Sources: Martha to Quit Board Monday

Martha Stewart will fall on her sword Monday, telling devastated directors of the company she created that she knows she must quit the board, sources close to the convicted good-living guru told The Post.

She will either resign at the crisis meeting scheduled today in Manhattan, or tell her five board colleagues she won't stand for re-election when her term is up in May.

Stewart would have faced extreme heat to step down from board Chairman Jeffrey Ubben (search), who has felt "burned" by the diva's indictment last summer, sources close to the company said.

Ubben — the second-biggest investor in Martha Stewart Living Omnimedia (MSO) — bought more than $60 million in shares in the media empire weeks after Stewart sold ImClone Systems (IMCL) shares on a secret tip in December 2001, but before news of the scandal became public.

Since then, Ubben's investment group, ValueAct Capital, has lost almost 30 percent — or $18 million — of its investment.

The San Francisco-based money manager "thinks it's time to take more control — he was burned by this," said a source close to him.

Stewart knows "it's a foregone conclusion she won't be on the board," but she is determined to remain in a creative capacity at the company, a source who spoke to her yesterday said.

That stance could put her at odds with some board members today.

Stewart, who is facing at least a year in prison, was in contact with her company lieutenant, CEO and board director Sharon Patrick (search), planning a strategy to give her company a chance for survival.

She is likely to leave the boardroom for part of the meeting, to allow her colleagues to discuss her future openly, a source said.

For the company to survive, many analysts believe it must completely separate itself from Stewart "as fast as they can change the stationery," Robert Passikoff, president of consumer researcher Brand Keys, told The Post.

But despite her courtroom whipping, Stewart still retains veto power over the board through her ownership of the company's private "B shares."

She could refuse to follow the board's recommendations, or even replace it completely.

The corporate steamroller could also buy out the outstanding public shares and turn Martha Stewart Living Omnimedia into a private company — which she could either liquidate or bequeath to her daughter, Alexis.

Alexis Stewart (search), 38, who once had a frosty relationship with her mother, attended every day of her supercharged trial and remained by her side yesterday at their estate in Connecticut's Turkey Hill.

Ubben, 42, took over as chairman of Stewart's company board in June, after she was indicted on five federal charges stemming from her ImClone stock sale.

He declined to comment yesterday, saying he was "busy working."

Stewart's company executives said in a conference call last week that there were "contingency plans" in the event she was found guilty.

Since the scandal erupted, advertisers have fled her magazine titles. The company lost $2.8 million last year, its first annual loss since going public in 1999, and is expected to lose $16 million this quarter. The stock faces further pressure today and is likely to slip well under $10.