UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

HOWARD ROSEN, on Behalf of Himself and AllOthers Similarly Situated,

Plaintiff,

vs.

MARTHA STEWART LIVING OMNIMEDIA,INC., MARTHA STEWART, GREGORY R.BLATT, DORA BRASCHI CARDINALE, L.JOHN DOERR, SHARON L. PATRICK,KLEINER PERKINS CAUFIELD & BYERS,MARGARET ROACH, SUZANNE SOBEL,LAUREN PODLACH STANICH and GAELTOWEY,

Defendants.

x:::::::::::::::::x

Civil Action No.

CLASS ACTION

COMPLAINT FOR VIOLATION OF THEFEDERAL SECURITIES LAWS

DEMAND FOR JURY TRIAL

This writing/publication is a creative work fully protected by all applicable copyright laws, as well as bymisappropriation, trade secret, unfair competition and other applicable laws. The authors of this work have added valueto the underlying factual materials herein through one or more of the following: unique and original selection,coordination, expression, arrangement, and classification of the information.

No copyright is claimed in the text of statutes, regulations, and any excerpts from analysts' reports quotedwithin this work.

Copyright © 2002 by Milberg Weiss Bershad Hynes & Lerach LLP. Milberg Weiss Bershad Hynes & LerachLLP will vigorously defend all of its rights to this writing/publication.

All rights reserved – including the right to reproduce in whole or in part in any form. Any reproduction in anyform by anyone of the material contained herein without the permission of Milberg Weiss Bershad Hynes & Lerach LLPis prohibited.

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INTRODUCTION AND OVERVIEW

1. This is a securities class action on behalf of all purchasers of the common stock of Martha

Stewart Living Omnimedia, Inc. ("MSLO" or the "Company") against the Company and certain of its

officers and directors (the "Individual Defendants") for violations of the Securities Exchange Act of 1934

(the "1934 Act"). The class period extends between 1/8/02, the first day Martha Stewart ("Stewart"),

MSLO's founder, name-sake, Chief Executive Officer ("CEO") and Chairman of the Board, kicked off

a torrent of insider sales of MSLO stock while in possession of material non-public information about an

ongoing investigation implicating Stewart and the impending doom to the Company's profits, and 7/24/02,

the day the full impact of the previously withheld news that Stewart had engaged in questionable stock sales

that would irreparably tarnish her image, the Company's most treasured asset, was finally revealed to the

market (the "Class Period"). Including Stewart's sales, approximately 5.3 million shares of MSLO stock

were sold by MSLO executives during the Class Period at prices as high as $20 per share, allowing

insiders to reap illicit gross insider trading proceeds of over $79 million and to avoid the losses they would

have suffered if news of the then-pending Congressional inquiry, SEC probe and DOJ investigation into

Stewart's sales of ImClone, Inc. ("ImClone") stock had been revealed.

2. MSLO is a personality-based, integrated content and commerce company that creates

how-to content and domestic merchandise for homemakers and residential consumers. MSLO has created

a unique brand that is heavily reliant upon the reputation and goodwill of Stewart, the Company's founder

and CEO, and the Company uses Stewart's name and image to promote a host of home products,

publications and media products. In conjunction with MSLO's 1999 Initial Public Offering ("IPO"), MSLO

purchased all of Stewart's intellectual property rights to her publications and the exclusive, worldwide,

perpetual royalty-free use of Stewart's name, likeness, image, voice and signature for its products and

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services (even if Stewart terminates her employment with MSLO). The Company's products bear the

"Martha Stewart" brand name, which MSLO leverages across a broad range of media and retail outlets.

The Company relies almost exclusively upon Stewart's reputation and image to sell these products (and

additional commercial advertising spots) through the "Martha Stewart Living" and "Martha Stewart

Wedding" magazines and Stewart's television show and constant media appearances.

3. The Company's publications and media presentations primarily focus upon catering,

entertaining, gardening, home-improvements, furniture refinishing and other domestic arts, and provide

consumers with how-to ideas, information, merchandise and other resources. The entire publishing, media

and product platform is based upon the Company's ability to cross-sell products to consumers who identify

with Stewart's wholesome and conscientious "hearth and home" image. "The entire company wears her

name," according to Daniel Stanek, a Branding Strategist, who laments Stewart's name has stood for

quality, taste, style and – until recently – trust.

4. To help promote and sell the Stewart image, the Company has four business segments:

Publishing, Television, Merchandising and Internet/Direct Commerce. During fiscal 2001, MSLO reported

$22 million in earnings on $295.6 million in sales, over 61% of which were generated from publishing,

primarily through sales of "Martha Stewart Living" magazine which, along with MSLO's television

programming, is heavily reliant upon advertising revenues.

5. All of the MSLO business segments are, and at all times relevant hereto have been, very

sensitive to Stewart's reputation and goodwill. So important was Stewart's public image to the success of

MSLO, that the Company's 1999 registration statement issued in connection with its IPO stated, "Martha

Stewart remains the personification of our brands as well as our senior executive and primary

creative force," in addition to the following:

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THE LOSS OF THE SERVICES OF MARTHA STEWART OR OTHER KEYEMPLOYEES WOULD MATERIALLY ADVERSELY AFFECT OURREVENUES, RESULTS OF OPERATIONS AND PROSPECTS

We are highly dependent upon our founder, Chairman and ChiefExecutive Officer, Martha Stewart. Martha Stewart's talents, efforts, personalityand leadership have been, and continue to be, critical to our success. Thediminution or loss of the services of Martha Stewart, and any negative market or industryperception arising from that diminution or loss, would have a material adverse effect on ourbusiness. While our other key executives have substantial experience and have madesignificant contributions to our business, Martha Stewart remains the personificationof our brands as well as our senior executive and primary creative force.

* * *

Effective as of the completion of this offering, we will enter into a five-yearemployment agreement with Martha Stewart. This agreement is important to thefuture of our business, and if we were to lose our rights under this agreement forany reason, including as a result of Martha Stewart's voluntary resignation orretirement, our business would be materially adversely affected.

* * *

OUR SUCCESS DEPENDS ON THE VALUE OF OUR BRANDS, AND IF THEVALUE OF OUR BRANDS WERE TO DIMINISH OUR REVENUES,RESULTS OF OPERATIONS AND PROSPECTS WOULD BE ADVERSELYAFFECTED

Our success depends on our brands and their value. Our business wouldbe adversely affected if:

Martha Stewart's public image or reputation were to be tarnished;

Martha Stewart, as well as her name, her image and the trademarks andother intellectual property rights relating to these, are integral to our marketingefforts and form the core of our brand name. Our continued success and the valueof our brand name therefore depends, to a large degree, on the reputation ofMartha Stewart.

6. Based substantially upon a belief that Stewart would not do anything to harm this public

image or the image of MSLO, the Company's advertising sales and earnings forecasts remained stable and

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predictable from the time of its public offering until 6/02. It was understood by defendants that MSLO's

value as a going concern, and thus its stock price, was very dependent upon Stewart's good name and

standing in the community since MSLO generated revenues primarily from selling products to consumers

who would only be willing to buy the "Martha Stewart" brand if they perceived her as a responsible and

upstanding member of the community. In fact, Stewart's reputation was built upon the trust and confidence

of the business community, and upon her having been a former stock broker, a then-current member of the

New York Stock Exchange ("NYSE") board and a successful business owner. So confident was the Wall

Street investment community in Stewart's integrity and business acumen, the NYSE made her a director

in late 5/02, mere days before the news of her infidelities was revealed.

7. It was only on 6/7/02 that the public, including MSLO shareholders, learned from a

published media report that Stewart had engaged in activities which substantially compromised her

reputation and community standing. It was at this time that the public first learned that Stewart had been

accused of insider stock trading in the securities of ImClone. By the end of 6/02, MSLO shareholders

would also learn that Stewart had lied in an attempt to cover up her ImClone sales.

8. Six months earlier, on 1/18/02, however, when ImClone announced that it was being

investigated by the SEC, the DOJ and the U.S. House Energy and Commerce Committee concerning

ImClone CEO and co-founder Samuel Waksal's ("Waksal") alleged tipping off of friends and family

between 12/26/01-12/28/01 that the FDA was about to issue a so-called "refuse to file letter" ("RTF") for

ImClone's ground-breaking Erbitux cancer drug application, MSLO shareholders had no way of

knowing that Stewart had sold 100% of her ImClone stock on 12/27/01, or that it was entirely

foreseeable that she would become a subject in the ImClone investigation. Waksal's illegal and improper

leaking of material adverse information resulted in the sale of at least $10 million of ImClone stock by

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Waksal's friends and family between 12/26/01 and 12/28/01, at the exact time Stewart, a long-time

friend of Waksal, sold 100% of her ImClone shares. Since Stewart was not a beneficial owner of

more than 5% of the shares of ImClone, she was not required to report her trading of ImClone shares and,

therefore, shareholders did not know about her sales and could not know that her actions would later drag

the Company into the federal ImClone investigation until such time that Stewart's trades were reported by

the media.

9. Waksal was Stewart's long-time personal friend. Moreover, Stewart was one of the

promoters of ImClone stock prior to ImClone's IPO and touted the stock right up until the 6/7/02

disclosure that Stewart had sold all of her own ImClone stock. A 5/02 New York Post article quoted

Stewart as saying: "I've invested in ImClone since the beginning .... We've always kept our ImClone stock

and profited handsomely from it .... My driver bought a house in Connecticut on ImClone." At no time

between 12/28/01, when ImClone publicly disclosed its receipt of an RTF, and 6/6/02, the day before

Stewart publicly disclosed for the first time that she had sold her ImClone stock all the way back in 12/01,

did Stewart disclose these sales or her complicity in Waksal's breach of his fiduciary duties.

10. On 6/12/02, Waksal was arrested for his role in tipping off his family and friends prior to

their sale of ImClone shares. Federal investigators later learned that Waksal became aware of the FDA's

intention to issue the RTF on 12/26/01, and between this time and the Company's public disclosure on

12/28/01, tipped off family and friends who then sold over $10 million worth of ImClone stock.

Stewart is a long-time friend of Waksal, and Stewart was an early ImClone investor and, through her

contacts with Waksal, remained very knowledgeable about ImClone.

11. According to the government's now pending charges against Waksal, it was late in the

evening of 12/26/01 when he learned that ImClone would receive the RTF within two days, on 12/28/01.

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Waksal had learned of the FDA's intention through a paid Washington lobbyist who had access to the FDA

examiners and who was able to obtain this important information. According to the government's charge,

Waksal immediately attempted to illegally dispose of 79,797 shares of his own ImClone stock that

originated in his brokerage account at Merrill Lynch. ImClone's general counsel, who was required to

approve the sale, would not do so.

12. Not being able to liquidate his own shares, that same evening and throughout the course

of the next few days, Waksal began tipping off friends and family about the impending FDA rejection,

encouraging them to use this information to profit from the sales of their ImClone stock. The family and

friends illegally tipped off by Waksal sold approximately $10 million in ImClone stock between 12/27/01

and 12/28/01. Stewart herself disposed of nearly 4,000 shares, or 100% of her personally held

ImClone stock, to reap gross proceeds of $227,824 on 12/27/01, one day before ImClone

announced its receipt of the RTF. Many of the insiders who sold ImClone stock at this time, including

Stewart, Waksal's father and Waksal's daughter, used the same Merrill Lynch broker, Peter Bacanovic

("Bacanovic"). In addition, Stewart has since admitted calling Waksal looking for inside information that

could have affected the value of her ImClone stock at the very time she contemplated selling it.

13. On Friday, 12/28/01, ImClone announced after the market closed that it had received the

FDA's RTF and shares of ImClone dropped precipitously the following day. Several shareholder class

actions were filed immediately on behalf of ImClone shareholders alleging securities fraud. Later, on or

about 1/18/02, the SEC and the DOJ began publicly investigating which of Waksal's friends and family got

tipped off, and subpoenaed telephone and cell phone records and investigated Waksal's actions and

contacts between 12/26/01 and 12/28/01.

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14. On Monday, 12/31/01, ImClone stock traded as low as $43.35 per share, though it had

traded as high as $59 per share on the previous Friday before the bad news was disclosed. Thus, Stewart

was on notice on 12/31/01, at the very latest, that she had sold at a very optimistic time after exchanging

several telephone calls with her friend Waksal, who was ImClone's CEO, and her broker, Bacanovic, who

was also Waksal's broker. She knew these sales were illegal. But, since 1/02, Stewart has been

engaged in a cat and mouse game with federal investigators, annoying Congressional investigators who

claim she and her lawyers have continually "tweaked" the story she and her Merrill Lynch brokers

concocted to camouflage the alleged illegality of Stewart's ImClone stock sales. In a 6/12/02 letter to

Congressional investigators, Stewart and her lawyers told investigators that Bacanovic, Stewart's Merrill

Lynch broker, called Stewart on 12/27/01 and informed her that ImClone's shares had dropped below $60

and that as a result they were sold at 1:43 p.m. pursuant to a so-called "stop loss order" she had placed

in late 11/01. The chronology helped bolster Stewart's claims that the stop-loss order existed, but her story

changed with new documents obtained from Stewart's office six days later. Instead of a single call from

Bacanovic on the afternoon of 12/27/01 – as ImClone's stock fell below $60 – records revealed an urgent

effort by the broker to reach her between 10 and 11 a.m. Sources told Time Magazine that Bacanovic

even tried to be patched through to Stewart on her corporate jet which she had boarded for Mexico. The

hour is significant because ImClone was still selling above the purported $60-a-share stop-loss price at that

time – negating Stewart's earlier explanation that the broker's warnings were precipitated by an unexpected

drop in the price of the stock. Under Stewart's original theory, even if she had received confidential

information from Waksal or Bacanovic, her trades would be self-executing so she could argue she was not

liable for insider trading even if she had material, non-public information because she did not direct the

sales. This convenient explanation later turned out to be a complete lie. After more details of her phone

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records were obtained and disclosed by investigators between 6/6/02 and 6/12/02, Stewart released a

public statement on 6/12/02, the same day Waksal was arrested by the FBI in New York, changing her

story and indicating that she had in fact called Bacanovic on 12/27/01, and instructed him to sell her

ImClone stock.

15. In fact, the Congressional committee investigating the ImClone stock sales has disclosed

further information indicating that Bacanovic, who was also Waksal's broker, had advance knowledge of

the RTF. In a 12/27/02 e-mail sent to his assistant before the Stewart sale, Bacanovic asked: "Has news

come out yet? Let me know, thx, P." The assistant replied, "Nothing yet. I'll let you know. No call from

Martha either." The RTF was announced after the market closed on 12/28/02. Bacanovic's assistant,

Douglas Faneuil ("Faneuil"), at first backed Stewart's story that she had placed a stop-loss order, but has

since recanted, telling prosecutors that he was pressured to back up Stewart's story. Merrill Lynch has

since turned over all of Bacanovic's and Faneuil's records and no such stop-loss order ever existed.

Bacanovic and Faneuil have since been suspended.

16. As a result of the foregoing, MSLO has been severely damaged. MSLO's business

interests, intellectual property and property rights in Stewart's name and likeness have been badly damaged.

The stigma of defendants' actions has already adversely impacted the Company, and according to the New

York Daily News on 7/9/02, Stewart is now engaged in an indefinite "media blackout" to avoid questions

concerning her trading activities and is refusing to make public appearances, costing the Company millions

in lost advertising revenues per appearance she misses. On 7/11/02, USA Today reported:

[T]he loud controversy has taken a toll on Stewart's image and cast a shadow overthe publishing, TV and home goods empire built on her face and name. A USATODAY/CNN/Gallup Poll this week found a sharp rise in negative views of her .... Andsince the suspicions surfaced last month, MSLO shares have slid from $19.01 to a closeWednesday of $11.06.

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17. The USA Today article also contained a Gallop Poll chart demonstrating that Stewart's

popularity has declined dramatically as a result of the June disclosures as consumers who once identified

with the symbolic trust and quality which Stewart promoted withdrew from a woman who they now

perceived as greedy and unethical. Whereas in late 1999 Stewart enjoyed a strong popularity rate, with

49% of consumers reporting a favorable impression of her and only 16% reporting an unfavorable

impression, by 7/5/02, the Gallop Poll results indicated that Stewart's favorable impression among

consumers had dropped to 30% and her unfavorable impression had risen to 39%.

18. The revelations of illegal insider trading and violations of the securities laws continue to

damage MSLO's corporate image and goodwill. For at least the foreseeable future, the Company will

suffer from what is known as the "liar's discount," a term applied to the stocks of companies who have been

implicated in illegal behavior and have misled securities analysts and the investing public, such that MSLO's

ability to raise equity capital on favorable terms in the future will be impaired. This "discount" already has,

and is expected to continue to have, an even more destructive effect on MSLO than on many other media

companies as a result of the wholesome "Martha Stewart" image MSLO depends upon to generate

revenues.

19. On 6/6/02, the day before the news of Stewart's ImClone stock sales broke, MSLO's

stock was trading at over $19 per share, representing a market capitalization of over $358 million. MSLO

stock began a precipitous decline upon the June revelation and plunged even further on MSLO's 7/24/02

warning that the controversy was impacting product and magazine sales and revenue, cutting 3Q 2002

earnings guidance to $0.06 a share, half of prior estimates, and reducing guidance for FY 2002. In their

release, defendants stated that "looking forward, we have begun to see some impact on our business

resulting from the uncertainty relating to the investigations into Martha Stewart's stock sale."

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MARTHA STEWART LIVING OMNIMEDIADaily Prices From: 1/2/2001 to 7/29/2002

01/02/200102/06/2001

03/13/200104/17/2001

05/21/200106/25/2001

07/30/200108/31/2001

10/11/200111/14/2001

12/19/200101/25/2002

03/01/200204/05/2002

05/09/200206/13/2002

07/18/2002

$5

$10

$15

$20

$25

$30

Dol

lars

Per

Sha

re

1/8/02 -5/29/02: The Selling Defendants sell 5.3 million

shares of MSLO stock for $79.5 million in insider trading

proceeds.

1/18/02: Imclone discusses that Waksal is being investigated by the SEC, the DOJ and the US House of Representatives for insider trading.

6/6/02: The SEC/DOJ investigation of Stewart's stock sales in Imclone stock is disclosed.

7/24/02: MSO lowers earnings expectations for 3Q 02 and FY 02 blaming decreased advertising revenues resulting from negative implications of ongoing investigation.

MSLO stock closed at $10.76 on 7/23/02. Before the dust would settle and investors learned the full

extent of Stewart's implication in the ImClone insider stock trading scandal, MSLO's stock would drop

below $7.50 per share on 7/24/02 – resulting in a 60% decline in the Company's market

capitalization in less than one month:

As the chart above also indicates, many of MSLO's officers and directors avoided suffering the

financial effects of this dramatic decline in the price of MSLO shares by engaging in a torrent

of their own insider trading, selling 5.3 million shares of MSLO stock valued at over $79 million,

in the days between the public disclosure of the SEC's investigation into ImClone and Waksal

and the public disclosure of Stewart's own complicity in the ImClone insider trading scheme.

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20. Stewart herself kicked off the insider stock sales on 1/8/02 when she sold 3 million shares

of MSLO stock in a private, undisclosed sale. Then on 3/14/02, through director L. John Doerr, Kleiner

Perkins Caufield & Byers ("KPCB"), a controlling shareholder of the Company, sold the nearly 2 million

shares of MSLO stock it held at $14.50 per share in another private transaction, though the Company's

stock was then trading publicly at over $19 per share. With that sale, Doerr, KPCB's designated board

member, resigned from the MSLO board without giving any public notice. Stewart and President/COO

Sharon L. Patrick were parties to KPCB's shareholder agreement and as such were involved in both of

the private sales.

21. Thereafter, in 3/02, and again in 5/02, MSLO executives engaged in a torrent of their own

insider stock sales, selling millions more of their MSLO shares at as high as $20 per share. In all, MSLO

insiders obtained illicit insider trading proceeds of over $79 million, and avoided the losses they would have

suffered had news of the then pending Congressional inquiry, SEC probe and DOJ investigation into

Stewart's ImClone stock sales been revealed. The majority of the MSLO shares sold by defendants during

this period were obtained by exercising options with exercise prices as low as $0.60 per share, or selling

shares issued to MSLO's pre-IPO venture capital investors for pennies on the dollar:

Name/Position Sale Date Shares Sold Price/Share Proceeds %Sold

Martha Stewart,CEO and Chairman of the Board

1/8/02 3,000,000 $15.00 $45,000,000 9%

Dora Cardinale,Exec. V.P., Print Production

3/08/02 – 3/11/02 16,100 $17.95 – $18.70 $293,280 91%

Gael Towey,Sr. Exec, V.P. and Creative Dir.

3/06/02 – 3/19/02

5/03/02 – 5/15/02

70,000

40,000

$18.24 – $20.80

$18.41 – $18.98

$1,325,559

$744,300

100%

Gregory Blatt, Exec. V.P.,Business Affairs, Sec., GeneralCounsel

3/1/02 – 3/4/02 5,000 $18.00 $90,000 100%

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John Doerr, Former Dir. MSLOand General Partner KPCB

Kleiner Perkins

3/14/02

same sales

1,999,403

same sales

$14.50

same sales

$28,991,344

same sales

99%

100%

Lauren Stanich,Exec. V.P., Pres. of Publishing

3/18/02

5/2902

2,500

5,000

$20.00

$18.80 – $18.95

$50,000

$94,150

100%

Margaret Roach, Exec. V.P., Editor-in-Chief

3/04/02 4,897 $19.00 $93,043 100%

Sharon Patrick, Pres. and COO and Director

3/06/02 – 3/07/02

150,000 $18.25 – $19.04 $2,778,268 7%

Suzanne Sobel, Exec, V.P., Advertising Sales

5/20/02 1,500 $19.05 – $19.13 $28,591 100%

22. These stock sales were particularly suspicious as they:

• occurred while Stewart's stock trading was being investigated by the SEC, the DOJ andCongress;

• involved almost every member of MSLO's executive management; and

• constituted 100% of almost every Individual Defendants' holdings.

23. Defendants were well aware that an announcement or the leaking of the federal investigation

into Stewart's trades would have a material adverse effect on Stewart's reputation and goodwill and,

therefore, upon magazine and media advertising revenues, and would necessarily cause the price of MSLO

shares to decline dramatically. At the time Company insiders sold their MSLO shares, however, they did

not disclose that Stewart was being investigated and/or would foreseeably be brought into the investigation

by the SEC and DOJ concerning the illegal ImClone stock sales by Waksal's friends and family. By selling

their stock without disclosing what they knew about the ongoing investigation and the negative effect the

disclosure of which would foreseeably have on MSLO's share price, defendants were able to avoid severe

personal losses.

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24. By not disclosing what they knew about the ongoing investigation, defendants also violated

their duty to "abstain" or "disclose" under the 1934 Act. Rather than abide by their duty to abstain from

trading shares of the Company until after defendants disclosed the material adverse conditions which they

knew or had reason to know existed, defendants pursued a scheme to defraud and course of business that

operated as a fraud or deceit on purchasers of MSLO stock by selling nearly 5.3 million of their MSLO

shares at as high as $20 per share, thereby reaping illicit insider trading proceeds of over $79 million.

JURISDICTION AND VENUE

25. Jurisdiction is conferred by §27 of the 1934 Act. The claims asserted herein arise under

§§10(b) and 20(a) of the 1934 Act and Rule 10b-5. MSLO's principal executive, administrative,

publishing and sales offices are located at 11 West 42nd Street, New York, New York. Additionally, the

Company's Internet development studio, product design facilities, photography studio, test kitchens, and

prop storage facility are located at 601 West 26th Street, New York, New York. The Individual

Defendants also have had substantial and continuous contacts with New York that make the exercise of

personal jurisdiction over them proper. Defendants Patrick, Towey, Stanich, Roach, Blatt, Sobel and

Cardinale are all residents and citizens of the State of New York. MSLO has held its annual meeting of

shareholders each year in New York City since its IPO. Moreover, many of the acts alleged herein have

taken place in New York, because:

• Stewart contacted a Merrill Lynch broker in New York who sold her ImClone shares;

• Individual Defendants Patrick, Towey, Stanich, Roach, Blatt, Sobel and Cardinale are allresidents and citizens of New York and as such their insider trading took place in NewYork;

• A New York Merrill Lynch broker managed MSLO's employee option program andhandled the sale of the majority of the Individual Defendants' sales; and

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• Stewart is, and has been, investigated in New York by the SEC and the DOJ relating tothe illegal insider trading in ImClone stock.

26. Venue is proper in the Southern District of New York pursuant to §27 of the 1934 Act

because MSLO has a substantial business presence in this district.

THE PARTIES

27. Plaintiff Howard Rosen purchased MSLO common stock as described in the attached

certification, and was damaged thereby.

28. Defendant MSLO is a Delaware corporation with its principal executive offices located in

New York, New York. MSLO is a personality-based, integrated content and commerce company that

creates how-to content and domestic merchandise for homemakers and other consumers and markets the

image and personality of its founder, Martha Stewart, through its publishing, television, merchandising and

Internet/direct commerce divisions. MSLO's stock trades on the NYSE and as of 4/23/02, MSLO had

approximately 49 million shares outstanding.

29. Defendant Martha Stewart ("Stewart") is the Company's founder, Chairman and Chief

Executive Officer. On 12/27/01, Stewart sold approximately 4,000 shares of ImClone Stock while in

possession of material, adverse non-public information about the negative status of the ImClone FDA

approval application in order to reap illicit gross insider trading proceeds of $227,824. Stewart, who was

the creator of Martha Stewart Living magazine and was its Editor-in-Chief and Editorial Director from

1990 until 1997, sold her intellectual property rights to "Martha Stewart Living" magazine and the property

rights to her name, likeness, voice and appearance to the Company prior to the Company's IPO in 1999,

which are the Company's most highly-prized assets. Stewart damaged these assets by engaging in the

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insider trading activities in 12/01 and then engaging in the coverup calculated to further her own interests

from 1/02-6/02. To avoid legal jeopardy and social ostracism, Stewart refused to disclose that she was

the subject of the same SEC/DOJ investigation into Waksal's insider trading which was public knowledge

as of at least 1/25/02, resulting in MSLO's stock price being materially inflated while she and other MSLO

executives sold MSLO stock at inflated prices between 1/8/02 and 5/29/02, including Stewart and the

Martha Stewart Family Limited Partnership's 1/8/02 sale of 3 million Class B MSLO shares to Jeffrey

Ubben ("Ubben") of ValueAct Partners ("ValueAct") in a private transaction while in possession of material

adverse non-public information about the ongoing investigation into her ImClone stock sales.

30. Defendant Sharon L. Patrick ("Patrick"), has served as the Company's President, Chief

Operating Officer and director since 1997, and served as its CEO for a short period of time in 1998.

Patrick sold 150,000 shares of MSLO stock between 3/6/02 and 3/7/02, while in possession of

material, non-public information to reap illicit insider trading proceeds of $2,778,268.

31. Defendant Dora Braschi Cardinale ("Cardinale") is MSLO's Executive Vice President,

Print Production. Defendant Cardinale sold 16,100 shares of MSLO stock at as high as $18.70 per

share while in possession of material, adverse non-public information to reap illicit insider

trading proceeds of $293,280.

32. Defendant Gael Towey ("Towey") is Senior Executive Vice President and Creative

Director of the Company. Defendant Towey sold 110,000 shares of her MSLO stock at prices as

high as $20.10 per share between 3/6/02 and 5/15/02, while in possession of material adverse

information, to reap illicit insider trading proceeds in excess of $2.06 million.

33. Defendant Gregory R. Blatt ("Blatt") is Executive Vice President, Business Affairs,

Secretary, and General Counsel of the Company. Defendant Blatt sold 5,000 shares of his MSLO

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stock at prices as high as $18.00 per share between 3/1/02 and 3/4/02, while in possession of

material adverse non-public information to reap illicit insider trading proceeds of $90,000. Blatt

also signed the 1/8/02 Investment Agreement between ValueAct, Ubben and Stewart, whereby Stewart

sold Ubben and ValueAct 3 million shares of MSLO stock.

34. Defendant Lauren Podlach Stanich ("Stanich") is Executive Vice President, President of

Publishing of the Company. Defendant Stanich sold 7,500 shares of her MSLO stock at prices as high as

$20 per share between 3/18/02 and 5/29/02, while in possession of material adverse information to reap

illicit insider trading proceeds in excess of $144,000.

35. Defendant Margaret Roach ("Roach") is Executive Vice President, Editor-in-Chief of the

Company. Defendant Roach sold 4,897 shares of her MSLO stock at $19 per share on 3/4/02,

while in possession of material adverse non-public information to reap illicit insider trading

proceeds of $93,043.

36. Defendant Suzanne Sobel ("Sobel") is Executive Vice President, Advertising Sales of the

Company. Defendant Sobel sold 1,500 shares of her MSLO stock at prices as high as $19.13 per

share on 5/20/02, while in possession of material adverse non-public information to reap illicit

insider selling proceeds of $28,591.

37. Defendant L. John Doerr ("Doerr") was an MSLO director from 7/99 through early 2002.

Doerr has been a general partner of KPCB, a venture capital firm, since 9/80 and KPCB Holdings, Inc.,

an investment firm and affiliate of KPCB. KPCB, along with Stewart and Patrick, provided venture capital

financing to MSLO prior to its IPO and entered into a stockholders agreement whereby Stewart, Patrick

and KPCB had the right to cause MSLO to register shares of Class A common stock owned or controlled

by them after the IPO. As a term of the venture capital financing, KPCB obtained a seat on the MSLO

- 17 -

Board of Directors and Doerr filled that seat from 7/99 through approximately 3/14/02, when KPCB sold

all 1.9 million of its MSLO shares to ValueAct. Defendant Doerr, on behalf of KPCB, sold 1,999,403

shares of MSLO stock on 3/14/02, while in possession of material adverse non-public information to reap

illicit insider selling proceeds of almost $29 million.

38. Defendant Kleiner Perkins Caufield & Byers ("KPCB") is a venture capital firm which,

along with Stewart and Patrick, provided venture capital financing to MSLO prior to its IPO and entered

into a stockholders agreement whereby Stewart, Patrick and KPCB had the right to cause MSLO to

register shares of Class A common stock owned or controlled by them after the IPO. Defendant KPCB

sold 1,999,403 shares of MSLO stock to ValueAct on 3/14/02, while in possession of material adverse

non-public information to reap illicit insider selling proceeds of almost $29 million.

39. The individuals named as defendants in ¶¶29-38 are referred to herein as the "Individual

Defendants." The Individual Defendants, because of their positions with the Company, possessed the

power and authority to control the contents of MSLO's press releases and public statements. Each

defendant knew that neither Stewart nor MSLO had disclosed that Stewart sold 4,000 shares, or 100%,

of her ImClone stock on 12/27/01. Each Individual Defendant had the ability and opportunity to prevent

the issuance of such statements or cause such statements to be corrected. Because of their positions and

access to material non-public information available to them but not public investors, each of the Individual

Defendants knew that the adverse facts specified herein had not been disclosed to and were being

concealed from the public at the time they engaged in their unlawful insider stock sales, and each of them

was also aware that the statements made by Stewart in 5/02 about her ongoing possession of her ImClone

stock were then materially false and misleading.

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40. The Individual Defendants violated the 1934 Act because they did not abstain

from selling their shares of MSLO before they first disclosed all material information known to

them regarding the impending investigation into Stewart's stock sales, which information they

knew would have a negative impact on MSLO's stock price.

41. As officers and/or directors and/or controlling shareholders of MSLO, defendants had a

duty to disclose non-public material facts known to them but which were not known to the public, but

which facts would, if known, affect the price of MSLO stock. This duty arises from: (i) the existence of

a relationship between plaintiff and defendants, which afforded defendants access to inside information

intended to be available only for corporate purposes; and (ii) the unfairness of allowing such corporate

insiders to take advantage of that information by trading without disclosure. As a result of the relationship

of trust and confidence that exists between shareholders of a corporation and those insiders who have

obtained confidential information by reason of their position with MSLO, the Individual Defendants had

a duty to disclose all material information related to Stewart's stock sales before selling nearly $79 million

worth of their MSLO shares.

SCIENTER; VIOLATION OF ABSTAIN OR DISCLOSEOBLIGATIONS; FRAUDULENT SCHEME

AND COURSE OF BUSINESS

42. The Individual Defendants' insider selling was in violation of the abstain or disclose rule.

Stewart kept other MSLO executives and directors informed of the progress and details of the investigation

into her ImClone stock sales. At the time of their MSLO stock sales, each Individual Defendant had

knowledge of the fact that Stewart was secretly being investigated for insider trading and that this would

severely damage Stewart's image, the Company's most precious asset. They also knew that the disclosure

of that investigation would tarnish MSLO's image and its ability to raise advertising revenues, causing the

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price of MSLO stock to fall. Thus, the Individual Defendants knew of the existence and status of the

investigation, and the ruinous effects it would have on MSLO's stock price when revealed, during the time

they were selling off millions of dollars worth of their MSLO stock.

43. Rather than disclose the fact that Stewart was being investigated, or even that she had sold

ImClone stock and might be accused of insider trading, the Individual Defendants sold nearly 5.3 million

shares of their privately held MSLO stock at artificially inflated prices for proceeds exceeding $79 million.

Defendants not only concealed that Stewart was being investigated, but they also allowed her to be quoted

in The New York Post defending Waksal and claiming that she still owned her ImClone stock and that it

was making her a lot of money. None of the Individual Defendants who sold MSLO stock during the Class

Period contradicted or corrected Stewart's false statements concerning her ImClone stock transactions,

even though they knew those statements were false.

44. Defendants pursued a scheme to defraud or course of business that operated as a fraud

or deceit on purchasers of MSLO stock, including the Individual Defendants' violation of their abstain or

disclose obligations under the 1934 Act, acting knowingly or in a reckless manner so as to artificially inflate

the trading price of MSLO stock and damage plaintiff and other members of the Class as they engaged in

their insider trading scheme which allowed defendants, in the aggregate, to reap over $79 million in illicit

insider trading proceeds.

SUBSTANTIVE ALLEGATIONS

Stewart's Insider Trading in ImClone Stock

45. In 10/01, Stewart, a former stock broker, tendered 5,000 shares of her personally held

ImClone stock in response to Bristol Myers' $1 billion tender offer for ImClone shares. Despite her

attempt to liquidate all of her ImClone stock at that time, Stewart was only able to transfer about 20% of

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her shares in the over-subscribed offer. Following the Bristol-Myers' ImClone tender, Stewart was left

with approximately 4,000 shares of ImClone stock that she did not want.

46. On 12/25/01, executives within Bristol-Myers learned from a source at the FDA that the

FDA would issue a letter refusing to accept for filing ImClone's completed Erbitux drug application on

12/28/01. As the SEC's investigation has revealed, Waksal learned of the FDA's decision to issue the RTF

to ImClone on the evening of 12/26/01, and when Waksal returned to his office on the morning of

12/27/01, he learned that ImClone was preparing draft press releases focusing entirely on disclosing the

FDA's issuance of the RTF.

47. On the evening of 12/26/01, Waksal attempted to dispose of 79,797 shares of his own

ImClone stock through his Merrill Lynch broker, Bacanovic. ImClone's counsel, however, wouldn't agree

to the sale of Waksal's restricted shares. The SEC's subsequent investigation into ImClone and Waksal

has confirmed that Waksal then immediately called at least two family members between the evening of

12/26/01 and the morning of 12/27/01 and disclosed what he knew about the RTF encouraging these

family members to immediately sell their ImClone stock prior to the public disclosure of the RTF. He also

transferred some of this own ImClone stock to those family members' accounts in attempts to sell his own

ImClone stock. Those two Waksal family members immediately sold a total of 175,808 shares of ImClone

stock between 12/27/01 and 12/28/01. As later discovered by the SEC, during 12/26/01-12/28/01, prior

to ImClone's announcement of its receipt of the RTF, in all, Waksal's two daughters, his father and

several other relatives sold over $10 million worth of ImClone stock.

48. ImClone's receipt of the RTF was not disclosed to the investing public until 6 p.m. on

Friday, 12/28/01, after the close of trading, when ImClone issued a release stating, in pertinent part, that

the FDA "has advised the company that at this time it is not accepting for filing in its current form the

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company's rolling ... Application ... for ERBITUX™." The SEC, the government agency charged with

enforcing the nation's securities laws, has taken the position, and alleged in its complaint against Waksal

filed on 6/12/02, that this was material non-public information and that Waksal broke the law when he

disclosed this adverse non-public information to select ImClone investors encouraging them to sell their

ImClone stock, which allowed them to illegally profit from use of the information before it became public.

At the time the SEC filed this complaint, Waksal was arrested by the FBI in New York City.

49. On 12/27/01, only one day before ImClone announced its receipt of the FDA's RTF,

Stewart liquidated 4,000 shares of ImClone stock after speaking to her broker, Bacanovic. Stewart's call

log on 12/27/01 includes a message from Bacanovic stating, "Peter Bacanovic thinks ImClone is going to

start trading downward." Phone records indicate that Bacanovic's call was placed to Stewart shortly after

he received a call from Waksal's daughter instructing him to liquidate her ImClone stock.

50. At the time Bacanovic called, on 12/27/01, Stewart was traveling by private jet from

Bridgeport, Connecticut to San Jose del Cabo, Mexico. Later uncovered records revealed an urgent effort

by Bacanovic to reach Stewart between 10 and 11 a.m, while ImClone's stock was trading above $60 per

share. Sources told Time Magazine that Bacanovic even tried to be patched through to Stewart on her

corporate jet which she had boarded for Mexico. During a refueling stop in San Antonio, Texas, Stewart

made 3 phone calls, the cell phone records for which indicate the following: (i) that Stewart made a call to

her home answering machine; (ii) that Stewart made a call to Waksal at his office in New York; and (iii)

that Stewart made an 11 minute call to her office where Bacanovic was conferenced in. Congressional

investigators have indicated that Waksal was in his offices that day. Phone records also indicate that the

call Stewart placed to Bacanovic, who had first been contacted by Waksal the evening before concerning

the sale of Waksal's shares, had occurred just after Bacanovic completed the sale of $2.1 million worth

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of Waksal's daughter's shares on 12/27/01, the same daughter who the SEC says Waksal told about the

RTF and who he encouraged to sell shares.

Stewart's Attempted Coverup

51. According to Stewart's original explanation, offered on or about 6/6/02, Stewart had no

control over the sale of her ImClone stock on 12/27/01. Stewart first claimed that the ImClone stock she

sold was liquidated pursuant to a pre-arranged sell-order she placed in late-11/01 to sell her ImClone stock

if the share price fell below $60. Under this theory, even if Stewart had received confidential information

from Waksal or Bacanovic, her trades would be self-executing so she could not be liable for insider trading

even if she had material non-public information because she did not direct the sales. This convenient

explanation, it later turned out, was a complete lie. After more details of her phone records were

obtained and disclosed by investigators between 6/6/02 and 6/12/02, Stewart released a public

statement on 6/12/02, the same day Waksal was arrested by the FBI in New York, changing her

story and indicating that she had in fact called Bacanovic on 12/27/01 and instructed him to sell

her ImClone stock.

52. Stewart was forced to issue her retraction after federal investigators uncovered

inconsistencies in the stories told by Bacanovic and Stewart regarding the purported sell-order. Bacanovic

stated that her sell-order was placed in mid-12/01, rather than late-11/01 as Stewart contended. The

criminal investigation of Stewart for insider trading was ultimately expanded to include felony obstruction

of justice on 6/26/02 after Bacanovic's assistant, Faneuil, who actually executed Stewart's trades on

12/27/01 in Bacanovic's absence, told Merrill Lynch officials and federal regulators that he

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fabricated a story that Stewart had a pre-arranged sell-order after being pressured by Bacanovic

to back up Stewart's story. Faneuil now says he had no knowledge or record of a sell-order.

53. Merrill Lynch officials have conducted their own informal investigation and have stated

publicly that they believe that no such sell-order ever existed. Merrill Lynch has since turned over to

federal authorities dozens of e-mails between Bacanovic and Faneuil on 12/27/01. None of the e-mails

mention a sell-order. Merrill Lynch has suspended both Bacanovic and Faneuil pending the results of the

federal investigations. Bacanovic has promised to invoke his Fifth Amendment privilege not to testify if

called before Congress and Stewart is refusing to testify as well.

54. In light of all the evidence that corroborates Stewart's insider trading in ImClone stock,

again one must suspend rational disbelief to conclude that it was a mere coincidence that Stewart's close

friend and traveling companion, Mariana Pasternak ("Pasternak"), who was traveling with Stewart to

Mexico aboard Stewart's private jet on 12/27/01, had her husband sell 10,000 shares of ImClone stock

about the same time Stewart sold her shares. On 8/12/02, The Wall Street Journal reported that

Pasternak, a Connecticut realtor and friend of Stewart's, promised to cooperate with investigators in the

probe of Stewart's alleged insider-trading malfeasance. If Stewart is ultimately convicted of trading on

inside information and passing this information onto Pasternak, she will have a double violation and will be

liable for Pasternak's sales as well. As these coincidences pile up around Stewart, the probability that she

will be liable for such penalties also increases. According to Ken Johnson, the U.S. House of

Representatives' spokesman, "As the coincidences pile up, the probability that no one passed on

inside information goes down." On 8/19/02, Johnson told Time Magazine that Congressional

investigators are annoyed because the story being relayed by Stewart and her lawyers is continually being

"tweaked" as new information is revealed that contradicts her existing story, concluding that the original

- 24 -

story Stewart told Congressional investigators on 6/12/02 was false and intended to mislead the committee,

lamenting that Stewart "tried to sandbag us."

Resulting Damage to MSLO's Business and Property Rights

55. As Ken Johnson aptly noted, the probability that Stewart did not illegally trade on insider

information is small, considering the large number of events that would have to be mere coincidences to

support this conclusion. Thus, one would have to suspend rational disbelief to conclude that all of the

following were mere coincidences, including that:

(a) Stewart sold all of her shares on 12/27/01, only 1 day before ImClone announced

that it had received the RTF from the FDA but after the time when Waksal knew the FDA would send such

a letter by 12/28/01. As a result of the "spectacular timing" of her trades, Stewart was able to avoid

suffering a substantial decline in the value of her ImClone stock by selling her stock prior to the time that

the price of ImClone stock declined precipitously;

(b) Stewart sold all of her ImClone shares during the short period when Waksal was

calling friends and family – including Stewart – and encouraging them to sell their ImClone stock, yet before

ImClone disclosed to the public that it had received the RTF;

(c) Stewart and the other insiders of the Company used the same Merrill Lynch

broker, who also was in charge of MSLO's stock option program, to execute their respective stock trades,

and this broker executed many of the insider trades of ImClone stock in the period between 12/26/01 and

12/28/01. In addition to the fact that this was not a mere coincidence, one would also have to suspend

rational disbelief to conclude that this broker executed all of these trades without discussing ImClone, or

the issuance of the Erbitux RTF and/or the investigation into Stewart, prior to executing their trades;

- 25 -

(d) The officers and/or directors and other insiders of MSLO sold tens of millions of

dollars worth of their privately held Company stock in the period between the time that Stewart knew that

she was or would be part of the federal ImClone fraud investigation and the time when Stewart's trading

in ImClone shares was publicly disclosed;

(e) Pasternak, who was traveling with Stewart to Mexico on 12/27/01 and who is now

cooperating with federal authorities, and Pasternak's husband were also able to sell 10,000 shares of

ImClone stock about the same time Stewart sold her shares on 12/27/01; and

(f) The telephone records indicate a series of conversations between Stewart,

Bacanovic and Waksal on 12/27/01, at or around the exact time that Stewart was liquidating her ImClone

shares.

56. Regardless of whether Stewart is ever formally charged with or convicted of insider trading

relating to her ImClone stock sales, her ill-conceived cover-up has now painted her as a liar and has

forever tarnished her image and reputation, each of which are MSLO's most important assets.

Stewart's conduct surrounding her sales of ImClone stock are highly suspicious, and charging and proving

the insider trading and obstruction of justice allegations will only further damage Stewart's reputation and

MSLO's goodwill and financial interests. Stewart's conduct is also highly suspicious in that she initiated a

telephone call with Waksal, ImClone's CEO, to check the status of ImClone's Erbitux application

immediately prior to the time she sold her shares.

57. Immediately after Stewart sold her stock on 12/27/01, on 12/28/01, ImClone announced

it had received an RTF from the FDA. Upon making this public announcement, ImClone's stock fell

precipitously, crashing from $59 to $43 in early trading on Monday, 12/31/01. Being a former

stockbroker, Stewart knew that the suspicious timing of her ImClone stock sales would bring public, if not

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legal, scrutiny, especially since a number of class action securities fraud lawsuits alleging insider trading by

Waksal were filed in the first couple of weeks of January, and a congressional committee announced on

1/18/02 that it would be investigating the insider sales of Waksal's family and friends. Stewart also knew

that the SEC had immediately begun investigating which of Waksal's friends and family got tipped off,

including issuing subpoenas for telephone and cell phone records and investigating Waksal's whereabouts

and contacts between 12/26/01 and 12/28/01. From at least this time, it was entirely foreseeable to

Stewart that her suspiciously timed trades of ImClone stock would become the subject of the ImClone

investigation, and Stewart also knew the adverse impact which the public disclosure of this would have on

MSLO's share price.

58. Stewart also knew that the federal investigation of Waksal and ImClone would also likely

uncover the close connection between Stewart and Waksal. Stewart knew or had reason to know that

the ImClone investigation would discover that Stewart and Waksal had previously raised over $37.5 million

from at least 50 investors for Fragrance Counter, Inc., a biopharmaceutical company based in Manhattan

where Waksal was Chairman of the Board and Stewart was a board member. Stewart also knew that this

investigation would discover the close connection between Waksal and Stewart resulting from their

co-promotion of other investments, including ibeauty.com, where they both sat on the board. As Stewart

was aware, Waksal was later sued by an ibeauty.com investor, the executive Waksal hired to run ibeauty,

who said Waksal told her ibeauty had between $10-$15 million in cash, was on track to triple its revenues,

and that a top Internet analyst from Morgan Stanley was interested in taking the company public – which

she alleged were all untrue before settling the lawsuit. Stewart's experiences in past investment fraud cases

involving Waksal put her on notice that she should have been especially cautious in the timing of her sales

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of ImClone shares, and her experiences as a broker and board member of the NYSE put her on notice

that the stigma of insider stock trading would likely decimate the price of MSLO shares.

59. Not only did defendants fail to disclose what they knew about the investigation

into Stewart's ImClone sales, they failed to correct misleading stories about Stewart's ImClone

stock sales. On 1/24/02, New York Post reporter Neal Travis referred to Stewart as "one of the smartest

businesswomen in the world," stating "I understand Martha holds stock in the controversial 'cancer curing'

ImClone company, where the price has plunged dreadfully of late." Stewart made no corrective

disclosures. Then on 5/6/02, The New York Post reported that the 6/02 issue of Vanity Fair would quote

Stewart in an article describing the investigation of Waksal, stating, "I've invested in ImClone since the

beginning." "We've always kept our ImClone stock and profited handsomely from it." "My driver bought

a home in Connecticut on ImClone." Again, Stewart made no corrective disclosure.

60. Armed with the knowledge that Waksal's sales were being investigated in early 1/02,

Stewart took no action to protect her image and reputation, or the image and reputation of MSLO. While

Stewart could have disgorged the proceeds from her illicit stock sales, she did not. While Stewart could

have promptly and publicly disclosed her sales, she did not. Instead, Stewart tried to hide the existence

of her stock sales, first by not disclosing them and then, when such trades were disclosed by the financial

press, lying about how such trades were executed.

61. When the news about Stewart's ImClone sales finally broke on 6/6/02, including that the

Congressional committee investigating the ImClone insider trading had discovered in ImClone's trading

records that Stewart had disposed of her entire ImClone investment on 12/27/01, Stewart still made no

immediate effort to tell investors the truth. Instead, on 6/12/02, through her lawyers, Stewart sent a letter

to Congress indicating that her sales were made pursuant to a pre-arranged sell-order, requesting

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Congressional exoneration apparently due to her celebrity status. At least one employee at Merrill Lynch

has since testified that he was forced to lie about the existence of a sell-order to back up Stewart's lie.

Congressional Spokesman Ken Johnson says Congressional investigators were "stunned" when Stewart

and her lawyers asked for Congressional exoneration on 6/12/02. Now they say Stewart actively misled

them and tried to "sandbag" them.

62. Stewart has even admitted that she knew about, and had been a subject of, the

federal government's inquiry into ImClone for many months prior to 6/02. In her press release

dated 6/18/02, Stewart stated, "Earlier this year, I spoke with the SEC and the U.S. Attorney's

Office and have cooperated with them fully and to the best of my ability. I am also cooperating with the

House Energy and Commerce Subcommittee." Lying to cover up her ImClone stock trades at the time

she met with the SEC hardly qualifies as "full" cooperation.

63. In addition, in late May, immediately before the time that Stewart publicly released her false

cover-story of the fictitious sell-order, Stewart was elected as a director of the NYSE. It is not

unreasonable to assume that Stewart provided the same "explanation" to the nominating committee of the

NYSE board. A 6/14/02 report in The New York Post, however, said the NYSE was now investigating

Stewart's role in the ImClone insider trading scheme. Directors of the NYSE must adhere to a statement

of business conduct and ethics that outlines "high standards of ethical conduct," a spokesman for the NYSE

told USA Today on 6/14/02. Stewart's conduct has not adhered to these "high standards."

64. Despite the fact that Stewart's regular media, television and charity appearances

exponentially enhance the reputation and prestige of MSLO, by the end of 6/02 Stewart refused to continue

to make any such appearances, for the sole reason that she was attempting to avoid discussing these

matters. In fact, on 7/9/02, New York Daily News reported that Stewart was engaged in an indefinite

- 29 -

"media blackout" to avoid questions concerning her trading activities and cover-up. Previously, on

7/3/02, when Stewart canceled her weekly appearance on CBS's The Early Show, she issued the

following statement:

"CBS is a premier news network and, as such, they are compelled to interviewMartha Stewart regarding the ImClone matter. As she explained in her previous interviewon CBS last week, she is unable to comment or offer any other information at this time outof respect for the investigatory process. This inherent conflict unfortunately preventsMartha from appearing tomorrow in her lifestyle 'how to' segment on CBS's The EarlyShow."

65. The "inherent conflict" to which Stewart referred resulted from the fact that CBS news

would not allow Stewart to appear on its early morning news show to promote MSLO brands unless she

was willing to comment on her ImClone stock trading and upon the attempted cover-up. Stewart refused

to answer these legitimate questions, and instead continued to compromise the Company's revenues and

earnings by continuing her self-imposed "blackout."

66. Stewart's actions have had an undeniable negative effect on her reputation and goodwill.

A 7/11/02 USA Today article contained a Gallop Poll chart demonstrating that Stewart's popularity has

declined dramatically as a result of the June disclosures as consumers who once identified with the symbolic

trust and quality which Stewart promoted withdrew from a woman who they now perceived as greedy and

unethical. Whereas in late 1999 Stewart enjoyed a strong popularity rate, with 49% of consumers

reporting a favorable impression of her and only 16% reporting an unfavorable impression, by 7/5/02, the

Gallop Poll results indicated that Stewart's favorable impression among consumers had dropped to 30%

and her unfavorable impression had risen to 39%.

67. As detailed herein, supra, the acts of Stewart and the Individual Defendants have

substantially reduced MSLO's market value, have damaged the reputation of the Company and

- 30 -

have negatively impacted MSLO's revenues and earnings. On the news of the inquiry into Stewart's

stock sales, MSLO's shares fell precipitously from $19 per share on 6/6/02, to as low as $7.25 per share

on 7/24/02, after the news about Stewart's sales became public and after some of her own and Bacanovic's

earlier ploys to exonerate her fell apart. In a matter of weeks, 67% of MSLO's market value was

eviscerated, as the combined value of MSLO's shares plummeted from over $358 million on 6/6/02 to

$141 million on 7/24/02. The National Post reported on 6/14/02 that "Analysts said the stock was

being driven by reports of the investigation by federal prosecutors," and that "The stock activity

is due to 'continued uncertainty related to (the ImClone) issue and news of an investigation,'"

quoting Davenport & Co. analyst George Smith. On 6/23/02, Bloomberg reported, in part, the following:

The accusations of impropriety threaten to cast Stewart as just another tycoontrying to enrich herself by skirting the rules, the [New York Times] said. They come at atime when investors, burned by the collapse of so many Internet companies and EnronCorp., are seeking trustworthy executives, the paper said.

68. The damage to Stewart's reputation and the Company's image will decrease profits in the

near term and long run. In fact, on 4/23/02, prior to the negative 6/7/02 disclosures, USA Today

reported that the Company was comfortable with Thomson Financial/First Call average analyst estimates

of $.14 a share earnings for the second quarter and $.53 for the full year. In addition, Merrill Lynch's 5/02

"Consumer Magazine Advertising Monitor" reported that MSLO's advertising revenues remained robust.

Media Industry Newsletter reported MSLO "posted an impressive 26% increase in ad pages for its July

issue," which was pre-sold before the 6/7/02 disclosures, and that those sales were "much more robust than

the flattish performance that management was predicting." The belated disclosure of Stewart's ImClone

stock sales and the revelation that Stewart had lied to cover-up this illicit trading has decimated the financial

performance of MSLO.

- 31 -

69. The investment community quickly took note of the damage to advertising revenues the

inquiry would have:

• On 6/17/02, Brean Murray & Co. said:

In our view, the movement of the MSO stock price is going to continueto reflect the current uncertainty surrounding recently disclosed trading of ImCloneSystems shares (IMCL-$8.79) prior to the FDA's negative announcement.

The challenge, in our view, is to differentiate the ongoing businessfundamentals of Martha Stewart Living Omnimedia from the personal issuessurrounding Martha Stewart the individual.

Our analysis ascribes a value of $13.00/share to the publishing businessalone. Thus, at the current price, one would be getting the other, faster-growingbusinesses at a discount.

Nonetheless, this pending issue creates enormous uncertainty, which isexpected to create volatility in the share price. Thus, we would be hesitant tomake new commitments at this time.

• On 6/17/02, Brean Murray also stated:

[W]e believe that the company can survive with or without Martha Stewart at thehelm, as there is a large and very talented pool of individuals behind the business.

Our Buy rating and target price are based on a sum-of-the-parts analysis... [and] this pending issue creates enormous uncertainty, which is expected tocreate volatility in the share price. Thus, we would be hesitant to make newcommitments at this time.

• On 6/20/02, Lazard Freres & Co. LLC said:

[W]e concede that uncertainties regarding federal inquiries into Martha Stewart'spersonal trading of Imclone shares will likely weigh on the stock until there is aresolution. Should these inquiries take a long time to resolve, we believethat there could be collateral damage to the brand, which is still heavilyreliant on Martha Stewart herself. We maintain our Buy rating and our $26price target, which implies a 15x multiple on 2003 estimated EBITDA. However,we caution investors about near-term volatility and would defer purchases untilfurther clarification regarding the outcome of the current investigations of MarthaStewart's Imclone share sales.

- 32 -

• On 6/20/02, CS First Boston said:

MSO's stock price has been fairly volatile lately and the negative publicitysurrounding CEO Martha Stewart and the question of stock trading issues withImClone (IMCL, $11.41) have adversely affected MSO, in our opinion. Whilethe eventual outcome of the issue is unclear, the issue could linger for a while andmay weigh on the stock price for quite some time and impede what seems to beimproving fundamentals.

• On 6/20/02, Lazard Freres & Co. said:

We are lowering our 2Q02 revenue growth estimate from 16% to 15%, based onlower-than-expected merchandising sales and increased television spending....While we think MSO warrants a premium to its peers, we caution investors aboutthe near-term volatility related to the investigation of Martha Stewart's sale ofImclone shares.

70. As further evidence of the ruinous effects of the 6/7/02 revelations, on 7/24/02, the

Company issued a release which announced revised guidance for 3Q 2002 and FY 2002, as a direct result

of the impact which the federal investigation into Stewart's insider trading and cover-up was having on the

Company:

"We recognize that the investigations and related speculation and mediaattention surrounding a personal sale of non-Company stock by Martha Stewartpresent challenges for our Company," added Sharon Patrick, President and ChiefOperating Officer, "however, we are confident that MSLO is prepared to meet them."

* * *

Looking forward, we have begun to see some impact on our business resultingfrom the uncertainty relating to the investigations of Martha Stewart's stock sale. Sincethose investigations are still pending, our ability to provide accurate guidance isconstrained. Accordingly, our expectation for the third quarter is for earnings pershare of $0.06-$0.07, but we are unable to provide guidance regarding our fourthquarter and full-year results at this time. We expect full-year results will not meetour previous guidance of $0.53 per share. We hope to update the market as thequarter progresses should our visibility improve."

- 33 -

71. Following the release of the Company's announcement, on 7/24/02, shares of MSLO fell

to an all time low of $7.25 per share, down almost 25% in intra-day trading on a day when the Dow Jones

Industrial Average rose over 488 points! Following this steep decline in the value of MSLO shares, on

7/24/02, the Associated Press published a report on the Company, entitled "Probe Hurts Martha

Stewart's Profits," which stated, in part, the following:

Martha Stewart's name has been maligned, and her multimedia company's stockhas taken a beating. Now, the domesticity maven's legal problems are starting to take atoll on the empire's bottom line;

Martha Stewart Living Omnimedia Inc. warned Wednesday that third-quarter andfull-year earnings estimates will be below Wall Street expectations because of the cloudsurrounding a federal scrutiny of her sale of ImClone stock in December. Shares sank onthe news;

"We have begun to see some impact on our business resulting from the uncertaintyrelating to the investigations of Martha Stewart's stock sale," said James Follo, chieffinancial officer of the multimedia company, whose business encompasses TV, publishingand merchandising, from pots to paints.

In particular, Follo told analysts during a conference call that the companyhas seen the greatest negative impact on advertising revenue – and to some extentmerchandise sales. Specifically, the company's fall debut of floor coverings, includingcarpets and rugs, aimed at the nation's specialty stores, will be in fewer stores thanexpected, he said.

On Wednesday, Martha Stewart Living said that earnings for the third quartershould be in the range of 6 cents to 7 cents per share, far below the 15 cents per shareexpected by analysts polled by ThoMSLOn First Call.

Since the investigation is pending, company officials said it would not be ableto provide an accurate forecast for the fourth quarter and full year, but said thatfull-year earnings will not meet the previous goal of 53 cents per share.

72. On 7/24/02, Dow Jones Business News also issued a report styled, "Martha Stewart

Living Forecasts Dismal 3rd-Quarter Earnings Amid Ongoing Probe." In addition, on 7/25/02,

The Toronto Star mirrored the sentiment of this complaint, issuing a report entitled, "Sale of ImClone

- 34 -

Shares Definitely Not A Good Thing – Lingering Scandal Proving Costly For Martha Stewart."

On 07/24/02, Reuters News Service also reported comments made by the Company's CFO, Follo, at an

analyst conference held after the publication of defendants' 3Q 2002 and FY 2002 earnings warning, during

which he stated that, as of that time, MSLO anticipated a weak response from advertisers for October

magazine ad space, mostly the result of the scandal surrounding CEO Stewart. Ad space for magazines

is usually sold three months before issues hit news stands. Follo stated, "September is closed, ... October

is selling right now ... [and] is far from closing at this point ... we would expect flat ad pages." These worse

than expected advertising revenues followed on the heels of the revelation of Stewart's attempted cover-up

and further demonstrate Stewart's complicity.

THE INDIVIDUAL DEFENDANTS' ILLEGALINSIDER TRADING IN MSLO STOCK

73. Prior to the disclosure of the pendency of the SEC/DOJ investigation into Stewart's

ImClone sales and attempted cover-up, the top insiders at MSLO sold over $79 million worth of their

privately held MSLO stock at inflated prices. By selling their personally held shares without disclosing what

they knew about the ongoing investigation, the Individual Defendants were able to avoid the losses they

knew they would suffer from the sharp decline in MSLO's stock that they knew would occur when the

investigation was disclosed, thereby illegally profiting from the artificial inflation in the price of MSLO stock

which their failure to disclose the investigation was causing.

74. At the time they sold their MSLO shares, the Individual Defendants did not disclose that

Stewart was being investigated by the SEC and the DOJ concerning her illicit sales, the effect this would

have on the public perception of Stewart's reputation and goodwill, and that disclosure of the investigation

would have a material adverse impact on the price of MSLO common stock when disclosed.

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75. Between 1/8/02 and 5/29/02, the Individual Defendants sold the following amounts of

MSLO common stock which they owned or controlled. The majority of the stock they sold was obtained

by exercising options with exercise prices as low as $0.60 per share or selling shares issued to MSLO's

pre-IPO venture capital investors for pennies on the dollar. Almost all MSLO's officers sold stock. For

most of them, their sales represented 100% of their holdings in MSLO stock:

Name/Position Sale Date Shares Sold Price/Share Proceeds % Sold

Martha Stewart,CEO and Chairman of the Board

1/8/02 3,000,000 $15.00 $45,000,000 9%

Dora Cardinale,Exec. V.P., Print Production

3/08/02 – 3/11/02 16,100 $17.95 – $18.70 $293,280 91%

Gael Towey,Sr. Exec, V.P. and Creative Dir.

3/06/02 – 3/19/025/03/02 – 5/15/02

70,00040,000

$18.41 – $20.80$18.24 – $18.98

$1,325,559$744,300

100%

Gregory Blatt, Exec. V.P.,Business Affairs, Sec., GeneralCounsel

3/1/02 – 3/4/02 5,000 $18.00 $90,000 100%

John Doerr, Former Dir. MSLOand General Partner KPCB

Kleiner Perkins

3/14/02

same sales

1,999,403

same sales

$14.50

same sales

$28,991,344

same sales

99%

100%

Lauren Stanich,Exec. V.P., Pres. of Publishing

3/18/025/2902

2,5005,000

$20.00 $18.80 – $18.95

$50,000$94,150

100%

Margaret Roach, Exec. V.P., Editor-in-Chief

3/04/02 4,897 $19.00 $93,043 100%

Sharon Patrick, Pres. and COO and Director

3/06/02 – 3/07/02

150,000 $18.25 – $19.04 $2,778,268 7%

Suzanne Sobel, Exec, V.P., Advertising Sales

5/20/02 1,500 $19.05 – $19.13 $28,591 100%

76. In all, the Individual Defendants sold nearly 5.3 million shares of MSLO stock for over $79

million during this period. All of these sales occurred during the period when MSLO stock was

trading at more than double the price it was trading at after the investigation of Stewart was

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MARTHA STEWART LIVING OMNIMEDIADaily Prices From: 1/2/2001 to 7/29/2002

01/02/200102/06/2001

03/13/200104/17/2001

05/21/200106/25/2001

07/30/200108/31/2001

10/11/200111/14/2001

12/19/200101/25/2002

03/01/200204/05/2002

05/09/200206/13/2002

07/18/2002

$5

$10

$15

$20

$25

$30

Dol

lars

Per

Sha

re

1/8/02 -5/29/02: The Selling Defendants sell 5.3 million

shares of MSLO stock for $79.5 million in insider trading

proceeds.

1/18/02: Imclone discusses that Waksal is being investigated by the SEC, the DOJ and the US House of Representatives for insider trading.

6/6/02: The SEC/DOJ investigation of Stewart's stock sales in Imclone stock is disclosed.

7/24/02: MSO lowers earnings expectations for 3Q 02 and FY 02 blaming decreased advertising revenues resulting from negative implications of ongoing investigation.

disclosed, and during the period when defendants knew Stewart was being investigated and were

obligated to disclose these material facts and/or refrain from trading.

77. By not disclosing what they knew about the ongoing investigation, the Individual Defendants

violated their duty to "abstain" or "disclose" under the 1934 Act and pursued a scheme to defraud and

course of business that operated as a fraud or deceit on purchasers of MSLO stock, as is evidenced by

defendants' pattern of insider selling, as represented by the chart below:

78. Stewart herself kicked off the insider selling by selling some 3 million shares of her Class

B MSLO stock to venture capital firm ValueAct at $15 per share in a private transaction – but Stewart

never disclosed these sales in a Form 4 filing with the SEC or by making a public announcement. Then,

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on 3/14/02, KPCB, which, along with directors Patrick and Stewart, had entered into a Shareholders

Agreement with MSLO at the time of the 1999 IPO which provided KPCB a board seat designation and

required MSLO to register KPCB's pre-IPO restricted stock, sold all 1.9 million shares of MSLO stock

it held to ValueAct at $14.50 per share, for a total of approximately $29 million. MSLO stock was

trading at over $19 per share when this sale was made and one of ValueAct's principals was

placed on the MSLO board as part of the sales agreement. Though MSLO insiders could not bargain

for $19.41 per share on 3/14/02, that is what Class members who bought that day would pay.

79. In all, the Individual Defendants sold nearly 5.3 million shares of MSLO stock for in excess

of $79 million during the Class Period. All of these sales occurred during the period when MSLO

stock was trading at inflated levels while defendants knew that Stewart's stock sales were being

investigated and while they were obligated to disclose these material facts and/or refrain from

trading.

FIRST CLAIM FOR RELIEF

For Violation of §10(b) of the 1934 Actand Rule 10b-5 Against All Defendants

80. Plaintiff incorporates ¶¶1-79 by reference.

81. During the Class Period, defendants disseminated or approved the false statements

specified above, which they knew or recklessly disregarded were misleading in that they contained

misrepresentations and failed to disclose material facts necessary in order to make the statements made,

in light of the circumstances under which they were made, not misleading.

82. Defendants violated §10(b) of the 1934 Act and Rule 10b-5 in that they:

(a) Employed devices, schemes, and artifices to defraud;

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(b) Made untrue statements of material facts or omitted to state material facts

necessary in order to make the statements made, in light of the circumstances under which they were made,

not misleading; or

(c) Engaged in acts, practices, and a course of business that operated as a fraud or

deceit upon plaintiff and others similarly situated in connection with their purchases of MSLO common

stock during the Class Period.

83. Plaintiff and the Class have suffered damages in that, in reliance on the integrity of the

market, they paid artificially inflated prices for MSLO common stock. Plaintiff and the Class would not

have purchased MSLO common stock at the price they paid, or at all, if they had been aware that the

market price had been artificially and falsely inflated by defendants' misleading statements.

84. As a direct and proximate result of these defendants' wrongful conduct, plaintiff and the

other members of the Class suffered damages in connection with their purchases of MSLO common stock

during the Class Period.

SECOND CLAIM FOR RELIEF

Against All Defendants for Violation ofSection 20(a) of the 1934 Act

85. Plaintiff incorporates by reference ¶¶1-84 above as if set forth fully herein.

86. Each of the Individual Defendants acted as a controlling person of the Company within the

meaning of §20 of the Exchange Act. MSLO controlled each of the Individual Defendants. Each

controlling person had the power and authority to cause others to engage in the wrongful conduct

complained of herein.

- 39 -

87. By reason of such wrongful conduct, the defendants named in this Claim are liable pursuant

to §20(a) of the 1934 Act. As a direct and proximate result of defendants' wrongful conduct, plaintiff and

the other members of the Class suffered damages in connection with their purchases of the Company's

common stock.

CLASS ACTION ALLEGATIONS

88. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal Rules of Civil

Procedure on behalf of all persons who purchased MSLO common stock (the "Class") on the open market

during the Class Period. Excluded from the Class are defendants. The members of the Class are so

numerous that joinder of all members is impracticable. The disposition of their claims in a class action will

provide substantial benefits to the parties and the Court. As of 4/23/02, MSLO had approximately 49

million shares of stock outstanding, owned by hundreds if not thousands of persons.

89. There is a well-defined community of interest in the questions of law and fact involved in

this case. Questions of law and fact common to the members of the Class which predominate over

questions which may affect individual Class members include:

(a) Whether the 1934 Act was violated by defendants;

(b) Whether defendants omitted and/or misrepresented material facts prior to selling

their MSLO shares;

(c) Whether defendants' statements omitted material facts necessary to make the

statements made, in light of the circumstances under which they were made, not misleading;

(d) Whether defendants knew or recklessly disregarded that their statements were false

and misleading;

(e) Whether the price of MSLO common stock was artificially inflated; and

- 40 -

(f) The extent of damage sustained by Class members and the appropriate measure

of damages.

90. Plaintiff's claims are typical of those of the Class because plaintiff and the Class sustained

damages from defendants' wrongful conduct.

91. Plaintiff will adequately protect the interests of the Class and has retained counsel who are

experienced in class action securities litigation. Plaintiff has no interests which conflict with those of the

Class.

92. A class action is superior to other available methods for the fair and efficient adjudication

of this controversy.

PRAYER FOR RELIEF

WHEREFORE, plaintiff prays for judgment as follows:

A. Declaring this action to be a proper class action pursuant to Rule 23 of the Federal Rules

of Civil Procedure;

B. Awarding plaintiff and the members of the Class compensatory damages;

C. Awarding plaintiff and the members of the Class pre-judgment and post-judgment interest,

as well as their reasonable attorneys' fees, expert witness fees and other costs;

D. Awarding extraordinary, equitable and/or injunctive relief as permitted by law, equity and

the federal statutory provisions sued hereunder, pursuant to Rules 64 and 65 and any appropriate state law

remedies to assure that the Class has an effective remedy; and

E. Awarding such other relief as this Court may deem just and proper.

- 41 -

JURY DEMAND

Plaintiff demands a trial by jury.

DATED: August 20, 2002 By: __________________________MILBERG WEISS BERSHAD HYNES & LERACH LLPMelvyn I. Weiss (MW-1392)Steven G. Schulman (SS-2561)Samuel H. Rudman (SR-7957)One Pennsylvania Plaza New York, NY 10119(212) 594-5300

-and-

William S. LerachDarren J. Robbins401 B Street, Suite 1700San Diego, CA 92101 (619) 231-1058 SCHIFFRIN & BARROWAY, LLPMarc A. TopazThree Bala Plaza EastSuite 500Bala Cynwyd, PA 19004(610) 667-7706

CAULEY GELLER BOWMAN & COATES, LLPPaul J. Geller1 Boca Place2255 Glades Road, Suite 421-ABoca Raton, FL 33431(561) 750-3000

Attorneys for Plaintiffs