-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OiDaDBdkkItnIPS1YqfMT4wTz7kWHvtZx6ElQG24kh+RJqBfmjYUg33qDLQswRPj CWiG3WGcSJlElvDVjY49yg== 0000909567-06-001422.txt : 20060810 0000909567-06-001422.hdr.sgml : 20060810 20060810171417 ACCESSION NUMBER: 0000909567-06-001422 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20060701 FILED AS OF DATE: 20060810 DATE AS OF CHANGE: 20060810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COTT CORP /CN/ CENTRAL INDEX KEY: 0000884713 STANDARD INDUSTRIAL CLASSIFICATION: BOTTLED & CANNED SOFT DRINKS CARBONATED WATERS [2086] IRS NUMBER: 000000000 FISCAL YEAR END: 0125 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-31410 FILM NUMBER: 061022180 BUSINESS ADDRESS: STREET 1: 207 QUEENS QUAY W STREET 2: SUITE 340 CITY: TORONTO ONTARIO CANA STATE: A6 ZIP: 00000 BUSINESS PHONE: 4162033898 MAIL ADDRESS: STREET 1: 207 QUEENS QUAY W STREET 2: SUITE 340 CITY: TORONTO ONTARIO STATE: A6 ZIP: 00000 10-Q 1 o32698e10vq.txt 10-Q United States Securities and Exchange Commission WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: July 1, 2006 ------------ [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ Commission File Number: 000-19914 --------- COTT CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) CANADA NONE --------------------------------------------- --------------------------------- (State or Other Jurisdiction of Incorporation (IRS Employer Identification No.) or Organization) 207 QUEEN'S QUAY WEST, SUITE 340, TORONTO, ONTARIO M5J 1A7 --------------------------------------------- --------------------------------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (416) 203-3898 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.: Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at August 4, 2006 - ------------------------------------------------------- ------------------------------------------------------ Common Stock, no par value per share 71,714,630 shares
TABLE OF CONTENTS PART I -- FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Income for the three and six month periods ended July 1, 2006 and July 2, 2005...................................................................... Page 3 Consolidated Balance Sheets as of July 1, 2006 and December 31, 2005......................... Page 4 Consolidated Statements of Shareowners' Equity as of July 1, 2006 and July 2, 2005...................................................................... Page 5 Consolidated Statements of Cash Flows for the three and six month periods ended July 1, 2006 and July 2, 2005...................................................................... Page 6 Notes to Consolidated Financial Statements .................................................. Page 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ........................................................................... Page 23 Item 3. Quantitative and Qualitative Disclosures about Market Risk .................................. Page 28 Item 4. Controls and Procedures ..................................................................... Page 29 PART II -- OTHER INFORMATION Item 1. Legal Proceedings ........................................................................... Page 30 Item 1A. Risk Factors ................................................................................ Page 30 Item 4. Submission of Matters to a Vote of Security Holders.......................................... Page 30 Item 6. Financial Statement Schedules and Exhibits .................................................. Page 31 Signatures ............................................................................................. Page 33
2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS COTT CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in millions of U.S. dollars, except per share amounts) Unaudited
For the three months ended For the six months ended ------------------------------ ------------------------------ JULY 1, JULY 2, JULY 1, JULY 2, 2006 2005 2006 2005 ------------ ------------ ------------ ------------ SALES $ 502.0 $ 492.7 $ 896.2 $ 888.2 Cost of sales 429.7 412.0 771.2 751.5 ------------ ------------ ------------ ------------ GROSS PROFIT 72.3 80.7 125.0 136.7 Selling, general and administrative expenses 48.7 35.5 88.6 72.4 (Gain) Loss on disposal of property, plant and equipment (0.1) 0.5 -- (0.2) Unusual items -- note 2 Restructuring 0.2 -- 1.8 -- Asset impairments (0.1) -- 1.3 (0.2) Other 0.6 -- 2.6 -- ------------ ------------ ------------ ------------ OPERATING INCOME 23.0 44.7 30.7 64.7 Other income, net -- (0.6) (0.2) -- Interest expense, net 7.5 6.6 15.7 13.1 Minority interest 1.1 1.4 2.1 2.3 ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 14.4 37.3 13.1 49.3 Income tax expense -- note 4 6.8 12.3 7.6 16.0 ------------ ------------ ------------ ------------ NET INCOME -- note 5 $ 7.6 $ 25.0 $ 5.5 $ 33.3 ============ ============ ============ ============ PER SHARE DATA -- note 6 INCOME PER COMMON SHARE Basic $ 0.11 $ 0.35 $ 0.08 $ 0.47 Diluted $ 0.11 $ 0.35 $ 0.08 $ 0.46
The accompanying notes are an integral part of these consolidated financial statements. 3 COTT CORPORATION CONSOLIDATED BALANCE SHEETS (in millions of U.S. dollars) Unaudited
JULY 1, DECEMBER 31, 2006 2005 ------------ ------------ ASSETS CURRENT ASSETS Cash $ 9.8 $ 21.7 Accounts receivable 239.6 191.1 Inventories -- note 7 161.8 144.2 Prepaid expenses and other assets -- note 8 17.8 9.5 Deferred income taxes 8.1 7.3 ------------ ------------ 437.1 373.8 PROPERTY, PLANT AND EQUIPMENT -- note 9 385.4 394.2 GOODWILL 155.8 150.3 INTANGIBLES AND OTHER ASSETS -- note 10 256.4 260.4 DEFERRED INCOME TAXES -- 0.4 ------------ ------------ $ 1,234.7 $ 1,179.1 ============ ============ LIABILITIES CURRENT LIABILITIES Short-term borrowings -- note 11 $ 150.1 $ 157.9 Current maturities of long-term debt 0.8 0.8 Accounts payable and accrued liabilities 217.1 182.5 Deferred income taxes -- 0.2 ------------ ------------ 368.0 341.4 LONG-TERM DEBT 272.2 272.3 DEFERRED INCOME TAXES 69.4 61.0 ------------ ------------ 709.6 674.7 ------------ ------------ MINORITY INTEREST 22.8 22.5 SHAREOWNERS' EQUITY CAPITAL STOCK Common shares -- 71,714,630 shares issued (December 31, 2005 -- 71,711,630 shares) 273.0 273.0 ADDITIONAL PAID-IN-CAPITAL 23.0 18.4 RETAINED EARNINGS 191.7 186.2 ACCUMULATED OTHER COMPREHENSIVE INCOME 14.6 4.3 ------------ ------------ 502.3 481.9 ------------ ------------ $ 1,234.7 $ 1,179.1 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 4 COTT CORPORATION CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY (in millions of U.S. dollars) Unaudited
NUMBER OF ACCUMULATED COMMON ADDITIONAL OTHER SHARES COMMON PAID-IN- RETAINED COMPREHENSIVE TOTAL (in thousands) SHARES CAPITAL EARNINGS INCOME EQUITY -------------- ------------ ------------ ------------ ------------ ------------ Balance at January 1, 2005 71,440 $ 269.4 $ 17.6 $ 161.6 $ 8.7 $ 457.3 Options exercised, including tax benefit of $0.6 million 191 2.4 0.6 -- -- 3.0 Comprehensive income -- note 5 Currency translation adjustment -- -- -- -- (7.8) (7.8) Unrealized gains on cash flow hedges -- note 8 -- -- -- -- 0.7 0.7 Net income -- -- -- 33.3 -- 33.3 ------------ ------------ ------------ ------------ ------------ ------------ Balance at July 2, 2005 71,631 $ 271.8 $ 18.2 $ 194.9 $ 1.6 $ 486.5 ============ ============ ============ ============ ============ ============ Balance at December 31, 2005 71,712 $ 273.0 $ 18.4 $ 186.2 $ 4.3 $ 481.9 Options exercised, including tax benefit 3 -- -- -- -- -- Stock compensation expense -- -- 4.6 -- -- 4.6 Comprehensive income -- note 5 Currency translation adjustment -- -- -- -- 10.1 10.1 Unrealized gains on cash flow hedges -- note 8 -- -- -- -- 0.2 0.2 Net income -- -- -- 5.5 -- 5.5 ------------ ------------ ------------ ------------ ------------ ------------ Balance at July 1, 2006 71,715 $ 273.0 $ 23.0 $ 191.7 $ 14.6 $ 502.3 ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 5 COTT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions of U.S. dollars) Unaudited
For the three months ended For the six months ended ------------------------------------- ------------------------------------- JULY 1, 2006 JULY 2, 2005 JULY 1, 2006 JULY 2, 2005 ---------------- ---------------- ---------------- ---------------- OPERATING ACTIVITIES Net income $ 7.6 $ 25.0 $ 5.5 $ 33.3 Depreciation and amortization 19.1 15.9 38.4 32.7 Amortization of financing fees 0.2 0.3 0.5 0.3 Stock option expense 1.9 -- 4.6 -- Deferred income taxes 6.4 3.5 6.6 3.3 Minority interest 1.1 1.4 2.1 2.3 Loss (gain) on disposal of property, plant and equipment (0.1) 0.5 -- (0.2) Asset impairments (0.1) -- 1.3 (0.2) Other non-cash items 0.2 0.3 0.5 0.9 Net change in non-cash working capital -- note 12 (15.6) (13.3) (31.4) (17.5) ---------------- ---------------- ---------------- ---------------- Cash provided by operating activities 20.7 33.6 28.1 54.9 ---------------- ---------------- ---------------- ---------------- INVESTING ACTIVITIES Additions to property, plant and equipment (8.4) (26.7) (16.7) (54.8) Proceeds from disposition of property, plant and equipment 0.8 1.0 1.5 2.0 Other investing activities (3.3) (2.6) (5.7) (4.1) ---------------- ---------------- ---------------- ---------------- Cash used in investing activities (10.9) (28.3) (20.9) (56.9) ---------------- ---------------- ---------------- ---------------- FINANCING ACTIVITIES Payments of long-term debt (0.3) (0.2) (0.5) (0.4) Short-term borrowings (9.7) (0.6) (16.7) (5.5) Distributions to subsidiary minority shareowner (0.7) (0.8) (1.8) (1.9) Issue of common shares -- 1.5 -- 2.4 Financing costs -- (0.5) -- (2.6) Other financing activities -- (0.1) (0.1) (0.2) ---------------- ---------------- ---------------- ---------------- Cash used in financing activities (10.7) (0.7) (19.1) (8.2) ---------------- ---------------- ---------------- ---------------- Effect of exchange rate changes on cash (0.1) (0.1) -- (0.5) ---------------- ---------------- ---------------- ---------------- NET INCREASE (DECREASE) IN CASH (1.0) 4.5 (11.9) (10.7) CASH, BEGINNING OF PERIOD 10.8 11.4 21.7 26.6 ---------------- ---------------- ---------------- ---------------- CASH, END OF PERIOD $ 9.8 $ 15.9 $ 9.8 $ 15.9 ================ ================ ================ ================
The accompanying notes are an integral part of these consolidated financial statements. 6 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited NOTE 1 Summary of Significant Accounting Policies BASIS OF PRESENTATION The interim consolidated financial statements have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information. Accordingly, they do not include all information and notes presented in the annual consolidated financial statements in conformity with U.S. GAAP. In our opinion, the financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the most recent annual consolidated financial statements. The accounting policies used in these interim consolidated financial statements are consistent with those used in the annual consolidated financial statements, except for the stock-based compensation as outlined below. The presentation of these interim consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Determining whether an impairment has occurred requires various estimates and assumptions including estimates of cash flows that are directly related to the potentially impaired asset, the useful life over which cash flows will occur and their amounts. The measurement of an impairment loss requires an estimate of fair value, which is also based on estimates of future cash flows. Material recognition, measurement, and presentation differences between U.S. GAAP and Canadian GAAP are disclosed in note 16. Stock-Based Compensation Effective January 1, 2006, we adopted Statement of Financial Accounting Standard ("SFAS") 123R, Share-Based Payments, using the modified prospective approach and therefore have not restated results for prior periods. Under this prospective approach, stock-based compensation expense for the first quarter of fiscal 2006 includes compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. We recognize these compensation costs net of a forfeiture rate on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of three years. We estimated the forfeiture rate for the first half of fiscal 2006 based on our historical experience with forfeitures during the preceding three fiscal years. For the six month period ended July 1, 2006, net income includes compensation expense of $4.6 million, or $3.6 million net of tax of $1.0 million, which equates to $0.05 per basic and diluted share. If the change had been reported retroactively, comparative figures for the six month period ended July 2, 2005 would show income before taxes of $44.1 million, income tax expense of $14.6 million and net income of $29.5 million or $0.41 per basic and diluted share as described in note 13. Inventory Costs Effective January 1, 2006, we also adopted SFAS 151, Inventory Costs. The statement requires that the allocation of fixed production overheads to inventory be based on the normal capacity of the production facilities; unallocated overheads resulting from abnormally low production and certain other costs are to be recognized as an expense in the period in which they are incurred. There was no material impact from the adoption of this standard. Income Taxes In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes". FIN 48 is an interpretation of FASB Statement No. 109 "Accounting for 7 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited Income Taxes" and must be adopted by us no later than January 1, 2007. FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting, and disclosing in the financial statements uncertain tax positions that we have taken or expect to take in our tax returns. We are evaluating the impact of adopting FIN 48, and it may result in differences between Canadian and United States accounting standards on uncertain income tax positions. NOTE 2 Unusual Items
For the three months ended For the six months ended -------------------------------- -------------------------------- JULY 1, JULY 2, JULY 1, JULY 2, 2006 2005 2006 2005 ------------ ----------- ------------ ------------ (in millions of U.S. dollars) (in millions of U.S. dollars) Restructuring $ 0.2 $ -- $ 1.8 $ -- Asset impairments (0.1) -- 1.3 (0.2) Other 0.6 -- 2.6 -- ------------ ----------- ------------ ------------ $ 0.7 $ -- $ 5.7 $ (0.2) ============ =========== ============ ============
In September 2005 we announced our plan to realign the management of our Canadian and U.S. businesses to a North American basis, rationalize product offerings, eliminate underperforming assets and increase our focus on high potential accounts. In conjunction with this plan, we closed our Lachine, Quebec juice plant in February 2006 and in March 2006 we closed our Columbus, Ohio soft drink plant to bring production capacity in line with the needs of our customers. Restructuring We recorded restructuring charges of $1.8 million including $0.9 million for severance and contract termination costs relating to the closures of our Columbus, Ohio soft drink plant and our Lachine, Quebec juice plant. The remaining restructuring cost of $0.9 million relates to consulting fees. Restructuring charges of $0.4 million remain accrued as at July 1, 2006. Asset impairments We recorded an impairment loss of $1.3 million, which is comprised of charges of $1.6 million for the writedown of property, plant and equipment, customer list and information technology software related to the closure of our Columbus, Ohio soft drink plant and $0.1 million for the writedown of property, plant and equipment relating to our Lachine, Quebec juice plant, net of a $0.4 million recovery from the sale of other assets. Other Other unusual items are primarily legal and other fees relating to the United Kingdom ("U.K.") Competition Commission review of our acquisition of 100% of the shares of Macaw (Holdings) Limited (now known as Cott Nelson (Holdings) Limited), the parent company of Macaw (Soft Drinks) Limited (now known as Cott (Nelson) Limited) (the "Macaw Acquisition") in the U.K. We are currently evaluating various actions to reduce costs and are developing detailed plans which may result in additional exit and other costs being incurred. In the near term, we expect to incur additional charges relating to contract termination costs associated with the closure of our Columbus, Ohio soft drink plant and our Lachine, Quebec juice plant. To date since September 29, 2005 (through the end of the second quarter of 2006), we have recorded pre-tax charges of $40 million relating to our previously announced North American realignment plan and other assets impairment, of which $20 million was recorded in 2005 relating to customer relationship impairment. These amounts are part of the previously announced charges of $60 to $80 million associated with the North American realignment plan and other assets impairment. 8 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited The breakdown of the charges discussed above is as follows:
UNUSUAL ITEMS ---------------------------------------------------- For the six months ended July 1, 2006 ---------------------------------------------------- NORTH AMERICAN REALIGNMENT AND OTHER ASSETS IMPAIRMENT OTHER TOTAL --------------- ------------ ----------- (in millions of U.S. dollars) Restructuring $ 1.8 $ -- $ 1.8 Asset impairments 1.3 -- 1.3 Other -- 2.6 2.6 ------------ ------------ ----------- $ 3.1 $ 2.6 $ 5.7 ============ ============ ===========
UNUSUAL ITEMS ------------------------------------------------------ For the year ended December 31, 2005 ------------------------------------------------------ NORTH AMERICAN REALIGNMENT AND OTHER ASSETS IMPAIRMENT OTHER TOTAL --------------- ------------ ----------- (in millions of U.S. dollars) Restructuring $ 3.2 $ -- $ 3.2 Asset impairments 33.7 (0.2) 33.5 Other -- 0.8 0.8 ----------- ----------- ----------- $ 36.9 $ 0.6 $ 37.5 =========== =========== ===========
Restructuring charges are comprised of severance and contract termination costs in connection with the closure of our Lachine, Quebec juice plant and our Columbus, Ohio soft drink plant. Asset impairments are comprised of writedown of property, plant and equipment and goodwill in connection with the closure of our Lachine, Quebec juice plant and our Columbus, Ohio soft drink plant. We may also rationalize products and production capacity further but have not yet completed our analysis nor have we completed our detailed plans. Accordingly, the ultimate amount of any asset impairment charges or change in useful lives of assets that may result is uncertain. It is reasonably possible that our estimates of future cash flows or the useful lives, or both, related to certain equipment and intangibles will be significantly reduced in the near term. As a result, the carrying value of the related assets may also be reduced materially in the near term. NOTE 3 Business Seasonality Our net income for the three and six month periods ended July 1, 2006 is not necessarily indicative of the results that may be expected for the full year due to business seasonality. Operating results are impacted by business seasonality, which normally leads to higher sales in the second and third quarters versus the first and fourth quarters of the year. Conversely, fixed costs such as depreciation, amortization and interest, are not impacted by seasonal trends. 9 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited NOTE 4 Income Taxes The following table reconciles income taxes calculated at the basic Canadian corporate rates with the income tax provision:
For the three months ended For the six months ended ------------------------------ ------------------------------ JULY 1, JULY 2, JULY 1, JULY 2, 2006 2005 2006 2005 ------------ ------------ ------------ ------------ (in millions of U.S. dollars) (in millions of U.S. dollars) Income tax provision based on Canadian statutory rates $ 5.0 $ 12.8 $ 4.5 $ 17.0 Foreign tax rate differential (1.3) (0.1) (2.4) (0.9) Non-deductible expenses and other items 4.4 (0.4) 5.6 (0.1) Decrease in valuation allowance (1.3) -- (0.1) -- ------------ ------------ ------------ ------------ $ 6.8 $ 12.3 $ 7.6 $ 16.0 ============ ============ ============ ============
NOTE 5 Comprehensive Income
For the three months ended For the six months ended ----------------------------- ----------------------------- JULY 1, JULY 2, JULY 1, JULY 2, 2006 2005 2006 2005 ------------ ------------ ------------ ------------ (in millions of U.S. dollars) (in millions of U.S. dollars) Net income $ 7.6 $ 25.0 $ 5.5 $ 33.3 Foreign currency translation 10.7 (4.7) 10.1 (7.8) Unrealized gains on cash flow hedges -- note 8 0.1 0.5 0.2 0.7 ------------ ------------ ------------ ------------ $ 18.4 $ 20.8 $ 15.8 $ 26.2 ============ ============ ============ ============
NOTE 6 Income Per Share Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated using the weighted average number of common shares outstanding adjusted to include the effect that would occur if in-the-money stock options were exercised. The following table reconciles the basic weighted average number of shares outstanding to the diluted weighted average number of shares outstanding: 10 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited
For the three months ended For the six months ended ----------------------------- ----------------------------- JULY 1, JULY 2, JULY 1, JULY 2, 2006 2005 2006 2005 ------------ ------------ ------------ ------------ (in thousands) (in thousands) Weighted average number of shares outstanding -- basic 71,714 71,593 71,713 71,549 Dilutive effect of stock options 46 322 44 368 ------------ ------------ ------------ ------------ Adjusted weighted average number of shares outstanding -- diluted 71,760 71,915 71,757 71,917 ============ ============ ============ ============
At July 1, 2006, options to purchase 3,835,664 shares (2,677,525 -- July 2, 2005) of common stock at a weighted average exercise price of C$41.59 per share (C$36.18 -- July 2, 2005) were outstanding, but were not included in the computation of diluted net income per share because the options' exercise price was greater than the average market price of our common stock during the period. As of July 1, 2006, we had 71,714,630 common shares and 3,956,955 common share options outstanding. Of our common share options outstanding, 2,548,269 options were exercisable as of July 1, 2006. During the second quarter ended July 1, 2006, no common share options were issued and 1,000 common share options were exercised at an exercise price of C$5.95. NOTE 7 Inventories
JULY 1, DECEMBER 31, 2006 2005 ------------ ------------ (in millions of U.S. dollars) Raw materials $ 64.6 $ 63.9 Finished goods 78.4 62.9 Other 18.8 17.4 ------------ ------------ $ 161.8 $ 144.2 ============ ============
NOTE 8 Derivative Financial Instruments We enter into cash flow hedges to mitigate exposure to declines in the value of the Canadian dollar attributable to certain forecasted U.S. dollar raw material purchases of the Canadian business. In fiscal 2005, we also entered into cash flow hedges to mitigate exposure to declines in the value of pound sterling attributable to certain forecasted U.S. dollar raw material purchases of the U.K. and European business segments. The hedges consist of monthly foreign exchange options to buy U.S. dollars at fixed rates per Canadian dollar and mature at various dates through December 28, 2006. The fair market value of the foreign exchange options is included in prepaid expenses and other assets. At July 1, 2006, the hedges consisted of foreign exchange options to buy U.S. dollars at fixed rates per Canadian dollar at a cost of $0.3 million. The fair value of the options of $0 ($0.8 million -- July 2, 2005) has been included in prepaid expenses and other assets and the unrealized loss of $0.3 million ($0.7 million unrealized gain -- July 2, 2005) is recorded in other comprehensive income, reflecting a $0.2 million ($0.7 million -- July 2, 2005) change in the unrealized loss in comprehensive income for the period ending July 1, 2006. 11 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited NOTE 9 Property, Plant and Equipment
JULY 1, DECEMBER 31, 2006 2005 ------------ ------------ (in millions of U.S. dollars) Cost $ 700.5 $ 680.8 Accumulated depreciation (315.1) (286.6) ------------ ------------ $ 385.4 $ 394.2 ============ ============
NOTE 10 Intangibles and Other Assets
JULY 1, 2006 DECEMBER 31, 2005 ------------------------------------------ ------------------------------------------ ACCUMULATED ACCUMULATED COST AMORTIZATION NET COST AMORTIZATION NET ---------- -------------- ---------- ---------- -------------- ---------- (in millions of U.S. dollars) (in millions of U.S. dollars) INTANGIBLES Not subject to amortization Rights $ 80.4 $ -- $ 80.4 $ 80.4 $ -- $ 80.4 ---------- -------------- ---------- ---------- -------------- ---------- Subject to amortization Customer relationships 168.3 46.0 122.3 166.7 40.1 126.6 Trademarks 29.3 10.4 18.9 29.0 9.3 19.7 Information technology 53.9 28.5 25.4 49.1 24.1 25.0 Other 3.5 1.1 2.4 3.6 1.0 2.6 ---------- -------------- ---------- ---------- -------------- ---------- 255.0 86.0 169.0 248.4 74.5 173.9 ---------- -------------- ---------- ---------- -------------- ---------- 335.4 86.0 249.4 328.8 74.5 254.3 ---------- -------------- ---------- ---------- -------------- ---------- OTHER ASSETS Financing costs 4.7 1.8 2.9 4.6 1.2 3.4 Other 7.2 3.1 4.1 5.4 2.7 2.7 ---------- -------------- ---------- ---------- -------------- ---------- 11.9 4.9 7.0 10.0 3.9 6.1 ---------- -------------- ---------- ---------- -------------- ---------- $ 347.3 $ 90.9 $ 256.4 $ 338.8 $ 78.4 $ 260.4 ========== ============== ========== ========== ============== ==========
Amortization expense of intangible assets was $11.6 million for the period ended July 1, 2006 ($10.2 million -- July 2, 2005). NOTE 11 Short-Term Borrowings Short-term borrowings include bank overdrafts, and borrowings under our credit facilities and receivables securitization facility. The credit facilities are collateralized by substantially all our personal property with certain exceptions including the receivables sold as part of our receivables securitization facility discussed below. 12 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited In general, borrowings under the credit facilities bear interest at either a floating or fixed rate for the applicable currency plus a margin based on our consolidated total leverage ratio. A facility fee of between 0.15% and 0.375% per annum is payable on the entire line of credit. The level of the facility fee is dependent on financial covenants. As at July 1, 2006, credit of $77.7 million was available after borrowings of $142.2 million and standby letters of credit of $5.1 million. The weighted average interest rate was 6.02% on these facilities as of July 1, 2006. The amount of funds available under the receivables securitization facility is based upon the amount of eligible receivables and various reserves required by the facility. Accordingly, availability may fluctuate over time given changes in eligible receivables balances and calculation of reserves, but will not exceed the $75.0 million program limit. This facility bears interest at a variable rate, based on the cost of borrowing of an unaffiliated entity, Park Avenue Receivables Company, LLC and certain other financial institutions (the "Purchasers"). A fee of between 0.20% and 0.40% per annum is currently payable on the unused portion of the facility. The level of the facility fee is dependent on financial covenants. As of July 1, 2006, $57.6 million of eligible receivables, net of reserves, were available for purchase under this facility with no balance outstanding. NOTE 12 Net Change in Non-Cash Working Capital The changes in non-cash working capital components, net of effects of unrealized foreign exchange gains and losses, are as follows:
For the three months ended For the six months ended ----------------------------- ----------------------------- JULY 1, JULY 2, JULY 1, JULY 2, 2006 2005 2006 2005 ------------ ------------ ------------ ------------ (in millions of U.S. dollars) (in millions of U.S. dollars) Increase in accounts receivable $ (48.7) $ (29.1) $ (40.3) $ (47.5) Decrease (increase) in inventories 13.3 0.8 (14.1) (17.4) Increase in prepaid and other expenses (5.2) (2.9) (7.7) (2.3) Increase in accounts payable and accrued liabilities 25.0 17.9 30.7 49.7 ------------ ------------ ------------ ------------ $ (15.6) $ (13.3) $ (31.4) $ (17.5) ============ ============ ============ ============
NOTE 13 Stock-Based Compensation Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123R, using the modified prospective approach and therefore have not restated prior periods' results. Under this prospective approach, stock-based compensation expense for the first quarter of fiscal 2006 includes compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of SFAS 123. Stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. We recognize these compensation costs net of a forfeiture rate on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of three years. We estimated the forfeiture rate for the first half of fiscal 2006 based on our historical experience with forfeitures during the preceding three fiscal years. For the interim period ending July 1, 2006, net income includes compensation expense of $4.6 million, or $3.6 million net of tax of $1.0 million, which equates to $0.05 per basic and diluted share. 13 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited The pro forma table below reflects net earnings and basic and diluted net earnings per share for fiscal 2005, had we applied the fair value recognition provisions of SFAS 123, as follows:
For the three months ended For the six months ended JULY 2, 2005 JULY 2, 2005 ---------------------=-------------- ------------------------------------ (in millions of U.S. dollars, except (in millions of U.S. dollars, except per share amounts) per share amounts) NET INCOME As reported $ 25.0 $ 33.3 Compensation expense (1.7) (3.8) ------------ ------------ Pro forma $ 23.3 $ 29.5 ============ ============ NET INCOME PER SHARE - BASIC As reported $ 0.35 $ 0.47 Pro forma $ 0.33 $ 0.41 NET INCOME PER SHARE -- DILUTED As reported $ 0.35 $ 0.46 Pro forma $ 0.32 $ 0.41
The pro forma compensation expense has been tax effected to the extent it relates to stock options granted in jurisdictions where the related benefits are deductible for income tax purposes. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
JULY 2, 2005 ------------- Risk-free interest rate 3.3% - 3.7% Average expected life (years) 4 Expected volatility 40.0% Expected dividend yield --
There were no options granted during the first six months of fiscal 2006. 14 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited Option activity was as follows:
WEIGHTED WEIGHTED AVERAGE AVERAGE REMAINING CONTRACTUAL SHARES EXERCISE PRICE TERM (IN YEARS) ------------ -------------- --------------------- Balance at January 1, 2005 4,205,965 $ 30.90 Granted 165,000 29.55 Exercised (315,675) 34.37 Forfeited (190,600) 15.18 ------------ ------------ ------------ Outstanding at July 2, 2005 3,864,690 31.34 4.8 ============ ============ ============ Exercisable at July 2, 2005 1,845,014 24.54 ============ ============ ============ Balance at December 31, 2005 4,604,655 $ 30.69 Granted -- -- Exercised (3,000) 5.95 Forfeited (644,700) 33.93 ------------ ------------ ------------ Outstanding at July 1, 2006 3,956,955 40.61 4.2 ============ ============ ============ Exercisable at July 1, 2006 2,548,269 29.63 ============ ============ ============
Outstanding options at July 1, 2006 are as follows:
Options Outstanding Options Exercisable Weighted Remaining Average Number Contractual Life Weighted Average Number Exercise Range of Exercise Prices (C$) Outstanding (Years) Exercise Price (C$) Exercisable Price (C$) - ----------------------------- ------------ ---------------- ------------------- -------------- -------------- $7.70 - $16.10 123,291 1.7 $ 9.87 123,291 $ 9.87 $16.68 - $24.25 807,964 3.0 $ 19.76 667,438 $ 19.80 $26.00 - $33.30 1,980,250 4.5 $ 29.99 1,039,340 $ 30.40 $35.21 -- $43.64 1,045,450 4.8 $ 40.99 718,200 $ 41.05 -------------- -------------- -------------- -------------- -------------- 3,956,955 4.2 $ 40.61 2,548,269 $ 29.63 ============== ============== ============== ============== ==============
Total compensation expense related to non-vested awards not yet recognized is expected to be $12.3 million. The weighted average period over which this is expected to be recognized is 16 months. During the second quarter of 2006, Brent Willis, our President and Chief Executive Officer, received a net cash award of $0.9 million at commencement of employment to purchase common shares of the Company. The purchased shares must be held for a minimum of three years. This award is recognized as compensation expense over the vesting period. As of July 1, 2006, $0.1 million was expensed as compensation expense and remaining balance, which has been deferred within other assets, will be classified as a reduction in shareowners' equity when the shares are purchased. In addition, 204,000 common shares with a fair value of $3.2 million, which vest over three years, and 111,695 of performance share units with a fair value of $1.5 million, which vest at the end of the three year performance cycle, have been granted to Mr. Willis. Compensation costs of $0.2 million were recognized in selling, general and administrative expenses in the period ended July 1, 2006. As of July 1, 2006 there was $4.5 million of unearned compensation relating to these grants that is expected to be recognized on a straight-line basis over a period of three years. NEW LONG-TERM INCENTIVE PLANS During the second quarter of 2006, our shareowners approved and adopted two new long-term incentive plans for 2006 and future periods, the Performance Share Unit Plan ("PSU Plan") and the Share Appreciation Rights Plan ("SAR Plan"). 15 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited PSU Plan Under the PSU Plan, performance share units ("PSUs") may be granted to employees of our Company and its subsidiaries. The value of an employee's award under our PSU Plan will depend on (i) our performance over a three-year performance cycle; and (ii) the market price of our common shares at the time of vesting. Performance targets will be established annually by the Human Resources and Compensation Committee of the Board of Directors. PSUs granted will vest over a term not to exceed three fiscal years. At the start of each performance cycle, we will establish three tiers of performance goals for our Company to achieve over the three-year period: a minimum threshold level, a target level and an outstanding performance level. A target number of PSUs for each participant will be established at the beginning of each three-year performance cycle. Each PSU represents the right, on vesting, to receive one Company common share. If performance over the three-year performance cycle falls below the threshold level, no PSUs will vest. Throughout the performance cycle, there are no dividends paid to participants on the PSUs, and holders do not have the right to vote the common shares represented by their PSUs. Following the vesting of a participant's PSUs, we will contribute cash to an independent trust to be used for the purpose of purchasing an equivalent number of our common shares on the New York Stock Exchange at the prevailing market price. The common shares purchased by the trustee will then be registered in the name of the participant and delivered to the participant upon his or her request. No shares are issued from treasury and the PSU Plan is not dilutive to our shareowners. SAR Plan Under the SAR Plan, share appreciation rights ("SARs") may be granted to employees and directors of our Company and its subsidiaries. SARs will typically vest on the third anniversary of the grant date. On vesting, each SAR will represent the right to be paid the difference, if any, between the price of our common shares on the date of grant and their price on the SAR's vesting date. Payments in respect of vested in-the-money SARs will be made in the form of our common shares purchased on the open market by an independent trust with cash contributed by us. If our share price on the date of vesting is lower than on the date of grant, no payment will be made in respect of those vested SARs. Prior to vesting, there are no dividends paid on the share appreciation rights, and holders do not have the right to vote the common shares represented by their SARs. No shares are issued from treasury and the SAR Plan is not dilutive to our shareowners. We recognize the compensation cost of the PSUs and SARs based on the fair value of the grant. The fair value of each grant is estimated on the date of grant using the Black-Scholes option pricing model. We recognize these compensation costs net of a forfeiture rate on a straight-line basis over the requisite service period of the award, which is generally the vesting term of three years. Compensation cost of the PSUs may vary depending on management's estimates of the probability of the performance measures being achieved and the number of PSUs expected to vest. NOTE 14 Contingencies We are subject to various claims and legal proceedings with respect to matters such as governmental regulations, income taxes, and other actions arising out of the normal course of business. Management believes that the resolution of these matters will not have a material adverse effect on our financial position or results from operations. In January 2005, we were named as one of many defendants in a class action suit alleging the unauthorized use by the defendants of container deposits and the imposition of recycling fees on customers. In February 2005 similar class action claims were filed in a number of other Canadian provinces. The litigation is at a very preliminary stage and the merits of these cases have not been determined. 16 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited NOTE 15 Segment Reporting We produce, package and distribute retailer brand and branded bottled and canned beverages to regional and national grocery, mass-merchandise and wholesale chains in North America, the U.K. & Europe and International business segments. The International segment includes our Mexican business, our Royal Crown International business and our business in Asia. The concentrate assets, sales and related expenses have been included in the Corporate & Other segment. For comparative purposes, segmented information has been restated to conform to the way we managed our beverage business to the end of the second quarter of 2006. BUSINESS SEGMENTS
UNITED NORTH KINGDOM CORPORATE AMERICA & EUROPE INTERNATIONAL & OTHER TOTAL ------------ ------------ ------------- ------------ ------------ (in millions of U.S. dollars) FOR THE THREE MONTHS ENDED JULY 1, 2006 External sales $ 383.2 $ 92.9 $ 24.2 $ 1.7 $ 502.0 Depreciation and amortization 13.5 4.1 0.3 1.2 19.1 Operating income (loss) before unusual items 27.1 7.1 4.1 (14.6) 23.7 Unusual items -- note 2 Restructuring (0.4) -- -- 0.6 0.2 Asset impairment (0.1) -- -- -- (0.1) Other -- 0.6 -- -- 0.6 Additions to property, plant and equipment 5.7 2.1 0.1 0.5 8.4 AS OF JULY 1, 2006 Property, plant and equipment 254.6 113.5 9.4 7.9 385.4 Goodwill 75.1 71.1 4.5 5.1 155.8 Intangibles and other assets 128.9 26.9 0.8 99.8 256.4 Total assets 729.1 334.1 85.9 85.6 1,234.7 ------------ ------------ ------------ ------------ ------------
17 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited
UNITED NORTH KINGDOM CORPORATE AMERICA & EUROPE INTERNATIONAL & OTHER TOTAL ------------ ------------ ------------- ------------ ------------ (in millions of U.S. dollars) FOR THE THREE MONTHS ENDED JULY 2, 2005 External sales $ 414.1 $ 57.9 $ 20.0 $ 0.7 $ 492.7 Depreciation and amortization 12.6 2.2 0.4 0.7 15.9 Operating income (loss) 41.9 3.1 2.8 (3.1) 44.7 Additions to property, plant and equipment 22.9 2.9 0.3 0.6 26.7 AS OF DECEMBER 31, 2005 Property, plant and equipment 266.2 109.4 10.3 8.3 394.2 Goodwill 74.1 66.6 4.5 5.1 150.3 Intangibles and other assets 136.0 26.3 1.1 97.0 260.4 Total assets 710.5 307.7 83.1 77.8 1,179.1 ------------ ------------ ------------ ------------ ------------
UNITED NORTH KINGDOM CORPORATE AMERICA & EUROPE INTERNATIONAL & OTHER TOTAL ------------ ------------ ------------- ------------ ------------ (in millions of U.S. dollars) FOR THE SIX MONTHS ENDED JULY 1, 2006 External sales $ 692.7 $ 158.2 $ 42.1 $ 3.2 $ 896.2 Depreciation and amortization 27.2 8.0 0.7 2.5 38.4 Operating income (loss) before unusual items 42.1 8.9 7.0 (21.6) 36.4 Unusual items -- note 2 Restructuring 0.9 -- -- 0.9 1.8 Asset impairment 1.1 -- -- 0.2 1.3 Other -- 2.6 -- -- 2.6 Additions to property, plant and equipment 12.1 4.0 0.1 0.5 16.7 ------------ ------------ ------------ ------------ ------------
18 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited
UNITED NORTH KINGDOM CORPORATE AMERICA & EUROPE INTERNATIONAL & OTHER TOTAL ------------ ------------ ------------- ------------ ------------ (in millions of U.S. dollars) FOR THE SIX MONTHS ENDED JULY 2, 2005 External sales $ 749.5 $ 101.5 $ 35.7 $ 1.5 $ 888.2 Depreciation and amortization 26.3 4.3 0.7 1.4 32.7 Operating income (loss) before unusual items 61.0 5.1 5.0 (6.6) 64.5 Unusual items -- asset impairments -- (0.2) -- -- (0.2) Additions to property, plant and equipment 46.0 7.6 0.5 0.7 54.8 ------------ ------------ ------------ ------------ ------------
Total assets under the Corporate & Other heading include the elimination of intersegment receivables and investments. Credit risk arises from the potential default of a customer in meeting its financial obligations with us. Concentrations of credit exposure may arise with a group of customers which have similar economic characteristics or that are located in the same geographic region. The ability of such customers to meet obligations would be similarly affected by changing economic, political or other conditions. Sales to our top customer (Wal-Mart Stores, Inc.) in the first six months of 2006 and 2005 accounted for 39% and 41%, respectively, of our total sales. Sales to the top ten customers in the first six months of 2006 and 2005 accounted for 61% and 67%, respectively, of our total sales. The loss of any significant customer, or customers which in the aggregate represent a significant portion of our sales, could have a material adverse effect on our operating results and cash flows. Revenues by geographic area are as follows:
For the three months ended For the six months ended ----------------------------- ----------------------------- JULY 1, JULY 2, JULY 1, JULY 2, 2006 2005 2006 2005 ------------ ------------ ------------ ------------ (in millions of U.S. dollars) (in millions of U.S. dollars) United States $ 327.7 $ 360.4 $ 604.1 $ 660.7 Canada 64.8 59.7 105.4 100.8 United Kingdom 90.3 55.9 153.6 97.7 Other Countries 19.2 16.7 33.1 29.0 ------------ ------------ ------------ ------------ $ 502.0 $ 492.7 $ 896.2 $ 888.2 ============ ============ ============ ============
Revenues are attributed to countries based on the location of the plant. Property, plant and equipment, goodwill, and intangibles and other assets by geographic area are as follows: 19 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited
JULY 1, 2006 DECEMBER 1, 2005 ------------ ---------------- (in millions of U.S. dollars) United States $ 475.1 $ 491.7 Canada 99.7 98.2 United Kingdom 211.5 202.3 Other countries 11.3 12.7 ------------ ------------ $ 797.6 $ 804.9 ============ ============
NOTE 16 Differences Between United States and Canadian Accounting Principles and Practices These consolidated financial statements have been prepared in accordance with U.S. GAAP which differs in certain respects from those principles and practices that we would have followed had our consolidated financial statements been prepared in accordance with Canadian GAAP. (a) In fiscal 2005, under U.S. GAAP, we elected not to record compensation expense for options issued to employees with an exercise price equal to the market value of the options. Effective January 1, 2006, we adopted SFAS 123R, Share-Based Payments, which requires us to recognize compensation expense for all types of stock options, using the modified prospective approach. As a result, there was no difference in compensation expense recorded for Canadian GAAP in the first six months of 2006. Compensation expense of $5.2 million, $3.8 million net of tax of $1.3 million, was recorded in the first six months of 2005. We recognize these compensation costs net of a forfeiture rate on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of three years. We estimated the forfeiture rate for the first six months of fiscal 2006 based on our historical experience with forfeitures during the preceding three fiscal years. As a result, compensation expense of $4.6 million ($5.2 million - July 2, 2005), $3.6 million ($3.8 million -- July 2, 2005) net of tax of $1.0 million ($1.3 million -- July 2, 2005) was recorded in the first six months of 2006. (b) Under U.S. GAAP, costs of start-up activities and organization costs are expensed as incurred. Under Canadian GAAP these costs, if they meet certain criteria, can be capitalized and amortized over the future benefit period. (c) Under U.S. GAAP, the adoption of the U.S. dollar in 1998 as the presentation and reporting currency was implemented retroactively, such that prior period financial statements are translated under the current rate method using the foreign exchange rates in effect on those dates. Under Canadian GAAP, the change in presentation and reporting currency was implemented by translating all prior year financial statement amounts at the foreign exchange rate on January 31, 1998. As a result, there is a difference in the share capital, retained earnings and cumulative translation adjustment amounts under Canadian GAAP as compared to U.S. GAAP. Under Canadian GAAP, these differences would have been reported in the consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows as follows: 20 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited CONSOLIDATED BALANCE SHEETS
JULY 1, 2006 DECEMBER 31, 2005 ------------------------------- ------------------------------- U.S. GAAP CANADIAN GAAP U.S. GAAP CANADIAN GAAP ------------ ------------- ------------ ------------- (in millions of U.S. dollars) (in millions of U.S. dollars) Property, plant & equipment (b) $ 385.4 $ 385.4 $ 394.2 $ 394.2 Goodwill (b) 155.8 156.3 150.3 150.8 Total assets 1,234.7 1,235.2 1,179.1 1,179.6 Deferred income taxes - net (a),(b) 61.3 54.8 53.5 47.0 Total liabilities 709.6 703.1 674.7 668.2 Capital stock (a),(c) 273.0 263.9 273.0 263.9 Additional paid-in-capital (a) 23.0 29.8 18.4 25.2 Retained earnings (a),(b),(c) 191.7 158.6 186.2 153.1 Accumulated other comprehensive income (c) 14.6 57.0 4.3 46.7 Total shareowners' equity 502.3 509.3 481.9 488.9
RECONCILIATION OF CONSOLIDATED STATEMENTS OF INCOME
For the three months ended For the six months ended ------------------------------ ------------------------------ JULY 1, JULY 2, JULY 1, JULY 2, 2006 2005 2006 2005 ------------ ------------ ------------ ------------ (in millions of U.S. dollars) (in millions of U.S. dollars) Net income under U.S. GAAP $ 7.6 $ 25.0 $ 5.5 $ 33.3 Cost of sales (b) -- (0.1) -- (0.2) Stock compensation expense (a) -- (2.4) -- (5.2) Recovery of income taxes (a),(b) -- 0.7 -- 1.4 ------------ ------------ ------------ ------------ Net income under Canadian GAAP $ 7.6 $ 23.2 $ 5.5 $ 29.3 ============ ============ ============ ============ Net income per common share, Canadian GAAP Basic $ 0.11 $ 0.32 $ 0.08 $ 0.41 Diluted $ 0.11 $ 0.32 $ 0.08 $ 0.41
21 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Unaudited RECONCILIATION OF CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended For the six months ended ------------------------------ ------------------------------ JULY 1, JULY 2, JULY 1, JULY 2, 2006 2005 2006 2005 ------------ ------------ ------------ ------------ (in millions of U.S. dollars) (in millions of U.S. dollars) Cash provided by operating activities U.S. GAAP $ 20.7 $ 33.6 $ 28.1 $ 54.9 Net income (a),(b) -- (1.8) -- (4.0) Depreciation & amortization (b) -- 0.1 -- 0.2 Deferred income taxes (a),(b) -- (0.7) -- (1.4) Other non-cash items (a) -- 2.4 -- 5.2 ------------ ------------ ------------ ------------ Cash provided by operating activities Canadian GAAP $ 20.7 $ 33.6 $ 28.1 $ 54.9 ============ ============ ============ ============
NOTE 17 Certain of the comparative figures have been reclassified to conform to the current period's presentation. NOTE 18 Subsequent Events On July 27, 2006, we announced changes to our senior management structure, roles and responsibilities. As a result of these changes, certain senior executives have departed from the Company. We estimate the associated severance and other costs to be approximately $3.7 million and these costs will be recognized in the third quarter of 2006. 22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We are one of the world's largest non-alcoholic beverage companies and the world's largest retailer brand beverage supplier. RESULTS OF OPERATIONS
For the three months ended For the six months ended ------------------------------------------------- ------------------------------------------------- JULY 1, 2006 JULY 2, 2005 JULY 1, 2006 JULY 2, 2005 ----------------------- ----------------------- ----------------------- ----------------------- Millions Millions Millions Millions of Percent of Percent of Percent of Percent Dollars of Sales Dollars of Sales Dollars of Sales Dollars of Sales ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Sales $ 502.0 100.0% $ 492.7 100.0% $ 896.2 100.0% $ 888.2 100.0% Cost of sales 429.7 85.6% 412.0 83.6% 771.2 86.1% 751.5 84.6% ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Gross margin 72.3 14.4% 80.7 16.4% 125.0 13.9% 136.7 15.4% SG&A 48.7 9.7% 35.5 7.2% 88.6 9.9% 72.4 8.2% (Gain) Loss on disposal of property, plant and equipment (0.1) -- 0.5 0.1% -- -- (0.2) -- Unusual items 0.7 0.1% -- -- 5.7 0.6% (0.2) -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating income 23.0 4.6% 44.7 9.1% 30.7 3.4% 64.7 7.3% Other income, net -- -- (0.6) 0.1% (0.2) -- -- -- Interest expense 7.5 1.5% 6.6 1.3% 15.7 1.8% 13.1 1.5% Minority interest 1.1 0.2% 1.4 0.3% 2.1 0.2% 2.3 0.3% Income taxes 6.8 1.4% 12.3 2.5% 7.6 0.8% 16.0 1.8% ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income $ 7.6 1.5% $ 25.0 5.1% $ 5.5 0.6% $ 33.3 3.7% ========== ========== ========== ========== ========== ========== ========== ========== Depreciation & amortization $ 19.1 3.8% $ 15.9 3.2% $ 38.4 4.3% $ 32.7 3.7% ========== ========== ========== ========== ========== ========== ========== ==========
We reported a net income of $7.6 million or $0.11 per diluted share for the second quarter ended July 1, 2006, down 70% as compared with net income of $25 million, or $0.35 per diluted share for the second quarter of 2005. For the first half of 2006, net income decreased 83% to $5.5 million or $0.08 per diluted share, from $33.3 million or $0.46 per diluted share in the same period last year. The decrease was primarily due to: o higher fixed costs resulting from new production capacity in the U.S.; o benefit related to the settlement of a lawsuit against suppliers of high fructose corn syrup recognized in the same period last year; o increased SG&A costs due to CEO transition costs, higher incentive compensation expense and stock option expense; o increased unusual item charges relating to North American realignment costs and legal and other fees relating to the U.K Competition Commission review of our August 2005 acquisition of 100% of the outstanding shares of Macaw (Holdings) Limited (now known as Cott Nelson (Holdings) Limited, the parent company of Macaw (Soft Drinks) Limited (now known as Cott (Nelson) Limited) (the "Macaw Acquisition"); o increased interest expense due to the Macaw Acquisition; and o increased effective income tax rate due to higher non-deductible expenses and additional tax provision due to change in estimates. SALES -- Sales in the second quarter of 2006 were $502.0 million, an increase of 2% from $492.7 million in the second quarter of 2005. The impact of foreign exchange on sales was negligible. Sales decreased 5% when excluding the impact of foreign exchange and the Macaw Acquisition. The decrease was largely due to a structural change in our business arrangement with one of our self-manufacturing customers. The related sales are now in the form of concentrates rather than filled beverages, which lowers our revenue but has minimal earnings impact. Other factors contributing to the revenue decline were continued softness in 23 the carbonated soft drink category and our product rationalization actions. Total 8-ounce equivalent case volume was 363.6 million cases in the second quarter of 2006, an increase of 12% compared to the second quarter of 2005. Excluding the impact of the Macaw Acquisition, 8-ounce equivalent case volume was up 6% compared with the second quarter of 2005 driven by strong growth in concentrate and international sales. Sales of concentrate increased by 48% to 113 million 8-ounce equivalent cases in the second quarter of 2006 compared to the second quarter of 2005. The increase is principally due to increased customer demand, including the impact of the structural change in the business arrangement with one of our self-manufacturing customers. Shipment timing also favorably impacted concentrate sales. Filled beverage sales in the second quarter of 2006 were essentially flat at 250.6 million equivalent cases, compared to 249.6 million in the same period last year. Sales for the first half of 2006 increased to $896.2 million, 1% higher than the same period last year and down 5% when the impact of acquisition and foreign exchange rates are excluded. Total 8-ounce equivalent case volume was 658.6 million cases for the first half of 2006. For the six months ended July 1, 2006
(in millions of dollars) COTT NORTH AMERICA UK & EUROPE INTERNATIONAL - ------------------------ ------------ ------------- ------------ ------------- Change in sales $ 8.0 $ (56.8) $ 56.7 $ 6.4 Impact of acquisitions (49.1) -- (49.1) -- Impact of foreign exchange (5.5) (9.2) 3.9 (0.2) ------------ ------------ ------------ ------------ Change excluding acquisitions & exchange $ (46.6) $ (66.0) $ 11.5 $ 6.2 ------------ ------------ ------------ ------------ Percentage change excluding acquisitions & exchange (5)% (9)% 12% 17% ------------ ------------ ------------ ------------
In North America, sales were $383.2 million in the second quarter of 2006, a decrease of 8% from the second quarter of 2005. Excluding the impact of foreign exchange, sales decreased by 9%. In the first half of 2006, sales were $692.7 million, a decrease of 8% from the first half of 2005. Excluding the impact of foreign exchange, sales decreased by 9%. This decline was mainly due to a structural change in our business arrangement with one of our self-manufacturing customers, which was described earlier in this section. Other factors impacting North American sales were continued carbonated soft drink ("CSD") softness and product rationalization. In the U.K. and Europe, sales were $92.9 million in the second quarter of 2006, an increase of 60% from the second quarter of 2005 due to strong base business growth and the Macaw Acquisition. Excluding the impact of the Macaw Acquisition, sales increased 10%. Excluding the impact of the Macaw Acquisition and foreign exchange, sales increased 12%. In the first half of 2006, sales were $158.2 million, an increase of 56% from the first half of 2005. Excluding the impact of the Macaw Acquisition, sales increased 8%. Excluding the impact of the Macaw Acquisition and foreign exchange, sales increased 12%. The International segment includes our Mexican business, our Royal Crown International business and our business in Asia. Sales in this segment were $24.2 million in the second quarter of 2006, an increase of 21% when compared with the second quarter of 2005. This increase was primarily in Mexico where sales in the second quarter of 2006 were $16.7 million, an increase of $2 million when compared with sales in the second quarter of 2005, due to increased volume. In the first half of 2006, sales in the International segment were $42.1 million, an increase of 18% when compared with the first half of 2005. This increase was primarily in Mexico where sales in the first half of 2006 were $28.5 million, an increase of $3.3 million when compared with sales in the first half of 2005, due to increased volume. GROSS PROFIT -- Gross profit for the second quarter of 2006 was $72.3 million, or 14.4% of sales, down from 16.4% of sales in the second quarter of 2005. The decline in gross margin was impacted by the $4.9 million benefit related to the settlement of a lawsuit against suppliers of high fructose corn syrup recognized in the second quarter of 2005. The gross margin decline was also impacted by increased capacity-related fixed costs, partially offset by a favorable product mix. Gross profit in the first half of 2006 was $125 million, or 13.9% of sales, compared to gross profit of $136.7 million, or 15.4% of sales, in the first half of 2005. Gross profit for the first half of the year reflects the impact of increased capacity-related fixed costs, the impact of the high fructose corn syrup settlement in 2005, partially offset by a favorable product mix. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") -- SG&A was $48.7 million in the second quarter of 2006, an increase of $13.2 million from the second quarter of 2005, largely due to $6.3 million of CEO transition costs, increased incentive compensation costs of $4.3 million and $1.9 million of stock option expense. SG&A was $88.6 million in the first half of 2006, 24 an increase of $16.2 million from the first half of 2005, largely due to $6.3 million of CEO transition costs, increased incentive compensation costs of $6.7 million and $4.6 million of stock option expense. The additional SG&A costs resulting from the Macaw Acquisition were largely offset by our company-wide cost control actions. As a percentage of sales, SG&A increased to 9.7% during the second quarter of 2006, up from 7.2% for the same period last year and to 9.9% for the first half of the year, up from 8.2% for the same period last year. STOCK-BASED COMPENSATION -- Effective January 1, 2006, we adopted Statement of Financial Accounting Standard ("SFAS 123R"), Share-Based Payments, using the modified prospective approach and therefore have not restated results for prior periods. Under this prospective approach, stock-based compensation expense for the first quarter of fiscal 2006 includes compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. We recognize these compensation costs net of a forfeiture rate on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of three years. We estimated the forfeiture rate for the first half of fiscal 2006 based on our historical experience with forfeitures during the preceding three fiscal years. For the interim period ending July 1, 2006, net income includes compensation expense of $4.6 million, or $3.6 million net of tax of $1.0 million, which equates to $0.05 per basic and diluted share. If the change had been reported retroactively, comparative figures for the six month period ended July 2, 2005 would show income before taxes of $44.1 million, income tax expense of $14.6 million and net income of $29.5 million or $0.41 per basic and diluted share. During the second quarter of 2006, our shareowners approved and adopted two new compensation plans for 2006 and future periods, the Performance Share Unit Plan and the Share Appreciation Rights Plan.. These plans are designed to attract, maintain and motivate key employees while promoting the long-term financial success of our business. UNUSUAL ITEMS -- In the second quarter of 2006, we recorded charges for unusual items of $0.7 million on a pre-tax basis or $0.01 per diluted share after tax. In the first quarter and first half of 2005, the only unusual item was a $0.2 million gain. For the first half of 2006, we recorded charges for unusual items of $5.7 million on a pre-tax basis or $0.06 per diluted share after tax. Of the $0.7 million of unusual items recorded in the second quarter of 2006, $0.2 million relates to restructuring charges, $0.1 million gain relates to a recovery from sale of other assets partially offset by asset impairments and $0.6 million relates to legal and other fees relating to the U.K Competition Commission review of the Macaw Acquisition. Of the $5.7 million of unusual items recorded in the first half of 2006, $1.8 million relates to restructuring charges, $1.3 million relates to asset impairments net of a recovery from the sale of other assets and $2.6 million relates to legal and other fees relating to the U.K Competition Commission review of the Macaw Acquisition. Restructuring charges of $0.2 million recorded in the second quarter include $0.3 million net recovery relating to the closures of our Columbus, Ohio soft drink plant and our Lachine, Quebec juice plant. The remaining restructuring cost of $0.5 million relates to consulting fees. Restructuring charges of $1.8 million recorded in the first half of 2006 include $0.9 million for severance and contract termination costs relating to the closures of our Columbus, Ohio soft drink plant and our Lachine, Quebec juice plant. The remaining restructuring costs of $0.9 million are consulting fees relating to the North American realignment. Asset impairments of $0.1 million gain recorded in the second quarter of 2006 include $0.2 million related to the closure of our Columbus, Ohio soft drink plant (relating to the writedown of customer list), $0.1 million related to the closure of our Lachine, Quebec juice plant (relating to the writedown of property, plant and equipment) and a recovery of $0.4 million from the sale of other assets. Asset impairments of $1.3 million recorded in the first half of 2006 include $1.6 million related to the closure of our Columbus, Ohio soft drink plant (relating to the writedown of property, plant and equipment, customer list and information technology software), $0.1 million related to the closure of our Lachine, Quebec juice plant (relating to the writedown of property, plant and equipment) and a recovery of $0.4 million from the sale of other assets. On July 27, 2006, we announced changes to our senior management structure, roles and responsibilities. As a result of these changes, certain senior executives have departed from the Company. We estimate the associated severance and other costs to be approximately $3.7 million and these costs will be recognized in the third quarter of 2006. OPERATING INCOME -- Operating income was $23.0 million in the second quarter of 2006 including unusual items of $0.7 million, as compared with $44.7 million in the second quarter of 2005. Operating income was $30.7 million for the first half of 2006 25 including unusual items of $5.7 million, as compared with $64.7 million in the first half of 2005 which included unusual items of $0.2 million gain. INTEREST EXPENSE -- Net interest expense was $7.5 million in the second quarter of 2006, up from $6.6 million in the second quarter of 2005 primarily resulting from the Macaw Acquisition. Net interest expense was $15.7 million in the first half of 2006, up from $13.1 million in the first half of 2005 also primarily resulting from the Macaw Acquisition. INCOME TAXES -- We recorded an income tax provision of $6.8 million for the second quarter and $7.6 million for the first half of 2006 as compared with $12.3 million and $16.0 million, respectively, for the same periods last year. The effective income tax rate increased to 47%, reflecting higher non-deductible expenses and additional tax provision due to changes in estimates. FINANCIAL CONDITION OPERATING ACTIVITIES -- Cash provided by operating activities in the first half of 2006 was $11.4 million, after capital expenditures of $16.7 million, as compared to the first half of 2005 in which cash provided by operating activities was $0.1 million, after capital expenditures of $54.8 million. Cash decreased from $21.7 million to $9.8 million in the first half of 2006 due to the normal seasonal build up of inventories. CAPITAL RESOURCES AND LONG-TERM DEBT -- Our sources of capital include operating cash flows, short term borrowings under current credit and receivables securitization facilities, issuance of public and private debt and issuance of equity securities. We believe we have adequate financial resources to meet our ongoing cash requirements for operations and capital expenditures, as well as our other financial obligations based on our operating cash flows and currently available credit. Our senior secured credit facilities allow for revolving credit borrowings of up to $225.0 million provided we are in compliance with the covenants and conditions of the agreement. As of July 1, 2006 credit of $77.7 million was available after borrowings of $142.2 million, and standby letters of credit of $5.1 million. The weighted average interest rate was 6.02% on these facilities as of July 1, 2006. The receivables securitization facility allows for borrowing up to $75.0 million based on the amount of eligible receivables and various reserves required by the facility. As of July 1, 2006, $57.6 million of eligible receivables, net of reserves, were available for purchase under this facility with no balance outstanding. As of July 1, 2006, long-term debt totaled $273.0 million compared with $273.1 million at the end of 2005. At the end of the first half of 2006, debt consisted of $270.9 million in 8% senior subordinated notes with a face value of $275.0 million and $2.1 million of other debt. CANADIAN GAAP -- Under Canadian GAAP, in the first half of 2006, we reported a net income of $5.5 million and total assets of $1,235.2 million compared to net income and total assets under U.S. GAAP of $5.5 million and $1,234.7 million, respectively, in the first half of 2006. There were no material U.S./Canadian GAAP differences in the first half of 2006. OUTLOOK We continue to expect 2006 to be a challenging year. Sales of carbonated soft drinks are expected to remain under pressure in North America during the year. We continue to expect strong growth in the bottled water and non-carbonated beverages segments. To date since September 29, 2005 (through the end of the second quarter of 2006), we have recorded pretax charges of $40 million relating to unusual items including impairment and restructuring charges. These amounts are part of the previously announced charges of $60 to 80 million associated with the North American realignment plan and other assets impairment. We continue to expect net income, excluding unusual items, stock based compensation expense and charges related to the chief executive officer change, to be substantially lower in 2006 than in 2005. To build long-term success and profitability, we will focus on three key priorities: 1) reducing costs; 2) improving our partnerships with our retailer customers; and 3) building and sustaining an innovation pipeline for new product development. 26 Our cost reduction program will focus on asset optimization, fixed cost reduction and world-class efficiency initiatives, the introduction of a sub-zero-based budgeting system, optimization of selling, general and administrative expenses, further centralization of procurement and suppliers, and ongoing SKU rationalization. In addition, we intend to drive top-line growth by focusing on in-store execution, penetration of new, high-margin beverage segments, expansion of our business to new, high-margin channels, and expansion to new global customers and geographies. To support the Company's long term growth, we have restructured our organization under two business units responsible for North America and International. These business units will focus on customer management, channel development, sales and marketing. They will be supported by four centralized functions: 1) People; 2) Supply/Manufacturing; 3) Finance; 4) Legal / Corporate Development. The new organizational structure is designed to leverage our strengths and drive efficiencies, standardization and performance in all areas, while reducing costs to improve future financial performance. We have not completed detailed action plans or the requisite analyses to estimate the charges relating to new initiatives within the cost reduction program. As a result, the ultimate amount and timing of the charges is uncertain. Our business strategy also involves continuing to expand outside of North America. We continue to view Mexico as a strong long-term growth opportunity and are working closely with our customers to grow the retailer brand beverage segment in this market. Our U.K. division intends to continue to enhance its performance through product innovation and a customer-centric focus to identify opportunities. On April 28, 2006, the U.K. Competition Commission gave final approval to the Macaw Acquisition and we are integrating Macaw business into our U.K. business. This acquisition has added additional production capacity and aseptic beverage capabilities to our U.K. business unit. FORWARD-LOOKING STATEMENTS -- In addition to historical information, this report and the reports and documents incorporated by reference in this report contain statements relating to future events and our future results. These statements are "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation and include, but are not limited to, statements that relate to projections of sales, earnings, earnings per share, cash flows, capital expenditures or other financial items, discussions of estimated future revenue enhancements and cost savings. These statements also relate to our business strategy, goals and expectations concerning our market position, future operations, margins, profitability, liquidity and capital resources. Generally, words such as "anticipate", "believe", "continue", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "should" and similar terms and phrases are used to identify forward-looking statements in this report and in the documents incorporated in this report by reference. These forward-looking statements are made as of the date of this report. Although we believe the assumptions underlying these forward-looking statements are reasonable, any of these assumptions could prove to be inaccurate and, as a result, the forward-looking statements based on those assumptions could be incorrect. Our operations involve risks and uncertainties, many of which are outside of our control, and any one or any combination of these risks and uncertainties could also affect whether the forward-looking statements ultimately prove to be correct. The following are some of the factors that could affect our financial performance, including but not limited to sales, earnings and cash flows, or could cause actual results to differ materially from estimates contained in or underlying the forward-looking statements: o changing nature of the North American business; o our ability to successfully implement our realignment plan; o our ability to grow business outside of North America; 27 o our ability to integrate new management and a new management structure; o loss of key customers, particularly Wal-Mart, and the commitment of retailer brand beverage customers to their own retailer brand beverage programs; o increases in competitor consolidations and other market-place competition, particularly among branded beverage products; o our ability to identify acquisition and alliance candidates and to integrate into our operations the businesses and product lines that we acquire or become allied with; o our ability to secure additional production capacity either through acquisitions, or third party manufacturing arrangements; o increase in interest rates; o our ability to restore plant efficiencies and lower logistics costs; o fluctuations in the cost and availability of beverage ingredients and packaging supplies, and our ability to maintain favorable arrangements and relationships with our suppliers; o our ability to pass on increased costs to our customers; o unseasonably cold or wet weather, which could reduce demand for our beverages; o our ability to protect the intellectual property inherent in new and existing products; o adverse rulings, judgments or settlements in our existing litigation and regulatory reviews, and the possibility that additional litigation or regulatory reviews will be brought against us; o product recalls or changes in or increased enforcement of the laws and regulations that affect our business; o currency fluctuations that adversely affect the exchange between the U.S. dollar on one hand and the pound sterling, the Canadian dollar and other currencies on the other; o changes in tax laws and interpretations of tax laws; o changes in consumer tastes and preferences and market demand for new and existing products; o interruption in transportation systems, labor strikes, work stoppages and other interruptions or difficulties in the employment of labor or transportation in our markets; and o changes in general economic and business conditions. Many of these factors are described in greater detail in this report and in other filings that we make with the U.S. Securities and Exchange Commission ("SEC") and Canadian securities regulatory authorities. We undertake no obligation to update any information contained in this report or to publicly release the results of any revisions to forward-looking statements to reflect events or circumstances of which we may become aware of after the date of this report. Undue reliance should not be placed on forward-looking statements. All future written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to Item 7A: Quantitative and Qualitative Disclosures about Market Risk described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005. In the first half of 2006, we entered into cash flow hedges to mitigate exposure to declines in the value of the Canadian dollar attributable to certain forecasted U.S. dollar raw material purchases of the Canadian business segment. In fiscal 2005, we also entered into cash flow hedges to mitigate exposure to declines in the value of pound sterling attributable to certain forecasted U.S. dollar raw material purchases of the United Kingdom ("U.K.") and European business segments. The hedges consist of monthly foreign exchange options to buy U.S. dollars at fixed rates per Canadian dollar and mature at various dates through December 28, 2006. The fair market value of the foreign exchange options is included in prepaid expenses and other assets. Changes in the fair value of the cash flow hedge instruments are recognized in accumulated other comprehensive income. Amounts recognized in accumulated other comprehensive income and prepaid expenses and other assets are recorded in earnings in the same periods in which the forecasted purchases or payments affect earnings. At July 1, 2006, the fair value of the options 28 was $0 million ($0.8 million -- July 2, 2005) and we recorded $0.3 million unrealized loss in comprehensive income in the first half of 2006. See "Note 8 Derivative Financial Instruments." Our sales outside the U.S. are concentrated principally in the U.K. and Canada. We believe that our foreign currency exchange rate risk has been immaterial given the historic stability of the U.S. dollar with respect to the foreign currencies to which we have our principal exposure. However, there can be no assurance that these exchange rates will remain stable or that our exposure to foreign currency exchange rate risk will not increase in the future. ITEM 4. CONTROLS AND PROCEDURES Our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) are effective, based on their evaluation of these controls and procedures as of the end of the period covered by this report. There have been no changes in our internal control over financial reporting or in other factors during the quarter ended July 1, 2006 that could materially affect, or are likely to materially affect, our internal control over financial reporting. 29 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Reference is made to the legal proceedings described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and to our Quarterly Report on Form 10-Q for the three-month period ended April 1, 2006. In addition, in reference to the action styled the Consumers' Association of Canada and Bruce Cran v. Coca-Cola Bottling Ltd. et al., on June 2, 2006, the British Columbia Supreme Court granted the summary trial application, which resulted in the dismissal of the plaintiffs' action against us and the other defendants. On June 26, 2006, the plaintiffs' appealed the dismissal of their action to the British Columbia Court of Appeal. We, together with the other defendants, are defending the appeal, which we expect will be heard in the next eight to twelve months. It is too early to assess the chances of success of the appeal. ITEM 1A. RISK FACTORS Reference is made to the detailed description of risk factors our Annual Report on Form 10-K for the fiscal year ended December 31, 2005. Risks and uncertainties include national brand pricing strategies, commitment of major customers to retailer brand programs, stability of procurement costs for items such as sweetener, packaging materials and other ingredients, the successful integration of new acquisitions, the ability to protect intellectual property and fluctuations in interest rates and foreign currencies versus the U.S. dollar. The Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005 have not changed materially other than as set forth below. IF THE COMPETITION COMMISSION IN THE U.K. DOES NOT APPROVE THE MACAW ACQUISITION, WE MIGHT BE REQUIRED TO SELL ALL OR PART OF THIS BUSINESS AND MAY NOT RECOVER OUR FULL COST. This Risk Factor is no longer applicable as the U.K. Competition Commission approved the Macaw Acquisition on April 28, 2006. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual and Special Meeting of Cott's Shareowners was held on April 20, 2006. (b) The meeting was held to consider and vote on the following matters: 30
AGAINST/ BROKER NON- MATTERS SUBMITTED TO A VOTE FOR WITHHELD VOTES - -------------------------------------------------- ------------ ------------ ------------ To elect directors for a period of one year: 56,382,169 268,109 -- Colin J. Adair 56,383,111 267,167 -- W. John Bennett 55,732,419 917,589 -- Serge Gouin 55,732,554 917,724 -- Stephen H. Halperin 56,057,388 592,890 -- Betty Jane Hess 56,375,724 274,554 -- Philip B. Livingston 56,058,721 591,557 -- Christine A. Magee 56,386,244 264,034 -- Andrew Prozes 56,062,924 587,354 -- John K. Sheppard 55,696,398 953,880 -- Donald G. Watt 56,061,591 588,687 -- Frank E. Weise III To appoint PricewaterhouseCoopers LLP as auditors 56,363,259 287,019 -- To adopt the Performance Share Unit Plan 45,450,314 7,735,046 -- To adopt the Share Appreciation Rights Plan 44,653,211 8,152,149 --
ITEM 6. FINANCIAL STATEMENT SCHEDULES AND EXHIBITS 1. Financial Statement Schedules Schedule III -- Consolidating Financial Statements 2. Exhibits 31
Number Description ------ ----------- 3.1 Articles of Incorporation of Cott (incorporated by reference to Exhibit 3.1 to our Form 10-K dated March 31, 2000). 3.2 By-laws of Cott (incorporated by reference to Exhibit 3.2 to our Form 10-K dated March 8, 2002). 10.1 Employment Agreement between Cott Corporation and Brent D. Willis dated May 16, 2006 (filed herewith). 10.2 Termination Letter Agreement between Cott Corporation and John K. Sheppard dated May 13, 2006 (filed herewith). 10.3 Cott Corporation Performance Share Unit Plan (filed herewith). 10.4 Cott Corporation Share Appreciation Rights Plan (filed herewith). 31.1 Certification of the President and Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 for the quarterly period ended July 1, 2006 (filed herewith). 31.2 Certification of the Executive Vice President & Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 for the quarterly period ended July 1, 2006 (filed herewith). 32.1 Certification of the President and Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 for the quarterly period ended July 1, 2006 (furnished herewith). 32.2 Certification of the Executive Vice President & Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 for the quarterly period ended July 1, 2006 (furnished herewith).
In accordance with SEC Release No. 33-8238, Exhibits 32.1 and 32.2 are to be treated as "accompanying" this report rather than "filed" as part of the report. 32 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COTT CORPORATION (Registrant) Date: August 9, 2006 /s/ B. Clyde Preslar ----------------------------------- B. Clyde Preslar Executive Vice President & Chief Financial Officer (On behalf of the Company) Date: August 9, 2006 /s/ Tina Dell'Aquila ----------------------------------- Tina Dell'Aquila Vice President, Controller & Assistant Secretary (Principal accounting officer) 33 SCHEDULE III -- CONSOLIDATING FINANCIAL STATEMENTS Cott Beverages Inc., a wholly owned subsidiary of Cott Corporation, has entered into financing arrangements that are guaranteed by Cott Corporation and certain other wholly owned subsidiaries of Cott Corporation (the "Guarantor Subsidiaries"). Such guarantees are full, unconditional and joint and several. The following supplemental financial information sets forth on an unconsolidated basis, balance sheets, statements of income and cash flows for Cott Corporation, Cott Beverages Inc., Guarantor Subsidiaries and Cott Corporation's other subsidiaries (the "Non-guarantor Subsidiaries"). The supplemental financial information reflects the investments of Cott Corporation and Cott Beverages Inc. in their respective subsidiaries using the equity method of accounting. COTT CORPORATION CONSOLIDATING STATEMENTS OF INCOME (LOSS) (in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED JULY 1, 2006 -------------------------------------------------------------------------------------------- NON- COTT COTT GUARANTOR GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED ------------ ------------- ------------ ------------ ------------ ------------ SALES $ 69.8 $ 309.3 $ 107.7 $ 35.1 $ (19.9) $ 502.0 Cost of sales 56.7 269.4 93.9 29.6 (19.9) 429.7 ------------ ------------ ------------ ------------ ------------ ------------ GROSS PROFIT 13.1 39.9 13.8 5.5 -- 72.3 Selling, general and administrative expenses 11.1 26.6 8.9 2.1 -- 48.7 Loss (gain) on disposal of property, plant and equipment (0.5) 0.4 -- -- -- (0.1) Unusual items Restructuring and other (0.3) 0.5 0.6 -- 0.8 Asset impairments (0.3) 0.2 -- -- -- (0.1) ------------ ------------ ------------ ------------ ------------ ------------ OPERATING INCOME 3.1 12.2 4.3 3.4 -- 23.0 Other expense (income), net (0.1) 4.0 (0.4) (5.7) 2.2 -- Interest expense (income), net (0.1) 8.0 0.1 (0.5) -- 7.5 Minority interest -- -- -- 1.1 -- 1.1 ------------ ------------ ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY INCOME (LOSS) 3.3 0.2 4.6 8.5 (2.2) 14.4 Income taxes 0.1 0.9 1.6 4.2 -- 6.8 Equity income (loss) 4.4 (0.8) 4.7 -- (8.3) -- ------------ ------------ ------------ ------------ ------------ ------------ NET INCOME (LOSS) $ 7.6 $ (1.5) $ 7.7 $ 4.3 $ (10.5) $ 7.6 ============ ============ ============ ============ ============ ============
34 COTT CORPORATION CONSOLIDATING STATEMENTS OF INCOME (LOSS) (in millions of U.S. dollars, unaudited)
FOR THE SIX MONTHS ENDED JULY 1, 2006 -------------------------------------------------------------------------------------------- NON- COTT COTT GUARANTOR GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED ------------ -------------- ------------ ------------ ------------ ------------ SALES $ 113.9 $ 571.4 $ 185.4 $ 62.4 $ (36.9) $ 896.2 Cost of sales 93.4 499.1 162.7 52.9 (36.9) 771.2 ------------ ------------ ------------ ------------ ------------ ------------ GROSS PROFIT 20.5 72.3 22.7 9.5 -- 125.0 Selling, general and administrative expenses 22.5 45.8 16.4 3.9 -- 88.6 Loss (gain) on disposal of property, plant and equipment (0.5) 0.5 -- -- -- -- Unusual items Restructuring and other 0.2 1.6 2.6 -- 4.4 Asset impairments (0.1) 1.4 -- -- -- 1.3 ------------ ------------ ------------ ------------ ------------ ------------ OPERATING INCOME (LOSS) (1.6) 23.0 3.7 5.6 -- 30.7 Other expense (income), net (0.1) 4.6 (0.8) (0.9) (3.0) (0.2) Interest expense (income), net (0.1) 16.0 0.1 (0.3) -- 15.7 Minority interest -- -- -- 2.1 -- 2.1 ------------ ------------ ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY INCOME (LOSS) (1.4) 2.4 4.4 4.7 3.0 13.1 Income taxes 0.1 1.1 1.9 4.5 -- 7.6 Equity income (loss) 7.0 (0.3) 7.6 -- (14.3) -- ------------ ------------ ------------ ------------ ------------ ------------ NET INCOME (LOSS) $ 5.5 $ 1.0 $ 10.1 $ 0.2 $ (11.3) $ 5.5 ============ ============ ============ ============ ============ ============
35 COTT CORPORATION CONSOLIDATING BALANCE SHEETS (in millions of U.S. dollars, unaudited)
AS OF JULY 1, 2006 -------------------------------------------------------------------------------------------- NON- COTT COTT GUARANTOR GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED ------------ -------------- ------------ ------------ ------------ ------------ ASSETS Current assets Cash $ 3.8 $ 0.1 $ (0.3) $ 6.2 $ -- $ 9.8 Accounts receivable 40.2 30.3 86.1 120.3 (37.3) 239.6 Inventories 24.3 86.2 45.2 6.1 -- 161.8 Prepaid expenses and other assets 2.1 3.5 8.5 3.7 -- 17.8 Deferred income taxes -- 6.9 0.8 0.4 -- 8.1 ------------ ------------ ------------ ------------ ------------ ------------ 70.4 127.0 140.3 136.7 (37.3) 437.1 Property, plant and equipment 52.8 185.2 137.9 9.5 -- 385.4 Goodwill 24.6 45.9 85.3 -- -- 155.8 Intangibles and other assets 16.9 162.8 38.1 38.6 -- 256.4 Due from affiliates 65.8 81.6 175.4 41.9 (364.7) -- Investments in subsidiaries 407.3 72.0 70.2 144.0 (693.5) -- Deferred income taxes -- -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ $ 637.8 $ 674.5 $ 647.2 $ 370.7 $ (1,095.5) $ 1,234.7 ============ ============ ============ ============ ============ ============ LIABILITIES CURRENT LIABILITIES Short-term borrowings $ -- $ 10.6 $ 139.5 $ -- $ -- $ 150.1 Current maturities of long-term debt -- 0.8 -- -- -- 0.8 Accounts payable and accrued liabilities 38.4 124.0 75.5 19.2 (40.3) 217.1 Deferred income taxes -- -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ 38.4 135.4 215.0 19.2 (40.3) 368.0 Long-term debt -- 272.2 -- -- -- 272.2 Due to affiliates 97.1 120.1 63.5 84.0 (364.7) -- Deferred income taxes -- 40.6 19.4 9.4 -- 69.4 ------------ ------------ ------------ ------------ ------------ ------------ 135.5 568.3 297.9 112.6 (405.0) 709.6 ------------ ------------ ------------ ------------ ------------ ------------ Minority interest -- -- -- 22.8 -- 22.8 SHAREOWNERS' EQUITY Capital stock Common shares 273.0 275.8 621.6 175.0 (1,072.4) 273.0 Additional paid-in-capital 23.0 -- -- -- -- 23.0 Retained earnings (deficit) 191.7 (169.6) (171.2) (4.9) 345.7 191.7 Accumulated other comprehensive income (loss) 14.6 -- (101.4) 65.2 36.2 14.6 ------------ ------------ ------------ ------------ ------------ ------------ 502.3 106.2 349.3 235.3 (690.5) 502.3 ------------ ------------ ------------ ------------ ------------ ------------ $ 637.8 $ 674.5 $ 647.2 $ 370.7 $ (1,095.5) $ 1,234.7 ============ ============ ============ ============ ============ ============
36 COTT CORPORATION CONSOLIDATING STATEMENTS OF CASH FLOWS (in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED JULY 1, 2006 -------------------------------------------------------------------------------------------- NON- COTT COTT GUARANTOR GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED ------------ -------------- ------------ ------------ ------------ ------------ OPERATING ACTIVITIES Net income (loss) $ 7.6 $ (1.5) $ 7.7 $ 4.3 $ (10.5) $ 7.6 Depreciation and amortization 2.9 9.2 5.7 1.3 -- 19.1 Amortization of financing fees -- -- 0.1 0.1 -- 0.2 Stock compensation expense 1.9 -- -- -- -- 1.9 Deferred income taxes -- 2.4 0.2 3.8 -- 6.4 Minority interest -- -- -- 1.1 -- 1.1 Equity (loss) income, net of distributions (4.4) 1.5 (4.7) -- 7.6 -- Loss (gain) on disposal of property, plant and equipment (0.4) 0.4 (0.1) -- -- (0.1) Asset impairments (0.1) -- -- -- -- (0.1) Other non-cash items (0.1) 0.3 -- -- -- 0.2 Net change in non-cash working capital (7.2) (4.7) (5.5) (0.4) 2.2 (15.6) ------------ ------------ ------------ ------------ ------------ ------------ Cash provided by (used in) operating activities 0.2 7.6 3.4 10.2 (0.7) 20.7 ------------ ------------ ------------ ------------ ------------ ------------ INVESTING ACTIVITIES Additions to property, plant and equipment (0.6) (5.0) (2.7) (0.1) (8.4) Proceeds from disposal of property, plant and equipment 1.0 (0.4) 0.2 -- -- 0.8 Advances to affiliates (0.1) 0.1 (2.2) -- 2.2 -- Other investing activities (1.2) (2.1) -- -- -- (3.3) ------------ ------------ ------------ ------------ ------------ ------------ Cash provided by (used in) investing activities (0.9) (7.4) (4.7) (0.1) 2.2 (10.9) ------------ ------------ ------------ ------------ ------------ ------------ FINANCING ACTIVITIES Payments of long-term debt -- (0.3) -- -- -- (0.3) Short-term borrowings -- (1.9) (2.8) (5.0) -- (9.7) Advances from affiliates -- 2.1 0.1 -- (2.2) -- Distributions to subsidiary minority shareowner -- -- -- (0.7) -- (0.7) Dividends paid -- -- -- (0.7) 0.7 -- ------------ ------------ ------------ ------------ ------------ ------------ Cash used in financing activities -- (0.1) (2.7) (6.4) (1.5) (10.7) ------------ ------------ ------------ ------------ ------------ ------------ Effect of exchange rate changes on cash -- -- -- (0.1) -- (0.1) ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH (0.7) 0.1 (4.0) 3.6 -- (1.0) CASH, BEGINNING OF PERIOD 4.5 -- 3.7 2.6 -- 10.8 ------------ ------------ ------------ ------------ ------------ ------------ CASH, END OF PERIOD $ 3.8 $ 0.1 $ (0.3) $ 6.2 $ -- $ 9.8 ============ ============ ============ ============ ============ ============
37 COTT CORPORATION CONSOLIDATING STATEMENTS OF CASH FLOWS (in millions of U.S. dollars, unaudited)
FOR THE SIX MONTHS ENDED JULY 1, 2006 -------------------------------------------------------------------------------------------- NON- COTT COTT GUARANTOR GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED ------------ -------------- ------------ ------------ ------------ ------------ OPERATING ACTIVITIES Net income (loss) $ 5.5 $ 1.0 $ 10.1 $ 0.2 $ (11.3) $ 5.5 Depreciation and amortization 6.0 18.7 11.1 2.6 -- 38.4 Amortization of financing fees -- 0.1 0.2 0.2 -- 0.5 Stock compensation expense 4.6 -- -- -- -- 4.6 Deferred income taxes -- 2.7 -- 3.9 -- 6.6 Minority interest -- -- -- 2.1 -- 2.1 Equity (loss) income, net of distributions (7.0) 2.1 (7.6) -- 12.5 -- Loss (gain) on disposal of property, plant and equipment (0.4) 0.5 (0.1) -- -- -- Asset impairments (0.1) 1.4 -- -- -- 1.3 Other non-cash items (0.1) 0.6 -- -- -- 0.5 Net change in non-cash working capital (9.1) (17.6) (6.1) 4.4 (3.0) (31.4) ------------ ------------ ------------ ------------ ------------ ------------ Cash provided by (used in) operating activities (0.6) 9.5 7.6 13.4 (1.8) 28.1 ------------ ------------ ------------ ------------ ------------ ------------ INVESTING ACTIVITIES Additions to property, plant and equipment (1.3) (10.2) (5.1) (0.1) (16.7) Proceeds from disposal of property, plant and equipment 1.0 0.2 0.3 -- -- 1.5 Advances to affiliates (1.8) 0.1 (4.3) -- 6.0 -- Other investing activities (2.4) (3.3) -- -- -- (5.7) ------------ ------------ ------------ ------------ ------------ ------------ Cash provided by (used in) investing activities (4.5) (13.2) (9.1) (0.1) 6.0 (20.9) ------------ ------------ ------------ ------------ ------------ ------------ FINANCING ACTIVITIES Payments of long-term debt -- (0.5) -- -- -- (0.5) Short-term borrowings -- 0.2 (6.9) (10.0) -- (16.7) Advances from affiliates -- 4.2 1.8 -- (6.0) -- Distributions to subsidiary minority shareowner -- -- -- (1.8) -- (1.8) Dividends paid -- -- -- (1.8) 1.8 -- Other financing activities -- (0.1) -- -- -- (0.1) ------------ ------------ ------------ ------------ ------------ ------------ Cash provided by (used in) financing activities -- 3.8 (5.1) (13.6) (4.2) (19.1) ------------ ------------ ------------ ------------ ------------ ------------ Effect of exchange rate changes on cash 0.1 -- -- (0.1) -- -- ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH (5.0) 0.1 (6.6) (0.4) -- (11.9) CASH, BEGINNING OF PERIOD 8.8 -- 6.3 6.6 -- 21.7 ------------ ------------ ------------ ------------ ------------ ------------ CASH, END OF PERIOD $ 3.8 $ 0.1 $ (0.3) $ 6.2 $ -- $ 9.8 ============ ============ ============ ============ ============ ============
38 COTT CORPORATION CONSOLIDATING STATEMENTS OF INCOME (in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED JULY 2, 2005 -------------------------------------------------------------------------------------------- NON- COTT COTT GUARANTOR GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED ------------ -------------- ------------ ------------ ------------ ------------ SALES $ 63.4 $ 331.9 $ 70.5 $ 34.2 $ (7.3) $ 492.7 Cost of sales 52.2 277.3 61.1 28.7 (7.3) 412.0 ------------ ------------ ------------ ------------ ------------ ------------ GROSS PROFIT 11.2 54.6 9.4 5.5 -- 80.7 Selling, general and administrative expenses 9.7 18.6 5.5 1.7 -- 35.5 Loss (gain) on disposal of property, plant and equipment -- 0.6 (0.1) -- -- 0.5 Unusual items -- asset impairments -- -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ OPERATING INCOME 1.5 35.4 4.0 3.8 -- 44.7 Other expense (income), net (0.6) (18.6) (0.1) 21.7 (3.0) (0.6) Interest expense (income), net (0.1) 8.1 (2.0) 0.6 -- 6.6 Minority interest -- -- -- 1.4 -- 1.4 ------------ ------------ ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY INCOME (LOSS) 2.2 45.9 6.1 (19.9) 3.0 37.3 Income taxes 0.9 10.4 1.1 (0.1) -- 12.3 Equity income (loss) 23.6 3.0 19.5 -- (46.1) -- ------------ ------------ ------------ ------------ ------------ ------------ NET INCOME $ 24.9 $ 38.5 $ 24.5 $ (19.8) $ (43.1) $ 25.0 ============ ============ ============ ============ ============ ============
FOR THE SIX MONTHS ENDED JULY 2, 2005 -------------------------------------------------------------------------------------------- NON- COTT COTT GUARANTOR GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED ------------ -------------- ------------ ------------ ------------ ------------ SALES $ 106.9 $ 606.5 $ 126.9 $ 61.3 $ (13.4) $ 888.2 Cost of sales 90.2 513.0 109.7 52.0 (13.4) 751.5 ------------ ------------ ------------ ------------ ------------ ------------ GROSS PROFIT 16.7 93.5 17.2 9.3 -- 136.7 Selling, general and administrative expenses 19.3 38.9 10.7 3.5 -- 72.4 Loss (gain) on disposal of property, plant and equipment -- 0.7 (0.9) -- -- (0.2) Unusual items -- asset impairments -- -- (0.2) -- -- (0.2) ------------ ------------ ------------ ------------ ------------ ------------ OPERATING INCOME (LOSS) (2.6) 53.9 7.6 5.8 -- 64.7 Other expense (income), net (0.1) (19.1) 0.5 21.7 (3.0) -- Interest expense (income), net (0.1) 16.6 (3.9) 0.5 -- 13.1 Minority interest -- -- -- 2.3 -- 2.3 ------------ ------------ ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY INCOME (LOSS) (2.4) 56.4 11.0 (18.7) 3.0 49.3 Income taxes (0.5) 14.5 1.7 0.3 -- 16.0 Equity income (loss) 35.1 4.7 26.8 -- (66.6) -- ------------ ------------ ------------ ------------ ------------ ------------ NET INCOME $ 33.2 $ 46.6 $ 36.1 $ (19.0) $ (63.6) $ 33.3 ============ ============ ============ ============ ============ ============
39 COTT CORPORATION CONSOLIDATING BALANCE SHEETS (in millions of U.S. dollars)
AS OF DECEMBER 31, 2005 -------------------------------------------------------------------------------------------- NON- COTT COTT GUARANTOR GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED ------------ -------------- ------------ ------------ ------------ ------------ ASSETS Current assets Cash $ 8.8 $ -- $ 6.3 $ 6.6 $ -- $ 21.7 Accounts receivable 35.6 26.5 70.2 103.2 (44.4) 191.1 Inventories 18.8 76.6 43.6 5.2 -- 144.2 Prepaid expenses and other 1.3 2.2 4.7 1.3 -- 9.5 Deferred income taxes -- 7.2 0.1 -- -- 7.3 ------------ ------------ ------------ ------------ ------------ ------------ 64.5 112.5 124.9 116.3 (44.4) 373.8 Property, plant and equipment 53.0 195.6 135.1 10.5 -- 394.2 Goodwill 23.5 46.0 80.8 -- -- 150.3 Intangibles and other assets 17.0 164.1 38.4 40.9 -- 260.4 Due from affiliates 60.8 60.0 168.8 41.9 (331.5) -- Investments in subsidiaries 395.2 75.4 62.6 137.8 (671.0) -- Deferred income taxes -- -- 0.4 -- -- 0.4 ------------ ------------ ------------ ------------ ------------ ------------ $ 614.0 $ 653.6 $ 611.0 $ 347.4 $ (1,046.9) $ 1,179.1 ============ ============ ============ ============ ============ ============ LIABILITIES Current liabilities Short-term borrowings $ -- $ 10.4 $ 137.5 $ 10.0 $ -- $ 157.9 Current maturities of long-term debt -- 0.8 -- -- -- 0.8 Accounts payable and accrued liabilities 36.7 109.6 63.6 17.0 (44.4) 182.5 Deferred income taxes -- -- 0.2 -- -- 0.2 ------------ ------------ ------------ ------------ ------------ ------------ 36.7 120.8 201.3 27.0 (44.4) 341.4 Long-term debt -- 272.3 -- -- -- 272.3 Due to affiliates 95.4 115.8 58.1 62.2 (331.5) -- Deferred income taxes -- 38.2 17.7 5.1 -- 61.0 ------------ ------------ ------------ ------------ ------------ ------------ 132.1 547.1 277.1 94.3 (375.9) 674.7 ------------ ------------ ------------ ------------ ------------ ------------ Minority interest -- -- -- 22.5 -- 22.5 SHAREOWNERS' EQUITY Capital stock Common shares 273.0 275.8 599.5 175.0 (1,050.3) 273.0 Additional paid-in-capital 18.4 -- -- -- -- 18.4 Retained earnings (deficit) 186.2 (169.3) (181.4) (3.4) 354.1 186.2 Accumulated other comprehensive income (loss) 4.3 -- (84.2) 59.0 25.2 4.3 ------------ ------------ ------------ ------------ ------------ ------------ 481.9 106.5 333.9 230.6 (671.0) 481.9 ------------ ------------ ------------ ------------ ------------ ------------ $ 614.0 $ 653.6 $ 611.0 $ 347.4 $ (1,046.9) $ 1,179.1 ============ ============ ============ ============ ============ ============
40 COTT CORPORATION CONSOLIDATING STATEMENTS OF CASH FLOWS (in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED JULY 2, 2005 -------------------------------------------------------------------------------------------- NON- COTT COTT GUARANTOR GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED ------------ -------------- ------------ ------------ ------------ ------------ OPERATING ACTIVITIES Net income (loss) $ 24.9 $ 38.5 $ 24.5 $ (19.8) $ (43.1) $ 25.0 Depreciation and amortization 2.5 9.7 2.4 1.3 -- 15.9 Amortization of financing fees -- 0.2 -- 0.1 -- 0.3 Deferred income taxes 0.9 2.6 -- -- -- 3.5 Minority interest -- -- -- 1.4 -- 1.4 Equity (loss) income, net of distributions (23.7) (1.8) (19.5) -- 45.0 -- Gain (loss) on disposal of property, plant and equipment -- 0.6 (0.1) -- -- 0.5 Asset impairments -- -- -- -- -- -- Other non-cash items (0.3) 1.0 (0.8) (0.1) 0.5 0.3 Net change in non-cash working capital 3.0 48.8 (28.5) (33.2) (3.4) (13.3) ------------ ------------ ------------ ------------ ------------ ------------ Cash provided by (used in) operating activities 7.3 99.6 (22.0) (50.3) (1.0) 33.6 ------------ ------------ ------------ ------------ ------------ ------------ INVESTING ACTIVITIES Additions to property, plant and equipment (2.6) (20.4) (3.3) (0.4) -- (26.7) Proceeds from disposal of property, plant and equipment -- 0.7 1.3 -- -- 2.0 Advances to affiliates (2.2) (15.0) (3.9) -- 21.1 -- Investment in subsidiary -- -- (15.0) -- 15.0 -- Other investing activities (2.6) (31.1) 30.8 (0.7) -- (3.6) ------------ ------------ ------------ ------------ ------------ ------------ Cash provided by (used in) investing activities (7.4) (65.8) 9.9 (1.1) 36.1 (28.3) ------------ ------------ ------------ ------------ ------------ ------------ FINANCING ACTIVITIES Payments of long-term debt -- (0.2) -- -- -- (0.2) Short-term borrowings 3.7 (38.5) (5.7) 39.9 -- (0.6) Advances from affiliates -- 4.0 17.2 -- (21.2) -- Distributions to subsidiary minority shareowner -- -- -- (0.8) -- (0.8) Issue of common shares 1.5 -- -- 15.0 (15.0) 1.5 Financing costs -- (0.5) -- -- -- (0.5) Dividends paid -- -- -- (1.1) 1.1 -- Other financing activities -- 1.8 (1.9) -- -- (0.1) ------------ ------------ ------------ ------------ ------------ ------------ Cash provided by (used in) financing activities 5.2 (33.4) 9.6 53.0 (35.1) (0.7) ------------ ------------ ------------ ------------ ------------ ------------ Effect of exchange rate changes on cash 0.1 -- (0.2) -- -- (0.1) ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH 5.2 0.4 (2.7) 1.6 -- 4.5 CASH, BEGINNING OF PERIOD 0.3 (0.8) 9.3 2.6 -- 11.4 ------------ ------------ ------------ ------------ ------------ ------------ CASH, END OF PERIOD $ 5.5 $ (0.4) $ 6.6 $ 4.2 $ -- $ 15.9 ============ ============ ============ ============ ============ ============
41 COTT CORPORATION CONSOLIDATING STATEMENTS OF CASH FLOWS (in millions of U.S. dollars, unaudited)
FOR THE SIX MONTHS ENDED JULY 2, 2005 -------------------------------------------------------------------------------------------- NON- COTT COTT GUARANTOR GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED ------------ -------------- ------------ ------------ ------------ ------------ OPERATING ACTIVITIES Net income (loss) $ 33.2 $ 46.6 $ 36.1 $ (19.0) $ (63.6) $ 33.3 Depreciation and amortization 6.1 18.1 5.9 2.6 -- 32.7 Amortization of financing fees -- 0.2 -- 0.1 -- 0.3 Deferred income taxes (0.6) 3.7 -- 0.2 -- 3.3 Minority interest -- -- -- 2.3 -- 2.3 Equity (loss) income, net of distributions (35.1) (2.4) (26.8) -- 64.3 -- Gain (loss) on disposal of property, plant and equipment -- 0.7 (0.9) -- -- (0.2) Asset impairments -- -- (0.2) -- -- (0.2) Other non-cash items -- 0.6 0.2 0.1 -- 0.9 Net change in non-cash working capital 17.1 49.6 (38.1) (43.3) (2.8) (17.5) ------------ ------------ ------------ ------------ ------------ ------------ Cash provided by (used in) operating activities 20.7 117.1 (23.8) (57.0) (2.1) 54.9 ------------ ------------ ------------ ------------ ------------ ------------ INVESTING ACTIVITIES Additions to property, plant and equipment (7.1) (37.6) (9.5) (0.6) -- (54.8) Proceeds from disposal of property, plant and equipment -- 0.7 1.3 -- -- 2.0 Advances to affiliates (9.8) (5.0) (3.9) -- 18.7 -- Investment in subsidiary (15.0) -- (15.0) -- 30.0 -- Other investing activities (4.1) (30.1) 30.9 (0.8) -- (4.1) ------------ ------------ ------------ ------------ ------------ ------------ Cash provided by (used in) investing activities (36.0) (72.0) 3.8 (1.4) 48.7 (56.9) ------------ ------------ ------------ ------------ ------------ ------------ FINANCING ACTIVITIES Payments of long-term debt -- (0.4) -- -- -- (0.4) Short-term borrowings 3.8 (48.3) (0.9) 39.9 -- (5.5) Advances from affiliates -- 4.0 14.8 -- (18.8) -- Distributions to subsidiary minority shareowner -- -- -- (1.9) -- (1.9) Issue of common shares 2.4 -- 15.0 15.0 (30.0) 2.4 Financing costs -- (2.6) -- -- -- (2.6) Dividends paid -- -- -- (2.2) 2.2 -- Other financing activities -- 1.8 (2.0) -- -- (0.2) ------------ ------------ ------------ ------------ ------------ ------------ Cash provided by (used in) financing activities 6.2 (45.5) 26.9 50.8 (46.6) (8.2) ------------ ------------ ------------ ------------ ------------ ------------ Effect of exchange rate changes on cash (0.1) -- (0.3) (0.1) -- (0.5) ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH (9.2) (0.4) 6.6 (7.7) -- (10.7) CASH, BEGINNING OF PERIOD 14.7 -- 0.1 11.8 -- 26.6 ------------ ------------ ------------ ------------ ------------ ------------ CASH, END OF PERIOD $ 5.5 $ (0.4) $ 6.7 $ 4.1 $ -- $ 15.9 ============ ============ ============ ============ ============ ============
42 EX-10.1 2 o32698exv10w1.txt EX-10.1 EXHIBIT 10.1 THIS AGREEMENT made as of this 16th day of May, 2006, BETWEEN: COTT CORPORATION, a corporation incorporated under the laws of Canada (hereinafter referred to as the "Corporation") OF THE FIRST PART - and - Brent Willis, of the City of Tampa in the State of Florida (hereinafter referred to as the "Executive") OF THE SECOND PART WHEREAS the Corporation has determined to employ the Executive as President and Chief Executive Officer of the Corporation effective as of May 16, 2006; AND WHEREAS the Corporation and the Executive have agreed to enter into this Employment Agreement (hereinafter referred to as the "Agreement") to formalize in writing the terms and conditions reached between them governing the Executive's employment; NOW THEREFORE in consideration of the covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, the parties hereto agree as follows: ARTICLE 1 - COMMENCEMENT AND TERM 1.1 TERM. Subject to earlier termination in accordance with this Section 1.1 or Article 5 hereof, the term of the Executive's employment under this Agreement commences on May 16, 2006 (the "Employment Commencement Date") and shall continue for an indefinite term (the "Term") until one party gives no less than thirty (30) days notice to the other that he or it wishes to terminate the Executive's employment (a "Notice of Termination"). In the event that a Notice of Termination is delivered, the employment of the Executive shall end at the date specified in the Notice of Termination. ARTICLE 2 - EMPLOYMENT 2.1 POSITION. Subject to the terms and conditions hereof, the Executive shall be employed by the Corporation in the office of President and Chief Executive Officer of the Corporation effective as of the Employment Commencement Date and shall perform such duties and exercise such powers and responsibilities of such office as are set forth in the Statement of Responsibilities - Chief Executive Officer attached hereto which has been approved by the -2- Board of Directors, as are contained in the by-laws of the Corporation and as are otherwise prescribed or specified from time to time by the Board of Directors of the Corporation. The Corporation confirms the Executive's appointment to the Board of Directors of the Corporation effective as of May 16, 2006 and agrees to submit the Executive's name for election to the Board of Directors of the Corporation at each annual meeting of the Corporation throughout the Term. 2.2 RESPONSIBILITIES. The Executive agrees to devote substantially all of his business time and attention to the business and affairs of the Corporation and to discharge the responsibilities assigned to the Executive. The Executive shall be entitled to serve as a director on external boards of directors only upon the prior written approval of the Corporation. Anything herein to the contrary notwithstanding, nothing shall preclude the Executive from (i) serving on the boards of directors of a reasonable number of trade associations and/or charitable organizations, (ii) engaging in charitable activities and community affairs, and (iii) managing his personal investments and affairs, provided that any or all of the foregoing activities do not materially interfere with the proper performance of his duties and responsibilities as the Corporation's President and Chief Executive Officer. 2.3 NO EMPLOYMENT RESTRICTION. The Executive hereby represents and confirms that he is not bound by any restrictive covenants that would prevent his employment by the Corporation. ARTICLE 3 - REMUNERATION 3.1 SALARY. During the Term, the Corporation shall pay the Executive a base salary (the "Base Salary") payable monthly in arrears. The Base Salary shall be $700,000 per annum (pro-rated for any period of employment less than a full calendar year), subject to annual review commencing January 2007 by the Board of Directors of the Corporation. 3.2 INCENTIVES. (a) ANNUAL SHORT-TERM INCENTIVES. The Executive shall be entitled to an annual performance-based bonus (the "Bonus") of an amount equal to one hundred percent (100%) of Base Salary for achievement of specified target goals (the "Target Bonus") and up to an additional one hundred percent (100%) of Base Salary for achievement of performance goals in excess of the target goals (the "Excess Bonus"). The performance goals and measures shall be established by the Human Resources and Compensation Committee of the Board of Directors, subject to approval by the Board of Directors each year. The goals shall be set forth in writing and achievement of the specified target goals and of specified performance goals in excess of the target goals shall be determined by the Board in its sole discretion. A Bonus shall be earned and payable for fiscal years beginning after December 23, 2006 only upon completion of the relevant fiscal year and provided the Executive is actively and continuously employed for the full duration thereof unless otherwise provided herein. For the fiscal year ending December 30, 2006, the Executive, if actively and continuously employed from his employment commencement date to December 30, 2006, shall receive: (i) a guaranteed Target Bonus equal to a fractional portion of $700,000 where the numerator of such fraction is the number of days of his employment during such fiscal year and the denominator is 365 and (ii) such other amount as may be determined by the Board of Directors of the Corporation based upon the Executive -3- exceeding specific performance goals to be set for the Executive. Other than for the fiscal year ending December 30, 2006, there shall be no pro-rating of any Bonus and no Bonus will be payable with respect to a fiscal year during which the Executive's employment terminates unless otherwise provided herein. The Bonus, if earned with respect to each fiscal year, shall be paid no later than the last day of the month of February following the end of the fiscal year. The Executive shall also be eligible to participate in the Executive Investment Share Purchase Plan of the Corporation if goals in excess of the target goals are met, subject to the vesting and other requirements of such Plan. The Executive Investment Share Purchase Plan is governed by its terms and is subject to amendment to comply with the requirements of section 409A of the Internal Revenue Code of 1986, as amended (the "Code"). (b) LONG-TERM INCENTIVES. The Executive shall be eligible to participate in the Corporation's Performance Share Unit Plan (or successor plan) beginning in 2007 which Plan shall provide for a potential award each year of two hundred percent (200%) of Base Salary, subject to the vesting and other requirements of such Plan. The Plan is governed by its terms and is subject to amendment to comply with the requirements of section 409A of the Code. For 2006 only, the Executive shall receive a cash payment ("Cash Payment") equal to a fractional portion of $1,400,000 where the numerator of such fraction is the number of days of his employment during such fiscal year and the denominator is 365, plus a gross-up payment to reimburse the Executive for U.S. federal and state income tax payable with respect thereto. The Cash Payment shall be paid promptly following the Employment Commencement Date; the gross-up payment shall be paid on April 30, 2007. Executive agrees that this Cash Payment shall be used by him solely for the purchase of common stock of the Corporation which must be held by Executive for a minimum of three years unless Executive's employment is terminated prior to the end of such three-year period or unless there is a Change of Control (as defined in Section 5.4). In addition if Executive voluntarily terminates employment except for Good Reason (as defined in Section 5.3) or is terminated for Just Cause (as defined in Section 5.1) prior to his third anniversary of employment, Executive agrees to transfer, for no additional consideration, a pro-rata portion (based on the number of days remaining in such three year period) of such shares to the Corporation or as it shall direct. (c) ONE-TIME PERFORMANCE SHARE UNIT AWARD. As an inducement to acceptance of this Employment Agreement, Executive shall be awarded Performance Share Units effective on his Employment Commencement Date with a fair market value on such date of $1,500,000 which will, in addition to the vesting requirements of the Performance Share Unit Plan, vest on the third anniversary of Executive's Employment Commencement Date and be paid as if the last day of the "Performance Cycle" under the Performance Share Unit Plan was such date; provided Executive is employed on such date and provided the specified performance goals under the Performance Share Unit Plan have been achieved. The specified performance goals for this award will be established and communicated in writing to Executive within 90 days following Executive's Employment Commencement Date. (d) ADDITIONAL ONE-TIME STOCK AND CASH AWARD. As an additional inducement to acceptance of this Employment Agreement, the Corporation shall grant to Executive on his Employment Commencement Date a restricted stock unit award to be earned over three years and to be paid in common shares of the Corporation. The number of stock units (each -4- representing one share of common stock of the Corporation) subject to the award shall be 204,000, such number being determined by dividing $3,176,375 by the fair market value of a share of the Corporation's common stock at the end of business on the Executive's Employment Commencement Date. The award shall vest over three years on the anniversary each year of the Executive's Employment Commencement Date provided the Executive is employed by the Corporation on each such anniversary date as follows: 33 1/3% on the first anniversary; an additional 33 1/3% on the second anniversary; and the remaining 33 1/3% on the third anniversary. All numbers shall be rounded down to the next whole number; no fractional shares shall be paid. Payment shall be made within 30 days of each anniversary date; provided, however, that vesting and payment shall also occur as provided in Sections 5.2 and 5.4. In addition, the Corporation shall pay to Executive on his Employment Commencement Date a cash award of $945,000. 3.3 BENEFITS AND PERQUISITES. (a) The Executive shall be entitled to participate in all of the Corporation's benefit plans made available to the employees and senior executives of the Corporation, in accordance with the terms of such plans. In addition, the Corporation will provide supplemental disability benefits in an amount such that the total of all disability benefits payable to the Executive in the event of his disability will equal 60% of his Base Salary. The Corporation will also reimburse the Executive up to $5,000 each year for an annual health check-up. (b) The Executive shall also receive any other perquisites made available to senior executives of the Corporation located in the United States. (c) The Executive is not entitled to any other benefit or perquisite other than as specifically set out in this Agreement or agreed to in writing by the Corporation. 3.4 VACATION. The Executive shall be entitled to five weeks' vacation with pay annually. Such vacation shall be taken at a time or times acceptable to the Corporation having regard to its operations. Accumulated vacation may be not carried over from year to year except with the written approval of the Corporation. 3.5 EXPENSES. (a) Consistent with its corporate policies as established from time-to-time, the Corporation agrees to reimburse the Executive for all expenses reasonably incurred in connection with the performance of his duties upon being provided with proper vouchers or receipts. (b) The Corporation agrees to reimburse to the Executive for all reasonable legal and accounting expenses incurred in the negotiation and documentation of this Agreement in an amount not to exceed $25,000. (c) In the event the Executive's relocation expenses from Shanghai, China to Tampa, Florida are not reimbursed by his current employer, the Corporation agrees to reimburse such expenses and to reimburse the Executive for any U.S. income tax payable with respect thereto. The reimbursement amount for U.S. income tax shall be paid on April 30, 2007. Executive agrees to use all reasonable efforts to obtain reimbursement from his current employer. The -5- Corporation shall also reimburse the Executive for expenses he incurs with respect to temporary housing in the Tampa area for a period of up to six months. ARTICLE 4 - COVENANTS OF THE PARTIES 4.1 CONFIDENTIALITY. (a) The Executive acknowledges that in the course of carrying out, performing and fulfilling his obligations to the Corporation hereunder, the Executive will have access to and will be entrusted with information that would reasonably be considered confidential to the Corporation or its Affiliates, the disclosure of which to competitors of the Corporation or its Affiliates or to the general public, will be highly detrimental to the best interests of the Corporation or its Affiliates. Such information includes, without limitation, trade secrets, know-how, marketing plans and techniques, cost figures, client lists, software, and information relating to employees, suppliers, customers and persons in contractual relationship with the Corporation. Except as may be required in the course of carrying out his duties hereunder, the Executive covenants and agrees that he will not disclose, for the duration of this Agreement or at any time thereafter, any such information to any person, other than to the directors, officers, employees or agents of the Corporation that have a need to know such information, nor shall the Executive use or exploit, directly or indirectly, such information for any purpose other than for the purposes of the Corporation, nor will he disclose nor use for any purpose, other than for those of the Corporation or its Affiliates, any other information which he may acquire during his employment with respect to the business and affairs of the Corporation or its Affiliates. Notwithstanding all of the foregoing, the Executive shall be entitled to disclose such information if required pursuant to a subpoena or order issued by a court, arbitrator or governmental body, agency or official, provided that the Executive shall first have: (i) notified the Corporation; (ii) consulted with the Corporation on whether there is an obligation or defense to providing some or all of the requested information; (iii) if the disclosure is required or deemed advisable, cooperate with the Corporation in an attempt to obtain an order or other assurance that such information will be accorded confidential treatment. In addition, Executive may disclose information relating to his own compensation and benefits to his spouse, attorneys, financial advisors and taxing authorities. (b) For the purposes of this Agreement, "Affiliate" shall mean, with respect to any person or entity (herein the "first party"), any other person or entity that directs or indirectly controls, or is controlled by, or is under common control with, such first party. The term "control" as used herein (including the terms "controlled by" and "under common control with") means the possession,, directly or indirectly, of the power to: (i) vote 50% or more of the outstanding voting securities of such person or entity, or (ii) otherwise direct or significantly influence the management or policies of such person or entity by contract or otherwise. -6- 4.2 INVENTIONS. The Executive acknowledges and agrees that all right, title and interest in and to any information, trade secrets, advances, discoveries, improvements, research materials and data bases made or conceived by the Executive prior to or during his employment relating to the business or affairs of the Corporation, shall belong to the Corporation. In connection with the foregoing, the Executive agrees to execute any assignments and/or acknowledgements as may be requested by the Board of Directors from time to time. 4.3 CORPORATE OPPORTUNITIES. Any business opportunities related to the business of the Corporation which become known to the Executive during his employment hereunder must be fully disclosed and made available to the Corporation by the Executive, and the Executive agrees not to take or attempt to take any action if the result would be to divert from the Corporation any opportunity which is within the scope of its business. 4.4 RESTRICTIVE COVENANTS. (a) The Executive will not at any time, without the prior written consent of the Corporation, during the Term of this Agreement or for a period of 24 months after the termination of the Executive's employment (regardless of the reason for such termination), either individually or in partnership, jointly or in conjunction with any person or persons, firm, association, syndicate, company or corporation, whether as agent, shareholder, employee, consultant, or in any manner whatsoever, directly or indirectly: (i) anywhere in the Territory, engage in, carry on or otherwise have any interest in, advise, lend money to, guarantee the debts or obligations of, permit the Executive's name to be used in connection with any business which is competitive to the Business or which provides the same or substantially similar services as the Business; (ii) for the purpose, or with the effect, of competing with any business of the Corporation, solicit, interfere with, accept any business from or render any services to anyone who is a client or a prospective client of the Corporation or any Affiliate at the time the Executive ceased to be employed by the Corporation or who was a client during the 12 months immediately preceding such time; (iii) solicit or offer employment to any person employed or engaged by the Corporation or any Affiliate at the time the Executive ceased to be employed by the Corporation or who was an employee during the 12-month period immediately preceding such time. (b) For the purposes of the Agreement: (i) "Territory" shall mean the countries in which the Corporation and its subsidiaries conduct the Business; (ii) "Business" shall mean the business of manufacturing, selling or distributing carbonated soft drinks, juices, water and other non-alcoholic -7- beverages to the extent such other non-alcoholic beverages contribute, or are contemplated or projected to contribute, materially to the profits of the Corporation at the time of the Executive's termination of employment. (c) Nothing in this Agreement shall prohibit or restrict the Executive from holding or becoming beneficially interested in up to one (1%) percent of any class of securities in any corporation provided that such class of securities are listed on a recognized stock exchange in Canada or the United States or on the NASDAQ. 4.5 INSIDER POLICIES. The Executive will comply with all applicable securities laws and the Corporation's Insider Trading Policy and Insider Reporting Procedures (copies of which have been provided to the Executive) in respect of any stock options issued to the Executive and other shares of the Corporation acquired by the Executive. 4.6 NONDISPARAGEMENT. The Executive shall not disparage the Corporation or any of its affiliates, directors, officers, employees or other representatives in any manner and shall in all respects avoid any negative criticism of the Corporation. 4.7 GENERAL PROVISIONS. (a) The Executive acknowledges and agrees that in the event of a breach of the covenants, provisions and restrictions in this Article 4, the Corporation's remedy in the form of monetary damages will be inadequate and that the Corporation shall be, and is hereby, authorized and entitled, in addition to all other rights and remedies available to it, to apply for and obtain from a court of competent jurisdiction interim and permanent injunctive relief and an accounting of all profits and benefits arising out of such breach. (b) The parties acknowledge that the restrictions in this Article 4 are reasonable in all of the circumstances and the Executive acknowledges that the operation of restrictions contained in this Article 4 may seriously constrain his freedom to seek other remunerative employment. If any of the restrictions are determined to be unenforceable as going beyond what is reasonable in the circumstances for the protection of the interests of the Corporation but would be valid, for example, if the scope of their time periods or geographic areas were limited, the parties consent to the court making such modifications as may be required and such restrictions shall apply with such modifications as may be necessary to make them valid and effective. (c) Each and every provision of these Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6 and 4.7 hereunder shall survive the termination of this Agreement or the Executive's employment hereunder (regardless of the reason for such termination). ARTICLE 5 - TERMINATION OF EMPLOYMENT 5.1 TERMINATION BY THE CORPORATION FOR JUST CAUSE, DISABILITY OR DEATH OR NOTICE OF TERMINATION. (a) The Corporation may terminate this Agreement and the Executive's employment hereunder without payment of any compensation either by way of anticipated earnings or -8- damages of any kind at any time for Just Cause, Disability or death of the Executive, or by delivery of a Notice of Termination to the Executive. (b) For purposes of this Agreement "Just Cause" shall mean: (i) the Executive pleads guilty or no contest to, or is convicted of any act which is defined as a felony under federal or state law, (ii) the Executive, in carrying out his duties, engages in conduct that constitutes wilful gross neglect or wilful gross misconduct (including wilful breach of fiduciary duties) resulting in either case, in material economic harm to the Corporation; or (iii) the Executive commits a wilful and material breach of this Agreement or commits a wilful act of misappropriation or fraud against the Corporation or its property. There shall be no termination for Just Cause without the Executive first being given written notice of the basis for termination for Just Cause and an opportunity to be heard by the Board of Directors. (c) For the purposes of this Agreement, "Disability" shall have occurred if the Executive has been unable due to illness, disease, or mental or physical disability (in the opinion of a qualified medical practitioner who is satisfactory to the Executive and the Corporation acting reasonably), to substantially perform the duties and responsibilities of his employment with the Corporation for any consecutive six (6) month period or the Executive has been declared by a court of competent jurisdiction to be mentally incompetent or incapable of managing his affairs. If the Executive and the Corporation cannot agree on a qualified medical practitioner, each party shall select a medical practitioner, and the two practitioners shall select a third who shall be the approved medical practitioner for this purpose. (d) In the event of termination of employment as a result of Disability or Death, Executive shall receive the portion of his Base Salary which is payable to the date of termination of employment as provided in Section 3.1, and a pro-rata portion to the date of termination of employment of the Target Bonus that would have been paid for the year to him upon accomplishment of the target goal. The final portion of his Base Salary shall be paid on the regularly scheduled pay date coincident with or next following the date of termination of employment. The pro-rata Target Bonus shall be paid on the last day of the first month following Death or Disability. Stock options and performance share units shall vest in accordance with the terms of the plans governing those options and units. If such termination of employment occurs before the entire stock award in Section 3.2(d) vests, the unvested portion terminates. 5.2 TERMINATION BY THE CORPORATION WITHOUT CAUSE. -9- (a) If the Executive's employment is terminated by the Corporation, including delivery by the Corporation of a Notice of Termination, for any reason other than for Just Cause, Disability, or death of the Executive, and Section 5.4 is not applicable, then the Corporation shall pay to the Executive within 30 days of the date of his termination of employment, or if a six month delay is required in order to comply with Code section 409A, on the first business day of the seventh month following the month in which termination of employment occurred, a lump sum amount equal to the sum of (i) two times his annual Base Salary at the time of his termination of employment and (ii) two times his Target Bonus for the year in which the termination occurs, plus a pro-rata portion to the date of termination of employment of the Target Bonus that would have been paid for the year to him upon accomplishment of the target goal. The Executive shall also receive that portion of his Base Salary which is payable to the date of termination of employment as provided in Section 3.1. The final portion of his Base Salary payable for services performed to the date of termination shall be paid on the regularly scheduled pay date coincident with or next following the date of termination of employment. In addition, the stock award in Section 3.2(d) shall vest, if not already fully vested, on the date of termination of employment and shall be paid in full within 30 days of the date of his termination of employment, provided, however, if such vesting does not constitute the lapse of a substantial risk of forfeiture as defined under Code section 409A and the guidance issued thereunder, each remaining one-third portion shall be paid on the anniversary date on which it would have been paid as specified in Section 3.2(d) had the Executive continued to be employed by the Corporation. The Performance Share Unit award in Section 3.2(c) if not already fully vested shall vest to the maximum extent as would be permitted under the Performance Share Unit Plan and shall be paid at the same time as an award under that Plan, except that the last day of the "Performance Cycle" shall be the third anniversary of the Executive's Employment Commencement Date. (b) In the event of the termination of the Executive's employment under this Section 5.2, the Corporation shall, to the extent it may do so legally and in compliance with the Corporation's benefit plans in existence from time to time, continue all group insurance benefits at a level equivalent to those provided to the Executive immediately prior to the termination for a period until the date which is 24 months following the date of termination, provided that, the benefits contemplated by this sub-paragraph shall terminate on the date the Executive obtains alternate employment providing comparable benefits. (c) For purposes of this Section 5.2 and of Sections 5.3 and 5.4, termination of employment shall mean separation from service within the meaning of Proposed Treas. Reg. Section 1.409A 1(h) or any successor thereto. 5.3 TERMINATION BY THE EXECUTIVE FOR GOOD REASON. (a) The Executive may terminate his employment at any time for Good Reason upon the occurrence, without the express written consent of the Executive, of any of the following: (i) a material diminution in the Executive's title or duties or assignment to the Executive of materially inconsistent duties; -10- (ii) a reduction in the Executive's then current Base Salary or Target Bonus opportunity as a percentage of Base Salary except for reductions applicable to all senior management; (iii) a change in the reporting structure so that the Executive no longer reports directly to the Board; (iv) relocation of the Executive's principal place of employment to a location other than the Tampa, Florida, or Toronto, Ontario, areas unless such relocation is effected at the request of the Executive or with the Executive's approval; (v) a material breach by the Company of any provisions of this Agreement; (vi) the failure of the Corporation to obtain the assumption in writing of its obligation to perform this Agreement by any successor to all or substantially all of the business or assets of the Corporation within fifteen (15) days after a merger, consolidation, sale or similar transaction; or (vii) for purposes of Section 5.4 below only, in the event of a Change in Control of the Company, Executive is not offered the same or equivalent position or more responsible position in the newly combined entity. There shall be no termination for Good Reason without written notice from Executive describing the basis for the termination and the Company's having a reasonable period to cure. (b) In the event the Executive Terminates his employment for Good Reason under this Section 5.3, he shall be entitled to the same payment and benefits provided in Section 5.2 above. 5.4 TERMINATION UPON A CHANGE OF CONTROL. (a) If, upon a Change of Control, as a consequence of the Change of Control prior to the Change of Control, or within 12 months following a Change of Control, the Executive's employment is terminated without Just Cause or if the Executive terminates his employment for Good Reason in the manner and within the time specified below following a Change of Control, the Executive shall be entitled to the payments and benefits provided in this Section 5.4. The Executive may terminate his employment for Good Reason by providing written notice to the Corporation within six months of the occurrence of such Change of Control, in which case the effective date of the termination of the Executive's employment shall be 30 days from the date of such written notice. (b) For the purposes of this Agreement, a "Change of Control" shall mean the occurrence of any one or more of the following: -11- (i) a take-over bid (within the meaning of the Securities Act (Ontario)), other than a take-over bid exempt from the requirements of Part XX of such Act pursuant to subsections 93(1)(b) or (c) thereof, is completed in respect of more than twenty percent (20%) of the Corporation's common shares and the majority of the members who were members of the Board of Directors of the Corporation prior to completion of such take-over bid are replaced within 60 days following completion of such takeover bid, or (ii) any of the following occur: (A) any consolidation, merger or amalgamation of the Corporation with or into any other corporation whereby the voting shareholders of the Corporation immediately prior to such event receive less than 50% of the voting shares of the consolidated, merged or amalgamated corporation; (B) a sale by the Corporation of all or substantially all of the Corporation's undertakings or assets; (C) a proposal by or with respect to the Corporation being made in connection with a liquidation, dissolution or winding up of the Corporation; (D) any reorganization, reverse stock split or recapitalization of the Corporation that would result in a Change of Control as otherwise defined herein; or (E) any transaction or series of related transactions having, directly or indirectly, the same effect as any of the foregoing. (c) In the event of termination of the Executive's employment pursuant to this Section 5.4, then the following provisions shall apply: (i) The Corporation shall pay to the Executive within 30 days of the date of termination of employment, or if a six month delay is required to comply with Code section 409A, on the first business day of the seventh month following the month in which termination of employment occurs, a lump sum amount equal to the sum of (i) three times his Base Salary at the date of his termination of employment and (ii) three times his Target Bonus for the year in which such termination occurs. In addition, the stock award in Section 3.2(d) shall vest, if not already fully vested, on the date of termination of employment and shall be paid in full within 30 days of the date of termination of employment, provided, however, if such vesting does not constitute the lapse of a substantial risk of forfeiture as defined under Code section 409A and the guidance issued thereunder, each remaining one-third portion shall be paid on the anniversary date on which it would have been paid as specified in Section 3.2(d) had the Executive continued to be employed by the Corporation. The Performance Share Unit award in Section 3.2(c) if not already fully vested shall vest to the maximum extent as would be permitted under the Performance Share Unit Plan (including acceleration of vesting subject to Board or Committee discretion) and be paid at the same time as an award which vests under Section 5.3 of that Plan. Notwithstanding the foregoing, if payment is to be made under this Section 5.4 within the first three years of the Executive's employment and if the payment provided for under this -12- Section 5.4(c)(i), alone or together with any other payments and/or benefits to be made to or for the benefit of the Executive, whether pursuant to this Agreement or otherwise, would constitute a parachute payment, as defined in Code section 280G(b)(2), such payments shall be reduced so that the present value of the aggregate payments shall be 299.99% of the Executive's base amount, as defined in Code section 280G, if such reduction would result in the Executive retaining on an after-tax basis, an amount equal to or greater than the Executive would retain after payment of all taxes, including the parachute excise tax, if such payments were not reduced. Following the third anniversary of the Executive's employment, if any amount becomes payable under this Section 5.4 and if such payment, alone or together with any other payment, would constitute a parachute payment, such payments shall be reduced so that the present value of the aggregate payments shall be 299.99% of the Executive's base amount so that no portion of the amounts received by the Executive will be subject to the excise tax imposed by Code section 4999. In either case if such reduction occurs, the Executive may designate the payment or portion thereof to be reduced. (ii) The Corporation shall continue, to the extent it may do so legally and in compliance with the Corporation's benefit plans in existence from time to time, all group insurance benefits at a level equivalent to those provided to the Executive immediately prior to the termination for a period until the date which is 36 months following the date of termination. (iii) The determination of whether payments made upon a Change of Control constitute a parachute payment, as provided in (i) above, and, if so, the amount to be paid to the Executive shall be made by an independent auditor (the "Auditor") jointly selected by the Corporation and the Executive and paid by the Corporation. The Auditor shall be a nationally recognized United States public accounting firm. If the Executive and the Corporation cannot agree on the firm to serve as the Auditor, then the Executive and the Corporation shall each select one accounting firm and those two firms shall jointly select the accounting firm to serve as the Auditor. Notwithstanding anything to the contrary, however, in the event that the foregoing parachute payment determination shall be challenged by the Internal Revenue Service, the final resolution of such challenge (by way of settlement or court decision) shall govern for purposes of computing any applicable limitation under (i) above, and the Executive shall repay to the Corporation any adjustment amount that results from such recomputation, together with interest on such adjustment amount computed at the applicable Federal rate as of the date of the original payment to the Executive under (i) above. (d) A termination of employment will be deemed for Good Reason as provided in Section 5.3. -13- 5.5 VOLUNTARY RESIGNATION; RETIREMENT. In the event the Executive wishes to resign his employment voluntarily, he shall provide at least one hundred and twenty (120) days' notice in writing to the Corporation. The Corporation may waive such notice in whole or in part by paying the Executive's Base Salary and continuing his group benefits and perquisites to the effective date of resignation. In the case of a voluntary termination, other than with Good Reason, by Executive or a termination by the Corporation for Just Cause, the Corporation shall have no further obligation to the Executive except as expressly set out herein. 5.6 PAYMENT TO DATE OF TERMINATION. Regardless of the reasons for the termination, the Corporation shall make payment to the Executive to the effective date of termination for all Base Salary, any accrued but unpaid vacation entitlements, and, other than in the event of a termination for Just Cause, any other amounts earned, accrued (excluding, for greater certainty, any bonus amounts for the year of termination) or owing to the Executive but not yet paid as well as other or additional benefits in accordance with applicable plans or programs of the Corporation. 5.7 RETURN OF PROPERTY. Upon any termination of his employment, the Executive shall forthwith deliver or cause to be delivered to the Corporation all books, documents, computer disks, and diskettes and other electronic data, effects, money, securities, or other property belonging to the Corporation or for which the Corporation is liable to others, which are in the possession, charge, control or custody of the Executive. 5.8 RELEASE. The Executive acknowledges and agrees that the payments pursuant to this Article shall be in full satisfaction of all terms of termination of his employment, including termination pay and severance pay pursuant to applicable employment standards or other legislation. Except as otherwise provided in this Article, the Executive shall not be entitled to any further termination payments, damages or compensation whatsoever. As condition precedent to any payment pursuant to this Article, the Executive agrees to deliver to the Corporation prior to any such payment, a full and final release from all actions or claims in connection therewith in favour of the Corporation, its affiliates, subsidiaries, directors, officers, employees and agents, in the form satisfactory to the Corporation, acting reasonably. 5.9 NO MITIGATION OR SET-OFF; NATURE OF PAYMENTS. In the event of any termination of employment under this Article 5, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due to the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that he may obtain except as specifically provided in this Agreement and there shall be no set-off from any payment due to the Executive pursuant to this Agreement of any amounts owed by him to the Corporation by reason of purchases, advances, loans, or other similar contractual obligations to pay money. This provision shall be applied so as not to conflict with any applicable legislation. Any amounts due under this Article 5 are in the nature of severance payments considered to be reasonable by the Corporation and are not in the nature of a penalty. -14- ARTICLE 6 - DIRECTORS AND OFFICERS 6.1 RESIGNATION. If the Executive is a director or officer at the relevant time, the Executive agrees that after termination of his employment with the Corporation he will tender his resignation from any position he may hold as an officer or director of the Corporation or any of its affiliated or related companies. 6.2 INSURANCE. The Corporation shall maintain such directors' and officers' liability insurance for the benefit of the Executive in accordance with corporate policies and as generally provided to the directors of the Corporation. 6.3 INDEMNIFICATION. The Corporation agrees that, if the Executive is made a party, or is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he is or was a director, officer or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer, member, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Proceeding is the Executive's alleged action in an official capacity while serving as a director, officer, member employee or agent, the Executive shall be indemnified and held harmless by the Corporation to the fullest extent legally permitted or authorized by the Corporation's certificate of incorporation or bylaws or resolutions of the Corporation's Board of Directors or, if greater, by the laws of the Province of Ontario, and the federal Laws of Canada applicable to the Corporation, against all cost, expense, liability, and loss (including, without limitation, attorney's fees, judgments, fines, excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Executive in connection therewith, and such indemnification shall continue as to the Executive even if he has ceased to be a director, member, employee or agent of the Corporation or other entity and shall inure to the benefit of the Executive's heirs, executors and administrators. The Corporation shall advance to the Executive all reasonable costs and expenses incurred by him in connection with a Proceeding within 20 days after receipt by the Corporation of a written request for such advance. Such request shall include an undertaking by the Executive to repay the amount of such advance if it shall ultimately be determined that he is not entitled to be indemnified against such cost and expenses. ARTICLE 7 - ARBITRATION 7.1 All matters in difference between the parties in relation to this Agreement, shall be referred to the arbitration of a single arbitrator, if the parties agree upon one, otherwise to three arbitrators, one to be appointed by the Corporation and one to be appointed by the Executive and a third to be chosen by the first two arbitrators named before they enter upon the business of arbitration. The arbitration shall be conducted in Toronto in accordance with the Arbitrations Act (Ontario) as it may from time to time be amended. The award and determination of the arbitrator or arbitrators or any of two of three arbitrators shall be binding upon the parties and their respective heirs, executors, administrators and assigns. Each party shall be responsible for its or his own expenses with respect to the arbitration. -15- ARTICLE 8 - AMENDMENT 8.1 The Corporation and Executive recognize that certain amounts which may become payable under this Agreement are or may be subject to Code section 409A, that final guidance under Code section 409A has not been issued but is anticipated in the near future, and that failure to comply with Code section 409A will result in adverse tax consequences to the Executive. Therefore, Corporation and Executive agree to the amendment of this Agreement following the issuance of such final guidance to the extent necessary with respect to amounts which may become payable hereunder either to ensure the exemption of such amounts from the requirements of Code section 409A or to comply with the requirements of Code section 409A. ARTICLE 9 - CONTRACT PROVISIONS 9.1 HEADINGS. The headings of the Articles and paragraphs herein are inserted for convenience of reference only and shall not affect the meaning or construction hereof. 9.2 INDEPENDENT ADVICE. The Corporation and the Executive acknowledge and agree that they have each obtained independent legal advice in connection with this Agreement 'and they further acknowledge and agree that they have read, understand and agree with all of the terms hereof and that they are executing this Agreement voluntarily and in good faith. 9.3 GENDER. Words denoting any gender include both genders. 9.4 GOVERNING LAW. This Agreement shall be construed and interpreted in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. Each of the parties hereby irrevocably attorns to the jurisdiction of the court of the Province of Ontario with respect to any matters arising out of this Agreement. 9.5 ENTIRE AGREEMENT. This Agreement, together with the plans and documents referred to herein, constitutes and expresses the whole agreement of the parties hereto with reference to any of the matters or things herein provided for or herein before discussed or mentioned with reference to such employment for the Executive. All promises, representation, collateral agreements and undertakings not expressly incorporated in this Agreement are hereby superseded by this Agreement. 9.6 SEVERABILITY. If any provision contained herein is determined to be void or unenforceable in whole or in part, it shall not be deemed to affect or impair the validity of any other provision herein and each such provision is deemed to be separate and distinct. 9.7 NOTICE. Any notice required or permitted to be given under this Agreement shall be in writing and shall be properly given if personally delivered, delivered by facsimile transmission (with confirmation of receipt) or mailed by prepaid registered mail addressed as follows: (a) in the case of the Corporation: Cott Corporation 207 Queen's Quay West -16- Suite 340 Toronto, Ontario M5J 1A7 Facsimile: (416) 203-6207 Attention: Chairman -and Attention: General Counsel (b) in the case of the Executive: to the last address of the Executive in the records of the Corporation and its subsidiaries or to such other address as the parties may from time to time specify by notice given in accordance herewith. Any notice so given shall be conclusively deemed to have been given or made on the day of delivery, if personally delivered, or if delivered by facsimile transmission or mailed as aforesaid, upon the date shown on the facsimile confirmation of receipt or on the postal return receipt as the date upon which the envelope containing such notice was actually received by the addressee. 9.8 SUCCESSORS. This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective personal or legal representatives, heirs, executors, administrators, successors and assigns. 9.9 SURVIVORSHIP. Upon the termination of Executive's employment, the respective rights and obligations of the parties shall survive such termination to the extent necessary to carry out the intended preservation of such rights and obligations. 9.10 TAXES. All payments under this Agreement shall be subject to withholding of such amounts, if any, relating to tax or other payroll deductions as the Corporation may reasonably determine and should withhold pursuant to any applicable law or regulation. 9.11 CURRENCY. All dollar amounts set forth or referred to in this Agreement refer to U.S. currency. 9.12 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. -17- COTT CORPORATION Per: /s/ Frank E. Weise -------------------------------------------- Chairman of the Board of Directors I have the authority to bind the Corporation Per: -------------------------------------------- I have the authority to bind the Corporation SIGNED, SEALED AND DELIVERED in the presence of /s/ Brent D. Willis l/s - ------------------------------------- -------------------------------- Brent D. Willis BRENT WILLIS COTT CORPORATION STATEMENT OF RESPONSIBILITIES - CHIEF EXECUTIVE OFFICER - The Chief Executive Officer of Cott Corporation (the "Corporation") shall be responsible for directing the Corporation with the objective of providing maximum profit and return on invested capital, establishing short-term and long-term objectives, plans, performance standards and policies subject to the approval of the Board of Directors. To that end, the Chief Executive Officer will be ultimately responsible for: - Preparing, at least annually, a statement of objectives, plans, performance standards and policies for the Corporation, which shall be reviewed by the Human Resources, Compensation and Corporate Governance Committee and shall be approved by the Board of Directors. - Ensuring that the Corporation's material operating plans, performance standards and policies are uniformly understood and properly interpreted and administered by subordinates. - Presenting proposed operating and capital expenditure budgets for review and approval by the Board of Directors. - Directing all investigations and negotiation pertaining to material acquisitions or dispositions, mergers and joint ventures. - Representing the Corporation as appropriate in its relationship with major customers, suppliers, competitors, commercial and investment bankers, investment analysts, the media, security holders, government agencies, professional associations, unions, employees and the public generally. - Analyzing the operating results of the Corporation and its principal divisions relative to established objectives and taking appropriate steps to correct unsatisfactory conditions. - Making recommendations to the Human Resources, Compensation and Corporate Governance Committee as regards Senior Officer succession planning and compensation. - Making recommendations to the Board of Directors as to the adequacy and soundness of the Corporation's financial structure and reviewing projections of working capital requirements. - Delegating any or all of the above-noted responsibilities and maintaining ultimate supervisory responsibility to ensure that they are performed. EX-10.2 3 o32698exv10w2.txt EX-10.2 EXHIBIT 10.2 May 13, 2006 WITHOUT PREJUDICE HAND DELIVERED John K. Sheppard c/o Cott Corporation 207 Queen's Quay West, Suite 340 Toronto, ON M5J 1A7 Dear Mr. Sheppard: RE: COTT CORPORATION ("COTT") -- TERMINATION OF EMPLOYMENT We are writing to notify you that your employment with Cott is hereby terminated without cause, effective May 13, 2006. Cott appreciates your contribution to the corporation over the course of the past four years and, with a view to resolving all matters on an amicable basis, has prepared the following enhanced severance arrangements, which are more generous than those to which you would have been entitled pursuant to your March 11, 2004 Employment Agreement in the event of a without-cause termination. The proposed severance arrangements are as follows: 1. DATE OF TERMINATION The effective date of termination will be May 13, 2006 (the "Termination Date"). 2. ACCRUED SALARY AND VACATION PAY You will be paid your salary and accrued vacation pay to the Termination Date. These payments will be less applicable statutory deductions and paid in a lump-sum payment during the next pay period immediately following the Termination Date. 3. SEVERANCE (a) Severance -- We have agreed to pay you a lump-sum payment equal to two times your base salary of $550,000.00 (which equals $1,100,000.00) plus two times your target Bonus of $600,000.00 (which equals $1,200,000.00) for a total lump-sum payment of $2,300,000.00, less applicable statutory deductions, to be paid within 30 days of your termination of employment. (b) Pro-rated Bonus for 2006 -- You will be entitled to received an additional lump-sum payment representing a pro-rated bonus for 2006 in the amount of $275,000.00, less applicable statutory deductions. (c) Benefits -- Provided the insurer(s) and the applicable insurance policies permit, Cott will continue your participation in Cott's group insurance benefit plans as provided immediately prior to the Termination Date, for a period of twenty-four (24) months from the Termination Date, or with respect to health insurance benefits only until you attain age 55, provided, however, that such benefits shall terminate on the date you obtain alternate employment that provides comparable benefits, save and except the disability benefits which will be continued for a period of two (2) weeks as required by the Employment Standards Act, 2000. Cott will also reimburse you for the cost of replacing existing short-term and long-term disability benefits with comparable benefits until the earlier of the end of such twenty-four (24) month period or the date you obtain alternate employment providing comparable benefits. Reimbursement shall be made upon submission of proof of payment of the premium. Additionally, following attainment of age 55, you and your spouse, and your daughter until her 21st birthday, shall be entitled to Health Insurance Benefits as defined and as provided in Section 3.3(e) of your Employment Agreement. 4. EXPENSES To the extent that you have incurred any proper travel, entertainment or other business expenses, you will be reimbursed in accordance with Cott's policy. All expense reports must be submitted by May 31, 2006. 5. STOCK OPTIONS/SHARE PURCHASE PLAN All of your rights with respect to vested stock options that you hold personally will continue after the termination of your employment, subject of course to the provisions of the Cott's Restated 1986 Common Share Option Plan as amended (the "Option Plan"), for 60 days following the Termination Date, and thereafter such options shall be null and void. All other rights under Cott's share purchase plans and other long-term incentive plans, including, without limitation, all rights to unvested shares under the Cott Corporation Executive Incentive Share Purchase Plan, shall terminate on the Termination Date in accordance with those plans. 6. NO OTHER PAYMENTS The payments, benefits and other entitlements set out in this letter constitute your complete entitlement and Cott's complete obligations whatsoever, including with respect to the cessation of your employment, whether at common law, statute or contract. For greater certainty, we confirm that you are not entitled to any further payment (including any bonus payments), benefits, perquisites, allowances or entitlements earned or owing to you from Cott pursuant to any employment or any other agreement, whether written or oral, whatsoever, all having ceased on the Termination Date without further obligation from Cott. All amounts paid or benefits provided to you pursuant to this letter shall be deemed to include all amounts owing pursuant to the Employment Standards Act, 2000, and such payments and benefits represent a greater right or benefit than that required under the Employment Standards Act, 2000. 7. EMPLOYMENT AGREEMENT You agree to execute the attached amendment to the Employment Agreement which amends the Employment Agreement retroactive to January 1, 2005, which is intended as good faith compliance with section 409A of the U.S. Internal Revenue Code of 1986, as amended ("Code") and the guidance issued to date thereunder 8. RESIGNATION & RELEASE You will resign as an officer and director of Cott (and any affiliates, subsidiaries and associated companies) with effect as of the Termination Date. In this respect, you agree to execute and deliver the Resignation Notice attached hereto as Schedule "1" and such further documentation as may be required by Cott, in its sole discretion, in order to effect this resignation. You agree to sign the Release in the form attached as Schedule "2" to this letter. 9. YOUR CONTINUING OBLIGATIONS (a) You will continue to abide by all of the applicable provisions of your Employment Agreement, as amended which are intended to continue following the cessation of your employment, including but not limited to the Confidentiality, Non-Solicitation, and Non-Competition covenants provided in Article 4, which in the case of the Confidentiality covenant continues forever, and in the case of the Non-Solicitation and Non-Competition covenants, will apply for a period of twenty-four (24) months from the Termination Date. You agree that in the event of a breach of any these covenants, Cott will be entitled to, in addition to any of the remedies set out in the Employment Agreement for the breach of these covenants, discontinue any and all payments, benefits, and other entitlements as set out in this letter, and you will forfeit any and all claims, actions, demands, or payments whatsoever. (b) You are required to return forthwith to Cott all of the property of Cott in your possession or in the possession of your family or agents including, without limitation, other wireless devices and accessories, computer and office equipment, keys, passes, credit cards, customer lists, sales materials, manuals, computer information, software and codes, files and all documentation (and all copies thereof) dealing with the finances, operations and activities of Cott, its clients, employees or suppliers. You shall be entitled to retain your blackberry and cell phone provided all ongoing usage charges and invoices relating thereto from the date hereof shall be from your own account. (c) You will maintain the severance arrangements as set out in this letter in the strictest confidence and will not disclose them except to your immediate family, or to the extent that such disclosure may be required by law, or to permit you to obtain tax planning, legal or similar advice. Cott will also keep the terms of the settlement confidential, except to the extent that such disclosure may be required by law. (d) You will execute and return the Release as attached to this letter at Schedule "2", the terms of which are incorporated herein and the delivery of which is a condition of any payment to you by Cott. (e) You will agree to cooperate reasonably with Cott, and its legal advisors, in connection with: (i) any business matters in which you were involved; or (ii) any existing or potential claims, investigations, administrative proceedings, lawsuits and other legal and business matters which arose during your employment or involving Cott; (iii) effecting compliance with respect to any regulatory requirements; and (iv) completing any further documents required to give effect to the terms set out in this letter with respect to which you have knowledge of the underlying facts (including, but not limited to, any further amendment to the Employment Agreement for the purposes of good faith compliance with, or exemption from, section 409A of the Code). In addition, you will not voluntarily aid, assist or cooperate with any claimants or plaintiffs or their attorneys or agents in any claims or lawsuits commenced in the future against Cott, provided, however, that nothing in this letter will be construed to prevent you from testifying at an administrative hearing, a deposition/discovery, or in court in response to a lawful subpoena in any litigation or proceedings involving Cott. 10. TAXES All payments referred to in this letter will be less applicable withholdings and deductions, and you shall be responsible for all tax liability resulting from your receipt of the payment and benefits referred to in this letter, except to the extent that Cott has withheld funds for remittance to statutory authorities. 11. GENERAL (a) Entire Agreement: The agreement confirmed by this letter constitutes the entire agreement between you and Cott with reference to any of the matters herein provided or with reference to your employment or office with Cott, or the cessation thereof. All promises, representations, collateral agreements, offers and understandings not expressly incorporated in this letter agreement are hereby superseded and have no further effect. (b) Severability: The provisions of this letter agreement shall be deemed severable, and the invalidity or unenforceability of any provision set out herein shall not affect the validity or enforceability of the other provisions hereof, all of which shall continue in accordance with their terms. (c) Period of Review: You have twenty-one (21) days from the date set forth above to consider this letter agreement, including attachments. No change to this letter agreement, whether material or immaterial, will initiate a new twenty-one (21) day period. If you so desire, you may voluntarily and knowingly sign, but are not required to sign, this letter agreement before the end of the twenty-one (21) day period. (d) Right to Revoke: You may revoke your acceptance of this letter agreement at any time before the end of the seventh day after his execution of the letter. In order for your revocation to be effective, you must provide written notice of your intent to revoke to Colin Walker at the following address prior to the end of the seventh day after execution: Cott Corporation 207 Queen's Quay West, Suite 340 Toronto, ON M5J 1A7 You understand that, in the event you revoke this letter agreement, it shall be of no effect, and you shall forfeit all of the consideration which is being provided to you in exchange for their entering into this letter agreement, including but not limited to Cott's promise to make the payments described herein. (e) Full Understanding: By signing this letter, you confirm that: (i) you have had an adequate opportunity to read and consider the terms set out herein, including the Release attached, and that you fully understand them and their consequences; (ii) you have been advised, through this paragraph, to consult with legal counsel and have obtained such legal or other advice as you consider advisable with respect to this letter agreement, including attachments; and (iii) you are signing this letter voluntarily, without coercion, and without reliance on any representation, express or implied, by Cott, or by any director, trustee, officer, shareholder, employee or other representative of Cott. (f) Arbitration: In the event any dispute arises between you and Cott with respect to the interpretation, effect or construction of any provisions of this Agreement, either Cott or you may refer the matter to final and binding arbitration without right of appeal, pursuant to the Arbitration Act, Ontario, for the disputed matters to be determined by an arbitrator that is to be mutually agreed upon, upon written notice to the other, whereupon, subject to the availability of such an arbitrator, the arbitration hearing will commence within 30 days of the said notice, without formality, with the costs of the arbitration to be shared equally between the parties, subject to such order for costs as the arbitrator may determine in his or her sole discretion. (g) Non-disparagement: You agree that you shall not disparage Cott, nor any of its directors, officers, employees, or other representatives in any manner, and shall in all respects avoid any negative criticism of Cott. (h) Currency: All dollar amounts set forth or referred to in this letter refer to U.S. currency. (i) Governing Law: The agreement confirmed by this letter shall be governed by the laws of the Province of Ontario, Canada. * * * If this offer is acceptable to you once you have had an opportunity to review it, please sign the acknowledgement below to confirm your acceptance of same and return to Colin Walker. If you have any questions regarding the terms set out in this letter, please feel free to contact Colin Walker. Yours very truly, COTT CORPORATION PER: /s/ Frank E. Weise - ----------------------- Enclosures: 1. Schedule "1" -- Resignation Notice 2. Schedule "2" -- Release Acknowledgement and Acceptance I acknowledge that I have had at least twenty-one (21) days to review this letter and the attached Release and Resignation Notice and having been advised to and had the opportunity to obtain independent legal advice and that the only consideration for the Release is as referred to in this letter. I confirm that no other promises or representations of any kind have been made to me to cause me to sign this acknowledgement and acceptance. /s/ John K. Sheppard - -------------------------- John K. Sheppard SCHEDULE "1" RESIGNATION NOTICE TO: COTT CORPORATION AND TO: ALL AFFILIATES, SUBSIDIARIES AND ASSOCIATED CORPORATIONS THEREOF AND TO: ALL DIRECTORS THEREOF - -------------------------------------------------------------------------------- I, JOHN K. SHEPPARD confirm my resignation as a director and from all offices held by me of COTT CORPORATION, including all affiliates, subsidiaries, and associated corporations, with effect as of May 13, 2006. /S/ JOHN K. SHEPPARD ------------------------- JOHN K. SHEPPARD SCHEDULE "2" RELEASE FROM: JOHN K. SHEPPARD ("SHEPPARD") TO: Cott Corporation ("Cott"), its respective affiliates, associates, subsidiaries, parents and related organizations and all of their respective past and present shareholders, partners, directors, officers, employees, contractors, consultants, agents, representatives, trustees, administrators, attorneys and insurers (all collectively referred to as "Releasees") - -------------------------------------------------------------------------------- 1. In consideration of the terms as set out in the letter from Cott to Sheppard dated May , 2006 (the "Agreement"), the receipt and sufficiency of which consideration are hereby acknowledged, and except for the obligations owed to Sheppard and referred to in the Agreement, Sheppard hereby remises, releases and forever discharges Cott and the other Releasees of and from all manner of actions, causes of action, suits, debts, dues, accounts, bonds, contracts, liens, claims and demands whatsoever which against the Releasees he now has, ever had or hereafter can, shall or may have for or by reason of any cause, matter or thing whatsoever existing to the present time, and particularly and without limiting the generality of the foregoing, of and from all claims and demands of every nature and kind in any way related to or arising from Sheppard's employment or other engagement with Cott or the termination of such employment, engagement or other agreements, including all damages, salary, remuneration, commission, vacation pay, overtime pay, termination pay, severance pay, notice of termination, profit-sharing, stock options or other equity, bonuses, proceeds of any insurance or disability plans, pension or retirement benefits, or any other fringe benefit or perquisite of any kind whatsoever and including any claims Sheppard may have under any United States, Canada, state, province, or local statute or ordinance, including without limitation, the U.S. Age Discrimination in Employment Act, the U.S. Civil Rights Acts of 1964 and 1991, the U.S. Family and Medical Leave Act, the U.S. Employee Retirement Income Security Act ("ERISA"); the Florida Civil Rights Act of 1992; any contract or agreement (except the Agreement); and any common law principle. The payments, benefits, and other entitlements referred to in the Agreement are deemed to satisfy all requirements or money owing under all applicable laws including without limitation, any and all wages, vacation pay, termination and severance pay under the Employment Standards Act, 2000. 2. Sheppard confirms that the Agreement has been entered into by the parties for the purposes of fully and finally settling and compromising all possible claims that Sheppard might have against the Releasees and, therefore, in this respect, Sheppard covenants and agrees not to file any complaint or initiate any proceeding under the Employment Standards Act, 2000, under the Ontario Human Rights Code, under the Workplace Safety and Insurance Act, under the Occupational Health & Safety Act, under the Labour Relations Act, under the Pay Equity Act, or pursuant to any other applicable law or legislation, including the statutes and laws set forth and/or referenced in the preceding paragraph, in any jurisdiction governing or related to Sheppard 's employment or other engagement with Cott. In the event that Sheppard hereafter makes any claim or demand or commences or threatens to commence any action, claim or proceeding or to make any complaint against Cott in this respect, this Release may be raised as an estoppel and complete bar to any such action, claim or proceeding. Sheppard confirms that he has no right to re-instatement, re-call or re-employment with any of the Releasees, and Sheppard waives and releases all rights he had or may have had in this regard. This paragraph shall not release any rights that may not legally be waived. 3. Sheppard further agrees not to make or assist in the commencement of any claims (expressly including any cross-claim, counterclaim, third party action or application) against any other person or corporation who might claim contribution or indemnity against the persons or corporations discharged by this Release, including under the provisions of the Negligence Act or any other statute. 4. With the exception of disclosure to Sheppard's immediate family or to his legal or professional advisors (but provided any such person agrees not to disclose such information to any other person), Sheppard agrees that the terms and contents of this Release, the consideration included in the Agreement, the contents of the negotiations and discussions resulting in this Release, and any dispute resolved by this Release, shall all remain privileged and confidential and shall not be disclosed except to the extent required by law or as otherwise agreed to in writing by Cott. 5. This Release shall be binding upon Sheppard and his heirs, executors, administrators, successors and assigns and shall enure to the benefit of Cott and to the benefit of all of the Cott's heirs, executors, administrators, successors and assigns. 6. Sheppard acknowledges that he has had an opportunity to review this Release for no less than twenty-one (21) days and the right to revoke his acceptance of the Release for a period of seven (7) days after his execution of the Release. Sheppard also acknowledges that he has been advised to and has in fact obtained independent legal advice and that the only consideration for this Release is as referred to above. Sheppard further confirms that no other promises or representations of any kind have been made to Sheppard to cause him to sign this Release. 7. Sheppard acknowledges that this Release, the settlement of any dispute between Sheppard and Cott, or the payment of any monies to Sheppard, shall not constitute an admission of liability on the part of Cott, which liability is denied. 8. Sheppard agrees that he alone shall be responsible for all tax liability resulting from his receipt of the payments referred to in the Agreement, except to the extent that Cott has withheld funds for remittance to statutory authorities. Sheppard agrees to indemnify and save Cott harmless from any and all amounts payable or incurred by Cott (save and except any penalties and interest that are attributable to Cott's not having deducted sufficient funds by its own direction) if it is subsequently determined that any greater amount should have been withheld in respect of income tax or any other statutory withholding. 2 SIGNED, SEALED AND DELIVERED THIS 16 DAY OF MAY, 2006. Signature illegible /s/ John K. Sheppard - ----------------------------- ----------------------------- Witness JOHN K. SHEPPARD 3 AMENDMENT TO EMPLOYMENT AGREEMENT BETWEEN COTT CORPORATION AND JOHN K. SHEPPARD WHEREAS, Cott Corporation ("Corporation") and John K. Sheppard ("Executive") entered into an Employment Agreement dated March 11, 2004; and WHEREAS, the Corporation and Executive desire to amend such Employment Agreement effective as of January 1, 2005, in good faith compliance with section 409A of the United States Internal Revenue Code of 1986, as amended, and the guidance issued thereunder to date; NOW, THEREFORE, in consideration of the covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, the parties hereto agree as follows: 1. Section 3.3(e) is hereby amended, effective January 1, 2005, by striking the phrase "other than for Good Reason" from the first sentence thereof and by deleting the penultimate sentence thereof. 2. Section 5.2(a) prior to subsection (i) thereof is hereby amended, effective January 1, 2005, to read as follows: (a) If the Executive's employment is terminated by the Corporation, including delivery by the Corporation of a Notice of Termination, for any reason other than for Just Cause, Disability, or death of the Executive, then the Corporation shall pay forthwith to the Executive within 30 days of such termination, a lump sum amount equal to: * * * * * 3. Section 5.2(b) is hereby amended, effective January 1, 2005, to read as follows: (b) In the event of the termination of the Executive's employment under this Section 5.2, the Corporation shall, to the extent it may do so legally and in compliance with the Corporation's benefit plans in existence from time to time, continue all group insurance benefits at a level equivalent to those provided to the Executive immediately prior to the termination for a period until the date which is 24 months following the date of termination, provided that the benefits contemplated by this subparagraph shall terminate on the date the Executive obtains alternate employment providing comparable benefits. 4. Section 5.3 is deleted, effective January 1, 2005. 4 5. Section 5.4(a) is hereby amended to read as follows, effective January 1, 2005: (a) If, following a Change in Control, the Executive's employment is terminated by the Corporation without Just Cause, the Executive shall be entitled to the payments and benefits provided in this Section 5.4. 6. Section 5.4(c)(i) is hereby amended, effective January 1, 2005, by replacing "or as he may direct" with "within 30 days of such termination of employment." 7. Section 5.4(c)(ii) is hereby amended, effective January 1, 2005, to read as follows: (ii) The Corporation shall provide benefits as provided under Section 5.2(b) substituting 36 months for 24 months thereunder. 8. The first sentence of Section 5.4(c)(iv) is hereby amended, effective January 1, 2005, to read as follows: In the event that any payment or other amount (a "Payment") is determined to constitute a parachute payment, as such term is defined in Section 280G(b)(2) of the United States Internal Revenue Code of 1986, as amended (a "Parachute Payment"), the Corporation shall pay to the Executive, no later than March 15 of the calendar year following the calendar year in which such termination of employment occurred, an additional amount which, after the imposition of all income and excise taxes thereon, is equal to the aggregate of all excise taxes imposed by Section 4999 of the Internal Revenue Code ("Excise Taxes") on all Payments such that the Executive is in the same position as if no Excise Taxes had been imposed with respect to any Payment. 9. Section 5.6(b) is hereby deleted, effective January 1, 2005. 5 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. COTT CORPORATION Per: /s/ Frank E. Weise ---------------------- Frank E. Weise I have authority to bind the Corporation SIGNED, SEALED AND DELIVERED ) in the presence of ) ) ) Signature illegible /s/ John K. Sheppard l/s - -------------------------- -------------------------- JOHN K. SHEPPARD 6 EX-10.3 4 o32698exv10w3.txt EX-10.3 EXHIBIT 10.3 COTT CORPORATION PERFORMANCE SHARE UNIT PLAN ARTICLE I PURPOSE AND ESTABLISHMENT OF PLAN 1.1 PURPOSE. The Company hereby establishes a Plan for the purposes of fostering and promoting the long-term financial success of the Company and its Subsidiaries and materially increasing the value of the Company and/or its Subsidiaries by (i) encouraging the long-term commitment of key Employees, (ii) motivating performance of key Employees by means of long-term performance related incentives, (iii) attracting and retaining outstanding key Employees by providing incentive compensation opportunities, and (iv) enabling participation by key Employees in the long-term growth and financial success of the Company. 1.2 EFFECTIVE DATE. The Plan shall become effective upon its approval by a majority of the Company's shareholders at the Company's next annual meeting held after the approval of the Plan by the Board. ARTICLE II DEFINITIONS In this Plan, the following terms shall have the following meanings: (a) "AWARD" means any award of the right to earn Performance Share Units granted pursuant to the Plan; (b) "AWARD AGREEMENT" means a written agreement between a Participant and the Company which sets forth the terms of the grant of an Award; (c) "AWARD AMOUNT" means the value (stated in terms of Canadian dollars) of the Award granted under the Plan to a Participant in respect of a Performance Cycle, assuming the target Performance Goals are attained for such Performance Cycle; (d) "BOARD" means the Board of Directors of the Company; (e) "CAUSE" means any action by the Participant or inaction by the Participant that constitutes: (i) a breach of a written employment agreement by that Participant; or (ii) misconduct, dishonesty, disloyalty, disobedience or action that might reasonably injure the Company or any of its Subsidiaries or their respective business interests or reputation; (f) "CHANGE OF CONTROL" means: (i) a consolidation, merger or amalgamation of the Company with or into any other corporation whereby the voting shareholders of the Company immediately prior to such event receive less than 50% of the voting shares of the consolidated, merged or amalgamated corporation; (ii) a sale by the Company of all or substantially all of the Company's undertakings and assets; or (iii) a proposal by or with respect to the Company being made in connection with a liquidation, dissolution or winding-up of the Company; (g) "COMMITTEE" means the Human Resources and Compensation Committee of the Board; (h) "COMMON SHARES" means the common shares in the capital of the Company; (i) "COMPANY" means Cott Corporation, a corporation amalgamated under the laws of Canada; (j) "EMPLOYEE" means a full-time, part-time or contract employee of an Employer; (k) "EMPLOYER" means, in respect of a Participant, the Company or the Subsidiary of the Company employing such Participant; (l) "FAIR MARKET VALUE" means, with respect to a Common Share on any determination date, the closing price of the Common Shares on the Toronto Stock Exchange on the last trading day on which Common Shares traded prior to such date; provided that if no Common Shares traded in the five trading days prior to the determination date, the Committee shall determine Fair Market Value on a reasonable basis using a method that complies with section 409A of the United States Internal Revenue Code of 1986, as amended, and guidance issued thereunder; (m) "FISCAL YEAR" means the 12-month period beginning the first Sunday following the immediately preceding Saturday closest to December 31st and ending on the Fiscal Year End; (n) "FISCAL YEAR END" means, with respect to each Fiscal Year, the Saturday closest to December 31st of such Fiscal Year; (o) "NORMAL RETIREMENT" means retirement from office or employment with an Employer (at the election of the Employee and as agreed to by the Employer); (p) "PARTICIPANT" means any Employee(s) approved by the Committee to participate in the Plan; (q) "PERFORMANCE CYCLE" means a period of time determined at the date of grant by the Committee, in its discretion, (not to be longer than three Fiscal Years, the first year of which shall be the Fiscal Year in which the award is granted and the last day of which shall be the last day of a Fiscal Year) over which performance is -2- measured for the purpose of determining a Participant's eligibility to earn, and the payment value of, any Performance Share Units; (r) "PERFORMANCE GOALS" shall mean the criteria and objectives determined by the Committee in its discretion pursuant to the Plan, which shall be satisfied or met during the applicable Performance Cycle as a condition precedent to a Participant earning Performance Share Units under an Award. Such criteria and objectives may include earnings before interest, taxes, depreciation and amortization; operating income; net operating income after tax; pre-tax or after-tax income; cash flow; net earnings; earnings per share; share price performance; return on assets; return on equity; return on invested capital; tangible net asset growth; any combination of the foregoing; or any other financial criteria and objectives determined by the Committee in its discretion; (s) "PERFORMANCE SHARE UNIT" means a notional unit representing a contingent right to receive Common Shares following the Vesting Date based upon the achievement of certain Performance Goals during a specified Performance Cycle; (t) "PERMANENT DISABILITY" means the complete and permanent incapacity of a Participant, as determined by a licensed medical practitioner approved by the Committee, due to a medically determinable physical or mental impairment which prevents such Participant from performing substantially all of the essential duties of his or her office or employment; (u) "PLAN" means the Cott Corporation Performance Share Unit Plan, as amended from time to time; (v) "PSU FUND" means the trust fund or funds established under the PSU Trust Agreement, which for purposes of the Plan constitutes an "employee benefit plan" for purposes of the Tax Act; (w) "PSU TRUST AGREEMENT" means the agreement or agreements by and among the Company, the Trustee, and the Agent (as defined therein) to carry out the purposes of the Plan in respect of Common Shares purchased on account of vested Performance Share Units and any income attributable thereto in accordance with the terms of the Plan; (x) "SUBSIDIARY" has the meaning assigned thereto in the Securities Act (Ontario) and "SUBSIDIARIES" shall have a corresponding meaning; (y) "SUPERIOR GOALS" has the meaning attributed to it in Section 4.2; (z) "TARGET GOALS" has the meaning attributed to it in Section 4.2; (aa) "TARGET PSU NUMBER" has the meaning attributed to it in Section 4.3(b); -3- (bb) "TAX ACT" means the Income Tax Act (Canada) and all regulations thereunder, as amended or restated from time to time. Any reference in the Agreement to a provision of the Tax Act includes any successor provision thereto; (cc) "TERMINATED PARTICIPANT" means a Participant who has incurred a Termination Date and shall include, where context requires, the personal representative(s) of a Participant; (dd) "TERMINATION DATE" means the Participant's last day of active service with his or her Employer (determined without regard to any notice of termination owing pursuant to statute, regulation, agreement or common law); (ee) "THRESHOLD GOALS" has the meaning attributed to it in Section 4.2; (ff) "TRUSTEE" means MRS Trust or its successor trustee under the PSU Trust Agreement; (gg) "UK TAX LIABILITY" has the meaning attributed to it in Section 8.7(b); and (hh) "VESTING DATE" means, with respect to any Performance Share Units earned in a Performance Cycle, the last day of the Performance Cycle, except as otherwise provided in Section 5.3. ARTICLE III ADMINISTRATION OF THE PLAN 3.1 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Committee. The Committee shall have the power and authority to: (a) adopt rules and regulations for implementing the Plan; (b) other than with respect to the Chief Executive Officer of the Company, determine the eligibility of persons to participate in the Plan, when Awards shall be granted to eligible persons and the amounts, terms and conditions of such Awards, including the Award Amount (subject to the maximum Award Amount set forth in Section 4.1(b)); (c) interpret and construe the provisions of the Plan, and any such interpretation and construction of the Plan by the Committee shall be final in all respects and, in particular, shall not be subject to any appeals whatsoever; (d) subject to statutory and regulatory requirements, make exceptions to the Plan in circumstances which it determines to be exceptional; (e) delegate such administrative duties and powers as it may see fit with respect to this Plan (excluding, for greater certainty, the power to grant Awards) to any -4- officers of an Employer (and any such duties performed or powers exercised by any such officers shall be deemed to have been performed or exercised, as the case may be, by the Committee), such delegation to be evidenced by a written resolution adopted by the Committee; and (f) take such other steps as it determines to be necessary or desirable to give effect to the Plan. Any decision, approval or determination made by a person or group of persons delegated the ability to make such decision, approval or determination pursuant to Section 3.1(e) above shall be deemed to be a decision, approval or determination, as the case may be, of the Committee; provided, that two officers of the Company, one of whom must be the Chief Executive Officer, the Chief Financial Officer, the Senior Vice President, Corporate Resources, or the Secretary, are hereby authorized to sign and execute all instruments and documents and do all things necessary or desirable for carrying out the provisions of the Plan. ARTICLE IV OPERATION OF PLAN 4.1 ELIGIBILITY AND PARTICIPATION. (a) All Employees are eligible for consideration to participate in the Plan. Participants in the Plan shall be selected from time to time by the Committee, in its discretion, from among those Employees who, in the opinion of the Committee, are key Employees in a position to contribute materially to the continued growth, development and long-term financial success of the Company and/or its Subsidiaries. Except with respect to Awards granted to the Chief Executive Officer of the Company, the Committee, in its discretion, shall determine the amounts, terms and conditions of each Award granted hereunder, including the Award Amount (subject to the maximum Award Amount set forth in Section 4.1(b) below). Any grant of an Award to the Chief Executive Officer of the Company and the amounts, terms and conditions of such Award, including the Award Amount (subject to the maximum Award Amount set forth below), shall require the prior approval of the independent (as understood within the rules of the New York Stock Exchange and applicable Canadian securities laws) members of the Board, upon the recommendation of the Committee. (b) The maximum Award Amount that may be granted to an individual Participant in a Fiscal Year shall not exceed 50% of the aggregate Award Amounts granted to all Participants under this Plan in such Fiscal Year. (c) Subject to the foregoing, Awards may be granted by the Committee at any time and from time to time to new Participants, or to already-participating Participants, or to a greater or lesser number of Participants, and may include or exclude previous Participants, as the Committee shall determine in its discretion. The grant of an Award shall be evidenced by an Award Agreement setting forth such terms, provisions, limitations and performance criteria (including Performance -5- Goals for the applicable Performance Cycle) as are approved by the Committee, but not inconsistent with the Plan. The Award Agreement shall also include the number of Performance Share Units eligible to be earned by a Participant if the Threshold Goals, Target Goals or Superior Goals are attained, as determined pursuant to Section 4.3(b). (d) Except as required by this Plan, Awards and the Award Agreements evidencing the same need not contain similar provisions. The Committee's determinations under the Plan (including determinations of which Employees are to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the Award Agreements evidencing same) need not be uniform and may be made by the Committee selectively among Participants who receive, or are eligible to receive, Awards under the Plan. 4.2 PERFORMANCE GOALS. At the beginning of each Performance Cycle (and not later than (a) in the case of a Performance Cycle of 12 months or more, the 89th day after the beginning of the Performance Cycle, and (b) in the case of a Performance Cycle of less than 12 months, the date by which 25% of the Performance Cycle has elapsed), the Committee shall, in its discretion, (i) establish for each Performance Cycle the specific Performance Goals as the Committee believes are relevant to the Company's overall business objectives; (ii) determine the threshold Performance Goals (the "THRESHOLD GOALS"), target Performance Goals (the "TARGET GOALS") and superior Performance Goals (the "SUPERIOR GOALS") to be attained in order to earn Performance Share Units for such Performance Cycle; and (iii) instruct senior Human Resources management to notify each Participant in writing of the established Threshold Goals, Target Goals and Superior Goals for such Performance Cycle. 4.3 ATTAINMENT OF PERFORMANCE GOALS. (a) Upon completion of the Performance Cycle, the Committee shall certify the level of the Performance Goals attained and the number of Performance Share Units earned by Participants as a result thereof. The basis for earning Performance Share Units for a given Performance Cycle shall be as set forth in Section 4.3(b). Each Participant's Performance Share Units will be subject to vesting as described in Section 5.1. (b) Attainment of the Target Goals for a Performance Cycle shall result in a Participant earning a number of Performance Share Units equal to the number obtained by dividing such Participant's Award Amount in respect of such Performance Cycle by the Fair Market Value on the date of grant of such Participant's Award (such number, the "TARGET PSU NUMBER"). Failure to attain the Threshold Goals for a Performance Cycle shall result in the failure to earn any of the Performance Share Units eligible to be earned under the Award granted for such Performance Cycle, and such Award shall terminate in full and all contingent rights thereunder shall cease. Attainment between the Threshold Goals and Target Goals for a Performance Cycle shall result in the earning by the -6- Participant of a portion of such Participant's Target PSU Number of Performance Share Units, determined by application of a pre-determined mathematical formula which shall be determined by the Committee in its discretion and set out in the Award Agreement governing such Award. (c) In addition to the above targets, if performance in a Performance Cycle exceeds the Target Goals, a Participant will earn additional Performance Share Units over and above such Participant's Target PSU Number of Performance Share Units for such Performance Cycle, as determined by application of a pre-determined mathematical formula which shall be determined by the Committee in its discretion and set out in the Award Agreement governing such Award. ARTICLE V VESTING 5.1 VESTING GENERALLY. If a Participant earns Performance Share Units for a Performance Cycle, such Performance Share Units shall vest in full on the applicable Vesting Date; provided, that except as provided in Section 5.2, no Performance Share Units shall vest unless the Participant is an Employee as of the applicable Vesting Date and has been continuously employed by an Employer since the date of grant of the Award. Any Performance Share Units that do not vest in accordance with the provisions of this Plan shall be forfeited, and all contingent rights of a Participant thereunder shall cease. 5.2 TERMINATION OF EMPLOYMENT. (a) In the event a Participant's employment with an Employer is terminated for Cause (as determined by the Committee in its discretion) or by the Participant voluntarily (other than upon Normal Retirement), all of the Participant's unvested Performance Share Units will be forfeited immediately. (b) Except as provided in Section 5.3, in the event a Participant's employment is terminated without Cause, all of the Participant's unvested Performance Share Units shall be forfeited immediately, unless the Committee in its discretion waives the employment requirement under Section 5.1, in which case the Committee shall determine, in its discretion, the number of Performance Share Units to be deemed earned by such Participant on each subsequent applicable Vesting Date, such number not to exceed the pro rata number of Performance Share Units that he or she would have earned on that Vesting Date had he or she been continuously employed through such date, as calculated by reference to the portion of the applicable Performance Cycle during which the Participant was actually employed. (c) In the event of a Participant's death while in the employ of an Employer, or if a Participant's employment with an Employer is terminated due to Permanent Disability or Normal Retirement, the employment requirements of Section 5.1 -7- shall not apply, in which case the number of Performance Share Units to be deemed earned by such Participant on each subsequent applicable Vesting Date shall equal the pro rata number of Performance Share Units that he or she would have earned on that Vesting Date had he or she been continuously employed through such date, as calculated by reference to the portion of the applicable Performance Cycle during which the Participant was actually employed. 5.3 CHANGE OF CONTROL. In the event of a Change of Control, the Committee may, in its discretion, recommend to the Board whether to accelerate the vesting (without regard to attainment of any Performance Goals) of all or a portion of the unvested Performance Share Units of any Participant whose employment is involuntarily terminated without Cause in connection with such Change of Control. The Board may elect, in its sole and absolute discretion, to accelerate the vesting of none, some or all of such Participants' unvested Performance Share Units, and any such election shall be final in all respects and, in particular, shall not be subject to any appeals whatsoever. The Vesting Date with respect to any such unvested Performance Share Units shall be the date of such termination of employment. ARTICLE VI PAYMENT OF PERFORMANCE SHARE UNITS 6.1 PAYMENT IN RESPECT OF PERFORMANCE SHARE UNITS. (a) All Performance Share Units earned by a Participant that vest in accordance with the terms of the Plan shall entitle such Participant to receive an equivalent number of Common Shares. (b) With respect to each Participant whose Performance Share Units have vested hereunder, as soon as practicable following the determination of the number of Performance Share Units earned by and vested in a Participant, but in no event later than 50 days following the Vesting Date, the Company shall cause such Participant's Employer to contribute to the Trustee an amount sufficient to permit the Trustee to purchase that number of Common Shares equal to the number of vested Performance Share Units. As soon as practicable following the receipt of funds from the applicable Employer under this Section 6.1(b) and prior to the time specified in Section 6.1(c) below, the Trustee shall use such funds to purchase Common Shares on the New York Stock Exchange at the prevailing market price for Common Shares as of the time and date of such purchases. (c) Within 60 days of the Vesting Date, but in no event later than March 15 of the calendar year following the calendar year in which the Vesting Date occurs, the Common Shares purchased by the Trustee hereunder shall be registered in the name of the Trustee for the benefit of the respective Participant as beneficial owner, or, in the event of death, a designated beneficiary, and transferred to the Participant's account under the PSU Fund, net of all applicable statutory withholdings. -8- (d) The Trustee, in its capacity as trustee of the PSU Fund, shall make provision for the reporting and withholding of any Canadian, U.S., UK or Mexican federal or national, provincial, state or local taxes that may be required to be withheld prior to such transfer and shall complete applicable tax withholding and reporting and remit the amounts withheld to the relevant Employer to pay to the appropriate taxing authorities. Until distributed to the Participant, the Trustee, in its capacity as trustee of the PSU Fund, shall hold all such Common Shares in accordance with the terms of the PSU Trust Agreement. 6.2 WITHDRAWAL OF VESTED INTEREST. A Participant may request, at any time and from time to time, by a written notice to the Company in the form approved by the Committee, and subject to Section 6.4, the delivery to him or her of the share certificates representing all or a portion of the Common Shares held in the Participant's account under the PSU Fund, net of any applicable statutory withholdings. The Common Shares constituting such payment shall be delivered by the Trustee within 30 days following the delivery of the written notice. 6.3 PAYOUT OF VESTED INTEREST AT TERMINATION. A Terminated Participant must deliver written direction, in the manner prescribed by the Committee, to the Committee within ninety (90) days following his or her Termination Date to request delivery to him or her of share certificates evidencing all Common Shares to which he or she is entitled hereunder. If a Terminated Participant fails to deliver such written direction to the Committee within said ninety (90)-day period, the Committee, subject to Section 6.4, shall instruct the Trustee to deliver to the Terminated Participant the share certificates evidencing all of the Common Shares credited to the Terminated Participant's account as of the Termination Date. 6.4 RESTRICTIONS ON VESTED SHARES. Except as set forth in the Company's policies respecting the trading of the Common Shares by Employees or as restricted by applicable law, Common Shares that have been distributed to a Participant hereunder are not subject to any restrictions concerning their sale or use. 6.5 NO PARTIAL SHARES. Only certificates representing whole Common Shares shall be transferred to a Participant's account under Section 6.1(c) or delivered under Sections 6.2 and 6.3. If a Participant is entitled to a fraction of a Common Share under Section 6.1, such entitlement shall be satisfied by payment within the time specified in Section 6.1(c) of the cash equivalent of such fraction, determined by reference to the Fair Market Value of such Common Share on the Vesting Date. -9- ARTICLE VII DIVIDENDS AND OTHER RIGHTS 7.1 CASH EARNINGS. Cash dividends or earnings, if any, received by the Trustee in respect of Common Shares held in the PSU Fund shall be held by the Trustee for the benefit of the Participant for whom such Common Shares are beneficially held. Until distributed to the Participant, the Trustee shall hold such cash amounts in accordance with the terms of the PSU Trust Agreement. 7.2 STOCK DIVIDENDS. Stock dividends, if any, received by the Trustee in respect of Common Shares held in the PSU Fund shall be held by the Trustee for the benefit of the Participant for whom such Common Shares are beneficially held. Until distributed to the Participant, the Trustee shall hold such stock dividends in accordance with the terms of the PSU Trust Agreement. 7.3 VOTING RIGHTS. Each Participant shall be entitled to receive notice of and attend all meetings of the holders of Common Shares and the Trustee shall vote the rights associated with any Common Shares as directed by the Participant for whom such Common Shares are held in his or her account under the PSU Fund. 7.4 NOTIFICATION OF RIGHTS. The Trustee shall promptly transmit to each Participant all notices of conversion, redemption, tender, exchange, subscription or other rights or powers that the Trustee receives from the Company relating to the Common Shares held in the Participant's account under the PSU Fund. The Participants shall have no ability to exercise any rights associated with unvested Performance Share Units. ARTICLE VIII GENERAL 8.1 ADJUSTMENTS. (a) The aggregate number of Performance Share Units earned under this Plan shall be proportionally adjusted for an increase or decrease in the number of Common Shares due to a stock split or share consolidation. (b) The Committee shall have the discretion to make appropriate adjustments to exclude the effect of extraordinary corporate transactions, such as acquisitions, divestitures, recapitalizations and reorganizations, and shall have the discretion to not take into account extraordinary or non-recurring accounting charges and items, insofar as they may otherwise affect the results under the applicable Performance Goals. -10- 8.2 NON-TRANSFERABILITY. Performance Share Units may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by a Participant's last will and testament or by the laws of descent and distribution. All rights with respect to Performance Share Units earned by a Participant under the Plan shall be exercisable during his lifetime only by such Participant. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any Performance Share Units contrary to the provisions of this Plan, or upon the levy of any attachment or similar process upon the Performance Share Units or upon a Participant's beneficial rights to such Performance Share Units, the Performance Share Units and such rights shall, at the election of the Committee, in its discretion, cease and terminate immediately. 8.3 BENEFICIARY DESIGNATION. Each Participant under the Plan may, subject to compliance with all applicable laws, name, from time to time, any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in the event of such Participant's death before such Participant receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to his estate. 8.4 COMPLIANCE WITH STATUTES AND REGULATIONS. The granting of Awards and the purchase and delivery of Common Shares by the Trustee under this Plan upon the vesting of Performance Share Units shall be carried out in compliance with applicable law, including, without limitation, the rules, regulations and by-laws of the Toronto Stock Exchange, the New York Stock Exchange, the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations (including Rule 10b-5) promulgated thereunder, and the policies and regulations of applicable securities regulatory authorities. If the Committee determines in its discretion that, in order to comply with any such statutes or regulations, certain action is necessary or desirable as a condition of or in connection with the granting of an Award or the purchase or delivery of Common Shares under this Plan, no Award may be granted and no Common Shares may be purchased or delivered unless that action shall have been completed in a manner satisfactory to the Committee. 8.5 NO RIGHT TO EMPLOYMENT. Nothing contained in this Plan or in any Award granted under this Plan shall confer upon any person any rights to continued employment with an Employer or interfere in any way with the rights of an Employer in connection with the employment or termination of employment of any such person. -11- 8.6 PARTICIPATION. No Employee shall have a right to be selected as a Participant or, having been so selected, to be selected again as a Participant. 8.7 OBLIGATION TO WITHHOLD. (a) If, for any reason whatsoever, an Employer becomes obligated to withhold and/or remit to any applicable tax authority (whether domestic or foreign) any amount in connection with this Plan in respect of a Participant, then the Employer shall provide written notice of such obligation to the Participant and shall make the necessary arrangements, as acceptable to the Employer, in connection with the amount that must be withheld and/or remitted. (b) If, for any reason whatsoever, an Employer becomes obligated to make any tax payment or primary Class 1 national insurance contribution in the United Kingdom in respect of the acquisition of Common Shares by a Participant pursuant to this Plan (the "UK TAX LIABILITY") or otherwise in relation to the Common Shares so acquired then, by virtue of his or her participation in the Plan, each Participant acknowledges that the applicable Employer shall be entitled to recover all such amounts from the Participant by deduction, withholding or by any means whatsoever. For the avoidance of doubt, the Company or another Employer (or an agent instructed by the Company or such other Employer) shall be entitled to retain, out of the aggregate number of Common Shares to which the Participant would otherwise be entitled pursuant to the Plan, and sell as agent for the Participant such number of Common Shares as in the opinion of the Company or such other Employer will realise an amount equivalent to the UK Tax Liability and to pay such proceeds to the appropriate Employer to reimburse it for the UK Tax Liability. The Company may also require a Participant to enter into a taxation agreement contained within the Award Agreement. 8.8 RIGHT TO AMEND AND TERMINATE. Except as restricted by Section 8.9 and subject to applicable laws and regulations of governmental authorities and applicable stock exchanges (i) the Committee or the Board may amend any provisions of the Plan at any time, and (ii) the Committee or the Board may terminate the Plan at any time, in either case in their discretion. If the Plan is so terminated, no further Awards shall be granted but the Awards then outstanding shall continue in full force and effect in accordance with the provisions of this Plan. 8.9 RESTRICTIONS. Notwithstanding Section 8.8, no such amendment or termination of the Plan shall divest any Participant of his or her existing rights under the Plan with respect to any Awards previously granted to such Participant without the prior written consent of the Participant except as may be required to avoid adverse tax consequences to any Participant, including but not limited to, -12- modifications with respect to exemption from the requirements of section 409A of the United States Internal Revenue Code of 1986, as amended, or compliance with the requirements thereof. 8.10 GOVERNING LAW. The Plan is established under the laws of the Province of Ontario and the rights of all parties and the construction and effect of each and every provision of this Plan shall be according to the laws of the Province of Ontario and the laws of Canada applicable therein. 8.11 LANGUAGE. The Company states its express wish that this Plan and all documents related thereto be drafted in the English language only; la societe a par les presentes exprime sa volonte expresse que ce regime, de meme que tous les documents y afferents, soient rediges en anglais seulement. 8.12 SUBJECT TO APPROVAL. The Plan is adopted subject to the approval, if required, of the Toronto Stock Exchange, The New York Stock Exchange and the shareholders of the Company and any other required regulatory or stock exchange approval. To the extent a provision of the Plan requires regulatory approval which is not received, such provision shall be severed from the remainder of the Plan until the approval is received and the remainder of the Plan shall remain in effect. -13- NOW THEREFORE, this Plan is hereby adopted as of the effective date described in Section 1.2. COTT CORPORATION By: /s/ Mark Halperin -------------------------------------------- Name: Mark Halperin Title: Senior Vice President, General Counsel & Secretary By: -------------------------------------------- Name: Title: -14- EX-10.4 5 o32698exv10w4.txt EX-10.4 EXHIBIT 10.4 COTT CORPORATION SHARE APPRECIATION RIGHTS PLAN ARTICLE I PURPOSE AND ESTABLISHMENT OF PLAN 1.1 PURPOSE. The purpose of the Plan is to foster and promote the long-term financial success of the Company and its Subsidiaries by providing incentive compensation, based on the appreciation in value of the Common Shares, to key employees and directors of the Company and its Subsidiaries, thereby providing additional incentive for their efforts in promoting the continued growth and success of the business of the Company, as well as rewarding exceptional performance and aiding the Company and its Subsidiaries in attracting and retaining personnel. 1.2 EFFECTIVE DATE. The Plan shall become effective upon its approval by a majority of the Company's shareholders at the Company's next annual meeting held after the approval of the Plan by the Board. ARTICLE II DEFINITIONS 2.1 INTERPRETATION. In this Plan, the following terms shall have the following meanings: (a) "BOARD" means the Board of Directors of the Company; (b) "CAUSE" means any action by a Participant or inaction by a Participant that constitutes: (i) a breach of a written employment agreement by that Participant; or (ii) misconduct, dishonesty, disloyalty, disobedience or action that might reasonably injure the Company or any of its Subsidiaries or their respective business interests or reputation; (c) "COMMITTEE" means the Human Resources and Compensation Committee of the Board; (d) "COMMON SHARES" means the common shares in the capital of the Company; (e) "COMPANY" means Cott Corporation, a corporation amalgamated under the laws of Canada; (f) "EMPLOYER" means, in respect of a Participant, the Company or Subsidiary of the Company of which such Participant is an employee or director; -2- (g) "FAIR MARKET VALUE" means, with respect to a Common Share on any determination date, the closing price of the Common Shares on the New York Stock Exchange on the last trading day on which Common Shares traded prior to such date; provided that if no Common Shares are traded in the five trading days prior to the determination date, the Committee shall determine Fair Market Value on a reasonable basis using a method that complies with section 409A of the United States Internal Revenue Code of 1986, as amended, and guidance issued thereunder; (h) "FISCAL YEAR" means the 12-month period beginning the first Sunday following the immediately preceding Saturday closest to December 31st and ending on the Fiscal Year End; (i) "FISCAL YEAR END" means, with respect to each Fiscal Year, the Saturday closest to December 31 of such Fiscal Year; (j) "GRANT CONFIRMATION" means the written confirmation provided to the Participant by the Company substantially in the form of Schedule 2; (k) "GRANT DATE" means, with respect to a particular grant, the date of the Grant Confirmation; (l) "NORMAL RETIREMENT" means retirement from office or employment with the applicable Employer (at the election of the Participant and as agreed to by his or her Employer); (m) "PARTICIPANT" means a full-time, part-time or contract employee or director of an Employer who has been granted Share Appreciation Rights hereunder; (n) "PERMANENT DISABILITY" means the complete and permanent incapacity of a Participant, as determined by a licensed medical practitioner approved by the Committee, due to a medically determinable physical or mental impairment which prevents such Participant from performing substantially all of the essential duties of his or her office or employment; (o) "PLAN" means the Cott Corporation Share Appreciation Rights Plan, as amended from time to time; (p) "SAR FUND" means the trust fund or funds established under the SAR Trust Agreement, which for purposes of the Plan constitutes an "employee benefit plan" for purposes of the Tax Act; (q) "SAR TRUST AGREEMENT" means the agreement or agreements by and among the Company, the Trustee, and the Agent (as defined therein) to carry out the purposes of the Plan in respect of Common Shares purchased on account of vested Share Appreciation Rights, if any, and any income attributable thereto in accordance with the terms of the Plan; -3- (r) "SHARE APPRECIATION RIGHTS" means share appreciation rights granted pursuant to Article IV of the Plan; (s) "SUBSIDIARY" has the meaning assigned thereto in the Securities Act (Ontario), as amended, and "SUBSIDIARIES" shall have a corresponding meaning; (t) "TAX ACT" means the Income Tax Act (Canada) and all regulations thereunder, as amended or restated from time to time. Any reference in the Agreement to a provision of the Tax Act includes any successor provision thereto; (u) "TERMINATED PARTICIPANT" means a Participant who has incurred a Termination Date and shall include, where context requires, the personal representative(s) of a Participant; (v) "TERMINATION DATE" means the Participant's last day of active service with his or her Employer (determined without regard to any notice of termination owing pursuant to statute, regulation, agreement or common law); (w) "TRUSTEE" means MRS Trust or its successor trustee under the SAR Trust Agreement; and (x) "VESTING DATE" means, with respect to any Share Appreciation Rights, the earlier of (i) the third anniversary of the Grant Date of such Share Appreciation Rights, and (ii) December 1 of the third calendar year following the end of the first Fiscal Year with respect to which the services to which the Share Appreciation Rights relate were provided; provided, that, if the vesting of any Share Appreciation Rights is accelerated as provided in Sections 5.2 or 5.3, the "VESTING DATE" shall mean the date on which such accelerated vesting is deemed to have occurred. ARTICLE III ADMINISTRATION OF THE PLAN 3.1 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Committee. The Committee shall have the power and authority to: (a) adopt rules and regulations for implementing the Plan; (b) other than with respect to the Chief Executive Officer of the Company and members of the Committee, determine the eligibility of persons to participate in the Plan, when Share Appreciation Rights shall be granted to eligible persons and the number of Share Appreciation Rights granted to each Participant; (c) interpret and construe the provisions of the Plan, and any such interpretation and construction of the Plan by the Committee shall be final in all respects and, in particular, shall not be subject to any appeals whatsoever; -4- (d) subject to statutory and regulatory requirements, make exceptions to the Plan in circumstances which it determines to be exceptional; (e) delegate such administrative duties and powers as it may see fit with respect to this Plan (excluding, for greater certainty, the power to grant Share Appreciation Rights) to any officers of the Company or its Subsidiaries (and any such duties performed or powers exercised by any such officers shall be deemed to have been performed or exercised, as the case may be, by the Committee), such delegation to be evidenced by a written resolution adopted by the Committee; and (f) take such other steps as they determine to be necessary or desirable to give effect to the Plan. Any decision, approval or determination made by a person or group of persons delegated the ability to make such decision, approval or determination pursuant to (e) above shall be deemed to be a decision, approval or determination, as the case may be, of the Committee; provided, that two officers of the Company, one of whom must be the Chief Executive Officer, the Chief Financial Officer, the Senior Vice President, Corporate Resources, or the Secretary, are hereby authorized to sign and execute all instruments and documents and do all things necessary or desirable for carrying out the provisions of the Plan. ARTICLE IV OPERATION OF PLAN 4.1 ELIGIBILITY AND PARTICIPATION. (a) All full-time, part-time and contract employees and directors of the Company and its Subsidiaries are eligible for consideration to participate in the Plan. Such full-time, part-time or contract employees and directors of the Company and its Subsidiaries as are designated from time to time by the Committee, in its discretion, upon the recommendation of management of the Company or the applicable Employer, shall be entitled to participate in the Plan. Except with respect to the Chief Executive Officer of the Company and members of the Committee, the Committee shall determine, in its discretion, the amounts, terms and conditions of the Share Appreciation Rights granted hereunder (subject to the limit on the maximum number of Share Appreciation Rights that may be granted set forth in Section 4.1(b) below). Any grant of Share Appreciation Rights to the Chief Executive Officer of the Company and the amounts, terms and conditions of such Share Appreciation Rights (subject to the limit on the maximum number of Share Appreciation Rights that may be granted set forth below), shall require the prior approval of the independent (as understood within the rules of the New York Stock Exchange and applicable Canadian securities laws) members of the Board, upon the recommendation of the Committee. Any grant of Share Appreciation Rights to members of the Committee and the amounts, terms and conditions of such Share Appreciation Rights (subject to the limit on the maximum number of Share Appreciation Rights that may be granted set forth below), shall by approved by a majority of the members of the Board who are not members of the Committee. -5- (b) The maximum number of Share Appreciation Rights that may be granted to an individual Participant in a Fiscal Year shall not exceed 50% of the aggregate number of Share Appreciation Rights granted to all Participants under this Plan in such Fiscal Year. (c) Subject to the foregoing, Share Appreciation Rights may be granted by the Committee at any time and from time to time to new Participants, or to already-participating Participants, or to a greater or lesser number of Participants, and may include or exclude previous Participants, as the Committee shall determine in its discretion. All Share Appreciation Rights granted hereunder shall be evidenced by an agreement between the Company and the Participant substantially in the form of Schedule 1 and a Grant Confirmation delivered by the Committee to the Participant. (d) Except as required by this Plan, Share Appreciation Rights and the agreements and Grant Confirmations evidencing same need not contain similar provisions. The Committee's determinations under the Plan (including determinations of which employees and directors are to receive Share Appreciation Rights, the form, amount and timing of such Share Appreciation Rights, the terms and provisions of such Share Appreciation Rights and the agreements and Grant Confirmations evidencing same) need not be uniform and may be made by the Committee selectively among Participants who receive, or are eligible to receive Share Appreciation Rights under the Plan. ARTICLE V VESTING 5.1 VESTING GENERALLY. A Participant's Share Appreciation Rights shall vest on the Vesting Date applicable to such Share Appreciation Rights; provided, that except as provided in Section 5.2, no Share Appreciation Rights shall vest unless the Participant is in the employ of or is a director of his or her Employer as of the applicable Vesting Date and has been continuously employed and/or served as a director since the Grant Date of such Share Appreciation Rights. Any Share Appreciation Rights that do not vest in accordance with the provisions of this Plan shall be forfeited and all contingent rights of a Participant thereunder shall cease. 5.2 TERMINATION OF EMPLOYMENT. (a) In the event a Participant's employment with or service as a director of his or her Employer is terminated for Cause (as determined by the Committee in its discretion) or by the Participant voluntarily (other than upon Normal Retirement), all of the Participant's unvested Share Appreciation Rights will be forfeited immediately. (b) In the event a Participant's employment or service as a director is terminated by the Employer without Cause, all of the Participant's unvested Share Appreciation Rights will be forfeited immediately, unless otherwise determined by the -6- Committee, in its discretion, and if so determined all or such portion of the Participant's unvested Share Appreciation Rights as is determined by the Committee shall vest on the date specified by the Committee. (c) In the event of a Participant's death while in the employ of or serving as a director of his or her Employer, such Participant's unvested Share Appreciation Rights shall immediately vest in full as of the Participant's date of death. (d) In the event a Participant's employment with or service as a director of his or her Employer is terminated due to Permanent Disability or Normal Retirement, such Participant's unvested Share Appreciation Rights shall vest on the date that would have been such Participant's Vesting Date had the Participant remained employed with, or in the service of, the Employer. 5.3 AMALGAMATION, LIQUIDATION OR CHANGE OF CONTROL. If there is: (a) a consolidation, merger or amalgamation of the Company with or into any other corporation whereby the voting shareholders of the Company immediately prior to such event receive less than 50% of the voting shares of the consolidated, merged or amalgamated corporation; (b) a sale by the Company of all or substantially all of the Company's undertakings and assets; or (c) a proposal by or with respect to the Company being made in connection with a liquidation, dissolution or winding-up of the Company, then all unvested Share Appreciation Rights shall, notwithstanding anything to the contrary contained in the terms relating to such grant of Share Appreciation Rights, vest in full upon the occurrence of any such event and be payable in accordance with Section Article VI. ARTICLE VI PAYMENT OF SHARE APPRECIATION RIGHTS 6.1 PAYMENT IN RESPECT OF SHARE APPRECIATION RIGHTS. (a) Any payment with respect to vested Share Appreciation Rights, net of any applicable statutory withholdings other than with respect to UK Participants, for whom any payments shall be subject to Section 8.7(b), shall be in the form of that number of Common Shares having an aggregate value (determined by reference to the Fair Market Value of the Common Shares on the Vesting Date applicable to such Share Appreciation Rights) equal to the product of: (i) the amount, if any, by which the Fair Market Value of one Common Share on the Vesting Date of such Share Appreciation Rights exceeds the Fair Market Value of one Common Share on the related Grant Date; multiplied by (ii) the number of Share Appreciation Rights vesting on such Vesting Date. -7- (b) The Company shall cause the Employer of each Participant whose Share Appreciation Rights have vested hereunder to contribute to the Trustee an amount sufficient to permit the Trustee to purchase, prior to the time specified in Section 6.1(c) below, the number of Common Shares required with respect to such vested Share Appreciation Rights. The Trustee shall use such funds to purchase such Common Shares on the New York Stock Exchange at the prevailing market price for Common Shares as of the time and date of such purchase. (c) Common Shares purchased by the Trustee under this Plan shall be registered in the name of the Trustee for the benefit of the respective Participant as beneficial owner, or, in the event of death, a designated beneficiary, and transferred to the Participant's account under the SAR Fund within 30 days following the applicable Vesting Date, net of any applicable statutory withholdings. (d) The Trustee, in its capacity as trustee of the SAR Fund, shall make provision for the reporting and withholding of any Canadian, U.S., UK or Mexican federal, provincial, state or local taxes that may be required to be withheld prior to such transfer and shall complete applicable tax withholding and reporting and remit the amounts withheld to the relevant Employer to pay to the appropriate taxing authorities. Until distributed to the Participant, the Trustee, in it capacity as trustee of the SAR Fund, shall hold all such Common Shares in accordance with the terms of the SAR Trust Agreement. (e) Notwithstanding the foregoing, in no event shall the number of Common Shares distributed under the Plan with respect to a Fiscal Year exceed 1.0% of the total number of Common Shares outstanding as of the first day of such Fiscal Year. 6.2 WITHDRAWAL OF VESTED INTEREST. A Participant may, at any time and from time to time, by a written notice to the Company in the form approved by the Committee, request subject to Section 6.4, the delivery to him or her of the share certificates representing all or a portion of the Common Shares held in the Participant's account under the SAR Fund, net of any applicable statutory withholdings. The designated Common Shares shall be delivered by the Trustee within 30 days following the delivery of the written notice. 6.3 PAYOUT OF VESTED INTEREST AT TERMINATION. A Terminated Participant must deliver written direction, in the manner prescribed by the Committee, to the Committee within ninety (90) days following his or her Termination Date to request delivery to him or her of share certificates evidencing all Common Shares to which he or she is entitled hereunder. If a Terminated Participant fails to deliver such written direction to the Committee within said ninety (90)-day period, the Committee, subject to Section 6.4, shall instruct the Trustee to deliver to the Terminated Participant the share certificates evidencing all of the Common Shares credited to the Terminated Participant's account as of the Termination Date. -8- 6.4 RESTRICTIONS ON VESTED SHARES. Except as set forth in the Company's policies respecting the trading of the Common Shares by Employees or as restricted by applicable law, Common Shares that have been distributed to a Participant hereunder are not subject to any restrictions concerning their sale or use. 6.5 NO PARTIAL SHARES. Only certificates representing whole Common Shares shall be transferred to a Participant's account under Section 6.1(c) or delivered under Sections 6.2 and 6.3. If a Participant is entitled to a fraction of a Common Share under Section 6.1, such entitlement shall be satisfied by payment to the Participant within 30 days following the applicable Vesting Date of the cash equivalent of such fraction, determined by reference to the Fair Market Value of such Common Share on the Vesting Date and on the date of grant in accordance with Section 6.1(a). ARTICLE VII DIVIDENDS AND OTHER RIGHTS 7.1 CASH EARNINGS. Cash dividends or earnings, if any, received by the Trustee in respect of Common Shares held in the SAR Fund shall be held by the Trustee for the benefit of the Participant for whom such Common Shares are beneficially held. Until distributed to the Participant, the Trustee shall hold such cash amounts in accordance with the terms of the SAR Trust Agreement. 7.2 STOCK DIVIDENDS. Stock dividends, if any, received by the Trustee in respect of Common Shares held in the SAR Fund shall be held by the Trustee for the benefit of the Participant for whom such Common Shares are beneficially held. Until distributed to the Participant, the Trustee shall hold such stock dividends in accordance with the terms of the SAR Trust Agreement. 7.3 VOTING RIGHTS. Each Participant shall be entitled to receive notice of and attend all meetings of the holders of Common Shares and the Trustee shall vote the rights associated with any Common Shares as directed by the Participant for whom such Common Shares are held in his or her account under the SAR Fund. 7.4 NOTIFICATION OF RIGHTS. The Trustee shall promptly transmit to each Participant all notices of conversion, redemption, tender, exchange, subscription or other rights or powers that the Trustee receives from the Company relating to the Common Shares held in the Participant's account under the SAR Fund. The Participants shall have no ability to exercise any rights associated with unvested Share Appreciation Rights. -9- ARTICLE VIII GENERAL 8.1 DILUTION OR OTHER ADJUSTMENTS. In the event of a change in capitalization affecting the Common Shares, such as payment of a stock dividend, a subdivision, consolidation or reclassification of the Common Shares or other relevant changes in the capital stock of the Company, such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change shall be made by the Company with respect to the number of Common Shares to be paid to a Participant in respect of his or her vested Share Appreciation Rights. 8.2 NON-TRANSFERABILITY. Share Appreciation Rights may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by a Participant's last will and testament or by the laws of descent and distribution. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any Share Appreciation Rights contrary to the provisions of this Plan, or upon the levy of any attachment or similar process upon the Share Appreciation Rights or upon a Participant's beneficial rights to such Share Appreciation Rights, the Share Appreciation Rights and such rights shall, at the election of the Committee, in its discretion, cease and terminate immediately. 8.3 BENEFICIARY DESIGNATION. Each Participant under the Plan may, subject to compliance with applicable laws, name, from time to time, any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in the event of such Participant's death before such Participant receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to his estate. 8.4 COMPLIANCE WITH STATUTES AND REGULATIONS. The granting of Share Appreciation Rights and the purchase of Common Shares by the Trustee under this Plan upon the vesting of such Share Appreciation Rights shall be carried out in compliance with applicable law, including, without limitation, the rules, regulations and by-laws of the Toronto Stock Exchange, the New York Stock Exchange, the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations (including Rule 10b-5) promulgated thereunder, and the policies and regulations of applicable securities regulatory authorities. If the Committee determines in its discretion that, in order to comply with any such statutes or regulations, certain action is necessary or desirable as a condition of or in connection with the granting of a Share Appreciation Right or the purchase or delivery of Common Shares under this Plan, no Share Appreciation Right may be granted and no Common Shares may be purchased or delivered unless that action shall have been completed in a manner satisfactory to the Committee. -10- 8.5 NO RIGHT TO EMPLOYMENT. Nothing contained in this Plan or in any Share Appreciation Right granted under this Plan shall confer upon any person any rights to continued employment with or service as a director of an Employer or interfere in any way with the rights of an Employer in connection with the employment or termination of employment or service as a director of any such person. 8.6 PARTICIPATION. No employee or director of an Employer shall have a right to be selected as a Participant or, having been so selected, to be selected again as a Participant. 8.7 OBLIGATION TO WITHHOLD. (a) If, for any reason whatsoever, an Employer becomes obligated to withhold and/or remit to any applicable tax authority (whether domestic or foreign) any amount in connection with this Plan in respect of a Participant, then the Company or such Subsidiary shall provide written notice of such obligation to the Participant and shall make the necessary arrangements, as acceptable to the Company or such Subsidiary, in connection with the amount that must be withheld and/or remitted. (b) If, for any reason whatsoever, the Company or any of its Subsidiaries becomes obligated to make any tax payment or primary Class 1 national insurance contribution in the United Kingdom in respect of the acquisition of Common Shares by a Participant pursuant to this Plan (the "UK TAX LIABILITY") or otherwise in relation to the Common Shares so acquired then, by virtue of his or her participation in the Plan, each Participant acknowledges that the applicable Employer shall be entitled to recover all such amounts from the Participant by deduction, withholding or by any means whatsoever. For the avoidance of doubt, the applicable Employer (or an agent instructed by such Employer) shall be entitled to retain, out of the aggregate number of Common Shares to which the Participant would otherwise be entitled pursuant to the Plan, and sell as agent for the Participant such number of Common Shares as in the opinion of the Employer will realise an amount equivalent to the UK Tax Liability and to pay such proceeds to the appropriate Employer to reimburse it for the UK Tax Liability. The Company may also require a Participant to enter into a taxation agreement contained within the agreement granting Share Appreciation Rights to the Participant. 8.8 RIGHT TO AMEND AND TERMINATE. Except as restricted by Section 8.9 and subject to applicable laws and regulations of governmental authorities and applicable stock exchanges (i) the Committee or the Board may amend any provisions of the Plan at any time, and (ii) the Committee or the Board may terminate the Plan at any time, in either case in their discretion. If the Plan is so terminated, no further Share Appreciation Rights shall be granted but the Share Appreciation Rights then outstanding shall continue in full force and effect in accordance with the provisions of this Plan. -11- 8.9 RESTRICTIONS. Notwithstanding Section 8.8, no such amendment or termination of the Plan shall divest any Participant of his or her existing rights under the Plan with respect to any Share Appreciation Rights previously granted to such Participant without the prior written consent of the Participant. 8.10 GOVERNING LAW. The Plan is established under the laws of the Province of Ontario and the rights of all parties and the construction and effect of each and every provision of this Plan shall be according to the laws of the Province of Ontario and the laws of Canada applicable therein. 8.11 LANGUAGE. The Company states its express wish that this Plan and all documents related thereto be drafted in the English language only; la societe a par les presentes exprime sa volonte expresse que ce regime, de meme que tous les documents y afferents, soient rediges en anglais seulement. 8.12 SUBJECT TO APPROVAL. The Plan is adopted subject to the approval, if required, of the Toronto Stock Exchange, The New York Stock Exchange and the shareholders of the Company and any other required regulatory or stock exchange approval. To the extent a provision of the Plan requires regulatory approval which is not received, such provision shall be severed from the remainder of the Plan until the approval is received and the remainder of the Plan shall remain in effect. -12- NOW THEREFORE, this Plan is hereby adopted as of the effective date described in Section 1.2. COTT CORPORATION Per: /s/ Mark Halperin ------------------------------ Mark Halperin Senior Vice President, General Counsel & Secretary Per: ------------------------------ SCHEDULE 1 AGREEMENT This agreement is entered into this ___ day of ____________, between Cott Corporation (the "COMPANY") and __________________ (the "PARTICIPANT") pursuant to the Company's Share Appreciation Rights Plan (the "PLAN"). Pursuant to the Plan and in consideration of services provided to the Company or its subsidiaries by the Participant, the Company agrees to grant share appreciation rights ("SHARE APPRECIATION RIGHTS") to the Participant in accordance with the terms of the Plan. The grant of the Share Appreciation Rights are confirmed by the Grant Confirmation attached to this agreement. The granting and vesting of the Share Appreciation Rights are subject to the terms and conditions of the Plan, all of which are incorporated into and form an integral part of this agreement. This agreement shall enure to the benefit of and be binding upon the Parties and their respective successors (including any successor by reason of amalgamation of any Party) and permitted assigns. By executing this agreement, the Participant confirms and acknowledges that he or she has not been induced to enter into this agreement or acquire any Share Appreciation Rights by expectation of employment or continued employment with the Company or its subsidiaries. If you are a UK Participant, by executing this agreement, you agree with the Company (for itself and on behalf of any of its Subsidiaries) that the Company (or whichever other Subsidiary is the secondary contributor in respect of you for the purposes of national insurance contributions) may recover from you (by deduction or otherwise) an amount equal to any secondary Class 1 contributions payable in respect of the acquisition by you of any Common Shares pursuant to the Plan, together with any income tax and primary Class 1 contributions due under the Pay As You Earn system in respect of any Common Shares acquired by you pursuant to the Plan. } IN WITNESS WHEREOF } COTT CORPORATION } } Per: } --------------------------------- } } Per: } --------------------------------- } } - ------------------------------- } --------------------------------- Witness } Participant SCHEDULE 2 GRANT CONFIRMATION TO: o ("PARTICIPANT") - -------------------------------------------------------------------------------- Pursuant to the Share Appreciation Rights Plan (the "PLAN") adopted by Cott Corporation (the "COMPANY") and an agreement between the Company and the Participant dated _________, 20__, the Company confirms the grant to the Participant of __________________ share appreciation rights ("SHARE APPRECIATION RIGHTS"). The "FAIR MARKET VALUE" (as defined in the Plan) of one common share of the Company on this date of grant is $___________. Except as otherwise provided in Sections 5.2 and 5.3 of the Plan, the Share Appreciation Rights shall vest on the third anniversary of the date hereof. The granting and vesting of these Share Appreciation Rights are subject to the terms and conditions of the Plan. DATED this day of , 20 . -------- --------- --- COTT CORPORATION Per: ------------------------------ Per: ------------------------------ EX-31.1 6 o32698exv31w1.txt EX-31.1 EXHIBIT 31.1 CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. I, Brent D. Willis, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Cott Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. August 9, 2006 /s/ Brent D. Willis ----------------------------------- Brent D. Willis President & Chief Executive Officer 43 EX-31.2 7 o32698exv31w2.txt EX-31.2 EXHIBIT 31.2 CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. I, B. Clyde Preslar, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Cott Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. August 9, 2006 /s/ B. Clyde Preslar -------------------------------------------------- B. Clyde Preslar Executive Vice President & Chief Financial Officer 44 EX-32.1 8 o32698exv32w1.txt EX-32.1 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. The undersigned, Brent D. Willis, Chairman and Chief Executive Officer of Cott Corporation (the "Company"), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 2006 (the "Report"). The undersigned hereby certifies that to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. IN WITNESS WHEREOF, the undersigned has executed this certification as of the 9th day of August, 2006. /s/ Brent D. Willis - ----------------------------------- Brent D. Willis President & Chief Executive Officer 45 EX-32.2 9 o32698exv32w2.txt EX-32.2 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. The undersigned, B. Clyde Preslar Executive Vice President & Chief Financial Officer of Cott Corporation (the "Company"), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 2006 (the "Report"). The undersigned hereby certifies that to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. IN WITNESS WHEREOF, the undersigned has executed this certification as of the 9th day of August, 2006. /s/ B. Clyde Preslar - -------------------------------------------------- B. Clyde Preslar Executive Vice President & Chief Financial Officer 46 -----END PRIVACY-ENHANCED MESSAGE-----