EXHIBIT 10.1

 

This document constitutes part of a prospectus covering securities that have
been registered under the Securities Act of 1933.

The date of this document is              

 

PERFORMANCE UNIT AWARD

UNDER THE PROVISIONS OF

ONE OF THE KROGER CO.

LONG-TERM INCENTIVE PLANS

 

Pursuant to the provisions of a Long-Term Incentive Plan (the “Plan”) of The
Kroger Co., the Compensation Committee (the “Committee”) of the Board of
Directors has granted to you, on                       ,           , a
performance unit award, on and subject to the terms of the Plan and your
agreement to the following terms, conditions and restrictions.

 

1.  Delivery of Shares. Subject to and upon the terms, conditions, and
restrictions set forth in this Agreement, The Kroger Co. (“Kroger”) will deliver
to you the number of common shares, $1 par value per share, of Kroger (the
“Shares”) equal to the product determined by multiplying (a) the number of
performance units indicated on your 2014 Executive Compensation form (“Notice of
Award”) by (b) the percentage determined in accordance with the provisions of
Paragraphs 2 and 3 below. Delivery of Shares will be deemed to occur on the date
of the regularly scheduled meeting of Kroger’s Board of Directors held in
March 2017 or such other date as determined by the Committee, and Shares will be
deposited into your account at Kroger’s designated brokerage firm as soon
thereafter as is administratively practical.

 

2.  Performance Criteria. You are eligible to earn a percentage of the number of
Shares indicated on your Notice of Award.  The percentage will be determined
based on the extent to which Kroger’s (i) Customer 1st Tracker results increase,
(ii) Associate Survey associate engagement results increase, (iii) total
operating costs, as a percentage of sales, decrease, and (iv) return on invested
capital increases, as of the end of the third fiscal year (the “Performance
Period”) from February 2, 2014, when compared to those results as of February 1,
2014.  Customer 1st Tracker, measuring Kroger performance in four key areas
(people, shopping experience, product, and price), will be based on results of
customer surveys using the methodology currently in use by Kroger, subject to
modification by the Committee.  Associate Survey, measuring associate
satisfaction, will be based on results of associate surveys using the
methodology currently in use by Kroger, subject to modification by the
Committee.  Total operating costs will be calculated by adding (i) OG&A,
depreciation, and rent (excluding fuel), for the total Company, and
(ii) warehouse and transportation costs, shrink, and advertising expenses
(excluding fuel), for our supermarket operations.  Return on invested capital,
for purposes of the Plan, will be calculated by dividing adjusted operating
profit for the prior four quarters by the average invested capital.  Adjusted
operating profit will be calculated by excluding from operating profit unusual
items included in operating profit, and adding our LIFO charge, depreciation and
amortization, and rent.  Average invested capital will be calculated as the sum
of (i) the average of our total assets, (ii) the average LIFO reserve, (iii) the
average accumulated depreciation and amortization, and (iv) a rent factor equal
to total rent for the last four quarters multiplied by a factor of eight; minus
(i) the average taxes receivable, (ii) the average trade accounts payable,
(iii) the average accrued salaries and wages, and (iv) the average other current
liabilities.  Averages are calculated for return on invested capital by adding
the beginning balance of the first quarter and the ending balance of the fourth
quarter, of the last four quarters, and dividing by two.

 

--------------------------------------------------------------------------------

 

3.  Calculation of Awards.  The number of shares earned will be based on the
criteria set forth in Paragraph 2 above, calculated in the manner shown on
Attachment A, and prorated in accordance with Paragraph 4 below, if applicable. 
Any resulting partial Shares will be rounded up or down to the nearest whole
Share amount.  Kroger will pay to participants, in cash, an amount equal to the
product of the total dividends per share paid on Kroger common shares during the
Performance Period and the number of shares earned during the Performance
Period.  In all cases, the effect during the Performance Period of accelerating
the payment, funding, or recognition of expense of multi-employer pension
liability, or the imposition of pension withdrawal liability; in either case
undertaken by Kroger as part of its effort to mitigate its exposure to
multi-employer pension plan liability, will be excluded for purposes of
calculating the award hereunder.  In no event will awards exceed 100% of the
number of Shares indicated on the Notice of Award.

 

4.   Termination of Employment, Permanent Disability, Retirement, or Death of
Participant.

 

(a)  Participation in the Plan does not create a contract of employment, or
grant any employee the right to be retained in the service of Kroger.  Any
participant whose employment is terminated by Kroger; who voluntarily terminates
his or her employment (other than in accordance with paragraph (b) below); or
whose pay level drops below pay level 35, prior to the end of the Performance
Period, will forfeit all rights hereunder.

 

(b)  If a participant voluntarily terminates his or her employment after
reaching age 55 with at least five years of service with Kroger, or due to
permanent disability as determined by Kroger, participation will continue, and
that participant will receive a prorata number of Shares earned according to the
terms of the award proportionate to the period of active service during the
Performance Period.

 

(c)  If a participant dies during the Performance Period, participation will
continue until the end of the fiscal year in which the death occurs, and the
participant’s designated beneficiary (or if none, then the participant’s estate)
will receive a prorata number of Shares earned according to the terms of the
award proportionate to the period of active service during the Performance
Period before the participant’s death.  The amount of Shares to be issued, as
soon as reasonably practicable as determined by the Committee, will be
determined as of the end of the fiscal year in which the participant’s death
occurs based on actual results as of the end of that fiscal year.

 

(d)  Notwithstanding anything contained in this paragraph 4 to the contrary, in
the event that during the Performance Period the participant provides services
as an employee, director, consultant, agent, or otherwise, to any of Kroger’s
competitors, this agreement and the award hereunder terminate.   For purposes of
this paragraph 4(d), a competitor is any business that sells groceries, food,
drugs, health and beauty care items, motor fuels, or pharmaceuticals, at retail
in one or more of the same geographic areas that Kroger sells those products.

 

--------------------------------------------------------------------------------

 

(e)  For purposes of the Plan, “period of active service” means the period of
time that the participant actually is working for Kroger plus any earned but
unused vacation for the year in which the participant ceases employment, and
excluding any “banked” vacation earned but not taken in prior years.

 

5.  Change in Control.  Shares in an amount equal to 50% of the number of Shares
indicated on the Notice of Award will be delivered to you if at any time after
the date of this agreement any of the following occur:

 

(a)  without prior approval of Kroger’s Board of Directors, any person,  group,
entity or group thereof, excluding Kroger’s employee benefit plans, becomes the
owner of, or obtains the right to acquire, 20% or more of the voting power of
our then outstanding voting securities; or

 

(b)  a tender or exchange offer has expired, other than an offer by Kroger,
under which 20% or more of our then outstanding voting securities have been
purchased; or

 

(c)  as a result of, or in connection with, or within two years following (i) a
merger or business combination, (ii) a reorganization, or (iii) a proxy contest,
in any case which was not approved by Kroger’s Board of Directors, the
individuals who were directors of Kroger immediately before the transaction
cease to constitute at least a majority thereof, except for changes caused by
death, disability or normal retirement; or

 

(d)  Kroger’s shareholders have approved (i) an agreement to merge or
consolidate with or into another corporation and Kroger is not the surviving
corporation or (ii) an agreement, including a plan of liquidation, to sell or
otherwise dispose of all or substantially all of Kroger’s assets.

 

6. Transferability. Your right to receive a payout under this award is not
assignable or transferable by you other than by will or by the laws of descent
and distribution.

 

7.  Taxes.  In connection with a payment to you under this award, Kroger will
withhold or cause to be withheld from that payment the amount of tax required by
law to be withheld with respect to the payment.   For Shares to be issued under
this award, Kroger will withhold sufficient Shares with a market value equal to
the tax required by law to be withheld with respect to the award unless you have
notified us in writing in advance of the issuance of the Shares of your desire
to pay the taxes and have made the funds available to us or our designated
agent.

 

--------------------------------------------------------------------------------

 

8.  Compliance with Code.  This award is designed to be exempt from the
provisions of Section 409A of the Code as a short term deferral.  This award
will be construed, administered, and governed in a manner that effects that
intent.   Kroger does not represent or guarantee that any particular federal or
state income, estate, payroll, or other tax consequences will occur because of
this award and the compensation provided hereunder.  In the event that any other
agreement serves to modify this award in a manner that causes the award to not
be exempt from Section 409A as a short term deferral, any issuance of Shares or
payment of cash to a “specified employee” within the meaning of Treas. Reg.
1.409A-1(i) (or any successor thereto) on account of termination of employment
will be made six months after the date of termination, and termination of
employment will not be considered to occur until there is a termination of
employment within the meaning of Treasury Regulation Section 1.409(h)(1)(ii),
where the employee’s services permanently decrease to less than 50% of the
average level of services performed over the preceding 36 month period.

 

9.  Acceptance of Agreement.  In the event that you fail to accept this
Agreement within one year from the grant date, we will accept it on your behalf,
and your failure to notify us in writing directed to the Benefits Department,
The Kroger Co., 1014 Vine Street, Cincinnati, OH  45202, of your desire to
reject this Agreement will be deemed to be your express authority for us to
accept this Agreement on your behalf.

 

10.  Amendments. Any amendment to the Plan will be deemed to be an amendment to
this Agreement to the extent that the amendment is applicable hereto.  No
amendment will adversely affect your rights under this Agreement without your
consent. Notwithstanding the forgoing, to the extent necessary to preserve
Kroger’s federal tax deduction that would otherwise be denied due to
Section 162(m) of the Internal Revenue Code (applicable only to certain top
senior executives), Kroger may elect (without your consent) to delay delivery of
your award Shares until 30 days following your termination of employment.  If
Kroger so elects to delay payment, all other deferred compensation payments for
the year that would be nondeductible under Section 162(m) also will be delayed
to avoid negative tax consequences to you.

 

11.  Severability. In the event that any provision of this Agreement is
invalidated for any reason by a court of competent jurisdiction, any provision
so invalidated will be deemed to be separable from the other provisions hereof. 
The remaining provisions will continue to be valid and fully enforceable.

 

12.  Relation to Plan. This Agreement is subject to the terms and conditions of
the Plan. In the event of any inconsistency between the provisions of this
Agreement and the Plan, the Plan will govern. Capitalized terms used herein
without definition have the meanings assigned to them in the Plan. The Committee
acting pursuant to the Plan, as constituted from time to time, will, except as
expressly provided otherwise herein, have the right to determine any questions
that arise in connection with the grant of this award.

 

13.  Successors and Assigns. Without limiting Paragraph 6 hereof, the provisions
of this Agreement will inure to the benefit of, and be binding upon, your
successors, administrators, heirs, legal representatives and assigns, and the
successors and assigns of Kroger.

 

--------------------------------------------------------------------------------

 

14.  Governing Law. The interpretation, performance, and enforcement of this
Agreement will be governed by the laws of the State of Ohio, without giving
effect to the principles of conflict of laws thereof.

 

 

 

THE KROGER CO.

 

 

 

 

 

By

 

 

 

 

 

 

 

 

“participant”

 

--------------------------------------------------------------------------------

 

ATTACHMENT A

TO

PERFORMANCE UNIT AWARD

 

Performance
Metric

 

Shares Earned as a
 Percent of the Number
 of Shares Covered
 by the Award

Customer 1st

 

2% per each point improvement over the performance period, provided that no
decrease occurs in any of the four key areas.

 

 

 

Associate Survey

 

4% per each point improvement

 

 

 

Total Operating Costs

 

0.50% per each basis point reduction

 

 

 

Return on Invested Capital

 

1% per each basis point improvement

 

--------------------------------------------------------------------------------