Despite Stewart's recent legal woes, the amended contract extends the partnership with Kmart by two years, until 2009, and expands it to cover new product categories, the companies said in a joint statement.
In a lawsuit filed in February in bankruptcy court, Kmart had accused Martha Stewart Living Omnimedia Inc. of overcharging it for the exclusive rights to sell house wares and other products under the Martha Stewart Everyday label.
The amended contract keeps a minimum guaranteed payment for overall sales, but eliminates minimum payments in each product category, which was the source of the conflict.
Stewart was convicted March 5 of lying to investigators, conspiracy and obstruction of justice, all related to her sale of ImClone Systems stock in 2001, just before it nose-dived.
At her sentencing in June, legal experts expect her to get 10 to 16 months in prison. Stewart's attorneys are seeking a new trial.
Her conviction does not appear to have hurt the partnership with Kmart.
"We are pleased to have extended and deepened our relationship with Martha Stewart Living Omnimedia," Kmart chief executive Julian Day said in a statement. "MSO is an extremely valued brand partner, and we look forward to continuing that relationship on terms that best benefit both companies."
Sharon Patrick, chief executive of Martha Stewart Living, called the agreement "an exciting development."
Troy-based Kmart, which emerged from bankruptcy in May, has staked its recovery in large part on the success of the Martha Stewart Everyday brand, which continues to symbolize high quality for many customers.
Stewart resigned last month from the board of her company and stepped down as chief creative officer. She took the new position of founding editorial director.
She had resigned as chairman and CEO last June after being indicted. Patrick, the company's president and chief operating officer, replaced Stewart as CEO at that time.