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 so approved.

The table below summarizes the share-based compensation expense for the years ended December 31, 2011, January 1, 2011, and January 2, 2010. 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"); and (v) "Director share units" 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.


	For the Years Ended
(in millions of U.S. dollars)	December 31, 2011			January 1, 2011		January 2, 2010
Stock options	$	—		$	1.0	$	0.1
PSUs		—			0.2		0.8
Performance-based RSUs		(1.2	)		1.4		—
Time-based RSUs		3.4			1.3		—
Director share units		0.7			0.7		—
Share appreciation rights		—			0.1		0.4
Restricted Stock		—			—		0.1
Interim CEO award		—			—		(0.1	)

Total	$	2.9		$	4.7	$	1.3

During the third quarter of 2011, we concluded that it was no longer probable that the targets established for the Performance-based RSUs 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.

As of December 31, 2011, the unrecognized share-based compensation expense and years we expect to recognize it as future compensation expense were as follows:


(in millions of U.S. dollars)	Unrecognized share-based compensation expense as of December 31, 2011		Weighted average years expected to recognize compensation
Time-based RSUs	$	4.0		1.3

Total	$	4.0

Option Plan

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.

Options representing 250,000 shares were issued during the year ended January 2, 2010 at an exercise price of C$1.10 and vested ratably over four quarters. The fair value of this option grant was estimated at C$0.475 using the Black-Scholes options pricing model.

No options were granted during the year ended December 31, 2011. The fair value of each option granted during the years ended January 1, 2011 and January 2, 2010 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:


	For the Years Ended
	January 1, 2011			January 2, 2010
Risk-free interest rate		2.5	%		2.3	%
Average expected life (years)		5.5			5.5
Expected volatility		74.8	%		50.0	%
Expected dividend yield		—			—

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 December 27, 2008		892		$	27.52		3.0	$	—

Granted		250			1.10
Exercised		(25	)		2.60
Forfeited or expired		(286	)		31.69

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

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

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

The aggregate intrinsic value amounts in the table above represent the difference between the closing price of our common stock on December 31, 2011, which was C$6.40 (January 1, 2011—C$8.95; January 2, 2010—C$8.66), and the exercise price, multiplied by the number of in-the-money stock options as of the same date. The total intrinsic value of stock options exercised during the year ended December 31, 2011 was $0.4 million (January 1, 2011—nil; January 2, 2010—$0.1 million).

Total compensation cost related to unvested awards under the option plan not yet recognized is nil. The total fair value of shares that vested during the year ended December 31, 2011 was nil.

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 are expected to be governed by the terms of the Company's 2010 Equity Incentive Plan.

Outstanding options at December 31, 2011 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		3.6	$	3.50		75	$	3.50
$18.48		50		2.3	$	18.48		50	$	18.48
$28.98		134		0.6	$	28.98		134	$	28.98
$29.95		25		0.1	$	29.95		25	$	29.95

		284		1.7	$	20.47		284	$	20.47

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 6, 2011, we granted 76,110 common shares to the non-management members of our Board of Directors under the 2010 Equity Incentive Plan. The common shares were issued in consideration of such directors' annual board retainer fee.

In 2011, we granted 592,163 Performance-based RSUs and 151,545 Time-based RSUs to certain employees of the Company. 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. The common shares were issued in consideration of such directors' annual board retainer fee.

In 2010, we granted 1,726,807 Performance-based RSUs and 1,396,807 Time-based RSUs to certain employees of the Company. The Performance-based RSUs vest based on the achievement of a specified target level of pre-tax income for the period beginning on January 3, 2010 and ending on the last day of our 2012 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 3, 2010 and ending on the last day of our 2012 fiscal year. During the fourth quarter of 2010, the HRCC modified the original pre-tax income targets to reflect the Cliffstar Acquisition. The Time-based RSUs vest on the last day of our 2012 fiscal year.

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 on May 4, 2010, the HRCC determined that certain of Cott's long-term incentive plans were no longer needed and terminated the PSU Plan effective February 23, 2011.

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.

During the year ended December 31, 2011, EISPP, PSU, Performance-based RSU and Time-based RSU activity was as follows:


(in thousands)	EISPP			Number of PSUs			Number of Performance- based RSUs		Number of Time-based RSUs
Balance at January 1, 2011		189			188			1,727		1,397
Awarded		—			—			592		151
Issued		(189	)		(188	)		—		—
Forfeited		—			—			—		—

Outstanding at December 31, 2011		—			—			2,319		1,548

Other Share-Based Compensation

In connection with his appointment, we granted to David Gibbons, our former Interim Chief Executive Officer, 720,000 restricted stock units on March 24, 2008, of which 360,000 units vested immediately. Of the remaining 360,000 restricted stock units, 300,000 vested ratably on a monthly basis over a five-month period beginning October 24, 2008 through February 27, 2009. Mr. Gibbons resigned as Interim Chief Executive Officer and his employment arrangements came to an end on February 27, 2009, at which time 6,000 prorated restricted stock units vested and the remaining 54,000 restricted stock units were forfeited. This award was recognized as compensation expense over the vesting period. The fair value and compensation costs varied based on share price. This award was accounted for as a liability.

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.

Average Canadian—U.S. Dollar Exchange Rates for 2011, 2010 and 2009

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 2011, 2010 and 2009.


	For the Years Ended
	December 31, 2011		January 1, 2011		January 2, 2010
Average exchange rate	$	1.012	$	0.971	$	0.878