Note 7—Share-based Compensation

Each of our share-based compensation plans has been approved by our shareowners, except for our 1986 Common Share Option Plan, as amended (the “Option Plan”), which was adopted prior to our initial public offering, and a stock option award granted to our Chief Executive Officer, which was an inducement grant made to attract and retain that executive. Subsequent amendments to the Option Plan that required shareowner approval have been approved.

The table below summarizes the share-based compensation expense for the years ended December 29, 2012, December 31, 2011, and January 1, 2011. This share-based compensation expense was recorded in selling, general, and administrative expenses in our Consolidated Statements of Operations. As used below: (i) “PSUs” mean performance share units granted under our Amended and Restated Performance Share Unit Plan (the “PSU Plan”), (ii) “Performance-based RSUs” mean restricted share units with performance-based vesting granted under the Company’s 2010 Equity Incentive Plan (the “2010 Equity Incentive Plan”); (iii) “Time-based RSUs” mean restricted share units with time-based vesting granted under the 2010 Equity Incentive Plan, (iv) “EISPP” means common share units granted under the Restated Executive Incentive Share Purchase Plan (the “Restated EISPP”); (v) “Director share awards” mean common shares granted to the non-management members of Cott’s board of directors under the 2010 Equity Incentive Plan, which were issued in consideration of such directors’ annual board retainer fee; and (vi) “Share appreciation rights” mean share appreciation rights granted under the Amended and Restated Share Appreciation Rights Plan.


	For the Year Ended
(in millions of U.S. dollars)	December 29, 2012		December 31, 2011			January 1, 2011
Stock options	$	0.4	$	—		$	1.0
PSUs		—		—			0.2
Performance-based RSUs		0.7		(1.2	)		1.4
Time-based RSUs		3.1		3.4			1.3
Directors’ share awards		0.7		0.7			0.7
Share appreciation rights		—		—			0.1

Total	$	4.9	$	2.9		$	4.7

During the third quarter of 2011, we concluded that it was no longer probable that the targets established for the Performance-based RSUs awarded in 2010 and 2011 would be met, and we no longer expect these awards to ultimately vest. Accordingly, we recorded an adjustment to reverse $3.3 million in compensation costs that had been recorded to date for the Performance-based RSUs awarded in 2010 and 2011. We continue to accrue the compensation expense for the Performance-based RSUs awarded in 2012.

As of December 29, 2012, the unrecognized share-based compensation expense and years we expect to recognize it as compensation expense were as follows:


(in millions of U.S. dollars)	Unrecognized share-based compensation expense as of December 29, 2012		Weighted average years expected to recognize compensation

Time-based RSUs	$	2.3		1.8
Performance-based RSUs		1.7		2.0
Stock options		1.0		2.0

Total	$	5.0

Stock Options

Subsequent to the adoption of the 2010 Equity Incentive Plan, the Human Resources and Compensation Committee of the board of directors (“HRCC”) determined that certain of Cott’s long-term incentive plans were no longer needed and terminated the Option Plan. In connection with the termination of the Option Plan, outstanding options will continue in accordance with the terms of the Option Plan until vested, paid out, forfeited or terminated, as applicable. No further awards will be granted under the Option Plan. Future awards, including any awards of options, are expected to be governed by the terms of the Company’s 2010 Equity Incentive Plan.

During 2012, approximately 385,000 options were granted to certain of our employees under the 2010 Equity Incentive Plan at an exercise price of $6.58 per share (C$6.47 at date of issuance). The fair value of the option grant was estimated to be $4.04 using the Black-Scholes option pricing model. No options were granted during the year ended December 31, 2011. Options representing 250,000 shares were granted to our Chief Executive Officer during the first quarter of 2010 at an exercise price of C$8.01 per share. The fair value of this option grant was estimated to be C$5.16 using the Black-Scholes option pricing model. On August 9, 2010, the Company entered into a Common Share Option Cancellation and Forfeiture Agreement to cancel this option award. The cancellation was effective as of September 22, 2010. The Company entered into this arrangement with the Chief Executive Officer in order to transition him to the Company’s 2010 Equity Incentive Plan, which was approved by shareholders on May 4, 2010. Future grants to this and other executive officers are expected to be governed by the terms of such plan.

No options were granted during the year ended December 31, 2011. The fair value of each option granted during the years ended December 29, 2012, December 31, 2011, and January 1, 2011 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:


	For the Year Ended
	December 29, 2012			December 31, 2011		January 1, 2011
Risk-free interest rate		2.4	%		n/a		2.5	%
Average expected life (years)		6.5			n/a		5.5
Expected volatility		66.4	%		n/a		74.8	%
Expected dividend yield		—			n/a		—

Stock option activity was as follows:


	Shares (in thousands)			Weighted average exercise price		Weighted average remaining contractual term (years)		Aggregate intrinsic (C$) (in thousands)
Balance at January 2, 2010		831		$	18.97		4.6	$	618.1

Granted		250			8.01
Forfeited or expired		(377	)		20.33

Balance at January 1, 2011		704		$	16.67		4.2	$	625.0

Exercised		(275	)		1.32
Forfeited or expired		(145	)		38.27

Balance at December 31, 2011		284		$	20.47		1.7	$	263.0

Granted		385			6.47
Forfeited or expired		(201	)		24.40

Balance at December 29, 2012		468		$	7.28		7.3	$	819.9

Vested at December 29, 2012		125		$	9.49		2.1	$	330.0

Exercisable at December 29, 2012		125		$	9.49		2.1	$	330.0

The aggregate intrinsic value amounts in the table above represent the difference between the closing price of our common stock on December 29, 2012, which was C$7.90 (December 31, 2011— C$6.40; January 1, 2011—C$8.95), and the exercise price, multiplied by the number of in-the-money stock options as of the same date. There were no stock options exercised in 2012 and 2010. The total intrinsic value of stock options exercised during the year ended December 31, 2011 was $0.4 million.

Total compensation cost related to unvested awards under the option plan not yet recognized is $1.0 million. The total fair value of shares that vested during the year ended December 29, 2012 was nil.

Outstanding options at December 29, 2012 were as follows:


	Options Outstanding						Options Exercisable
Range of Exercise Prices (C$)	Number Exercisable (in thousands)		Remaining Contractual Life (Years)		Weighted Exercise Price (C$)		Number Exercisable (in thousands)		Weighted Exercise Price (C$)
$ 3.50		75		2.6	$	3.50		75	$	3.50
$ 6.47		343		9.2	$	6.47		—	$	—
$18.48		50		1.3	$	18.48		50	$	18.48

		468		7.3	$	7.28		125	$	9.49

Long-Term Incentive Plans

2010 Equity Incentive Plan

Our shareowners approved our 2010 Equity Incentive Plan at the Annual and Special Meeting of Shareowners held on May 4, 2010. Awards under the 2010 Equity Incentive Plan may be in the form of incentive stock options, non-qualified stock options, restricted shares, restricted share units, performance shares, performance units, stock appreciation rights, and stock payments to employees, directors and outside consultants. The 2010 Equity Incentive Plan is administered by the HRCC or any other board committee as may be designated by the board from time to time. At the inception of the 2010 Equity Incentive Plan, 4,000,000 shares were reserved for future issuance, subject to adjustment upon a share split, share dividend, recapitalization, and other similar transactions and events.

On May 3, 2012, we granted 96,010 common shares to the non-management members of our board of directors under the 2010 Equity Incentive Plan for approximately $0.7 million. The common shares were issued in consideration of the directors’ annual board retainer fee.

In 2012, we granted 330,969 Performance-based RSUs, 441,996 Time-based RSUs and 384,546 stock options to certain of our employees. The Performance-based RSUs vest based on the achievement of a specified target level of pre-tax income for the period beginning on January 1, 2012 and ending on the last day of our 2014 fiscal year. The amount of Performance-based RSUs that may vest and the related unrecognized compensation cost is subject to change based on the level of targeted pre-tax income that is achieved during the period beginning on January 1, 2012 and ending on the last day of our 2014 fiscal year. The Time-based RSUs and the stock options vest on the last day of our 2014 fiscal year.

On May 6, 2011, we granted 76,110 common shares to the non-management members of our board of directors under the 2010 Equity Incentive Plan for approximately $0.7 million. The common shares were issued in consideration of the directors’ annual board retainer fee.

In 2011, we granted 592,163 Performance-based RSUs and 151,545 Time-based RSUs to certain of our employees. The Performance-based RSUs vest based on the achievement of a specified target level of pre-tax income for the period beginning on January 2, 2011 and ending on the last day of our 2013 fiscal year. The amount of Performance-based RSUs that may vest and the related unrecognized compensation cost is subject to change based on the level of targeted pre-tax income that is achieved during the period beginning on January 2, 2011 and ending on the last day of our 2013 fiscal year. The Time-based RSUs vest on the last day of our 2013 fiscal year.

On May 4, 2010, we granted 78,790 common shares to the non-management members of our board of directors under the 2010 Equity Incentive Plan for approximately $0.7 million. The common shares were issued in consideration of the directors’ annual board retainer fee.

In 2010, we granted 1,726,807 Performance-based RSUs and 1,396,807 Time-based RSUs to certain of our employees. The performance targets established for these Performance-based RSUs were not met, and as a result, such awards did not vest. During the fourth quarter of 2012, the Time-based RSUs vested on the last day of our 2012 fiscal year and were issued for approximately $7.1 million.

During the year ended December 29, 2012, Performance-based RSU and Time-based RSU activity was as follows:


(in thousands)	Number of Performance- based RSUs			Number of Time-based RSUs

Balance at December 31, 2011		2,319			1,548
Awarded		331			442
Issued		—			(1,240	)
Cancelled		(1,558	)		—
Forfeited		(267	)		(221	)

Outstanding at December 29, 2012		825			529

Shares to be issued pursuant to Time-based RSUs, Performance-based RSUs, or stock options that are forfeited, expired, or are cancelled or settled without the issuance of shares return to the pool of shares available for issuance under the 2010 Equity Incentive Plan. As of December 31, 2012, there were 3,254,567 Time-based RSUs, Performance-based RSUs, and stock options outstanding and 745,433 shares available for future issuance under the 2010 Equity Incentive Plan.

Amended and Restated PSU Plan

Under the Amended and Restated Performance Share Unit Plan (the “PSU Plan”), PSUs were awarded to Company employees. The value of an employee’s award under our PSU Plan depended on (i) our performance over a maximum three-year performance cycle; and (ii) the market price of our common shares at the time of vesting. Performance targets were established by the HRCC. PSUs granted vested over a term not exceeding three fiscal years. As of January 1, 2011, the Trustee under the PSU Plan held 0.6 million common shares as treasury shares. The remaining outstanding awards under the PSU Plan vested in February 2011 upon the achievement of adjusted operating income exceeding zero for 2008, 2009 and 2010.

Subsequent to the adoption of the 2010 Equity Incentive Plan, the HRCC determined that certain of Cott’s long-term incentive plans were no longer needed and terminated the PSU Plan.

Amended and Restated SAR Plan

Under the Amended and Restated Share Appreciation Rights Plan (the “SAR Plan”), share appreciation rights (“SARs”) were awarded to employees and directors of our Company. SARs typically vested on the third anniversary of the grant date. On vesting, each SAR represented 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 vesting date of the SAR. Payments in respect of vested in-the-money SARs were made in the form of our common shares purchased on the open market by an independent trust with cash contributed by us. During the year ended January 1, 2011, 154,000 SARs vested out-of-the-money. On August 10, 2010, the Company entered into a Stock Appreciation Right Cancellation Agreement with an executive officer to cancel 100,000 previously granted SARs. The cancellation was effective as of September 2, 2010.

Subsequent to the adoption of the 2010 Equity Incentive Plan, the HRCC determined that certain of Cott’s long-term incentive plans were no longer needed and terminated the SAR Plan.

Restated Executive Incentive Share Purchase Plan

In the second quarter of 2007, our shareowners approved a restated executive incentive share purchase plan (the “Restated EISPP”), which allowed officers and senior management executives, as designated by the HRCC, to elect to receive their performance bonus (or a portion thereof) as common share units held on their behalf by an independent trust. If the employee elected to receive common share units, we provided to the employee an equal number of shares, which vested on January 1, 2011 due to the achievement of certain performance goals (“Match Portion”).

The Match Portion of the performance bonus was estimated based on the employee’s election and was amortized over the service period of approximately four years. During 2007, employees elected to defer a total of $1.1 million under the Restated EISPP. In 2009, the Company recorded an expense of $0.1 million related to the anticipated 2007 matching portion of the performance bonus. No amount was accrued for the Match Portion for 2008 deferrals because corporate performance goals were not achieved and no bonus amounts were deferred into the plan. Effective as of December 27, 2008, the HRCC approved an amendment to the Restated EISPP with the effect of freezing participation in the plan. The remaining outstanding Match Portion vested in February 2011 upon the achievement of cumulative EBIT growth of 10% per annum over the three-year performance cycle ending at the end of fiscal 2010.

Subsequent to the adoption of the 2010 Equity Incentive Plan, the HRCC determined that certain of Cott’s long-term incentive plans were no longer needed and terminated the Restated EISPP.

Average Canadian—U.S. Dollar Exchange Rates for 2012, 2011 and 2010

The weighted average exercise prices for options in this Note are disclosed in Canadian dollars. The table below represents the average Canadian dollar to U.S. dollar exchange rate for the fiscal years ended 2012, 2011 and 2010.


	For the Year Ended
	December 29, 2012		December 31, 2011		January 1, 2011
Average exchange rate	$	1.000	$	1.012	$	0.971