Long-Term Cash Incentive Plan - Kmart Corp.

                                KMART CORPORATION
                          LONG-TERM CASH INCENTIVE PLAN



1. PURPOSES; CONSTRUCTION.

   The purposes of the Kmart Corporation Long-Term Cash Incentive Plan (the
"Plan") are to attract and retain highly-qualified executives by providing
appropriate performance-based long-term incentive awards, to align executive and
stockholder interests by creating a direct link between executive compensation
and company performance, thereby enhancing stockholder return, and to provide
incentives to executives to contribute to the success of the Company.

2. DEFINITIONS.

   As used in this Plan, the following words and phrases shall have the
following meanings:

        (a) "Board" shall mean the Board of Directors of the Company.

        (b) "Bonus" shall mean any incentive bonus award granted pursuant to
this Plan; the payment of any such award shall be contingent upon the attainment
of Performance Goals with respect to a Performance Cycle.

        (c) "Change in Control" shall mean the occurrence of an event described
in Section 6(d) hereof.

        (d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.

        (e) "Committee" shall mean the Compensation and Incentives Committee of
the Board.

        (f) "Company" shall mean Kmart Corporation, a corporation organized
under the laws of the State of Michigan, or any successor corporation.

        (g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.

        (h) "Participant" shall mean an officer of the Company (corporate vice
presidents and higher) or one of its Subsidiaries who is eligible to participate
herein pursuant to Article 3 hereof and for whom a target Bonus is established
with respect to the relevant Performance Cycle.

        (i) "Performance Cycle" shall mean the two year period commencing on the
first day of a Plan Year and ending on the last day of the next Plan Year

        (j) "Performance Goal(s)" shall mean the criteria and objectives which
must be met during a Performance Cycle as a condition of the Participant's
receipt of payment with respect to a Bonus, as described in Article 5 hereof.

        (k) "Plan" shall mean this Kmart Corporation Long-Term Cash Incentive
Plan, as amended from time to time.

        (l) "Plan Year" shall mean the Company's fiscal year.

        (m) "Subsidiary" shall mean any subsidiary of the Company which is
designated by the Board or the Committee to have any one or more of its officers
or employees participate in the Plan.

3. ELIGIBILITY.

   Bonuses may be granted hereunder to such officers of the Company and any of
its Subsidiaries as are designated by the Committee. In determining the officers
to whom Bonuses shall be granted, the Committee shall take into account such
factors as the Committee shall deem relevant in connection with accomplishing
the purposes of the Plan.



                                       1


4.  NO STOCK SUBJECT TO PLAN.

    No shares of any stock shall be reserved for, or issued under, the Plan.

5.  PERFORMANCE GOALS.

    Performance Goals may be expressed in terms of (i) the Company's return on
equity, assets, capital or investment, (ii) pre-tax or after-tax profit levels
of the Company, the Subsidiaries, subdivisions thereof, or any combination of
the foregoing, (iii) expense reduction levels; (iv) implementation of critical
projects or processes, (v) changes in market price of the stock, (vi) leadership
effectiveness, (vii) customer satisfaction, (viii) inventory, and/or (ix) any
other goals or objectives the Committee shall deem relevant in connection with
accomplishing the purposes of the Plan. To the extent applicable, any such
Performance Goal shall be determined in accordance with generally accepted
accounting principles and reported upon by the Company's independent
accountants. Performance Goals: (a) shall include the target level of
performance at which 100% Bonus payment shall be made and below which no Bonus
payment shall be made, and a maximum level of performance at which 150% Bonus
payment shall be made and above which no additional Bonus shall be paid; and (b)
may include levels of performance at which specified percentages of the target
Bonus between 100% and 150% shall be paid if and to the extent the Participant
exceeded the Performance Goal(s). The Performance Goals established by the
Committee may be (but need not be) different each Performance Cycle and
different goals may be applicable to different Participants.

6. BONUSES.

   (a) In General. For each Performance Cycle, the Committee shall specify the
Performance Goal(s) applicable to each Participant for such Performance Cycle
and the amount of, or the formula for determining, the target Bonus for each
Participant with respect to such Performance Cycle. A Participant's target Bonus
for each Performance Cycle shall be expressed as either a dollar amount or as a
percentage of the salary midpoint for the Participant's salary grade. Unless
otherwise provided by the Committee in its, or except as set forth in Section
6(d) hereof, payment of a Bonus for a particular Performance Cycle shall: (i) be
made only if and to the extent the Performance Goal(s) with respect to such
Performance Cycle are fully attained and only if the Participant is employed by
the Company or a Subsidiary on the last day of the Performance Cycle; and (ii)
be prorated if the Participant was on a leave of absence for a period greater
than 90 days during the Performance Cycle or was not an eligible Participant for
the entire Performance Cycle.

The actual amount of Bonus payable under the Plan shall be 100% of the target
bonus if the Participant achieved the Performance Goal(s), or be between 100%
and 150% of the target bonus if the Participant exceeded the Performance
Goal(s). No Bonus shall be payable if the Performance Goal(s) have not been
fully achieved. The Committee may, in its discretion, reduce or eliminate the
amount payable to any Participant, in each case based upon such factors as the
Committee may deem relevant, but shall not increase the amount payable to any
Covered Employee.

   (b) Time of Payment. Unless otherwise determined by the Committee, or except
as provided in Section 6(d) hereof, all payments in respect of Bonuses granted
under this Article 6 shall be made within a reasonable period after the end of
the Performance Cycle.

   (c) Form of Payment. The Participant's Bonus payable for any Performance
Cycle (less applicable payroll deductions) shall be paid in cash.

   (d) Change in Control. Notwithstanding any other provision of the Plan to
the contrary, (i) if a "Change in Control" of the Company (as defined in this
Section 6(d)) shall occur following a Performance Cycle as to which the
Committee has determined the actual Bonuses to be paid (but such Bonuses have
not yet been paid), such Bonuses shall be paid immediately in cash, (ii) if a
Change in Control shall occur following a Performance Cycle as to which the
Committee has not yet determined the actual Bonuses to be paid, such Bonuses
shall be immediately determined and paid in cash, and (iii) if a Change in
Control shall occur during a Performance Cycle (but the actual Bonuses to be
paid have not yet been determined), such Performance Cycle shall be deemed to
have been completed, the target levels of performance set forth under the
respective Performance Goals shall be deemed to have been attained and a pro
rata portion of the Bonus so determined for each Participant for such partial
Performance Cycle (based on the number of full and partial months which have
elapsed with respect to such Performance Cycle) shall be paid immediately in
cash to each Participant for whom a target Bonus for such Performance Cycle was
established.

    For purposes of this Article 6, the first to occur of any of the following
events shall be deemed to be a Change in Control of the Company:



                                       2



        (i) the "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities representing more than 33% of the combined voting
power of the Company is acquired by any "person," as defined in sections 13(d)
and 14(d) of the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, or
any corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock of the
Company), or

        (ii) the stockholders of the Company approve a definitive agreement to
merge or consolidate the Company with or into another corporation or to sell or
otherwise dispose of all or substantially all of its assets, or adopt a plan of
liquidation, or

        (iii) during any period of three consecutive years, individuals who at
the beginning of such period were members of the Board cease for any reason to
constitute at least a majority thereof (unless the election, or the nomination
for election by the Company's stockholders, of each new director was approved by
a vote of at least a majority of the directors then still in office who were
directors at the beginning of such period or whose election or nomination was
previously so approved).

7. ADMINISTRATION.

   The Plan shall be administered by the Committee. The Committee shall have
the authority in its sole discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority: to grant Bonuses; to determine the persons to whom
and the time or times at which Bonuses shall be granted; to determine the terms,
conditions, restrictions and performance criteria relating to any Bonus; to make
adjustments in Performance Goals in response to changes in applicable laws,
regulations or accounting principles except as otherwise provided in Section
6(a) hereof; to adjust compensation payable upon attainment of Performance
Goals; to construe and interpret the Plan and any Bonus; to prescribe, amend and
rescind rules and regulations relating to the Plan; and to make all other
determinations deemed necessary or advisable for the administration of the Plan.

The Committee may delegate to one or more of its members or to one or more
agents such administrative duties as it may deem advisable, and the Committee or
any person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding on all persons,
including the Company, a Subsidiary, a Participant (or any person claiming any
rights under the Plan from or through any Participant) and any stockholder.

    No member of the Board or the Committee shall be liable for any action taken
or determination made in good faith with respect to the Plan or any Bonus
granted hereunder.

8. GENERAL PROVISIONS.

   (a) Compliance with Legal Requirements. The Plan and the granting of Bonuses,
and the other obligations of the Company under the Plan shall be subject to all
applicable federal and state laws, rules and regulations, and to such approvals
by any regulatory or governmental agency as may be required.

   (b) No Right To Continued Employment. Nothing in the Plan or in any Bonus
granted pursuant hereto shall confer upon any Participant the right to continue
in the employ of the Company or any of its Subsidiaries or to be entitled to any
remuneration or benefits not set forth in the Plan or to interfere with or limit
in any way the right of the Company or any of its Subsidiaries to terminate such
Participant's employment.

   (c) Withholding Taxes. The Company or Subsidiary employing any Participant
shall deduct from all payments and distributions under the Plan any taxes
required to be withheld by federal, state or local governments.

   (d) Amendment and Discontinuance of the Plan. The Board or the Committee may
at any time and from time to time alter, amend, suspend or discontinue the Plan
in whole or in part. The Committee may also make such amendments as it deems
necessary to comply with applicable laws, rules and regulations. Notwithstanding
the foregoing, no amendment, suspension or discontinuance of the Plan shall
affect adversely any of the rights of any Participant under any Bonus
theretofore granted hereunder without the consent of such Participant.



                                       3



   (e) Participant Rights. No Participant shall have any claim to be granted any
Bonus under the Plan, and there is no obligation for uniformity of treatment of
Participants.

   (f) Unfunded Status of Bonuses. The Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payments which
at any time are not yet made to a Participant pursuant to a Bonus, nothing
contained in the Plan or any Bonus shall give any such Participant any rights
that are greater than those of a general creditor of the Company.

   (g) Governing Law. The Plan and the rights of all persons claiming hereunder
shall be construed and determined in accordance with the laws of the State of
Michigan without giving effect to the choice of law principles thereof, except
to the extent that such law is preempted by federal law.

   (h) Effective Date; Approval of Stockholders. The Plan shall take effect upon
its adoption by the Committee.

August 15, 2001.


                                       4