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                                                                   EXHIBIT 10(O)








                         KMART CORPORATION
                         1998 MANAGEMENT DEFERRED
                         COMPENSATION AND RESTORATION PLAN

                         (Effective January 1, 1998)




















                                                                                

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CONTENTS





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Article 1. Establishment and Purpose                                     1

Article 2. Definitions                                                   1

Article 3. Administration                                                6

Article 4. Eligibility and Participation                                 7

Article 5. Voluntary Deferrals                                           7

Article 6. Mandatory Deferrals                                           8

Article 7. Savings Plan Deferral Restoration                             9

Article 8. Company 401(k) Match Restoration                              9

Article 9. Company Profit Sharing Restoration                           10

Article 10. Discretionary Company Credits                               11

Article 11. Participant Accounts and the Rabbi Trust                    12

Article 12. Allocation of Prior Deferrals and Company Credits           14

Article 13. Beneficiary Designation                                     15

Article 14. Withholding of Taxes                                        15

Article 15. Employment/Misconduct                                       15

Article 16. Amendment and Termination                                   16

Article 17. Miscellaneous                                               16



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KMART CORPORATION 1998 MANAGEMENT
DEFERRED COMPENSATION AND RESTORATION PLAN

ARTICLE 1. ESTABLISHMENT AND PURPOSE
      1.1 ESTABLISHMENT. Kmart Corporation, a Michigan corporation (together
with its participating subsidiaries, the "Company"), hereby establishes,
effective as of January 1, 1998 (the "Effective Date"), a deferred compensation
and savings restoration plan for key management employees as described herein,
which shall be known as the "Kmart Corporation 1998 Management Deferred
Compensation and Restoration Plan" (the "Plan").

      1.2 PURPOSE. The primary purpose of the Plan is to provide key management
employees of the Company with the opportunity to defer a portion of their
compensation and to restore certain retirement benefits lost due to statutory
limits imposed by the Code, subject to the terms of the Plan. By adopting the
Plan, the Company desires to enhance its ability to attract and retain key
management employees.

ARTICLE 2. DEFINITIONS
      2.1 DEFINITIONS. Whenever used herein, the following terms shall have the
meanings set forth below, and when the meaning is intended, the term is
capitalized:

              (a)    "Accrued Account Balances" means the then current aggregate
                     account balances of a Participant through a specific date
                     in question, including Voluntary Deferrals (as described in
                     Article 5 hereof), Mandatory Deferrals (as described in
                     Article 6 hereof), Savings Plan Deferral Restoration (as
                     described in Article 7 hereof), Company 401(k) Match
                     Restoration (as described in Article 8 hereof), Company
                     Profit Sharing Restoration (as described in Article 9
                     hereof), Discretionary Company Credits (as described in
                     Article 10 hereof), and earnings thereon (as described in
                     Article 11 hereof).

              (b)    "Accrued Rabbi Trust Obligations" means the then current
                     Accrued Account Balances of all Participants through a
                     specific date in question, except for amounts credited to
                     Treasury Note Accounts.

              (c)    "Base Salary" means all regular basic wages earned by a
                     Participant for services rendered during a Plan Year,
                     before any deductions. (See Section 5.2 for an explanation
                     of the amount of Base Salary that may be deferred by a Tier
                     I Participant.)

              (d)    "Beneficial Ownership" has the same meaning ascribed to
                     such term in Rule 13d-3 of the General Rules and
                     Regulations under the Exchange Act.

              (e)    "Board" or "Board of Directors" means the Board of 
                     Directors of Kmart Corporation.




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              (f)    "Change in Control" of Kmart Corporation is deemed to have
                     occurred as of the first day that any one or more of the
                     following conditions shall have been satisfied:

                      (i)     The "Beneficial Ownership" of securities
                              representing more than thirty-three percent (33%)
                              of the combined voting power of Kmart Corporation
                              is acquired by any "person" as defined in Sections
                              13(d) and 14(d) of the Exchange Act (other than
                              Kmart Corporation, any trustee or other fiduciary
                              holding securities under an employee benefit plan
                              of Kmart Corporation, or any corporation owned,
                              directly or indirectly, by the stockholders of
                              Kmart Corporation in substantially the same
                              proportions as their ownership of stock of Kmart
                              Corporation); or

                      (ii)    The stockholders of Kmart Corporation approve a
                              definitive agreement to merge or consolidate Kmart
                              Corporation 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
                              stockholders of Kmart Corporation, 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).

              (g)    "Closing Price" means the last price at which the Common
                     Stock shall have been sold on the specific date in
                     question, or if no such sale was made on such date then on
                     the next preceding day on which there was such a sale of
                     Common Stock. The price shall be as reported on the
                     Composite Transactions reporting system, or if not so
                     reported, as reported by the New York Stock Exchange.

              (h)    "Code" means the Internal Revenue Code of 1986, as amended
                     from time to time.

              (i)    "Committee" means the Compensation and Incentives Committee
                     of the Board (or such other committee as designated by the
                     Board as a successor thereto) which has the authority to
                     administer the Plan.

              (j)    "Common Stock" means the common stock of Kmart Corporation.

              (k)    "Company Stock Fund" has the same meaning ascribed to such
                     term in the Retirement Savings Plan.

              (l)    "Compensation" has the same meaning ascribed to such term
                     in the Retirement Savings Plan. (See Section 7.2 for an
                     explanation of the amount of Compensation that may be
                     deferred by a Tier II Participant.)




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              (m)    "Disability" has the same meaning ascribed to such term in
                     Kmart Corporation's long-term disability plan.

              (n)    "Discretionary Company Credits Account" has the meaning set
                     forth in Section 10.2 hereof.

              (o)    "Employee Directed Contributions" has the same meaning
                     ascribed to such term in the Retirement Savings Plan.

              (p)    "Employer Matching Contributions" has the same meaning
                     ascribed to such term in the Retirement Savings Plan.

              (q)    "ERISA" means the Employee Retirement Income Security Act
                     of 1974, as amended from time to time, or any successor
                     thereto.

              (r)    "Exchange Act" means the Securities Exchange Act of 1934,
                     as amended from time to time, or any successor act thereto.

              (s)    "Form of Payout" means a Participant's elected method of
                     payout. A Participant may choose from either (i) a Lump-Sum
                     Payment or (ii) Installment Payments. If no Form of Payout
                     is elected, then payment will be made in a Lump-Sum
                     Payment.

                     A Participant may at any time at least twelve (12) months
                     prior to a Payout Commencement Date, petition the Committee
                     to change the Form of Payout previously elected by such
                     Participant to a different Form of Payout otherwise
                     available under the Plan (i.e., a Lump-Sum Payment or
                     Installment Payments).

                     If a Participant remains employed with the Company through
                     a Payout Commencement Date, and if the Accrued Account
                     Balances payable on such Payout Commencement Date are less
                     than ten thousand dollars ($10,000), then, regardless of
                     any Form of Payout election(s) made by a Participant to
                     receive or continue to receive Installment Payments
                     thereon, such Accrued Account Balances shall be paid on
                     such Payout Commencement Date, or as soon as
                     administratively practicable thereafter, in a Lump-Sum
                     Payment.

                     If a Participant's employment with the Company terminates
                     for any reason and the Participant's Accrued Account
                     Balances payable on any coincident or future Payout
                     Commencement Date are individually less than ten thousand
                     dollars ($10,000) at the time of such termination of
                     employment, then all Accrued Account Balances payable on
                     such Payout Commencement Date(s) shall be paid in a
                     Lump-Sum Payment as soon as administratively practicable,
                     regardless of the Participant's previous elections.

                     If a Participant's employment with the Company terminates
                     due to Disability or death, and the Participant's Accrued
                     Account Balances payable on any coincident or future Payout
                     Commencement Date are individually equal to or greater than
                     ten thousand dollars ($10,000), such Participant, or such
                     Participant's estate, as the




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                     case may be, may petition the Committee to pay out all such
                     Accrued Account Balances in a single Lump-Sum Payment as
                     soon as administratively practicable regardless of the
                     Participant's previous elections. In the case of employment
                     termination due to Disability, the termination shall be
                     deemed to have occurred on the day that the Committee, or
                     the Committee's designee, determines the Disability to be
                     total and permanent. The decision of whether to allow for
                     an accelerated Lump-Sum Payment shall be at the discretion
                     of the Committee.

              (t)    "Installment Payments" means a series of payments, from two
                     (2) up to twenty (20) approximately equal annual payments,
                     as elected by the Participant, to be made in cash with the
                     initial payment due within thirty (30) calendar days after
                     the applicable Payout Commencement Date elected by the
                     Participant. Each of the remaining Installment Payments
                     shall be made in cash each year thereafter on the
                     anniversary of such Payout Commencement Date, until all
                     Accrued Account Balances deferred to such Payout
                     Commencement Date have been paid in full. Earnings shall
                     continue to accrue on any remaining Accrued Account
                     Balances in the manner provided in Section 11.2 hereof
                     until all Accrued Account Balances deferred to such Payout
                     Commencement Date have been paid in full. The amount of
                     each Installment Payment shall be equal to the applicable
                     portion of the Accrued Account Balances remaining
                     immediately prior to each such payment, multiplied by a
                     fraction, the numerator of which is one (1), and the
                     denominator of which is the number of Installment Payments
                     remaining to be paid (including such payment).

              (u)    "Investment Funds" has the same meaning ascribed to such
                     term in the Retirement Savings Plan.

              (v)    "Lump-Sum Payment" means a single payment to be made in
                     cash within thirty (30) calendar days after the applicable
                     Payout Commencement Date.

              (w)    "Mandatory Deferral Account" has the meaning set forth in
                     Section 6.1 hereof.

              (x)    "Match Restoration Account" has the meaning set forth in
                     Section 8.2 hereof.

              (y)    "Participant" means any Tier I Participant or Tier II
                     Participant.

              (z)    "Payout Commencement Date" means a date irrevocably elected
                     by a Participant, or as otherwise provided herein, upon
                     which payment of Accrued Account Balances begins.

                     A Payout Commencement Date shall be no earlier than one
                     year following the end of the year in which amounts
                     deferred hereunder are otherwise earned, and no later than
                     the January following the Participant's sixty-fifth (65th)
                     birthday. No limit exists on the number of different Payout
                     Commencement Dates that can be elected by each Participant.




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                     If no Payout Commencement Date is specified by a
                     Participant for any Voluntary Deferrals or Savings Plan
                     Deferral Restorations, then payout of these amounts shall
                     occur in the January following the Participant's
                     termination of employment.

                     All Company Profit Sharing Restoration and Company 401(k)
                     Match Restoration shall automatically be paid out beginning
                     in the January following the Participant's termination of
                     employment.

              (aa)   "Plan Year" means the calendar year.

              (ab)   "Predecessory Deferral/Restoration Arrangements" has the
                     meaning set forth in Article 12 hereof.

              (ac)   "Profit Sharing Contributions" has the same meaning
                     ascribed to such term in the Retirement Savings Plan.

              (ad)   "Profit Sharing Restoration Account" has the meaning set
                     forth in Section 9.2 hereof.

              (ae)   "Rabbi Trust" means a grantor trust, as intended by
                     Sections 671-678 of the Code, established by Kmart
                     Corporation for the benefit of Participants and their
                     beneficiaries.

              (af)   "Retirement Savings Plan" means the Kmart Corporation
                     Retirement Savings Plan B.

              (ag)   "Retirement Savings Plan Deferral Restoration Account" has
                     the meaning set forth in Section 7.2 hereof.

              (ah)   "Stock Unit" means a bookkeeping entry for the value of the
                     Common Stock equal to the Closing Price of the Common Stock
                     on a specific day.

              (ai)   "Stock Unit Subaccount" means the bookkeeping account
                     established for a Participant which is credited with Stock
                     Units equal to the number of shares of Common Stock
                     (including fractions of a share) that could have been
                     purchased with the corresponding amount of Company 401(k)
                     Match Restoration (as provided under Article 8 hereof) at
                     the Closing Price of the shares of Common Stock on the date
                     as of which such Stock Unit Subaccount is so credited. The
                     Stock Unit Subaccount shall be reduced in a similar manner
                     as of the day that any amount is distributed, based on the
                     Closing Price of the Common Stock on the date in question.

                     As of the date any dividend is paid to holders of shares of
                     Common Stock, a Participant's Stock Unit Subaccount shall
                     be credited with additional Stock Units equal to the number
                     of shares of Common Stock (including fractions of a share)
                     that could have been purchased, at the Closing Price of a
                     share of Common Stock on such date, with the amount that
                     would have been paid as dividends on that




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                     number of shares of Common Stock (including fractions of a
                     share) which is equal to the number of Stock Units
                     attributable to the Participant's Stock Unit Subaccount as
                     of the record date of such dividend. In the case of
                     dividends paid in property, the amount of the dividend
                     shall be deemed to be the fair market value of the property
                     at the time of the payment thereof, as determined by the
                     Committee. A distribution from the Stock Unit Subaccount
                     shall be paid in an amount of cash equal to the product of
                     (i) the number of Stock Units distributable and (ii) the
                     Closing Price.

              (aj)   "Tier I Participant" means each key management employee
                     designated by the Board as a Senior Officer of the Company,
                     each Divisional Vice President, each Operations Vice
                     President, each Regional Vice President, and each other
                     person so designated by the Committee.

              (ak)   "Tier II Participant" means each key management employee of
                     the Company, except for Tier I Participants, who (i) is
                     qualified to participate in the Retirement Savings Plan;
                     and (ii) experiences a cutback in Employee Directed
                     Contributions, Employer Matching Contributions, and/or
                     Profit Sharing Contributions due to the limitations imposed
                     by the Code; and (iii) meets such other qualification
                     standards (including pay level) as determined by the
                     Committee from time to time, and who is thereby selected
                     for participation in the Plan by the Committee.

              (al)   "Treasury Note Account" means a separate bookkeeping
                     account not funded by the Rabbi Trust, to be maintained by
                     the Company, that shall offer a rate of return equal to the
                     average ten (10) year U.S. Treasury Note rate for the most
                     recently ended calendar quarter plus five percent (5%).

              (am)   "Voluntary Deferral Account" has the same meaning set forth
                     in Section 5.2 hereof.

      2.2 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.

ARTICLE 3. ADMINISTRATION
      3.1 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee except as limited by law or by the Articles of Incorporation or the
Bylaws of Kmart Corporation. Subject to the terms hereof, the Committee shall
have full power to (a) determine the terms and conditions of each Participant's
participation in the Plan; (b) construe and interpret the Plan and any agreement
or instrument entered into under the Plan; (c) establish, amend, or waive rules
and regulations for the Plan's administration; (d) amend (subject to the
provisions of Article 16 hereof) the terms and conditions of the Plan and any
agreement or instrument entered into under the Plan; (e) designate one or more
persons to administer the Plan; and (f) make other determinations which may be
necessary or advisable for the administration of the Plan.




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      3.2 DECISIONS BINDING. All determinations and decisions of the Committee
as to any disputed question arising under the Plan, including questions of
construction and interpretation, shall be final, conclusive, and binding on all
parties.

ARTICLE 4. ELIGIBILITY AND PARTICIPATION
      4.1 ELIGIBILITY. Eligibility to participate in the Plan will be limited to
Tier I Participants and Tier II Participants. In the event a Participant no
longer meets the requirements for eligibility to participate in the Plan, such
Participant shall become an inactive Participant retaining all of the rights
described under the Plan pertaining to such Participant's then Accrued Account
Balances, except the right to make any further deferrals hereunder and the right
to receive any further Company credits. An inactive Participant may become an
active Participant again in the future.

      4.2 PARTICIPATION. When a Participant first becomes eligible to
participate in the Plan, such Participant shall, as soon as practicable
thereafter, be notified of his or her eligibility to participate. At such time,
or as soon as administratively practicable thereafter, all Participants shall be
provided with deferral and investment election form(s); such election forms must
be completed and returned, within the time period specified, to the Company in
order for the Participant to participate in the Plan.

ARTICLE 5. VOLUNTARY DEFERRALS
      5.1 PARTICIPATION. Eligibility to defer Base Salary pursuant to the terms
of this Article 5 shall be limited to Tier I Participants.

      5.2 DEFERRAL. Prior to the beginning of the Plan Year in which the Base
Salary is otherwise earned, each Tier I Participant may voluntarily elect to
defer up to one hundred percent (100%) of his or her Base Salary for that Plan
Year. Subject to the terms hereof, such election shall be irrevocable for the
Plan Year in question. Amounts deferred pursuant to this Section 5.2, and
earnings thereon, shall be credited to such Participant's Voluntary Deferral
Account. Each Participant shall be one hundred percent (100%) vested in amounts
deferred pursuant to this Section 5.2, and earnings thereon, at all times.

      Notwithstanding anything herein to the contrary, the amount of Base Salary
that a Tier I Participant may defer pursuant to this Section 5.2 shall be
limited by (a) amounts deferred pursuant to the Retirement Savings Plan; (b)
amounts withheld for applicable federal, state, and local taxes; (c) amounts
deducted pursuant to any insurance or benefit program; (d) voluntary payroll
deductions (e.g., United Way contributions); (e) involuntary payroll deductions
(e.g., garnishments); and (f) all other proper deductions, as determined by the
Committee.

      5.3 PARTIAL PLAN YEAR PARTICIPATION. In the event a Tier I Participant
first becomes eligible to participate in the Plan after the beginning of a Plan
Year, the Committee may, in its discretion, allow such Participant to complete a
deferral election form and investment election form within thirty (30) calendar
days of becoming eligible to participate.




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      5.4 DEFERRAL ELECTION. Tier I Participants shall make elections to defer
Base Salary prior to the beginning of the Plan Year in which the Base Salary is
otherwise earned, or not later than thirty (30) calendar days following
notification of initial eligibility to participate for a partial Plan Year, as
applicable. The deferral election shall apply only to Base Salary earned
subsequent to the first day of the month following the date on which a valid
deferral election form is received by the Committee or the Committee's designee.
Each such election shall indicate the following:

              (a)    The amount of Base Salary earned during the Plan Year to be
                     deferred, which shall be irrevocable pursuant to Section
                     5.2 hereof;

              (b)    The Payout Commencement Date for the deferred Base Salary,
                     and earnings thereon, which shall be irrevocable pursuant
                     to Section 5.5 hereof; and

              (c) The Form of Payout pursuant to Section 2.1(s) hereof.

      5.5 LENGTH OF DEFERRAL AND FORM OF PAYOUT. Subject to Section 2.1(z)
hereof, each Tier I Participant may irrevocably elect the length of deferral of
Base Salary deferred each Plan Year by designating a corresponding Payout
Commencement Date for such deferral. The Form of Payout will be as elected by
such Participant pursuant to Section 2.1(s) hereof.

ARTICLE 6. MANDATORY DEFERRALS
      6.1 DEFERRAL. If the Committee in its discretion determines that, with
respect to any tax year, a Participant is a "covered employee" for purposes of
Section 162(m) of the Code, the Committee shall impose a mandatory deferral of
all amounts otherwise payable to such employee by the Company to the extent that
such amounts meet the definition of "applicable employee remuneration" (as such
term is defined in Section 162(m) of the Code) and such amounts exceed
$1,000,000 (or such other amount as may be specified by Section 162(m) from time
to time) as determined by the Committee.

      Amounts required to be deferred pursuant to this Section 6.1 shall be
credited to such Participant's Mandatory Deferral Account. Each Participant
shall be one hundred percent (100%) vested in amounts deferred pursuant to this
Section 6.1, and earnings thereon, at all times.

      6.2 LENGTH OF DEFERRAL. All amounts deferred pursuant to Section 6.1
hereof, and earnings thereon, shall be paid out to the Participant on the
earliest date on which such amounts can be received by such Participant without
subjecting the Company to a loss of deductibility (due to Section 162(m) of the
Code) with respect to any part of such amounts. However, subject to Section
2.1(z) hereof, a Participant can make an irrevocable election to have these
amounts deferred to a later Payout Commencement Date at which time no loss of
the Company deduction would occur (due to Section 162(m)); such election must be
made prior to lapse of the restriction set forth in this Section 6.2.

      6.3 FORM OF PAYOUT. Subject to Sections 6.2 and 6.4 hereof, the payout of
Mandatory Deferrals, and earnings thereon, will be in a Lump-Sum Payment to the
extent not deferred by the Participant to a Payout Commencement Date. If
deferred to a Payout Commencement Date, the Form of Payout will be as elected by
such Participant pursuant to Section 2.1(s) hereof.




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      6.4 COMMITTEE DISCRETION. In the event that any payment under this Plan
would cause the Company a loss of deductibility (due to Section 162(m)), the
Committee reserves the right hereunder to (i) delay such payment; (ii) require
additional mandatory deferrals to offset such payment; or (iii) to take any
other action necessary and appropriate to avoid such loss of deductibility.

ARTICLE 7. SAVINGS PLAN DEFERRAL RESTORATION
      7.1 PARTICIPATION. Eligibility to defer Compensation pursuant to the terms
of this Article 7 shall be limited to Tier II Participants.

      7.2 DEFERRAL. Prior to the beginning of the Plan Year in which the
Compensation is otherwise earned, each Tier II Participant may voluntarily elect
to defer up to ten percent (10%) of his or her Compensation for that Plan Year.
Subject to the terms hereof, such election shall be irrevocable for the Plan
Year in question. Amounts deferred pursuant to this Section 7.2, and earnings
thereon, shall be credited to such Participant's Retirement Savings Plan
Deferral Restoration Account. Each Participant shall be one hundred percent
(100%) vested in amounts deferred pursuant to this Section 7.2, and earnings
thereon, at all times.

      7.3 PARTIAL PLAN YEAR PARTICIPATION. In the event a Tier II Participant
first becomes eligible to participate in the Plan after the beginning of a Plan
Year, such Participant must wait until the following Plan Year to be eligible to
make deferrals pursuant to this Article 7.

      7.4 DEFERRAL ELECTION. Tier II Participants shall make elections to defer
Compensation prior to the beginning of the Plan Year in which the Compensation
is otherwise earned. Each such election shall indicate the following:

              (a)    The amount of Compensation (up to ten percent (10%)) earned
                     during the Plan Year to be deferred, which shall be
                     irrevocable pursuant to Section 7.2 hereof;

              (b)    The Payout Commencement Date for the deferred Compensation,
                     and earnings thereon, which shall be irrevocable pursuant
                     to Section 7.5 hereof; and

              (c)    The Form of Payout, pursuant to Section 2.1(s) hereof.

      7.5 LENGTH OF DEFERRAL AND FORM OF PAYOUT. Subject to Section 2.1(z)
hereof, each Tier II Participant may irrevocably elect the length of deferral of
Compensation deferred each Plan Year by designating a corresponding Payout
Commencement Date for such deferral, and earnings thereon. The Form of Payout
will be as elected by such Participant pursuant to Section 2.1(s) hereof.

ARTICLE 8. COMPANY 401(K) MATCH RESTORATION
      8.1 PARTICIPATION. Subject to Section 8.3 hereof, Tier I Participants, who
are eligible to participate in the Retirement Savings Plan and experience a
cutback in Employer Matching Contributions due to the limitations imposed by the
Code, and Tier II Participants, who are employed with the Company at the
beginning of a Plan Year, shall be eligible to receive Company credits pursuant
to this Article 8 for such Plan Year.




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      8.2 COMPANY 401(K) MATCH RESTORATION. For each Plan Year in which an
employee is eligible to receive Company credits pursuant to this Article 8, the
Company will credit to such Participant's Match Restoration Account an amount
equal to the excess of (a) over (b):

              (a)    The Employer Matching Contribution that would have been
                     credited to the Participant's account for that Plan Year
                     under the Retirement Savings Plan had the contribution been
                     based on the Participant's total Compensation for the Plan
                     Year (including all deferred compensation), unreduced by
                     tax-qualified plan limits of the Code, and increased by
                     amounts deferred pursuant to the Retirement Savings Plan.

              (b)    The actual Employer Matching Contribution credited to the
                     Participant's account for that Plan Year under the
                     Retirement Savings Plan.

      Each Participant hired before April 1, 1997 shall be one hundred percent
(100%) vested in amounts credited to such Participant's Match Restoration
Account pursuant to this Section 8.2, and earnings thereon, at all times; each
Participant hired on or after April 1, 1997 shall become one hundred percent
(100%) vested in amounts credited to such Participant's Match Restoration
Account pursuant to this Section 8.2, and earnings thereon, upon the date such
Participant becomes one hundred percent (100%) vested in Employer Matching
Contributions credited to such Participant under the Retirement Savings Plan.
Notwithstanding the immediately preceding sentence, a Participant, who is an
active employee of the Company, automatically becomes one hundred percent (100%)
vested in amounts credited to such Participant's Match Restoration Account
pursuant to this Section 8.2, and earnings thereon, upon such Participant's
sixty-fifth (65th) birthday or death.

      8.3 PARTIAL PLAN YEAR PARTICIPATION. In the event a Participant first
becomes eligible to participate in the Plan after the beginning of a Plan Year,
such Participant must wait until the following Plan Year to be eligible to
accrue Company credits pursuant to this Article 8. Notwithstanding the
immediately preceding sentence, the Committee may, in its discretion, allow such
Participant to participate during such partial Plan Year.

      8.4 LENGTH OF DEFERRAL AND FORM OF PAYOUT. Subject to Section 2.1(z)
hereof, any vested amounts credited to a Participant's Match Restoration Account
pursuant to Section 8.2 hereof, and earnings thereon, shall be paid out to the
Participant beginning in the January following such Participant's termination of
employment with the Company. The Form of Payout will be as elected by such
Participant pursuant to Section 2.1(s) hereof.

ARTICLE 9. COMPANY PROFIT SHARING RESTORATION
      9.1 PARTICIPATION. Subject to Section 9.3 hereof, Tier I Participants, who
are eligible to participate in the Retirement Savings Plan and experience a
cutback in Profit Sharing Contributions due to the limitations imposed by the
Code, and Tier II Participants, who are employed with the Company on December 31
of a Plan Year, shall be eligible to receive Company credits pursuant to this
Article 9 for such Plan Year.


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      9.2 COMPANY PROFIT SHARING RESTORATION. For each Plan Year in which an
employee is eligible to receive Company credits pursuant to this Article 9, the
Company will credit to such Participant's Profit Sharing Restoration Account an
amount equal to the excess of (a) over (b):

              (a)    The Profit Sharing Contribution that would have been
                     credited to the Participant's account for the Plan Year
                     under the Retirement Savings Plan had the contribution been
                     based on the Participant's total Compensation for the Plan
                     Year (including all deferred compensation), unreduced by
                     tax-qualified plan limits of the Code, and increased by
                     amounts deferred pursuant to the Retirement Savings Plan.

              (b)    The actual Profit Sharing Contribution credited to the
                     Participant's account for that Plan Year under the
                     Retirement Savings Plan.

      Each Participant shall become one hundred percent (100%) vested in amounts
credited to such Participant's Profit Sharing Restoration Account pursuant to
this Section 9.2, and earnings thereon, automatically upon the first to occur of
(a) five (5) years of service with the Company; (b) such Participant's
sixty-fifth (65th) birthday; or (c) such Participant's death.

      Company credits credited to Participants pursuant to this Section 9.2
shall in no way reduce amounts available to the Company to make Profit Sharing
Contributions under the Retirement Savings Plan.

      9.3 PARTIAL PLAN YEAR PARTICIPATION. In the event a Participant first
becomes eligible to participate in the Plan after the beginning of a Plan Year,
such Participant must wait until the following Plan Year to be eligible to
accrue Company credits pursuant to this Article 9. Notwithstanding the
immediately preceding sentence, the Committee may, in its discretion, allow such
Participant to participate during such partial Plan Year.

      9.4 LENGTH OF DEFERRAL AND FORM OF PAYOUT. Subject to Section 2.1(z)
hereof, any vested amounts credited to a Participant's Profit Sharing
Restoration Account pursuant to Section 9.2 hereof, and earnings thereon, shall
be paid out to the Participant beginning in the January following such
Participant's termination of employment with the Company. The Form of Payout
will be as elected by such Participant pursuant to Section 2.1(s) hereof.

ARTICLE 10. DISCRETIONARY COMPANY CREDITS
      10.1 PARTICIPATION. Employees designated by the Committee in its
discretion are eligible to receive Company credits pursuant to this Article 10.

      10.2 DISCRETIONARY COMPANY CREDITS. In addition to the Company 401(k)
Match Restoration and Company Profit Sharing Restoration, as set forth in
Sections 8.2 and 9.2 hereof, the Committee in its discretion may cause
additional Company credits to be credited to the Discretionary Company Credits
Account of any Participant, or group of Participants, for any reason whatsoever.
The Committee shall establish rules and procedures for, and the terms of, such
credits.




                                       11
<PAGE>   14


ARTICLE 11. PARTICIPANT ACCOUNTS AND THE RABBI TRUST
      11.1 PARTICIPANT ACCOUNTS. The Company shall establish and maintain
individual bookkeeping accounts for each Participant's Accrued Account Balances.
Each component of a Participant's Accrued Account Balances shall be credited to
such Participant's bookkeeping account as soon as administratively practicable
following the date such credits can first be calculated. The establishment and
maintenance of such accounts, however, shall not be construed as entitling any
Participant to any specific asset of the Company.

      Each Participant who has a balance in any account will be furnished a
statement of his or her Accrued Account Balances at least annually.

      11.2 INVESTMENT ELECTIONS. All Accrued Account Balances shall be credited
with earnings based upon the rate of return actually achieved by the underlying
investments, as described in this Section 11.2.

              (a) Amounts credited to a Participant's Voluntary Deferral Account
      shall be invested as elected by such Participant in one or more Investment
      Funds, except the Company Stock Fund and other investment choices excluded
      due to applicable law or regulation or by action of the Committee.

              (b) Amounts credited to a Participant's Mandatory Deferral Account
      shall be invested as elected by the Participant in one or more Investment
      Funds, except the Company Stock Fund and other investment choices excluded
      due to applicable law or regulation or by action of the Committee.
      Notwithstanding the immediately preceding sentence, amounts credited to
      the Mandatory Deferral Account of a Participant who has a preexisting
      Treasury Note Account balance, due to credits to such Treasury Note
      Account pursuant to Section 12(b) hereof, shall continue to be invested in
      such Participant's Treasury Note Account, unless the Participant elects to
      voluntarily have such amounts invested in one or more Investment Funds,
      except the Company Stock Fund and other investment choices excluded due to
      applicable law or regulation or by action of the Committee. Amounts
      deferred into the Treasury Note Account shall be general asset obligations
      of the Company, and shall not be eligible for payment out of Rabbi Trust
      assets. Once a Participant who has a balance in his or her Treasury Note
      Account elects to have amounts deferred pursuant to Section 6.1 hereof
      invested in anything other than the Treasury Note Account, then such
      Participant may never again elect to have amounts deferred pursuant to
      Section 6.1 hereof invested in the Treasury Note Account. Notwithstanding
      anything herein to the contrary, once the restriction set forth in Section
      6.2 hereof is no longer applicable to a Participant, any amounts invested
      in the Treasury Note Account shall thereafter be invested as elected by
      such Participant in one or more Investment Funds, except the Company Stock
      Fund and other investment choices excluded due to applicable law or
      regulation or by action of the Committee.

              (c) Amounts credited to a Participant's Match Restoration Account
      shall be automatically invested in the Stock Unit Subaccount. Once a
      Participant reaches age fifty-five (55), all or any part of amounts
      credited both before or after age fifty-five (55), to such Participant's
      Match Restoration Account shall be invested as elected by each Participant
      in either (i) the Stock Unit Subaccount; or (ii) one or more Investment
      Funds, except the Company Stock




                                       12
<PAGE>   15


      Fund and other investment choices excluded due to applicable law or
      regulation or by action of the Committee. No such transfer is allowed
      prior to a Participant's fifty-fifth (55th) birthday. A Participant may
      not transfer amounts into the Stock Unit Subaccount from any other
      account. Once amounts are transferred out of the Stock Unit Subaccount,
      they cannot be transferred back into this investment choice.

              (d) Amounts credited to a Participant's Profit Sharing Restoration
      Account shall be invested as elected by such Participant in one or more
      Investment Funds, except the Company Stock Fund and other investment
      choices excluded due to applicable law or regulation or by action of the
      Committee.

              (e) Amounts credited to a Participant's Retirement Savings Plan
      Deferral Restoration Account shall be invested as elected by such
      Participant in one or more Investment Funds, except the Company Stock Fund
      and other investment choices excluded due to applicable law or regulation
      or by action of the Committee.

              (f) Amounts credited to a Participant's Discretionary Company
      Credits Account shall be invested pursuant to the rules and procedures
      determined by the Committee in its discretion.

      Participants shall be permitted to change their investment elections in
the same frequency as participants under the Retirement Savings Plan.

      Notwithstanding anything herein to the contrary, the Committee reserves
the right to (a) change the number and availability of the investment
alternatives at any time; and (b) not actually invest deferrals and/or Company
credits into the investment alternatives elected by each Participant.

      11.3 CHARGES AGAINST ACCOUNTS. There shall be charged against each
Participant's Accrued Account Balances any payments made thereunder to the
Participant or to his or her beneficiary.

      11.4 ESTABLISHMENT OF A RABBI TRUST. As soon as administratively
practicable following the Effective Date, Kmart Corporation shall establish an
irrevocable Rabbi Trust, governed by a Rabbi Trust Agreement (which shall be a
grantor trust within the meaning of Code Sections 671-678) for the benefit of
Participants and beneficiaries of Participants, as appropriate and applicable.
The Rabbi Trust shall have an independent Trustee (such Trustee to have a
fiduciary duty to carry out the terms and conditions of the Trust) as selected
by the Company, and shall have restrictions as to the Company's ability to amend
the Trust or to cancel benefits provided thereunder.

      Assets contained in the Rabbi Trust shall at all times be specifically
subject to the claims of Kmart Corporation's general creditors in the event of
insolvency; such term shall be specifically defined within the provisions of the
Rabbi Trust, along with a required procedure for notifying the Trustee of any
such insolvency.

      All benefits hereunder, except for benefits associated with the Treasury
Note Account, shall be paid first from the Rabbi Trust, to the extent assets
exist in the Rabbi Trust and then, as necessary, by Kmart Corporation from
general assets. All amounts payable pursuant to the Treasury Note Account shall
be paid by Kmart Corporation from general assets.




                                       13
<PAGE>   16




      11.5 FUNDING OF THE RABBI TRUST. At the discretion of the Committee, Kmart
Corporation may contribute cash, cash equivalents, and/or Kmart Stock to the
Rabbi Trust, for the benefit of Participants and beneficiaries of Participants,
as the Committee deems appropriate. It is intended that the Rabbi Trust will be
fully funded at all times to cover the Accrued Rabbi Trust Obligations of Kmart
Corporation. Upon a Change in Control, Kmart Corporation shall be required to
make an immediate contribution to the Rabbi Trust to cause all Accrued Rabbi
Trust Obligations to be fully or overfunded as of that date.

ARTICLE 12. ALLOCATION OF PRIOR DEFERRALS AND COMPANY CREDITS
      Any outstanding Participant deferrals and Company 401(k) match or profit
sharing restoration amounts, and earnings thereon, credited to any Participant
account under either the Kmart Corporation Supplemental Savings Plan or the
Kmart Corporation Executive Deferred Compensation Plan (together the
"Predecessory Deferral/Restoration Arrangements"), as of the Effective Date of
this Plan, shall be withdrawn and automatically transferred to such
Participant's account under this Plan within ninety (90) calendar days from the
Effective Date, or as soon as otherwise administratively practicable.

      Amounts transferred pursuant to this Article 12 shall be invested as
follows:

      (a)     Amounts transferred, and earnings thereon, that meet the
              definition of Employer Matching Contributions and that were
              originally credited to a Participant under the Kmart Corporation
              Supplemental Savings Plan shall be invested pursuant to Section
              11.2(c) hereof;

      (b)     Amounts transferred, and earnings thereon, that meet the
              definition of Mandatory Deferrals and that were originally
              credited to a Participant pursuant to Section 2(b) of the Kmart
              Corporation Executive Deferred Compensation Plan shall be invested
              as elected by the Participant either (i) solely in the Treasury
              Note Account; or (ii) in one or more Investment Funds, except the
              Company Stock Fund and other investment choices excluded due to
              applicable law or regulation or by action of the Committee; and

      (c)     All other amounts transferred, and earnings thereon, shall be
              invested as elected by the Participant in one or more Investment
              Funds, except the Company Stock Fund and other investment choices
              excluded due to applicable law or regulation or by action of the
              Committee.

      By no later than the end of the first Plan Year, Kmart Corporation shall
contribute cash, cash equivalents, and/or Common Stock of Kmart Corporation to
the Rabbi Trust for the benefit of Participants in an amount equal to the amount
of all deferrals and Company credits, and earnings thereon, accrued in prior
years under Predecessory Deferral/Restoration Arrangements except outstanding
credits to the Treasury Note Account.

      It is intended that this Plan replace the PredecessoryDeferral/Restoration
Arrangements. No Participant will be allowed to defer any amounts or accrue any
benefits under the Predecessory Deferral/Restoration Arrangements after the 
Effective Date hereof.


                                       14
<PAGE>   17


ARTICLE 13. BENEFICIARY DESIGNATION
      13.1 DESIGNATION OF BENEFICIARY. Each Participant may designate or change
a beneficiary or beneficiaries who, upon the Participant's death, will receive
the amounts that otherwise would have been paid to the Participant under the
Plan. All such designations and any changes thereto shall be signed by the
Participant, and shall be in such form as prescribed by the Committee. Each
designation shall be effective as of the date delivered to a Company employee so
designated by the Committee. The payment of an amount equal to the amount that
otherwise would have been paid to the Participant shall be paid in accordance
with the last unrevoked written designation of beneficiary that has been signed
by the Participant and delivered by the Participant to the Company's designee
prior to the Participant's death.

      13.2 DEATH OF BENEFICIARY. In the event that all the beneficiaries named
by a Participant, pursuant to Section 13.1 hereof, predecease the Participant,
the amount that otherwise would have been paid to the Participant or the
Participant's beneficiaries under the Plan shall be paid to the Participant's
estate or the person designated by the Participant's estate.

      13.3 INEFFECTIVE DESIGNATION. In the event a Participant does not
designate a beneficiary, or for any reason such designation is ineffective, in
whole or in part, the amounts that otherwise would have been paid to the
Participant or the Participant's beneficiaries under the Plan shall be paid to
the person or persons the Participant designated as the beneficiary or
beneficiaries under the Retirement Savings Plan, and if no such designation was
made, then to the Participant's estate or the person designated by the
Participant's estate.

      13.4 INDEMNITY. The Company may require an indemnity and/or evidence or
other assurances as it deems necessary in connection with any payment hereunder
to a Participant's beneficiary, estate, legal representative, or guardian.

ARTICLE 14. WITHHOLDING OF TAXES
      The Company shall have the right to require Participants to remit to the
Company, or any person or entity designated by the Committee to administer the
Plan, an amount sufficient to satisfy federal, state, and local tax withholding
requirements, or to deduct from all payments made pursuant to the Plan amounts
sufficient to satisfy such withholding requirements.

ARTICLE 15. EMPLOYMENT/MISCONDUCT
      15.1 EMPLOYMENT. No provision of the Plan, nor any action taken by the
Committee or the Company pursuant to the Plan, shall give or be construed as
giving a Participant any right to be retained in the employ of the Company, or
affect or limit in any way the right of the Company to terminate his or her
employment.

      15.2 MISCONDUCT. Notwithstanding anything hereof to the contrary, all
rights with respect to the Accrued Account Balances of a Participant are subject
to the conditions that the Participant not engage or have engaged (a) in fraud,
dishonesty, conduct in violation of Company policy, or similar acts at any time
while an employee of the Company; or (b) in activity directly or indirectly in
competition with any business of the Company, or in other conduct inimical to
the best interests of the Company during or following the Participant's
employment with the Company. If it is determined




                                       15
<PAGE>   18


by the Committee, either before or after termination of employment of a
Participant, that there has been a failure of any such conditions, the Committee
shall:

              (a)    Withhold, and such Participant shall forfeit all rights
                     with respect to, all amounts then remaining in such
                     Participant's Match Restoration Account, Profit Sharing
                     Restoration Account, and/or Discretionary Company Credits
                     Account; and

              (b)    Accelerate the payout of all amounts then remaining in such
                     Participant's Mandatory Deferral Account, Voluntary
                     Deferral Account, and/or the Retirement Savings Plan
                     Deferral Restoration Account to a date to be determined by
                     the Committee in its discretion.

ARTICLE 16. AMENDMENT AND TERMINATION
      The Company hereby reserves the right to amend, suspend, or terminate the
Plan at any time by action of the Board, in its sole discretion. No such
amendment, suspension, or termination shall in any material manner adversely
affect any Participant's rights to amounts theretofore accrued and payable
hereunder, without the written consent of the Participant.

ARTICLE 17. MISCELLANEOUS
      17.1 FINANCIAL OR MEDICAL HARDSHIP. The Committee shall have the authority
to alter the timing or manner of payment of Accrued Account Balances in the
event that the Participant establishes, to the satisfaction of the Committee,
severe financial or medical hardship. In such event, the Committee may, in its
discretion:

              (a)    Authorize the cessation of Voluntary Deferrals pursuant to
                     Section 5.2 hereof, and Savings Plan Deferral Restoration
                     amounts pursuant to Section 7.2 hereof;

              (b)    Provide that all, or a portion, of the Accrued Account
                     Balances shall immediately be paid in cash in a Lump-Sum
                     Payment; and/or

              (c)    Provide that all, or a portion of, Installment Payments
                     payable over a period of time shall instead be paid
                     immediately in cash in a Lump-Sum Payment; and/or

              (d)    Provide for such other payment schedule as deemed
                     appropriate by the Committee under the circumstances.

      However, the amount paid pursuant to this Section 17.1 shall not exceed
that amount which the Committee determines to be reasonably necessary for the
Participant to meet the financial or medical hardships at the time of such
payment. The severity of the financial or medical hardship shall be judged by
the Committee. Severe financial or medical hardship will be deemed to exist in
the event of the Participant's long and serious illness, impending bankruptcy,
or similar unforeseeable and extraordinary circumstances arising as a result of
events beyond the control of the Participant. The Committee's decision with
respect to the severity of financial or medical hardship and the manner in
which, if at all, the Participant's future deferral opportunities hereunder
shall cease, and/or the manner in which, if at all, the payment of Accrued
Account Balances to the Participant shall be altered or modified, shall be
final, conclusive, and not subject to appeal.


                                       16
<PAGE>   19




      17.2 NOTICE. Any notice or filing required or permitted to be given to the
Company under the Plan shall be sufficient if in writing and hand delivered, or
sent by registered or certified mail to the Chairman of the Committee or the
Committee's designee. Such notice, if mailed, shall be addressed to the
principal executive offices of Kmart Corporation. Notice mailed to a Participant
shall be at the last known address as is given in the records of Kmart
Corporation. Notices shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the receipt
for registration or certification.

      17.3 UNFUNDED PLAN. This Plan is intended to be an unfunded plan
maintained primarily to provide deferred compensation benefits for "a select
group of management or highly compensated employees" within the meaning of
Sections 201, 301, and 401 of ERISA, and therefore is further intended to be
exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA.
Accordingly, the Committee may terminate the Plan for any or all Participants,
subject to Article 16 hereof, in order to achieve and maintain this intended
result.

      17.4 SUCCESSORS. All obligations of Kmart Corporation under the Plan shall
be binding on any successor to Kmart Corporation, whether the existence of such
successor is the result of a direct or indirect purchase, merger, consolidation,
or otherwise, of all or substantially all of the business and/or assets of Kmart
Corporation.

      17.5 NONTRANSFERABILITY. Participants' rights to Accrued Account Balances
under the Plan may not be sold, transferred, assigned, or otherwise alienated or
hypothecated, other than pursuant to Article 13 hereof or by will or by the laws
of descent and distribution. In no event shall Kmart Corporation make any
payment under the Plan to any assignee or creditor of a Participant.

      17.6 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.

      17.7 COSTS OF THE PLAN. All costs of implementing and administering the 
Plan shall be borne by Kmart Corporation.

      17.8 OTHER PERMITTED DEFERRAL OPPORTUNITIES. The Committee may, in its
discretion, permit a Participant to defer such Participant's receipt, if any, of
the payment of cash or the delivery of capital stock of Kmart Corporation that
would otherwise be due to such Participant pursuant to the terms of the 1997
Kmart Corporation Long-Term Equity Compensation Plan, or any other stock plan of
the Company, and any successor plans thereto. If any such deferral is permitted,
the Committee shall establish rules and procedures for such deferrals.

      17.9 GOVERNING LAW. The Plan shall be governed by and construed in
accordance with the laws of the State of Michigan without giving effect to any
choice or conflict of law provision or rule.



Effective Date:  January 1, 1998




                                       17