Special Severance Plan - Kmart Corp.


                              AMENDED AND RESTATED
                                KMART CORPORATION
                             SPECIAL SEVERANCE PLAN




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         Kmart Corporation, a Michigan corporation, hereby amends and restates,
as of November 21, 2000, the Kmart Corporation Special Severance Plan for the
benefit of certain of its employees on the terms and conditions hereinafter
stated.

         The Plan, as set forth herein, is intended to alleviate in part or in
full any financial hardship which may be experienced by certain of those
Employees of the Employer in the event of a Termination of employment under the
enumerated circumstances. The Plan, as a "severance pay arrangement" within the
meaning of Section 3(2)(B)(i) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") is intended to be excepted from the definitions of
"employee pension benefit plan" and "pension plan" set forth under Section 3(2)
of ERISA, and is intended to meet the descriptive requirements of a plan
constituting a "severance pay plan" within the meaning of regulations published
by the Secretary of Labor at Title 29, Code of Federal Regulation, ss.
2510.3-1(b).


                                    ARTICLE I

                                   Definitions

         In this Plan the singular includes the plural, the masculine includes
the feminine and the initially capitalized words shall have the following
meanings unless the context clearly indicates otherwise.

         Section 1.01. Administrative Committee. The committee appointed by the 
Company to administer the Plan and to determine benefit eligibility.

         Section 1.02. Annual Base Salary. The greater of an Employee's annual
base salary (i) in effect immediately prior to the Employee's date of
termination of employment or (ii) in effect immediately prior to a Change in
Control of the Company.

         Section 1.03. Annual Target Bonus. The greater of an Employee's annual
target bonus (i) in effect immediately prior to the Employee's date of
termination of employment or (ii) in effect immediately prior to a Change in
Control of the Company.

         Section 1.04. Beneficiary. The person(s), trust(s) or estate designated
by a Severed Employee in writing to receive any benefits which may be payable 
under this Plan in the event of the death of such Severed Employee.

         Section 1.05. Board. The Board of Directors of Kmart Corporation or any
successor thereto.



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         Section 1.06. Change in Control. The happening or any of the following:


         (a)      any "person," as such term is used in Sections 13(d) and 14(d)
                  of the Securities Exchange Act of 1934, as amended (the
                  "Exchange Act") (other than the Company, any trustee or other
                  fiduciary holding securities under an employee benefit plan of
                  the Company, or any company owned, directly or indirectly, by
                  the stockholders of the Company in substantially the same
                  proportions as their ownership of stock of the Company), is or
                  becomes the "beneficial owner" (as defined in Rule 13d-3 under
                  the Exchange Act), directly or indirectly, of securities of
                  the Company representing 33% or more of the combined voting
                  power of the Company's then outstanding securities;

         (b)      if at any time during any period of three consecutive years
                  (not including any period prior to the Effective Date),
                  individuals who at the beginning of such period constitute the
                  Board, and any new director (other than a director designated
                  by a person who has entered into an agreement with the Company
                  to effect a transaction described in clause (a), (c) or (d) of
                  this Section) whose election by the Board or nomination for
                  election by the Company's stockholders was approved by a vote
                  of at least two-thirds (2/3) of the directors then still in
                  office who either were directors at the beginning of the
                  period or whose election or nomination for election was
                  previously so approved cease for any reason to constitute at
                  least a majority thereof;

         (c)      the consummation of a merger or consolidation of the Company 
                  with any other company, other than (1) a merger or
                  consolidation which would result in the voting securities of
                  the Company outstanding immediately prior thereto continuing
                  to represent (either by remaining outstanding or by being
                  converted into voting securities of the surviving entity) more
                  than 50% of the combined voting power of the voting securities
                  of the Company or such surviving entity outstanding
                  immediately after such merger or consolidation or (2) a merger
                  or consolidation effected to implement a recapitalization of
                  the Company (or similar transaction) in which no "person" (as
                  hereinabove defined) acquires more than 50% of the combined
                  voting power of the Company's then outstanding securities; or

         (d)      the stockholders of the Company approve a plan of complete
                  liquidation of the Company or an agreement for the sale or
                  disposition by the Company of all or substantially all of the
                  Company's assets.

         The foregoing to the contrary notwithstanding, if a Potential Change in
Control involves a transaction proposed by one or more Employees either as a
first proposal or a competing proposal, and a Change in Control does occur
(whether or not the transaction constituting such Change of Control is the same
transaction proposed by the Employees, and whether or not the Employees
participate as equity investors in the acquiring entity in such transaction),
then 



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for purposes of the Plan, such Change in Control shall be deemed not to have
occurred with respect to any such Employee.

         Section 1.07. Code. The Internal Revenue Code of 1986, as it may be
amended from time to time.

         Section 1.08. Company. Kmart Corporation or any successors thereto.

         Section 1.09. Effective Date. The Effective Date of this Plan is 
February 1, 1989.

         Section 1.10. Employee. A person who is either a Salaried Employee, Key
Management Employee, Senior Management Employee or Troy Hourly Employee.
Excluded in all cases shall be (i) all persons whose terms and conditions of
employment are determined by collective bargaining with a third party and with
respect to whom inclusion in this Plan has not been provided for in the
collective bargaining agreement setting forth those terms and conditions of
employment and (ii) all persons who have voluntarily entered into individual
agreements with the Company which will provide severance benefits with a value
greater than those provided by the Plan. For the avoidance of doubt, any
individual who has entered into an agreement with the Company providing for
severance benefits with a lesser value than those provided by the Plan will be
considered an Employee under the Plan, and the benefits provided by the Plan
will be provided in lieu of the severance benefits which would have been
provided under such other agreement.

         Section 1.11. Employer. Kmart Corporation or its Subsidiaries.

         Section 1.12. Employment Severance Date. The date of Termination as 
determined by the Administrative Committee.

         Section 1.13. Good Reason. A termination of an Employee's employment
with the Company by the Employee following any one of the following events will
be considered a termination for Good Reason: (i) a decrease in the Employee's
annual base salary or bonus opportunity, (ii) a material adverse change in the
employment conditions and responsibilities of the Employee as compared to those
in effect immediately prior to the Change in Control, or (iii) a transfer of
employment to another Employer facility, subsidiary or affiliate located more
than 50 miles from the Employee's place of employment immediately prior to the
Change in Control.

         For the avoidance of doubt, a termination of an Employee's employment
by the Employee following the occurrence of the following events will not
(absent the occurrence of one of the events described in the preceding sentence)
be considered a termination for Good Reason: a discontinuance of an Employee's
employment due to (i) voluntary resignation, with or without notice, (ii)
voluntary retirement, (iii) death, (iv) a physical or mental condition causing
the Employee's inability to substantially perform his or her duties with the
Employer, including, without limitation, such condition entitling him or her to
benefits under any sick pay or disability




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income policy or program of the Employer, (v) temporary layoff (i.e., a layoff
during which the Employee would be expected to return to work within a defined
period of time), or (vi) the divestiture of a facility of the Employer in which
the Employee works if the Employee is offered employment by the successor
company provided that the Employee continues in the employ of the purchaser and
the purchaser agrees to assume the Employer's responsibilities under this Plan
with respect to such Employee as if the purchaser were the Employer hereunder
and no such sale or disposition had occurred.

         Section 1.14. Key Management Employee. A Salaried Employee with the 
position of Director or above but below Executive Vice President.

         Section 1.15. Plan. The Amended and Restated Kmart Corporation Special 
Severance Plan as now in effect or hereafter amended from time to time.

         Section 1.16. Potential Change in Control. The happening of any of the 
following:

         (a)      the Company enters into an agreement, the consummation of
                  which would result in the occurrence of a Change in Control;

         (b)      any person (including the Company) publicly announces an
                  intention to take or to consider taking actions which if
                  consummated would constitute a Change in Control;

         (c)      any person, other than a trustee or other fiduciary holding
                  securities under an employee benefit plan of the Company (or a
                  Company owned, directly or indirectly, by the stockholders of
                  the Company in substantially the same proportions as their
                  ownership of stock of the Company), who is or becomes the
                  beneficial owner, directly or indirectly, of securities of the
                  Company representing 9.5% or more of the combined voting power
                  of the Company's then outstanding securities, increases his
                  beneficial ownership of such securities by 5% or more over the
                  percentage so owned by such person on the date hereof; or

         (d)      the Board adopts a resolution to the effect that, for purposes
                  of this Plan, a Potential Change in Control has occurred.

         Section 1.17. Salaried Employee. A person who was employed immediately 
prior to a Change in Control and who was a salaried (that is, non-hourly) 
employee of the Company.

         Section 1.18. Senior Management Employee. A Salaried Employee with the 
position of Executive Vice President and above, but excluding in all cases the 
Chief Executive Officer of the Company.

         Section 1.19. Severed Employee. Any Employee who has experienced an 
Employment Severance Date.



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         Section 1.20. Subsidiary. Any corporation, partnership or joint venture
not less than a majority of the voting stock or other voting interest of which 
is owned directly or indirectly by Kmart Corporation.

         Section 1.21. Termination. An involuntary discontinuance of an
Employee's employment from the Employer within two years following a Change in
Control (i) by the Employer for reasons other than Good Cause or(ii) by the
Employee for Good Reason. "Good Cause" means a discontinuance of an Employee's
employment: by the Employer upon (i) an Employee's willful and continued failure
to substantially perform his or her duties with the employer, or (ii) an
Employee's willful engagement in conduct which is demonstrably and materially
injurious to the Employer, monetarily or otherwise. For purposes of this
Section, no act, or failure to act, on an Employee's part shall be deemed
"willful" unless done, or omitted to be done, by the Employee not in good faith
and without reasonable belief that such action or omission was in the best
interest of the Employer.

         Section 1.21. Troy Hourly Employee. A person who is employed by the
Employer immediately prior to a Change in Control on a full-time basis
(regularly scheduled for thirty (30) or more hours per week) at Kmart Resource
Center, Sheffield Plaza, Kmart Tech Center or Royal Oak Annex and who is not a
Salaried Employee.


                                   ARTICLE II

                                Term of the Plan

         The Plan shall commence on the Effective Date and shall continue in
effect for a period of two years following a Change in Control; provided,
however, that the expiration of the term of the Plan shall not adversely affect
the rights of any Employee under the Plan which have accrued prior to the
expiration of the term of the Plan. Notwithstanding the foregoing, prior to a
Change in Control, this Plan shall continue until such time as the Board, acting
in its sole discretion, elects to modify, supersede or terminate this Plan as
provided in Article VI.


                                   ARTICLE III

                                  Beneficiaries

         Each Severed Employee shall have the right to designate a Beneficiary
to receive such Severed Employee's unpaid benefits under Article IV of the Plan
in the event of the Severed Employee's death. If no designated Beneficiary
survives the Severed Employee or if the Severed Employee fails to designate a
Beneficiary, payment of such severance benefits shall be made to and among the
person or persons then living who shall be shown, to the reasonable satisfaction
of the Administrative Committee, to be the person or persons to whom the Severed
Employee's rights shall have passed by Will or the laws of descent and
distribution.


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                                   ARTICLE IV

                                    BENEFITS

         Section 4.01. Amount of Severance Payment. Except as excluded in 
Sections 1.06 or 1.10 hereof, each of the following Severed Employees shall be 
entitled to the following severance payment:

         (a)      Senior Management Employees: an amount equal to three times
                  Annual Base Salary and Annual Target Bonus,


         (b)      Key Management Employees: an amount equal to two times Annual 
                  Base Salary and Annual Target Bonus,

         (c)      All other Salaried Employees: an amount equal to Annual Base 
                  Salary and Annual Target Bonus.

         (d)      Troy Hourly Employees: an amount equal to six months of Annual
                  Base Salary.

         Such severance payment shall be grossed up to cover applicable federal,
state and local income and excise taxes thereon, including, without limitation,
any tax imposed by Section 4999 of the Code or any similar tax.


         Section 4.02. Other Severance Benefits.


         (a)      If a Severed Employee has attained at least eighty-four (84)
                  points under the Company's Employee Retirement Pension Plan,
                  the Employee shall be entitled to a lump sum payment which
                  represents the actuarial present value of the difference
                  between (i) the retirement pension to which the Employee would
                  have been entitled had the Employee been qualified for a "Rule
                  of 90" pension on the Date of Termination and (ii) the
                  retirement pension to which the Employee is actually entitled
                  under the terms of the Company's Employee Retirement Pension
                  Plan as of such date.

         (b)      The Company shall pay a Severed Employee a lump sum payment
                  equal to the premiums for a twenty-four (24) month period of
                  life and health insurance benefits substantially similar to
                  those which the Severed Employee was receiving immediately
                  prior to the Notice of Termination. The Company shall
                  determine the amount of such premiums.

         Section 4.03 Receipt of Severance Benefits. A Severed Employee shall
receive his or her severance benefits, calculated in accordance with Sections
4.01 and 4.02(a), above, in a lump sum payment as soon as practicable following
such Severed Employee's Employment Severance Date. In the event of the Severed
Employee's  death during the period of payment, such Severed Employee's
severance benefits will be paid in accordance with the terms of this
Section 4.03 and Article III.





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                                    ARTICLE V

                                 Administration

         Section 5.01. Administration Committee. The general administration of
the Plan, and the responsibility for carrying out the provisions hereof, shall
be placed in an Administrative Committee appointed by the Board of Directors,
provided, however, that in the event of a Change in Control such Administrative
Committee shall, during the two year period following such Change in Control,
continue to be comprised of the individuals comprising such Committee
immediately prior to the Change in Control (or any successors as such
Administrative Committee shall appoint).

         Section 5.02. Officers and Agents. The members of the Administrative
Committee shall elect one of their members as chairperson and shall also elect a
secretary who may, but need not, be a member of the Administrative Committee;
and may authorize one or more of their number or any agent to execute or deliver
any instrument or make any payment on their behalf, and may employ such clerical
personnel as they may require in carrying out the provisions of the Plan.

         Section 5.03. Meetings and Committee Action. The Administrative
Committee shall hold meetings upon such notice, at such place or places, and at
such time or times, as they may from time to time determine. A majority of the
Administrative Committee may act by meeting (whether in person or by telephone)
or by writing executed without a meeting.

         Section 5.04. Powers. The Administrative Committee shall have complete
control of the administration of the Plan, with all powers necessary to enable
it properly to carry out its duties in that respect. The Administrative
Committee shall be authorized to interpret the Plan and to determine all
questions arising in the administration, construction and application of the
Plan. The decision of the Administrative Committee upon all matters within the
scope of its authority shall be conclusive and binding on all parties.

         Section 5.05. Rules and Regulations. Subject to the limitations of this
Article V, the Administrative Committee, from time, to time shall establish such
supplemental rules and regulations for the administration of the Plan and the
transaction of its business as it deems necessary.

         Section 5.06. Reports. The Administrative Committee shall be
responsible for the preparation and delivery of all reports, notices, plan
summaries and plan descriptions required to be filed with any governmental
office or to be given to any Employee, Severed Employee or Beneficiary.



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         Section 5.07. Employer to Furnish Information. Upon request of the 
Administrative Committee, the Employer shall furnish such information in its 
possession as will aid the Administrative Committee in the performance of its
duties hereunder.

         Section 5.08. Claims Procedure.

         (a)      All claims for benefits shall be in writing and shall be filed
                  with the Administrative Committee.

         (b)      If the Administrative Committee wholly or partially denies an
                  Employee's claim for benefits, the Administrative Committee
                  shall give the claimant written notice within ninety (90) days
                  after the receipt of the claim setting forth.

                  (1)    the specific reason(s) for the denial;

                  (2)    specific reference to pertinent Plan provisions on 
                         which the denial is based;

                  (3)    a description of any additional material or information
                         which must be submitted to perfect the claim, and an
                         explanation of why such material or information is
                         necessary; and

                  (4)    an explanation of the Plan's review procedure.

         (c)      In the event of a benefit claim denial, the Employer shall 
                  appoint a person who is not a member of the Administrative
                  Committee to serve as Claim Reviewer. The claimant shall have
                  sixty (60) days after the day on which such written notice of
                  denial is handed or mailed to him or her by the Administrative
                  Committee, in which to apply (in person or by authorized
                  representative) in writing to the Claim Reviewer for a full
                  and fair review of the denial of his or her claim, which may
                  include a request for a personal meeting with the Claim
                  Reviewer. In connection with such review, the claimant (or his
                  or her representative) shall be afforded a reasonable
                  opportunity to review pertinent documents, and may submit
                  issues and comments in writing. If requested by the claimant,
                  the Claim Reviewer shall arrange a meeting with the claimant
                  and/or representative within thirty (30) days after the Claim
                  Reviewer's receipt of such written request therefor, for the
                  purpose of hearing the claimant's contentions and receiving
                  such relevant evidence as the claimant may wish to offer.

         (d)      The Claim Reviewer shall issue his or her decision on review
                  within sixty (60) after the Claim Reviewer's receipt of the
                  claimant's written request, unless in the sole discretion of
                  the Claim Reviewer special circumstances require an extension
                  to not later than one hundred twenty (120) days after the
                  request, in which case the Claim 



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                  Reviewer will notify the claimant (or his or her
                  representative) in writing of such extension prior to such
                  extension. The decision of the Claim Reviewer shall be in
                  writing and shall set forth specific reasons for the decision
                  and specific references to the pertinent Plan provisions on
                  which the decision is based.

         Section 5.09. Employment of Professional Assistance. The Administrative
Committee is empowered, on behalf of the Plan, to engage accountants, legal
counsel and such other personnel as it deems necessary or advisable to assist it
in the performance of its duties under the Plan. The functions of any such
persons engaged by the Administrative Committee shall be limited to the specific
services and duties for which they are engaged, and such persons shall have no
other duties, obligations or responsibilities under the Plan. Such persons shall
exercise no discretionary authority or discretionary control respecting the
management of the Plan. All reasonable expenses thereof shall be borne by the
Employer.

         Section 5.10. Indemnification of Members of Administrative Committee.
To the extent not insured against by an insurance company pursuant to the
provisions of any applicable insurance policy and to the extent permitted by
law, the Employer shall indemnify and hold harmless each member of the
Administrative Committee against any personal liability or expense incurred by
him or her as a result of any act or omission in his or her capacity as a member
of the Administrative Committee, except for their own gross negligence or
willful misconduct.


                                   ARTICLE VI

                         Plan Amendment and Termination

         Section 6.01. Plan Amendment, Suspension and Termination. Prior to a
Change in Control, the Board of Directors retains the right, at any time and
from time to time, to alter, amend, change, suspend, substitute, delete, revoke
or terminate the Plan in whole or in part, for any reason, and without either
the consent of, or prior notification to any person. The Board of Directors
shall have the right to delegate its authority and power hereunder, or any
portion thereof, to any committee of the Board of Directors, and the right to
rescind any such delegation to such Committee in whole or in part. After a
Change in Control, this Plan no longer shall be subject to alteration,
amendment, change, suspension, substitution, deletion, revocation or termination
in any manner adverse to the Employees.


                                   ARTICLE VII

                                  Miscellaneous

         Section 7.01.   Nonalienation of Benefits.  None of the payments,
benefits or rights of an Employee shall be subject to any claim of any creditor,
and, in particular, to the fullest extent permitted by law,




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all such payments, benefits and rights shall be free from attachment,
garnishment, trustee's process, or any other legal or equitable process
available to any creditor of such Employee. No Employee shall have the right to
alienate, anticipate, commute, pledge, encumber or assign any of the benefits or
payments which he or she may expect to receive, contingently or otherwise, under
this Plan.

         Section 7.02. No Contract of Employment. Neither the establishment of
the Plan, nor any modification thereof, nor the creation of any fund, trust or
account, nor the payment of any benefits shall be construed as giving any
Employee, or any person whomsoever, the right to be retained in the service of
the Employer, and all Employees shall remain subject to discharge to the same
extent as if the Plan had never been adopted.

         Section 7.03. Severability of Provisions. If any provision of the Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof, and this Plan shall be construed
and enforced as if such provisions had not been included.

         Section 7.04. Heirs, Assigns and Personal Representatives. The Plan
shall be binding upon the heirs, executors, administrators, successors and
assigns of the parties, including each Employee, present and future, and any
successor to the Employer.

         Section 7.05. Headings and Captions. The headings and captions herein
are provided for reference and convenience only, shall not be considered part of
the Plan and shall not be employed in the construction of the Plan.

         Section 7.06. Unfunded Plan. The Plan shall not be funded. No Employee
shall have any right to, or interest in, any assets of the Employer which may be
applied by the Employer to the payment of benefits or other rights under this
Plan.

         Section 7.07. Payments to Incompetent Persons, Etc. Any benefit payable
to or for the benefit of a minor, an incompetent person or other person
incapable of giving a receipt therefor shall be deemed paid when paid to such
person's guardian or to the party providing or reasonably appearing to provide
for the care of such person, and such payment shall fully discharge the
Employer, the Administrative Committee and all other parties with respect
thereto.

         Section 7.08. Notices. Any notice or other communication required or
permitted pursuant to the terms of this Plan shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States Mail,
first class, postage prepaid, addressed to the intended recipient at his, her or
its last known address.

         Section 7.09. Controlling Law. This Plan shall be construed an enforced
according to the internal laws of the state of Michigan, without reference to
any conflicts of laws provisions, to the extent not preempted by Federal law,
which shall otherwise control.


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         IN WITNESS WHEREOF, the Company has caused this Amended and Restated
Special Severance Plan to be executed as of the 21st of November 2000.



                                            KMART CORPORATION



                                            By:_________________________


WITNESS:


__________________________



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