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                                                                    Exhibit 10.7

                          KMART MANAGEMENT CORPORATION
                           RESTRICTED STOCK AGREEMENT
                                  HAROLD LUEKEN

         THIS AGREEMENT, dated and effective as of September 3, 2003 (the
"Effective Date") by and between Kmart Management Corporation, a Michigan
corporation (the "Company"), and Harold Lueken (the "Executive"), is entered
into as follows:

         WHEREAS, the Company and the Executive are parties to an Employment
Agreement made and entered into on May 6, 2003 (the "Employment Agreement"); and

         WHEREAS, the Compensation Committee of the Board of Directors of Kmart
Holding Corporation ("Holding Corp."), a Delaware corporation and the Company's
parent corporation, has determined that, subject to the conditions and
restrictions stated below, the Executive should be granted shares of the Holding
Corp.'s $1.00 par value Common Stock (the "Restricted Stock");

         NOW, THEREFORE, the parties hereby agree as follows:

                  17. Grant of Stock.

         The Company and Executive hereby agree that, subject to the approval of
a majority of Holding Corp. shareholders ("Shareholder Approval") and the terms
and conditions of this Agreement, the Executive will be granted 17,109 shares of
Restricted Stock, said number of shares being determined as follows: (a) the
average of the highest ($29.66) and lowest ($28.79) fair market value of one
share of Holding Corp. Common Stock on the Effective Date is $29.225; and (b)
17,109 shares of Holding Corp. Common Stock, at a fair market value of $29.225,
would have a fair market value of $500,010.525.

                  18. Issuance of Stock.

         Subject to and as soon as practicable after Shareholder Approval, the
Company shall cause the shares of Restricted Stock to be issued in the
Executive's name. The Restricted Stock shall be held in the custody of the
Company or its designee for the Executive's account. The Restricted Stock shall
be subject to the restrictions described herein. The Restricted Stock shall bear
appropriate legends with respect to the restrictions described herein.

                  19. Vesting.

                  (a)      Subject to Shareholder Approval, the interest of the
         Executive in the Restricted Stock shall vest as to one-third of such
         Restricted Stock (5,703 shares) on September 4, 2004, as to an
         additional one-third (5,703 shares) on September 4, 2005, and as to the
         final one-third (5,703 shares) on September 4, 2006, so as to be 100%
         vested on September 4, 2006 conditioned upon the Executive's continued
         employment with the Company as of each vesting date.

                  20. Restrictions.

                  (a)      No portion of the Restricted Stock or rights granted
         hereunder may be sold, transferred, assigned, pledged or otherwise
         encumbered or disposed of by the Executive until such portion of the
         Restricted Stock becomes vested in accordance with Section 3 of this
         Agreement. The period of time between the date hereof and the date all
         Restricted Stock becomes vested is referred to herein as the
         "Restriction Period."

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                  (b)      If the Executive's employment with the Company is
         terminated for any reason, the balance of the Restricted Stock subject
         to the provisions of this Agreement which has not vested at the time of
         the Executive's termination of employment shall be forfeited by the
         Executive, and ownership transferred back to the Company.

                  21. Executive Shareholder Rights.

         During the Restriction Period, the Executive shall have all the rights
of a shareholder with respect to the Restricted Stock except for the right to
transfer the Restricted Stock, as set forth in Section 4 of this Agreement.
Accordingly, the Executive shall have the right to vote the Restricted Stock and
to receive any cash dividends paid to or made with respect to the Restricted
Stock, provided, however, that dividends paid, if any, with respect to that
Restricted Stock which has not vested at the time of the dividend payment shall
be held in the custody of the Company and shall be subject to the same
restrictions that apply to the corresponding Restricted Stock.

                  22. Changes in Stock.

         In the event that as a result of (a) any stock dividend, stock split or
other change in the Restricted Stock, or (b) any merger or sale of all or
substantially all of the assets or other acquisition of the Company or Holding
Corp., and by virtue of any such change, the Executive shall in his capacity as
owner of unvested shares of Restricted Stock which have been awarded to him (the
"Prior Stock") be entitled to new or additional or different shares or
securities, such new or additional or different shares or securities shall
thereupon be considered to be unvested Restricted Stock and shall be subject to
all of the conditions and restrictions which were applicable to the Prior Stock
pursuant to this Agreement.

                  23. Taxes.

         The Executive shall be liable for any and all taxes, including
withholding taxes, arising out of this grant or the vesting of Restricted Stock
hereunder. The Executive may elect to satisfy such withholding tax obligation by
having the Company retain Restricted Stock having a fair market value equal to
the Company's minimum withholding obligation.

                  24. Miscellaneous.

                  (a)      The Company shall not be required (i) to transfer on
         its books any shares of Restricted Stock which shall have been sold or
         transferred in violation of any of the provisions set forth in this
         Agreement, or (ii) to treat as owner of such shares or to accord the
         right to vote as such owner or to pay dividends to any transferee to
         whom such shares shall have been so transferred.

                  (b)      The parties agree to execute such further instruments
         and to take such action as may reasonably be necessary to carry out the
         intent of this Agreement.

                  (c)      Any notice required or permitted hereunder shall be
         given in writing and shall be deemed effectively given upon delivery to
         the Executive at his address then on file with the Company.

                  (d)      This Agreement shall not be construed so as to grant
         the Executive any right to remain in the employ of the Company.

                  (e)      The parties agree that the Company and Holding Corp.
         shall have no further obligation to the Executive relating to the grant
         of restricted stock except as stated herein.

                  (f)      This Agreement constitutes the entire agreement of
         the parties with respect to the subject matter hereof.

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                  (g)      This Agreement, and all of the Company's obligations
         hereunder, are subject to Shareholder Approval. In the event that a
         majority of the shareholders of Holding Corp. do not approve of this
         Agreement, then this Agreement shall be null and void, and the
         Restricted Stock shall be retained by the Company.

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

EXECUTIVE                                         KMART MANAGEMENT CORPORATION

/s / Harold Lueken                                By: /s/ Julian C. Day
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Harold Lueken