11.	Stock-Based Compensation

Overview

In 2004, our Board of Directors adopted the Primo Water Corporation 2004 Stock Plan (the "2004 Plan") for employees, including officers, non-employee directors and non-employee consultants. The Plan provides for the issue of incentive or nonqualified stock options and restricted common stock. We have reserved 431 shares of common stock for issuance under the Plan. We do not intend to issue any additional awards under the 2004 Plan; however, all outstanding awards will remain in effect and will continue to be governed by their existing terms.

In April 2010, our stockholders adopted the 2010 Omnibus Long-Term Incentive Plan (the "2010 Plan"). The 2010 Plan is limited to employees, officers, non-employee directors, consultants and advisors. The 2010 Plan provides for the issuance of incentive or nonqualified stock options, restricted stock, stock appreciation rights, restricted stock units, cash- or stock-based performance awards and other stock-based awards. We have reserved 2,219 shares of common stock for issuance under the 2010 Plan. To date all equity awards under the 2010 Plan have consisted of nonqualified stock options, restricted stock and restricted stock units.

We recorded non-cash expense related to our stock-based compensation plans of $1,252 and $984 for the years ended December 31, 2012 and 2011, respectively, all of which is included in selling, general and administrative expenses from continuing operations. As of December 31, 2012, there were 966 shares available for future issuance under our stock-based compensation plans.

Stock Options

For purposes of determining compensation expense for stock option awards, the fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The key assumptions used in the Black-Scholes model for options granted during 2012 and 2011 were as follows:

	2012	2011
Expected life of options in years	5.5 - 6.3	5.5 - 6.3
Risk-free interest rate	0.8% - 1.0%	1.2% - 2.5%
Expected volatility	46.0% - 48.0%	46.0% - 48.0%
Dividend yield	0.0%	0.0%

The risk free interest rate is based on the U.S. Treasury rate for the expected life at the time of grant. As a result of our limited trading history beginning on November 5, 2010, our expected volatility is based on the average long-term historical volatilities of peer companies. We intend to continue to consistently use the same group of publicly traded peer companies to determine expected volatility in the future until sufficient information regarding volatility of our share price becomes available or the selected companies are no longer suitable for this purpose. Also, due to our limited trading history, we are using the "simplified method" to calculate expected holding periods, which represents the period of time that options granted are expected to be outstanding. We will continue to use this method until we have sufficient historical exercise experience to give us confidence that our calculations based on such experience will be reliable. The dividend yield assumption is based on our current intent not to issue dividends.

A summary of stock option activity for the year ended December 31, 2012, is presented as follows:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Life (Years)		Aggregate Intrinsic Value
Options outstanding, December 31, 2011		537		$	10.76
Granted		1,055		$	1.17
Forfeited		(242	)	$	6.91
Options outstanding, December 31, 2012		1,350		$	3.93		8.7	$	79
Options vested and expected to vest, December 31, 2012		1,213		$	4.15		8.6	$	69
Options exercisable, December 31, 2012		251		$	12.21		5.0	$	1

The weighted-average fair value per share of the options granted during 2012 and 2011 was $0.52 and $4.26, respectively. The total intrinsic value of the options exercised during 2012 and 2011 was $0 and $86, respectively.

As of December 31, 2012, there was $671 of unrecognized compensation expense, net of estimated forfeitures, related to outstanding stock options which is expected to be recognized over a weighted-average period of 2.5 years. Cash received from option exercises for 2012 and 2011 was $0 and $313, respectively.

Restricted Stock

A summary of restricted stock activity for the year ended December 31, 2012 is presented below:

	Number of Shares			Weighted Average Price Per Share
Unvested at December 31, 2011		151		$	12.58
Granted		123		$	1.35
Vested		(76	)	$	2.23
Forfeited		(25	)	$	5.98
Unvested at December 31, 2012		173		$	5.49

The fair value of restricted stock awards is estimated based on the closing price of our stock on the date of grant, and, for the purposes of expense recognition, the total new number of shares expected to vest is adjusted for estimated forfeitures. As of December 31, 2012, there was $410 of unrecognized compensation expense, net of estimated forfeitures, related to non-vested restricted stock which is expected to be recognized over a weighted-average period of 1.5 years.

Employee Stock Purchase Plan

In April 2010, our stockholders approved the 2010 Employee Stock Purchase Plan (the "ESPP") which was effective upon the consummation of our IPO. The ESPP provides for the purchase of common stock and is generally available to all employees. Shares are purchased at six-month intervals at 85% of the lower of the fair market value on the first day of the offering or the last day of each six-month purchase period. Employees may purchase shares having a value not exceeding 15% of their annual compensation, or $25, whichever is less. During the year ended December 31, 2012, employees purchased 46 shares at an average price of $0.97 per share. At December 31, 2012, there were 212 shares of common stock reserved for future issuance under the ESPP.

Value Creation Plan

On May 7, 2012, we established a Value Creation Plan which provides the opportunity for awards comprised of cash and/or equity for our officers at the level of vice president or higher. Award issuance under the Plan would be based on our achieving targets of $20.0 million in Adjusted EBITDA for fiscal 2013 and/or $25 million for fiscal 2014. No awards were issued under the Plan during 2012.