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                                                                   EXHIBIT 10(o)

                              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:

__________________________

                                       12<PAGE>   1

                                                                   EXHIBIT 10(p)

                    AMENDED AND RESTATED
                    KMART CORPORATION
                    1998 MANAGEMENT DEFERRED
                    COMPENSATION AND RESTORATION PLAN
                    and restated as of September 1, 1998; and
                    further amended as of September 19, 2000

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CONTENTS

Article 1. Establishment and Purpose                                      1

Article 2. Definitions                                                    1

Article 3. Administration                                                 8

Article 4. Eligibility and Participation                                  8

Article 5. Voluntary Deferrals - Base Pay                                 8

Article 6. Voluntary Deferrals - Annual Bonus                             9

Article 7. Mandatory Deferrals                                           10

Article 8. Voluntary Stock Unit Deferrals                                11

Article 9. Company 401(k) Match Restoration                              12

Article 10. Company Profit Sharing Restoration                           13

Article 11. Discretionary Company Credits                                14

Article 12. Participant Accounts and Rabbi Trust                         14

Article 13. Allocation of Prior Deferrals and Company Credits            16

Article 14. Beneficiary Designation                                      17

Article 15. Withholding of Taxes                                         17

Article 16. Employment/Misconduct                                        17

Article 17. Amendment and Termination                                    18

Article 18. Miscellaneous                                                18

<PAGE>   3

AMENDED AND RESTATED KMART CORPORATION 1998 MANAGEMENT
DEFERRED COMPENSATION AND RESTORATION PLAN

ARTICLE 1. ESTABLISHMENT AND PURPOSE
      1.1 ESTABLISHMENT. Kmart Corporation, a Michigan corporation ( 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 and of its participating subsidiaries and affiliates
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
                     Articles 5 and 6 hereof), Mandatory Deferrals (as described
                     in Article 7 hereof), Voluntary Stock Unit Deferrals (as
                     described in Article 8 hereof); Company 401(k) Match
                     Restoration (as described in Article 9 hereof), Company
                     Profit Sharing Restoration (as described in Article 10
                     hereof), Discretionary Company Credits (as described in
                     Article 11 hereof), and earnings thereon (as described in
                     Article 12 hereof).

              (b)    "Accrued Rabbi Trust Obligations" means the then current
                     Accrued Account Balances of all Participants through a
                     specific date in question.

              (c)    "Annual Bonus" means the bonus earned by a Participant
                     under the Kmart Corporation Annual Incentive Bonus Plan, as
                     amended from time to time, or other annual incentive bonus
                     plan.

              (d)    "Base Pay" means, before any deductions, all wages,
                     overtime, salary, and commissions and any extraordinary
                     bonuses and awards which are determined to be part of Base
                     Pay by the Company earned by a Participant for services
                     rendered during a Plan Year.

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

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              (f)    "Board" or "Board of Directors" means the Board of
                     Directors of the Company.

              (g)    "Change in Control" of the Company 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 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
                              stockholders of the Company, 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).

              (h)    "Closing Price" means the last price at which the Company
                     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
                     Company 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.

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

              (j)    "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.

              (k)    "Company Stock" means the common stock of Kmart
                     Corporation.

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

              (m)    "Compensation" has the same meaning ascribed to such term
                     in the Retirement Savings Plan.

                                       2
<PAGE>   5

              (n)    "Deferral Period" means the beginning of a month following
                     the pay period for services rendered prior to the date a
                     deferral election in made through the earlier of the end of
                     the Plan Year or the date a Participant is no longer
                     eligible to participate in the Plan.

              (o)    "Disability" means "total and permanent disability" as
                     defined in the Kmart Corporation Long-Term Disability Plan.

              (p)    "Discretionary Company Credits Account" has the meaning set
                     forth in Section 11.2 hereof.

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

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

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

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

              (u)    "Exercise Date" has the meaning set forth in Section 8.2
                     hereof.

              (v)    "Expiration Date" has the meaning set forth in Section 8.2
                     hereof.

              (w)    "Form of Payout" means a Participant's elected method of
                     payout. A Participant may choose 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 six (6) months
                     prior to a Payout Commencement Date, petition the Committee
                     or its delegate 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); provided, however, the
                     Committee must approve any change in the Form of Payout of
                     Company Stock for Section 16 Officers.

                     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 the Accrued
                     Account Balances shall be paid as soon as administratively
                     practicable following the Payout Commencement Date, in a
                     Lump-Sum Payment regardless of the Participant's previous
                     elections.

                                       3
<PAGE>   6

                     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 less than ten thousand dollars
                     ($10,000) at the time of such termination of employment,
                     then the Accrued Account Balances payable on such Payout
                     Commencement Date(s) shall be paid as soon as
                     administratively practicable following the Payout
                     Commencement Date, in a Lump-Sum Payment 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 case may be, may petition the
                     Committee or its delegate to pay out the Accrued Account
                     Balances in a 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 its delegate
                     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 or its
                     delegate.

              (x)    "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 or
                     Company Stock, as applicable, 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
                     or Company Stock, as applicable, 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 12.2 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).

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

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

              (aa)   "Mandatory Deferral Account" has the meaning set forth in
                     Section 7.1 hereof.

                                       4
<PAGE>   7

              (bb)   "Match Restoration Account" has the meaning set forth in
                     Section 9.2 hereof.

              (cc)   "Participant" means:

                     Each Senior Officer, Divisional Vice President, Operations
                     Vice President, and Regional Vice President of the Company;

                     (i)      Each Senior Officer, Divisional Vice President,
                              Operations Vice President, and Regional Vice
                              President of the Company;

                     (ii)     Each key management employee of the Company,
                              except for Participants described in (i) above,
                              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 or its delegate from
                              time to time, and who is thereby selected for
                              participation in the Plan by the Committee or its
                              delegate; and

                     (iii)    Each other employee of the Company, its
                              subsidiaries or its affiliates so designated by
                              the Committee or its delegate.

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

                     A Participant may, at any time at least six (6) months
                     prior to a Payout Commencement Date, petition the Committee
                     or its delegate to change the Payout Commencement Date
                     previously elected by such Participant to a different
                     Payout Commencement Date otherwise available under the
                     Plan; provided, however, the Committee must approve any
                     change in the Form of Payout of Company Stock for Section
                     16 Officers.

                     A Payout Commencement Date elected by a Participant 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 later of (i) the January following
                     the Participant's sixty-fifth (65th) birthday; or (ii) the
                     Participant's termination of employment with the Company if
                     such Participant is employed on his or her sixty-fifth
                     (65th birthday). No limit exists on the number of different
                     Payout Commencement Dates that can be elected by each
                     Participant.

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

                                       5
<PAGE>   8

                     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.

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

              (ff)   "Predecessory Deferral/Restoration Arrangements" has the
                     meaning set forth in Article 13 hereof.

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

              (hh)   "Profit Sharing Restoration Account" has the meaning set
                     forth in Section 10.2 hereof.

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

              (jj)   "Retirement Savings Plan" means the Kmart Corporation
                     Retirement Savings Plan A and Plan B.

              (kk)   "Section 16 Officer" means any Participant who is an
                     officer within the meaning of Rule 16a-1(f) promulgated
                     under the Securities Exchange Act of 1934 and who are
                     subject to the reporting requirements under Section 16 of
                     the Securities Exchange Act of 1934 with respect to Company
                     Stock.

              (ll)   "Stock Unit" means a bookkeeping entry which is the
                     equivalent of one share of Company Stock.

              (mm)   "Stock Unit Subaccount" means the bookkeeping account
                     established for a Participant which is credited with Stock
                     Units equal to the number of shares of Company 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 9 hereof) at
                     the Closing Price of the shares of Company 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 date that any Company Stock is distributed
                     from such Subaccount to the Participant.

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

                                       6
<PAGE>   9

                     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 or its delegate. A distribution from the Stock
                     Unit Subaccount shall be paid in a number of shares of
                     Company Stock equal to the number of Stock Units
                     distributable.

              (nn)   "Voluntary Deferral Account" means the bookkeeping account
                     established for a Participant which is credited with Base
                     Pay and/or Annual Bonus deferrals which are voluntarily
                     elected by the Participant pursuant to Articles 5 and/or 6
                     hereof.

              (oo)   "Voluntary Stock Unit Deferral Account" means the
                     bookkeeping account established for a Participant which is
                     credited with Stock Units equal to the number of shares of
                     Company Stock (including fractions of a share) that were
                     voluntarily deferred into the Voluntary Stock Unit Deferral
                     Account by a Participant in connection with a stock option
                     exercise, or the lapse of restrictions on a restricted
                     stock grant or purchase, pursuant to the provisions of a
                     Company stock plan. The Voluntary Stock Unit Deferral
                     Account shall be reduced in a similar manner as of the date
                     that any Company Stock is distributed from such account to
                     the Participant.

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

              (pp)   "Voluntary Stock Unit Deferral" has the same meaning
                     ascribed to such term in Article 8 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 or its delegate except as limited by law or by the Articles of
Incorporation or the Bylaws of the Company. Subject to the terms hereof, the
Committee shall have full power to (a) determine the terms and

                                       7
<PAGE>   10

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 17 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.

      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 shall be limited
to 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, the Participant shall be
provided with deferral and investment election forms; 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 - BASE PAY
      5.1 DEFERRAL. Prior to the beginning of a Deferral Period in which Base
Pay is otherwise earned, or in advance of earning(s) at intervals reasonably
determined by the Committee or its delegate, a Participant may voluntarily elect
to defer up to one hundred percent (100%) of his or her Base Pay for that
Deferral Period. Any amount deferred pursuant to this Section 5.1, and earnings
thereon, shall be credited to such Participant's Voluntary Deferral Account.
Each Participant shall be one hundred percent (100%) vested in any amount
deferred pursuant to this Section 5.1, and earnings thereon, at all times. A new
deferral election will be required by each Participant prior to the beginning of
each new Plan Year for which they are eligible to defer Base Pay.

      Notwithstanding anything herein to the contrary, the amount of Base Pay
that a Participant may defer pursuant to this Section 5.1 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 or its delegate.

      5.2 PARTIAL PLAN YEAR PARTICIPATION. In the event a Participant first
becomes eligible to participate in the Plan after the beginning of a Plan Year,
the Committee or its delegate may, in its

                                       8
<PAGE>   11

discretion, allow such Participant to complete a deferral election form and
investment election form within thirty (30) calendar days of becoming eligible
to participate.

      5.3 DEFERRAL ELECTION. A Participant shall make an election to defer Base
Pay: (i) prior to the beginning of the Deferral Period in which the Base Pay is
otherwise earned, or (ii) in advance of earning, at intervals reasonably
determined by the Committee or its delegate, or (iii) 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
Pay earned on or after the first day of the month following the date on which a
valid deferral election form is received by the Committee or its delegate. Each
such election shall indicate the following:

              (a)    The amount of Base Pay earned during the Plan Year to be
                     deferred, which shall apply only to Base Pay earned on or
                     after the first day of the month following the date on
                     which a valid deferral election is received by the
                     Committee or its delegate;

              (b)    The Payout Commencement Date for the deferred Base Pay, and
                     earnings thereon, which shall pertain to a Plan Year
                     pursuant to Section 2.1(dd) hereof; and

              (c)    The Form of Payout which shall pertain to a Plan Year
                     pursuant to Section 2.1(w) hereof.

      5.4 LENGTH OF DEFERRAL AND FORM OF PAYOUT. Subject to Section 2.1(dd)
hereof, a Participant may elect the length of deferral of Base Pay deferred each
Plan Year by designating a corresponding Payout Commencement Date for such
deferral. The Form of Payout shall be as elected by the Participant pursuant to
Section 2.1(w) hereof.

ARTICLE 6. VOLUNTARY DEFERRALS - ANNUAL BONUS
6.1 DEFERRAL. The option to defer annual Bonus pursuant to the terms of this
article 6 shall be effective with the Plan Year beginning January 1, 2001. Prior
to the beginning of the Plan Year in which Annual Bonus is otherwise earned, or
in advance of earning at intervals reasonably determined by the Committee or its
delegate, a Participant may voluntarily elect to defer up to one hundred percent
(100%) of his or her Annual Bonus for that Plan Year. Any amount deferred
pursuant to this Section 6.1, and earnings thereon, shall be credited to such
Participant's Voluntary Deferral Account. A Participant shall be one hundred
percent (100%) vested in any amount deferred pursuant to this Section 6.1, and
earnings thereon, at all times.

              Notwithstanding anything herein to the contrary, the amount of
Annual Bonus that a Participant may defer pursuant to this Section 6.1 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 or its delegate.

                                       9
<PAGE>   12

      6.2. PARTIAL PLAN YEAR PARTICIPATION. In the event a Participant first
           becomes eligible to participate IN THE PLAN AFTER THE BEGINNING OF A
           PLAN YEAR, THE COMMITTEE OR ITS DELEGATE 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.

      6.3 DEFERRAL ELECTION. A Participant shall make an election to defer
Annual Bonus: (i) prior to the beginning of the Plan Year in which the Annual
Bonus is otherwise earned, or (ii) in advance of earning, at intervals
reasonably determined by the Committee or its delegate, or (iii) 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 Annual Bonus 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 its delegate. Each such election shall indicate the following:

              (a)    The amount of Annual Bonus earned during the Plan Year to
                     be deferred;

              (b)    The Payout Commencement Date for the deferred Annual Bonus,
                     and earnings thereon, which shall pertain to a Plan Year
                     pursuant to Section 2.1(dd) hereof; and

              (c)    The Form of Payout which shall pertain to a Plan Year
                     pursuant to Section 2.1(v) hereof.

      6.4 LENGTH OF DEFERRAL AND FORM OF PAYOUT. Subject to Section 2.1(dd)
hereof, a Participant may elect the length of deferral of Annual Bonus deferred
each Plan Year by designating a corresponding Payout Commencement Date for such
deferral. The Form of Payout shall be as elected by the Participant pursuant to
Section 2.1(w) hereof.

ARTICLE 7.  MANDATORY DEFERRALS
      7.1 DEFERRAL. If the Committee 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 may, in its discretion, 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 deferred pursuant to this Section 7.1 shall be credited to such
Participant's Mandatory Deferral Account. The Participant shall be one hundred
percent (100%) vested in amounts deferred pursuant to this Section 7.1, and
earnings thereon, at all times.

      7.2 LENGTH OF DEFERRAL. Any amount deferred pursuant to Section 7.1
hereof, and earnings thereon, shall be paid out to the Participant on the
earliest date on which such amount can be received by the 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(dd) 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

                                       10
<PAGE>   13

would occur (due to Section 162(m)); such election must be made prior to lapse
of the restriction set forth in this Section 7.2.

      7.3 FORM OF PAYOUT. Subject to Sections 7.2 and 7.4 hereof, the payout of
Mandatory Deferrals, and earnings thereon, shall 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 shall be as elected
by such Participant pursuant to Section 2.1(w) hereof.

      7.4 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 8. VOLUNTARY STOCK UNIT DEFERRALS
      8.1 PARTICIPATION. A Participant may voluntarily defer the receipt of
shares of Company Stock which were voluntarily cancelled and Stock Units granted
in lieu thereof by the election of the Participant in connection with (a) the
exercise of a stock option under a Company stock plan, or (b) the lapse of
restrictions on restricted stock granted or purchased under a Company stock
plan.

      8.2 DEFERRAL. At least six (6) months prior to the exercise of a stock
option (the "Exercise Date") under a Company stock plan or the lapse of
restrictions (the "Expiration Date") on restricted stock granted or purchased
under a Company stock plan, a Participant may voluntarily elect to cancel the
applicable shares of Company Stock and receive Stock Units in lieu thereof and
to defer such Stock Units pursuant to the terms hereof.

      Subject to the terms hereof, such election shall be irrevocable. Such
Stock Units deferred pursuant to this Section 8.2, and earnings thereon, shall
be credited to the Participant's Voluntary Stock Unit Deferral Account. A
Participant shall be one hundred percent (100%) vested in such Stock Units
deferred pursuant to this Section 8.2, and earnings thereon, at all times.

      8.3 DEFERRAL ELECTION. A Participant shall make an election to defer Stock
Units as described in Section 8.2 hereof by submitting a valid deferral election
form to the Committee or its delegate at least six (6) months prior to the
Exercise Date or Expiration Date, as applicable, and by entering into a written
agreement with the Company under the applicable Company stock plan. Each such
election shall indicate the following:

              (a)    The number of restricted shares, or option shares, as
                     applicable, to be deferred as Voluntary Stock Unit
                     Deferrals, which shall be irrevocable pursuant to Section
                     8.2 hereof;

              (b)    The Payout Commencement Date for the Voluntary Stock Unit
                     Deferrals, and earnings thereon, which shall be irrevocable
                     pursuant to Section 8.4 hereof; and

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

                                       11
<PAGE>   14

      8.4 LENGTH OF DEFERRAL AND FORM OF PAYOUT. Subject to Section 2.1(dd)
hereof, a Participant may elect the length of deferral of each Voluntary Stock
Unit Deferral by designating a corresponding Payout Commencement Date for each
such Deferral. Any Stock Units credited to a Participant's Voluntary Stock Unit
Deferral Account shall be paid out to the Participant in shares of Company
Stock. The Form of Payout shall be as elected by such Participant pursuant to
Section 2.1(w) hereof.

ARTICLE 9. COMPANY 401(K) MATCH RESTORATION
      9.1 PARTICIPATION. Subject to Section 9.3 hereof, a Participant who is
eligible to participate in the Retirement Savings Plan and experiences a cutback
in Employer Matching Contributions due to the limitations imposed by the Code
shall be eligible to receive Company credits pursuant to this Article 9 for such
Plan Year.

      9.2 COMPANY 401(K) MATCH RESTORATION. For each Plan Year in which an
employee is eligible to receive Company credits pursuant to this Article 9, the
Company shall 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.

      A Participant shall become one hundred percent (100%) vested in amounts
credited to such Participant's Match Restoration Account pursuant to this
Section 9.2, 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 9.2, and earnings thereon, upon such Participant's sixty-fifth (65th)
birthday or death.

      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,
the Committee or its delegate 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(dd)
hereof, any vested amount credited to a Participant's Match Restoration Account
pursuant to Section 9.2 hereof, and earnings thereon, shall be paid out to the
Participant in shares of Company Stock beginning in the January following such
Participant's termination of employment with the Company. The Form of Payout
shall be as elected by such Participant pursuant to Section 2.1(w) hereof.

                                       12
<PAGE>   15

ARTICLE 10. COMPANY PROFIT SHARING RESTORATION
      10.1 PARTICIPATION. Subject to Section 10.3 hereof, a Participant who is
eligible to participate in the Retirement Savings Plan and experiences a cutback
in Profit Sharing Contributions due to the limitations imposed by the Code shall
be eligible to receive Company credits pursuant to this Article 10 for such Plan
Year.

      10.2 COMPANY PROFIT SHARING RESTORATION. For each Plan Year in which a
Participant is eligible to receive Company credits pursuant to this Article 10,
the Company shall 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.

      A Participant shall become one hundred percent (100%) vested in any amount
credited to the Participant's Profit Sharing Restoration Account pursuant to
this Section 10.2, and earnings thereon, automatically upon the first to occur
of (a) five (5) years of service with the Company; (b) the Participant's
sixty-fifth (65th) birthday; or (c) the Participant's death.

      Company credits credited to a Participant pursuant to this Section 10.2
shall in no way reduce amounts available to the Company to make Profit Sharing
Contributions under the Retirement Savings Plan.

      10.3 PARTIAL PLAN YEAR PARTICIPATION. In the event a Participant first
becomes eligible to participate in the Plan after the beginning of a Plan Year,
the Committee or its delegate may, in its discretion, allow such Participant to
participate during such partial Plan Year.

      10.4 LENGTH OF DEFERRAL AND FORM OF PAYOUT. Subject to Section 2.1(dd)
hereof, any vested amounts credited to a Participant's Profit Sharing
Restoration Account pursuant to Section 10.2 hereof, and earnings thereon, shall
be paid out to the Participant beginning in the January following the
Participant's termination of employment with the Company. The Form of Payout
shall be as elected by the Participant pursuant to Section 2.1(w) hereof.

ARTICLE 11. DISCRETIONARY COMPANY CREDITS
      11.1 PARTICIPATION. Any Participant designated by the Committee in its
discretion is eligible to receive Company credits pursuant to this Article 11.

      11.2 DISCRETIONARY COMPANY CREDITS. In addition to the Company 401(k)
Match Restoration and Company Profit Sharing Restoration, as set forth in
Sections 9.2 and 10.2 hereof, the Committee in its discretion may cause
additional Company credits to be credited to the Discretionary Company

                                       13
<PAGE>   16

Credits Account of a Participant, or group of Participants, for any reason
whatsoever. The Committee shall establish rules and procedures for, and the
terms of, such credits.

ARTICLE 12. PARTICIPANT ACCOUNTS AND  RABBI TRUST
      12.1 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
the 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 a
Participant to any specific asset of the Company.

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

      12.2 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 12.2.

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

              (c) Stock Units credited to a Participant's Match Restoration
      Account shall be automatically credited to the Stock Unit Subaccount. Once
      a Participant reaches age fifty-five (55), all or any part of the Stock
      Units 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 for any 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 make transfers 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) Voluntary Stock Unit Deferrals shall be credited to a
      Participant's Voluntary Stock Unit Deferral Account. A Participant may not
      make transfers into or out of the Voluntary Stock Unit Deferral Account.

              (e) Amounts credited to a Participant's Profit Sharing Restoration
      Account shall be invested as elected by the Participant in one or more
      Investment Funds, except for any investment choices excluded due to
      applicable law or regulation or by action of the Committee.

                                       14
<PAGE>   17

              (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.

      A Participants shall be permitted to change his or her investment
elections in the same frequency as a participant under the Retirement Savings
Plan except that a Section 16 Officer may not make transfers into and out of the
Company Stock Fund. Investment elections are not permitted with respect to the
Voluntary Stock Unit Deferral Account, or, except as provided in Section
12.2(c), with respect to the Match Restoration Account.

      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 a Participant.

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

      12.4 ESTABLISHMENT OF RABBI TRUST. As soon as administratively practicable
following the Effective Date, the Company 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 the Company'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 shall be paid first from the Rabbi Trust, to the
extent assets exist in the Rabbi Trust and then, as necessary, by the Company
from general assets.

      12.5 FUNDING OF RABBI TRUST. At the discretion of the Committee, the
Company 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 shall be fully
funded at all times to cover the Accrued Rabbi Trust Obligations of the Company.
Upon a Change in Control, the Company 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 13. 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

                                       15
<PAGE>   18

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 13 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
              12.2(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 in one or more Investment Funds,
              except for any 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 for any 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, the Company shall
contribute cash, cash equivalents, and/or Kmart Stock 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.

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

ARTICLE 14. BENEFICIARY DESIGNATION
      14.1 DESIGNATION OF BENEFICIARY. A Participant may designate or change a
beneficiary or beneficiaries who, upon the Participant's death, shall receive
the amounts that otherwise would have been paid to the Participant under the
Plan. Any such designation of beneficiary and any change thereto shall be signed
by the Participant, and shall be in such form as prescribed by the Committee or
its delegate. A designation of beneficiary shall be effective as of the date
delivered to the designated Company employee 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
designated Company delegate employee prior to the Participant's death.

      14.2 DEATH OF BENEFICIARY. In the event that all of the beneficiaries
named by a Participant, pursuant to Section 14.1 hereof, predecease the
Participant, the amount that otherwise would have

                                       16
<PAGE>   19

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.

      14.3 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 that 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.

      14.4 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 15. WITHHOLDING OF TAXES
      The Company shall have the right to require a Participant 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 16. EMPLOYMENT/MISCONDUCT
      16.1 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.

      16.2 MISCONDUCT. Notwithstanding anything herein 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, subsidiary, or affiliate policy, as
applicable, or similar acts at any time while an employee of the Company, its
subsidiaries, or affiliates; or (b) in activity directly or indirectly in
competition with any business of the Company, its subsidiaries or affiliates, as
applicable, or in other conduct inimical to the best interests of the Company,
its subsidiaries, and affiliates during or following the Participant's
employment with the Company, its subsidiaries, or its affiliates. If it is
determined 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 the 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 amounts then remaining in such
                     Participant's Voluntary Deferral Account, Mandatory
                     Deferral Account, and/or Voluntary Stock Unit Deferral
                     Account to a date to be determined by the Committee or its
                     delegate, in its discretion.

                                       17
<PAGE>   20

ARTICLE 17. 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 18. MISCELLANEOUS
      18.1 FINANCIAL OR MEDICAL HARDSHIP. The Committee or its delegate shall
have the authority to alter the timing or manner of payment of Accrued Account
Balances in the event that a Participant establishes, to the satisfaction of the
Committee or its delegate, severe financial or medical hardship. In such event,
the Committee or its delegate may, in its discretion:

              (a)    Authorize the cessation of Voluntary Deferrals pursuant to
                     Section 5.2 and Section 6.2 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 or its delegate under the
                     circumstances.

      However, the amount paid pursuant to this Section 18.1 shall not exceed
that amount which the Committee or its delegate 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 or its delegate. Severe financial or medical hardship
shall 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 decision of the Committee or its delegate 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.

      18.2 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 its
delegate. Such notice, if mailed, shall be addressed to the principal executive
offices of the Company. Notice mailed to a Participant shall be at the last
known address as is given in the records of the Company. A notice 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.

                                       18
<PAGE>   21

      18.3 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 17 hereof, in order to achieve and maintain this intended
result.

      18.4 SUCCESSORS. All obligations of the Company under the Plan shall be
binding on any successor to the Company, 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 the
Company.

      18.5. EFFECT OF CERTAIN CHANGES. In the event of any extraordinary
dividend, stock dividend, recapitalization, merger, consolidation, stock split,
warrant or rights issuance, or combination or exchange of shares, or other
similar transactions with respect to the Company Stock, the number of Stock
Units credited to the Stock Unit Subaccount, and the number of shares of Company
Stock to be distributed hereunder, including, without limitation, pursuant to
Articles 5, 6, 7, 9, 11 and 12 (as applicable), shall be equitably adjusted by
the Committee to reflect such event and to preserve the value of such Stock
Units, and the Committee may make such other adjustments to the terms of
outstanding Stock Units as it may deem equitable under the circumstances;
provided, however, that any fractional shares resulting from such adjustment
shall be disregarded.

      18.6 NONTRANSFERABILITY. A Participant's right to Accrued Account Balances
under the Plan may not be sold, transferred, assigned, or otherwise alienated or
hypothecated, other than pursuant to Article 14 hereof or by will or by the laws
of descent and distribution. In no event shall the Company make any payment
under the Plan to any assignee or creditor of a Participant.

      18.7 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.

      18.8 COSTS OF THE PLAN. All costs of implementing and administering the
Plan shall be borne by the Company.

      18.9 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 the Company 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. The Committee shall establish rules
and procedures for such deferrals.

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

Effective Date: January 1, 1998; amended and restated as of September 1, 1998;
and further amended as of September 19, 2000.

                                       19

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