The Company operates a share-based incentive plan over its shares to provide incentives to Gates’ senior executives and other eligible employees. During the three and nine months ended September 28, 2024, we recognized a charge of $6.4 million and $20.2 million, respectively, compared to $3.3 million and $19.6 million, respectively, in the three and nine months ended September 30, 2023.

Gates has a number of share-based incentive awards issued under the 2014 Plan, which was assumed by the Company and renamed the Gates Industrial Corporation plc Stock Incentive Plan in connection with our initial public offering in January 2018 (our “IPO”). No new awards have been granted under this plan since 2017. The options granted prior to our IPO were split equally into four tiers, each with specific vesting conditions. Tier I options vested evenly over 5 years from the grant date, subject to the participant continuing to provide service to Gates on the vesting date. Tier II, III and IV options vested, if at all, on achievement of specified investment returns by certain investment funds affiliated with Blackstone Inc. (“Blackstone”) at the time of a defined liquidity event, which was also subject to the participant’s continued provision of service to Gates on the vesting date. The performance conditions associated with Tiers II, III and IV must have been achieved on or prior to July 3, 2022 in order for vesting to occur. All the options expire ten years after the date of grant.

During March 2022, a liquidity event as defined occurred following the sale by Blackstone of a certain portion of their interest in Gates and the Tier II and IV options vested as the specified investment returns related to these options had been met. On July 3, 2022, the performance period for the Tier III options expired and, as the specified investment returns were not achieved, all Tier III awards expired during fiscal year 2022.

Due to Chinese regulatory restrictions on foreign stock ownership, awards granted under this plan to Chinese employees have been issued as stock appreciation rights (“SARs”). The terms of these SARs are identical to those of the options described above with the exception that no share is issued on exercise; instead, cash equivalent to the increase in the value of the shares from the date of grant to the date of exercise is paid to the employee. These awards are therefore treated as liability awards under Topic 718 “Compensation - Stock Compensation” and are revalued to their fair value at each period end. The SARs include option awards with the same vesting terms as the Tier II, III and IV option awards described above. All Tier III SARs expired on July 3, 2022 as the specific performance hurdle was not achieved.

In conjunction with the initial public offering in January 2018, Gates adopted the 2018 Plan, which is a market-based long-term incentive program that allows for the issue of a variety of equity-based and cash-based awards, including stock options, SARs and restricted stock units (“RSUs”).

The SARs issued under this plan take the form of options, except that no share is issued on exercise; instead, cash equivalent to the increase in the value of the shares from the date of grant to the date of exercise is paid to the employee. These awards are therefore treated as liability awards under Topic 718 “Compensation - Stock Compensation” and are revalued to their fair value at each period end. The SARs and the majority of the share options issued under this plan vest evenly over either three years or four years from the grant date. Certain premium-priced options vested evenly over a three-year period, starting two years from the grant date. All options vest subject to the participant’s continued employment by Gates on the vesting date and expire ten years after the date of grant.

The RSUs issued under the plan consist of time-vesting RSUs and performance-based RSUs (“PRSUs”). The time-vesting RSUs vest evenly over either one or three years from the date of grant, subject to the participant’s continued provision of service to Gates on the vesting date. The PRSUs issued prior to 2022 provide that 50% of the award will generally vest if Gates achieves a certain level of average annual adjusted return on invested capital as defined in the plan (“Adjusted ROIC”) and the remaining 50% of the PRSUs will generally vest if Gates achieves certain relative total shareholder return (“Relative TSR”) goals, in each case, measured over a three-year performance period and subject to the participant’s continued employment through the end of the performance period. The total number of PRSUs that vest at the end of the performance period will range from 0% to 200% of the target based on actual performance against a pre-established scale. Starting in Fiscal 2022, the terms for PRSUs are identical, except that 75% of the award will generally vest based on the specified Adjusted ROIC achievement and the remaining 25% will generally vest based on Relative TSR goal attainment.

Summary of movements in options outstanding


		Nine months ended September 28, 2024
	Plan	Number of options	Weighted average exercise price $
Outstanding at the beginning of the period:
—Tier I	2014 Plan	1,828,327	$	6.98
—Tier II	2014 Plan	1,996,017	$	7.01

—Tier IV	2014 Plan	1,986,416	$	10.52
—SARs	Both plans	735,221	$	10.47
—Share options	2018 Plan	2,345,520	$	14.90
—Premium-priced options	2018 Plan	835,469	$	18.88
		9,726,970	$	10.90
Granted during the period:




—SARs	2018 Plan	22,100	$	14.87


		22,100	$	14.87
Forfeited during the period:




—SARs	2018 Plan	(3,535)	$	13.50


		(3,535)	$	13.50
Expired during the period:




—SARs	Both Plans	(266)	$	14.04
—Share options	2018 Plan	(331,730)	$	17.27

		(331,996)	$	17.26
Exercised during the period:
—Tier I	2014 Plan	(133,758)	$	6.81
—Tier II	2014 Plan	(177,264)	$	6.87

—Tier IV	2014 Plan	(195,676)	$	10.51
—SARs	Both Plans	(148,438)	$	9.68
—Share options	2018 Plan	(408,422)	$	14.17

		(1,063,558)	$	10.73
Outstanding at the end of the period:
—Tier I	2014 Plan	1,694,569	$	6.99
—Tier II	2014 Plan	1,818,753	$	7.02

—Tier IV	2014 Plan	1,790,740	$	10.52
—SARs	Both plans	605,082	$	10.81
—Share options	2018 Plan	1,605,368	$	14.60
—Premium-priced options	2018 Plan	835,469	$	18.88
		8,349,981	$	10.68

Exercisable at the end of the period		8,269,839	$	10.64
Vested and expected to vest at the end of the period		8,349,643	$	10.68

As of September 28, 2024, the aggregate intrinsic value of options that were exercisable was $60.5 million, and these options had a weighted average remaining contractual term of 2.5 years. As of September 28, 2024, the aggregate intrinsic value of options that were vested or expected to vest was $60.8 million, and these options had a weighted average remaining contractual term of 2.6 years.

During the three and nine months ended September 28, 2024, cash of $2.9 million and $10.0 million was received in relation to the exercise of vested options, respectively, compared to $0.8 million and $17.5 million during the three and nine months ended September 30, 2023, respectively. The aggregate intrinsic value of options exercised during the three and nine months ended September 28, 2024 was $0.7 million and $3.4 million, respectively, compared to $0.0 million and $5.0 million during the three and nine months ended September 30, 2023, respectively.

Summary of movements in RSUs and PRSUs outstanding


	Nine months ended September 28, 2024
	Number of awards	Weighted average grant date fair value $
Outstanding at the beginning of the period:
—RSUs	3,032,230	$	13.78
—PRSUs	917,661	$	16.77
	3,949,891	$	14.47
Granted during the period:
—RSUs	1,222,752	$	14.91
—PRSUs	426,607	$	16.37
	1,649,359	$	15.28
Forfeited during the period:
—RSUs	(276,392)	$	13.69
—PRSUs	(154,837)	$	15.77
	(431,229)	$	14.44




Vested during the period:
—RSUs	(1,357,673)	$	13.80
—PRSUs	(154,274)	15.00
	(1,511,947)	$	13.92
Outstanding at the end of the period:
—RSUs	2,620,917	$	14.30
—PRSUs	1,035,157	$	17.02
	3,656,074	$	15.07

As of September 28, 2024, the unrecognized compensation charge relating to unvested RSUs and PRSUs was $16.7 million, which is expected to be recognized over a weighted average period of 1.5 years, subject, where relevant, to the achievement of the performance conditions described above. The total fair value of RSUs and PRSUs vested during the three and nine months ended September 28, 2024 was $5.8 million and $21.1 million, respectively, compared to $5.8 million and $21.1 million during the three and nine months ended September 30, 2023, respectively.

The grant date fair value of the SARs are measured using a Black-Scholes valuation model. RSUs are valued at the share price on the date of grant. The Relative TSR component of the PRSUs were valued using Monte Carlo simulations. As Gates only has volatility data for its shares for the period since its IPO, this volatility has, where necessary, been weighted with the debt-levered volatility of a peer group of public companies in order to determine the expected volatility over the expected option life. The expected option life represents the period of time for which the options are expected to be outstanding and is based on consideration of the contractual life of the option, option vesting period, and historical exercise patterns. The weighted average fair values and relevant assumptions were as follows:


	Nine months ended
	September 28, 2024			September 30, 2023
Weighted average grant date fair value:
—SARs	$	6.95		$	6.71


—RSUs	$	14.91		$	13.86
—PRSUs	$	16.37		$	15.88

Inputs to the model:
—Expected volatility — SARs	41.7		%	43.4		%


—Expected volatility — PRSUs	31.6		%	37.7		%

—Expected option life for SARs (years)	6.0			6.0





—Risk-free interest rate:
SARs	4.2		%	4.1		%


PRSUs	4.4		%	4.6		%