Document:

MDI TECHNOLOGIES, INC.

                   2003 STOCK OPTION PLAN

                   As Amended June 9, 2004

Amendments approved by the Board
on May 13, 2004.

Plan as Amended Approved by the shareholders
on June 9, 2004.

Plan as Amended Approved by the TSX Venture
Exchange on _________, 2004.

<PAGE>

                      TABLE OF CONTENTS

                                                  Page

ARTICLE 1  DEFINITIONS AND INTERPRETATION           1
   1.1  Definitions                                 1
   1.2  Choice of Law                               5
   1.3  Headings                                    5

ARTICLE 2 PURPOSE AND PARTICIPATION                 5
   2.1  Purpose                                     5
   2.2  Participation                               5
   2.3  Notification of Award                       6
   2.4  Copy of Plan                                6
   2.5  Limitation                                  6
   2.6  Consultant Companies                        6

ARTICLE 3 TERMS AND CONDITIONS OF OPTIONS           7
   3.1  Board to Issue Common Shares                7
   3.2  Number of Common Shares; Options Under
        Predecessor Plan                            7
   3.3  Term of Option                              7
   3.4  Termination                                 7
   3.5  Exercise Price                              9
   3.6  Additional Terms                            10
   3.7  Assignment of Options                       10
   3.8  Adjustments                                 10
   3.9  Vesting                                     11
   3.10 Hold Period                                 11
   3.11 Personal Information Form and Monitoring
        of Trading                                  11
   3.12 Designation of Award                        11
   3.13 Legend                                      12
   3.14 Grant of ISOs                               12

ARTICLE 4 EXERCISE OF OPTION                        12
   4.1  Exercise of Option                          12
   4.2  Issue of Share Certificates                 12
   4.3  Condition of Issue                          13
   4.4  Taxes                                       13
   4.5  Financing                                   13

ARTICLE 5 ADMINISTRATION                            13
   5.1  Administration                              13
   5.2  Interpretation                              14
   5.3  Special Rules Applicable to
        Administration                              14

<PAGE>

ARTICLE 6 AMENDMENT, TERMINATION AND NOTICE         14
   6.1  Prospective Amendment                       14
   6.2  Retrospective Amendment                     14
   6.3  Amendment to Option                         15
   6.4  Approvals                                   15
   6.5  Termination                                 15
   6.6  Agreement                                   15
   6.7  Notice                                      15

<PAGE>

                  2003 STOCK OPTION PLAN

                         ARTICLE 1
              DEFINITIONS AND INTERPRETATION

1.1     Definitions

As used herein, unless there is something in the subject
matter or context inconsistent therewith, the following terms
shall have the meanings set forth below:

       (a) "Administrator" means, initially, the Secretary of
the Company and thereafter shall mean such director or other
senior officer or employee of the Company as may be
designated as Administrator by the Board from time to time.

       (b) "Award Date" means the date specified by the Board
as the award date of a particular Option, which shall not be
earlier than the date on which the Board takes action with
respect thereto.

       (c) "Board" means the board of directors of the
Company, or any committee thereof to which the board of
directors of the Company has delegated the power to
administer and award Options under the Plan, subject to
paragraph 5.3.

       (d) "Cause" means:

            (i)  in the case of an Employee (1) cause as such
term is defined in the written employment agreement with the
Employee or if there is no written employment agreement or
cause is not defined therein, the usual meaning of just cause
under the common law or the laws of the jurisdiction in which
the employee is employed; or (2) the termination of
employment as a result of an order made by any Regulatory
Authority having jurisdiction to so order;

            (ii)  in the case of a Consultant (1) the
occurrence of any event which, under the written consulting
contract with the Consultant or the common law or the laws of
the jurisdiction in which the consultant provides services,
gives the Company or any of its affiliates the right to
immediately terminate the consulting contract; or (2) the
termination of the consulting contract as a result of an
order made by any Regulatory Authority having jurisdiction to
so order;

            (iii)  in the case of a Director, ceasing to be a
Director as a result of (1) ceasing to meet the
qualifications set out in subsection 141(b) of the Delaware
General Corporation Law or the certificate of amalgamation or
bylaws of the Company; (2) a resolution having been passed by
the shareholders under subsection 141(k) of the Delaware
General Corporation Law; or (3) an order made by any
Regulatory Authority having jurisdiction to so order; or

            (iv)  in the case of an Officer, ceasing to be an
Officer as a result of an order made by any Regulatory
Authority having jurisdiction to so order.

<PAGE>

       (e)  "Change of Control" means and shall be deemed to
have occurred if one of the following events takes place:

            (i)  the acquisition, directly or indirectly by
any person or group (within the meaning of sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended)
other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, of beneficial
ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of securities possessing
more than 30% of the total combined voting power of the
Company's outstanding securities;

            (ii)  a change in the composition of the board of
directors of the Company over a period of 18 consecutive
months or less such that 50% or more of the board members
have neither (A) been directors continuously since the
beginning of the period; nor (B) been unanimously elected or
nominated by the board for election as directors during such
period;

            (iii)  a shareholder-approved merger or
consolidation to which the Company is a party and in which
(A) the Company is not the surviving entity; or (B)
securities possessing more than 30% of the total combined
voting power of the Company's outstanding securities are
transferred to a person or persons different from the persons
holding those securities immediately prior to such
transaction; or

            (iv)  the sale, transfer or other disposition of
all or substantially all of the Company's assets in complete
liquidation or dissolution of the Company.

       (f)  "Common Share" or "Common Shares" means, as the
case may be, one or more common shares with a par value of
$.0001 in the capital of the Company.

       (g)  "Company" means MDI Technologies, Inc., a company
amalgamated under the laws of the State of Delaware.

       (h)  "Consultant" has the meaning given to that term
in BC Instrument 45-507, and for the purposes of the Plan
includes consultants of the Company and any of its
affiliates, as well as consultant companies of the Company
and any of its affiliates.

       (i)  "consultant company" means for an individual
consultant, a company of which the individual is an employee
or shareholder.

       (j)  "Director" has the meaning given to that term in
the Securities Act (British Columbia), and for the purposes
of the Plan includes directors of the Company and any of its
affiliates.

       (k)  "Disability" means the Option Holder is
permanently unable to carry out the responsibilities and
duties of the position held by the Option Holder by reason of
any medically determinable physical or mental impairment.  An
Option Holder shall not be considered to have incurred a
Disability unless he or she furnishes proof of such
impairment sufficient to satisfy the Administrator in the
Administrator's sole discretion.

<PAGE>

       (l)  "Discounted Market Price" of the Common Shares
for a particular Award Date means the Market Price of the
Common Shares for a particular Award Date less a discount to
be determined by the Board, which in any event shall not
exceed the amount set forth under Policy 1.1 of the TSX
Venture Exchange Corporate Finance Manual, as amended or
replaced from time to time.

       (m)  "Eligible Persons" means Directors, Officers,
Employees and Consultants.

       (n)  "Employee" has the meaning given to that term in
BC Policy 45-601, and for the purposes of the Plan includes
employees of the Company and any of its affiliates.

       (o)  "Exercise Notice" means the notice respecting the
exercise of an Option, in the form set out as Schedule "B"
hereto, duly executed by the Option Holder.

       (p)  "Exercise Period" means the period during which a
particular Option may be exercised and is the period from and
including the Award Date through to and including the Expiry
Date.

       (q)  "Exercise Price" means the price at which an
Option may be exercised as determined in accordance with
paragraph 3.5.

       (r)  "Expiry Date" means the date determined in
accordance with paragraph 3.4 and after which a particular
Option cannot be exercised.

       (s)  "Fixed Expiry Date" has the meaning given to that
term under paragraph 3.4.

       (t)  "insider" has the meaning given to that term in
the Securities Act (British Columbia).

       (u)  "ISO" means an Option that is an Incentive Stock
Option as that term is defined in Section 422 of the Internal
Revenue Code of 1986, as amended.

       (v)  "ISO Eligible Employees" means employees of the
Company (as such term is defined for ISO qualification
purposes) and employees of a subsidiary of the Company (as
such term is defined under Section 424(f) of the Internal
Revenue Code of 1986, as amended) who are citizens or
residents of the United States of America.

       (w)  "Market Price" of the Common Shares for a
particular Award Date shall be determined as follows:

            (i)  for each organized trading facility on which
the Common Shares are listed, Market Price shall be the
closing trading price of the Common Shares on the last
trading day immediately preceding the Award Date;

            (ii)  if the Common Shares are listed on more
than one organized trading facility, then Market Price shall
be the greater of the Market Prices determined for each
organized trading facility on which those Common Shares are
listed as determined for each organized trading facility in
accordance with section (i) above;

<PAGE>

            (iii)  if the Common Shares are listed on one or
more organized trading facility but have not traded during
the 10 trading day period immediately preceding the Award
Date, then the Market Price shall be, subject to the
necessary approvals of the applicable Regulatory Authorities,
such value as is determined by resolution of the Board; and

            (iv)  if the Common Shares are not listed on any
organized trading facility, then the Market Price shall be,
subject to the necessary approvals of the applicable
Regulatory Authorities, the fair market value of the Common
Shares on the Award Date as determined by the Board in its
discretion.

       (x)  "Non-Employee Director" means a director of the
Company who meets the definition of (i) a "non-employee
director" as such term is defined in Rule 16b-3 of the
Securities Exchange Act of 1933, as amended; and (ii) an
"outside director" as such term is defined in Treasury
Regulation 1.162-27, as amended.

       (y)  "Officer" means a senior officer as such term is
defined in the Securities Act (British Columbia), and for the
purposes of the Plan includes senior officers of the Company
and any of its affiliates.

       (z)  "Option" means an option to acquire Common
Shares, awarded to an Eligible Person pursuant to the Plan.

       (aa)  "Option Certificate" means the certificate, in
the form set out as Schedule "A" hereto, evidencing an
Option.

       (bb)  "Option Holder" means a person (or, where
applicable, a consultant company) who holds an unexercised
and unexpired Option or, where applicable, the Personal
Representative of such person.

       (cc)  "Personal Representative" means:

            (i)  in the case of a deceased Option Holder, the
executor or administrator of the deceased duly appointed by a
court or public authority having jurisdiction to do so; and

            (ii)  in the case of an Option Holder who for any
reason is unable to manage his or her affairs, the person
entitled by law to act on behalf of such Option Holder.

       (dd)  "Plan" means this 2003 Stock Option Plan.

       (ee)  "Regulatory Authorities" means all stock
exchanges, inter-dealer quotation networks and other
organized trading facilities on which the Company's Shares
are listed and all securities commissions or similar
securities regulatory bodies having jurisdiction over the
Company.

       (ff)  "Securities Laws" means securities legislation,
securities regulations and securities rules, as amended, and
the instruments, forms, notices and policy documents in force
from time to time that are applicable to the Company.

<PAGE>

       (gg)  "Share" or "Shares" means, as the case may be,
one or more shares of any class in the share capital of the
Company from time to time.

       (hh)  "Termination Date" means:

            (i)  in the case of the Option Holder's
resignation from employment or the termination of the Option
Holder's consulting contract by the Option Holder, the date
that the Option Holder provides notice of such resignation or
termination to the Company or any of its affiliates; or

            (ii)  in the case of the termination of the
Option Holder's employment or consulting contract by the
Company or any of its affiliates for any reason (whether such
termination is lawful or unlawful) other than death or
Disability, the date that the Company or any of its
affiliates delivers written notice of such lawful or unlawful
termination of the Option Holder's employment or consulting
contract to the Option Holder; or

            (iii)  in the case of the expiry of a fixed-term
employment agreement or consulting contract that is not
renewed or extended, the last day of the term.

       (ii)  "TSX Venture Exchange" means the Canadian
Venture Exchange Inc., operating as the TSX Venture Exchange.

1.2     Choice of Law

The Plan is established under, and the provisions of the Plan
shall be subject to and interpreted and construed in
accordance with, the laws of the Province of British
Columbia.

1.3     Headings

The headings used herein are for convenience only and are not
to affect the interpretation of the Plan.

                         ARTICLE 2
                 PURPOSE AND PARTICIPATION

2.1     Purpose

The purpose of the Plan is to provide the Company with a
share-related mechanism to attract, retain and motivate
qualified Directors, Officers, Consultants and Employees, to
reward such of those Directors, Officers, Consultants and
Employees as may be awarded Options under the Plan by the
Board from time to time for their contributions toward the
long term goals of the Company and to enable and encourage
such Directors, Officers, Consultants and Employees to
acquire Common Shares as long term investments.

2.2     Participation

The Board shall, from time to time and in its sole
discretion, determine which of the Eligible Persons, if any,
shall be awarded Options.  The Board shall only award an
Option to a Consultant or an Employee if the Consultant or
Employee is a bona fide Consultant or Employee of the Company
or an affiliate of the Company, and the Board shall make such
a representation if required by the Regulatory Authorities.

<PAGE>

The Board may, in its sole discretion, grant the majority of
the Options to insiders of the Company.  However, in no case
shall:

       (a)  the number of options awarded in a one-year
period to any one Consultant exceed 2% of the issued Shares
of the Company (calculated at the time of award);

       (b)  the number of options awarded in a one-year
period to any one individual exceed 5% of the issued Shares
of the Company (calculated at the time of award);

       (c)  the aggregate number of options awarded in a one-
year period to Employees who provide investor relations
services exceed 2% of the issued Shares of the Company
(calculated at the time of award); or

       (d)  the aggregate number of Common Shares reserved
for issuance to any one individual upon the exercise of
Options awarded under the Plan or any previously established
and outstanding stock option plans or grants, exceed 5% of
the issued Shares of the Company (calculated at the time of
award) in a one-year period.

2.3     Notification of Award

Following the award of an Option by the Board, the
Administrator shall notify the Option Holder in writing of
the award and shall enclose with such notice the Option
Certificate representing the Option so awarded.

2.4     Copy of Plan

Each Option Holder, concurrently with the notice of the award
of the Option, shall be provided with a copy of the Plan.  A
copy of any amendment to the Plan shall be promptly provided
by the Administrator to each Option Holder.

2.5     Limitation

The Plan does not give any Option Holder that is a Director
or Officer the right to serve or continue to serve as a
Director or Officer of the Company or any of its affiliates
nor does it give any Option Holder that is an Employee or
Consultant the right to be or to continue to be employed with
or have a consulting contract with the Company or any of its
affiliates.

2.6     Consultant Companies

If a consultant company is an Option Holder, it must provide
the TSX Venture Exchange with a completed Form 4F -
Certification and Undertaking Required from a Company Granted
an Incentive Stock Option.  The consultant company must agree
not to effect or permit any transfer of ownership or option
of shares of the consultant company nor to issue further
shares of any class in the consultant company to any other
individual or entity as long as the Option remains
outstanding, except with the written consent of the TSX
Venture Exchange.

<PAGE>

                         ARTICLE 3
             TERMS AND CONDITIONS OF OPTIONS

3.1     Board to Issue Common Shares

The Common Shares to be issued to Option Holders upon the
exercise of Options shall be authorized and unissued Common
Shares the issuance of which shall have been authorized by
the Board.

3.2     Number of Common Shares; Options Under Predecessor
Plan

Subject to adjustment as provided for in paragraph 3.8 of the
Plan, the number of Common Shares that shall be available for
Eligible Persons to acquire pursuant to options awarded by
the Board shall not exceed 2,280,000 Common Shares (19.98% of
the issued Shares of the Company as at April 30, 2004).  If
any option expires or otherwise terminates for any reason
without having been exercised in full, the number of Common
Shares in respect of which the option was not exercised shall
be available for the purposes of the Plan.  If any Common
Shares are withheld by the Company upon the exercise of an
Option in satisfaction of withholding taxes incurred in
connection with the exercise, the number of Common Shares
withheld shall be available for the purposes of the Plan. The
number of available Common Shares specified above shall
include all (960,202, as at April 30, 2004) Common Shares
issuable upon exercise of Options granted under the Company's
predecessor stock option plan ("Old Plan Options").  All Old
Plan Options shall be deemed to have been granted under, and
shall be governed by and administered under, this Plan,
except that:

       (a)  no substantive term or condition of any Old Plan
Option shall be amended or modified by such change in
governance and administration unless (in a particular
instance) both the Company and the Option Holder consent
thereto;

       (b)  this Plan, and each Old Plan Option that is an
ISO, shall be interpreted so that the governance of this Plan
over Old Plan ISOs does not result in a modification of any
such ISOs within the meaning of the Internal Revenue Code of
1986, as amended; and

       (c)  substantive terms and conditions of the Company's
predecessor plan that were incorporated into any Old Plan
Options shall continue to apply to such Options to the extent
required by the foregoing.

3.3     Term of Option

Subject to such other terms or conditions that may be
attached to an Option granted hereunder, an Option Holder may
exercise any vested portion or portions of an Option in whole
or in part at any time or from time to time during the
Exercise Period.  Any Option or part thereof not exercised
within the Exercise Period shall terminate and become null,
void and of no effect as of 5:00 p.m. local time in St.
Louis, Missouri on the Expiry Date.

3.4     Termination

Subject to subparagraphs (a) to (f) below, the Expiry Date of
an Option shall be the date fixed by the Board at the time
the particular Option is awarded (the "Fixed Expiry Date"),
provided that the Expiry Date shall be no later than the
fifth anniversary of the Award Date of such Option:

       (a)  Death

<PAGE>

If the Option Holder dies while his or her Option is
outstanding, then unless otherwise provided for in the Option
Certificate, the following shall apply.  The Expiry Date for
any vested portion or portions of the Option shall be the
earlier of the Fixed Expiry Date and the date that is one
year after the date of the Option Holder's death.  The Expiry
Date for any unvested portion of the Option shall be the date
of the Option Holder's death.  The right to purchase Common
Shares under an Option shall not vest after the date of the
Option Holder's death.

       (b)  Disability

If the Option Holder ceases to be an Eligible Person by
reason of a Disability while his or her Option is
outstanding, then unless otherwise provided for in the Option
Certificate, the following shall apply.  The Expiry Date for
any vested portion or portions of the Option shall be the
earlier of the Fixed Expiry Date and the date that is one
year after the date that the Option Holder ceases to be an
Eligible Person.  The Expiry Date for any unvested portion of
the Option shall be the date that the Option Holder ceases to
be an Eligible Person.  The right to purchase Common Shares
under an Option shall not vest after the date that the Option
Holder ceases to be an Eligible Person.

       (c)  Ceasing to be a Director

If the Option Holder holds an Option as a Director and the
Option Holder ceases to be a Director (other than by reason
of death or Disability), then unless otherwise provided for
in the Option Certificate, the following shall apply.  The
Expiry Date for any vested portion or portions of the Option
shall be the earlier of the Fixed Expiry Date and the 30th
day following the date that the Option Holder ceases to be a
Director unless the Option Holder ceases to be a Director for
Cause, in which case the Expiry Date shall be the date that
the Option Holder ceases to be a Director.  The Expiry Date
for any unvested portion of the Option shall be the date that
the Option Holder ceases to be a Director.  The right to
purchase Common Shares under an Option shall not vest after
the date that the Option Holder ceases to be a Director.

       (d)  Ceasing to be an Employee or Consultant

If the Option Holder holds an Option as an Employee or
Consultant and the Option Holder ceases to be an Employee or
Consultant (other than by reason of death or Disability),
then unless otherwise provided for in the Option Certificate,
the following shall apply.  The Expiry Date for any vested
portion or portions of the Option shall be the earlier of the
Fixed Expiry Date and the 30th day following the Termination
Date unless the Option Holder ceases to be an Employee or
Consultant as a result of Cause, in which case the Expiry
Date shall be the Termination Date.  The Expiry Date for any
unvested portion of the Option shall be the Termination Date.
The right to purchase Common Shares under an Option shall not
vest after the Termination Date.

       (e)  Ceasing to be an Officer

If the Option Holder holds an Option as an Officer and the
Option Holder ceases to be an Officer (other than by reason
of death or Disability), then unless otherwise provided for
in the Option Certificate, the following shall apply.  The
Expiry Date for any vested portion or portions of the Option
shall be the earlier of the Fixed Expiry Date and the

<PAGE>

30th day following the date that the Option Holder ceases to
be an Officer unless the Option Holder ceases to be an
Officer for Cause, in which case the Expiry Date shall be the
date that the Option Holder ceases to be an Officer.  The
Expiry Date for any unvested portion of the Option shall be
the date that the Option Holder ceases to be an Officer.  The
right to purchase Common Shares under an Option shall not
vest after the date that the Option Holder ceases to be an
Officer.

       (f)  Change of Control

In the event of a Change of Control or an impending Change of
Control the Board may, if it reasonably determines that it is
necessary or desirable for the Company to do so in
conjunction with the Change of Control, deal with outstanding
Options in a manner that it deems to be fair and reasonable
in light of the circumstances.  Without limiting the
generality of the foregoing, the Board may, without any
action or consent required on the part of any Option Holder:

            (i)  deliver a notice to the Option Holder
advising the Option Holder that the unvested portion of the
Option held by the Option Holder, if any, shall immediately
vest;

            (ii)  deliver a notice to the Option Holder
advising the Option Holder that the unvested portion of the
Option held by the Option Holder, if any, shall immediately
vest and that the Option shall expire on the Expiry Date set
forth in the notice; or

            (iii)  take such other actions, and combinations
of the foregoing actions, as it deems fair and reasonable
under the circumstances.

The foregoing subparagraphs (c) through (e) shall only apply
once an Option Holder ceases to fall into any of the
categories of Eligible Persons.  The Board and the
Administrator shall look to which of the definitions of
Employee, Director, Officer or Consultant the Option Holder
met immediately prior to the Option Holder ceasing to be an
Eligible Person to determine which of subparagraphs (c)
through (e) shall apply.  If the Option Holder met more than
one definition, then the following shall apply.  If the
Option Holder was an Employee or Consultant, then the Option
Holder shall be deemed to hold his or her Option as an
Employee or Consultant regardless of whether the Option
Holder was also a Director or Officer.  If the Option Holder
was a Director but not an Employee or Consultant, then the
Option Holder shall be deemed to hold his or her Option as a
Director regardless of whether the Option Holder was also an
Officer.

3.5     Exercise Price

The price at which an Option Holder may purchase a Common
Share upon the exercise of an Option shall be as set forth in
the Option Certificate issued in respect of such Option and
in any event shall not be less than the Discounted Market
Price of the Common Shares as of the Award Date, subject to
the following:

            (a)  in no case shall the Exercise Price be less
than the minimum prescribed by the Regulatory Authorities as
would apply to the Award Date in question; and

            (b)  in the case of an Option intended to qualify
as an ISO, the per Common Share Exercise Price of the ISO
shall be not less than 100% of the Market Price of the
Company's

<PAGE>

Common Shares as of the Award Date, or, in the case of an ISO
granted to an Option Holder who, at the time of the grant of
such ISO owns Shares representing more than 10% of the voting
power of all classes of Shares of the Company or any parent
or subsidiary of the Company, not less than 110% of the
Market Price of the Company's Common Shares as of the Award
Date.

3.6  Additional Terms

Subject to all applicable Securities Laws and the rules and
policies of all applicable Regulatory Authorities, the Board
may attach other terms and conditions to the award of a
particular Option, such terms and conditions to be referred
to in a schedule attached to the Option Certificate.  These
terms and conditions may include, but are not necessarily
limited to, the following:

            (a)  providing that an Option or a portion or
portions of an Option expire on a certain date, after certain
periods of time or upon the occurrence of certain events
other than as provided for herein, provided that no Option
shall expire more than five years after the Award Date;

            (b)providing that an Option issued to, held by or
exercised by an Option Holder who is an Employee and a
citizen or resident of the United States of America, and
otherwise meeting the statutory requirements, be treated as
an ISO, subject to the other provisions in the Plan
concerning ISOs;

            (c)  providing that the Option Holder may defer
payment of the Exercise Price pending the sale through a
broker of some or all of the Common Shares subject to the
Option being exercised; and

            (d)  providing that Common Shares issuable upon
the exercise of an Option shall be subject to restrictions
whereby the Company has the right or obligation to repurchase
all or a portion of the Common Shares if the Option Holder
ceases to by an Eligible Person before a specified time, or
if certain other events occur or conditions are not met.

3.7     Assignment of Options

Options may not be assigned or transferred, provided however
that the Personal Representative of an Option Holder may, to
the extent permitted by paragraph 4.1, exercise the Option
within the Exercise Period.

3.8     Adjustments

Subject to any required action by the shareholders of the
Company pursuant to applicable law, including without
limitation, securities laws, the Rules of Regulatory
Authorities, and laws or rules applicable to ISOs, the number
of Common Shares subject to each outstanding Option and the
number of Common Shares that have been authorized for
issuance under the Plan but as to which no Options have yet
been granted or that have again become available for the
purposes of the Plan, the Exercise Price of each outstanding
Option, as well as any other terms that the Board determines
require adjustment shall be proportionately adjusted for (i)
any increase or decrease in the number of issued Common
Shares resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common
Shares, or similar transaction affecting the Common Shares;
and (ii) any other increase or decrease in the number of
issued Common Shares effected without receipt of
consideration by the

<PAGE>

Company, provided, however, that conversion of any
convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration" (in
each case, the "Event").  Such adjustment shall be made by
the Board and its determination shall be final, binding and
conclusive.  Except as the Board determines, no issuance by
the Company of Shares of any class, or securities convertible
into Shares of any class, shall affect, and no adjustment by
reason thereof shall be made with respect to, the number or
Exercise Price of Common Shares subject to an Option.  No
fractional shares shall be issued upon the exercise of an
Option and accordingly, if as a result of the Event, an
Option Holder would become entitled to a fractional Common
Share, such Option Holder shall have the right to purchase
only the next lowest whole number of Common Shares and no
payment or other adjustment shall be made with respect to the
fractional interest so disregarded.

3.9     Vesting

If the Company is listed as a Tier 2 company on the TSX
Venture Exchange, each Option granted under the Plan shall be
subject to a vesting restriction such that the right to take
up one-third of the Common Shares subject to the Option shall
vest on each of the six-month, twelve-month and eighteen-
month anniversaries of the Award Date, such that the entire
Option shall have vested eighteen months from the Award Date.
Subject to the approval of the Regulatory Authorities for any
such change, the Board may remove or vary the foregoing
vesting restriction in its absolute discretion.

3.10     Hold Period

In addition to any resale restrictions under Securities Laws,
any Common Shares issued upon the exercise of an Option shall
be subject to a four-month TSX Venture Exchange hold period
from the Award Date of the Option.  The Option Certificates
and the share certificates, if applicable, shall bear the
following legend:

"Without prior written approval of the TSX Venture Exchange
and compliance with all applicable securities legislation,
the securities represented by this certificate may not be
sold, transferred, hypothecated or otherwise traded on or
through the facilities of the TSX Venture Exchange or
otherwise in Canada or to or for the benefit of a Canadian
resident until [date]."

3.11     Personal Information Form and Monitoring of Trading

An Option Holder who becomes a new insider of the Company or
who is undertaking investor relations activities must file a
Personal Information Form or such other documents as may be
required by the Regulatory Authorities.  An Option Holder who
performs investor relations activities must comply with all
procedures established by the Board or the Regulatory
Authorities to monitor the Option Holder's trading in the
securities of the Company.

3.12     Designation of Award

Each Option issued to an Employee who is a United States
citizen or resident shall be designated in the Option
Certificate - Schedule either as an ISO or a Non-Qualified
Option.  However, notwithstanding such designation, to the
extent that the aggregate Market Price of Common Shares
subject to Options designated as ISOs that become exercisable
for the first time by an Option Holder during any calendar
year (under all plans of the Company or any affiliate of the
Company) exceeds US$100,000, such excess ISOs, to the extent
of the Common Shares covered thereby in excess of the
foregoing limitation, shall be treated as Non-Qualified
Options.  For this purpose, ISOs shall be taken into account
in the order in

<PAGE>

which they were granted, and the Market Price of the Common
Shares shall be determined as of the Award Date of the
relevant ISO.

3.13     Legend

Any Common Shares that are issued upon the exercise of an
Option shall bear the following legend:

"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT
BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), OR ANY APPLICABLE STATE SECURITIES LAW, AND
MAY NOT BE DISTRIBUTED, ASSIGNED, OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT (a) TO THE
COMPANY, (b) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH
RULE 904 OF REGULATION S UNDER THE 1933 ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAW, (c) PURSUANT TO THE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE 1933
ACT PROVIDED BY RULE 144 OR 144A THEREUNDER, IF AVAILABLE,
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, OR
(d) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER
THE 1933 ACT OR ANY APPLICABLE STATE LAWS AND REGULATIONS
GOVERNING THE OFFER AND SALE OF SECURITIES, AND THE HOLDER
HAS, PRIOR TO SUCH SALE, FURNISHED TO THE COMPANY AN OPINION
OF COUNSEL, OF RECOGNIZED STANDING, OR OTHER EVIDENCE OF
EXEMPTION, REASONABLY SATISFACTORY TO THE COMPANY.  HEDGING
TRANSACTIONS INVOLVING THE SECURITIES REPRESENTED HEREBY MAY
NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE 1933 ACT."

3.14     Grant of ISOs

ISO Eligible Employees, and only ISO Eligible Employees,
shall be eligible to receive ISOs under the Plan.  Options
granted to ISO Eligible Employees shall be ISOs unless the
Option Certificate specifically provides that the Options are
not ISOs.

                        ARTICLE 4
                    EXERCISE OF OPTION

4.1     Exercise of Option

An Option may be exercised only by the Option Holder or the
Personal Representative of the Option Holder.  An Option
Holder or the Personal Representative of the Option Holder
may exercise the vested portion or portions of an Option in
whole or in part at any time or from time to time during the
Exercise Period up to 5:00 p.m. local time in St. Louis,
Missouri on the Expiry Date by delivering to the
Administrator an Exercise Notice, the applicable Option
Certificate and a certified cheque or bank draft payable to
the Company in an amount equal to the aggregate Exercise
Price of the Common Shares to be purchased pursuant to the
exercise of the Option.

4.2     Issue of Share Certificates

As soon as practicable following the receipt of the Exercise
Notice, the Administrator shall cause to be delivered to the
Option Holder a certificate for the Common Shares purchased
by the Option Holder.  If the number of Common Shares in
respect of which the Option was exercised is less than the
number of Common Shares subject to the Option Certificate
surrendered, the Administrator shall forward a new Option
Certificate to the Option Holder concurrently with delivery
of the share certificate for the balance of the Common Shares
available under the Option.

<PAGE>

4.3     Condition of Issue

The Options and the issue of Common Shares by the Company
pursuant to the exercise of Options are subject to the terms
and conditions of the Plan and compliance with the rules and
policies of all applicable Regulatory Authorities with
respect to the granting of such Options and the issuance and
distribution of such Common Shares, and to all applicable
Securities Laws.  The Option Holder agrees to comply with all
such laws, regulations, rules and policies and agrees to
furnish to the Company any information, reports or
undertakings required to comply with, and to fully cooperate
with, the Company in complying with such laws, regulations,
rules and policies.

4.4     Taxes

No Common Shares shall be delivered under the Plan to any
Option Holder or other person until such Option Holder or
other person has made arrangements acceptable to the
Administrator for the satisfaction of any foreign, national,
provincial or local income and employment tax withholding
obligations, including, without limitation, obligations
incident to the receipt of Common Shares or the
"disqualifying disposition" of Common Shares received on
exercise of an ISO.  Upon exercise of an Option the Company
shall withhold or collect from the Option Holder an amount
sufficient to satisfy each such tax obligation.  The Board
may, in its discretion, allow an Option Holder to either:

            (a)  have the Company withhold from the Common
Shares otherwise issuable upon the exercise of an Option, a
portion of those Common Shares with an aggregate Market Price
less than or equal to the amount of taxes due as designated
by such Option Holder; or

            (b)  deliver to the Company, at the time the
Option is exercised, one or more Common Shares previously
acquired by the Option Holder with an aggregate Market Price
less than or equal to the amount of taxes due as designated
by such Option Holder,

in satisfaction of all or part of the taxes incurred by the
Option Holder in connection with the exercise of an Option.
In the case of clause (b), for administrative convenience,
the Board may allow the Option Holder to deliver a fraction
of one whole Common Share in excess of the amount of taxes
due.

4.5     Financing

The Board may, in its sole discretion, authorize the Company
to arrange or guarantee a loan to an Option Holder by a third
party in connection with the exercise of an Option. The
foregoing authority is subject to applicable Securities Laws.

                         ARTICLE 5
                      ADMINISTRATION

5.1     Administration

The Plan shall be administered by the Board.  The Board may
make, amend and repeal at any time and from time to time such
regulations not inconsistent with the Plan as it may deem
necessary or advisable for the proper administration and
operation of the Plan and such regulations shall form part of
the Plan.  The Board may delegate to the Administrator or any
director, officer or employee of the Company such
administrative duties and powers as it may see fit.

<PAGE>

5.2     Interpretation

The interpretation by the Board of any of the provisions of
the Plan and any determination by it pursuant thereto shall
be final and conclusive and shall not be subject to any
dispute by any Option Holder.  No member of the Board or any
person acting pursuant to authority delegated by it hereunder
shall be liable for any action or determination in connection
with the Plan made or taken in good faith and each member of
the Board and each such person shall be entitled to
indemnification with respect to any such action or
determination in the manner provided for by the Company.

5.3     Special Rules Applicable to Administration

To the extent the Company is subject to Section 162(m) of the
Internal Revenue Code of 1986, as amended ("Section 162(m)"),
grants of Options to persons who are, or in the discretion of
the Board may become, the chief executive officer of the
Company or one of the four other highest compensated officers
of the Company for whom total compensation is required to be
reported to stockholders under the United States Securities
Exchange Act of 1934, as amended, as determined for the
purposes of Section 162(m) (collectively, the "Covered
Employees") shall be made by a committee of the Board
consisting of two or more "outside directors" as that term is
defined in the regulations promulgated under Section 162(m).
Notwithstanding the foregoing, the Board retains the full
powers set forth under paragraph 5.1 to the extent the Board
determines that it is not in the best interests of the
Company to comply with the "performance-based compensation"
requirements of Section 162(m).

All Option awards to directors and officers of the Company
shall by made by the board of directors of the Company or a
committee of the board of directors that is composed solely
of two or more Non-Employee Directors.

                          ARTICLE 6
             AMENDMENT, TERMINATION AND NOTICE

6.1     Prospective Amendment

The Board may from time to time amend the Plan and the terms
and conditions of any Option thereafter to be granted and,
without limiting the generality of the foregoing, may make
such amendment for the purpose of meeting any changes in any
relevant law, rule or regulation applicable to the Plan, any
Option or the Common Shares, or for any other purpose which
may be permitted by all relevant laws, regulations, rules and
policies provided always that any such amendment shall not
alter the terms or conditions of any Option or impair any
right of any Option Holder pursuant to any Option awarded
prior to such amendment.  To the extent necessary to comply
with securities laws, the rules of Regulatory Authorities or
laws or rules applicable to ISOs, the Company shall obtain
shareholder approval of any Plan amendment in such a manner
and to such a degree as required.

6.2     Retrospective Amendment

The Board may from time to time retrospectively amend the
Plan and, with the consent of the affected Option Holders,
retrospectively amend the terms and conditions of any Options
that have been previously granted.

<PAGE>

6.3     Amendment to Option

Notwithstanding anything else contained in the Plan and
subject to any necessary approval from the Option Holder, the
Company's shareholders or the Regulatory Authorities, the
Board may in its discretion (a)  extend the Expiry Date of
any Option, provided that in no case shall an Option be
exercisable later than the fifth anniversary of the Award
Date of the Option; (b)  alter or change the vesting terms
applicable to an Option, including accelerating the vesting
schedule to make the Option exercisable immediately, in full;
(c)  reduce the Exercise Price; or (d) amend any other term
of an outstanding Option.   Disinterested shareholder
approval must be obtained for any reduction in the Exercise
Price if the Option Holder is an insider of the Company at
the time of the proposed amendment.

6.4     Approvals

The Plan and any amendments hereto are subject to all
necessary approvals of the applicable Regulatory Authorities
and shareholders.

6.5     Termination

The Board may terminate the Plan at any time provided that
such termination shall not alter the terms or conditions of
any Option or impair any right of any Option Holder pursuant
to any Option awarded prior to the date of such termination
which shall continue to be governed by the provisions of the
Plan.  If not earlier terminated, the Plan shall
automatically terminate 10 years after the earlier of (a) the
date that the Plan is adopted by the Board; and (b) the date
that the Plan is approved by the shareholders of the Company.

6.6     Agreement

The Company and every Option awarded hereunder shall be bound
by and subject to the terms and conditions of the Plan.  By
accepting an Option granted hereunder, the Option Holder has
expressly agreed with the Company to be bound by the terms
and conditions of the Plan.

6.7     Notice

Any notice or other communication contemplated under the Plan
to be given by the Company to an Option Holder shall be given
by the Company delivering or faxing the notice to the Option
Holder at the last address for the Option Holder in the
Company's records.  Any such notice shall be deemed to have
been given on the date on which it was delivered, or in the
case of fax, the next business day after transmission.  An
Option Holder may, at any time, advise the Company of a
change in the Option Holder's address or fax number.

<PAGE>

                        SCHEDULE "A"

Without prior written approval of the TSX Venture Exchange
and compliance with all applicable securities legislation,
the securities represented by this certificate may not be
sold, transferred, hypothecated or otherwise traded on or
through the facilities of the TSX Venture Exchange or
otherwise in Canada or to or for the benefit of a Canadian
resident until ___________________.

                  MDI TECHNOLOGIES, INC.
                  2003 STOCK OPTION PLAN

                    OPTION CERTIFICATE

This Certificate is issued pursuant to the provisions of the
MDI Technologies, Inc. (the "Company") 2003 Stock Option Plan
(the "Plan") and evidences that __________ is the holder (the
"Option Holder") of an option (the "Option") to purchase up
to __________  Common shares (the "Common Shares") in the
capital stock of the Company at a purchase price of
US$__________ per Common Share.

Subject to the provisions of the Plan:

(a)  the Award Date of the Option is __________; and
(b)  the Fixed Expiry Date of the Option is __________.

The vested portion or portions of the Option may be exercised
at any time and from time to time from and including the
Award Date through to 5:00 p.m. local time in St. Louis,
Missouri on the Expiry Date by delivering to the
Administrator of the Plan an Exercise Notice, in the form
attached, together with this Certificate and a certified
cheque or bank draft payable to the Company in an amount
equal to the aggregate of the Exercise Price of the Common
Shares in respect of which the Option is being exercised.

This Certificate and the Option evidenced hereby is not
assignable, transferable or negotiable and is subject to the
detailed terms and conditions contained in the Plan, the
terms and conditions of which the Option Holder hereby
expressly agrees with the Company to be bound by.  This
Certificate is issued for convenience only and in the case of
any dispute with regard to any matter in respect hereof, the
provisions of the Plan and the records of the Company shall
prevail.

The Option is also subject to the terms and conditions
contained in the schedules, if any, attached hereto.  All
terms not otherwise defined in this Certificate shall have
the meanings given to them under the Plan.

<PAGE>

THE OPTION HOLDER ACKNOWLEDGES AND AGREES THAT NOTHING IN
THIS CERTIFICATE OR THE PLAN SHALL CONFER UPON THE OPTION
HOLDER ANY RIGHT WITH RESPECT TO CONTINUED EMPLOYMENT OR
DIRECTORSHIP OR A CONTINUING CONSULTANT OR SERVICE PROVIDER
CONTRACT, NOR SHALL IT INTERFERE WITH THE OPTION HOLDER'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE SUCH EMPLOYMENT,
DIRECTORSHIP OR CONTRACT FOR ANY REASON OR NO REASON.

Dated this __________ day of __________.

MDI Technologies, Inc.

Per:_____________________________________
    Administrator, 2003 Stock Option Plan

Acknowledged by Option Holder

By:______________________________________
   Signature

   ______________________________________
   Print Name

<PAGE>

               OPTION CERTIFICATE - SCHEDULE

The additional terms and conditions attached to the Option
represented by this Option Certificate are as follows:

1.     __________; and

2.     __________.

MDI Technologies, Inc.

Per:_____________________________________
    Administrator, 2003 Stock Option Plan

<PAGE>

     OPTION CERTIFICATE - SCHEDULE FOR UNITED STATES
                       RESIDENTS

The additional terms and conditions attached to the Option
represented by this Certificate are as follows:

1.     Type of Option.  The Company may grant either an ISO
or a Non-Qualified Option to an Option Holder who is an
Employee and a resident of the United States (as defined in
Section 7701 of the Internal Revenue Code of 1986, as
amended).  The Option represented by this Certificate is an:

       - ISO

       - Non-Qualified Option ("NSO")

2.     Tax Consequences.  Set out below is a brief summary as
of the date of this Certificate of some of the United States
federal tax consequences of exercise of this Option and
disposition of the Common Shares.  THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE
SUBJECT TO CHANGE.  THE OPTION HOLDER SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
COMMON SHARES.

       (a)  Exercise of NSO.  There may be a regular United
States federal income tax liability, at ordinary income tax
rates, upon the exercise of an NSO.  If the Option Holder is
an Employee or a former Employee, the Company shall be
required to withhold from the Option Holder's compensation or
collect from the Option Holder and pay to the applicable
taxing authorities an amount in cash equal to a percentage of
this compensation income at the time of exercise, and may
refuse to honour the exercise and refuse to deliver Common
Shares if such withholding amounts are not delivered at the
time of exercise.

       (b)  Exercise of ISO.  If this Option qualifies as an
ISO, there shall be no regular federal income tax liability
upon the exercise of the Option, although the Option Holder
may be subject to the alternative minimum tax in the year of
exercise.

       (c)  Disposition of Common Shares.  The disposition of
Common Shares is generally a taxable event.  The tax
treatment shall depend on whether the Option is an ISO or an
NSO, and on the length of time that the Option Holder has
held the Common Shares.

       (d)  Notice of Disqualifying Disposition of ISO Common
Shares.  If the Option granted to the Option Holder is an
ISO, and if the Option Holder sells or otherwise disposes of
any of the Common Shares acquired upon exercise of the ISO on
or before the later of (1) the date that is two years after
the Award Date; or (2) the date that is one year after the
date of exercise, the Option Holder shall immediately notify
the Company in writing of such disposition.  The Option
Holder agrees that the Option Holder may be subject to income
tax withholding by the Company on the compensation income
recognized by the Option Holder.

3.  Tax Consequences of Holding Common Shares.  Upon exercise
of this Option, the Option Holder should review the Company's
most recent Form 20-F (if the Company is required to file
one) and consult his or her own tax adviser to determine if
the Option Holder is subject to certain possible

<PAGE>

United States federal income tax consequences generally
applicable to a United States resident who owns Common
Shares.

4.  Shareholder Approval.  Any Option granted to the Option
Holder may not be exercised prior to the Company obtaining
shareholder approval of the Plan, or the issuance of Common
Shares may be subject to rescission in accordance with the
rules and policies of the Regulatory Authorities.

MDI Technologies, Inc.

Per:_____________________________________
    Administrator, 2003 Stock Option Plan

<PAGE>

                      SCHEDULE "B"

                  MDI TECHNOLOGIES, INC.
                  2003 STOCK OPTION PLAN
                     EXERCISE NOTICE

TO:     The Administrator, 2003 Stock Option Plan
        MDI Technologies, Inc. (the "Company")
        940 West Port Plaza, Suite 100
        St. Louis, Missouri  63146

The undersigned hereby irrevocably gives notice, pursuant to
the Company's 2003 Stock Option Plan (the "Plan"), of the
exercise of the Option to acquire and hereby subscribes for
(cross out inapplicable item):

(a)  all of the Common Shares; or

(b)  ___________________ of the Common Shares;

which are the subject of the Option Certificate attached
hereto.

The undersigned tenders herewith a certified cheque or bank
draft (circle one) payable to the Company in an amount equal
to the aggregate Exercise Price of the aforesaid Common
Shares exercised and directs the Company to issue the
certificate evidencing said Common Shares in the name of the
undersigned to be mailed to the undersigned at the following
address:
                            _____________________________

                            _____________________________

                            _____________________________

                            _____________________________

By executing this Exercise Notice, the undersigned hereby
confirms that the undersigned has read the Plan and agrees to
be bound by the provisions of the Plan.  All terms not
otherwise defined in this Exercise Notice shall have the
meanings given to them under the Plan or the attached Option
Certificate.

DATED the ________ day of ____________________, __________.

                            ______________________________
                             Signature of Option Holder

<PAGE>Exhibit 10.1

                                                             EXECUTION COPY

                            EMPLOYMENT AGREEMENT

          AGREEMENT, dated as of September 17, 2004 (the "Effective Date"),
by and between Martha Stewart Living Omnimedia, Inc., a Delaware
corporation (the "Company"), and Martha Stewart (the "Founder").

          WHEREAS, the Founder is a party to an employment agreement, dated
June 22, 1999, as amended (the "Prior Employment Agreement"), which the
Company and the Founder entered into at the time of the Company's initial
public offering and which is scheduled to expire on October 22, 2004; and

          WHEREAS, the Company recognizes that the Founder's talents and
abilities are unique and have been integral to the success of the Company;

          WHEREAS, the Company wishes to secure the ongoing services of the
Founder pursuant to the terms and conditions set forth herein, and
therefore the Founder and the Company intend hereby to enter into a new
employment agreement as set forth herein;

          NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth below, the parties hereby agree as follows:

          1. Employment. From and after the Effective Date, the Company
hereby agrees to employ the Founder as Chief Editorial and Media Director
of the Company, and the Founder hereby accepts such employment, on the
terms and conditions set forth below.

          2. Term. The Founder's employment by the Company hereunder shall
begin on September 17, 2004 (the "Effective Date") and shall end on
September 16, 2009 (the "Employment Period"), but subject to earlier
termination upon termination of the Founder's employment. The Employment
Period may be extended by mutual agreement of the Company and the Founder.

          3. Position and Duties. During the Employment Period, the Founder
shall serve as Founder, Chief Editorial and Media Director of the Company
with the following duties, authority and responsibilities:

               (i) serving as Founding Editorial Director for all
     publications of the Company;

               (ii) serving as an executive producer for television and
     radio productions of the Company; and

               (iii) subject to the oversight of the Board, serving as the
     primary spokesperson for the Company (it being understood, however,
     that the Chief Executive Officer and the Chief Financial Officer of
     the Company shall serve as primary spokespersons to the financial and
     investment community).

The Founder shall report directly to the Board. Unless otherwise authorized
by the Board, the Founder shall devote substantially all of her working
time, attention and energies during normal business hours (other than
absences due to illness or vacation) to the performance of her duties for
the Company. Notwithstanding the above, the Founder shall be permitted, to
the extent such activities do not violate, or substantially interfere with
her performance of her duties and responsibilities under, this Agreement or
any other agreement to which she and the Company are parties, to (i) engage
in motion picture, television, public speaking and publishing activities,
(ii) manage her personal, financial and legal affairs (including writing
her autobiography), (iii) serve on civic or charitable boards or committees
(it being expressly understood and agreed that the Founder's continuing to
serve on any such board and/or committees on which she is serving, or with
which she is otherwise associated, as of the Effective Date, shall be
deemed not to interfere with her performance of her duties and
responsibilities under this Agreement), (iv) serve on boards of other
companies and (v) make personal appearances and lectures, and the Founder
shall be entitled to receive and retain all remuneration received by her
from the items listed in clauses (i) through (v) of this paragraph
(including, without limitation, appearance and speaking fees, book
advances, royalties, residuals and other fees and compensation (including
guild and union payments) payable in connection with any publications,
media appearances, or similar activities).

          4. Place of Performance. During the Employment Period, the
locations of employment of the Founder shall be in New York City, New York,
Bedford, New York and Westport, Connecticut and the Founder shall not be
required to relocate her employment to any other location following her
release from imprisonment and home confinement. During the Employment
Period, the Company shall provide the Founder with the same offices and
staff that she was provided with immediately prior to the Effective Date.
For the portion of the Employment Period during which the Founder is
judicially required to be confined at her home, the Founder may render
services to the Company from her home, and, if during such period the
Founder requires additional staff, the Founder may request the same from
the Board and the Board shall not unreasonably withhold its consent to such
request.

          5. Compensation and Related Matters.

               (a) Base Salary. During the Employment Period, the Company
shall pay the Founder a base salary at the rate of not less than $900,000
per year ("Base Salary"). The Base Salary shall be paid in approximately
equal installments in accordance with the Company's customary payroll
practices. The Base Salary shall be subject to annual review by the Board
and may be increased in the Board's discretion. If the Base Salary is
increased by the Board, such increased Base Salary shall then constitute
the Base Salary for all purposes under this Agreement.

               (b) Annual Bonus. For each full fiscal year of the Company
that begins and ends during the Employment Period, and for the portion of
the fiscal year of the Company that begins in 2004 and the portion of the
fiscal year that begins in 2009 (each a "Partial Year"), the Founder shall
be eligible to earn an annual cash bonus (the "Annual Bonus") in such
amount as shall be determined by the Compensation Committee of the Board
(the "Compensation Committee") based on the achievement of Company and
individual performance goals as established by the Compensation Committee
for each such fiscal year (or Partial Year), with a target Annual Bonus
equal to 100% of the Base Salary and a maximum Annual Bonus equal to 150%
of the Base Salary, with such Annual Bonus being prorated for any Partial
Year. The Compensation Committee shall establish objective criteria to be
used to determine the extent to which performance goals have been
satisfied. Notwithstanding the foregoing, in no event shall the Annual
Bonus be less than 55% of the Base Salary for any full fiscal year of the
Company or the prorated portion thereof for any Partial Year.

               (c) Exception. Notwithstanding Sections 5(a) and 5(b) of
this Agreement, the Founder shall not be entitled to earn Base Salary or
Annual Bonus in respect of any period during which the Founder is
imprisoned, excluding any period of home confinement. The Founder shall
recommence earning Base Salary and Annual Bonus when the Founder is
released from imprisonment. Notwithstanding the foregoing, the Founder
shall continue to be covered by the Company's benefit plans in accordance
with the terms of this Agreement for any period during which the Founder is
imprisoned.

               (d) Automobiles. During the Employment Period, the Company
shall provide the Founder with automobiles and drivers seven days per week
on a basis no less favorable than in effect immediately prior to the
Effective Date to be used in the Founder's sole discretion.

               (e) Business, Travel and Entertainment Expenses. The Company
shall promptly reimburse the Founder for all business, travel and
entertainment expenses on a basis no less favorable than in effect
immediately prior to the Effective Date and subject to the Company's
current expense reimbursement policies, including, without limitation,
first class transportation or travel on a private plane of the Company to
the extent that such private plane is available. The Founder shall pay the
SIFL rate for any personal use of such private plane.

               (f) Vacation. During the Employment Period, the Founder
shall be entitled to six weeks of vacation per year. Vacation not taken
during the applicable fiscal year (but not in excess of three weeks) shall
be carried over to the next following fiscal year.

               (g) Welfare, Pension and Incentive Benefit Plans. During the
Employment Period, the Founder (and her eligible spouse and dependents)
shall be entitled to participate in all welfare benefit plans and programs
maintained by the Company from time to time for the benefit of its senior
executives, including, without limitation, all medical, hospitalization,
dental, disability, accidental death and dismemberment, travel accident and
life insurance plans, programs and arrangements, on a basis no less
favorable than in effect with respect to the Founder immediately prior to
the Effective Date. In addition, during the Employment Period, the Founder
shall be eligible to participate in all pension, retirement, savings and
other employee benefit plans and programs maintained from time to time by
the Company for the benefit if its senior executives, other than any
equity-based incentive plans, severance plans, retention plans and any
annual cash incentive plan, on a basis no less favorable than in effect
immediately prior to the Effective Date.

               (h) Dues. During the Employment Period, the Company shall
pay or promptly reimburse the Founder for annual dues for membership in the
American Federation of Television and Radio Artists, the Screen Actors
Guild and similar organizations.

               (i) Security Expenses. During the Employment Period, the
Company shall pay or promptly reimburse the Founder for (1) all
installation and maintenance costs and monitoring fees relating to security
at the Founder's residences and (2) all expenses relating to personal
security services for the Founder.

               (j) Telephone and Internet Access. During the Employment
Period, the Company shall pay or promptly reimburse the Founder for
customary telephone, computer usage and internet access at her homes for
business use.

               (k) Expense Allowance. The Company shall pay to the Founder
an annual non-accountable expense allowance in the amount of $100,000 per
year, which shall be paid in a lump sum upon the Founder's release from
imprisonment and on each anniversary thereof.

               (l) Talent Compensation. In consideration of the continued
services of the Founder as on-air talent for television and radio programs
of the Company, the Company shall pay to the Founder on the Effective Date
the sum of $200,000. The Company is currently in discussions with a
production company (the "Production Company") to enter into an agreement
(the "Production Agreement") which will provide, among other things, that
the Founder participate in a primetime network television program (the
"Program"). Each edition of the Program will consist of approximately
thirteen episodes. The Company agrees that for each edition of the Program
which features the Founder as on-air talent, the Company shall pay to the
Founder, an amount equal to the greater of (x) $500,000 and (y) two-thirds
(2/3) of all talent fees due to the Company from the Production Company in
respect of such edition, payable within five business days after receipt of
such fees from the Production Company. For any other original network,
cable or syndicated show of the Company produced after the Effective Date
and in which the Founder is the on-air talent ("New Programming"), the
Founder shall be entitled to receive an amount equal to the fair market
value of her talent services, as mutually agreed by the Founder and the
Board, or, if the Founder and the Board are unable to agree upon such fair
market value, by an independent expert selected by mutual agreement between
the Founder and the Board (it being understood that any determination of
fair market value shall take into account the Founder's rights to residual
payments pursuant to the next sentence). In addition, with respect to any
re-run or re-packaging of any New Programming (each, a "Re-run"), the
Founder shall receive an amount equal to ten percent (10%) of the Adjusted
Gross Revenues.

"Adjusted Gross Revenues" means gross revenues of the Company from any
Re-run minus the sum of (i) production costs, (ii) marketing costs and
(iii) distribution costs; provided that if such Re-run includes programming
other than New Programming, the portion of Adjusted Gross Revenues which is
attributable to New Programming shall be determined on a fair and equitable
basis approved by the Founder.

               (m) Equity Awards. The Board shall in its sole discretion
make an annual grant of stock options to Founder.

          6. Termination. The Founder's employment hereunder may be
terminated during the Employment Period under the following circumstances:

               (a) Death. The Founder's employment hereunder shall
terminate upon her death.

               (b) Disability. If, as a result of the Founder's incapacity
due to physical or mental illness as determined by a physician selected by
the Founder, and reasonably acceptable to the Company, (i) the Founder
shall have been substantially unable to perform her duties hereunder for
six consecutive months, or for an aggregate of 180 days during any period
of twelve consecutive months and (ii) within thirty days after written
Notice of Termination is given to the Founder after such six- or
twelve-month period, the Founder shall not have returned to the substantial
performance of her duties on a full-time basis, the Company shall have the
right to terminate the Founder's employment hereunder for "Disability."

               (c) Cause. The Company shall have the right to terminate the
Founder's employment for "Cause." For purposes of this Agreement, the
Company shall have "Cause" to terminate the Founder's employment only upon
the Founder's:

                    (i) willful gross misconduct or conviction of a felony
               after the Effective Date (excluding any conviction after the
               Effective Date that arises out of the circumstances that
               gave rise to the felony conviction of the Founder prior to
               the Effective Date) that, in either case, results in
               material and demonstrable damage to the business or
               reputation of the Company; or

                    (ii) willful and continued failure to perform her
               duties hereunder (other than such failure resulting from the
               Founder's imprisonment or home confinement for conviction of
               a felony prior to the Effective Date or any conviction after
               the Effective Date that arises out of the circumstances that
               gave rise to the felony conviction of the Founder prior to
               the Effective Date, or incapacity due to physical or mental
               illness, legal necessity or after the issuance of a Notice
               of Termination by the Founder for Good Reason) within ten
               business days after the Company delivers to her a written
               demand for performance that specifically identifies the
               actions to be performed.

For purposes of this Section 6(c), no act or failure to act by the Founder
shall be considered "willful" if such act is done by the Founder in the
good faith belief that such act is or was to be beneficial to the Company
or one or more of its businesses, or such failure to act is due to the
Founder's good faith belief that such action would be materially harmful to
the Company or one of its businesses. Cause shall not exist unless and
until the Company has delivered to the Founder a copy of a resolution duly
adopted by a majority of the Board (excluding the Founder for purposes of
determining such majority) at a meeting of the Board called and held for
such purpose after reasonable (but in no event less than thirty days')
notice to the Founder and an opportunity for the Founder, together with her
counsel, to be heard before the Board, finding that in the good faith
opinion of the Board that "Cause" exists, and specifying the particulars
thereof in detail. This Section 6(c) shall not prevent the Founder from
challenging in any court of competent jurisdiction the Board's
determination that Cause exists or that the Founder has failed to cure any
act (or failure to act) that purportedly formed the basis for the Board's
determination.

               (d) Good Reason. The Founder may terminate her employment
for "Good Reason" after giving the Company detailed written notice thereof,
if the Company shall have failed to cure the event or circumstance
constituting "Good Reason" within ten business days after receiving such
notice. Good Reason shall mean the occurrence of any of the following
without the written consent of the Founder:

                    (i) the assignment to the Founder of duties
               inconsistent with this Agreement or a change in her titles
               or authority;

                    (ii) any failure by the Company to comply with Section
               5 hereof in any material way;

                    (iii) the requirement of the Founder to relocate to
               locations other than those provided in Section 4 hereof;

                    (iv) the failure of the Company to comply with and
               satisfy Section 12(a) of this Agreement; or

                    (v) any material breach of this Agreement by the
               Company.

The Founder's right to terminate her employment hereunder for Good Reason
shall not be affected by her incapacity due to physical or mental illness.
The Founder's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any act or failure to act constituting
Good Reason hereunder.

               (e) Without Cause. The Company shall have the right to
terminate the Founder's employment hereunder without Cause by providing the
Founder with a Notice of Termination.

               (f) Without Good Reason. The Founder shall have the right to
terminate her employment hereunder without Good Reason by providing the
Company with a Notice of Termination.

          7. Termination Procedure.

               (a) Notice of Termination. Any termination of the Founder's
employment by the Company or by the Founder during the Employment Period
(other than pursuant to Section 6(a)) shall be communicated by written
Notice of Termination to the other party. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice indicating the specific
termination provision in this Agreement relied upon and setting forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Founder's employment under that provision.

               (b) Date of Termination. "Date of Termination" shall mean
(i) if the Founder's employment is terminated by her death, the date of her
death, (ii) if the Founder's employment is terminated pursuant to Section
6(b), thirty (30) days after the date of receipt of the Notice of
Termination (provided that the Founder does not return to the substantial
performance of her duties on a full-time basis during such thirty (30) day
period), and (iii) if the Founder's employment is terminated for any other
reason, the date on which a Notice of Termination is given or any later
date (within thirty (30) days after the giving of such notice) set forth in
such Notice of Termination.

          8. Compensation upon Termination or During Disability. In the
event the Founder is disabled or her employment terminates during the
Employment Period, the Company shall provide the Founder with the payments
and benefits set forth below. The Founder acknowledges and agrees that the
payments set forth in this Section 8 constitute liquidated damages for
termination of her employment during the Employment Period.

               (a) Termination by Company without Cause or by Founder for
Good Reason. If the Founder's employment is terminated by the Company
without Cause (other than Disability) or by the Founder for Good Reason:

                    (i) the Company shall pay to the Founder, on or before
               the Date of Termination, a lump sum payment equal to the sum
               of (A) Base Salary and accrued vacation pay through the Date
               of Termination, (B) three times the Base Salary and (C) the
               higher of (1) $5,000,000 or (2) three times the highest
               Annual Bonus paid with respect to any fiscal year beginning
               during the Employment Period;

                    (ii) the Company shall continue to provide the Founder
               and her eligible spouse and dependents for a period equal to
               the greater of (A) the remaining term of the Employment
               Period, or (B) three years following the Date of
               Termination, the medical, hospitalization, dental and life
               insurance programs provided for in Section 5(g), as if she
               had remained employed; provided, that if the Founder, her
               spouse or her eligible dependents cannot continue to
               participate in the Company programs providing such benefits,
               the Company shall arrange to provide the Founder and her
               spouse and dependents with the economic equivalent of the
               benefits they otherwise would have been entitled to receive
               under such plans and programs; and provided, further, that
               such benefits shall terminate on the date or dates the
               Founder becomes eligible to receive equivalent coverage and
               benefits under the plans and programs of a subsequent
               employer at an equivalent cost to the Founder (such coverage
               and benefits to be determined on a coverage-by-coverage, or
               benefit-by-benefit, basis);

                    (iii) the Company shall, consistent with past practice,
               reimburse the Founder pursuant to Section 5(e) for business
               expenses incurred but not paid prior to such termination of
               employment;

                    (iv) until the third anniversary of the Date of
               Termination, the Company shall continue to provide the
               Founder with (A) the benefits set forth in Section 5(d)
               hereof and (B) an office and an assistant in each of New
               York, New York and Westport, Connecticut; and

                    (v) the Founder shall be entitled to any other rights,
               compensation and/or benefits as may be due to the Founder in
               accordance with the terms and provisions of any agreements,
               plans or programs of the Company (other than any
               severance-based plan or program).

The payments and benefits provided for as subclause (A) of clause (i) above
and in clause (iii) above are hereinafter referred to as the "Accrued
Obligations."

               (b) Cause or by Founder without Good Reason. If the
Founder's employment is terminated by the Company for Cause or by the
Founder other than for Good Reason, then the Company shall provide the
Founder with her Accrued Obligations and shall have no further obligation
to the Founder hereunder.

               (c) Disability. During any period that the Founder fails to
perform her duties hereunder as a result of incapacity due to physical or
mental illness ("Disability Period"), the Founder shall continue to receive
her full Base Salary set forth in Section 5(a) until her employment is
terminated pursuant to Section 6(b). In the event the Founder's employment
is terminated for Disability pursuant to Section 6(b), the Company shall
provide the Founder with the excess, if any, of her full Base Salary over
the amount of any long-term disability benefits that she receives under the
Company's welfare benefit plans and programs, payable in accordance with
the normal payroll practices of the Company, for the remainder of the
Employment Period and shall have no further obligations to the Founder
hereunder.

               (d) Death. If the Founder's employment is terminated by her
death, the Company shall provide to the Founder's beneficiary, legal
representatives or estate, as the case may be, the Founder's full Base
Salary (less any long-term disability benefits paid to the Founder under
the Company's welfare benefit plans and programs), payable in accordance
with the normal payroll practices of the Company, for a period equal to the
remaining term of the Employment Period and shall have no further
obligations hereunder.

               (e) Mitigation. The Founder shall not be required to
mitigate damages with respect to the termination of her employment under
this Agreement by seeking other employment or otherwise, and there shall be
no offset against amounts due the Founder under this Agreement on account
of subsequent employment except as specifically provided in this Section 8.
Additionally, amounts owed to the Founder under this Agreement shall not be
offset by any claims the Company may have against the Founder, and the
Company's obligation to make the payments provided for in this Agreement,
and otherwise to perform its obligations hereunder, shall not be affected
by any other circumstances, including, without limitation, any
counterclaim, recoupment, defense or other right which the Company may have
against the Founder or others.

          9. Confidential Information; Noncompetition; Nonsolicitation;
Nondisparagement.

               (a) Confidential Information. Except as may be required or
appropriate in connection with her carrying out her duties under this
Agreement, the Founder shall not, without the prior written consent of the
Company or as may otherwise be required by law or any legal process, or as
is necessary in connection with any adversarial proceeding against the
Company (in which case the Founder shall cooperate with the Company in
obtaining a protective order at the Company's expense against disclosure by
a court of competent jurisdiction), communicate, to anyone other than the
Company and those designated by the Company or on behalf of the Company in
the furtherance of its business or to perform her duties hereunder, any
trade secrets, confidential information, knowledge or data relating to the
Company, its affiliates or any businesses or investments of the Company or
its affiliates, obtained by the Founder during the Founder's employment by
the Company and MSLO LLC that is not generally available public knowledge
(other than by acts by the Founder in violation of this Agreement.)

               (b) Noncompetition. During the Employment Period and until
the 12-month anniversary of the Founder's Date of Termination if the
Founder's employment is terminated by the Company for Cause or the Founder
terminates employment without Good Reason, the Founder shall not engage in
or become associated with any Competitive Activity. For purposes of this
Section 9(b), a "Competitive Activity" shall mean any business or other
endeavor that engages in any country in which the Company has significant
business operations to a significant degree in a business that directly
competes with all or any substantial part of any of the Company's
businesses of (i) producing television and other video programs, (ii)
designing, developing, licensing, promoting and selling merchandise through
catalogs, direct marketing, Internet commerce and retail stores of the
product categories in which the Company so participates using the Founder's
name, likeness, image, or voice to promote or market any such product or
service, (iii) the creation, publication or distribution of regular or
special issues of magazines, and (iv) any other business in which the
Company is engaged during the term of this Agreement (the activities
described in clauses (i) through (iv), in each case determined as of the
date of the action alleged to be Competitive Activity, (the "Businesses");
provided, that, a Competitive Activity shall not include (i) any speaking
engagement to the extent such speaking engagement does not promote or
endorse a product or service which is competitive with any product or
service of the Company, (ii) the writing of any book or article relating to
subjects other than the Businesses (e.g., nonfiction relating to the
Founder's career or general business advice) or (iii) the television, video
or music business so long as such activity does not relate to the
Businesses. The Founder shall be considered to have become "associated with
a Competitive Activity" if she becomes involved as an owner, employee,
officer, director, independent contractor, agent, partner, advisor, or in
any other capacity calling for the rendition of the Founder's personal
services, with any individual, partnership, corporation or other
organization that is engaged in a Competitive Activity and her involvement
relates to a significant extent to the Competitive Activity of such entity;
provided, however, that the Founder shall not be prohibited from (a) owning
less than one percent (1%) of any publicly traded corporation, whether or
not such corporation is in competition with the Company or (b) serving as a
director of a corporation or other entity the primary business of which is
not a Competitive Activity. If, at any time, the provisions of this Section
9(b) shall be determined to be invalid or unenforceable, by reason of being
vague or unreasonable as to area, duration or scope of activity, this
Section 9(b) shall be considered divisible and shall become and be
immediately amended to only such area, duration and scope of activity as
shall be determined to be reasonable and enforceable by the court or other
body having jurisdiction over the matter; and the Founder agrees that this
Section 9(b) as so amended shall be valid and binding as though any invalid
or unenforceable provision had not been included herein.

               (c) Nonsolicitation. During the Employment Period, and for
12 months after the Founder's Date of Termination if the Founder's
employment is terminated by the Company for Cause or the Founder terminates
employment without Good Reason, the Founder will not, directly or
indirectly, (1) solicit for employment by other than the Company any person
(other than any personal secretary or assistant hired to work directly for
the Founder) employed by the Company or its affiliated companies as of the
Date of Termination, (2) solicit for employment by other than the Company
any person known by the Founder (after reasonable inquiry) to be employed
at the time by the Company or its affiliated companies as of the date of
the solicitation or (3) solicit any customer or other person with a
business relationship with the Company or any of its affiliated companies
to terminate, curtail or otherwise limit such business relationship.

               (d) Injunctive Relief. In the event of a breach or
threatened breach of this Section 9, the Founder agrees that the Company
shall be entitled to injunctive relief in a court of appropriate
jurisdiction to remedy any such breach or threatened breach, the Founder
acknowledging that damages would be inadequate and insufficient.

          10. Indemnification.

               (a) General. The Company agrees that if the Founder is made
a party or is threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that the Founder is or was a trustee,
director or officer of the Company, MSLO LLC, or any predecessor to MSLO
LLC (including any sole proprietorship owned by the Founder) or any of
their affiliates or is or was serving at the request of the Company, MSLO
LLC, any predecessor to MSLO LLC (including any proprietorship owned by the
Founder), or any of their affiliates as a trustee, director, officer,
member, employee or agent of another corporation or a partnership, joint
venture, limited liability company, trust or other enterprise, including,
without limitation, service with respect to employee benefit plans, whether
or not the basis of such Proceeding is alleged action in an official
capacity as a trustee, director, officer, member, employee or agent while
serving as a trustee, director, officer, member, employee or agent, the
Founder shall be indemnified and held harmless by the Company to the
fullest extent authorized by Delaware law, as the same exists or may
hereafter be amended, against all Expenses incurred or suffered by the
Founder in connection therewith, and such indemnification shall continue as
to the Founder even if the Founder has ceased to be an officer, director,
trustee or agent, or is no longer employed by the Company and shall inure
to the benefit of her heirs, executors and administrators. In addition, the
Company shall indemnify and hold harmless the Founder from any and all
Expenses incurred or suffered by the Founder in connection with any claim
for indemnification under clause (bb) of paragraph 11 (a) of the Production
Agreement.

               (b) Expenses. As used in this Agreement, the term "Expenses"
shall include, without limitation, damages, losses, judgments, liabilities,
fines, penalties, excise taxes, settlements, and costs, attorneys' fees,
accountants' fees, and disbursements and costs of attachment or similar
bonds, investigations, and any expenses of establishing a right to
indemnification under this Agreement.

               (c) Enforcement. If a claim or request under this Section 10
is not paid by the Company or on its behalf, within thirty (30) days after
a written claim or request has been received by the Company, the Founder
may at any time thereafter bring suit against the Company to recover the
unpaid amount of the claim or request and if successful in whole or in
part, the Founder shall be entitled to be paid also the expenses of
prosecuting such suit. All obligations for indemnification hereunder shall
be subject to, and paid in accordance with, applicable Delaware law.

               (d) Partial Indemnification. If the Founder is entitled
under any provision of this Agreement to indemnification by the Company for
some or a portion of any Expenses, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify the Founder for the
portion of such Expenses to which the Founder is entitled.

               (e) Advance of Expenses. Expenses incurred by the Founder in
connection with any Proceeding shall be paid by the Company in advance upon
request of the Founder that the Company pay such Expenses, but only in the
event that the Founder shall have delivered in writing to the Company (i)
an undertaking to reimburse the Company for Expenses with respect to which
the Founder is not entitled to indemnification and (ii) a statement of her
good faith belief that the standard of conduct necessary for
indemnification by the Company has been met.

               (f) Notice of Claim. The Founder shall give to the Company
notice of any claim made against her for which indemnification will or
could be sought under this Agreement. In addition, the Founder shall give
the Company such information and cooperation as it may reasonably require
and as shall be within the Founder's power and at such times and places as
are convenient for the Founder.

               (g) Defense of Claim. With respect to any Proceeding as to
which the Founder notifies the Company of the commencement thereof:

                    (i) The Company will be entitled to participate therein
     at its own expense;

                    (ii) Except as otherwise provided below, to the extent
     that it may wish, the Company will be entitled to assume the defense
     thereof, with counsel reasonably satisfactory to the Founder, which in
     the Company's sole discretion may be regular counsel to the Company
     and may be counsel to other officers and directors of the Company or
     any subsidiary. The Founder also shall have the right to employ her
     own counsel in such action, suit or proceeding if she reasonably
     concludes that failure to do so would involve a conflict of interest
     between the Company and the Founder, and under such circumstances the
     fees and expenses of such counsel shall be at the expense of the
     Company.

                    (iii) The Company shall not be liable to indemnify the
     Founder under this Agreement for any amounts paid in settlement of any
     action or claim effected without its written consent. The Company
     shall not settle any action or claim in any manner which would impose
     any penalty that would not be paid directly or indirectly by the
     Company or limitation on the Founder without the Founder's written
     consent. Neither the Company nor the Founder will unreasonably
     withhold or delay their consent to any proposed settlement.

               (h) Non-Exclusivity. The right to indemnification and the
payment of expenses incurred in defending a Proceeding in advance of its
final disposition conferred in this Section 10 shall not be exclusive of
any other right which the Founder may have or hereafter may acquire under
any statute or certificate of incorporation or by-laws of the Company or
any subsidiary, agreement, vote of shareholders or disinterested directors
or trustees or otherwise.

          11. Legal Fees and Expenses. If any contest or dispute shall
arise between the Company and the Founder regarding any provision of this
Agreement, the Company shall reimburse the Founder for all legal fees and
expenses reasonably incurred by the Founder in connection with such contest
or dispute, but only if the Founder prevails to a substantial extent with
respect to the Founder's claims brought and pursued in connection with such
contest or dispute. Such reimbursement shall be made as soon as practicable
following the resolution of such contest or dispute (whether or not
appealed) to the extent the Company receives written evidence of such fees
and expenses. In addition to the foregoing, the Company shall reimburse the
Founder for all reasonable legal fees and expenses incurred in connection
with the negotiation and execution of this Agreement.

          12. Successors; Binding Agreement.

               (a) Company's Successors. No rights or obligations of the
Company under this Agreement may be assigned or transferred, except that
the Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall include any successor to
its business and/or assets (by merger, purchase or otherwise) which
executes and delivers the agreement provided for in this Section 12 or
which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.

               (b) Founder's Successors. No rights or obligations of the
Founder under this Agreement may be assigned or transferred by the Founder
other than her rights to payments or benefits hereunder, which may be
transferred only by will or the laws of descent and distribution. Upon the
Founder's death, this Agreement and all rights of the Founder hereunder
shall inure to the benefit of and be enforceable by the Founder's
beneficiary or beneficiaries, personal or legal representatives, or estate,
to the extent any such person succeeds to the Founder's interests under
this Agreement. If the Founder should die following her Date of Termination
while any amounts would still be payable to her hereunder if she had
continued to live, all such amounts unless otherwise provided herein shall
be paid in accordance with the terms of this Agreement to such person or
persons so appointed in writing by the Founder, or otherwise to her legal
representatives or estate.

          13. Notice. For the purposes of this Agreement, notices, demands
and all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered either
personally or by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:

                  If to the Founder:

                  At her residence address most recently filed with the Company.

                  If to the Company:

                  Martha Stewart Living Omnimedia, Inc.
                  11 West 42nd Street
                  New York, NY 10036
                  Attention:  General Counsel
                  Tel: (212) 827-8036
                  Fax: (212) 827-8188

or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.

          14. Miscellaneous. No provisions of this Agreement may be
amended, modified, or waived unless such amendment or modification is
agreed to in writing signed by the Founder and by a duly authorized officer
of the Company, and such waiver is set forth in writing and signed by the
party to be charged. No waiver by either party hereto at any time of any
breach by the other party hereto of any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been
made by either party which are not set forth expressly in this Agreement.
The respective rights and obligations of the parties hereunder of this
Agreement shall survive the Founder's termination of employment and the
termination of this Agreement to the extent necessary for the intended
preservation of such rights and obligations. Except or otherwise provided
in Section 10 hereof, the validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
New York without regard to its conflicts of law principles.

          15. Validity. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain
in full force and effect.

          16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.

          17. Entire Agreement. This Agreement and the Intellectual
Property License and Preservation Agreement, dated as of October 22, 1999,
as amended, set forth the entire agreement of the parties hereto in respect
of the subject matter contained herein and supersede all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or
representative of any party hereto in respect of such subject matter
including, without limitation, the Prior Employment Agreement. The parties
agree that the Prior Employment Agreement has been terminated effective as
of 11.59 PM on the day immediately preceding the Effective Date.

          18. Withholding. All payments hereunder shall be subject to any
required withholding of Federal, state and local taxes pursuant to any
applicable law or regulation.

          19. Section Headings. The section headings in this Employment
Agreement are for convenience of reference only, and they form no part of
this Agreement and shall not affect its interpretation.

<PAGE>

          IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.

                                       MARTHA STEWART LIVING OMNIMEDIA, INC.

                                       By:  /s/ Sharon L. Patrick
                                          --------------------------------------
                                          Sharon L. Patrick
                                          President and Chief Executive Officer

                                            /s/ Martha Stewart
                                          --------------------------------------
                                          Martha Stewart

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