KMART CORP
JANET G KELLEY FORM OF 2001 SPECIAL REUNION AGRMT.
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>4
<FILENAME>k71839exv10w1.txt
<DESCRIPTION>JANET G KELLEY FORM OF 2001 SPECIAL REUNION AGRMT.
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.1
                                    [FORM OF]
                           SPECIAL RETENTION AGREEMENT

               This Agreement is entered into as of the 7th day of December,
2001 (the "Effective Date") by and between KMART CORPORATION, a Michigan
corporation (the "Company"), and Janet Kelley (the "Executive");

               WHEREAS, the Executive is currently employed by the Company in
the position of SVP General Counsel; and

               WHEREAS, Executive and the Company have also entered into a
certain letter agreement dated March 2, 2001 providing for severance benefits to
the Executive (the "Severance Letter"); and

                             WHEREAS, the Executive and the Company desire to
enter into this Special Retention Agreement (the "Agreement") providing for
certain new and additional benefits to the Executive in replacement and
substitution of the terms and provisions of the Severance Letter;

               NOW, THEREFORE, the Parties agree as follows:

1. Definitions.

               (a) "Base Salary" shall mean the salary granted to the Executive
pursuant to Section 4.

               (b) "Cause" shall mean termination of the Executive based on (i)
conduct which is a material violation of Company policy or which is fraudulent
or unlawful or which materially interferes with the ability of the Executive to
perform his duties, (ii) misconduct which results in damage or injury to the
Company, including damage to its reputation, or (iii) gross negligence in the
performance of, or willful failure to perform, the Executive's duties and
responsibilities.

                 (c) A "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 Company's stockholders, of each new director was approved by
               a vote of at least a majority of the directors then still in
               office who were directors at the beginning of such period or
               whose election or nomination was previously so approved).

               The foregoing to the contrary notwithstanding, if a Potential
Change in Control involves a transaction proposed by the Executive (or a group
which includes the Executive), 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
Executive and whether or not the Executive participates as an equity investor in
the acquiring entity in such transaction), then for purposes of this Agreement,
such Change in Control shall not be deemed to have occurred with respect to the
Executive.

               (d) "Constructive Termination" by the Executive shall mean
               voluntary termination by the Executive of employment based solely
               on and following the occurrence without the Executive's express
               consent of any of the


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               following: (i) a significant diminution by the Company of your
               role with the Company or a significant detrimental change in the
               nature and/or scope of your status with the Company or (ii) a
               reduction in the Executive's base salary unless such reduction is
               as part of an across-the-board salary reduction generally imposed
               on executives of the Company and in the case of (i) or (ii),
               other than for Cause or Disability. A Constructive Termination
               shall not be deemed to have occurred unless the Executive
               complies with the provisions of this paragraph. The Executive
               shall give written notice to Company at least forty-five (45)
               days before the date when he anticipates terminating employment
               stating his intention to terminate his employment on account of a
               Constructive Termination. Such notice shall state in detail the
               particular act or acts or failure or failures to act which
               constitute the grounds on which the proposed Constructive
               Termination is based and such grounds must have occurred within
               six months of the date on of the Executive's notice to the
               Company alleging that such act or acts or failure or failures to
               act constitute constructive termination. The Company shall have
               30 days after the date that such written notice has been given to
               the Company in which to cure such conduct and to avoid a
               constructive termination of the Executive pursuant to this
               Agreement.

               (e) "Disability" shall mean the Executive's inability to
substantially perform his duties and responsibilities under this Agreement by
reason of any physical or mental incapacity for a period of 180 consecutive
days.

               (f) A "Potential Change in Control" shall mean the happening of
any of the following:

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

               (ii) 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;

               (iii) 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

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

               (g) "Target Bonus" shall mean an annual target bonus opportunity
of a percentage of the Executive's then-current Base Salary under the Company's
Annual Incentive Bonus Plan or any successor plan, such percentage to be
established by the Compensation and Incentives Committee of the Board of
Directors, payable if the performance goals established by the Committee for the
relevant year are met.

               2. Executive Loan. (a) As soon as practicable following the
effective date hereof, the Company will provide to the Executive a loan in the
principal amount of five hundred thousand Dollars ($500,000) (the "Loan"). The
Loan shall be due and payable on January 31, 2005 (the "Award Date") and shall
bear interest at the minimum rate necessary on the date the loan is extended to
avoid imputation of tax under Section 7872 of the Internal Revenue Code of 1986,
as amended. The Company and the Executive will enter into a full recourse,
unsecured promissory note with respect to the Loan, in the form attached hereto
as Exhibit A. Interest on the Loan accruing during the term of the Loan shall be
compounded annually and shall be deferred until the Award Date. The outstanding
principal and accrued interest under the Loan shall automatically and without
further action on the part of the Company or the Executive be forgiven in full
by the Company upon the occurrence of any of the following:

               (i) the Executive shall maintain employment with the Company
through the Award Date;

               (ii) the Executive's termination of employment from the Company
prior to the Award Date for any reason other than "Cause" or a voluntary
termination by the Executive;

               (iii) the Executive's death or Disability; or


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               (iv) the Executive's Constructive Termination (all of the
foregoing (i) to (iv) being collectively referred to herein as a "Loan
Forgiveness Event").

               (b) In the event of the Executive's termination of employment
prior to the Award Date under circumstances not constituting a Loan Forgiveness
Event, unpaid principal and accrued interest under the Loan shall be repayable
in full immediately upon such termination in accordance with the terms of the
promissory note. Any cash compensation then owed to the Executive by the
Company, as well as any cash funds or the fair market value of any vested shares
held in any of the Executive's accounts under any of the Company's nonqualified
benefit plans, may be offset against any amounts then owed by the Executive to
the Company with respect to the Loan; provided, however, that in the event there
is any dispute between the Company and the Executive as to whether the Loan is
repayable or shall be forgiven based on the underlying circumstances of
termination, no offset shall be applied by the Company until such dispute has
been finally resolved in accordance with the provisions of Section 8 hereof and
all amounts subject to offset shall be held by the Company pending such
resolution. For purposes of such offset, "fair market value" of the stock shall
be defined as the mean of the highest price and lowest price at which the stock
shall have been sold, regular way, on the date of termination of employment, as
reported on the Composite Transactions reporting system.

               (c) The Executive shall be solely responsible for his personal
tax liability arising as a result of the Loan and any forgiveness of principal
or interest under the Loan. Notwithstanding the foregoing, in the event that the
Internal Revenue Service determines at any time prior to the Award Date that
principal or interest under the Loan should be taken into account as taxable
income by the Executive at the time the Loan was entered into, any resulting
tax, including any resulting state and local taxes (collectively "Associated
Taxes"), and any related interest and penalties, will be either paid by the
Company or advanced to the Executive, at his election, when due. In addition,
the Company shall make additional payments to the Executive to hold him harmless
from: (i) any tax liabilities attributable to its payment of such related
interest and penalties (but not of the Associated Taxes), and (ii) any imputed
income associated with the interest-free component of the Executive's repayment
obligation (the "Hold Harmless Payments"). Should the Company wish to contest
with the IRS the accelerated inclusion of such income or any issue related to
penalties, interest or the Hold Harmless Payments, then the Executive shall
reasonably cooperate with the Company as to such contest, and at the time that
they are then due, the Company shall pay to the IRS (or at his election to the
Executive) the Associated Taxes, and any related interest and penalties, and to
the Executive, the Hold Harmless Payments. Any such Associated Taxes shall be
repaid by the Executive to the Company (without interest), either at the time
the Loan is otherwise repayable by the Executive, or at the time such loan is
forgiven in accordance with this Agreement, whichever is applicable.

               3. Termination of Employment.

               (a) Termination without Cause or Constructive Termination. In the
event the Executive's employment is terminated by the Company without Cause,
other than due to Disability or death, or in the event there is a Constructive
Termination, the Executive shall be entitled to:

               (i) the Executive's base salary through the month during which
termination occurred, plus any other amount earned (but not yet paid) at the
time of termination under any bonus plan of the Company; and

               (ii) monthly severance payments equal to the Executive's monthly
base salary at the time of termination which shall commence in the month
following termination and shall continue for [twelve / twenty-four] months;
provided, however, that the Executive agrees to make reasonable efforts to seek
(and to immediately notify the Company of) other employment, and the monthly
severance payments otherwise payable hereunder shall be reduced by compensation
paid or earned from other employment; and

               (iii) the balance of any annual or long-term cash incentive
awards earned (but not yet paid) pursuant to the terms of the applicable
programs; and

               (iv) other or additional benefits in accordance with applicable
plans and programs of the Company.

               (b) Termination Due to Death. In the event the Executive's
employment is terminated due to death, his estate or his beneficiaries as the
case may be, shall be entitled to the following:


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               (i) the Executive's base salary through the month during which
termination occurred,

               (ii) a pro rata annual bonus for the year in which the
Executive's death occurs, based on the Target Bonus for such year, payable in a
single installment promptly after his death;

               (iii) any other amount earned (but not yet paid) at the time of
termination under any other bonus or award plan of the Company;

               (iv) any restricted stock award outstanding at the time of his
death shall become fully vested and any forfeiture provisions set forth in the
relevant restricted stock agreement based on the continued employment of the
Executive shall immediately lapse;

               (v) any stock option or other equity award outstanding at the
time of death shall become fully vested and his estate shall have the rights to
exercise any such award for the lesser or (a) 12 months from the date of death
or (b) the reminder of the full original terms of the option (notwithstanding
any contrary provision of any plan or agreement); and

               (vi) other or additional benefits in accordance with applicable
plans and programs of the Company.

               (c) Termination Due to Disability. In the event the Executive's
employment is terminated due to his Disability, he shall be entitled to the
following:

               (i) the Executive's base salary through the month during which
termination occurred,

               (ii) the annual bonus for the year in which termination due to
Disability occurs, based on the Target Bonus for such year, payable in a single
installment promptly following termination due to Disability;

               (iii) any other amount earned (but not yet paid) at the time of
termination under any other bonus or award plan of the Company;

               (iv) any restricted stock award outstanding at the time of his
termination due to Disability shall become fully vested and any forfeiture
provisions set forth in the relevant restricted stock agreement based on the
continued employment of the Executive shall immediately lapse;

               (v) any stock option or other equity award outstanding at the
time of termination due to Disability shall become fully vested and he shall
have the right to exercise any such award for the lesser or (a) 12 months from
the date of Disability or (b) the reminder of the full original terms of the
option (notwithstanding any contrary provision of any plan or agreement); and

               (vi) other or additional benefits in accordance with applicable
plans and programs of the Company.

               (d) Termination of Employment Following a Change in Control. If,
               within two years following a Change in Control, the Executive's
               employment is terminated without Cause or there is a Constructive
               Termination, (in either event, a "CIC Termination") the Executive
               shall be entitled to:

               (i) Base Salary through the date of termination of the
Executive's employment;

               (ii) Base Salary, at the monthly rate in effect on the date of
termination of the Executive's employment (or in the event a reduction in Base
Salary is the basis for a Constructive Termination, then the Base Salary in
effect immediately prior to such reduction), payable each month for an
additional thirty six (36) months following such termination (the "Severance
Period");

               (iii) pro-rata annual bonus for the year in which termination
occurs, based on the Target Bonus for such year, payable in a single installment
promptly following termination;

               (iv) an amount equal to one-twelfth (1/12) of the Target Bonus
amount for the year in which termination occurs, payable each month over the
Severance Period;

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<PAGE>

               (v) the balance of any annual or long-term cash incentive awards
earned (but not yet paid) pursuant to the terms of the applicable programs;

               (vi) any restricted stock award outstanding at the time of such
termination of employment shall become fully vested, and any forfeiture
provisions set forth in the relevant restricted stock agreement based on the
continued employment of the Executive shall immediately lapse;

               (vii) any stock option or other equity award outstanding at the
time of termination shall become fully vested, and he shall have the right to
exercise any such award for the remainder of the lesser of (a) thirty six (36)
months from the date of termination or (b) the full original term of the option
(notwithstanding any contrary provision of any plan or agreement);

               (viii) any amounts earned, accrued or owing to the Executive but
not yet paid under this Agreement;

               (ix) continued participation in all medical, dental,
hospitalization and life insurance coverage and in other employee welfare
benefit plans or programs in which he was participating on the date of the
termination of his employment until the end of the Severance Period; provided
that the Company's obligations under this clause (x) shall be reduced to the
extent that the Executive receives similar coverage and benefits under the plans
and programs of a subsequent employer: and provided, further, that (i) if the
Executive is precluded from continuing his participation in any employee benefit
plan or program as provided in this clause, he shall be provided with the
after-tax economic equivalent of the benefits provided under the plan or program
in which he is unable to participate for the period specified in this clause
(x), (ii) the economic equivalent of any benefit foregone shall be deemed to be
the lowest cost that would be incurred by the Executive in obtaining such
benefit himself on an individual basis, and (iii) payment of such after-tax
economic equivalent shall be made quarterly in advance;

               (x) other or additional benefits in accordance with applicable
plans and programs of the Company;

               provided that all cash payments provided in this Section 3(d)
               shall be paid in a lump sum without any discount and all of such
               payments 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. In addition, immediately following a CIC
               Termination, all accrued or earned amounts that are not otherwise
               vested shall become fully vested, including without limitation,
               the Executive's accrued benefits under any supplemental
               retirement plan maintained by the Company. All accrued benefits
               under such plans shall be paid as a lump-sum cash payment, except
               for amounts, if any, payable to the Executive under the Company's
               tax qualified pension plan.

               4. Confidentiality, Co-operation and Non-Disparagement. (a)
During the term of employment and at all times thereafter, the Executive agrees
that he will not divulge to anyone or make use of any Confidential Information
except in the performance of the Executive's duties as an executive of the
Company or when legally required to do so (in which case, the Executive shall
give prompt written notice to the Company in order to allow the Company the
opportunity to object to or otherwise resist such disclosure). "Confidential
Information" shall mean any knowledge or information of any type relating to the
business of the Company or any of its subsidiaries or affiliates, as well as any
information obtained from customers, clients or other third parties, including
without limitation, all types of trade secrets and confidential commercial
information. Excluded from the definition of Confidential Information is
information (i) that is or becomes part of the public domain, other than through
the breach of this Agreement by the Executive or (ii) regarding the Company's
business or industry properly acquired by the Executive in the course of his
career as an executive in the Company's industry and independent of the
Executive's employment by the Company.

               (b) During the term of employment and thereafter, Executive shall
not disclose the existence or contents of this Agreement beyond what is
disclosed in the proxy statement or documents filed with the government unless
and to the extent such disclosure is required by law, by a governmental agency,
or in a document required by law to be filed with a governmental agency or in
connection with enforcement of the Executive's rights under this Agreement. In
the event that disclosure is so required, the Executive shall give prompt
written notice to the Company in order to allow the Company the opportunity to
object to or otherwise resist such requirement. This restriction shall not apply
to such disclosure by the Executive to members of his immediate family, the
Executive's tax, legal or financial advisors, any



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lender, or tax authorities, or to potential future employers to the extent
necessary, each of whom shall be advised not to disclose such information.

               (c) The Executive acknowledges that the Company has expended, and
will continue to expend, significant amounts of time, effort and money in the
procurement of its Confidential Information, that the Company has taken all
reasonable steps in protecting the secrecy of the Confidential Information, that
said Confidential Information is of critical importance to the Company and that
a violation of this Section 4 would seriously and irreparably impair and damage
the business of the Company.

                (d) The Executive agrees to cooperate with the Company, during
the term of employment and thereafter (including following the Executive's
termination of employment for any reason), by being reasonably available to
testify on behalf of the Company or any subsidiary or affiliate in any action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
and to assist the Company, or any subsidiary or affiliate, in any such action,
suit or proceeding, by providing information and meeting and consulting with the
Board or its representatives or counsel, or representatives or counsel to the
Company, or any subsidiary or affiliate, as reasonably requested. The Company
agrees to reimburse the Executive for all expenses actually incurred in
connection with his provision of testimony or assistance.

                (e) The Executive agrees that, during the term of employment and
thereafter (including following the Executive's termination of employment for
any reason), the Executive will not make statements or representations, or
otherwise communicate, directly or indirectly, in writing, orally, or otherwise,
or take any action which may, directly or indirectly, in any way disparage the
Company or any subsidiary or affiliate or their respective officers, directors,
employees, advisors, businesses or reputations. Notwithstanding the foregoing,
nothing in this Agreement shall preclude either the Executive or the Company
from making truthful statements or disclosures that are required by applicable
law, regulation or legal process.

               5. Non-Competition.

               (a) During the Restriction Period (as defined in Section 5(c)
below), the Executive shall not engage in Competition with the Company or any
subsidiary or affiliate. "Competition" shall mean engaging in any activity for,
or being otherwise affiliated with, a Competitor of the Company or any
subsidiary or affiliate, whether directly or indirectly, as an employee,
consultant, principal, agent, officer, director, partner, shareholder (except as
a less than one percent shareholder of a publicly traded company) or otherwise.
For purposes of this Section 5, "Competitor" shall mean any and/or all of the
following: (i) Albertson's Inc., American Retail Group, Inc., American Stores
Company, Carrefour se, Fleming Companies, Inc., Kohl's Corporation, The May
Department Store Company, Montgomery Ward & Co., Inc., J.C. Penny Company, Royal
Ahold, Safeway, Inc., Sears, Roebuck and Co., Service Merchandise Company,
ShopKo Stores, Inc., Supervalue Inc., Target Corp., The Home Depot, Inc., Toys R
Us Inc., TJX Companies, Inc., and Wal-Mart Stores, Inc., and (ii) an entity or
enterprise whose business is in competition with the business of the Company
which operates retail stores selling general merchandise and/or food if at least
10 of such stores have an area of 50,000 or more square feet and at least 10 of
such stores with 50,000 or more square feet are within 25 miles of any one or
more Kmart stores.

               (b) In addition to all other remedies provided for hereunder, the
Executive agrees that if the Executive shall violate any of the provisions of
this Section 5, the Company shall be entitled to an accounting and repayment of
all profits, compensation, remuneration or other benefits that the Executive may
realize arising from or related to any such violation. The Parties agree and
acknowledge that the duration, scope and geographic area of the covenant not to
compete described in Section 5(a) are, fair, reasonable and necessary in order
to protect the good will and other legitimate interests of the Company, that
adequate compensation has been received by the Executive for such obligations
and that these obligations do not prevent the Executive from earning a
livelihood. If, however, for any reason any court determines under applicable
law that the provisions in this Section 5 pertaining to duration, scope and
geographic area in relation to non-competition are too broad or otherwise
unreasonable, that the consideration provided for hereunder is inadequate or
that the Executive has been prevented unlawfully from earning a livelihood
(together, such provisions being hereinafter referred to as "Restrictions"),
such Restrictions shall be interpreted, modified or rewritten, and such court is
hereby requested and authorized by the Parties to revise the Restrictions, to
include the maximum Restrictions as are valid and enforceable under applicable
law.



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               (c) For purposes of this Section 5, "Restriction Period" shall
mean the period beginning with the Effective Date and ending with the earlier of
(i) twelve (12) months after the Executive's termination of employment for any
reason and (2) the occurrence of a Change in Control.

               6. Non-Solicitation. During the period beginning with the
Effective Date and ending twelve (12) months following the termination of the
Executive's employment for any reason, the Executive shall not, directly or
indirectly, take or cause any of the following actions: recruit, solicit the
employment or services of, or induce employees of the Company or any subsidiary
or affiliate to terminate their employment, nor shall the Executive solicit or
encourage any of the Company's or any subsidiary's or affiliate's non-retail
customers, or any corporation or other entity in a joint venture relationship
(directly or indirectly) with the Company or any subsidiary or affiliate, to
terminate or diminish their relationship with the Company or any subsidiary or
affiliate or to violate any agreement with any of them.

               7. Remedies. If the Executive breaches any of the provisions
contained in Sections 4, 5 or 6 above, the Company shall have (a) the right to
immediately terminate all payments and benefits due under this Agreement and any
other outstanding compensation, stock awards or stock agreements, between the
Company and the Executive and (b) the right to seek injunctive relief. The
Executive acknowledges that such a breach of Sections 4, 5 or 6 would cause
irreparable injury and that money damages would not provide an adequate remedy
for the Company; provided, however, that the foregoing shall not prevent the
Executive from contesting the issuance of any injunction on the ground that no
violation or threatened violation of Section 4, 5 or 6 has occurred.

               8. Resolution of Disputes. Any controversy or claim of any kind
arising out of or relating to the Executive's employment with the Company, this
Agreement, any breach or asserted breach hereof, or questioning the validity and
binding effect hereof arising under or in connection with this Agreement or any
agreement executed pursuant hereto, other than seeking injunctive relief under
Section 7, including any claim in tort or for violation of any federal, state or
local statue, regulation, or ordinance providing protection against
discrimination, retaliation or interference of any kind, including
discrimination, retaliation or interference on account of race, color,
ethnicity, national origin, age, religion, gender, disability, other protected
characteristics, or protected activities of any kind, shall be resolved by
binding arbitration, by a neutral arbitrator selected from the Employment
Dispute panel of the American Arbitration Association and to be held at an
office closest to the Company's principal offices in accordance with the
Employment rules and procedures of the American Arbitration Association. The
arbitrator selected shall have no authority to modify or add to the terms of the
Agreement, provided however, the arbitrator shall have authority to provide any
other remedy provided by federal, state, or local law should Executive prove
such a claim. The arbitrator's decision shall be final and binding on the
Executive and the Company. Judgement upon the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. All costs and expenses
of any arbitration or court proceeding (including fees and disbursements of
counsel) shall be borne by the respective party incurring such costs and
expenses, but the Company shall reimburse the Executive for such reasonable
costs and expenses in the event the Executive substantially prevails in such
arbitration or any court proceeding to enforce an award. Notwithstanding the
foregoing, following a Change in Control, all reasonable costs and expenses
(including fees and disbursements of counsel) incurred by the Executive pursuant
to this section 8 shall be paid on behalf of or reimbursed to the Executive
promptly by the Company, provided, however, that no reimbursement shall be made
of such expenses if and to the extent the arbitrator(s) determine(s) that any of
the Executive's litigation assertions or defenses were in bad faith or
frivolous.

               9. Effect of Agreement on Other Benefits. Except as specifically
provided in this Agreement, the existence of this Agreement shall not be
interpreted to preclude, prohibit or restrict the Executive's participation in
any other employee benefit or other plans or programs in which the Executive
currently participates. This Agreement supersedes and replaces in its entirety
the Severance Letter, which is hereby cancelled and rescinded.

               10. Assignability; Binding Nature. This Agreement shall be
binding upon and inure to the benefit of the Parties and their respective
successors, heirs and permitted assigns. No rights or obligations of the
Executive under this Agreement may be assigned or transferred by the Executive
other than the Executive's rights to compensation and benefits, which may be
transferred only by will or operation of law.

               11. Representation. The Company represents and warrants that it
is fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between it and any other person, firm or organization.



                                       7
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               12. Entire Agreement. This Agreement contains the final and
entire understanding and agreement between the Parties concerning the subject
matter hereof and, as of the Effective Date, supersedes all prior agreements,
understandings, discussions, negotiations and undertakings, whether written or
oral, between the Parties with respect to the subject matter hereof.

               13. Amendment or Waiver. No provision in this Agreement may be
amended unless such amendment is agreed to in writing and signed by the
Executive and an authorized officer of the Company. Except as set forth herein,
no delay or omission to exercise any right, power or remedy accruing to either
Party shall impair any such right, power or remedy or shall be construed to be a
waiver of or an acquiescence to any breach hereof. No waiver by either Party of
any breach by the other Party of any condition or provision contained in this
Agreement to be performed by such other Party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same or any prior or
subsequent time. Any waiver must be in writing and signed by the Executive or an
authorized officer of the Company, as the case may be.

               14. Severability. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, in whole or in part, the remaining provisions of this Agreement shall be
unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.

               15. Survivorship. The respective rights and obligations of the
Parties hereunder shall survive any termination of the Executive's employment to
the extent necessary to the intended preservation of such rights and
obligations.

               16. Governing Law/Jurisdiction. This Agreement shall be governed
by and construed and interpreted in accordance with the internal laws of
Michigan without reference to principles of conflicts of laws. Subject to
Section 8, the Company and the Executive hereby consent to the jurisdiction of
any or all of the following courts for purposes of resolving any dispute under
this Agreement: (i) the United States District Court of Detroit, Michigan or
(ii) the State of Michigan Courts of Oakland County, Michigan. The Company and
the Executive further agree that any service of process or notice requirements
in any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and the Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which it
or the Executive may now or hereafter have to such jurisdiction and any defense
of inconvenient forum.

               17. Notices. Any notice given to a Party shall be in writing and
shall be deemed to have been given when delivered personally or sent by
certified or registered mail, postage prepaid, return receipt requested, duly
addressed to the Party concerned at the address indicated below or to such
changed address as such Party may subsequently give such notice of:

               If to the Company:       Kmart Corporation
                                        3100 West Big Beaver Road
                                        Troy, MI 48084-3163
                                        Attention:  Vice President and Secretary
               If to the Executive:     Janet Kelley
                                        533 Wallace Street
                                        Birmingham, MI  48009

               18. Miscellaneous. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement. This Agreement
may be executed in two or more counterparts. The use of masculine pronouns shall
encompass feminine pronouns.

               IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the Effective Date.

                                     KMART CORPORATION
-----------------------------
Executive

                                     By:
                                        ------------------------
                                     Name: David P. Rots
                                           ---------------------
                                     Title: EVP and Chief Administrative Officer




                                       8

</TEXT>
</DOCUMENT>
