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                                                                    EXHIBIT 10.4

                              EMPLOYMENT AGREEMENT

         THIS AGREEMENT, made and entered into on May 6, 2003, by and between
Kmart Management Corporation, a Michigan corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and
Harold Lueken (the "Executive").

         WHEREAS, the Company desires that the Executive become employed by the
Company and provide services to the Company and Holding Corp. (as hereinafter
defined), 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 with
the Company;

         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 and the Executive (individually a
"Party" and together the "Parties") 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 is
convicted of a felony involving moral turpitude or any other felony (other than
motor vehicle-related) and, in the case of such other felony, the Executive is
unable to show that he (A) acted in good faith and in a manner he reasonably
believed to be in the best interests of the Company and its affiliates and (B)
had no reasonable cause to believe his conduct was unlawful; or (ii) the
Executive engages in conduct that constitutes willful gross neglect or willful
misconduct in carrying out his duties under this Agreement, resulting, in either
case, in material harm to the Company or its affiliates, unless the Executive
believed in good faith that such act or nonact was in, or was not opposed to,
the best interests of the Company and its affiliates.

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                           (d)      "Committee" shall mean the Compensation and
Incentives 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 termination, during the Term of Employment, based on the occurrence
without the Executive's express written consent of any of the following: (i) a
material diminution or adverse change in the Executive's responsibilities,
duties, authorities or any reduction in title, other than for Cause or
Disability; (ii) a reduction in the Executive's Base Salary or Target Bonus (as
defined in Section 6) other than for Cause or Disability and other than as part
of an across-the-board salary reduction generally imposed on executives of the
Company; or (iii) the failure of the Company to obtain the assumption in writing
of its obligation to perform this Agreement by any successor to all or
substantially all of the assets of the Company on or prior to a merger,
consolidation, sale or similar transaction. The Executive shall further be
required to comply with the provisions of Section 10(d)(i) of this Agreement
with respect to a Constructive Termination.

                           (f)      "Disability" shall mean the Executive's
inability to substantially perform his duties and responsibilities under this
Agreement by reason of any physical or mental incapacity for a period of 180
consecutive days.

                           (g)      "Effective Date" shall mean May 12, 2003.

                           (h)      "Holding Corp." shall mean Kmart Holding
Corporation, a Delaware corporation and the Company's parent corporation.

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

                  2.       Term of Employment. Subject to Holding Corp. Board
approval as set forth in Section 18 and subject to termination pursuant to
Section 10, 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 first anniversary thereof (the "Term of Employment"); provided,
however, that the Term of Employment shall be automatically extended for an
additional year on each anniversary of the Effective Date, unless written notice
of non-extension is provided by either Party to the other Party at least 60 days
prior to any such anniversary

                  3.       Position, Duties and Responsibilities.

                           (a)      During the Term of Employment, the Executive
shall be employed by the Company and shall serve as Senior Vice President,
General Counsel of the Company and shall have the title of Senior Vice
President, General Counsel of Holding Corp. (or such other position or positions
as may be agreed upon in writing by the Executive and Holding Corp. and/or the
Company, as applicable) and be responsible for the management of the legal
function of Holding Corp. and the Company, as directed by the Holding Corp.
Board, the Board and/or the Chief Executive Officer ("CEO") of the Company,
consistent with such positions. The Executive shall report directly to the CEO.
The Executive shall have all authority commensurate

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with such positions. The Executive shall devote substantially all of his
business time, attention and skill to the performance of such duties and
responsibilities, 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.

                           (b)      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 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 as an
executive officer of Holding Corp. and the Company.

                           (c)      The Executive shall perform his services
hereunder primarily at the Company's headquarters. To that end, the Company
shall provide the Executive with office space and staff at its headquarters that
are commensurate with his duties hereunder.

                  4.       Base Salary. During the Term of Employment, the
Executive shall be paid an annualized Base Salary, payable in accordance with
the regular payroll practices of the Company, in the amount of $450,000. The
Base Salary shall be reviewed no less frequently than annually for increase in
the discretion of the Holding Corp. Board and/or the Committee. The Base Salary,
including any increase, shall not be decreased during the Term of Employment.

                  5.       Make-Whole Payment. The Company shall pay to the
Executive, within 10 days following the Effective Date, a lump sum amount equal
to $25,000 in respect of compensation from the Executive's previous employer
that will be forfeited as a result of the Executive's ceasing to be employed by
his previous employer.

                  6.       Annual Incentive Awards. During the Term of
Employment, the Executive shall be eligible for an annual target bonus ("Target
Bonus") of 61% of his then-current Base Salary under the annual cash-based
incentive program of the Company (or its affiliate, if applicable) payable if
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 Company agrees that the actual
bonus, if any, earned by the Executive for fiscal year 2003 shall not be subject
to pro-ration by reason of the Executive's not having been employed by the
Company for the entire fiscal year.

                  7.       Long-Term Incentive Programs. The Executive shall
participate in such long-term cash- and/or equity-based incentive programs as
the senior executives of the Company participate from time to time.

                  8.       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 (other than the CEO) or to its employees
generally, as such plans or programs may be in effect from time to

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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.

                  9.       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 his 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 Company
shall reimburse the Executive for reasonable personal financial (including tax)
counseling (other than legal fees) by a firm or consultant to be chosen by the
Executive, such reimbursement to be no more than the amount authorized under
Company policy in effect from time to time.

                           (c)      During the Term of Employment, the Executive
shall be entitled to four weeks' paid vacation per year.

                           (d)      The Company, following receipt of
appropriate documentation, shall reimburse the Executive for the costs of
temporary housing in the Troy, Michigan area and coach airfare for the Executive
(or the Executive's spouse and child) for weekend travel which, in each case,
are incurred prior to commencement of the Term of Employment in anticipation of
the commencement of the Executive's employment with the Company. The Executive
shall be entitled to reimbursement pursuant to this Section 9(d) regardless of
whether the Holding Corp. Board approves this Agreement pursuant to Section 18.

                           (e)      Relocation Expenses.

                                    (i)      From the Effective Date until such
         time as the Executive relocates his residence to the metropolitan area
         of the Company's headquarters, (but in no event for longer than six
         months), the Company shall provide to, or reimburse the Executive for,
         temporary housing in the Troy, Michigan area and coach airfare for the
         Executive (or the Executive's spouse and child) for weekend travel.

                                    (ii)     In the event that the Company's
         headquarters shall be relocated outside the Detroit, Michigan
         metropolitan area and outside the New York Tri-State area, or in
         connection with the Executive's relocation to the Detroit, Michigan
         metropolitan area in the event the Company does not relocate outside
         the Detroit, Michigan metropolitan area, the Executive shall be
         afforded a relocation package consisting of the following: (A)
         reimbursement of reasonable

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         moving expenses, including an amount equal to $7,500 for the purpose of
         covering incidental moving expenses; (B) reimbursement of reasonable
         travel expenses incurred by the Executive's spouse for the purpose of
         searching for a permanent residence in the area of Company
         headquarters; (C) Company assistance with the sale of the Executive's
         current residence in accordance with the Company's executive relocation
         program; and (D) reimbursement for the closing costs on the purchase of
         a permanent residence in the area of Company headquarters. In addition,
         the Executive shall be entitled to be fully grossed up for certain
         taxes incurred by the Executive as a result of the reimbursements
         provided under the preceding sentence as provided in the Company's
         executive relocation program.

                  10.      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)     a prorated annual bonus for the
         year in which death occurs, based on the actual performance for such
         year, the amount of which prorated bonus, if any, shall be determined
         and paid promptly following the end of the year to which such bonus
         relates;

                                    (iii)    the balance of any annual or
         long-term cash incentive awards (if any) earned (but not yet paid)
         pursuant to the terms of the applicable programs;

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

                                    (v)      other or additional benefits in
         accordance with applicable plans and programs of the Company or its
         affiliates.

                           (b)      Termination Due to Disability. In the event
the Executive's employment is terminated due to his Disability, he shall be
entitled in such case to the following:

                                    (i)      Base Salary through the date of
         termination;

                                    (ii)     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;

                                    (iii)    a prorated annual bonus for the
         year in which termination due to Disability occurs, based on the actual
         performance for such year, the

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         amount of which prorated bonus, if any, shall be determined and paid
         promptly following the end of the year to which such bonus relates;

                                    (iv)     the balance of any annual or
         long-term cash incentive awards (if any) earned (but not yet paid)
         pursuant to the terms of the applicable programs;

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

                                    (vi)     other or additional benefits in
         accordance with applicable plans and programs of the Company or its
         affiliates.

                  In no event shall a termination of the Executive's employment
for Disability occur unless the Party terminating his employment gives written
notice to the other Party in accordance with Section 17 below.

                           (c)      Termination by the Company for Cause. In the
event the Company terminates the Executive's employment for Cause, he shall be
entitled to:

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

                                    (ii)     the balance of any annual or
         long-term cash incentive awards (if any) earned (but not yet paid)
         pursuant to the terms of the applicable programs;

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

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

                                    (v)      a termination for Cause shall not
         take effect unless the provisions of this paragraph (v) are complied
         with. The Executive shall be given written notice by the Holding Corp.
         Board of the intention to terminate his 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. If he fails to cure such conduct,
         the Executive shall then be entitled to a hearing before the Holding
         Corp. Board. Such hearing shall 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

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         for Cause. If, within five days following such hearing, the Executive
         is furnished written notice by the Holding Corp. Board confirming that
         the Holding Corp. Board has determined, by majority vote at a meeting
         of the Holding Corp. Board duly called and held as to which termination
         of the Executive is an agenda item, that grounds for Cause on the basis
         of the original notice exist, he shall thereupon be terminated for
         Cause.

                           (d)      Termination Without Cause; Constructive
Termination.

                                    (i)      A Constructive Termination shall
         not take effect unless the provisions of this paragraph 10(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, to the extent such cure is possible.

                                    (ii)     In the event the Executive's
         employment is terminated (1) by the Company without Cause (other than
         due to Disability or death), (2) by reason of a Constructive
         Termination or (3) upon expiration of the Term of Employment following
         the Company's having given a notice of non-extension of the Term of
         Employment, the Executive shall be entitled to:

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

                                                 (B) Base Salary, at the
                  monthly 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 the
                  Base Salary in effect immediately prior to such reduction),
                  payable over a 12-month period following such termination (the
                  "Severance Period") as follows: (1) with respect to each of
                  the first two months of the Severance Period, an amount equal
                  to two months' Base Salary; and (2) with respect to each of
                  the remaining ten months of the Severance Period, an amount
                  equal to eighty percent (80%) of monthly Base Salary;
                  provided, however, that the Company's obligations under this
                  clause (B) shall be reduced on a dollar-for-dollar basis (but
                  not below zero) to the extent that the Executive earns fees,
                  salary or wages from a subsequent employer (including those
                  arising from self-employment);

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                                                 (C) a prorated annual bonus
                  for the year in which such termination occurs, based on the
                  actual performance for such year, the amount of which prorated
                  bonus, if any, shall be determined and paid promptly following
                  the end of the year to which such bonus relates; provided,
                  however, that in the event the Executive's employment is
                  terminated pursuant to this Section 10(d)(ii) during fiscal
                  year 2003, the bonus amount, if any, determined and paid in
                  accordance with this clause (C) of this Section 10(d)(ii)
                  shall not be subject to proration;

                                                 (D) the balance of any annual
                  or long-term cash incentive awards earned (but not yet paid)
                  pursuant to the terms of the applicable programs;

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

                                                 (F) continued participation
                  during the Severance Period to the extent provided 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; provided, that the Company's
                  obligations under this clause (F) 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 Executive is
                  precluded from continuing his participation in any employee
                  benefit plan or program as provided in this clause, 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
                  (F) of this Section 10(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
                  herself on an individual basis, and (z) payment of such
                  after-tax economic equivalent shall be made quarterly in
                  advance; and

                                                 (G) other or additional
                  benefits in accordance with applicable plans and programs of
                  the Company or its affiliates.

         The Executive agrees to notify the Company immediately upon subsequent
         employment (including self-employment) so that the Company may
         determine and administer the offsets provided under subparagraphs (B)
         and (F) of this Section 10(d)(ii).

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                           (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 10(c) above
for a termination for Cause. A voluntary termination under this Section 10(e)
shall be effective upon 30 days' prior written notice to the Company and shall
not be deemed a breach of this Agreement.

                           (f)      Mitigation; No Offset. In the event of any
termination of employment under this Section 10, the Executive shall be
obligated 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 10.

                           (g)      Nature of Payments. Any amounts due under
this Section 10 are in the nature of severance payments considered to be
reasonable by the Company. 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 his 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 the Executive in normal course under any employee benefit plan
of the Company or its affiliates which provides benefits after termination of
employment.

                           (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 11. The Executive agrees that any violation of the provisions of
Section 11 will result in the immediate forfeiture of any rights to exercise or
receive stock options or restricted stock. The foregoing is in addition to the
rights of the Company under Section 11.

                           (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 10 (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.

                           (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.

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                  11.      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 12 months
following termination of 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 11, "Competing Enterprise" shall mean any and/or
all of the following: (i) Albertson's Inc., American Retail Group, Inc.,
Carrefour se, Fleming Companies, Inc., Kohl's Corporation, The May Department
Store Company, J.C. Penny Company, Royal Ahold, Safeway, Inc., Sears, Roebuck
and Co., ShopKo Stores, Inc., Supervalue Inc., Target Corp., The Home Depot,
Inc., Toys R Us Inc., TJX Companies, Inc., and Wal-Mart Stores, Inc., and (ii)
an entity or enterprise whose business is in competition with the business of
the Company which operates retail stores selling general merchandise and/or food
if at least 10 of such stores have an area of 50,000 or more square feet and at
least 10 of such stores with 50,000 or more square feet are within 25 miles of
any one or more Kmart stores.

                           (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 of 12
months following termination of 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 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.

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                           (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, 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), neither Party 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. 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 testimony or assistance (including attorneys'
fees incurred in connection therewith) upon submission of appropriate
documentation to the Company.

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                           (f)      Remedies. The Executive agrees that any
breach of the terms of this Section 11 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
reasonable threat of 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 paragraph 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 hereto 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 11 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.

                           (h)      Notice to Employer. The Executive agrees
that as long as the provisions of Section 11(a) or 11(b) continue to bind the
Executive, he will provide written notice of the terms and provisions of this
Section 11 to any prospective employer.

                  12.      Indemnification.

                           (a)      The Company 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 any of its affiliates or is or was serving at the request of the
Company 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 to the fullest extent legally permitted or authorized by the Company's
certificate of incorporation or bylaws or resolutions of the Board or, if
greater, by the laws of the State of Michigan 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 other entity
and shall inure to the benefit of the Executive's heirs, executors and
administrators. The Company shall advance to the Executive all reasonable costs
and expenses incurred by his in connection with a Proceeding within 20 days
after receipt by the Company of a written request for such advance. Such request
shall include

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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)      Neither the failure of the Company
(including the Board or the Holding Corp. Board or their respective independent
legal counsel or stockholders) to have made a determination prior to the
commencement of any Proceeding concerning payment of amounts claimed by the
Executive under Section 12(a) above that indemnification of the Executive is
proper because he has met the applicable standard of conduct, nor a
determination by the Company (including the Board or the Holding Corp. Board or
their respective independent legal counsel or stockholders) that the Executive
has not met such applicable standard of conduct, shall create a presumption that
the Executive has not met the applicable standard of conduct.

                  The Company agrees to continue and/or maintain a directors and
officers' liability insurance policy covering the Executive to the same extent
the Company 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.

                  13.      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 as a matter 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 expressly
assume the liabilities, obligations and duties of the Company hereunder. 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.

                  14.      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 (including but not limited to the Severance Agreement);
provided, however, that this Agreement shall not supersede any separate written
commitments by the Company 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 either Party of any breach by the other
Party of any condition or provision contained in this Agreement

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<PAGE>

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, 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 provisions 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 shall require the
concurrence of the Holding Corp. Board.

                  15.      Governing Law/Jurisdiction. This Agreement shall be
governed by and construed and interpreted in accordance with the laws of
Michigan without reference to principles of conflict of laws. Subject to Section
16, the Company and the Executive hereby consent to the jurisdiction of any or
all of the following courts for purposes of resolving any dispute under this
Agreement: (i) the United States District Court of Detroit, Michigan or (ii) the
State of Michigan Courts of Oakland County, Michigan. The Company and the
Executive further agree that any service of process or notice requirements in
any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and the Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which it
or the Executive may now or hereafter have to such jurisdiction and any defense
of inconvenient forum.

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<PAGE>

                  16.      Resolution of Disputes. Any disputes arising under or
in connection with this Agreement shall be resolved by binding arbitration, to
be held in the metropolitan area of Company headquarters in accordance with the
rules and procedures of the American Arbitration Association. Judgment upon the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. All costs and expenses of any arbitration or court
proceeding (including fees and disbursements of counsel) shall be borne by the
respective Party incurring such costs and expenses, but the Company shall
reimburse the Executive for such reasonable costs and expenses in the event he
substantially prevails in such arbitration or court proceeding. Notwithstanding
the foregoing, the Company shall be entitled to seek equitable relief pursuant
to Section 11(f) hereof without otherwise waiving the right to exclusive
arbitration of all other disputes.

                  17.      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:    Kmart Management Corporation
                                        3100 West Big Beaver Road
                                        Troy, MI 48084-3163
                                        Attention: Chief Executive Officer

                  With a copy to:       Skadden, Arps, Slate, Meagher & Flom LLP
                                        Four Times Square
                                        New York, New York 10036
                                        Attn: David J. Friedman, Esq.

                  If to the Executive:  322 West 57th Street, Apt. 49S
                                        New York, New York 10019
                                        or hlueken@yahoo.com

                  With a copy to:       c.lueken@verizon.net

                  18.      Approvals. Except with respect to the Company's
obligations under Section 9(d), the effectiveness of this Agreement shall be
subject to the approval of this Agreement by the Holding Corp. Board. The
Company agrees to seek such approval no later than the first meeting of the
Board that takes place following the Effective Date. Absent such approval by the
Holding Corp. Board, this Agreement shall not be effective except with respect
to the Company's obligations under Section 9(d).

                  19.      Additional Payments. If any payment or benefit
received or to be received by the Executive (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company or
any affiliate) (all such payments and benefits, excluding the Gross-Up Payment
(as hereinafter defined), being hereinafter called "Total

                                       15

<PAGE>

Payments") will be subject (in whole or part) to any excise tax (the "Excise
Tax") imposed under section 4999 of the Internal Revenue Code of 1986, as
amended, then the Company shall pay to the Executive an additional amount (the
"Gross-Up Payment") such that the net amount retained by the Executive, after
deduction of any Excise Tax on the Total Payments and any federal, state and
local income and employment taxes and Excise Tax upon the Gross-Up Payment,
shall be equal to the Total Payments.

                                       16

<PAGE>

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

                                             KMART MANAGEMENT CORPORATION

                                             By: ____________________________
                                             Title:  Chief Executive Officer

                                             ________________________________
                                                       HAROLD LUEKEN

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