and Release of Claims or (ii) Ms. Lyne
revokes the Waiver and Release of Claims as provided in
Section 9 of the Waiver and Release of Claims, the Company may
in its sole and absolute discretion revoke this Agreement by giving
written notice to Ms. Lyne, in which event this Agreement
shall be deemed null and void ab initio and Ms. Lyne shall
promptly after receipt of such notice return to the Company any
amounts paid to Ms. Lyne pursuant to this Agreement that are
in excess of the amounts to which she is entitled to receive under
the Employment Agreement. For avoidance of doubt, if the Company
revokes this Agreement pursuant to the preceding sentence the
Employment Agreement shall not have been deemed amended
hereby.
5. Ms. Lyne’s
contribution to the Company’s 401(k) plan will cease on the
last day of the Employment Term. When directed by Ms. Lyne,
the Company shall pay Ms. Lyne any amounts she contributed or
which are vested in such plan in accordance with the terms of such
plan. To the extent that Ms. Lyne does not receive any portion
of the Company contribution for 2008 under the 401(k) or forfeits
any prior Company contributions under the 401(k) plan as of the
Resignation Date, Ms. Lyne shall receive a separate cash
payment from the Company promptly following the Resignation Date to
maker her whole for any such lost payments. Ms. Lyne’s
active participation in the Company’s benefits plans shall
end on the last day of the Employment Term and she shall retain all
rights to vested benefits payable in accordance with the terms of
such plans. In addition, until such time as Ms. Lyne is
entitled to medical benefits from another employer, but in no event
for a period of longer than eighteen (18) months from the
Resignation Date, the Company shall reimburse Ms. Lyne for the
portion of COBRA benefits Ms. Lyne pays in an amount equal to
the contributions that the Company would have made on her behalf
had she remained an employee of the Company (i.e., Ms. Lyne
will not be reimbursed for that portion of the COBRA premium equal
to the amount that was deducted from her payroll for such benefits
when she was an employee).
6. Promptly
after the end of the Employment Term, Ms. Lyne shall submit to
the Company a reimbursement request, with supporting documentation
as required by the Company, for any expenses incurred through such
date with respect to which Ms. Lyne is entitled to be
reimbursed pursuant to Section 4 of the Employment Agreement
(“ Reimbursable Expenses ”) and the Company
shall promptly reimburse Ms. Lyne for such expenses (or pay
such expenses directly if requested pursuant to the following
sentence). Ms. Lyne shall promptly pay any expenses that
Ms. Lyne incurred with respect to which the Company could be
liable (e.g., expenses incurred on any corporate credit card if the
Company may be liable for the payment thereof); except that
Ms. Lyne may request the Company to pay directly, in
accordance with the Company’s policy and procedure, any
Reimbursable Expenses incurred on her Company American Express
Corporate Card.
7. Capitalized
terms used and not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Employment
Agreement.
8. This
Agreement, the Employment Agreement (as amended hereby) and the
Waiver and Release of Claims constitute the complete and final
agreement between the parties and supersede and replace all prior
or contemporaneous agreements, negotiations, or discussions
relating to the subject matter of this Agreement, the Employment
Agreement and the Waiver and Release of Claims. This Agreement may
not be amended except in a writing signed by each of the parties
hereto. No waiver of any right set forth in this Agreement shall be
effective unless set forth in a writing signed by the party against
whom the waiver is to be enforced. All provisions and portions of
this Agreement are severable. If any provision or portion of this
Agreement or the application of any provision or portion of this
Agreement shall be determined to be invalid or unenforceable to any
extent or for any reason, all other provisions
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