September 14, 2000

Ms. Randy Allen

Dear Randy,

This letter will confirm our offer of a position with Kmart Corporation as
Executive Vice President, Strategy and Planning effective September 15, 2000. In
this position you will report directly to Chuck Conaway, Chief Executive

We are offering you an initial base salary of $500,000, to be paid to you on a
semi-monthly basis. Based on current practice, your base salary will be reviewed
annually and adjusted, if appropriate, in May.

In addition to your base salary, you will be provided with the opportunity to
earn an annual performance bonus. The actual bonus is based on a company
financial performance relative to pre-established performance objectives. Your
annualized target award for fiscal 2000 is $275,000. The annualized bonus award
has an upside opportunity of $618,750. For 2000, your actual award under the
plan will be prorated based on time on the job. However, we will guarantee a
minimum bonus payment of $275,000 for 2000, provided you are still employed with
Kmart on February 15, 2001.

Each January, you will be granted non-qualified stock options under the long
term incentive component of your compensation package. Initially (i.e., January
2001) you will be granted stock options with an annualized economic value of
approximately $582,500. The January 2001 stock options will cliff vest on
September 30, 2003. Options granted in 2002 will also cliff vest on September
30, 2003. Options granted in 2003 will cliff vest on September 30, 2004,
provided you are still employed by Kmart on September 30, 2003.

You will be paid a special one-time cash hiring incentive of $300,000, less
standard deductions. The hiring incentive will be paid to you in two equal
payments of $150,000. The initial $150,000 payment will be made to you within
the first 7 days of your employment. The second payment will be paid to you
September 1, 2001. If you should voluntarily terminate your employment with
Kmart within 24 months of hire, you will be required to reimburse the company
for this special hiring incentive.

As special consideration for foregone partnership income from your current
employer we will provide you the following:

         o    75,000 restricted shares. Fifty percent of the grant (37,500
              shares) will vest on September 30, 2002, provided a successor has
              been identified. The remaining 37,500


              shares will vest on September 30, 2003 providing you have
              developed your successor to assume your responsibilities.

         o    100,000 non-qualified stock options. The stock options will cliff
              vest on September 30, 2003, provided you are still employed by
              Kmart at that time. The strike price for these special stock
              options will be set at the average fair market value on your date
              of hire. .

We will negotiate a budget to provide you reimbursement for you for your
temporary living expenses while in Michigan and for travel home. Temporary
living expenses in excess of the budget will be absorbed by you.

You will be entitled to receive the standard benefits portfolio offering for
Kmart executives. The offering includes medical, dental, disability and 401(k)
savings plans. The portfolio also includes life insurance. The company covers
the cost of the Basic life insurance, which is equal to 1X your base salary
(i.e., initially $500,000). Additional multiples for you and your eligible
dependents may be purchased, as an option, under the group plan at your cost.

Finally, as a corporate officer of the Company, you are entitled to the

         o    Personal tax and financial planning provided by

         o    Annual Company paid physical examination

         o    Executive Supplemental Long Term Disability (LTD) which covers the
              difference between the basic LTD plan and 100% of pay for the
              first year and 70%, thereafter, up to age 65.

Randy, I am very excited to have you join our team and look forward to working
with you in the future. We would appreciate you signing and returning an
original of this letter as confirmation of your acceptance of the position and
your understanding of the compensation terms we have outlined.

Should you have any questions, please do not hesitate to give me a call.

Sincerely,                                           Accepted:

-----------------------------                -------------------------
David P. Rots                                       Randy Allen

Employment at Kmart Corporation can be terminated by you or the Company at any
time with or without cause; no representative of the Company other than the
Executive Vice President, Human Resources and Administration, has the authority
to enter into any agreement contrary to the following.

In the interest of safety and to promote a safe and productive work environment,
Kmart Corporation conducts mandatory drug testing and this employment offer is
contingent upon favorable results of such testing.

Source: OneCLE Business Contracts.