Primo Water Corp (Form: 10-Q, Received: 11/14/2013 16:32:48)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 001-34850

PRIMO WATER CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		30-0278688
(State of incorporation)		(I.R.S. Employer Identification No.)

104 Cambridge Plaza Drive, Winston-Salem, NC 27104

(Address of principal executive office) (Zip code)

(336) 331-4000

(Registrant’s telephone number, including area code)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if smaller reporting company)	Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of November 8, 2013, there were 24,035,909 shares of our Common Stock, par value $0.001 per share, outstanding.

PRIMO WATER CORPORATION

FORM 10-Q

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013

INDEX

	Page number
PART 1. Financial Information

Item 1. Financial Statements (Unaudited)	3

Condensed Consolidated Balance Sheets	3

Condensed Consolidated Statements of Operations	4

Condensed Consolidated Statements of Comprehensive Loss	5

Condensed Consolidated Statements of Cash Flows	6

Notes to Condensed Consolidated Financial Statements	7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3. Quantitative and Qualitative Disclosures About Market Risk	26

Item 4. Controls and Procedures	26

PART II. Other Information

Item 1. Legal Proceedings	27

Item 1A. Risk Factors	27

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3. Defaults Upon Senior Securities	28

Item 4. Mine Safety Disclosures	28

Item 5. Other Information	28

Item 6. Exhibits	30

Signatures	31

Index

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

PRIMO WATER CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value information)

	September 30,			December 31,
	2013			2012
	(unaudited)
ASSETS
Current assets:
Cash	$	308		$	234
Accounts receivable, net		7,887			9,894
Inventories		6,850			7,572
Prepaid expenses and other current assets		1,459			812
Current assets of disposal group held for sale		300			3,041
Total current assets		16,804			21,553

Bottles, net		4,002			3,838
Property and equipment, net		39,401			41,947
Intangible assets, net		11,341			12,477
Other assets		2,592			1,960
Total assets	$	74,140		$	81,775

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	15,043		$	11,455
Accrued expenses and other current liabilities		2,709			4,305
Current portion of capital leases and notes payable		16			15
Current liabilities of disposal group held for sale		378			2,784
Total current liabilities		18,146			18,559

Long-term debt, capital leases and notes payable, net of current portion		18,379			21,251
Other long-term liabilities		317			352
Liabilities of disposal group held for sale, net of current portion		2,000			–
Total liabilities		38,842			40,162

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.001 par value - 10,000 shares authorized, none issued and outstanding		–			–
Common stock, $0.001 par value - 70,000 shares authorized, 24,036 and 23,772 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		24			24
Additional paid-in capital		273,164			272,336
Common stock warrants		8,420			8,420
Accumulated deficit		(246,081	)		(239,131	)
Accumulated other comprehensive loss		(229	)		(36	)
Total stockholders’ equity		35,298			41,613
Total liabilities and stockholders’ equity	$	74,140		$	81,775

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

Index

PRIMO WATER CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012

Net sales	$	25,519		$	26,158		$	71,696		$	70,594
Operating costs and expenses:
Cost of sales		18,936			19,868			53,924			54,081
Selling, general and administrative expenses		3,873			4,783			11,722			13,657
Non-recurring and acquisition-related costs		96			170			190			565
Depreciation and amortization		3,050			2,898			8,579			7,929
Goodwill impairment		–			–			–			11,488
Total operating costs and expenses		25,955			27,719			74,415			87,720
Loss from operations		(436	)		(1,561	)		(2,719	)		(17,126	)
Interest expense and other, net		1,138			904			3,359			3,082
Loss from continuing operations before income taxes		(1,574	)		(2,465	)		(6,078	)		(20,208	)
Income tax benefit		–			–			–			(960	)
Loss from continuing operations		(1,574	)		(2,465	)		(6,078	)		(19,248	)
Loss from discontinued operations		(511	)		(1,370	)		(872	)		(14,757	)
Net loss	$	(2,085	)	$	(3,835	)	$	(6,950	)	$	(34,005	)

Basic and diluted loss per common share:
Loss from continuing operations	$	(0.07	)	$	(0.10	)	$	(0.25	)	$	(0.81	)
Loss from discontinued operations		(0.02	)	$	(0.06	)		(0.04	)	$	(0.62	)
Net loss	$	(0.09	)	$	(0.16	)	$	(0.29	)	$	(1.43	)

Basic and diluted weighted average common shares outstanding		24,019			23,752			23,901			23,715

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

Index

PRIMO WATER CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

	Three months ended						Nine months ended
	September 30,						September 30,
	2013			2012			2013			2012

Net loss	$	(2,085	)	$	(3,835	)	$	(6,950	)	$	(34,005	)
Other comprehensive (income) loss:
Foreign currency translation adjustments, net		113			742			(193	)		649
Comprehensive loss	$	(1,972	)	$	(3,093	)	$	(7,143	)	$	(33,356	)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

Index

PRIMO WATER CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine months ended September 30,
	2013			2012
Cash flows from operating activities:
Net loss	$	(6,950	)	$	(34,005	)
Less: Loss from discontinued operations		(872	)		(14,757	)
Loss from continuing operations		(6,078	)		(19,248	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		8,579			7,929
Stock-based compensation expense		819			1,043
Non-cash interest expense		882			1,708
Deferred income tax expense		–			(960	)
Bad debt expense		5			161
Goodwill impairment		–			11,488
Other		185			(133	)
Changes in operating assets and liabilities:
Accounts receivable		1,952			(1,031	)
Inventories		715			369
Prepaid expenses and other assets		(211	)		(597	)
Accounts payable		3,870			3,099
Accrued expenses and other liabilities		(1,641	)		806
Net cash provided by operating activities		9,077			4,634

Cash flows from investing activities:
Purchases of property and equipment		(3,745	)		(3,121	)
Purchases of bottles, net of disposals		(1,904	)		(683	)
Proceeds from the sale of property and equipment		2			42
Additions to and acquisitions of intangible assets		(43	)		(688	)
Net cash used in investing activities		(5,690	)		(4,450	)

Cash flows from financing activities:
Borrowings under revolving credit facilities		68,062			24,496
Payments under revolving credit facilities		(73,899	)		(32,426	)
Borrowings under Comvest Term loans		3,000			15,150
Note payable and capital lease payments		(11	)		(11	)
Debt issuance costs		(689	)		(2,049	)
Proceeds from sale of common stock, net of issuance costs		–			(214	)
Stock option and employee stock purchase activity, net		82			15
Net cash (used in) provided by financing activities		(3,455	)		4,961

Net (decrease) increase in cash		(68	)		5,145
Cash, beginning of year		234			751
Effect of exchange rate changes on cash		(47	)		(16	)
Cash provided by (used in) discontinued operations from:
Operating activities		189			(4,853	)
Investing activities		–			(395	)
Cash provided by (used in) discontinued operations		189			(5,248	)
Cash, end of period	$	308		$	632

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

Index

PRIMO WATER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands, except per share amounts)

1.	Description of Business and Significant Accounting Policies

Business

Unaudited Interim Financial Information

The accompanying interim condensed consolidated financial statements have been prepared in accordance with our accounting practices described in our audited consolidated financial statements for the year ended December 31, 2012, and are unaudited. In the opinion of management, the unaudited interim condensed consolidated financial statements included herein contain all adjustments necessary to present fairly our financial position, results of operations and cash flows for the periods indicated. Such adjustments, other than nonrecurring adjustments that have been separately disclosed, are of a normal, recurring nature. The operating results for interim periods are not necessarily indicative of results to be expected for a full year or future interim periods. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2012. The accompanying interim condensed consolidated financial statements are presented in accordance with the rules and regulations of the Securities and Exchange Commission and, accordingly, do not include all the disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) with respect to annual financial statements. Certain significant accounting policies, in addition to those described below, are summarized in our 2012 Form 10-K. Certain 2012 amounts in the accompanying interim condensed consolidated financial statements have been reclassified to conform to the 2013 presentation, with no effect on stockholders’ equity or net loss as previously presented.

Discontinued Operations

As described in Note 2, during 2012, we committed to a plan to sell the assets of the sparkling beverage appliances, flavorings, CO2 cylinders and accessories business sold under the Flavorstation brand (the “Disposal Group”). We determined that the Disposal Group meets the criteria for classification as discontinued operations. As a result, the results of operations and financial position of the Disposal Group for the current and prior year are reflected as discontinued operations.

Revenue Recognition

Revenue is recognized for the sale of multi-gallon purified bottled water upon either the delivery of inventory to the retail store or the purchase by the consumer. Revenue is either recognized as an exchange transaction (where a discount is provided on the purchase of a multi-gallon bottle of purified water for the return of an empty multi-gallon bottle) or a non-exchange transaction. Revenues on exchange transactions are recognized net of the exchange discount. Self-serve filtered water revenue is recognized as the water is filtered, which is measured by the water dispensing equipment meter.

Revenue is recognized for the sale of our water dispenser products when title is transferred to our retail customers. We have no contractual obligation to accept returns nor do we guarantee sales. However, we will at times accept returns or issue credits for manufacturer defects or that were damaged in transit. Revenues are recognized net of an estimated allowance for returns using an average return rate based upon historical experience.

In addition, we offer certain incentives such as coupons and rebates that are netted against and reduce net sales in the consolidated statements of operations. With the purchase of certain of our water dispensers we include a coupon for a discount on the purchase of our purified water. No revenue is recognized with respect to the redemption of the coupon for a free multi-gallon bottle of water and the estimated cost of the multi-gallon bottle of purified water is included in cost of sales.

Index

Accounts Receivable

All trade accounts receivable are due from customers located within the United States and Canada. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Accounts receivable, net includes allowances for doubtful accounts of $531 and $792 at September 30, 2013 and December 31, 2012, respectively. The allowance for doubtful accounts is based on a review of specifically identified accounts in addition to an overall aging analysis. Judgments are made with respect to the collectability of accounts receivable based on historical experience and current economic trends. Actual losses could differ from those estimates.

Goodwill and Intangible Assets

We classify intangible assets into three categories: (1) intangible assets with definite lives subject to amortization, (2) intangible assets with indefinite lives not subject to amortization and (3) goodwill. We determine the useful lives of our identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors we consider when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, our long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives are amortized, primarily on a straight-line basis, over their useful lives.

We test intangible assets determined to have indefinite useful lives for impairment annually, or more frequently if events or circumstances indicate that assets might be impaired. We perform these annual impairment tests as of the first day of our fourth quarter. In evaluating goodwill for impairment, we perform a two-step goodwill impairment test. The first step involves a comparison of the fair value of a reporting unit to its carrying value. The fair value is estimated based on a number of factors including operating results, business plans, future cash flows and the market approach. If the carrying amount of the reporting unit exceeds its fair value, the second step of the process is performed which compares the implied value of the reporting unit goodwill with the carrying value of the goodwill of that reporting unit. If the carrying value of the goodwill of a reporting unit exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. As described in our Annual Report on Form 10-K for the year ended December 31, 2012, we recorded non-cash goodwill impairment charges of $67,658 and $11,488 effective December 31, 2012 and June 30, 2012, respectively, for the Water reporting unit.

For indefinite-lived intangible assets, other than goodwill, the impairment test consists of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount exceeds the fair value, an impairment charge is recognized in an amount equal to that excess.

Concentrations of Risk

Our principal financial instruments subject to potential concentration of credit risk are cash and cash equivalents, trade receivables, accounts payable and accrued expenses. We invest our funds in a highly rated institution and believe the financial risks associated with cash and cash equivalents are minimal.

We perform ongoing credit evaluations of our customers’ financial condition and maintain allowances for doubtful accounts that we believe are sufficient to provide for losses that may be sustained on realization of accounts receivable.

Basic and Diluted Net Loss Per Share

Net loss per share has been computed using the weighted average number of shares of common stock outstanding during each period. Diluted amounts per share include the dilutive impact, if any, of our outstanding potential common shares, such as options and warrants and convertible preferred stock. Potential common shares that are anti-dilutive are excluded from the calculation of diluted net loss per common share.

For the three months ended September 30, 2013 and 2012, stock options, unvested shares of restricted stock, restricted stock units and warrants with respect to an aggregate of 1,831 and 14 shares have been excluded from the computation of the number of shares used in the diluted earnings per share, respectively. For the nine months ended September 30, 2013 and 2012, stock options, unvested shares of restricted stock, restricted stock units and warrants with respect to an aggregate of 1,721 and 38 shares have been excluded from the computation of the number of shares used in the diluted earnings per share, respectively. These shares have been excluded because we incurred a net loss for each of these periods and their inclusion would be anti-dilutive.

Index

Cumulative Translation Adjustment and Foreign Currency Transactions

The local currency of our operations in Canada is considered to be the functional currency. Assets and liabilities of the Canada subsidiary are translated into U. S. dollars using the exchange rates in effect at the balance sheet date. Results of operations are translated using the average exchange rate prevailing throughout the period. The effects of unrealized exchange rate fluctuations on translating foreign currency assets and liabilities into U. S. dollars are accumulated as the cumulative translation adjustment included in accumulated other comprehensive income (loss) in the condensed consolidated statements of comprehensive loss. With the exception of transaction gains and losses on certain intercompany balances which we have determined are of a long-term investment nature, realized gains and losses on foreign currency transactions are included in the statement of operations. At September 30, 2013 and December 31, 2012, accumulated other comprehensive loss balances of ($229) and ($36), respectively, were related to unrealized foreign currency translation adjustments and transaction gains and losses on certain intercompany balances.

Recent Accounting Pronouncements

In February 2013, the FASB issued updated guidance which requires companies to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, companies are required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. We have adopted this updated guidance effective January 1, 2013. The adoption did not have a significant impact on our consolidated financial statements.

In July 2013, the FASB issued updated guidance requiring that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented as a liability and should not be combined with deferred tax assets. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early adoption permitted. The amendments are not expected to have a significant impact on our consolidated financial statements.

2.	Discontinued Operations

During 2012, we committed to a plan to sell the assets of the Disposal Group, which includes sparkling beverage appliances, flavorings, CO ₂ cylinders and accessories sold under the Flavorstation brand as well as the Omnifrio Single-Serve Business and initiated an active program to execute this plan. In addition, we determined that the Disposal Group met all of the criteria for classification as discontinued operations. As a result, current and prior year amounts and disclosures reflect these operations as discontinued operations.

Index

The assets and liabilities of the Disposal Group classified as held for sale were as follows:

	September 30, 2013		December 31, 2012
Current assets of disposal group held for sale
Inventories		290		2,794
Prepaid expenses and other current assets		10		247
	$	300	$	3,041

Current liabilities of disposal group held for sale
Accounts payable		73		146
Accrued expenses and other current liabilities		305		2,638
	$	378	$	2,784

Liabilities of disposal group held for sale, net of current portion
Other long-term liabilities		2,000		–
	$	2,000	$	–

The net sales and operating results classified as discontinued operations were as follows:

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012

Net sales	$	647		$	(78	)	$	2,651		$	229
Operating costs and expenses:
Cost of sales		1,009			856			3,154			1,890
Selling, general and administrative		149			496			369			1,269
Other operating income		–			(457	)		–			(2,457	)
Depreciation and amortization		–			173			–			615
Goodwill and developed technology impairment		–			224			–			13,669
Total operating costs and expenses		1,158			1,292			3,523			14,986
Loss from discontinued operations	$	(511	)	$	(1,370	)	$	(872	)	$	(14,757	)

Barter Credit Transactions

During the nine months ended September 30, 2013, we sold $1,893 of inventory of the Disposal Group in exchange for $1,076 in cash and $1,275 in barter credits. We valued the barter credits at the fair value of the products and services to be received upon exchange as they have a more readily determinable fair value than the products exchanged. At September 30, 2013, the barter credits were recorded at their fair value of $292 and $974 in prepaid expenses and other current assets and in other assets, respectively, on the condensed consolidated balance sheets. The sales and costs of goods sold associated with the transactions are reported as part of loss from discontinued operations on the condensed consolidated statements of operations.

3.	Debt, Capital Leases and Notes Payable

Long-term debt, capital leases and notes payable are summarized as follows:

	September 30,			December 31,
	2013			2012

Senior revolving credit facility	$	1,240		$	7,077
Term loan, net of discount		17,122			14,145
Notes payable and capital leases		33			44
		18,395			21,266
Less current portion		(16	)		(15	)
Long-term debt, notes payable and capital leases, net of current portion	$	18,379		$	21,251

Prior Senior Revolving Credit Facility

We entered into a senior revolving credit facility in November 2010 that was amended in April 2011, September 2011, November 2011 and March 2012 (“Prior Senior Revolving Credit Facility”). The Prior Senior Revolving Credit Facility matured on April 30, 2012 and was repaid in full in connection with the closing of the Senior Revolving Credit Facility (as defined below) and the Term Loan (as defined below). We amortized the remaining amount of deferred loan costs related to the Prior Senior Revolving Credit Facility at maturity. Interest expense related to deferred loan costs amortization for the Prior Senior Revolving Credit Facility totaled $1,246 for the nine months ended September 30, 2012.

Index

Senior Revolving Credit Facility

We entered into a senior revolving credit facility (the “Senior Revolving Credit Facility”) on April 30, 2012, as amended on February 21, 2013, that provides for total borrowing availability of up to $20,000 subject to borrowing base requirements related to our eligible accounts receivable and inventory and subject to a $2,000 reserve requirement. The Senior Revolving Credit Facility has a three and one-half year term and is secured either on a first priority or second priority basis by substantially all of our assets. The term of the Senior Revolving Credit Facility may be extended up to April 30, 2017 so long as the maturity of the Term Loan is extended to at least October 30, 2017. As of September 30, 2013, we had $1,240 in outstanding borrowings at a weighted-average interest rate of 6.0%, with $3,783 in additional availability under the Senior Revolving Credit Facility after giving effect to the borrowing base requirements.

Interest on outstanding borrowings under the Senior Revolving Credit Facility is payable at our option at either a floating base rate or a one-, two- or three-month LIBOR rate. We are also required to pay a commitment fee on the unused amount of the commitment under the Senior Revolving Credit Facility. The Senior Revolving Credit Facility contains a limit on capital expenditures of $6,000 for the year ended December 31, 2013 and for each year thereafter. The limit for capital expenditures may be increased for 2013 and thereafter based upon meeting the fixed charge coverage ratio, as stipulated and defined in the Senior Revolving Credit Facility. In addition, the Senior Revolving Credit Facility cross-defaults to the Term Loan. Total costs associated with the Senior Revolving Credit Facility were $883, which were capitalized and will be amortized as part of interest expense over the term of the debt. Interest expense related to deferred loan costs amortization for the Senior Revolving Credit Facility was $63 and $62 for the three months ended September 30, 2013 and September 30, 2012, respectively, and $190 and $103 for the nine months ended September 30, 2013 and September 30, 2012, respectively.

Comvest Term Loans

We entered into a credit and security agreement on April 30, 2012 (the “Credit Agreement”) pursuant to which a $15,150 term loan (the “Term Loan”) was provided. The Credit Agreement was amended on November 6, 2012 (the “First Amendment”) to contemplate the plan to exit the Flavorstation business (see Note 2) and provide for the classification of the operating results related to the Disposal Group as discontinued operations. In connection with the amendment, Comvest consented to our sale of inventory and other assets related to the Disposal Group outside the ordinary course of business. Also in connection with the amendment, we paid Comvest a $150 fee and agreed to certain changes to prepayment penalties and financial covenants.

The Credit Agreement was amended on June 14, 2013 (the “Second Amendment”) to provide for an additional $3,000 in borrowing under a second term loan (the “Add-On Term Loan”, and together with the Term Loan, the “Comvest Term Loans”), adjust the interest rate on the Term Loan, eliminate certain financial covenants and make further adjustments to prepayment penalties. Under the terms of the Second Amendment, interest on outstanding amounts owed under the Comvest Term Loans is payable at the rate of 12.5% per annum in cash. At September 30, 2013 the aggregate outstanding balance under the Comvest Term Loans was $18,499.

The outstanding balances of the Comvest Term Loans are due and payable in a single installment on April 30, 2016, subject to prepayment in specified circumstances, including sales or dispositions of assets outside the ordinary course of business and sales of equity or debt securities by Primo. The Comvest Term Loans are secured by substantially all of our assets on either a first priority or second priority basis. The first priority assets consist of substantially all of the assets related to our refill services business (See Note 8 for a description of the refill business). The security interest in all of our other assets is subordinate to the security interest securing the Senior Revolving Credit Facility.

The Comvest Term Loans contain the following financial covenants: (i) a limit on capital expenditures of $12,000 for the year ended December 31, 2013 and for each year thereafter; (ii) an increasing minimum Adjusted EBITDA threshold that is measured at the end of each quarter, and (iii) a decreasing total debt to Adjusted EBITDA ratio that is measured at the end of each quarter. Total costs associated with the Comvest Term Loans were $1,124, which were capitalized and will be amortized as part of interest expense over the term of the debt. Costs associated with the Second Amendment consisted of fees paid directly to Comvest and totaled $493. The costs were reflected as a discount on our debt and will be amortized as part of interest expense over the remaining term of the debt. At September 30, 2013 we were in compliance of all covenants. Interest expense related to deferred loan costs amortization for the Comvest Term Loans was $114 and $59 for the three months ended September 30, 2013 and September 30, 2012, respectively, and $269 and $98 for the nine months ended September 30, 2013 and September 30, 2012, respectively.

Index

Concurrently with the closing of the Term Loan on April 30, 2012, five of our current directors or stockholders (the “Insider Participants”) purchased an aggregate of $1,150 in non-recourse, non-voting, last-out participation interests from the bank providing the Term Loan. These participation interests allow each holder to participate to the extent of such holder’s percentage share in the Term Loan and such participations are secured by the same assets as the Term Loan. The Insider Participants include Billy D. Prim, Malcolm McQuilkin and Jack C. Kilgore, all three of whom are current directors of Primo. Mr. Prim is also our Chairman and Chief Executive Officer. Mr. Prim, Mr. McQuilkin and Mr. Kilgore purchased $250, $500 and $50 in participation interests, respectively.

The Term Loan was accompanied by a detachable warrant to purchase 1,731 shares of our common stock, including detachable warrants to purchase 131 shares of our common stock received by the Insider Participants. The warrant is immediately exercisable at an exercise price of $2.30 per share and expires April 30, 2020. The terms of the warrants issued to the Insider Participants are identical to the terms of the warrant described above. Mr. Prim, Mr. McQuilkin and Mr. Kilgore were issued warrants to purchase 29, 57 and 6 shares of our common stock, respectively. The initial fair value of the warrants as determined using the Black-Scholes pricing model was $1,108 that resulted in an original issue discount on the Term Loan that will be amortized into interest expense through the maturity of the Term Loan. For the non-Insider Participants, the exercise price was adjusted to $1.20 as part of the amendment on November 6, 2012. Due to the price adjustment, $305 was added to the original issue discount on the Term Loan, representing the change in the estimated fair value immediately before and after the modification, and will be amortized into interest expense through the remaining maturity of the Term Loan. The revised warrant exercise price was set at 150% of the 30 day trailing average stock price. No changes were made to the warrants we issued to the five directors and stockholders of Primo. Interest expense related to the warrants’ original issue discount amortization was $91 and $69 for the three months ended September 30, 2013 and September 30, 2012, respectively, and $273 and $115 for the nine months ended September 30, 2013 and September 30, 2012, respectively.

Interest expense includes financing costs for a supplier of $217 and $553 for the three and nine months ended September 30, 2013, respectively.

4.	Stock-Based Compensation

Compensation expense related to stock-based compensation plans was $196 and $256 for the three months ended September 30, 2013 and September 30, 2012, respectively, and $819 and $1,043 for the nine months ended September 30, 2013 and September 30, 2012, respectively. Stock-based compensation is included in selling, general and administrative expenses in the condensed consolidated statements of operations.

5.	Commitments and Contingencies

Class Action Suit

On August 14, 2013, the United States District Court for the Middle District of North Carolina granted the defendants’ motion to dismiss the securities class action lawsuit brought against Primo, certain members of our board of directors, certain members of management, and certain shareholders and company advisors. The plaintiffs’ complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and asserted such claims on behalf of a class of persons who acquired our common stock in or traceable to our initial public offering and secondary offering as well as purchasers of common stock between November 4, 2010 and August 10, 2011. The Court dismissed all claims asserted in the case with prejudice, and entered judgment in favor of all defendants. No appeal was taken by the plaintiffs, and the judgment became final as of September 13, 2013.

Electrotemp

On October 14, 2011, Primo, through a wholly-owned subsidiary, filed a complaint against Electrotemp Technologies China, Inc. ("Electrotemp") in Mecklenburg County (North Carolina) Superior Court, alleging breach of contract, quantum meruit/unjust enrichment, and violation of the North Carolina Products Liability Act/breach of implied warranty. The parties filed a Joint Motion to stay litigation so that they could proceed with mediation and arbitration pursuant to the dispute resolution clause in their agreement. On May 1, 2012, the Court ordered that the litigation would be stayed once the parties formally enter into arbitration. Electrotemp asserted counterclaims in the arbitration. On September 26, 2013, the parties reached a settlement that resulted in termination of the arbitration and dismissal of the lawsuit. The lawsuit was dismissed with prejudice on October 3, 2013. We do not believe that the terms of the settlement will have a material impact on our financial statements.

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Florida Concentrates Suit

On October 16, 2012, Primo was served with the Summons and Complaint in a suit filed in the Florida state courts on September 26, 2012. Plaintiffs in the suit are Florida Concentrates International, LLC (a Florida limited liability company), Florida Sparkling DS, LLC (a Florida limited liability company), and Didier Hardy (a Florida resident and apparently the principal of the LLC plaintiffs). Also named as defendants are Susan and Scott Ballantyne (alleged to be Florida residents) and SDS-IC. The suit was filed in the Circuit Court for the Twentieth Judicial District (Collier County, Florida). Plaintiffs' allegations include breach of contract, misappropriation of trade secrets and certain additional claims and plaintiffs seek monetary damages. We do not believe that the suit has any merit whatsoever, and plan to vigorously contest and defend against it. We have filed a motion to dismiss all claims, which was granted in part and denied in part by the court.

Omnifrio Single-Serve Beverage Business

Deferred purchase price payments totaling $2,000 were included within liabilities of disposal group held for sale, net of current portion and current liabilities of disposal group held for sale on the condensed consolidated balance sheets as of September 30, 2013 and December 31, 2012, respectively. These payments were related to the April 11, 2011 acquisition of certain intellectual property and other assets from the seller, Omnifrio Beverage Company LLC (“Omnifrio”). On July 19, 2013, we entered into a conditional settlement and release agreement with Omnifrio and certain other parties pursuant to which we agreed to, among other things, use commercially reasonable efforts to sell the assets purchased from Omnifrio in April 2011 and to provide Omnifrio certain amounts of the proceeds of any such sale in exchange for Omnifrio agreeing to release us from any claims related to the milestone payments included in our original purchase agreement with Omnifrio and, upon the sale of such assets, to release us from any claims related to the deferred purchase price payments included in such agreement.

Sales Tax

We routinely purchase equipment for use in operations from various vendors. These purchases are subject to sales tax depending on the equipment type and local sales tax regulations; however, we believe certain vendors have not assessed the appropriate sales tax. For purchases that are subject to sales tax in which we believe the vendor did not assess the appropriate amount, we accrue an estimate of the sales tax liability we ultimately expect to pay.

Other Contingencies

From time to time, we are involved in various claims and legal actions that arise in the normal course of business. Management believes that the outcome of such legal actions will not have a significant adverse effect on our financial position, results of operations or cash flows.

6.	Income Taxes

We have incurred operating losses since inception. For the three months ended September 30, 2013 and 2012, there was no income tax expense or benefit. For the nine months ended September 30, 2013 and 2012, there was an income tax benefit of zero and $960, respectively. We have provided valuation allowances to fully offset the net deferred tax assets at September 30, 2013.

Section 382 of the U.S. Internal Revenue Code imposes an annual limitation on the amount of net operating loss carryforwards that might be used to offset taxable income when a corporation has undergone significant changes in stock ownership. We believe our prior ownership changes have created an annual limit, imposed by Section 382, on the amount of net operating loss we can utilize in a given year, however, we believe the annual limit is such that we will be able to utilize our net operating loss carryforwards during their respective carryforward periods.

7.	Fair Value Measurements

Fair value rules currently apply to all financial assets and liabilities and for certain nonfinancial assets and liabilities that are required to be recognized or disclosed at fair value. For this purpose, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

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U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

•

Level 1 — quoted prices in active markets for identical assets and liabilities.

•

Level 2 — observable inputs other than quoted prices in active markets for identical assets and liabilities.

•

Level 3 — unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

As of September 30, 2013, the barter credits (see Note 2) reported in prepaid and other current assets and in other assets on our condensed consolidated balance sheets were measured at their estimated fair values of $292 and $974, respectively, on a nonrecurring basis. The barter credits are measured at fair value using significant unobservable inputs, primarily based on the fair value of the products and services to be received upon exchange (Level 3 inputs). As of December 31, 2012, we had no assets or liabilities which were measured at fair value using significant unobservable inputs.

The carrying amounts of our financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable, and other accrued expenses, approximate their fair values due to their short maturities. Assets and liabilities of the Disposal Group held for sale are presented at their carrying value, which approximates fair value based on current market rates. Based on borrowing rates currently available to us for loans with similar terms, the carrying value of debt, capital leases and notes payable approximates fair value.

Segments

At September 30, 2013, we had two operating segments and two reportable segments: Primo Water (“Water”) and Primo Dispensers (“Dispensers”).

Our Water segment sales consist of the sale of multi-gallon purified bottled water (exchange services) and our self-serve filtered drinking water vending service (refill services) offered through retailers in each of the contiguous United States and Canada. Our Water services are offered through point of purchase display racks or self-serve filtered water vending displays and recycling centers that are prominently located at major retailers in space that is often underutilized.

Our Dispensers segment sells water dispensers that are designed to dispense Primo and other dispenser-compatible bottled water. Our Dispensers sales are primarily generated through major U.S. retailers and are sold primarily through a direct-import model, where we recognize revenues for the sale of the water dispensers when title is transferred. We support retail sell-through with domestic inventory. We design, market and arrange for certification and inspection of our water dispensers.

As discussed in Note 2, in 2012 we committed to a plan to sell the assets related to the Disposal Group, which met all the criteria for classification as discontinued operations. As a result, current and prior year amounts and disclosures reflect these operations as discontinued operations, which were previously reported as the Flavorstation segment.

We evaluate the financial results of these segments focusing primarily on segment net sales and segment income (loss) from operations before depreciation and amortization (“segment income (loss) from operations”). We utilize segment net sales and segment income (loss) from operations because we believe they provide useful information for effectively allocating our resources between business segments, evaluating the health of our business segments based on metrics that management can actively influence and gauging our investments and our ability to service, incur or pay down debt.

Cost of sales for Water consists of costs for distribution, bottles and related packaging materials for our exchange services and servicing and material costs for our refill services. Cost of sales for Dispensers consists of contract manufacturing, freight and duties.

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Selling, general and administrative expenses for Water and Dispensers consist primarily of personnel costs for sales, marketing, operations support and customer service, as well as other supporting costs for operating each segment.

Expenses not specifically related to operating segments are shown separately as Corporate. Corporate expenses are comprised mainly of compensation and other related expenses for corporate support, information systems, and human resources and administration. Corporate expenses also include certain professional fees and expenses and compensation of our Board of Directors.

The following table presents segment information for the following periods:

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Segment net sales
Water	$	17,544		$	17,264		$	48,686		$	47,624
Dispensers		7,975			8,894			23,010			22,970
	$	25,519		$	26,158		$	71,696		$	70,594

Segment income (loss) from operations
Water	$	4,924		$	4,718		$	13,652		$	12,654
Dispensers		447			(441	)		701			(1,223	)
Corporate		(2,661	)		(2,770	)		(8,303	)		(8,575	)
Non-recurring and acquisition-related costs		(96	)		(170	)		(190	)		(565	)
Depreciation and amortization		(3,050	)		(2,898	)		(8,579	)		(7,929	)
Goodwill impairment		–			–			–			(11,488	)
	$	(436	)	$	(1,561	)	$	(2,719	)	$	(17,126	)

Depreciation and amortization expense:
Water	$	2,733		$	2,553		$	7,601		$	6,946
Dispensers		148			164			445			483
Corporate		169			181			533			500
	$	3,050		$	2,898		$	8,579		$	7,929

Capital expenditures:
Water							$	5,394		$	2,894
Dispensers								62			876
Corporate								193			34
							$	5,649		$	3,804

							At September 30,			At December 31,
Identifiable assets:							2013			2012
Water							$	60,546		$	65,483
Dispensers								8,911			9,490
Corporate								4,383			3,761
Assets of disposal group held for sale								300			3,041
							$	74,140		$	81,775

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9.	Subsequent Events

On November 12, 2013, we entered into a Strategic Alliance Agreement (the “Agreement”) with DS Waters of America, Inc. (“DS Waters”) pursuant to which DS Waters will act as our primary bottler and distributor of three and five gallon purified bottled drinking water (the “Product”) and provider of exchange and supply services for the Product in the United States. Pursuant to the Agreement, DS Waters will become our primary bottler and distributor in the United States in all territories where we do not currently have an existing distributor agreement and in other territories as existing regional operator arrangements expire or are terminated.

In connection with its entering into the Agreement, we agreed to issue a warrant to DS Waters to purchase 475 unregistered shares of the Primo’s common stock (the “DS Waters Warrant”). The DS Waters Warrant will be exercisable at an exercise price of $3.04 per share and will expire on or before January 1, 2021.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and related notes thereto in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2012. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in “Cautionary Note Regarding Forward-Looking Statements” in this Item 2 and in “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2012.

Overview

Primo Water Corporation (together with its consolidated subsidiaries, “Primo”, “we”, “our,” “us”) is a leading provider of multi-gallon purified bottled water, self-serve filtered drinking water and water dispensers sold through major retailers in the United States and Canada. We believe the market for purified water is growing due to evolving taste preferences, perceived health benefits and concerns regarding the quality of municipal tap water. Our products provide an environmentally friendly, economical, convenient and healthy solution for consuming purified and filtered water. We are a Delaware corporation that was founded in 2004 and is headquartered in Winston-Salem, North Carolina.

Our business is designed to generate recurring demand for our purified bottled water or self-serve filtered drinking water through the sale of innovative water dispensers. This business strategy is commonly referred to as “razor-razorblade” because the initial sale of a product creates a base of users who frequently purchase complementary consumable products. We believe dispenser owners consume an average of 35 multi-gallon bottles of water annually. Once our bottled water is consumed using a water dispenser, empty bottles are exchanged at our recycling center displays, which provide a recycling ticket that offers a discount toward the purchase of a new bottle of Primo purified water (“Exchange”) or they are refilled at a self-serve filtered drinking water location (“Refill”). Each of our multi-gallon water bottles can be sanitized and reused up to 40 times before being taken out of use, crushed and recycled, substantially reducing landfill waste compared to consumption of equivalent volumes of single-serve bottled water. As of September 30, 2013, our products and services were offered in each of the contiguous United States and in Canada at approximately 24,300 combined retail locations, including Lowe’s Home Improvement, Walmart, Kmart, Meijer, Kroger, Food Lion, H-E-B Grocery, Sobeys and Walgreens.

We provide major retailers throughout the United States and Canada with single-vendor solutions for Exchange and Refill services, addressing a market demand that we believe was previously unmet. Our solutions are easy for retailers to implement, require minimal management supervision and store-based labor, and provide centralized billing and detailed performance reports. Our Exchange solution offers retailers attractive financial margins and the ability to optimize typically unused retail space with our displays. Our Refill solution provides filtered water through the installation and servicing of reverse osmosis water filtration systems in the back room of the retailer’s store location, which minimizes the usage of the customer’s retail space. The refill vending machine, which is typically accompanied by a sales display containing empty reusable bottles, is located within the retailer customer’s floor space. Additionally, due to the recurring nature of water consumption, retailers benefit from year-round customer traffic and highly predictable revenue.

Business Segments

At September 30, 2013, we had two operating segments and two reportable segments: Primo Water (“Water”) and Primo Dispensers (“Dispensers”).

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In 2012, we committed to a plan to sell the assets related to the sparkling beverage appliances, flavor concentrates, CO2 cylinders and accessories sold under the Flavorstation brand (the “Disposal Group”), which met all the criteria for classification as discontinued operations. As a result, current and prior year amounts and disclosures reflect these operations as discontinued operations, which were previously reported as the Flavorstation segment.

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations, when we refer to “same-store unit growth” for our Water segment, we are comparing retail locations at which our services have been available for at least 12 months at the beginning of the relevant period. In addition, “gross margin percentage” is defined as net sales less cost of sales, as a percentage of net sales.

Recent Developments

On November 12, 2013, we entered into a Strategic Alliance Agreement (the “Agreement”) with DS Waters of America, Inc. (“DS Waters”) pursuant to which DS Waters will act as our primary bottler and distributor of three and five gallon purified bottled drinking water (the “Product”) and provider of exchange and supply services for the Product in the United States. Pursuant to the Agreement, DS Waters will become our primary bottler and distributor in the United States in all territories for which we do not currently have an existing distributor agreement and in other territories as existing regional operator arrangements expire or are terminated.

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Results of Operations

The following table sets forth our results of operations:

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Consolidated statements of operations data:
Net sales	$	25,519		$	26,158		$	71,696		$	70,594
Operating costs and expenses:
Cost of sales		18,936			19,868			53,924			54,081
Selling, general and administrative expenses		3,873			4,783			11,722			13,657
Non-recurring and acquisition-related costs		96			170			190			565
Depreciation and amortization		3,050			2,898			8,579			7,929
Goodwill impairment		–			–			–			11,488
Total operating costs and expenses		25,955			27,719			74,415			87,720
Loss from operations		(436	)		(1,561	)		(2,719	)		(17,126	)
Interest expense and other, net		1,138			904			3,359			3,082
Loss from continuing operations before income taxes		(1,574	)		(2,465	)		(6,078	)		(20,208	)
Income tax benefit		–			–			–			(960	)
Loss from continuing operations		(1,574	)		(2,465	)		(6,078	)		(19,248	)
Loss from discontinued operations		(511	)		(1,370	)		(872	)		(14,757	)
Net loss	$	(2,085	)	$	(3,835	)	$	(6,950	)	$	(34,005	)

The following table sets forth our results of operations expressed as a percentage of net sales:

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Consolidated statements of operations data:
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Operating costs and expenses:
Cost of sales		74.2			76.0			75.2			76.6
Selling, general and administrative expenses		15.2			18.3			16.3			19.3
Non-recurring and acquisition-related costs		0.3			0.6			0.3			0.9
Depreciation and amortization		12.0			11.1			12.0			11.2
Goodwill and other impairment		–			–			–			16.3
Total operating costs and expenses		101.7			106.0			103.8			124.3
Loss from operations		(1.7	)		(6.0	)		(3.8	)		(24.3	)
Interest expense and other, net		4.5			3.4			4.7			4.3
Loss from continuing operations before income taxes		(6.2	)		(9.4	)		(8.5	)		(28.6	)
Income tax provision		–			–			–			(1.3	)
Loss from continuing operations		(6.2	)		(9.4	)		(8.5	)		(27.3	)
Loss from discontinued operations		(2.0	)		(5.3	)		(1.2	)		(20.9	)
Net loss		(8.2	%)		(14.7	%)		(9.7	%)		(48.2	%)

The following table sets forth our segment net sales and segment income (loss) from operations presented on a segment basis and reconciled to our consolidated loss from operations.

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Segment net sales
Water	$	17,544		$	17,264		$	48,686		$	47,624
Dispensers		7,975			8,894			23,010			22,970
Total net sales	$	25,519		$	26,158		$	71,696		$	70,594

Segment income (loss) from operations
Water	$	4,924		$	4,718		$	13,652		$	12,654
Dispensers		447			(441	)		701			(1,223	)
Corporate		(2,661	)		(2,770	)		(8,303	)		(8,575	)
Non-recurring and acquisition-related costs		(96	)		(170	)		(190	)		(565	)
Depreciation and amortization		(3,050	)		(2,898	)		(8,579	)		(7,929	)
Goodwill impairment		–			–			–			(11,488	)
Loss from operations	$	(436	)	$	(1,561	)	$	(2,719	)	$	(17,126	)

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Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012

Net Sales . Net sales decreased 2.4%, or $0.6 million, to $25.5 million for the three months ended September 30, 2013 from $26.2 million for the three months ended September 30, 2012. The change in net sales resulted from a $0.9 million decrease in Dispenser sales partially offset by a $0.3 million increase in Water sales.

Water. Water net sales increased 1.6% to $17.5 million, representing 68.7% of our total net sales, for the three months ended September 30, 2013. We believe that unfavorable, cooler weather conditions for the third quarter of 2013 compared to the same period in the prior year had a negative impact on Exchange and Refill net sales. The increase in Water net sales was primarily due to a 4.6% increase in Exchange sales driven by same-store unit growth of 8.5% for the Company’s U.S. Exchange services compared to the third quarter of 2012. The improvement in Exchange sales was partially offset by a 2.1% decline in Refill sales. Five-gallon equivalent units for Water for the nine months ended September 30, 2013 were unchanged from the prior period at 7.5 million.

Dispensers. Dispensers net sales decreased 10.3% to $8.0 million, representing 31.3% of our total net sales, for the three months ended September 30, 2013. The decrease was due to additional sales in the third quarter of 2012 related to the rollout of new locations for a major retailer as well as the timing of shipments to major retailers in the third quarter of 2013. Despite the 3.7% decline in dispenser unit sell-in to retailers, dispenser unit sell-thru to consumers increased 2.0% for the three months ended September 30, 2013 compared to the same period in the prior year.

Gross Margin Percentage. Our overall gross margin percentage increased to 25.8% for the three months ended September 30, 2013 from 24.0% for the three months ended September 30, 2012. The increase was due to improvements for both Water and Dispensers gross margins.

Water. Gross margin as a percentage of net sales for our Water segment increased to 33.7% for the three months ended September 30, 2013 from 32.3% for the same period in the prior year. The increase was driven by the improvement in Exchange margins, due primarily to improvements in supply chain costs, and the slight improvement in Refill margins.

Dispensers. Gross margin as a percentage of net sales for our Dispensers segment increased to 8.4% for the three months ended September 30, 2013 from 8.0% for the same period in the prior year. The increase in gross margin percentage was primarily due to improvements in supply chain costs.

Selling, General and Administrative Expenses (“SG&A”). SG&A decreased 19.0% to $3.9 million for the three months ended September 30, 2013 from $4.8 million for the three months ended September 30, 2012. As a percentage of net sales, SG&A decreased to 15.2% for the three months ended September 30, 2013 from 18.3% for the three months ended September 30, 2012.

Water. SG&A for our Water segment increased 15.1% to $1.0 million for the three months ended September 30, 2013 from $0.9 million for the three months ended September 30, 2012. Water SG&A as a percentage of Water net sales increased to 5.6% for the three months ended September 30, 2013 compared to 5.0% for the three months ended September 30, 2012. The increase in Water SG&A was primarily a result of increased headcount compared to the prior year.

Dispensers. SG&A for our Dispensers segment decreased 80.5% to $0.2 million for the three months ended September 30, 2013 from $1.2 million for the three months ended September 30, 2012. SG&A as a percentage of Dispensers segment net sales decreased to 2.8% for the three months ended September 30, 2013 from 13.0% for the three months ended September 30, 2012. This decrease was primarily due to expenses in 2012 related to the rollout of new dispenser retail locations that were not incurred in the current quarter.

Corporate. Corporate SG&A decreased 3.9% to $2.7 million for the three months ended September 30, 2013 from $2.8 million for the three months ended September 30, 2012. Corporate SG&A as a percentage of consolidated net sales decreased to 10.4% for the three months ended September 30, 2013 from 10.6% for the three months ended September 30, 2012. The change was primarily due to a reduction in bad debt expense compared to the prior year.

Non-Recurring and Acquisition-Related Costs. Non-recurring and acquisition-related costs were $0.1 million for the three months ended September 30, 2013 compared to $0.2 million for the three months ended September 30, 2012. Non-recurring and acquisition-related costs consisted primarily of certain legal charges in 2013 and severance, restructuring and certain legal charges in 2012.

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Depreciation and Amortization. Depreciation and amortization increased 5.3% to $3.1 million for the three months ended September 30, 2013 from $2.9 million for the three months ended September 30, 2012. The increase was primarily due to depreciation on additional property and equipment.

Interest Expense and Other, net. Interest expense and other, net increased to $1.1 million for the three months ended September 30, 2013 from $0.9 million for the three months ended September 30, 2012. The increase was primarily due to interest charges related to supplier financing costs incurred in 2013 which were not incurred in 2012.

Discontinued Operations. Loss from discontinued operations decreased to $0.5 million for the three months ended September 30, 2013 compared to $1.4 million for the three months ended September 30, 2012. The change is due primarily to the impact of inventory and fixed asset impairments recorded in the prior year and the overall winding-down of our discontinued operations.

Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012

Net Sales . Net sales increased 1.6%, or $1.1 million, to $71.7 million for the nine months ended September 30, 2013 from $70.6 million for the nine months ended September 30, 2012. The change was the result of a $1.1 million increase in Water net sales.

Water. Water net sales increased 2.2% to $48.7 million, representing 67.9% of our total net sales, for the nine months ended September 30, 2013. The increase in Water net sales was due to a 5.2% increase in Exchange sales driven by same-store unit growth of 10.4% for our U.S. Exchange services compared to the nine months ended September 30, 2012, partially offset by a 1.5% decrease in Refill revenue. Five-gallon equivalent units for Water for the nine months ended September 30, 2013 were unchanged from the prior period at 21.0 million.

Dispensers. Dispensers net sales increased marginally to $23.0 million, representing 32.1% of our total net sales, for the nine months ended September 30, 2013. Our dispenser unit sales to retailers decreased by 3.7% for the nine months ended September 30, 2013 compared to the same period in the prior year, due primarily to the sell-in related to the rollout of new locations for a major retailer during the first half of 2012. Despite the decline in dispenser unit sell-in to retailers, dispenser unit sell-thru to consumers increased 10.7% for the nine months ended September 30, 2013 compared to the same period in the prior year. Dispenser unit sales declined while sales were virtually unchanged due primarily to sales mix of higher priced units.

Gross Margin Percentage. Our overall gross margin percentage increased to 24.8% for the nine months ended September 30, 2013 from 23.4% for the nine months ended September 30, 2012. The increase was due to improvements for both Water and Dispensers gross margins.

Water. Gross margin as a percentage of net sales for our Water segment increased to 33.4% for the nine months ended September 30, 2013 from 32.9% for the same period in the prior year. An improvement in Exchange gross margin percentage for the period, due primarily to improvements in supply chain costs, was partially offset by a slight reduction in Refill gross margin percentage.

Dispensers. Gross margin as a percentage of net sales in our Dispensers segment increased to 6.5% for the nine months ended September 30, 2013 from 3.6% for the same period in the prior year. The increase in gross margin percentage was primarily due to improved supply chain costs and price increases during the third quarter of 2012.

Selling, General and Administrative Expenses (“SG&A”). SG&A decreased 14.2% to $11.7 million for the nine months ended September 30, 2013 from $13.7 million for the nine months ended September 30, 2012. As a percentage of net sales, SG&A decreased to 16.3% for the nine months ended September 30, 2013 from 19.3% for the nine months ended September 30, 2012.

Water. SG&A for our Water segment decreased 13.9% to $2.6 million for the nine months ended September 30, 2013 from $3.0 million for the nine months ended September 30, 2012. Water SG&A as a percentage of Water net sales decreased to 5.4% for the nine months ended September 30, 2013 compared to 6.4% for the nine months ended September 30, 2012. The decrease in Water SG&A was primarily a result of lower advertising expenses compared to the prior year.

Index

Dispensers. SG&A for our Dispensers segment decreased 60.6% to $0.8 million for the nine months ended September 30, 2013 from $2.0 million for the nine months ended September 30, 2012. This decrease was primarily due to expenses in 2012 related to the rollout of new dispenser retail locations that were not incurred in the first nine months of 2013. SG&A as a percentage of Dispensers segment net sales decreased to 3.5% for the nine months ended September 30, 2013 from 8.9% for the nine months ended September 30, 2012.

Corporate. Corporate SG&A decreased 3.2% to $8.3 million for the nine months ended September 30, 2013 from $8.6 million for the nine months ended September 30, 2012. Corporate SG&A as a percentage of consolidated net sales decreased to 11.6% for the nine months ended September 30, 2013 from 12.1% for the nine months ended September 30, 2012. The change was primarily attributable to lower bad debt and employee compensation-related expenses compared to the prior year.

Non-Recurring and Acquisition-Related Costs. Non-recurring and acquisition-related costs were $0.2 million for the nine months ended September 30, 2013 compared to $0.6 million for the nine months ended September 30, 2012. Non-recurring and acquisition-related costs consisted primarily of severance, restructuring and certain legal charges in 2013 and 2012.

Depreciation and Amortization. Depreciation and amortization increased 8.2% to $8.6 million for the nine months ended September 30, 2013 from $7.9 million for the nine months ended September 30, 2012. The increase was primarily due to the change in the estimated useful life of bottles from three years to two years effective July 1, 2012.

Interest Expense and Other, net. Interest expense and other, net increased 9.3% to $3.4 million for the nine months ended September 30, 2013 from $3.1 million for the nine months ended September 30, 2012. Lower deferred loan cost amortization was offset by supplier financing costs incurred in 2013 which were not incurred in 2012.

Income Taxes Benefit. We recorded an income tax provision in 2011 as a result of the recognition of a deferred tax liability related to tax deductible goodwill. For the nine months ended September 30, 2012, the impairment of goodwill resulted in a reversal of the related deferred tax liability and the recognition of a deferred tax asset and income tax benefit. We have provided valuation allowances to fully offset the net deferred tax assets at September 30, 2013.

Discontinued Operations. Loss from discontinued operations decreased to $0.9 million for the nine months ended September 30, 2013 compared to $14.8 million for the nine months ended September 30, 2012. The decrease is due primarily to the impact of impairment charges to goodwill and developed technology recorded for the nine months ended September 30, 2012.

Liquidity and Capital Resources

Adequacy of Capital Resources

Since our inception, we have financed our operations primarily through the sale of stock, the issuance of debt, borrowings under credit facilities and cash flow from operations. While we had no material commitments for capital expenditures as of September 30, 2013, we anticipate capital expenditures to range between $1.0 million and $1.5 million for the remainder of 2013. Anticipated capital expenditures are related primarily to growth in Water locations.

At September 30, 2013, our cash totaled $0.3 million and we had approximately $3.8 million in additional availability under the Senior Revolving Credit Facility. This availability is subject to borrowing base requirements related to our eligible accounts receivable and inventory. We anticipate that our current cash and cash equivalents, availability under the Senior Revolving Credit Facility and cash flow from operations will be sufficient to meet our needs for general corporate purposes for the foreseeable future.

Our future capital requirements may vary materially from those now anticipated and will depend on many factors including: the rate of growth in new Water locations and related display and rack costs, cost to develop new Dispenser product lines, sales and marketing resources needed to further penetrate our markets, the expansion of our operations in the United States and Canada, the response of competitors to our solutions and products, as well as acquisitions of other businesses. Historically, we have experienced increases in our capital expenditures consistent with the growth in our operations and personnel, and we anticipate that our expenditures will continue to increase as we grow our business, subject to limits related to our Comvest Term Loans and Senior Revolving Credit Facility.

Index

Our ability to satisfy our obligations or to fund planned capital expenditures will depend on our future performance, which to a certain extent is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond our control. We also believe that if we pursue any material acquisitions in the foreseeable future we will need to finance this activity through additional equity or debt financing.

Changes in Cash Flows

The following table shows the components of our cash flows for the periods presented (in millions):

	Nine months ended September 30,
	2013			2012
Net cash provided by operating activities	$	9.1		$	4.6
Net cash used in investing activities	$	(5.7	)	$	(4.5	)
Net cash (used in) provided by financing activities	$	(3.5	)	$	5.0

Net Cash Flows from Operating Activities

Net cash provided by operating activities increased to $9.1 million for the nine months ended September 30, 2013 from $4.6 million for the nine months ended September 30, 2012. The increase in cash flow from operations is primarily due to a $2.0 million increase in cash provided from net working capital components and the reduction in loss from continuing operations.

Net Cash Flows from Investing Activities

Net cash used in investing activities increased to $5.7 million for the nine months ended September 30, 2013 from $4.5 million for the nine months ended September 30, 2012 as a result of increased investment in capital expenditures.

Our primary investing activities are typically capital expenditures for property, equipment and bottles and include expenditures related to the installation of our recycle centers, display racks and reverse osmosis filtration systems at new Water locations.

Net Cash Flows from Financing Activities

Net cash used in financing activities was $3.5 million for the nine months ended September 30, 2013 compared to cash provided from financing activities of $5.0 million for the nine months ended September 30, 2012. Our financing activities for the nine months ended September 30, 2013 included repayments net of borrowings of $2.8 million compared to borrowings net of repayments of $7.2 million for the nine months ended September 30, 2012. In addition, cash used in financing activities included $0.7 million and $2.0 million of debt issuance costs for the nine months ended September 30, 2013 and 2012, respectively.

Senior Revolving Credit Facility

We entered into the Senior Revolving Credit Facility on April 30, 2012, as amended on February 21, 2013, that replaced our prior senior credit facility. The Senior Revolving Credit Facility provides for total borrowing availability of up to $20.0 million, subject to borrowing base requirements related to our eligible accounts receivable and inventory and subject to a $2.0 million reserve requirement. The Senior Revolving Credit Facility has a three and one-half year term and is secured either on a first priority or second priority basis by substantially all of our assets. The term of the Senior Revolving Credit Facility may be extended up to April 30, 2017 so long as the maturity of the Term Loan (as defined below) is extended to at least October 30, 2017. At September 30, 2013, our outstanding balance under our Senior Revolving Credit Facility was $1.2 million and we had approximately $3.8 million in additional availability. The Senior Revolving Credit Facility contains a limit on capital expenditures of $6.0 million for the year ended December 31, 2013 and for each year thereafter. The limit for capital expenditures may be increased for 2013 and thereafter based upon meeting the fixed charge coverage ratio, as stipulated and defined in the Senior Revolving Credit Facility. In addition, the Senior Revolving Credit Facility does cross default to the Term Loan.

Index

Comvest Term Loans

We entered into a credit and security agreement on April 30, 2012 (the “Credit Agreement”) pursuant to which a $15.2 million term loan (the “Term Loan”) was provided. The Credit Agreement was amended on November 6, 2012 to contemplate the plan to exit the Flavorstation business (see Note 2 to the Notes to the Consolidated Financial Statements) and provide for the classification of the operating results related to the Disposal Group as discontinued operations. In connection with the amendment, the lender consented to our sale of inventory and other assets related to the Disposal Group outside the ordinary course of business. Also in connection with the amendment, we paid the lender a $0.15 million fee and agreed to certain changes to prepayment penalties and financial covenants.

The Credit Agreement was amended on June 14, 2013 (the “Second Amendment”) to provide for an additional $3.0 million in borrowing under a second term loan (the “Add-On Term Loan”, and together with the Term Loan, the “Comvest Term Loans”), adjust the interest rate on the Term Loan, eliminate certain financial covenants and make further adjustments to prepayment penalties.

Under the terms of the Second Amendment, interest on outstanding amounts owed under the Comvest Term Loans is payable at the rate of 12.5% per annum in cash. At September 30, 2013 the aggregate outstanding balance under the Comvest Term Loans was $18.5 million.

The outstanding balances of the Comvest Term Loans are due and payable in a single installment on April 30, 2016, subject to prepayment in specified circumstances, including sales or dispositions of assets outside the ordinary course of business and sales of equity or debt securities by Primo. The Comvest Term Loans are secured by substantially all of our assets on either a first priority or second priority basis. The first priority assets consist of substantially all of the assets related to our refill services business. The security interest in all of our other assets is subordinate to the security interest securing the Senior Revolving Credit Facility.

The Comvest Term Loans contain the following financial covenants: (i) a limit on capital expenditures of $12.0 million for the year ended December 31, 2013 and for each year thereafter; (ii) an increasing minimum Adjusted EBITDA threshold that is measured at the end of each quarter, and (iii) a decreasing total debt to Adjusted EBITDA ratio that is measured at the end of each quarter. At September 30, 2013 we were in compliance of all covenants, including the following: the minimum Adjusted EBITDA threshold was $8.0 million and our Adjusted EBITDA was $8.4 million for the twelve months ended September 30, 2013; and the maximum allowed total debt to Adjusted EBITDA ratio was 3.8:1 and our ratio was 2.4:1 for the twelve months ended September 30, 2013.

Adjusted EBITDA U.S. GAAP Reconciliation

Adjusted EBITDA is a non-U.S. GAAP financial measure that is calculated as loss from continuing operations before income tax benefit, interest expense and other, net, depreciation and amortization, goodwill and other impairment, non-cash stock-based compensation expense, non-recurring and acquisition-related costs, loss on disposal of assets and other. Our Comvest Term Loans contain financial covenants that use Adjusted EBITDA. We believe Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Adjusted EBITDA is used by management to compare our performance to that of prior periods for trend analyses and planning purposes and is presented to our board of directors.

Non-U.S. GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. Adjusted EBITDA excludes significant expenses that are required by U.S. GAAP to be recorded in our financial statements and is subject to inherent limitations. In addition, other companies in our industry may calculate this non-U.S. GAAP measure differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure. The table below provides a reconciliation between loss from continuing operations and Adjusted EBITDA.

Index

	Three months ended						Nine months ended
	September 30,						September 30,
	2013			2012			2013			2012
Loss from continuing operations	$	(1,574	)	$	(2,465	)	$	(6,078	)	$	(19,248	)
Depreciation and amortization		3,050			2,898			8,579			7,929
Interest expense and other, net		1,138			904			3,359			3,082
Income tax benefit		–			–			–			(960	)
EBITDA		2,614			1,337			5,860			(9,197	)
Goodwill impairment		–			–			–			11,488
Non-cash, stock-based compensation expense		196			256			819			1,043
Non-recurring and acquisition-related costs		96			170			190			565
Loss on disposal of assets and other		69			78			307			438
Adjusted EBITDA	$	2,975		$	1,841		$	7,176		$	4,337

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.

Inflation

During the last three years, inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

Seasonality; Fluctuations of Results

We have experienced and expect to continue to experience seasonal fluctuations in our sales and operating income. Our sales and operating income have been highest in the spring and summer and lowest in the fall and winter. Our Water segment, which generally enjoys higher margins than our Dispensers segment, experiences higher sales and operating income in the spring and summer. Our Dispensers segment had historically experienced higher sales and operating income in spring and summer; however, we believe the seasonality of this segment will be more dependent on retailer inventory management and purchasing cycles and not correlated to weather. Sustained periods of poor weather, particularly in the spring and summer, can negatively impact our sales in our higher margin Water segment. Accordingly, our results of operations in any quarter will not necessarily be indicative of the results that we may achieve for a year or any future quarter.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, 2012.

Recent Accounting Pronouncements

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Cautionary Note Regarding Forward-Looking Statements

This document includes and other information we make public from time to time may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our estimates, expectations, projections, beliefs, intentions or strategies for the future, and the assumptions underlying such statements. We use the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” and similar expressions to identify our forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations. Factors that could cause these differences include, but are not limited to, the factors set forth in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

The information required by Item 3 is not required to be provided by issuers that satisfy the definition of "smaller reporting company" under SEC rules.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the chief executive officer (“CEO”) and chief financial officer (“CFO”), of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to Rule 13a-15(b) of the Exchange Act. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures are effective for the purpose of providing reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Index

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Class Action Suit

Electrotemp

Florida Concentrates Suit

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, as supplemented and updated by the discussion below. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report.

We may experience difficulties in realizing the anticipated benefits associated with our Strategic Alliance Agreement with DS Waters of America, Inc. and transitioning the services to be provided thereunder from our existing bottling and distribution network.

We may not be able to realize all of the anticipated benefits and synergies associated with the Strategic Alliance Agreement that we recently entered into with DS Waters of America, Inc. (“DS Waters”). The ability to realize the anticipated benefits of this arrangement (including incremental revenue, reduced distribution costs and improved gross margins over time) will depend, to a large extent, on our ability to successfully transition the services provided by our existing bottling and distribution network to DS Waters and to integrate the bottling, distribution, exchange and supply services to be provided by DS Waters into our water bottle exchange business. The transition to and integration of a new primary service provider is a complex, costly and time-consuming process. As a result, we are devoting significant management attention and resources to a transition plan that will implement these new bottling, distribution and service arrangements. Both our entering into the Strategic Alliance Agreement and this transition process may disrupt our existing bottling and distributor network, which could negatively impact our business and results of operations and otherwise preclude realization of the full benefits we expect to realize from the new arrangements. The failure to transition our bottling and distribution arrangements to DS Waters or to otherwise integrate the services to be provided by DS Waters into our business could cause an interruption of, or a loss of momentum in, our business activities, and could negatively impact our results of operations. In addition, if we are not successful in transitioning a certain volume of service rights to DS Waters in the prescribed time period, the compensation we are required to pay to DS Waters under the Strategic Alliance Agreement will increase and negatively impact the anticipated benefits of this arrangement. The transition of our bottling and distribution requirements to DS Waters may result in unanticipated problems, expenses, liabilities, competitive responses, loss of bottler, distributor and customer relationships, and a diversion of management’s attention. If any of our retailer customers are not satisfied with the performance of services provided by DS Waters, we could lose the business of that retailer customer which would negatively impact our business. Finally, we expect to incur costs in connection with assuming account management, billing and collections responsibility for DS Waters’ current five-gallon retail exchange customers and, if we do not realize the anticipated benefits of the business arrangement with DS Waters, including the anticipated revenues related to the addition of existing retail customers of DS Waters’ three and five gallon retail bottled water exchange business as new customers of our water bottle exchange business, these costs could have a material adverse effect on our business, result of operations and financial condition.

Index

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information

Strategic Alliance Agreement

On November 12, 2013, Primo entered into a Strategic Alliance Agreement (the “Agreement”) with DS Waters pursuant to which DS Waters will act as Primo’s primary bottler and distributor of three and five gallon purified bottled drinking water (the “Product”) and provider of exchange and supply services for the Product (the “Services”) in the United States. Pursuant to the Agreement, DS Waters will become Primo’s primary bottler and distributor in the United States in all territories for which Primo does not currently have an existing distributor agreement and in other territories as existing regional operator arrangements expire or are terminated.

Pursuant to the terms of the Agreement, the parties anticipate that DS Waters will begin providing Services to Primo on January 1, 2014 or as soon thereafter as commercially practicable. In accordance with a transition plan, distribution and other services currently provided to retailer customers of Primo by certain regional operators in the continental United States will be transitioned to DS Waters over time. Primo expects to provide DS Waters with Service rights for 90% of the annual volume of Products in connection with Primo’s bottled water exchange business by December 31, 2015.

DS Waters has agreed that it will use reasonable efforts to cause the retail customers of DS Waters’ retail bottled water exchange business to agree to receive Services from Primo no later than January 1, 2014 or as soon thereafter as commercially practicable (but not later than December 31, 2014).

The Agreement contemplates that the parties will enter into a mutually agreeable supply agreement with respect to the supply of empty bottles by DS Waters to Primo for use in connection with the Products on or prior to January 1, 2014. The supply agreement will designate DS Waters as Primo’s primary supplier of bottles to the extent that DS Waters can supply bottles, at market competitive prices, within Primo’s geographic territories that meet Primo’s bottle specifications.

Index

The Agreement provides that Primo will pay DS Waters for Services on a monthly basis as described below. The monthly compensation payable by Primo will be calculated on a per Product basis, with the amount due per Product based upon the classification of the customer to which a Product is delivered, with each such per Product amount subject to certain annual adjustments. The compensation paid to DS Waters under the Agreement is subject to additional adjustments in the event the 90% volume transfer requirement described above is not satisfied by December 31, 2015 .

The initial term of the Agreement continues until December 31, 2020, and will automatically renew for additional seven year terms (the initial term together with any renewal term is referred to as a “Term”) unless terminated in accordance with the terms of the Agreement. Either party may terminate the Agreement upon written notice to the other party at least twelve months prior to the end of any Term, and such termination will be effective at the end of such Term. The Agreement also provides each party with certain termination rights related to breach and other “for cause” circumstances. In addition, the Agreement contains certain non-competition and non-solicitation provisions for each party related to the Services.

In connection with its entering into the Agreement, Primo agreed to issue a warrant to DS Waters to purchase 475,000 unregistered shares of the Primo’s common stock (the “DS Waters Warrant”). The DS Waters Warrant will be exercisable at an exercise price of $3.04 per share and will expire on or before January 1, 2021. The issuance of the DS Waters Warrant will be made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder.

The foregoing description of the Agreement is not complete and is qualified in its entirety by reference to the Agreement, which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q, and is incorporated herein by reference.

Index

Item 6. Exhibits

EXHIBIT INDEX

Exhibit Number	Description

3.1	Sixth Amended and Restated Certificate of Incorporation of Primo Water Corporation (incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-173554) filed on May 31, 2011)
3.2	Amended and Restated Bylaws of Primo Water Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed November 16, 2010)
10.1	Strategic Alliance Agreement dated as of November 12, 2013 by and between the Company and DS Waters of America, Inc. (filed herewith)*
31.1	Certification of Periodic Report by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2	Certification of Periodic Report by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1	Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101.INS	XBRL Instance Document ^{(1, 2)}
101.SCH	XBRL Taxonomy Extension Schema Document ^{(1, 2)}
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document ^{(1, 2)}
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document ^{(1, 2)}
101.LAB	XBRL Taxonomy Extension Label Linkbase Document ^{(1, 2)}
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document ^{(1, 2)}

(1) Included herewith

(2) These interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

* Confidential treatment has been requested for portions of this exhibit. These portions have been omitted and submitted separately to the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	PRIMO WATER CORPORATION
	(Registrant)

Date: November 14, 2013	By:	/s/ Billy D. Prim
		Billy D. Prim
		Chairman and Chief Executive Officer

Date: November 14, 2013	By:	/s/ Mark Castaneda
		Mark Castaneda
		Chief Financial Officer

Exhibit 10.1

CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR SUCH PORTIONS. ASTERISKS DENOTE OMISSIONS.

STRATEGIC ALLIANCE AGREEMENT

This Strategic Alliance Agreement (“ Agreement ”) is made and entered into as of the 12th day of November, 2013 (the “ Effective Date ”), by and between Primo Water Corporation (“ Primo ”), a Delaware corporation having an office and principal place of business in Winston-Salem, North Carolina, and DS Waters of America, Inc., a Delaware corporation having an office and principal place of business in Atlanta, Georgia (“ DSW ”).

Recitals

WHEREAS, Primo is in the business of procuring, selling and distributing bottled water, and related products and services, to customers throughout the United States and Canada, including 3 and 5 gallon pre-packaged bottle water exchange services (the “ Primo Business ”);

WHEREAS, DSW is in the business of producing, selling and distributing bottled water and related products and services, procuring, selling and distributing coffee, tea and related products and services, providing water filtration and related products and services, and leasing coolers, brewers, dispensers and other equipment for use with such products, to homes, offices and retail businesses (the “DSW Business”) ; and

WHEREAS, Primo desires that DSW assist, and DSW desires to assist, Primo in the Business by acting as Primo’s primary bottler and distributor of the Products and provider of the Services within the Territory during the Term in accordance with the terms and conditions of this Agreement.

Agreement

NOW, THEREFORE, for and in consideration of the mutual promises and covenants contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Definitions . As used herein, the following terms shall have the respective meanings indicated below. All other terms defined herein but not listed below shall have the meanings given such terms elsewhere in this Agreement.

“ Affiliate ” shall mean, when used with respect to a person, any other person now or, as to future acts or occurrences, hereafter directly or indirectly controlling or controlled by or under direct or indirect common control with such person.

“ best efforts ” means a party’s reasonable commercial efforts.

“ Bottle ” means Primo Bottles and DSW Bottles that conform to the Specifications.

“ Bottler ” shall mean any third-party bottler selected by DSW from which DSW obtains Product to be distributed under this Agreement.

“Business” means Primo’s retail customer three (3) and five (5) gallon bottled water exchange business.

[Confidential treatment has been requested]

“Cap Labels” shall mean those labels displaying information relating to the Products as required by Applicable Laws intended to be affixed to caps provided by DSW for the Products.

“ Customers ” shall mean DSW Customers, Primo Customers, New Customers and, as set forth in Section 4(c), Continuing DSW Customers.

“Distribution Manual” shall mean a written manual that includes terms, conditions, requirements and procedures relating to DSW’s performance obligations under this Agreement, including without limitation operations, Product quality matters (including an internal certification and inspection process and the delivery of quality reports), service levels and a “scorecard” to measure service performance, which service levels the parties agree shall be at levels necessary to satisfy reasonable Customer requirements. The parties will use their best efforts to finalize and agree upon the Distribution Manual no later than the Targeted Commencement Date. The Distribution Manual may be amended thereafter only by the mutual written agreement of the parties. If the parties are unable to finalize and agree upon the Distribution Manual by the Targeted Commencement Date, the parties shall undertake the informal dispute resolution procedures set forth in Section 24(a).

“ Distributor ” shall mean any third-party distributor with which DSW subcontracts to provide Products and Services to Customers under this Agreement, which may include, without limitation, Existing Distributors.

“ DSW Bottle ” means a three (3) and five (5) gallon container that is constructed of plastic or any other material approved by Primo and bears DSW’s trademarks (subject to subsection 1 of Schedule I ).

“ DSW Customer(s) ” shall mean those retailer customers of DSW’s 3 and/or 5 gallon bottled water exchange business listed on Schedule B . For the avoidance of doubt, “DSW Customers” shall include any and all locations, including without limitation future locations, of any retailer customer of DSW’s 3 and/or 5 gallon bottled water exchange business listed on Schedule B.

“DSW Intellectual Property ” shall mean DSW Patents, DSW customers lists, any and all trademarks of DSW displayed on any Product, and any and all other intellectual property of DS Waters associated with Products or Services including, but not limited to, DS Waters’ Crystal Fresh Formulation included in the Specifications.

“DSW Display and Return Equipment and Materials” shall mean any and all Product display and return equipment and materials owned by DSW and located on-site at DSW Customer locations, including, without limitation, display racks, return bins and other retailer displays, an inventory of which will be developed by the parties pursuant to the Transition Plan.

“ DSW Patents ” shall mean those patents with Patent Nos. 8,360,272 and 8,113,382 owned by DSW and any and all continuations, divisions, reissues, and reexaminations of any thereof, and any other patents or patent applications owned by DSW and associated with DSW Display and Return Equipment and Materials.

“ DSW Production and Delivery Equipment and Materials ” shall mean any and all production and/or delivery equipment and materials provided by or on behalf of DSW in connection with this Agreement, including, without limitation, caps, Cap Labels, minerals, trucks, transport racks, back-stock inventory storage racks, computer and communications equipment, and any other equipment and materials necessary to produce and deliver Products and to perform the Services in accordance with this Agreement.

[Confidential treatment has been requested]

Page 2

“DSW Representatives” shall mean any and all employees, agents, representatives, Bottlers, Distributors, Affiliates or subcontractors of DSW.

“ DSW Water ” shall mean purified drinking water formulated according to the Specifications.

“ Existing Distributor ” shall mean any third-party distributor that DSW uses to provide bottled water exchange distribution services for DSW Customers as of Effective Date, as listed on Schedule A , provided, however, the parties understand and agree that upon the execution of this Agreement, the names of the Existing Distributors shall be redacted from Schedule A but shall be revealed by DSW to Primo promptly following execution of this Agreement.

“ FDA ” shall mean the U.S. Food and Drug Administration , or any successor entity.

“ GMP ” shall mean Good Manufacturing Practices promulgated by the FDA and set forth in Title 21 Subchapter B - Food for Human Consumption Parts 110, 129 and 165.

“ HACCP ” shall mean Hazard Analysis and Critical Control Points promulgated by the FDA and set forth in Title 21 Subchapter B - Food for Human Consumption Part 120.

“ IBWA ” shall mean the International Bottled Water Association.

“ New Customers ” shall mean all retailer customers of the Business that are not DSW Customers, Primo Customers or Continuing DSW Customers.

“Primo Bottle” means a three (3) or five (5) gallon container that is constructed of plastic or any other material approved by Primo and bears Primo’s trademarks.

“ Primo Customers ” shall mean those retailer customers of the Business listed on Schedule B . For the avoidance of doubt, “Primo Customers” shall include any and all locations, including without limitation future locations, of any retailer customer of the Business listed on Schedule B.

“ Primo Display and Return Equipment and Materials ” shall mean any and all Product display and return equipment and materials provided by or on behalf of Primo in connection with this Agreement, including, without limitation, retailer displays and display racks, and return bins located at Customers, an initial inventory of which will be developed by the parties pursuant to the Transition Plan (the parties acknowledge and agree that such initial inventory will change over time as Primo provides additional Primo Display and Return Equipment and Materials hereunder).

“Primo Intellectual Property” shall mean Primo customer lists, the PRIMO trade name, Primo copyrights, Primo patents, Primo trademarks and service marks (including those trademarks with Trademark Registration Numbers 4071634, 3166619 and 3966107 owned by Primo), and any and all intellectual property of Primo included in or associated with any Products, Services, displays, return apparatus, decals and/or marketing or advertising materials provided by Primo to DSW in connection with this Agreement.

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“ Primo Water ” shall mean purified drinking water formulated according to the Primo’s trade secret formula.

“ Product(s) ” shall mean Primo Water or DSW Water packaged in a Bottle in accordance with the Specifications which is sold using Primo’s or DSW’s brand names.

“ Reconciliation Balance ” shall mean, for each Customer, (A) the difference between (i) the number of Bottles of Product delivered by or on behalf of DSW to such Customer for any given period, and (ii) the number of Bottles of Product for which Primo receives full payment from such Customer for such period, times (B) the payment rate per Bottle for such Customer as set forth on Schedule E .

“ Service(s) ” shall mean Product exchange and supply service provided to Customers, comprised of exchanging filled Bottles (including DSW Bottles and/or Bottles branded with DSW trademarks for certain DSW Customers) for empty Bottles (whether Primo Bottles or not), and delivering Products without corresponding exchanges of empty Bottles, in each case in accordance with the terms and conditions of this Agreement.

“ Specifications ” shall mean the specifications attached as Schedule G . The Specifications may be changed from time to time upon the mutual written agreement of the parties.

“ Territory ” shall mean the United States of America.

“ Term ” shall mean collectively the Initial Term and any Renewal Term(s) (as those terms are defined in Section 3).

2.	Appointment

(a) Subject to and limited by the provisions of Section 2(b), Primo hereby appoints DSW, and DSW accepts such appointment, as Primo’s primary bottler and distributor for the Product and provider of the Service within the Territory, and for no other purpose whatsoever, for the Term of this Agreement and pursuant and subject to all the terms, provisions and conditions set forth herein, and in the Schedules hereto, the Distribution Manual and the Transition Plan (all as amended by the mutual written agreement of the parties from time to time and all of which, as amended, are incorporated herein by reference) . DSW acknowledges that it has paid no fee or other consideration for this appointment, that the only consideration therefor consists of the mutual promises and covenants contained herein, and that it has no franchise rights hereunder. It is understood and agreed that Primo reserves the right to discontinue offering any Product or Service for sale at any time upon notice to DSW without incurring any liability to DSW; provided, however, that if Primo discontinues offering, on a substantially complete basis, the Product and the Service in the Territory, DSW may, upon forty-five (45) days written notice if Primo fails to resume offering the Product and Service in the Territory during such notice period, terminate this Agreement. DSW acknowledges and agrees that it is not relying on any information, projections, forecasts, pro formas or other information provided by Primo or its Affiliates. Any investment by DSW in any property, plant, equipment or labor in anticipation of, or in connection with, this Agreement is DSW’s sole decision and made at DSW’s sole risk.

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(b) Phase-In of Services .

(i) Subject to the other provisions of this Section 2, the parties intend for DSW to begin providing Services under this Agreement commencing on January 1, 2014 (the “ Targeted Commencement Date ”), or as soon thereafter as commercially practicable; provided that DSW may begin providing the Services at an earlier time pursuant to Section 2(b)(iii). DSW understands and acknowledges that Primo currently has contracts with multiple distributors and regional operators as listed on Schedule C (collectively, “ Regional Operators ”), which contracts provide the Regional Operators with distribution and other rights with respect to the Products and Services within various geographic areas (collectively, the “ Regional Operator Territories ”) within the Territory (collectively, the “ Regional Operator Rights ”). Primo represents and warrants that it has listed all of its Regional Operators, the dates of the expiration of the contracts reflecting their respective Regional Operator Rights and their aggregate trailing twelve (12) month annual volume of Products in connection with the Business (through October, 2013) on Schedule C , and that such schedule is accurate and complete in all material respects (provided, however, the parties understand and agree that upon the execution of this Agreement, the names of the Regional Operators shall be redacted from Schedule C but shall be revealed by Primo to DSW promptly following execution of this Agreement). Nothing in this Agreement shall be deemed to violate any of the Regional Operator Rights, and, subject to Section 2(b)(v), Primo and the Regional Operators may continue to perform their respective obligations under their existing contracts, and the Regional Operators may continue to exercise their Regional Operator Rights, without Primo’s being deemed in violation of this Agreement as a result thereof.

(ii) Nothing in this Agreement shall be deemed to impose any obligation on Primo to breach any agreement with any Regional Operator or make any payment to any Regional Operator in order to induce the early termination of any Regional Operator Rights, including pursuant to any buy-out or similar provision in any existing agreement between Primo and any Regional Operator.

(iii) As soon as practicable after receiving notice thereof, taking into account DSW’s business and operations, but in any event no later than seven (7) days after DSW receives written notice from Primo of the expiration or termination of Regional Operator Rights, or as otherwise requested by Primo in accordance with the notice provisions of this Agreement, with regard to any Regional Operator Territory, whether before or after the Targeted Commencement Date, DSW shall begin providing Services hereunder within such Regional Operator Territory and each party agrees that it shall use its best efforts (and Primo shall use best efforts to cause such Regional Operator to provide transition services necessary) to ensure that transitions from Regional Operators to DSW with respect to any Regional Operator Territories will be managed and timed in a manner that will minimize the risk of any stock-outs or interruption to, slowdown in or other disruption of service to any Customer; provided, that at the time of DSW’s receipt of such notice, Primo has provided sufficient Bottles to each DSW production location and fulfilled any other obligations pursuant to Section 6 hereof as may be necessary for DSW to provide the Products and Service within the applicable Regional Operator Territory. Notwithstanding the foregoing, (a) Primo will use its best efforts to provide DSW with notice of the expiration or termination of Regional Operator Rights as far in advance of the effective date of such expiration or termination as practicable and (b) DSW will use its best efforts to comply with the reporting obligations contained in Section 5 of this Agreement as soon as practicable after the transfer of Regional Operator Rights but will not be required to submit daily electronic reports pursuant to Section 5 prior to the date that is 45 days after such transfer (provided, however, that during the period between the date of such transfer and the date that DSW begins providing daily electronic reports pursuant to Section 5, DSW shall provide manual reports to Primo as may be reasonably necessary in order for Primo to invoice Customers, as may be further described in the Transition Plan).

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(iv) Primo covenants and agrees that it will provide DSW with Service rights with respect to no less than ninety percent (90%) of the annual volume of Products in connection with the Business (the “Volume Requirement” ) no later than December 31, 2015. For purposes of calculating the Volume Requirement, (x) the “annual volume of Products in connection with the Business” shall be the aggregate twelve (12) month trailing annual volume shown on Schedule C, and (y) the total annual volume shown on Schedule C with respect to any given Regional Operator shall be deemed to be Service rights provided by Primo to DSW hereunder upon (I) the expiration or termination of the agreement evidencing such Regional Operator’s Regional Operator Rights; (II) the expiration or termination of the arrangement pursuant to which such Regional Operator currently provides Service within a Regional Operator Territory in circumstances where such Regional Operator does not have in effect a formal written agreement; and (III) DSW’s reaching an agreement with such Regional Operator pursuant to which such Regional Operator would provide distribution of the Product on DSW’s behalf in such Regional Operator’s Regional Operator Territory, whether on a transitional basis or otherwise. If the Volume Requirement is not achieved by December 31, 2015, DSW’s compensation hereunder shall be adjusted as provided in Schedule E . Such adjustment shall be DSW’s sole and exclusive remedy relating to a failure to achieve the Volume Requirement.

(v) Primo agrees that (a) upon expiration or any termination of Regional Operator Rights, such rights will be transferred to DSW consistent with the terms and provisions of this Agreement and (b) the distribution and other rights with respect to the Products and Services for all new Business obtained in the Territory during the Term that is not within a Regional Operator Territory and subject to Regional Operator Rights will be granted to DSW consistent with the terms and provisions of this Agreement.

(c) DSW will use its best efforts to perform all functions and services necessary to accomplish the transition described in this Agreement in accordance with the initial, high-level transition plan attached to the Agreement as Schedule F (the “Transition Plan ”). The parties agree to use their best efforts in good faith to mutually agree in writing on a more detailed Transition Plan within 90 days of the Effective Date, which will upon such mutual written agreement supersede and replace the initial Transition Plan. If the parties are unable to finalize and agree upon the more detailed Transition Plan within such period, the parties shall undertake the informal dispute resolution procedures set forth in Section 24(a). In all cases, and among other things, the Transition Plan will define the transition timeline, the overall content of and the responsibility for preparing and finalizing the Distribution Manual, the role and responsibility of each party to accomplish the transition, and a designated individual for each party who shall be responsible for the overall management and implementation of the transition.

(d) Nothing in this Agreement shall be construed to limit either party’s right to conduct the Business itself or through other distributors outside of the Territory. In addition to its other rights and remedies hereunder or at law or equity, Primo and any of its Affiliates and agents may bottle, distribute, or have a third party bottle and/or distribute, the Product and provide, or have a third party provide, the Service to Customers in all or any part of the Territory, including all or any part of any region within the Territory, during any times in which DSW has failed to comply with the terms, conditions and obligations of this Agreement (including without limitation those set forth in the Transition Plan and the Distribution Manual) in any material respect, provided that Primo has given DSW no less than five (5) business days’ prior written notice with sufficient detail of the alleged compliance failure and an opportunity for DSW to cure such failure during such time. DSW shall use its best efforts to cooperate with Primo at no charge to transition any Services that are the subject of any such compliance failure to Primo or a third party designated by Primo. Primo acknowledges and agrees that promptly after DSW cures such failure, or reasonably demonstrates to Primo that DSW can permanently cure such failure if DSW were to then provide the applicable Products and/or Services and will promptly effect such permanent cure (whether or not such cure or demonstration of such ability to cure occurs during or after such five (5) business day period), any rights to produce, bottle and/or distribute Products and/or provide the Services that were transferred to Primo or a third party shall be transferred back to DSW.

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3. Term . This Agreement shall commence on the Effective Date specified above, and shall, unless earlier terminated pursuant to the provisions hereof, continue until December 31, 2020 (“ Initial Term ”), when it shall either be terminated pursuant to the provisions hereof, or, unless so terminated, be automatically renewed for one (1) or more successive seven (7) year terms (“ Renewal Terms ”), each of which shall be subject to the termination and all other provisions hereof (collectively the “ Term ”).

4.	Customers and Territory .

(a) As of the Effective Date, DSW provides Product and Service, using DSW Water and under DSW-owned brands, to the DSW Customers, and bills and collects from the DSW Customers directly for that service, pursuant to various vendor agreements and other arrangements (collectively, the “ DSW Vendor Agreements ”). DSW hereby agrees to use its best efforts to cause the DSW Customers to agree to receive the Service from Primo and DSW as provided in this Agreement, and to become a Customer of Primo hereunder, no later than January 1, 2014 or as soon thereafter as is commercially practical, but not later than December 31, 2014; provided, however, that Primo and DSW may mutually agree to delay any DSW Customer’s becoming a Customer of Primo hereunder in order to facilitate customer service planning, manage customer preferences, or to take into account other business considerations.

(b) For those DSW Customers that receive the Service from Primo and DSW as provided in Section 4(a), the parties agree to work together in good faith to either assign such Customer’s DSW Vendor Agreement to Primo or arrange for Primo to enter into a new vendor agreement or arrangement with such DSW Customer related to Service. All DSW Customers who receive Service hereunder shall be deemed “Customers” under this Agreement.

(c) For those DSW Customers that do not receive (or are delayed in receiving, pursuant to the proviso at the end of Section 4(a)) the Service from Primo and DSW as provided in Section 4(a) (each such customer (and only during the period, prior to December 31, 2014, such customer is not receiving the Service from Primo and DSW as provided in Section 4(a)), a “ Continuing DSW Customer” ), the parties acknowledge and agree that DSW shall continue to provide all aspects of the Services to such Continuing DSW Customers, including billing and collections services. Additional provisions regarding the Continuing DSW Customers are set forth in Schedule H . DSW shall use its best efforts to retain all Continuing DSW Customers.

(d) DSW’s appointment and authority hereunder is limited to the provision of Products and Services to Customers within the Territory. DSW shall have no proprietary interest in the Territory, any Region, or any Customer (other than DSW’s rights to DSW Customers as expressly provided in this Agreement and to Continuing DSW Customers), and for the avoidance of doubt, all “Customers” (other than Continuing DSW Customers) shall be deemed customers of Primo and not customers of DSW with respect to the Business, the Product and the Service (provided, however, that the foregoing shall only apply to DSW Customers as provided in Section 4(a) effective January 1, 2014). Primo may add, terminate or modify Customer relationships in its sole and absolute discretion without obligation to DSW; provided that Primo shall use its best efforts to retain all DSW Customers (other than Continuing DSW Customers while they remain Continuing DSW Customers, which shall be the responsibility of DSW as provided in Section 4(c)) and to solicit and engage New Customers.

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5.	DSW Duties .

(a) Product and Service Requirements . DSW shall bottle and deliver Products and provide Service on Primo’s behalf to Customers throughout the Territory (provided, however, that the parties agree that DSW’s bottling and delivery obligations in Alaska and Hawaii shall be limited to best efforts obligations). DSW shall be solely responsible for producing (or obtaining through Bottlers), at its sole cost and expense, all Products required to provide the Services to Customers in the Territory in accordance with this Agreement; provided, however, that in addition to its other rights and remedies hereunder, DSW’s obligations to bottle and deliver Products and provide the Service hereunder shall be suspended during any period, and to the extent, that Primo fails to supply Bottles and Primo Production and Delivery Equipment and Materials necessary, as required under this Agreement, for DSW to satisfy those obligations, and/or, in such event, DSW may provide (or have a third party provide), at Primo’s sole cost and expense, Bottles or equipment necessary for DSW to provide Services hereunder; provided, however that, DSW’s obligations hereunder shall not be suspended to the extent, and with respect to regions where, DSW has provided (or has caused a third party provide), at Primo’s sole cost and expense, Bottles or equipment necessary for DSW to provide Services hereunder. DSW shall discharge and perform the foregoing, and all of its other duties and obligations under this Agreement, in strict conformance and accordance with the provisions hereof, including the Transition Plan, the Distribution Manual, the Specifications, and all applicable laws and regulations, including without limitation those of the FDA (including without limitation HACCP and GMP) ( “Applicable Laws” ). Notwithstanding the foregoing, the delivery of Primo Water to Continuing DSW Customers shall be subject to the prior written consent of both Primo and DSW.

(b) Disposal and Cost of Substandard Product . If any “sub-standard Product” is produced by DSW or any Bottler, or delivered to Customers by or on behalf of DSW, DSW shall be solely responsible for all costs, losses, damages and expenses relating thereto, including without limitation all return costs, Customer reimbursements, damages that may be owed to Customers or consumers with respect to such sub-standard Product, replacement costs for any Bottles relating to sub-standard Product that have to be destroyed as a result of such Product being sub-standard, and disposal costs. For purposes of this Section, “ sub-standard Product ” shall be defined as Product produced or distributed by or on behalf of DSW under this Agreement that does not comply with this Agreement (including, without limitation, the Specifications) or any Applicable Laws, in each case in any material respect, as well as any Product subject to a recall initiated by DSW or required by any governmental authority of competent jurisdiction (a “ Recall ”).

(c) No Liens . All Product supplied by or on behalf of DSW pursuant to this Agreement shall be maintained free and clear of any mortgage, lien, pledge, charge, security interest or encumbrance of any nature caused by DSW or DSW’s Representatives, and, without limiting DSW’s obligations under Article 20, DSW covenants and agrees to indemnify and save harmless Primo for any loss or expense incurred by Primo in connection with any of the foregoing. DSW shall not permit any liens or encumbrances to attach to any Primo Display and Return Equipment and Materials or any Bottles that are in DSW’s or a DSW Representative’s possession.

(d) Product Recall . DSW shall promptly notify Primo upon DSW’s becoming aware of any Product that is the subject of a Recall. DSW shall bear all costs and expenses associated with any Recall relating to Product, except to the extent that such Recall is caused by the acts or omissions of Primo or any of its subcontractors or representatives.

(e) Specifications; Product Warranty .

(i) DSW shall ensure that all Products are produced in strict conformance with the Specifications.

(ii) Without limiting any other provision of this Agreement, DSW warrants and represents that all Product will be manufactured and packaged (including with appropriate Cap Labels and appropriately affixed caps so as to avoid any leakage or contamination) (A) in compliance with the Specifications and all Applicable Laws, and (B) otherwise in the manner provided for in this Agreement, the Transition Plan or the Distribution Manual. In addition, DSW warrants and represents that all Product, as of the time of delivery of such Product to a Customer, will not be contaminated, adulterated, or in any manner unfit or unsafe for human consumption.

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(iii) DSW shall be responsible for the content of all Cap Labels (excluding any content provided by Primo) and shall ensure that all Cap Labels comply with Applicable Laws.

(f) DSW Production and Delivery Equipment and Materials . DSW shall be responsible for providing, at its sole cost and expense, the DSW Production and Delivery Equipment and Materials necessary to produce Products in accordance with the Specifications and to perform Services. DSW shall retain ownership of all DSW Production and Delivery Equipment and Materials notwithstanding any Primo Intellectual Property that may be displayed on such equipment and materials; provided, however, that DSW shall, upon expiration or termination of this Agreement or otherwise at Primo’s request, promptly remove any Primo Intellectual Property that may be displayed on such equipment and materials. For clarification, DSW shall have no right, title or claim of ownership to any Primo Intellectual Property that may be displayed on or with such DSW Production and Delivery Equipment and Materials.

(g) Bottles . DSW shall provide Primo with a daily report setting forth the total amount of Primo Bottles collected by DSW or DSW Representatives from DSW Display and Return Equipment and Materials or Primo Display and Return Equipment and Materials. DSW shall also provide Primo with the monthly reconciliation described in Schedule I with regard to Bottles. All Primo Bottles shall be deemed the property of Primo for all purposes under this Agreement. All DSW Bottles used to service a Continuing DSW Customer shall be deemed the property of DSW for all purposes of this Agreement. DSW shall maintain all Bottles in good condition and appearance, ordinary wear and tear excepted. Primo will be responsible for any damage, loss or deficit with respect to Bottles and shall replace such lost, missing or damaged Bottles with replacement Bottles in accordance with this Agreement, other than with respect to those Bottles for which Primo is paying DSW a monthly fee pursuant to Section 2 of Schedule I ; DSW will be responsible for any damage, loss or deficit with respect to the Bottles for which Primo is paying DSW a monthly fee pursuant to Section 2 of Schedule I and shall replace such lost, missing or damaged Bottles with replacement Bottles. Each party shall execute, and cooperate with the other party in filing, all documents reasonably sufficient to evidence and protect such other party’s ownership or other interest in the Primo Bottles or DSW Bottles, as applicable.

(h) Display Equipment and Materials .

(i) DSW shall not use, and shall ensure that no DSW Representative uses, without Primo’s prior written consent, any Primo Display and Return Equipment and Materials other than those supplied by or on behalf of Primo under this Agreement. DSW shall maintain adequate records of all Primo Display and Return Equipment and Materials received from Primo in connection with this Agreement.

(ii) DSW shall retain ownership of all DSW Display and Return Equipment and Materials notwithstanding any Primo Intellectual Property that may be displayed on such equipment and materials; provided, however, that DSW shall, upon expiration or termination of this Agreement or otherwise at Primo’s request, promptly remove any Primo Intellectual Property that may be displayed on such DSW Display and Return Equipment and Materials. For clarification, DSW shall have no right, title or claim of ownership to any Primo Intellectual Property that may be displayed on or with such DSW Display and Return Equipment and Materials.

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(iii) DSW periodically will inspect Primo Display and Return Equipment and Materials and DSW Display and Return Equipment and Materials and will provide Primo with notice of any items that are in need of repair or replacement promptly (and no later than five (5) business days) after DSW becomes aware of such repair and/or replacement necessity; provided, that DSW’s inspection will be a visible, in-store inspection, and DSW will not be responsible for any failure to identify a deficiency that is not obvious. DSW shall not be obligated to repair any such equipment unless separately agreed to in writing with Primo. Reasonably promptly after the receipt of written notice from Primo, DSW shall (x) remove any DSW Display and Return Equipment and Materials and/or Primo Display and Return Equipment and Materials from Customer locations as set forth in such notice, (y) store such equipment at a DSW facility for a period of no longer than thirty (30) days, and (z) install Primo Display and Return Equipment and Materials when required to replace defective or obsolete equipment or for New Customers; provided, that such Primo Display and Return Equipment and Materials for installation (A) comply with the terms of this Agreement, (B) are procured by Primo and delivered to DSW’s designated location at Primo’s sole cost and expense and (C) are required to be installed in a reasonable manner with respect to quantities and timing.

(i) Reporting and Communications . DSW shall be required to provide, at its sole cost and expense, Primo with an electronic report on each business day during the Term setting forth, for the previous business day, sufficient information for Primo to invoice Customers.

(j) Collections . DSW shall provide reasonable support and assistance to Primo with regard to Customer collections and shall use its best efforts to work and cooperate with Primo to reduce the Reconciliation Balance to the extent commercially practicable. DSW shall be responsible for billing and collections with respect to Continuing DSW Customers.

(k) Best Efforts . DSW shall exercise its best efforts to meet and fulfill all of its duties and other obligations established in this Agreement. However, DSW’s exercise of such best efforts shall not operate to forgive or excuse any failure by DSW to meet any obligation or duty imposed upon it by this Agreement. DSW shall not engage in any activity to circumvent this Agreement.

(l) Notice of Potential Claim to Primo . DSW shall notify Primo within five (5) business days upon discovering any fact(s), circumstance(s) or contention(s) that would reasonably be expected to result in a material claim against Primo or DSW relating in any way to the Business, any Service or any Product (hereafter collectively “ occurrence ”). After providing such notice, the parties shall mutually agree on an appropriate response to such occurrence, which response may include diligently investigating any such occurrence. DSW shall reasonably cooperate with Primo in any investigation the parties may elect to undertake.

(m) Regional Operator Service Level Requirements . The parties hereto acknowledge and agree that DSW may, in its sole discretion, elect to subcontract certain of its obligations under this Section 5 to Regional Operators. With respect to any such subcontract, the service level requirements and product specifications implemented by any such Regional Operators in connection with their agreements with Primo will be deemed compliant with DSW’s obligations hereunder for a transition period comprised of the first ninety (90) days after the effective date of such subcontract.

6.	Primo Duties .

(a) Bottles . Except as otherwise provided in Section 5(g) and Schedule I , Primo shall, at its sole cost and expense and at no charge to DSW, provide to DSW at its designated production locations or, as directed by DSW in writing, Bottler production locations, all Bottles necessary for production of Product in accordance with this Agreement. Primo may satisfy this obligation through used Primo Bottles and DSW Bottles located as of the Effective Date at Customer locations, including at DSW Customer locations. Primo shall retain ownership of all Bottles, except for DSW Bottles. The parties acknowledge and agree that empty bottles that are collected at Primo Display and Return Equipment and Materials and DSW Display and Return Equipment and Materials that are not DSW Bottles or Primo Bottles will be scrapped and replaced in accordance with the provisions of Section 5(g). Primo shall make payments to DSW for the purchase and use of DSW Bottles at DSW Customer locations as set forth in Schedule I . The parties understand and agree that Bottles in DSW Customer locations as of the Targeted Commencement Date shall be Bottles that were purchased and provided by DSW and for which DSW is being compensated by Primo pursuant to Schedule I .

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(b) Displays and Signage . Primo shall provide to DSW, at Primo’s sole cost and expense, vehicle decals, displays, signage and other advertising and marketing materials bearing Primo’s Intellectual Property in such quantities as determined by Primo. The cost of installation of such vehicle decals and displays shall be the sole responsibility of DSW; provided, however, that the installation and/or display of any such decals or displays on DSW Production and Delivery Equipment and Materials shall be subject to the sole discretion of DSW. The cost of installation of displays, signage and other advertising and marketing materials on any newly-installed Primo Display and Return Equipment and Materials and/or newly-installed DSW Display and Return Equipment and Materials shall be the sole responsibility of DSW.

(c) Customer Invoices and Payment Collections . Primo shall be solely responsible for preparing and submitting invoices to, and collecting receivables from, Customers (other than Continuing DSW Customers). DSW shall provide reasonable support and assistance to Primo with regard to Customer collections.

(d) Payments to DSW .

(i) Compensation for Services . Primo shall pay DSW for Services on the basis of each Product delivered to a Customer (other than a Continuing DSW Customer) in accordance with the payment terms set forth on Schedule E . Primo shall be required to make such payments to DSW on a monthly basis with such payments due from Primo to DSW for Products delivered by DSW hereunder in any month no later than the fifteenth (15 ^th ) day of the following month. Should the fifteenth (15 ^th ) day fall on a weekend or holiday, payment will be disbursed on the next business day. All past due amounts are subject, at DSW’s sole discretion, to a late charge of 1.5% per month on the unpaid balance.

(ii) Reconciliation Balance . Primo shall be entitled to recover from DSW fifty percent (50%) of the total aggregate Reconciliation Balance associated with all Customers (other than Continuing DSW Customers) for each calendar quarter during the Term; provided, however, that such amount shall be capped at ten percent (10%) of the total amount owed to DSW for Products delivered by or on behalf of DSW to such Customers during the period, unless any amounts in excess of such cap are the result of DSW’s breach of this Agreement. Primo will provide to DSW a separate invoice and supporting detail for each such recovery.

(iii) DSW acknowledges and agrees that Primo shall have no payment obligation whatsoever to any DSW Representative and that DSW shall be solely responsible for all payments owed to DSW Representatives.

(iv) DSW shall be responsible for all taxes associated with payments made to DSW under this Agreement, and Primo shall be responsible for all taxes associated with payments made to Primo under this Agreement.

(e) Primo Best Efforts . Primo shall exercise its best efforts to meet and fulfill all of its duties and other obligations established in this Agreement. However, Primo’s exercise of such best efforts shall not operate to forgive or excuse any failure by Primo to meet any obligation or duty imposed upon it by this Agreement.

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(f) Product Recall . Primo shall promptly notify DSW of Primo becoming aware of any Product that is the subject of a recall. Primo shall bear all costs and expenses associated with any recall relating to Product to the extent not otherwise the responsibility of DSW pursuant to Section 5(d).

(g) Notice of Potential Claim to DSW . Primo shall notify DSW within five (5) business days upon discovering any fact(s), circumstance(s) or contention(s) that would reasonably be expected to result in a material claim against Primo or DSW relating in any way to the Business, any Service or any Product (hereafter collectively “ occurrence ”). After providing such notice, the parties shall mutually agree on an appropriate response to such occurrence, which response may include diligently investigating any such occurrence. Primo shall reasonably cooperate with DSW in any investigation the parties may elect to undertake.

(h) Display Equipment and Materials .

(i) Primo shall retain ownership of all Primo Display and Return Equipment and Materials notwithstanding any DSW Intellectual Property that may be displayed on such equipment and materials; provided, however, that Primo shall, upon expiration or termination of this Agreement, promptly remove any DSW Intellectual Property that may be displayed on such Primo Display and Return Equipment and Materials. For clarification, Primo shall have no right, title or claim of ownership to any DSW Intellectual Property that may be displayed on or with such Primo Display and Return Equipment and Materials.

(ii) Primo shall be responsible, at its sole cost and expense, for replacing and/or repairing (whether due to damage, obsolescence or otherwise) all Primo Display and Return Equipment and Materials and DSW Display and Return Equipment and Materials (or engaging a third party to do so) promptly after receiving notice from DSW of such repair and/or replacement requirement (subject to Primo’s review and confirmation, in its reasonable discretion, of the need for such repair and/or replacement) or otherwise upon Primo’s discovering such issue, subject to DSW’s obligations set forth in Section 5(i)(iii). For further clarity, Primo will have no obligation to compensate DSW for the value of any DSW Display and Return Equipment and Materials that are replaced by Primo and DSW in accordance with this paragraph (h) and Section 5(i)(iii). Primo shall be required to remove, at its sole cost and expense, all Primo Display and Return Equipment and Materials stored at DSW’s facilities within thirty (30) days of the commencement of such storage.

7.	Related Agreements .

(a) Bottle Supply Agreement . The parties shall negotiate in good faith and use best efforts to enter into a mutually agreeable supply agreement with respect to the supply of Bottles by DSW to Primo for use in the Products (the “ Bottle Supply Agreement ”) on or prior to the Targeted Commencement Date, which Bottle Supply Agreement will designate DSW as Primo’s primary supplier of Bottles, to the extent that DSW can supply, at market competitive prices, within Primo’s geographic territories and meet Primo’s bottle specifications.

(b) Warrant Purchase Agreement . On the Targeted Commencement Date, Primo shall grant DSW a warrant (the “ Warrant ”) to purchase four hundred seventy-five thousand (475,000) unregistered shares of Primo Common Stock on or prior to January 1, 2021 at a price equal to twenty-five percent (25%) over the closing price of Primo’s Common Stock on the Nasdaq Stock Market for the trading day immediately prior to the Effective Date.

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8.	Intellectual Property .

(a)

License from DSW to Primo .

(i) Intellectual Property License . DSW represents and warrants that it is the owner of all right, title and interest in the DSW Intellectual Property. DSW hereby grants Primo the royalty-free, non-exclusive, personal, non-assignable and non-sub-licensable right to use the DSW Intellectual Property within the Territory solely in conjunction with (A) Primo’s performance of its duties under this Agreement, (B) the delivery and sale of DSW branded Products, and (C) with respect to the DSW Patents, to manufacture and produce (or have manufactured and produced) certain Primo Display and Return Equipment and Materials using and incorporating the DSW Patents, solely during the Term of this Agreement. Primo shall maintain all Bottles, displays and other articles, property and materials used in conjunction with DSW Intellectual Property at a high level of quality and appearance. Any and all uses by Primo of any of the DSW Intellectual Property, other than the regular and intended use of DSW Intellectual Property as contemplated by this Agreement or contained on or in materials supplied directly by DSW, must be approved in advance in writing by DSW. Primo will promptly advise DSW in writing upon learning of any infringement, potential infringement, or misuse of any of any DSW Intellectual Property. Primo shall cease all use of the DSW Intellectual Property upon expiration or termination of this Agreement; provided, that (x) effective upon the expiration or termination of this Agreement (other than termination by DSW pursuant to Section 15), DSW will grant Primo the non-exclusive, personal, non-assignable and non-sub-licensable right to use the DSW Patents within the Territory solely to manufacture and produce (or have manufactured and produced) display and return equipment to be used in connection with the Business, for which Primo will pay DSW an annual royalty equal to four percent (4%) of the manufacturing cost paid by Primo for such equipment and (y) Primo will have the right to continue to use (in connection with the Business and in accordance with the terms hereof) Primo Display Equipment and Materials that incorporate a DSW Patent and were manufactured prior to the expiration or termination of this Agreement. It is understood and acknowledged by the parties hereto that all rights related to the DSW Intellectual Property are reserved by DSW except only for the limited rights granted expressly to Primo under this Agreement.

(ii) Restrictions . Primo will not use any of the DSW Intellectual Property or the designation “DS Waters” in any form as a trademark, a trade name, or in its corporate or business name without the prior written approval of DSW, and in any event even with such approval, not to exceed the Term. Primo acknowledges the validity of, and will not contest, any such DSW Intellectual Property. Primo will not manufacture, package or deliver any other beverage product under any trademark, trade dress or in any container that is an imitation of any DSW Intellectual Property or which is likely to be confused or cause confusion or be confusingly similar to or be passed off as such DSW Intellectual Property. Primo will not manufacture, package or deliver any product under any trademark or other designation that is an imitation, counterfeit, copy or infringement of, or confusingly similar to any of the DSW Intellectual Property. Primo will not knowingly do anything to impair or harm or intended to impair or harm any of the DSW Intellectual Property.

(iii) Goodwill . Nothing herein contained and nothing done or permitted pursuant to this Agreement will give Primo any rights in the goodwill of the DSW Intellectual Property. Primo hereby disavows any claim to any rights of any kind whatsoever in the goodwill of the DSW Intellectual Property or any right to use or apply the DSW Intellectual Property other than as expressly permitted in this Agreement and, covenants that during the Term, and after expiration or termination, of this Agreement, Primo will not make, assert or support any claim to any rights of any kind whatsoever in the goodwill of the DSW Intellectual Property and will not challenge the validity of the DSW Intellectual Property or the ownership thereof.

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(b)

License from Primo to DSW .

(i) Intellectual Property License . Primo represents and warrants that it is the owner of all right, title and interest in the Primo Intellectual Property. Primo hereby grants DSW the royalty-free, non-exclusive, personal, non-assignable and non-sub-licensable right to use the Primo Intellectual Property within the Territory solely during the Term and solely in conjunction with (A) DSW’s performance of its duties under this Agreement, (B) the delivery and sale of Primo branded Products, and (C) with respect to the Primo patents, only as strictly necessary for servicing of Primo Display and Return Equipment and Materials using and incorporating the Primo Patents. DSW shall maintain all Bottles, displays and other articles, property and materials used in conjunction with the Primo Intellectual Property at a high level of quality and appearance as provided in this Agreement. Any and all uses by DSW of any of the Primo Intellectual Property, other than the regular and intended use of Primo Intellectual Property as contemplated by this Agreement or contained on or in materials supplied directly by Primo, must be approved in advance in writing by Primo. DSW will promptly advise Primo in writing upon learning of any infringement, potential infringement, or misuse of any of any Primo Intellectual Property. DSW shall cease all use of the Primo Intellectual Property upon termination of this Agreement. It is understood and acknowledged by the parties hereto that all rights related to the Primo Intellectual Property are reserved by Primo except only for the limited rights granted expressly to DSW under this Agreement.

(ii) Restrictions . DSW will not use any Primo Intellectual Property or the designation “Primo” in any form as a trademark, a trade name, or in its corporate or business name without the prior written approval of Primo, and in any event even with such approval, not to exceed the Term. DSW acknowledges the validity of, and will not contest, any such Primo Intellectual Property. DSW will not manufacture, package or deliver any other beverage product under any trademark, trade dress or in any container that is an imitation of any Primo Intellectual Property or which is likely to be confused or cause confusion or be confusingly similar to or be passed off as such Primo Intellectual Property. DSW will not manufacture, package or deliver any product under any trademark or other designation that is an imitation, counterfeit, copy or infringement of, or confusingly similar to any of the Primo Intellectual Property. DSW will not knowingly do anything to impair or harm or intended to impair or harm any of the Primo Intellectual Property.

(iii) Goodwill . Nothing herein contained and nothing done or permitted pursuant to this Agreement will give DSW any rights in the goodwill of the Primo Intellectual Property. DSW hereby disavows any claim to any rights of any kind whatsoever in the goodwill of the Primo Intellectual Property or any right to use or apply the Primo Intellectual Property other than as expressly permitted in this Agreement and, covenants that during the Term, and after expiration or termination, of this Agreement, DSW will not make, assert or support any claim to any rights of any kind whatsoever in the goodwill of the Primo Intellectual Property and will not challenge the validity of the Primo Intellectual Property or the ownership thereof.

(i) DSW agrees that the Primo Intellectual Property, and any improvements thereto which are made by DSW in the course of performing this Agreement (the “ Primo Improvements ”), are and shall be the exclusive property of Primo, and DSW hereby assigns any such improvements to Primo; provided, however, that Primo hereby grants DSW the royalty-free, non-exclusive, personal, non-assignable and non-sub-licensable right to use the Improvements within the Territory, after the Term, in connection with DSW Business. DSW shall reasonably cooperate with Primo, and execute assignments and other documents, reasonably necessary to give effect to the foregoing.

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(ii) Primo agrees that the DSW Intellectual Property, and any improvements thereto which are made by Primo in the course of operating the Business (the “ DSW Improvements ”), are and shall be the exclusive property of DSW, and Primo hereby assigns any such improvements to DSW; provided, however, that DSW hereby grants Primo the royalty-free, non-exclusive, personal, non-assignable and non-sub-licensable right to use the Improvements within the Territory, after the Term, in connection with Primo Business. Primo shall reasonably cooperate with DSW, and execute assignments and other documents, reasonably necessary to give effect to the foregoing.

9.	Confidentiality .

(a) Each party acknowledges that, as a result of the performance of this Agreement, it may have access to and may become familiar with various trade secrets and confidential information of the other party, including, but not limited to, materials or records of a proprietary nature, trade secrets, engineering or technical data, records and matters relating to research, finances, accounting, sales, profits, markets, market research, personnel, management and operations, manufacturing processes or techniques, matters particularly relating to operations such as customer lists, price lists, specifications (including without limitation the Specifications), and information regarding customers and their requirements, costs of providing service, and equipment and equipment maintenance costs, customer requirements, computer systems, programs, files, and other data not generally available to the public (the “ Confidential Information ”). “ Confidential Information” shall not include information that (i) is in or becomes part of the public domain other than as a result of any breach of this Agreement by the Receiving Party, (ii) was or becomes available to the Receiving Party on a non-confidential basis from a source other than the Disclosing Party provided such source was not reasonably known by the Receiving Party to be under an obligation of confidentiality with respect to such information to the Disclosing Party, (iii) was within the Receiving Party’s possession prior to its being furnished to the Receiving Party by the Disclosing Party provided the source of such information was not known by the Receiving Party to be under an obligation of confidentiality with respect to such information to the Disclosing Party, or (iv) was independently developed by the Receiving Party without reference to the Confidential Information of the Disclosing Party.

(b) Each party in such party’s capacity as a recipient of such Confidential Information (the “Receiving Party” ) of the other party (the “Disclosing Party” ) agrees not to (i) disclose the Confidential Information of the Disclosing Party to any third party other than the Receiving Party’s employees, agents and representatives and, in the case of DSW, DSW’s Representatives, in each case who need to know such Confidential Information to perform the Receiving Party’s obligations under this Agreement and have been directed to, maintain the confidentiality of such Confidential Information, or (ii) use the Disclosing Party’s Confidential Information for any purpose other than to perform its obligations under this Agreement. Each party shall be responsible for any breach of this Article 9 by its employees, agents and representatives. The foregoing obligations shall continue during the Term and for a period of two (2) years thereafter except with respect to trade secrets, wherein such obligations shall remain so long as such trade secrets remain such under applicable law.

(c) Upon the termination of this Agreement or earlier, upon the Disclosing Party’s demand, the Receiving Party shall, at its election, either return all of the Disclosing Party’s Confidential Information to the Disclosing Party (or a third party designated by the Disclosing Party), or destroy it.

(d) The Receiving Party may disclose Confidential Information of the Disclosing Party to the extent that it is required by law or governmental authority to disclose, provided that the Receiving Party gives the Disclosing Party as much advance notice as is practicable regarding any required disclosure, and that any such disclosure is limited to the applicable governmental requirement.

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10.	Non-Competition and Non-Solicitation .

(a)

By DSW :

(i) Except as otherwise provided in this Agreement with respect to Continuing DSW Customers prior to December 31, 2014, during the Term, DSW shall not, directly or indirectly, provide, or contract with or arrange for a third party to provide, the 3 or 5 gallon bottled water retail exchange service on behalf of itself or anyone other than Primo in the Territory.

(ii) During the Term, and for a period of one (1) year after the Term, DSW shall not, directly or indirectly, solicit any Customer for the provision of 3 or 5 gallon bottled water retail exchange service in the Territory; provided, however, that this restriction shall not apply (y) after the Term, to DSW Customers and Continuing DSW Customers, or (z) upon the termination of this Agreement by DSW pursuant to Section 15. Upon termination or expiration of this Agreement for any reason, Primo shall assign to DSW any and all rights it may have under any vendor agreements or other arrangements with any DSW Customer.

(iii) Except as set forth above, nothing herein shall be deemed to prohibit DSW from conducting the DSW Business in any manner, including, but not limited to, (x) distributing bottled water products within the Territory, (y) providing bottled water sale and delivery services to home and/or office customers in the Territory, and (z) selling or providing other water-based and related products and services not expressly covered by this Agreement, including, but not limited to, water refill vending machine services and ice products and services, in each case subject to DSW’s obligations to provide the Services under this Agreement.

(iv) In no event, however, shall DSW: (A) provide Primo Water to any third party, or make any use of the Primo Display and Return Equipment and Materials, Primo Bottles, or Primo Intellectual Property, except on behalf of Primo and as authorized by Primo pursuant to this Agreement, or (B) deliver any Product to anyone, other than Product to a Customer on behalf of Primo pursuant to this Agreement, in any truck, trailer or other vehicle that visibly bears any Primo Intellectual Property. DSW shall be responsible for ensuring that all Bottlers and Distributors comply with the foregoing provisions of this paragraph.

(b)

By Primo :

(i) For a period of one (1) year after the Term, Primo shall not, directly or indirectly, except as expressly set forth in this Agreement, (A) provide, or contract with or arrange for a third party to provide, 3 or 5 gallon bottled water retail exchange service to any DSW Customer or Continuing DSW Customer in the Territory, or (B) solicit any DSW Customer or Continuing DSW Customer for the provision of 3 or 5 gallon bottled water retail exchange service in the Territory; provided however, that the foregoing restrictions shall not apply upon the termination of this Agreement by Primo pursuant to Section 14.

(ii) Except as set forth above, nothing herein shall be deemed to prohibit Primo from conducting the Primo Business in any manner, including, but not limited to, (x) distributing bottled water products within the Territory, (y) providing bottled water sale and delivery services to home and/or office customers in the Territory, and (z) selling or providing other water-based and related products and services not expressly covered by this Agreement, including, but not limited to, water refill vending machine services and ice products and services, in each case subject to Primo’s obligations to use DSW to provide the Services under this Agreement.

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(iii) In no event, however, shall Primo: (A) provide DSW Water to any third party, or make any use of the DSW Display and Return Equipment and Materials, DSW Bottles, or DSW Intellectual Property, except pursuant to this Agreement, or (B) deliver Product in any truck, trailer or other vehicle that visibly bears any DSW Intellectual Property.

11. Equitable Relief . Each party acknowledges and agrees that all covenants, provisions and restrictions set forth in Articles 9 and 10 of this Agreement are reasonable, appropriate, fair and valid under the circumstances, and that money damages may not be an adequate remedy in the event of any breach of such covenants, provisions and restrictions by the other party. Accordingly, the non-breaching party is hereby authorized and entitled, in addition to all other rights and remedies available to such party, to seek from any court of competent jurisdiction equitable relief, including, but not limited to, interim and permanent injunctive relief.

12. Independent Contractors . The parties acknowledge and agree that this Agreement establishes a relationship between them of that of independent contractors. Nothing herein contained or done pursuant hereto shall constitute either party as a general agent of the other party for any purpose whatever. All things done and to be done by either party pursuant to the provisions hereof or done by such party in anticipation of this Agreement, unless expressly otherwise provided herein, shall be at such party’s own cost and expense.

13. Termination Upon Expiration of Initial or Renewal Term . Either party may terminate this Agreement for any reason, expressed or not expressed, by giving the other party written notice of termination at least twelve (12) months prior to the end of the Initial Term or any Renewal Term. Such termination shall become effective only at the end of such Term.

14.	Termination by Primo for Cause .

(a) Primo may terminate this Agreement immediately upon the occurrence of any of the following events, by giving written notice thereof to DSW:

(i) DSW’s liquidation, sale or other disposition of all or a substantial portion of the assets of its business, including without limitation the portion of the DSW Business relating to this Agreement, to a third party who is, or who is an Affiliate of, a direct competitor of Primo that is among the top five by volume in the 3 and 5 gallon pre-packaged bottle water exchange business in the Territory.

(ii) The transfer by DSW’s owner(s) of a majority of the controlling interest in DSW, whether by merger or otherwise, to a third party who is, or who is an Affiliate of, a direct competitor of Primo that is among the top five by volume in the 3 and 5 gallon pre-packaged bottle water exchange business in the Territory.

(iii) The filing by DSW of a petition seeking liquidation, reorganization, arrangement, readjustment of debts or any other relief under the Federal Bankruptcy Code or under any other act or law pertaining to insolvency or debtor relief, whether state or federal, or the filing against DSW of any such petition which is not dismissed within sixty (60) days of filing.

(iv) A custodian, trustee, receiver, or assignee for the benefit of creditors is appointed or takes possession of any of DSW’s assets.

(v) Any assignment of this Agreement by DSW, other than an assignment authorized under Section 19.

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(c) Primo may terminate this Agreement upon DSW’s breach of, or failure or inability to execute, any covenant, agreement, payment, representation, warranty or other obligations contained in this Agreement (including without limitation any Schedule), the Transition Plan or the Distribution Manual in any material respect, by giving written notice thereof to DSW and an opportunity for DSW to cure such default within the following forty five (45) days, provided DSW has failed to cure within the period specified.

15.	Termination by DSW for Cause .

(a) DSW may terminate this Agreement immediately upon the occurrence of any of the following events, by giving written notice thereof to Primo:

(i) Primo’s liquidation, sale or other disposition of all or a substantial portion of the assets of its business to a third party who is, or who is an Affiliate of, a direct competitor of DSW that is among the top five by volume in the home and office bottled water delivery business in the Territory.

(ii) The transfer by Primo’s owner(s) of a majority of the controlling interest in Primo, whether by merger or otherwise, to a third party who is, or who is an Affiliate of, a direct competitor of DSW that is among the top five by volume in the home and office bottled water delivery business in the Territory.

(iii) The filing by Primo of a petition seeking liquidation, reorganization, arrangement, readjustment of debts or any other relief under the Federal Bankruptcy Code or under any other act or law pertaining to insolvency or debtor relief, whether state or federal, or the filing against Primo of any such petition which is not dismissed within sixty (60) days of filing.

(iv) A custodian, trustee, receiver, or assignee for the benefit of creditors is appointed or takes possession of any of Primo’s assets.

(v) Any assignment of this Agreement by Primo, other than an assignment authorized under Section 19.

(b) DSW may terminate this Agreement upon Primo’s breach of, or failure or inability to execute, any covenant, agreement, payment, representation, warranty or other obligations contained in this Agreement (including without limitation any Schedule), the Transition Plan or the Distribution Manual in any material respect, by giving written notice thereof to Primo and an opportunity for Primo to cure such default within the following forty five (45) days, provided Primo has failed to cure within the period specified.

(c) DSW may, on or before January 31, 2016, terminate this Agreement upon six (6) months’ prior written notice if the total volume of Products delivered by DSW under this Agreement during any consecutive twelve (12) month period ending on or after December 31, 2015 is less than four million (4,000,000) units of Products (the “ Minimum Volume Obligation ”); provided, however, that termination shall be DSW’s sole and exclusive remedy in the event that the Minimum Volume Obligation is not satisfied.

16. Post-Termination Requirements . In addition to all other requirements, terms, provisions and conditions of this Agreement, upon termination of this Agreement for any reason, the following additional requirements and provisions shall apply:

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(a) Termination of this Agreement shall not release either party from the payment of any sum then or thereafter owing to the other, and all such amounts shall be paid within thirty (30) days of the termination hereof.

(b) DSW shall, within thirty (30) days after termination hereof, make available for pick up and removal by Primo, at Primo’s sole cost and expense, in good and usable condition, normal wear and tear excepted, all Bottles then in DSW’s or any DSW Representative’s possession that have not been filled and all Primo Display and Return Equipment and Materials in DSW’s or any DSW Representative’s possession. DSW shall, within thirty (30) days after termination hereof, pay Primo the depreciated value for any Primo Display and Return Equipment and Materials (i) that DSW or any DSW Representative used in the Business which cannot be located, or (ii) which is located at a DSW Customer.

(c) Primo shall, within ninety (90) days after termination hereof, purchase from DSW, and pick-up and remove from DSW facilities at Primo’s sole cost and expense, all finished Products packaged in Primo Bottles, and that comply with the warranty and other provisions of this Agreement, then in DSW’s inventory but not yet delivered to Customers at the rate set forth in subsection 6 of Schedule E and the payment procedures set forth in this Agreement; provided, that DSW agrees to use its best efforts and cooperate with Primo to manage Product inventory levels in a manner that minimizes Primo’s obligation to purchase any unwanted Product pursuant to this subsection (c).

(d) DSW shall, repurchase from Primo and pay for all Bottles previously purchased by Primo from DSW pursuant to subsection 1 of Schedule I (which were initially DSW Bottles but which became Primo Bottles upon such purchase by Primo) at the same price and on the payment terms as applied to Primo pursuant to such subsection.

(e) DSW shall reasonably cooperate with Primo at no charge to transition the services performed by DSW hereunder to Primo or a third party designated by Primo.

(f) For the avoidance of doubt, the provisions of Sections 5(a) (solely with respect to Products purchased pursuant to Section 16(c) and without regard to the Service), 5(e), 8, 9, 10, 16, 17, 20, 21 as well as any other provision of this Agreement that by its terms survives expiration or termination of this Agreement, shall survive such expiration or termination.

17.	Audit Rights .

(a) Primo may audit (a) DSW’s books and records, at its sole cost and expense except as otherwise set forth below, to verify the delivered Product volumes on which payments are based during the Term and for three (3) years thereafter, and (b) DSW’s inventory of Products, Bottles and Primo Display and Return Equipment and Materials during the Term and for one (1) year thereafter, at its sole cost and expense, to verify such inventories during the Term; provided Primo provides DSW with reasonable advance notice of such audit and such audit is conducted during normal business hours. Primo shall provide DSW with a report in good faith setting forth the results of any such audit. In the event such audit shows that the actual delivered Product volume is more or less than the delivered Product volume upon which payments made hereunder were based, Primo or DSW, as applicable, shall pay to the other party such difference. In addition, if the magnitude of any overpayment or underpayment is more than three percent (3%), then DSW (in the case of an overpayment) shall be required to reimburse Primo for the costs of the audit or Primo (in the case of an underpayment) shall be solely responsible for the costs of the audit and shall be required to reimburse DSW for any costs or expenses it has incurred in connection with such audit.

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(b) DSW anticipates that it will begin publicly filing, via the SEC’s EDGAR website, financial information as required by Applicable Laws relating to its public debt for fiscal periods commencing in 2014 (“ DSW Public Fillings ”). If DSW does not commence making the DSW Public Filings by April 30, 2014, or subsequently ceases to make DSW Public Filings for any annual fiscal period, DSW agrees to provide Primo, from time to time upon Primo’s reasonable request, DSW’s audited financial statements, which audited financial statements will be treated at Confidential Information of DSW pursuant to Section 9. In addition, DSW shall promptly notify Primo of any material weakness or deterioration in its financial position, including without limitation the occurrence of any default under any of its material debt obligations.

18. Severability . The provisions of this Agreement shall be severable, and the invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of the remaining provisions. Any provision or term declared void or unenforceable by a court or other body having jurisdiction and authority to do so shall, where possible, be modified or rewritten to reflect the intent of the parties expressed herein.

19. Assignment . This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their successors and permitted assigns. Neither party’s rights or obligations hereunder shall be assigned or transferred, in whole or in part, directly or indirectly, whether by such party, by operation of law, or otherwise, to any person, company, firm, or corporation, without the prior written consent of the other party; provided, however, (i) Primo may transfer or assign its rights hereunder to an affiliate or successor business, including a purchaser of all or substantially all of Primo’s assets, or those relating to the portion of the Primo Business to which this Agreement relates, other than a direct competitor of DSW that is among the top five by volume in the home and office bottled water delivery business in the Territory, without DSW’s consent, and (ii) DSW may transfer or assign its rights hereunder to an affiliate or successor business, including a purchaser of all or substantially all of DSW’s assets, or those relating to the portion of the DSW Business to which this Agreement relates, other than a direct competitor of Primo that is among the top five by volume in the 3 and 5 gallon pre-packaged bottle water exchange business in the Territory, without Primo’s consent, in each case conditioned upon such affiliate’s or successor’s written agreement and commitment to maintain this Agreement intact and to honor all of its provisions for the remaining Term hereof, subject to all the provisions and conditions hereof. Notwithstanding the foregoing, DSW may subcontract its bottling and distribution obligations hereunder to Bottlers and Distributors without the express written consent of Primo.

20. Claims and Indemnity; Insurance .

(a) DSW agrees to defend, indemnify and save harmless Primo, its Affiliates, Customers and its and their officers, directors, employees and agents (collectively, “ Indemnified Parties ”) from and against any and all third party claims, actions, suits, proceedings, liabilities, judgments, losses, damages, costs or expenses (including without limitation reasonable attorneys’ fees and court costs) (collectively, “Losses” ) which any Indemnified Party may hereinafter incur, suffer, sustain or be required to pay arising out of, connected with or resulting from (i) any breach by DSW or any DSW Representative of any term, condition, representation or warranty in this Agreement, (ii) DSW’s or any DSW Representative’s negligence or willful misconduct in performing this Agreement, or (iii) any claim that any DSW Intellectual Property infringes or violates the rights of any third party. The right to indemnification hereunder shall survive the expiration or termination of this Agreement.

(b) Primo agrees to defend, indemnify and save harmless DSW, the DSW Representatives, and its and their officers, directors, employees and agents (collectively, “ DSW Indemnified Parties ”) from and against any and all Losses which any DSW Indemnified Party may hereinafter incur, suffer, sustain or be required to pay arising out of, connected with or resulting from (i) any breach by Primo of any term, condition, representation or warranty in this Agreement, (ii) Primo’s negligence or willful misconduct in performing this Agreement, or (iii) any claim that any Primo Intellectual Property infringes or violates the rights of any third party. The right to indemnification hereunder shall survive the expiration or termination of this Agreement.

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(c) Each party shall maintain, at its sole cost and expense, insurance in the types and amounts set forth on Schedule D . All policies of insurance procured by a party shall (i) be issued by insurance companies with reasonably suitable financial ratings as rated in the most currently available “Best’s” insurance reports, and licensed to do business in the Territory; (ii) be written as primary policies and not contributing with, nor in excess of, coverage that the other party may carry; (iii) include the other party as additional insured; and (iv) provide that such policies may not be canceled with respect to the other party except after thirty (30) days’ prior written notice from the insurance company to the other party. Each party shall furnish to the other party, annually upon request by the other party and additionally upon any policy change, certificates of such insurance.

(d) For further clarity, it is the parties’ intent and understanding that DSW will be responsible for managing and resolving, at its sole cost, consumer claims relating to the production and delivery of Products hereunder, including but not limited to claims related to leaks, Product quality, and vehicular accidents, but excluding claims related to marketing, advertising or any other activity of Primo in connection with the Business. DSW also will be responsible for any loss or damage caused by the negligent assembly, installation or removal of any display equipment by DSW or any DSW Representative hereunder, provided that such assembly, installation or removal will not be deemed negligent to the extent it complies with training instruction and materials provided by Primo. Primo will be responsible for any loss or damage arising from a defect in the design or manufacture of any Primo Display and Return Equipment and Materials, and any damage to or theft of Primo Display and Return Equipment and Materials at Customer locations that is not caused by DSW or its Representatives, and any deficiency in required training instruction and materials provided by Primo to DSW pursuant to the Transition Plan or the Distribution Manual.

21. Limitation of Liability . Except for any third party indemnification claims pursuant to Section 20, in no event shall either party be liable to the other party for any special, incidental, speculative, punitive or consequential damages, whether or not such party has been advised of or has reason to know of such damages. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, EACH PARTY HEREBY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

22. Force Majeure . Neither party shall be liable hereunder by reason of any failure or delay in the performance of its obligations hereunder, on account of strikes, shortages, riots, insurrection, fires, flood, storm, explosions, acts of nature, war, terrorism, governmental action, labor conditions, earthquakes, material shortages, or any other cause beyond the reasonable control of such party (collectively, “ Force Majeure Events ”). A failure of performance by a DSW Representative shall not, in and of itself, be deemed a Force Majeure Event for DSW, unless such failure of performance by a DSW Representative was itself the result of a Force Majeure event. The excused party shall use reasonable efforts under the circumstances to avoid or remove such causes of non-performance and shall proceed to perform with reasonable dispatch whenever such causes are removed or ceased.

23. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its laws and decisions relating to conflicts of laws.

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24. Dispute Resolution .

(a) Informal Dispute Resolution .

(i)

Issue Resolution .

(A)

From time to time, issues will arise that cannot be resolved at the various levels of management within the Primo and DSW operational teams. These issues may arise in a particular territory, with regard to a particular customer or with regard to a particular service. These issues may involve obligations of each party, performance, deliverables or service quality, personnel, or other topics.

(B)

The parties’ primary intent is to have issues resolved by the appropriate levels of authority without the need for formal dispute resolution in accordance with Section 24(b). However, nothing herein shall limit either party’s right to forego the informal dispute resolution mechanism described herein and initiate formal dispute resolution as set forth in Section 24(b) of the Agreement. In addition, the Escalation Procedures (as defined below) shall not hinder or prevent either Party from exercising its rights under the Agreement (to the extent that such party has such rights).

(ii)

Escalation Procedures .

The parties agree to use the informal dispute resolution procedures below, involving the successive referral of an issue to mid-level and senior management of Primo and DSW, as appropriate (the “ Escalation Procedures ”).

(A)

Notification . The appropriate representatives of either party may decide that escalation is desirable when resolution of an issue appears unachievable at the current management level. In this case, such representative desiring escalation provides written notice of its intention to the representative(s) of the other party. At either such representative’s request, the representatives currently engaged in attempting to resolve the issue shall meet again to attempt resolution of the issue prior to escalation to the next level. If and to the extent the issue cannot be resolved at the current management level, the issue will then be escalated after good faith attempts by both parties’ representatives to resolve the issue at the current level.

(B)

Documentation . The representatives of each party will jointly develop a short briefing document called the “ Statement of Issue for Escalation ” that describes the issue, relevant impact, and positions of both parties.

(C)

Request for Assistance . A meeting will be scheduled with appropriate representatives as described below (phone or videoconference in most cases). The Statement of Issue for Escalation will be sent in advance to the appropriate participants. The parties intend that issues are escalated for review and resolution to the next level of management as follows: (1) the parties’ respective senior vice presidents of operations, (2) the parties’ respective chief operating officers and chief financial officers, and (3) the parties’ respective chief executive officers. If an issue is not successfully resolved at a level of management within ten (10) days of being escalated to such level of management, the parties will escalate the issue to the next level of management; provided that the CEOs will have an unlimited number of days to review and resolve such issue, subject to each party’s right to initiate formal dispute resolution as set forth in the Agreement at any time.

To Primo:		To DSW:

Primo Water Corporation		DS Waters of America, Inc.
104 Cambridge Plaza Drive		5660 New Northside Drive, Suite 500
Winston-Salem, NC 27104		Atlanta, GA 30328
Attn: President and COO		Attn: President and CEO
Email: msheehan@primowater.com		Email: tharrington@water.com

With a copy to:		With a copy to:

D. Scott Coward, Esq.		DS Waters of America, Inc.
K&L Gates LLP		5660 New Northside Drive, Suite 500
4350 Lassiter at North Hills Ave., Suite 300		Atlanta, GA 30328
Raleigh, NC 27609		Attn: Chief Legal Officer
Email: scott.coward@klgates.com		E-mail: rowens@water.com

PRIMO WATER CORPORATION		DS WATERS OF AMERICA, INC.
(“Primo”)		(“DSW”)

By:	/s/ Billy D. Prim	By:	/s/ Thomas J. Harrington
Name:	Billy D. Prim	Name:	Thomas J. Harrington
Title:	Chairman and CEO	Title:	President and CEO

Distributor Name	Expiration Date	Volume (11-2012 to 10-2013)	% National Volume
[*****]	[*****]	[*****]	2.1%
[*****]	[*****]	[*****]	0.5%
[*****]	[*****]	[*****]	1.9%
[*****]	[*****]	[*****]	2.7%
[*****]	[*****]	[*****]	1.4%
[*****]	[*****]	[*****]	1.3%
[*****]	[*****]	[*****]	0.6%
[*****]	[*****]	[*****]	1.4%
[*****]	[*****]	[*****]	0.7%
[*****]	[*****]	[*****]	1.0%
[*****]	[*****]	[*****]	0.7%
[*****]	[*****]	[*****]	0.3%
[*****]	[*****]	[*****]	0.0%
[*****]	[*****]	[*****]	0.2%
[*****]	[*****]	[*****]	2.2%
[*****]	[*****]	[*****]	1.9%
[*****]	[*****]	[*****]	0.9%
[*****]	[*****]	[*****]	0.2%
[*****]	[*****]	[*****]	0.8%
[*****]	[*****]	[*****]	0.4%
[*****]	[*****]	[*****]	0.4%
[*****]	[*****]	[*****]	0.3%
[*****]	[*****]	[*****]	0.3%
[*****]	[*****]	[*****]	0.3%
[*****]	[*****]	[*****]	0.5%
[*****]	[*****]	[*****]	0.8%
[*****]	[*****]	[*****]	0.1%
[*****]	[*****]	[*****]	0.2%
[*****]	[*****]	[*****]	0.2%
[*****]	[*****]	[*****]	1.1%
[*****]	[*****]	[*****]	1.0%
[*****]	[*****]	[*****]	2.8%
[*****]	[*****]	[*****]	0.8%
[*****]	[*****]	[*****]	1.8%
[*****]	[*****]	[*****]	1.1%
[*****]	[*****]	[*****]	10.9%
[*****]	[*****]	[*****]	0.7%
[*****]	[*****]	[*****]	3.2%
[*****]	[*****]	[*****]	2.4%
[*****]	[*****]	[*****]	0.8%

[*****]	[*****]	[*****]	1.1%
[*****]	[*****]	[*****]	1.1%
[*****]	[*****]	[*****]	8.8%
[*****]	[*****]	[*****]	7.0%
[*****]	[*****]	[*****]	5.0%
[*****]	[*****]	[*****]	5.1%
[*****]	[*****]	[*****]	3.6%
[*****]	[*****]	[*****]	0.1%
[*****]	[*****]	[*****]	0.0%
[*****]	[*****]	[*****]	1.9%
[*****]	[*****]	[*****]	0.3%
[*****]	[*****]	[*****]	0.8%
[*****]	[*****]	[*****]	1.0%
[*****]	[*****]	[*****]	0.1%
[*****]	[*****]	[*****]	0.0%
[*****]	[*****]	[*****]	2.7%
[*****]	[*****]	[*****]	1.8%
[*****]	[*****]	[*****]	0.0%
[*****]	[*****]	[*****]	2.8%
[*****]	[*****]	[*****]	0.0%
[*****]	[*****]	[*****]	0.2%
[*****]	[*****]	[*****]	0.4%
[*****]	[*****]	[*****]	1.3%
[*****]	[*****]	[*****]	1.5%
[*****]	[*****]	[*****]	0.2%
[*****]	[*****]	[*****]	1.5%
[*****]	[*****]	[*****]	0.9%
		[*****]	100%

Customer Classification*	Amount Due DSW Per Product Delivered
DSW Customers**	$[*****]
[*****]	$[*****]
New Customers	$[*****]
Primo Customers	$[*****]

	Schedule A	Existing Distributors

	Schedule B	DSW Customers and Primo Customers

	Schedule C	Regional Operators

	Schedule D	Insurance

	Schedule E	DSW Compensation Schedule

	Schedule F	Transition Plan

	Schedule G	Specifications

	Schedule H	Continuing DSW Customers

	Schedule I	Bottles

Annual Volume of Products in Connection with the Business*	Increase Per Product Delivered
[*****]	$[*****]
[*****]	$[*****]
[*****]	$[*****]
[*****]	$[*****]

DSW Customers*	DS Bottle Inventory Capacity Purchased by Primo	Monthly Payment per Bottle for 24 mos.	Bottle Amortization Value $[***] (DS branded bottles only)	Total Monthly Payment to DSW per Bottle	Procurement of Replacement Bottles	Payment of $[*****] for IP

DSW-Branded Customer

Deposit Program	Yes	[*****]	[*****]	[*****]	DSW	NA

Exchange Program	Yes	[*****]	[*****]	[*****]	DSW	Yes

DSW Customers

Deposit Program (DS branded bottles)	No	[*****]	[*****]	[*****]	DSW	NA

Deposit Program (Primo branded bottles)	No	[*****]	[*****]	[*****]	Primo	NA

Exchange Program (DS branded bottles)	No	[*****]	[*****]	[*****]	DSW	Yes

Exchange Program (Primo branded bottles)	No	[*****]	[*****]	[*****]	Primo	NA

Primo Customers	NA	[*****]	[*****]	[*****]	Primo	NA