Stewart exits as director and officer

Company founder will still provide creative advice

Apparently a compromise

Future of arrangement uncertain in event she is confined to prison


NEW YORK - Martha Stewart, convicted earlier this month of lying to federal investigators about a 2001 stock trade, resigned yesterday as a director and officer of Martha Stewart Living Omnimedia Inc., the company she founded and took public in 1999. But the company said she would continue to provide creative advice, calling it "in the best interests" of the company and its shareholders.

It was not clear how long the arrangement, which appears to be a compromise between what Stewart sought and what other directors wanted, will continue and whether it will remain in place in the event she goes to prison. She is scheduled to be sentenced June 17 for her conviction on four federal crimes, including conspiracy, obstruction of justice and making false statements.

Her lawyers have said they plan to appeal the verdict, and the appeal is likely to be filed on the day of the sentencing, thus postponing whatever prison time Judge Miriam Goldman Cedarbaum determines would be appropriate for Stewart.

Stewart, 62, said in a statement that she was quitting her management roles "because I think it's the right thing to do."

She said, "I am heartsick about my personal legal situation - and deeply sorry for the pain and difficulties it has caused our employees."

The company's stock fell after the announcement, and closed down 36 cents, or 3.5 percent, at $9.97.

Stewart likely faces 10 to 16 months in prison, according to lawyers who have dealt with the sentencing guidelines.

While her criminal trial ended March 5, Stewart also faces a civil insider-trading lawsuit filed last year by the Securities and Exchange Commission. The agency frequently seeks to bar high-profile defendants from serving as officers or directors of publicly traded companies as part of any settlement.

Stewart and other officers of her company are being sued by shareholders in a civil lawsuit pending in federal court in Manhattan. All of the legal action stems from Stewart's December 2001 sale of nearly 4,000 shares of stock in ImClone Systems Inc., a biotechnology company then headed by her friend Samuel D. Waksal. The trade, which Stewart called "entirely lawful," took place one day before ImClone announced disappointing news that sent its share price tumbling.

In her new role, Stewart will take the title of founding editorial director. She will continue to provide creative inspiration for new product design and development, write two pending books and provide input on the continuing evolution of the company and its brand and strategic issues, the company said.

She will report to Sharon L. Patrick, who was named chief executive shortly after Stewart was indicted in June.

Patrick said in a statement that the company "recognizes the seriousness of Martha's situation and is deeply saddened."

She added that "all of us also believe that the company and our constituencies benefit most if we are able to continue to take advantage of Martha's creative inspiration and capitalize on her prodigious skills and experience in the domestic arts, from cooking, to gardening, to crafts, to homekeeping."

Stewart has said she will appeal the March 5 conviction.

Company officials did not return requests for interviews.

Stewart, who is the company's largest shareholder, had been expected to relinquish her board seat, but reportedly had been pressing to keep some nonofficer, creative role. Had she not stepped down, her departure from the board and any executive position would likely have been forced by the Securities and Exchange Commission, given that she is a convicted felon.

Yesterday's shuffle - while it further diminishes Stewart's role - shows that the company isn't ready to sever its ties completely. Figuring out what role Stewart will play in the company's future has been a tricky one, particularly in the wake of the conviction, which has tarnished the brand image.

Some believe the move to distance Stewart from the boardroom but retain her creative input is a smart one, placating both fans and critics of Stewart.

Others think a complete separation would have been best.

"I think they are walking a tightrope between her as an asset and her as a liability," said Jamelah Leddy, an analyst at McAdams Wright Ragen.

But, Leddy added, with Stewart owning 61 percent of the stock and possessing a virtual lock on voting shares, she still will be "extremely influential in the course the company takes."

Robert Passikoff, president of New York marketing research company Brand Keys Inc., said it was a bad strategy.

"They should have announced that Martha was going away for a while to deal with her problems," he said, leaving the option of bringing her back in, say, two years. "It looks like she's getting her cake and eating it too, and that's not the way you rebuild trust among consumers."

Since Stewart's name was tied to the ImClone trading scandal 22 months ago, her multimedia company has seen its stock plummet 40 percent, suffered from declining sales, financial losses and defections by its advertisers.

But sales of its merchandise, from furniture to housewares, have held up well.

The company began moving away from Stewart's name a year ago with the launch of Everyday Food and is now testing another publication called Organizing Good Things. But it remains heavily tied to her aesthetic values and her image.

With its syndicated TV show on life support, the big issue that remains is what will happen to its flagship magazine, Martha Stewart Living, and whether the company will decide to change the name, eliminating any reference to its founder.

The Associated Press contributed to this article.

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