Updated from 2:06 p.m. EST

Perhaps conceding to the inevitable, Martha Stewart resigned as an officer and director of her namesake company little more than a week after she was convicted of lying to prosecutors and obstructing their probe into a private stock sale.

However, the disgraced domestic diva will retain a role at Martha Stewart Living Omnimedia ( MSO), assuming the newly created post of "founding editorial director" with the company.

The arrangement is a compromise that balances the company's need to distance itself from a founder who could well do prison time with her role as its largest stockholder. Martha Stewart Living said a committee of the board, with Stewart's input, will nominate "a qualified person" as her replacement as director.

"I am taking this action today because it is in the best interests of MSO and because I think it's the right thing to do," Stewart said in a statement. "I am heartsick about my personal legal situation -- and deeply sorry for the pain and difficulties it has caused our employees."

The market seemed to have little confidence that Stewart's resignations would improve the company's outlook. In recent trading, shares of Martha Stewart Living were off 27 cents, or 2.6%, to $10.06.

"This won't have any impact on whether the company works or not," said Dennis McAlpine, who covers Martha Stewart Living as the managing partner of McAlpine Associates. "The real question for the company is will advertisers come back or will they even stay, the ones that are still left. I don't think a lot of them will come back, and I think we'll see more leave."

McAlpine doesn't have a position in Martha Stewart Living shares and McAlpine Associates doesn't have any investment banking business with the company.

Martha Stewart Living has struggled since June 2002, when investigators first revealed that Stewart had sold about 4,000 shares of ImClone Systems ( IMCL) in December 2001, a day before a regulatory setback sent the drug company's stock plummeting. Prosecutors believe that Stewart, a friend of former ImClone CEO Sam Waksal, acted on insider information.

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