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                                                                    EXHIBIT 10.1


                              AMENDED AND RESTATED
                                KMART CORPORATION
                           ANNUAL INCENTIVE BONUS PLAN



I. PURPOSES; CONSTRUCTION.

    The purposes of the Kmart Corporation Annual Incentive Bonus Plan (the
"Plan") are to attract and retain highly-qualified executives by providing
appropriate performance-based short-term incentive awards, to align executive
and stockholder interests by creating a direct link between executive
compensation and stockholder return and to enable executives, through the stock
purchase feature of the Management Stock Purchase Plan, to develop and maintain
a substantial stock ownership position in the Company and to provide incentives
to executives to contribute to the success of the Company. An additional purpose
of the Plan is to serve as a qualified performance-based compensation program
under Section 162(m) of the Internal Revenue Code of 1986, as amended, in order
to preserve the Company's tax deduction for compensation paid under the Plan to
Covered Employees.

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 annual 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 Plan Year.

        (c) "Change in Control" shall mean the occurrence of an event described
in Section 6(e) 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) "Covered Employee" shall have the meaning set forth in Section
162(m) (3) of the Code (or any successor provision).

        (h) "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.

        (i) "Management Stock Purchase Plan" shall mean the Kmart Corporation
Management Stock Purchase Plan. as amended from time to time

        (j) "Participant" shall mean an officer or other employee of the Company
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 Plan Year.

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

        (l) "Plan" shall mean this Kmart Corporation Annual Incentive Bonus
Plan, as amended from time to time.

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

        (n) "Restricted Shares" shall mean the shares of Stock in which a Bonus
is partially or wholly payable pursuant to Section 6(d) hereof; such Restricted
Shares are issuable pursuant to the Management Stock Purchase Plan.




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        (o) "Stock" shall mean shares of common stock of the Company issued and
outstanding at the time of the Board's adoption of the Plan, par value $1.00 per
share

        (p) "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.

    All senior officers and divisional vice presidents of the Company shall
participate in the Plan. Bonuses may also be granted hereunder to such key
employees of the Company and any of its Subsidiaries as are designated by the
Committee. In determining the persons 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.

4. NO STOCK SUBJECT TO PLAN.

    No shares of any Stock shall be reserved for, or issued under, the Plan. To
the extent that annual Bonuses are paid in Restricted Shares, such Restricted
Shares shall be issued under, and subject to the terms and conditions of, the
Management Stock Purchase 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 and/or (v) changes in market price of the Stock. 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 shall include a threshold level of
performance below which no Bonus payment shall be made, levels of performance at
which specified percentages of the target Bonus shall be paid, and a maximum
level of performance above which no additional Bonus shall be paid. The
Performance Goals established by the Committee may be (but need not be)
different each Plan Year and different goals may be applicable to different
Participants.

6. BONUSES.

    (a) In General. For each Plan Year, the Committee shall specify the
Performance Goal(s) applicable to each Participant for such Plan Year and the
amount of, or the formula for determining, the target Bonus for each Participant
with respect to such Plan Year. A Participant's target Bonus for each Plan Year
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 discretion in connection with terminations of employment, or
except as set forth in Section 6(e) hereof, payment of a Bonus for a particular
Plan Year shall be made only if and to the extent the Performance Goal(s) with
respect to such Plan Year are attained and only if the Participant is employed
by the Company or a Subsidiary on the last day of the Plan Year. The actual
amount of Bonus payable under the Plan shall be determined as a percentage of
the Participant's target Bonus, which percentage shall vary depending upon the
extent to which the Performance Goal(s) have been attained. The Committee may,
in its discretion, reduce or eliminate the amount payable to any Participant
(including a Covered Employee), 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) Special Limitation on Certain Bonuses. Notwithstanding anything to the
contrary contained in this Article 6, the actual Bonus paid to the Company's
Chief Executive Officer under the Plan for any Plan Year may not exceed three
times the salary midpoint for the salary grade of the Chief Executive Officer,
as determined by the Committee prior to the beginning of such Plan Year based on
competitive data, including a survey of comparable companies; and the Bonus for
each other Covered Employee under the Plan may not exceed two times the salary
midpoint (as of the beginning of such Plan Year) for such Covered Employee's
salary grade, as so determined by the Committee prior to the beginning of such
Plan Year.

    (c) Time of Payment. Unless otherwise determined by the Committee, or except
as provided in Section 6(e) hereof, all payments in respect of Bonuses granted
under this Article 6 shall be made within a reasonable


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period after the end of the Plan Year. In the case of Participants who are
Covered Employees, unless otherwise determined by the Committee in connection
with terminations of employment and except as provided in Section 6(e) hereof,
such payments shall be made only after achievement of the Performance Goal(s)
has been certified by the Committee.

    (d) Form of Payment. At the election of each Participant (made in accordance
with the terms and conditions of the Management Stock Purchase Plan), up to 100
percent of the Participant's Bonus for any Plan Year (less applicable payroll
deductions) shall be paid in Restricted Shares pursuant to, and subject to the
terms and conditions of, the Management Stock Purchase Plan. The number of
Restricted Shares to be paid shall be calculated in accordance with the
Management Stock Purchase Plan. Payment of the balance of the Participant's
Bonus for any Plan Year shall be made in cash. Payments of portions of any
Bonuses made in Restricted Shares pursuant to the Management Stock Purchase Plan
may be referred to therein as "purchases" of such Shares.

    (e) 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(e)) shall occur following a Plan Year 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 Plan Year 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 Plan Year as to which target Bonuses have been established (but the actual
Bonuses to be paid have not yet been determined), such Plan Year 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
Plan Year (based on the number of full and partial months which have elapsed
with respect to such Plan Year) shall be paid immediately in cash to each
Participant for whom a target Bonus for such Plan Year 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:

        (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.




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    The Committee shall consist of two or more persons each of whom is an
"outside director" within the meaning of Section 162(m) of the Code. The Board
shall fill all vacancies, however caused, in the Committee. The Board may from
time to time appoint additional members to the Committee, and may remove one or
more Committee members at such times and places as it shall deem advisable. The
Committee shall hold its meetings at such times and places as it shall deem
advisable. The Committee may appoint a chairperson and a secretary and may make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Committee shall be made by a majority of its members either present in person or
participating by conference telephone at a meeting or by unanimous written
consent. 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 may at any time and
from time to time alter, amend, suspend or discontinue the Plan in whole or in
part; provided, however, that no amendment which requires stockholder approval
in order for the Plan to continue to comply with Code Section 162(m) shall be
effective unless the same shall be approved by the requisite vote of the
stockholders of the Company. The Committee may also make such amendments as it
deems necessary to comply with other 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.

    (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 Board, but the Plan (and any grants of Bonuses made
prior to the stockholder approval described in this Section 8(h)) shall be
subject to the requisite approval of the stockholders of the Company. In the
absence of such approval, any such Bonuses shall be null and void.




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    (i) Interpretation. The Plan is designed and intended to comply with Section
162(m) of the Code, to the extent applicable, and all provisions hereof shall be
construed in a manner to so comply.





Adopted April 22, 1994; last amended July 17, 2001.