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Kmart Holding Corporation (NASDAQ: KMRT) confirms that it has filed a complaint in U.S. Bankruptcy Court for the Northern District of Illinois against Handleman Company to recover the $49 million critical vendor payment Kmart paid to Handleman at the outset of Kmart's Chapter 11 bankruptcy proceedings in 2002.

Prior to filing the complaint against Handleman, Kmart requested either the return of the $49 million for placement in a segregated account to maintain the status quo, or a letter of credit guaranteeing that amount pending the outcome of the "critical vendor payment issue" which is under review with the Seventh Circuit Court of Appeals. Handleman refused to comply with Kmart's requests.

Julian C. Day, President and Chief Executive Officer of Kmart, said: "This management team continues to work hard to improve business relationships with our vendors. Notwithstanding the legal outcome of the critical vendor payment issue, Kmart and our vendors seek to maintain positive and profitable relationships going forward."

On April 10, 2003, the United States District Court for the Northern District of Illinois, Eastern Division, reversed the Bankruptcy Court's order authorizing payment of prepetition claims of certain critical trade vendors. As a result, under the current state of law as determined by the District Court and certain other circuit courts, Kmart's payment of $49 million to Handleman at the outset of the bankruptcy case was not authorized. Although it did not order the immediate return of the money, the District Court said, "It is not too late for the monies to be returned."

The District Court decision has been appealed to the Seventh Circuit Court of Appeals. Kmart believes it has the fiduciary duty to its stakeholders to pursue recovery of the critical vendor payments in the event that the Court of Appeals affirms the District Court decision. In light of the magnitude of the amount of money paid to Handleman, it is important that Kmart's ability to recover such amounts is protected. If the court's ruling is adverse to Handleman, Kmart intends to pursue from Handleman recovery of the critical vendor payment. Kmart does not believe that any defenses that may be asserted by Handleman will prevent a recovery of money by Kmart.

Kmart Corporation is a mass merchandising company that serves America through Kmart and Kmart SuperCenter retail outlets.

Cautionary Statement Regarding Forward-Looking Information and Other Matters

Statements made by Kmart which address activities, events or developments that we expect or anticipate may occur in the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the Company's current views with respect to current and future events and financial performance. Such forward-looking statements are and will be, as the case may be, subject to many risks and uncertainties, including, but not limited to, its affiliates having filed for bankruptcy and factors relating to Kmart's operations and the business environment in which Kmart operates, which may cause the actual results of Kmart to be materially different from any future results expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include Kmart's ability to operate pursuant to its exit financing facility; the ability of the Company to obtain and maintain normal terms with its vendors; the ability of Kmart to attract and retain customers; and those set forth in Kmart Corporation's Annual Report on Form 10-K for the fiscal year ended January 29, 2003, or in other filings made, from time to time, by Kmart with the Securities and Exchange Commission (the "Company Filings"). The forward-looking statements speak only as of the date when made and Kmart does not undertake to update such statements.

SOURCE: Kmart Holding Corporation

CONTACT: Kmart Media Relations, +1-248-463-1021

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