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                                                                   EXHIBIT 10.21

                                                                  EXECUTION COPY

                              EMPLOYMENT AGREEMENT


         THIS AGREEMENT, made and entered into on February 27, 2004, by and
between Kmart Management Corporation, a Michigan corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Paul
Guagliardo (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. "Constructive Termination" shall not
include a relocation of current Company headquarters. 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, with
or without a reasonable accommodation, 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 the date on which the
Executive first reports to the Company's headquarters to commence employment
with the Company. The Executive will use his best efforts to commence employment
with the Company as soon as possible, and will commence employment with the
Company by April 5, 2004.

                    (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 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 third anniversary thereof (the "Term of Employment"); provided,
however, that the Term of Employment shall be automatically extended for
additional one-year periods on each subsequent annual 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, Chief
Marketing Officer (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).
The Executive shall have all authority commensurate with

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the position of Senior Vice President, Chief Marketing Officer, subject to
the direction of the Holding Corp. Board, the Board and/or the Chief Executive
Officer ("CEO") of the Company. The Executive shall report directly to the CEO.
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 or at a Company designated location in
New York City. To that end, the Company shall provide the Executive with office
space and staff 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 $500,000. 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. Restricted Stock Equity --Grant. As an inducement material
to the Executive's agreement to enter into employment with the Company, and
subject to the approval of the Committee comprised of a majority of independent
directors or a majority of the Holding Corp.'s independent directors, as soon as
practicable after the Effective Date, the Executive shall receive a grant of
restricted Holding Corp. stock having a fair market value of $500,000 on the
date of grant (the "Restricted Stock") which Restricted Stock may not be sold,
pledged or otherwise transferred until the Restricted Stock becomes vested, in
accordance with the provisions of this Section 5. The Restricted Stock shall
vest as to one-third (1/3) of such grant on the first anniversary of the
effective date, and as to an additional one-third (1/3) on each succeeding
anniversary date so as to be 100% vested on the third anniversary thereof,
conditioned upon the Executive's continued employment with the Company as of
each vesting date. Notwithstanding the foregoing, the interest of the Executive
in the Restricted Stock shall vest as to 100% of the grant in the event the
Executive's employment is terminated (i) by the Company without Cause (other
than due to Disability or death), (ii) by reason of a Constructive Termination,
or (iii) upon expiration of

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the Term of Employment following the Company's having given a notice of
non-extension of the Term of Employment.

                  6. Annual Incentive Awards. During the Term of Employment, the
Executive shall be eligible for an annual target bonus ("Target Bonus") of 75%
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 actual bonus, if any, earned by the Executive for fiscal
year 2004 shall be for the entire fiscal year.

                  7. Long-Term Incentive Programs. Starting with the three-year
performance period that begins on February 1, 2004, the Executive shall be
eligible to participate in the KMART Long Term Incentive Plan ("LTIP"). While
awards granted under the LTIP are subject to the provisions of the LTIP and the
discretion of the Compensation Committee, the Parties anticipate that such
awards will provide for the payment (in common stock and/or cash) of an amount
equal to the average annual salary and target bonuses paid to the Executive
during a three-year performance period, payable at or about the conclusion of
the third fiscal year in the performance period (commencing, therefore, with a
payment following the conclusion of fiscal year 2006), if the Company meets or
exceeds its cumulative EBITDA target for that three-year period.

                  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 those made available only to the CEO) 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.


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                  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 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 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) Relocation Expenses. Executive will be eligible for
benefits offered under the Company's Tier 4 Domestic 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) an amount equal to a prorated annual incentive
         award 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;

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                        (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) an amount equal to a prorated annual incentive
         award for the year in which termination due to Disability 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;

                        (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) an amount equal to a prorated annual incentive
         award 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;

                        (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 or programs of the Company or its affiliates;


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                        (vi) a termination for Cause shall not take effect
         unless the provisions of this paragraph (vi) 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. 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 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
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                  immediately prior to such reduction), payable over the
                  remaining months of the Term of Employment or 12 months,
                  whichever period is longer (the "Severance Period"); 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) during the Severance Period;

                                (C) an amount equal to a prorated annual
                  incentive award 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 payable only if the Company was ahead of plan as of
                  the termination date;

                                (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 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 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 (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 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;

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                                (G) all Restricted Stock granted to the
                  Executive shall become fully vested and the restrictions
                  thereon, as set forth in Section 5, shall lapse; and

                                (H) 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).

                    (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 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 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.

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                    (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.

                  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 any of their parents
and/or subsidiaries that are engaged in retail operations, and/or (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,

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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.

                    (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): (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.

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                    (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.

                    (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 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 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

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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 him in connection with a Proceeding within 20 days
after receipt by the Company 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) 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.

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                  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; 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 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.

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                  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 in 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.

                  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 in a Court of competent jurisdiction 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:         James E. Defebaugh, Esquire
                          Senior Vice President, Deputy General Counsel & Chief
                              Compliance Officer
                          Kmart Management Corporation
                          3100 W. Big Beaver Road
                          Troy, MI 48084

  If to the Executive:    Paul J. Guagliardo
                          4505 Brookwood Drive
                          Tampa, Florida 33629

  With a copy to:         pguyardo@yahoo.com
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                  18. 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 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.


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

                                     KMART MANAGEMENT CORPORATION

                                     By:  /s/ Julian C. Day
                                     -------------------------------
                                     Title:  Chief Executive Officer


                                     /s/ Paul J.Guagliardo
                                     ---------------------
                                     Paul J. Guagliardo
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