Stock-based compensation, which was recorded as components of Cost of revenue, Selling, marketing and administrative expenses and Research and development expense, for the fiscal years ended January 2, 2022, January 3, 2021 and December 29, 2019 are presented below:


	Fiscal Year Ended
	January 2, 2022		January 3, 2021		December 29, 2019
Cost of revenue	$	0.5	$	0.8	$	1.8
Selling, marketing and administrative expenses		21.5		7.5		16.4
Research and development expense		0.5		0.2		0.5
Total stock-based compensation	$	22.5	$	8.6	$	18.6

On October 22, 2014, UK Holdco’s Board of Directors approved the Ortho Clinical Diagnostics Holding plc (formerly known as Ortho-Clinical Diagnostics Bermuda Co. Ltd.) 2014 Equity Incentive Plan (the “2014 Plan”) which reserved an aggregate of 15,190,387 ordinary shares of the Company for issuance to employees, directors and consultants (“Options”). The 2014 Plan provides for the issuance of stock options, restricted stock and other stock-based awards. Options and restricted shares granted must be authorized by the Board of Directors of UK Holdco or a designated committee thereof (the “Plan Administrator”). The terms of the options may vary with each grant and are determined by the Plan Administrator within the guidelines of the 2014 Plan. In December 2019, the Company increased the number of shares reserved under the 2014 Plan to 20,356,346. In January 2021, prior to the commencement of our IPO, the Board of Directors adopted and our shareholders approved the 2021 Incentive Award Plan (the “2021 Plan”), which reserved up to 79,670,000 ordinary shares that may be issued under the 2021 Plan.

Options granted under the 2014 Plan provide for time-based vesting for a portion of the Options, performance-based vesting for a portion of the Options and liquidity event vesting for a portion of the Options. The time-based Options generally vest ratably over three to five years. Upon the occurrence of a Liquidity Event (as defined in the 2014 Plan), the liquidity-based Options vest immediately prior to the Liquidity Event. The performance-based Options vest and become exercisable based upon achievement of certain market conditions such as share price, performance conditions such as earnings or shareholder return targets, or both.

On January 11, 2019, the Board of Directors approved the Amendment to the Stock Option Agreement, whereby performance-based options that did not vest based on applicable minimum earnings targets will vest over a specified period of time. The Company accounted for this as a modification and recognized additional compensation expense of approximately $14.7 million during fiscal year 2019.

On May 3, 2021, the Board of Directors approved a modification to the vesting of Liquidity Event option awards held by certain former members of management, for which the original vesting was contingent on a certain liquidity event as defined by the option agreement. The modification changed the vesting for the award such that the entirety of the award vested on the date the modification was approved by the Board of Directors. The modification resulted in an additional $4.6 million of stock-based compensation expense recognized during the fiscal year ended January 2, 2022, which was recorded as component of Selling, marketing and administrative expenses.

A summary of stock option activity for the fiscal year ended January 2, 2022 is presented below:


	Number of shares			Weighted average exercise price		Weighted average grant date fair value		Weighted average remaining contractual life (years)
Number of shares under option:
Outstanding as of January 3, 2021		16,080,124		$	9.66	$	3.93		3.56
Granted		270,119			16.46		7.04
Canceled		(1,056,687	)		11.91		3.71
Exercised		(2,338,652	)		6.86		3.88
Outstanding as of January 2, 2022		12,954,904		$	10.13	$	4.02		3.15
Exercisable as of January 2, 2022		7,596,739			8.27		3.85		2.51
Expected to vest as of January 2, 2022		1,823,386			12.65		5.20		4.01
Total vested and expected to vest as of January 2, 2022		9,420,125		$	9.12	$	4.11		2.80

During the fiscal year ended January 2, 2022, the Company granted under the 2014 Plan, 80,250 time-based stock options at a weighted average exercise price of $19.68 per share and a weighted average grant date fair value of $9.15 per option and 189,869 performance-based stock options at a weighted average exercise price of $15.10 per share and a weighted average grant date fair value of $6.15 per option.

The Black-Scholes option price model and Monte Carlo Simulation were used to estimate the fair value of the time-based and performance-based options, respectively, as of the date of the grant. Expected volatility is determined based on a number of factors, including management’s estimates and comparable companies. The expected term of the options is calculated as the mid-point between the expected time to vest and the maturity of the options. The yield interpolated from U.S. Constant Maturity Treasury rates for a period commensurate with the expected term assumption is used as the risk-free interest rate.

Information related to the assumptions used to estimate the grant fair value of shares using the Black-Scholes option price model follows:

Fiscal Year Ended

January 2, 2022

January 3, 2021

December 29, 2019

Grant date fair value of ordinary share, per share

$ 19.06 – $19.97

$ 12.56 – $14.13

$11.92–$12.55

Range of expected term

5.50 – 6.25

0.3 – 4.80

1.00 – 6.14

Range of expected volatility

45% – 50%

55% – 80%

45% – 55%

Weighted-average dividend rate

Range of risk-free rates

1.07% – 1.10%

0.11% – 0.30%

1.50% – 2.56%

Prior to the initial public offering in February 2021, the Company estimated the per share fair value of its ordinary shares using a contemporaneous valuation. In conducting this valuation, the Company considered all objective and subjective factors believed to be

relevant, including its best estimate of the Company’s business condition, prospects and operating performance. Within this contemporaneous valuation, a range of factors, assumptions and methodologies were used. The significant factors included:

• the fact that at the time of the grant, the Company was a private company with illiquid securities;

• the risk involved in the investment, as related to earnings stability, capital structure, competition and market potential.

For the contemporaneous valuation of the ordinary shares, management estimated, as of the issuance date, the Company’s enterprise value on a continuing operations basis, using both the income approach and the market approach, with equal weights assigned to each. The income approach utilized the discounted cash flow (“DCF”) methodology based on the Company’s financial forecasts and projections, as detailed below. For the DCF methodology, the Company prepared annual projections of future cash flows. These projected cash flows were projected at long-term sustainable growth rates consistent with long-term inflationary and industry expectations. The Company’s projections of future cash flows were based on its estimated net debt-free cash flows and were discounted to the valuation date using a weighted-average cost of capital estimated based on market participant assumptions. When selecting comparable companies, consideration was given to industry similarity, their specific products offered, financial data availability and capital structure. Under the market approach, the Company’s enterprise value is based on trading multiples of these comparable companies.

As of January 2, 2022, the Company had $19.3 million of unrecognized compensation expense relating to outstanding unvested stock options. Compensation expense is recognized for the fair value of the stock options over the requisite service period of the awards, which is generally the vesting period. This expense is expected to be recognized over a weighted-average period of 1.22 years.

A summary of all restricted stock activity during the fiscal year ended January 2, 2022 is as follows:


	Number of shares			Weighted average grant date fair value
Restricted shares
Restricted shares outstanding as of January 3, 2021		696,863		$	13.62
Granted		—			—
Vested		(308,139	)		13.27
Restricted shares outstanding as of January 2, 2022		388,724		$	13.48
Restricted stock units
Restricted stock units outstanding as of January 3, 2021		318,680		$	14.13
Granted		176,000			19.86
Vested		(327,780	)		14.27
Restricted stock units outstanding as of January 2, 2022		166,900		$	19.90

The recipients of the restricted stock have all the rights of a stockholder with respect to the restricted shares of stock, including the right to receive any cash or stock dividend or other distribution paid to be made with respect to the restricted share of stock. These shares of restricted stock vest based on the terms as determined by the Executive Committee of the Board of Directors. Any unvested restricted shares are forfeited in the event of termination. As of January 2, 2022, the Company had $1.6 million of unrecognized compensation expense relating to outstanding unvested restricted stock awards.

The recipients of the restricted stock units will have no rights of a shareholder with respect to shares subject to any restricted stock unit unless and until the ordinary shares are delivered in settlement of the restricted share unit. The Company may provide that settlement of the restricted stock unit will occur upon or as soon as reasonably practicable after the unit vests or will instead be deferred, on a mandatory basis or at the recipient’s election. If the Company provides, a grant of restricted stock unit may provide a recipient with the

right to receive dividend equivalents. As of January 2, 2022, the Company had $1.7 million of unrecognized compensation expense relating to outstanding unvested restricted stock units awards.

On May 3, 2021, the Board of Directors approved a modification to the vesting of restricted stock awards held by certain members of management, for which the original vesting pattern was on a cliff-vesting basis over a three-year period. Upon modification, the vesting for 50% of the award was accelerated to six months from the date of the Company’s IPO. The result of the modification was an additional $1.5 million of stock-based compensation expense recorded for the fiscal year ended January 2, 2022, which was recorded as a component of Selling, marketing and administrative expenses. There was no modification to the vesting conditions for the remaining 50% of the award and no additional shares granted as a result of the modification. The total unrecognized expense relating to unvested shares for this award as of the fiscal year ended January 2, 2022 was $0.5 million and will be recognized over a period of one year.