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                                                                    EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT

      THIS AGREEMENT, made and entered into as of October 18, 2004 (the
"Effective Date"), by and among Kmart Management Corporation, a Michigan
corporation (together with its successors and assigns permitted under this
Agreement, the "Company"), and Aylwin Lewis (the "Executive") and, for the
purposes set forth in Section 21 below, Kmart Holding Corporation, a Delaware
corporation and the Company's parent corporation ("Holding Corp.").

      WHEREAS, the Company desires that the Executive become employed by the
Company and provide services to the Company and Holding Corp., in the best
interest of the Company and its affiliates and constituencies;

      WHEREAS, the Executive desires to be employed by the Company as provided
herein; and

      WHEREAS, the Executive and the Company desire to enter into this Agreement
to set forth the terms and conditions of the Executive's services to the Company
and Holding Corp.;

      NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company, Holding Corp. and the Executive
agree as follows:

      1. Definitions. The following definitions shall apply to this Agreement in
its entirety.

            (a) "Base Salary" shall mean the salary granted to the Executive
pursuant to Section 4.

            (b) "Board" shall mean the Board of Directors of the Company.

            (c) "Cause" shall mean (i) the Executive's commission of a felony,
(ii) the Executive's willful neglect or willful misconduct in carrying out his
duties under this Agreement, or (iii) other willful gross misconduct by the
Executive that the Board determines in good faith has resulted, or is likely to
result, in material harm to the business or reputation of the Company or any of
its affiliates.

            (d) "Committee" shall mean the Compensation Committee of the Holding
Corp. Board or any other committee of the Holding Corp. Board performing similar
functions.

            (e) "Constructive Termination" by the Executive shall mean the
Executive's voluntary termination of his employment, during the Term of
Employment, in accordance with the procedures set forth in Section 12(d)(i) and
based on any action by the Company, the Board or the Holding Corp. Board that,
without the Executive's express written consent, results in any of the
following: (i) the Executive's ceasing to hold the titles of Chief Executive
Officer of the Company and of Holding Corp., other than as permitted by Section
3(b) or as a result of his death or Disability or a termination of his
employment for Cause; (ii) a diminution or adverse change in the Executive's
responsibilities, duties, authorities, that in either case is material, other
than as permitted by Section 3(b) or as a result of his death or Disability or a
termination of his employment for Cause; (ii) a reduction in the Executive's
Base Salary or Target Bonus (as de-

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fined in Section 7), other than as a result of his death or Disability or a
termination of his employment for Cause; or (iii) the failure of the Company to
comply with the third sentence of Section 15. Notwithstanding the foregoing, any
action by the Board taken pursuant to Section 12(c)(i) shall not be deemed to
constitute Constructive Termination, provided that, if such actions do not
result in a termination of the Executive's employment for Cause, they are
reversed promptly following completion of the procedures set forth in Section
12(c)(i).

            (f) "Disability" shall mean the Executive's inability, with or
without a reasonable accommodation, to substantially perform his duties and
responsibilities under this Agreement for a period of 180 consecutive days, or
for an aggregate of 180 days out of any period of 365 consecutive days, by
reason of any physical or mental incapacity.

            (g) "Fair Market Value" as of a given date shall mean the average of
the highest and lowest per-share sales prices for a share of Common Stock on
Nasdaq during normal business hours on such date, or if such date was not a
trading day, on the most recent preceding day that was a trading day.

            (h) "Fiscal Year" shall mean a fiscal year of the Company,
designated by reference to the calendar year in which such fiscal year begins,
but determined based upon the Company's schedule of fiscal years as in effect on
the Effective Date, without regard to any subsequent change thereto (for
example, Fiscal Year 2004 shall mean the Company's fiscal year that began on
January 29, 2004).

            (i) "Holding Corp. Board" shall mean the board of directors of
Holding Corp.

            (j) "Party" shall mean the Company, Holding Corp. or the Executive,
and "Parties" shall mean all of them.

      2. Term of Employment. The Company shall employ the Executive, and the
Executive hereby accepts such employment, for the period commencing on the
Effective Date and ending on the fifth anniversary thereof (the "Term of
Employment"), subject to termination of the Executive's employment pursuant to
Section 12.

      3. Position, Duties and Responsibilities.

            (a) During the Term of Employment, the Executive shall be employed
by the Company and shall serve as Chief Executive Officer of the Company, and
the senior vice presidents of the Company and Holding Corp. shall report
directly or indirectly to the Executive. The Executive shall also be appointed,
effective as of the Effective Date, as a member of the Holding Corp. Board.

            (b) In addition, during the Term of Employment, the Executive shall
serve as Chief Executive Officer of Holding Corp., unless the Holding Corp.
Board appoints the individual who is, as of the Effective Date, serving as its
Chairman as Chief Executive Officer of Holding Corp., in which event the
Executive shall report directly to such individual in such capacity.
Furthermore, during the Term of Employment, the Executive shall serve as
President of Holding Corp. and President of the Company, unless another
individual is appointed to either such position, in which event such individual
shall report to the Executive.

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            (c) The Executive shall devote substantially all of his business
time, attention and skill to the performance of his duties and responsibilities
pursuant to Section 3(a), and shall use his best efforts to promote the
interests of the Company and its affiliates. The Executive shall not, without
the prior written approval of the Holding Corp. Board, engage in any other
business activity which is in violation of policies established from time to
time by the Company or its affiliates.

            (d) Anything herein to the contrary notwithstanding, nothing shall
preclude the Executive from (i) serving on the boards of directors of a
reasonable number of other corporations or the boards of a reasonable number of
trade associations and/or charitable organizations (subject in each case to the
reasonable approval of the Holding Corp. Board), (ii) engaging in charitable
activities and community affairs, and (iii) managing his personal investments
and affairs, provided that such activities do not materially interfere with the
proper performance of his duties and responsibilities to the Company and Holding
Corp.

      4. Base Salary. During the Term of Employment, the Executive shall be paid
a Base Salary, payable in accordance with the regular payroll practices of the
Company, in an annual amount of not less than $1,000,000.

      5. Annual Bonuses. For each Fiscal Year that ends during the Term of
Employment, the Executive shall be eligible for an annual bonus (the "Annual
Bonus"), the target amount of which (the "Target Bonus") shall equal 100% of his
then-current Base Salary under the annual cash-based incentive program of the
Company (or its affiliate, if applicable), payable if and to the extent that the
performance goals thereunder for the relevant Fiscal Year are met. Payment of
the Annual Bonus shall be made at the same time that other senior-level
executives receive their incentive awards. The actual Annual Bonus, if any,
earned by the Executive for Fiscal Year 2004 shall be based upon the Company's
performance for the portion of Fiscal Year 2004 beginning on October 1, 2004
against the Fiscal Year 2004 plan, and shall be subject to pro-ration by reason
of the Executive's not having been employed by the Company for the entire Fiscal
Year.

      6. Option Grant. As an inducement material to the Executive's agreement to
enter into employment with the Company, as of the Effective Date, the Executive
shall receive a grant of non-qualified stock options to acquire 150,000 shares
of the common stock, par value $0.01 per share, of Holding Corp. (the "Common
Stock"), having a per-share exercise price equal to the Fair Market Value on the
Effective Date (such options being referred to as the "Options"). The Options
shall have a term of ten years from the date of grant, and shall become vested
and exercisable in four equal installments on the last day of the Company's
2005, 2006, 2007 and 2008 Fiscal Years, conditioned upon the Executive's
continued employment with the Company through the relevant vesting date and
subject to Section 8. Notwithstanding the foregoing, in the event the
Executive's employment is terminated during the Term of Employment (i) by the
Company without Cause (other than due to Disability or death) or (ii) by reason
of a Constructive Termination, any installment of the Options that would have
vested on or before the first anniversary of the date of termination (but in any
event, not less than one additional installment), had the Executive remained
employed, shall vest on the date of termination, and all vested Options shall
remain exercisable until the second anniversary of the date of termination.

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      7. Restricted Stock Grant. As an inducement material to the Executive's
agreement to enter into employment with the Company, as soon as practicable
after the Effective Date, the Executive shall receive a grant of restricted
Common Stock having a Fair Market Value of $4,500,000 on the Effective Date (the
"Restricted Stock"), which Restricted Stock may not be sold, pledged or
otherwise transferred unless and until the Restricted Stock becomes vested, in
accordance with the provisions of this Section 7. The Restricted Stock shall be
eligible to become vested in four installments (each, an Installment), as set
forth below, with each of the first three Installments consisting of a portion
of the Restricted Stock that had a fair market value on the Effective Date of $1
million, rounded to the nearest whole number of shares, and the final such
Installment representing the remainder of the Restricted Stock. Each Installment
shall vest as of the later of (a) the last day of the first Fiscal Year, of
Fiscal Years 2005 through 2008, during which the Performance Goal is met and (b)
in the case of the first Installment, the last day of Fiscal Year 2005; in the
case of the second Installment, the last day of Fiscal Year 2006; in the case of
the third Installment, the last day of Fiscal Year 2007; and in the case of the
final Installment, the last day of Fiscal Year 2008; conditioned, in each case,
on the Executive's continued employment with the Company as of the relevant
vesting date and subject to Section 8. If the Restricted Stock does not vest on
or before the last day of Fiscal Year 2008, it shall thereupon be forfeited. The
"Performance Goal" will be considered to have been met if, for any of Fiscal
Years 2005 through 2008, either the Company's earnings before interest, taxes,
depreciation and amortization, as reported in its audited financial statements
for such Fiscal Year ("EBITDA"), equals or exceeds $100 million, or the Company
realizes gross proceeds from sales of real estate equal to or greater than $50
million. Notwithstanding the foregoing, in the event the Executive's employment
is terminated during the Employment Term (i) by the Company without Cause, (ii)
as a result of his Disability or death, or (iii) by the Executive in a
Constructive Termination, any Installments of the Restricted Stock that have not
yet vested shall vest as of the date of termination.

      8. Conditions to Grant of Options and Restricted Stock. The vesting of the
Options and the Restricted Stock shall also be subject to the approval by
Holding Corp.'s shareholders, in a manner satisfying the requirements of Section
162(m)(4)(C) of the Internal Revenue Code of 1986, as amended (the "Code"), of a
plan under which such grants are made, or of the grants themselves, and of the
Performance Goal set forth above for vesting of the Restricted Stock. Holding
Corp. agrees to seek such approval at its next annual meeting of shareholders.
To the extent that such approval is not obtained, the Options and Restricted
Stock shall be forfeited. In addition, in the event that, before the Options
and/or the Restricted Stock are granted or before the grant thereof is fully
documented, there occurs a stock dividend, stock split, reverse stock split,
share combination, or recapitalization or similar event affecting the Common
Stock, the number of shares of Common Stock to be subject to the Options and/or
Restricted Stock upon grant shall be adjusted, to the extent and in the manner
determined by the Committee to be equitable and appropriate; it being understood
that similar adjustments for such events occurring after the grants are made and
fully documented will be set forth in the documentation thereof.

      9. Other Incentive Plans. It is understood and agreed that the incentive
compensation provided for in Sections 5 through 8 above shall be the only
equity-based or other incentive compensation provided to the Executive during
the Term of Employment, unless and to the extent the Committee in its sole
discretion determines otherwise. Without limiting the generality of

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the foregoing, it is not expected that the Executive will participate in the
Kmart Long Term Incentive Plan during the Term of Employment.

      10. Employee Benefit Programs. During the Term of Employment, the
Executive shall be eligible to participate in all employee pension and welfare
benefit plans and programs made available generally to the Company's
senior-level executives or to its employees generally (on terms consistent,
respectively, with those offered to the Company's other senior-level executives
and/or its employees generally), as such plans or programs may be in effect from
time to time, including, without limitation, pension, profit sharing, savings
and other retirement plans or programs, medical, dental, hospitalization,
short-term and long-term disability and life insurance plans, accidental death
and dismemberment protection, travel accident insurance, and any other pension
or retirement plans or programs and any other employee welfare benefit plans or
programs that may be sponsored by the Company from time to time, including any
plans that supplement the above-listed types of plans or programs, whether
funded or unfunded.

      11. Reimbursement of Business and Other Expenses: Perquisites; Vacations.

            (a) The Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement and the
Company shall promptly reimburse him for all reasonable business expenses
incurred in connection with carrying out the business of the Company and its
affiliates, subject to documentation in accordance with the Company's policy.

            (b) During the Term of Employment, the Executive shall receive the
perquisites that are made available generally to the Company's senior-level
executives or to its employees generally (on terms consistent, respectively,
with those offered to the Company's other senior-level executives and/or its
employees generally), as in effect from time to time.

            (c) Vacation. During the Term of Employment, the Executive shall be
entitled to four weeks' paid vacation per year, to be taken in accordance with
the Company's vacation policy as in effect from time to time for its senior
executives.

            (d) Relocation Expenses. The Executive shall be entitled to
relocation benefits in connection with the relocation of the Executive and his
family as a result of his commencement of employment hereunder, in accordance
with the Company's relocation policy. In addition, if the Executive makes good
faith efforts to sell his current residence for at least three months and is
unable, within such time, to reach a definitive agreement to sell such residence
at a price not less than the Appraised Value (as defined in the next sentence),
then the Executive may offer to sell such residence to the Company, in which
case the Company shall purchase it, or cause it to be purchased by a third
party, for the Appraised Value. The "Appraised Value" shall mean the fair market
value of such residence, determined by an expert appraiser selected by mutual
agreement of the Executive and the Company.

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      12. Termination of Employment.

            (a) Termination Due to Death. In the event the Executive's
employment is terminated due to his death, his estate or his beneficiaries, as
the case may be, shall be entitled to the following:

                  (i) Base Salary through the date of death;

                  (ii) an amount equal to a prorated Annual Bonus for the Fiscal
      Year in which death occurs, based on the actual performance for such
      Fiscal Year, the amount of which prorated Annual Bonus, if any, shall be
      determined and paid promptly following the end of the Fiscal Year to which
      such Annual Bonus relates;

                  (iii) any amounts earned, accrued or owing to the Executive
      but not yet paid under this Agreement; and

                  (iv) other or additional benefits, if any, in accordance with
      applicable plans and programs of the Company or its affiliates.

            (b) Termination Due to Disability.

                  (i) A termination of the Executive's employment for Disability
      shall be effected by the Executive's giving written notice thereof to the
      Company, or vice versa, in either case in accordance with Section 19
      below.

                  (ii) In the event the Executive's employment is terminated due
      to his Disability, the Executive shall be entitled to the following:

                        (A) Base Salary through the date of termination;

                        (B) through the Company's long-term disability plans or
      otherwise, an amount equal to 60% of the Base Salary for the period
      beginning on the date of termination through the Executive's attainment of
      age 65;

                        (C) an amount equal to a prorated Annual Bonus for the
      Fiscal Year in which termination due to Disability occurs, based on the
      actual performance for such Fiscal Year, the amount of which prorated
      Annual Bonus, if any, shall be determined and paid promptly following the
      end of the Fiscal Year to which such Annual Bonus relates;

                        (D) any amounts earned, accrued or owing to the
      Executive but not yet paid under this Agreement; and

                        (E) other or additional benefits, if any, in accordance
      with applicable plans and programs of the Company or its affiliates.

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            (c) Termination by the Company for Cause.

                  (i) A termination of the Executive's employment by the Company
      shall not be considered to be for Cause unless the provisions of this
      Section 12(c)(i) are complied with. The Executive shall be given written
      notice by the Holding Corp. Board of the intention to terminate him for
      Cause, such notice (A) to state in detail the particular act or acts or
      failure or failures to act that constitute the grounds on which the
      proposed termination for Cause is based and (B) to be given within six
      months of the Holding Corp. Board learning of such act or acts or failure
      or failures to act. The Executive shall have 10 days after the date that
      such written notice has been given to the Executive in which to cure such
      conduct, to the extent such cure is possible. The Executive shall also be
      entitled to a hearing before the Holding Corp. Board, to be held within 15
      days of notice to the Company by the Executive, provided he requests such
      hearing within 10 days of the written notice from the Holding Corp. Board
      of the intention to terminate his employment for Cause. Notwithstanding
      the foregoing procedures, the Holding Corp. Board shall have the right to
      suspend or terminate the Executive's employment at any time upon or after
      giving the written notice described above, regardless of whether the
      Executive's opportunity to cure has expired and regardless of whether or
      not any such hearing has been requested or held, without prejudice to the
      question of whether Cause exists, and without having been deemed to have
      breached this Agreement.

                  (ii) In the event the Company terminates the Executive's
      employment for Cause, the Executive shall be entitled to:

                        (A) Base Salary through the date of the termination of
      his employment;

                        (B) an amount equal to a prorated Annual Bonus for the
      Fiscal Year in which such termination occurs, based on the actual
      performance for such Fiscal Year, the amount of which prorated Annual
      Bonus, if any, shall be determined and paid promptly following the end of
      the Fiscal Year to which such Annual Bonus relates;

                        (C) any amounts earned, accrued or owing to the
      Executive but not yet paid under this Agreement; and

                        (D) other or additional benefits, in any, in accordance
      with applicable plans or programs of the Company or its affiliates;

            (d) Termination Without Cause; Constructive Termination.

                  (i) A Constructive Termination shall not take effect unless
      the provisions of this Section 12(d)(i) are complied with. The Company
      shall be given written notice by the Executive of the intention to
      terminate his employment on account of a Constructive Termination, such
      notice (A) to state in detail the particular act or acts or failure or
      failures to act that constitute the grounds on which the proposed
      Constructive Termination is based and (B) to be given within six months of
      the Executive learning of such act or acts or failure or failures to act.
      The Company shall have 30 days after the date that such written notice has
      been given to the Company in which to cure such conduct. If such conduct
      is not cured within that period, the Executive may then

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      terminate his employment by reason of Constructive Termination.

                  (ii) In the event the Executive's employment is terminated (1)
      by the Company without Cause (other than due to Disability or death) or
      (2) by reason of a Constructive Termination, the Executive shall be
      entitled to:

                        (A) Base Salary through the date of termination of the
      Executive's employment;

                        (B) Base Salary, at the rate in effect on the date of
      termination of the Executive's employment (or in the event a reduction in
      Base Salary is the basis for a Constructive Termination, then at the rate
      in effect immediately prior to such reduction), payable for a period (the
      "Severance Period") from the date of termination through the later of (i)
      the third anniversary of the date of termination or, if sooner, the last
      day of the Employment Term, and (ii) the first anniversary of the date of
      termination;

                        (C) an amount equal to a prorated Annual Bonus for the
      Fiscal Year in which such termination occurs, based on the actual
      performance for such Fiscal Year, the amount of which prorated Annual
      Bonus, if any, shall be determined and paid promptly following the end of
      the Fiscal Year to which such Annual Bonus relates;

                        (D) any amounts earned, accrued or owing to the
      Executive but not yet paid under this Agreement;

                        (E) continued participation during the Severance Period
      in medical, dental, hospitalization and life insurance coverage and in all
      other employee welfare plans and programs (other than disability plans and
      programs) in which he was participating on the date of termination, on the
      same basis as such coverage is provided to active employees from time to
      time during the Severance Period; provided, that the Company's obligations
      under this clause (E) shall be reduced to the extent that the Executive
      receives similar coverage and benefits under the plans and programs of a
      subsequent employer; and provided, further, that (x) if the Company
      determines that the Executive is precluded from continuing his
      participation in any employee benefit plan or program as provided in this
      clause on account of his employment status or for any other reason, he
      shall be provided with the after-tax economic equivalent of the benefits
      provided under the plan or program in which he is unable to participate
      for the period specified in this clause (E) of this Section 12(d); (y) the
      economic equivalent of any benefit foregone shall be deemed to be the
      lowest cost that would be incurred by the Executive in obtaining such
      benefit himself on an individual basis through payment of COBRA
      continuation coverage premiums or by other means, and (z) payment of such
      after-tax economic equivalent shall be made quarterly in advance;

                        (F) other or additional benefits, if any, in accordance
      with applicable plans and programs of the Company or its affiliates, other
      than severance plans and programs.

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                  (iii) The Executive agrees to notify the Company immediately
      upon obtaining subsequent employment (including self-employment), and to
      provide all information related to the terms thereof that the Company may
      reasonably request, so that the Company may determine and administer the
      offset provided under clause (E) of Section 12(d)(ii).

            (e) Voluntary Termination. In the event of a termination of
employment by the Executive on his own initiative, other than a termination due
to death or Disability or a Constructive Termination, the Executive shall have
the same entitlements as provided in Section 12(c) above for a termination for
Cause. A voluntary termination under this Section 12(e) shall be effective upon
30 days' prior written notice to the Company and shall not be deemed a breach of
this Agreement.

            (f) No Mitigation; No Offset. In the event of any termination of
employment under this Section 12, the Executive shall have no obligation to seek
other employment. There shall be no offset against amounts due the Executive
under this Agreement on account of any remuneration attributable to any
subsequent employment that he may obtain except as specifically provided in this
Section 12.

            (g) Nature of Payments. Any amounts due under this Section 12 are in
the nature of severance payments and liquidated damages. Failure to qualify for
any such payment is not in the nature of a penalty.

            (h) Exclusivity of Severance Payments. Upon termination of the
Executive's employment during the Term of Employment, he shall not be entitled
to any payments or benefits from the Company or its affiliates, other than as
provided herein, or any payments by the Company or its affiliates on account of
any claim by him of wrongful termination, including claims under any federal,
state or local human and civil rights or labor laws, other than the payments and
benefits provided hereunder, except for any benefits which may be due under any
employee benefit plan of the Company or its affiliates which provides benefits
after termination of employment (as set forth above and incorporated herein).

            (i) Non-competition. The Executive agrees that any right to receive
any payments and/or benefits hereunder, other than Base Salary and/or any
pension, and/or any other compensation already earned by the Executive and
required to be paid by state law other than under this Agreement, will cease and
be immediately forfeited if the Executive breaches the provisions of Section 13.
The Executive agrees that any violation of the provisions of Section 13 will
result in the immediate forfeiture of any rights to exercise or receive the
Options or any other stock options and to receive and vest in the Restricted
Stock or any other restricted stock or other equity-based award. The foregoing
is in addition to the rights of the Company under Section 13.

            (j) Release of Claims. As a condition of the Executive's entitlement
to the payment and/or delivery of any of the severance rights and benefits
provided in this Section 12 (other than in the event of the Executive's death),
the Executive shall be required to execute and honor a release of claims in the
form reasonably requested by the Company.

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            (k) Termination at Will. Notwithstanding anything herein to the
contrary, the Executive's employment with the Company is terminable at will with
or without Cause; provided, however, that a termination of the Executive's
employment shall be governed in accordance with the terms hereof.

      13. Restrictive Covenants.

            (a) Non-Compete. By and in consideration of the substantial
compensation and benefits provided by the Company hereunder, and further in
consideration of the Executive's exposure to the proprietary information of the
Company and its affiliates, the Executive agrees that he shall not, during the
Term of Employment and for a period ending on the first anniversary of the
termination of his employment for any reason, directly or indirectly own,
manage, operate, join, control, be employed by, or participate in the ownership,
management, operation or control of or be connected in any manner, including,
but not limited to, holding the positions of officer, director, shareholder,
consultant, independent contractor, employee, partner, or investor, with any
Competing Enterprise; provided, however, that the Executive may invest in
stocks, bonds or other securities of any corporation or other entity (but
without participating in the business thereof) if such stocks, bonds, or other
securities are listed for trading on a national securities exchange or
NASDAQ-National Market and the Executive's investment does not exceed 1% of the
issued and outstanding shares of capital stock, or in the case of bonds or other
securities, 1% of the aggregate principal amount thereof issued and outstanding.
For purposes of this Section 13, "Competing Enterprise" shall mean any and/or
all of the following: (i) American Retail Group, Inc., Carrefour SA, Fleming
Companies, Inc., Kohl's Corporation, The May Department Store Company, J.C.
Penney Company, Sears, Roebuck and Co., ShopKo Stores, Inc., Target Corp., The
Home Depot, Inc., Toys R Us Inc., TJX Companies, Inc., and Wal-Mart Stores,
Inc., and any of their parents and/or subsidiaries that are engaged in retail
operations; and/or (ii) an entity or enterprise whose business is in direct
competition with a business that Holding Corp. or the Company hereafter acquires
and which reports directly to the Executive during his employment hereunder,
provided that such business represents at least ten percent of the combined
EBITDA of Holding Corp and the Company.

            (b) Nonsolicitation. By and in consideration of the substantial
compensation and benefits to be provided by the Company and its affiliates
hereunder, and further in consideration of the Executive's exposure to the
proprietary information of the Company and its affiliates, the Executive agrees
that he shall not, during the Term of Employment and for a period ending on the
first anniversary of the termination of his employment for any reason, without
the express prior written approval of the Company, (i) directly or indirectly,
in one or a series of transactions, recruit, solicit or otherwise induce or
influence any proprietor, partner, stockholder, lender, director, officer,
employee, sales agent, joint venturer, investor, lessor, supplier, agent,
representative or any other person which has a business relationship with the
Company or any of its subsidiaries or affiliates, or had a business relationship
with the Company or any of its subsidiaries or affiliates within the 24-month
period preceding the date of the incident in question, to discontinue, reduce or
modify such employment, agency or business relationship with the Company or such
subsidiary(ies) or affiliate(s), or (ii) directly or indirectly, employ or seek
to employ (including through any employer of the Executive) or cause any
Competing Enterprise to employ or seek to employ any person or agent who is then
(or was at any time within six months prior to

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the date the Executive or the Competing Enterprise employs or seeks to employ
such person) employed or retained by the Company or any of its subsidiaries or
affiliates.

            (c) Confidential Information. During the Term of Employment and at
all times thereafter, Executive agrees that he will not divulge to anyone or
make use of any Confidential Information except in the performance of his duties
as an executive of Holding Corp. or the Company or when legally required to do
so (in which case the Executive shall give prompt written notice to the Company
in order to allow the Company the opportunity to object or otherwise resist such
disclosure). "Confidential Information" shall mean any knowledge or information
of any type relating to the business of the Company or any of its subsidiaries
or affiliates, as well as any information obtained from customers, clients or
other third parties, including, without limitation, all types of trade secrets
and confidential commercial information. The Executive agrees that he will
return to the Company, immediately upon termination, any and all documents,
records or reports (including electronic information) that contain any
Confidential Information. Confidential Information shall not include information
(i) that is or becomes part of the public domain, other than through the breach
of this Agreement by the Executive or (ii) regarding the business or industry of
the Company or any of its subsidiaries or affiliates properly acquired by the
Executive in the course of his career as an executive in the Company's industry
and independent of the Executive's employment by the Company. The Executive
acknowledges that the Company and its affiliates have expended, and will
continue to expend, significant amounts of time, effort and money in the
procurement of its Confidential Information, that the Company and its affiliates
have taken all reasonable steps in protecting the secrecy of the Confidential
Information, and that said Confidential Information is of critical importance to
the Company and its affiliates.

            (d) Non-Disparagement. The Parties agree that, during the Term of
Employment and thereafter (including following the Executive's termination of
employment for any reason): (i) the Executive will not make statements or
representations, or otherwise communicate, directly or indirectly, in writing,
orally, or otherwise, or take any action which may, directly or indirectly,
disparage the Company or any subsidiary or affiliate or their respective
officers, directors, employees, advisors, businesses or reputations; and (ii)
the officers of the Company will not make any statements or representations or
otherwise communicate, directly or indirectly, in writing, orally, or otherwise,
or take any action which may, directly or indirectly, disparage the Executive.
Notwithstanding the foregoing, nothing in this Agreement shall preclude either
the Executive or the Company from making truthful statements or disclosures that
are required by applicable law, regulation or legal process.

            (e) Cooperation. The Executive agrees to cooperate with the Company,
during the Term of Employment and thereafter (including following the
Executive's termination of employment for any reason), by being reasonably
available to testify on behalf of the Company or any subsidiary or affiliate in
any action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate, in any
such action, suit or proceeding, by providing information and meeting and
consulting with the Holding Corp. Board or the Board or their representatives or
counsel, or representatives or counsel to the Company, or any subsidiary or
affiliate, as reasonably requested. The Company agrees to reimburse the
Executive for all expenses actually incurred in connection with his provision of
testi-

                                       11
<PAGE>

mony or assistance (including attorneys' fees incurred in connection therewith)
upon submission of appropriate documentation to the Company.

            (f) Remedies. The Executive agrees that any breach of the terms of
this Section 13 would result in irreparable injury and damage to the Company for
which the Company would have no adequate remedy at law; the Executive therefore
also agrees that in the event of said breach or any threat of said breach, the
Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the
Executive and/or any and all persons and/or entities acting for and/or with the
Executive. The terms of this Section 13 shall not prevent the Company from
pursuing any other available remedies for any breach or threatened breach
hereof, including, but not limited to, remedies available under this Agreement
and the recovery of damages. The Executive and the Company further agree that
the provisions of the covenant not to compete are reasonable. Should a court or
arbitrator determine, however, that any provision of the covenant not to compete
is unreasonable, either in period of time, geographical area, or otherwise, the
Parties agree that the covenant shall be interpreted and enforced to the maximum
extent which such court or arbitrator deems reasonable.

            (g) Continuing Operation. The provisions of this Section 13 shall
survive any termination of this Agreement and the Term of Employment, and the
existence of any claim or cause of action by the Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of the covenants and agreements of
this Section 13.

            (h) Notice to Employer. The Executive agrees that as long as the
provisions of Section 13(a) or 13(b) continue to bind the Executive, he will
provide written notice of the terms and provisions of this Section 13 to any
prospective employer.

      14. Indemnification.

            (a) The Company and Holding Corp. each agrees that if the Executive
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 he is or was a director or employee of
the Company or Holding Corp., as applicable, or any of its affiliates or is or
was serving at the request of the Company or Holding Corp., as applicable, as a
director, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether or not the basis of such Proceeding is the Executive's alleged
action in an official capacity while serving as a director, employee or agent,
the Executive shall be indemnified and held harmless by the Company or Holding
Corp., as applicable, to the fullest extent legally permitted or authorized by
its certificate of incorporation or bylaws or resolutions of the Board or
Holding Corp. Board, as applicable, or, if greater, by the laws of its state of
incorporation against all cost, expense, liability and loss (including, without
limitation, attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
the Executive in connection therewith, and such indemnification shall continue
as to the Executive even if he has ceased to be a director, employee or agent of
the Company or Holding Corp., as applicable, or other entity and shall inure to
the benefit of the Executive's heirs, executors and administrators.

                                       12
<PAGE>

The Company or Holding Corp., as applicable, shall advance to the Executive all
reasonable costs and expenses incurred by him in connection with a Proceeding
within 20 days after receipt by the Company or Holding Corp., as applicable, of
a written request for such advance. Such request shall include an undertaking by
the Executive to repay the amount of such advance if it shall ultimately be
determined that he is not entitled to be indemnified against such costs and
expenses.

            (b) The Company and Holding Corp. each agrees to continue and/or
maintain a directors and officers' liability insurance policy covering the
Executive to the same extent it provides such coverage for its other executive
officers and directors and for not less than the amounts in effect for its other
executive officers and directors.

      15. Assignability; Binding Nature. This Agreement shall be binding upon
and inure to the benefit of the Parties and their respective successors, heirs
(in the case of the Executive) and assigns. No rights or obligations of the
Company under this Agreement may be assigned or transferred by the Company
except that such rights or obligations may be assigned or transferred pursuant
to a merger or consolidation in which the Company is not the continuing entity,
or the sale or liquidation of all or substantially all of the assets of the
Company, provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and such assignee or transferee
assumes the liabilities, obligations and duties of the Company, as contained in
this Agreement, either contractually or by operation of law. The Company further
agrees that, in the event of a sale or reorganization transaction as described
in the preceding sentence, it shall take whatever action it legally can in order
to cause such assignee or transferee to assume the liabilities, obligations and
duties of the Company hereunder, if such assumption does not take place by
operation of law. No rights or obligations of the Executive under this Agreement
may be assigned or transferred by the Executive other than his rights to
compensation and benefits, which may be transferred only by will or operation of
law, except as otherwise provided herein.

      16. Miscellaneous Provisions.

            (a) This Agreement contains the final and entire understanding and
agreement between the Parties concerning the subject matter hereof and
supersedes all prior representations, agreements, discussions, negotiations and
undertakings, whether written or oral, between the Parties with respect thereto;
provided, however, that this Agreement shall not supersede any separate written
commitments by the Company or Holding Corp. with respect to indemnification.

            (b) No provision in this Agreement may be amended unless such
amendment is authorized by the Holding Corp. Board or the Committee and agreed
to in writing and signed by the Executive and an authorized officer of the
Company. No waiver by any Party of any breach by another Party of any condition
or provision contained in this Agreement to be performed by such other Party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company or Holding
Corp., as the case may be.

            (c) In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole or
in part, the remaining provi-

                                       13
<PAGE>

sions of this Agreement shall be unaffected thereby and shall remain in full
force and effect to the fullest extent permitted by law.

            (d) The respective rights and obligations of the Parties hereunder
shall survive any termination of the Executive's employment to the extent
necessary to the intended preservation of such rights and obligations.

            (e) The Executive shall be entitled, to the extent permitted under
any applicable law, to select and change a beneficiary or beneficiaries to
receive any compensation or benefit payable hereunder following the Executive's
death by giving the Company written notice thereof. In the event of the
Executive's death or a judicial determination of his incompetence, reference in
this Agreement to the Executive shall be deemed, where appropriate, to refer to
his beneficiary, estate or other legal representative.

            (f) All amounts required to be paid by the Company shall be subject
to reduction in order to comply with applicable Federal, state and local tax
withholding requirements, except as otherwise provided herein.

            (g) The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.

            (h) This Agreement may be executed in two or more counterparts.

            (i) Notwithstanding any provision of this Agreement to the contrary,
any action to be taken by the Board pursuant to this Agreement shall require the
concurrence of the Holding Corp. Board.

      17. Governing Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of Delaware without reference to
principles of conflict of laws.

      18. Arbitration.

            (a) Any and all controversies, disputes or claims arising between
the Executive, on the one hand, and the Company and/or Holding Corp, on the
other hand, including any purported controversies, disputes or claims not
arising under contract, that have not been resolved within twenty (20) days
after notice is given in writing of the controversy, dispute or claim shall be
submitted for arbitration in accordance with the rules of the American
Arbitration Association in effect as of the Effective Date. Arbitration shall
take place at an appointed time and place in New York, New York. The Executive
and Holding Corp. shall each select one arbitrator, and the two so designated
shall select a third arbitrator. If either the Executive or Holding Corp. shall
fail to designate an arbitrator within fifteen (15) calendar days after
arbitration is requested, or if the two arbitrators shall fail to select a third
arbitrator within thirty (30) calendar days after arbitration is requested, then
such arbitrator shall be selected by the American Arbitration Association, or
any successor thereto, upon application of either such Party.

                                       14
<PAGE>

            (b) Arbitration under this provision shall be the sole and exclusive
forum and remedy for resolution of controversies, disputes and claims of any
kind or nature, whether or not presently known or anticipated, including any
purported controversies, disputes or claims not arising under contract, between
the Executive, on the one hand, and the Company and/or Holding Corp, on the
other hand, and no recourse shall be had to any other judicial or other forum
for any such resolution. The award of the arbitrators may grant any relief that
a court of general jurisdiction has authority to grant, including, without
limitation, an award of damages and/or injunctive relief. All costs and expenses
of arbitration (including fees and disbursements of counsel and experts) shall
be borne by the respective Party incurring such costs and expenses, except that
the Executive, on the one hand, and the Company and Holding Corp., on the other
hand, shall bear one-half of the aggregate fees and disbursements of the
arbitrators and costs of the American Arbitration Association. Any award of the
majority of arbitrators shall be binding and not subject to judicial appeal or
review of the award, including without limitation any proceedings under sections
9 and 10 of the Federal Arbitration Act, 9 U.S.C. Section 1 et seq., or any
comparable provision for review of an arbitral award under any comparable
statute or law of any jurisdiction, all rights to which are hereby expressly
waived by the Parties. Subject to the preceding sentence, the United States
District Court for the District of Delaware and the courts of the State of
Delaware shall have sole and exclusive jurisdiction solely for the purpose of
entering judgment upon any award by the majority of arbitrators.

      19. Notices. Any notice given to a Party shall be in writing and shall be
deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the Party concerned at the address indicated below or to such changed address as
such Party may subsequently give such notice of:

            If to the Company or Holding Corp.:

                  Kmart Management Corporation
                  3100 West Big Beaver Road
                  Troy, MI 48084-3163
                  Attention:  James E. Defebaugh, Esquire

            If to the Executive: Aylwin Lewis

                  Aylwin Lewis
                  Kmart Management Corporation
                  3100 West Big Beaver Road
                  Troy, MI 48084-3163

      20. Certain Additional Payments by the Company.

            (a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any Payment
would be subject to the Excise Tax, then the Executive shall be entitled to
receive an additional payment (the "Gross-Up Payment") in an amount such that,
after payment by the Executive of all taxes (and any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes

                                       15
<PAGE>

(and any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 20(a), if it shall be
determined that the Executive is entitled to the Gross-Up Payment, but that the
Parachute Value of all Payments does not exceed 110% of the Safe Harbor Amount,
then no Gross-Up Payment shall be made to the Executive and the amounts payable
under this Agreement shall be reduced so that the Parachute Value of all
Payments, in the aggregate, equals the Safe Harbor Amount. The reduction of the
amounts payable hereunder, if applicable, shall be made by first reducing the
payments under Section 5(a)(i)(B), unless an alternative method of reduction is
elected by the Executive, and in any event shall be made in such a manner as to
maximize the Value of all Payments actually made to the Executive. For purposes
of reducing the Payments to the Safe Harbor Amount, only amounts payable under
this Agreement (and no other Payments) shall be reduced. If the reduction of the
amount payable under this Agreement would not result in a reduction of the
Parachute Value of all Payments to the Safe Harbor Amount, no amounts payable
under the Agreement shall be reduced pursuant to this Section 20(a). The
Company's obligation to make Gross-Up Payments under this Section 20 shall not
be conditioned upon the Executive's termination of employment.

            (b) Subject to the provisions of Section 20(c), all determinations
required to be made under this Section 20, including whether and when a Gross-Up
Payment is required, the amount of such Gross-Up Payment and the assumptions to
be utilized in arriving at such determination, shall be made by a nationally
recognized certified public accounting firm designated by the Company (the
"Accounting Firm"). The Accounting Firm shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment or such
earlier time as is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 20, shall be paid by the Company to the
Executive within 5 days of the receipt of the Accounting Firm's determination.
Any determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments that will not have been made by
the Company should have been made (the "Under-payment"), consistent with the
calculations required to be made hereunder. In the event the Company exhausts
its remedies pursuant to Section 20(c) and the Executive thereafter is required
to make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.

            (c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable, but no later than 10 business days after the Executive is
informed in writing of such claim. The Executive shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company

                                       16
<PAGE>

notifies the Executive in writing prior to the expiration of such period that
the Company desires to contest such claim, the Executive shall:

                  (i) give the Company any information reasonably requested by
      the Company relating to such claim,

                  (ii) take such action in connection with contesting such claim
      as the Company shall reasonably request in writing from time to time,
      including, without limitation, accepting legal representation with respect
      to such claim by an attorney reasonably selected by the Company,

                  (iii) cooperate with the Company in good faith in order
      effectively to contest such claim, and

                  (iv) permit the Company to participate in any proceedings
      relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest, and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties) imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this Section 20(c),
the Company shall control all proceedings taken in connection with such contest,
and, at its sole discretion, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the applicable taxing
authority in respect of such claim and may, at its sole discretion, either pay
the tax claimed to the appropriate taxing authority on behalf of the Executive
and direct the Executive to sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that, if the Company pays such claim and directs
the Executive to sue for a re-fund, the Company shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties) imposed with respect to such payment or with
respect to any imputed income in connection with such payment; and provided,
further, that any extension of the statute of limitations relating to payment of
taxes for the tax-able year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which the Gross-Up Payment would be payable here-under,
and the Executive shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other taxing
authority.

            (d) If, after the receipt by the Executive of a Gross-Up Payment or
payment by the Company of an amount on the Executive's behalf pursuant to
Section 20(c), the Executive becomes entitled to receive any refund with respect
to the Excise Tax to which such Gross-Up Payment relates or with respect to such
claim, the Executive shall (subject to the Company's complying with the
requirements of Section 20(c), if applicable) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after payment by the Company of an amount on the
Executive's behalf pursu-

                                       17
<PAGE>

ant to Section 20(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of 30 days after such determination, then the amount of
such payment shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.

            (e) Notwithstanding any other provision of this Section 20, the
Company may, in its sole discretion, withhold and pay over to the Internal
Revenue Service or any other applicable taxing authority, for the benefit of the
Executive, all or any portion of any Gross-Up Payment, and the Executive hereby
consents to such withholding.

            (f) Definitions. The following terms shall have the following
meanings for purposes of this Section 20.

                  (i) "Excise Tax" shall mean the excise tax imposed by Section
      4999 of the Code, together with any interest or penalties imposed with
      respect to such excise tax.

                  (ii) "Parachute Value" of a Payment shall mean the present
      value as of the date of the change of control for purposes of Section 280G
      of the Code of the portion of such Payment that constitutes a "parachute
      payment" under Section 280G(b)(2), as determined by the Accounting Firm
      for purposes of determining whether and to what extent the Excise Tax will
      apply to such Payment.

                  (iii) A "Payment" shall mean any payment or distribution in
      the nature of compensation (within the meaning of Section 280G(b)(2) of
      the Code) to or for the benefit of the Executive, whether paid or payable
      pursuant to this Agreement or otherwise.

                  (iv) The "Safe Harbor Amount" shall mean 2.99 times the
      Executive's "base amount," within the meaning of Section 280G(b)(3) of the
      Code.

                  (v) "Value" of a Payment shall mean the economic present value
      of a Payment as of the date of the change of control for purposes of
      Section 280G of the Code, as deter-mined by the Accounting Firm using the
      discount rate required by Section 280G(d)(4) of the Code.

      21. Holding Corp. Holding Corp. is a party to this Agreement solely for
purposes of the last sentence of Section 3(a) and for purposes of Sections 3(b),
6, 7, 8 and 14 above.

                                       18
<PAGE>

            IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first set forth above.

                                        KMART MANAGEMENT CORPORATION

                                        By: ____________________________________
                                            Title:

                                        KMART HOLDING CORPORATION

                                        By: ____________________________________
                                            Title:

                                        THE EXECUTIVE

                                        ________________________________________
                                            Aylwin Lewis

                                       19