Note 7—Share-based Compensation

Our shareowners approved our Amended and Restated Cott Corporation Equity Incentive Plan (the “Amended and Restated Equity Plan”) in its current form in May 2015. Awards under the Amended and Restated Equity 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 Amended and Restated Equity Plan is administered by the Human Resources and Compensation Committee (“HRCC”) or any other board committee as may be designated by the board from time to time. Under the Amended and Restated Equity Plan, 20,000,000 shares are reserved for future issuance subject to adjustment upon a share split, share dividend, recapitalization, and other similar transactions and events. Shares that are issued under the Amended and Restated Equity Plan are applied to reduce the maximum number of shares remaining available for issuance under the Amended and Restated Equity Plan; provided that the total number of shares available for issuance under the Amended and Restated Plan is reduced two shares for each share issued pursuant to a “full-value” award (i.e., an award other than an option or stock appreciation right).

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 Amended and Restated Equity Plan. As of December 31, 2016, there were 3,280,450 shares available for future issuance under the Amended and Restated Equity Plan.

The table below summarizes the share-based compensation expense for the years ended December 31, 2016, January 2, 2016, and January 3, 2015. Share-based compensation expense is recorded in SG&A expenses in the Consolidated Statements of Operations. As referenced below: (i) “Performance-based RSUs” represent restricted share units with performance-based vesting, (ii) “Time-based RSUs” represent restricted share units with time-based vesting, (iii) “Stock options” represent non-qualified stock options, (iv) “Director share awards” represent common shares issued in consideration of the annual board retainer fee to non-management members of our board of directors, and (v) the “ESPP” represents the Cott Corporation Employee Share Purchase Plan, under which common shares are issued to eligible employees at a discount through payroll deductions.


	For the Year Ended
	December 31,		January 2,		January 3,
(in millions of U.S. dollars)	2016		2016		2015
Stock options	$	3.7	$	1.9	$	1.6
Performance-based RSUs		1.3		4.9		0.6
Time-based RSUs		3.3		2.4		2.8
Director share awards		0.9		1.0		0.8
Employee Share Purchase Plan		0.2		0.1		—

Total	$	9.4	$	10.3	$	5.8

During the third quarter of 2016, management concluded that it was no longer probable that the targets established for the Performance-based RSUs awarded in 2014 to certain DSS employees in connection with the DSS Acquisition, would be achieved, and, we therefore no longer expect these awards to ultimately vest. We continue to accrue the compensation expense for the other Performance-based RSUs awarded in 2014 and those awarded in 2015 and 2016.

The tax benefit recognized related to share-based compensation expense for the fiscal year ended December 31, 2016 was $2.8 million (January 2, 2016—$2.7 million; January 3, 2015—$1.3 million)

As of December 31, 2016, the unrecognized share-based compensation expense and weighted average years over which we expect to recognize it as compensation expense were as follows:


(in millions of U.S. dollars, except years)	Unrecognized share-based compensation expense as of December 31, 2016		Weighted average years expected to recognize compensation
Stock options	$	7.2		1.7
Performance-based RSUs		18.8		2.6
Time-based RSUs		5.8		1.6

Total	$	31.8

Stock Options

During 2016, 2015 and 2014 approximately 2,975,500, 684,000, and 441,000 options were granted to certain employees under the Amended and Restated Equity Plan at a weighted-average exercise price of $11.15, $9.22, and $8.00 per share, respectively. The weighted-average grant date fair value of the options was estimated to be $2.84, $4.31, and $3.84 per share in 2016, 2015 and 2014, respectively, using the Black-Scholes option pricing model. The contractual term of an option granted is fixed by the Amended and Restated Equity plan and cannot exceed ten years from the grant date.

The grant date fair value of each option granted during 2016, 2015 and 2014 was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:


	For the Year Ended
	December 31,			January 2,			January 3,
	2016			2016			2015
Risk-free interest rate		1.9	%		2.0	%		2.7	%
Average expected life (years)		6.2			10.0			10.0
Expected volatility		30.7	%		58.7	%		58.5	%
Expected dividend yield		2.2	%		3.0	%		2.9	%

The following table summarizes the activity for Company stock options:


				Weighted		Weighted		Aggregate
	Stock			average		average		intrinsic
	Options			exercise		contractual term		value
	(in thousands)			price		(years)		(in thousands)
Balance at December 28, 2013		830			8.17		7.6		811.9

Granted		441			8.00
Forfeited or expired		(50	)		16.45

Outstanding at January 3, 2015		1,221			7.77		7.6		400.7

Granted		684			9.22
Exercised		(113	)		4.94				637.4
Forfeited or expired		(35	)		8.56

Outstanding at January 2, 2016		1,757		$	8.50		8.0	$	4,373.8

Granted		2,976			11.15
Exercised		(238	)		7.29				2,304.7
Forfeited or expired		(21	)		9.99

Outstanding at December 31, 2016		4,474		$	10.32		8.8	$	5,623.3

Exercisable at December 31, 2016		850		$	8.27		6.5	$	2,598.6

Vested or expected to vest at December 31, 2016		4,474		$	10.32		8.8	$	5,623.3

The aggregate intrinsic value amounts in the table above represent the difference between the closing price of our common shares on the New York Stock Exchange on December 30, 2016, which was $11.33 (December 31, 2015—$10.99; January 2, 2015—$7.00), and the exercise price, multiplied by the number of in-the-money stock options as of the same date.

Stock options granted during the year ended December 31, 2016 vest ratably in three equal annual installments on the first, second and third anniversaries of the date of grant.

The total amount of cash received from the exercise of stock options was $1.7 million during the fiscal year ended December 31, 2016 with an associated tax benefit of $1.3 million. The total amount of cash received from the exercise of stock options was $0.5 million during the fiscal year ended January 2, 2016 with no associated tax benefit realized. There were no stock options exercised during the year ended January 3, 2015. The total fair value of options that vested during the year ended December 31, 2016 was $1.6 million (January 2, 2016 — $1.5 million; January 3, 2015 — $1.3 million).

Other Awards

In 2016, we granted 62,046 common shares to the non-management members of our board of directors under the Amended and Restated Equity Plan with a grant date fair value of approximately $0.9 million. The common shares were issued in consideration of the directors’ annual board retainer fee and were vested upon issuance.

Additionally, in 2016, we granted 386,104 Performance-based RSUs, which vest on the last day of our 2018 fiscal year, and 448,771 Performance-based RSUs, which vest on the last day of our 2019 fiscal year. The number of shares ultimately awarded will be based upon the performance percentage, which can range from 0% to 200% of the awards granted. The Performance-based RSUs vest primarily on the Company’s achievement of a specified level of cumulative pre-tax income for the applicable performance period. The number 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 vesting period. The Company also granted 502,710 Time-based RSUs, which vest ratably in three equal annual installments on the first, second and third anniversaries of the date of grant and are based upon a service condition.

In connection with the S&D Acquisition, the Company granted 376,692 Performance-based RSUs to certain S&D employees under the Amended and Restated Equity Plan. The Performance-based RSUs vest on the last day of our 2019 fiscal year. The number of shares ultimately awarded will be based upon the performance percentage, which can range from 0% to 200% of the awards granted and is calculated based upon the achievement of a specified level of S&D EBITDA (weighted 70%), S&D revenue (weighted 15%) and S&D free cash flow (which is net cash provided by operating activities, less capital expenditures, adjusted to exclude the impact of certain items)(weighted 15%) for the performance period.

In connection with the Eden Acquisition, the Company granted 207,359 Performance-based RSUs and 96,709 Time-based RSUs to certain Eden employees under the Amended and Restated Equity Plan. The Performance-based RSUs vest on the last day of our 2019 fiscal year. The number of shares ultimately awarded will be based upon the performance percentage, which can range from 0% to 125% of the awards granted and is calculated based upon the achievement of a specified level of Eden EBITDA (weighted 70%), Eden revenue (weighted 15%) and Eden free cash flow (which is net cash provided by operating activities, less capital expenditures, adjusted to exclude the impact of certain items)(weighted 15%) for the performance period. Of the 96,709 Time-based RSUs granted in connection with the Eden Acquisition, 24,808 vest ratably in three equal annual installments on the first, second and third anniversaries of the date of grant, while 71,901 vest ratably in two equal annual installments on the first and second anniversaries of the date of grant, with all such Time-based RSUs being based upon a service condition.

The following table summarizes the activity of our Performance-based RSU and Time-based RSU:


	Number of					Number of
	Performance-			Weighted Average		Time-based			Weighted Average
	based RSUs			Grant-Date		RSUs			Grant-Date
	(in thousands)			Fair Value		(in thousands)			Fair Value
Balance at December 28, 2013		534		$	7.81		831		$	8.04

Awarded		1,356			6.68		368			8.00
Issued		—			—		(467	)		7.14
Cancelled		(77	)		6.58		—			—
Forfeited		(31	)		7.90		(68	)		8.26

Balance at January 3, 2015		1,782			7.01		664			8.63

Awarded		320			9.22		213			9.22
Awarded in connection with modification		55			7.90		—			—
Issued		(255	)		6.87		(10	)		8.60
Forfeited		(24	)		8.61		(40	)		8.67

Balance at January 2, 2016		1,878			7.41		827			8.78

Awarded¹		1,419			13.09		1,017			13.88
Issued¹		—			—		(1,027	)		12.01
Cancelled		(224	)		9.29		—			—
Forfeited		(10	)		9.24		(17	)		8.50

Outstanding at December 31, 2016		3,063		$	9.89		800		$	11.10

Vested or expected to vest at December 31, 2016		2,070		$	11.83		800		$	11.10

^1.	Includes 416,951 common shares granted to certain S&D employees in connection with the S&D Acquisition; the common shares were fully vested upon issuance.

The total fair value of Performance-based RSUs vested and issued during the year ended January 2, 2016 was $1.8 million. There were no Performance-based RSUs vested and issued during the years ended December 31, 2016 and January 3, 2015. The total fair value of Time-based RSUs vested and issued during the years ended December 31, 2016, January 2, 2016, and January 3, 2015, were $12.3 million, $0.1 million, and $3.3 million, respectively.

Employee Share Purchase Plan

In March 2015, the Company’s board of directors authorized and approved the Cott Corporation Employee Share Purchase Plan (the “ESPP”), which was approved by Cott’s shareowners in May 2015. The ESPP was effective October 1, 2015 and qualifies as an “employee share purchase plan” under Section 423 of the Internal Revenue Code of 1986 (“IRC”), as amended. Substantially all employees are eligible to participate in the ESPP and may elect to participate at the beginning of any quarterly offering period. The ESPP authorizes the issuance, and the purchase by eligible employees, of up to 3,000,000 shares of Cott common shares through payroll deductions. Eligible employees who choose to participate may purchase Cott common shares at 90% of market value on the first or last day of the quarterly offering period, whichever is lower. The minimum contribution which an eligible employee may make under the ESPP is 1% of the employee’s eligible compensation, with the maximum contribution limited to 15% of the employee’s eligible compensation. At the end of each quarterly offering period for which the employee participates, the total amount of each employee’s payroll deduction for that offering period will be used to purchase Cott common shares. The Company recognized $0.2 million and $0.1 million of share-based compensation expense in SG&A expenses in the Consolidated Statement of Operations for 2016 and 2015, respectively. At December 31, 2016, 2,858,691shares remained available for issuance under the ESPP.