In connection with the acquisition of Extend Health in May 2012, Towers Watson filed a Form S-8 Registration Statement and assumed the Extend Health, Inc. 2007 Equity Incentive Plan. The assumed options are exercisable for 377,614 shares of Towers Watson Class A common stock. The registration also covers 55,514 shares of Towers Watson Class A common stock available for issuance under the plan.

Towers Watson assumed the amended and restated Watson Wyatt 2001 Employee Stock Purchase Plan (the “Stock Purchase Plan”) which enables associates to purchase shares of Towers Watson Class A common stock at a 5% discount. The Stock Purchase Plan is a non-compensatory plan under generally accepted accounting principles of stock-based compensation. As a result, no compensation expense is recognized in conjunction with this plan. In fiscal year 2010, Towers Watson filed an S-8 Registration Statement registering 4,696,424 shares available for issuance under the Stock Purchase Plan. Approximately 56,000, 108,000 and 146,000 shares were issued under this plan during fiscal years 2012, 2011 and 2010, respectively.

In January 2010, Towers Watson filed a Form S-8 Registration Statement to register 12,500,000 shares of Towers Watson Class A common stock that may be issued pursuant to the Towers Watson & Co. 2009 Long-Term Incentive Plan (the “2009 Plan”) and 125,648 shares of Class A common stock that may be issued upon exercise of the unvested stock options previously granted under the Watson Wyatt 2000 Long-Term Incentive Plan. The Watson Wyatt 2000 Long-term Incentive Plan was assumed by Towers Watson and the registered shares for the Watson Wyatt 2000 Long-term Incentive Plan are limited to exercise of awards that were outstanding at the time of the Merger. The assumed options were exercisable for shares of Towers Watson Class A common stock based on the exchange ratio of one share of Watson Wyatt Class A common stock underlying the options for one share of Towers Watson Class A common stock. The 2009 Plan was approved by Watson Wyatt shareholders on December 18, 2009.

In September 2010, the Compensation Committee of our Board of Directors approved the form of performance-vested restricted stock unit award agreement, pursuant to the 2009 Plan. RSUs are designed to provide us an opportunity to offer long-term incentives and to provide key executives with a long-term stake in our success. RSUs are notional, non-voting units of measurement based on our common stock. Under the RSU agreement, participants become vested in a number of RSUs based on the achievement of specified levels of financial performance during the performance period set forth in the agreement, provided that the participant remains in continuous service with us through the end of the performance period. The targets reflect an emphasis on continued profitability growth through successful integration, despite the difficult economic environment. Any RSUs that become vested are payable in shares of our Class A Common Stock. Dividend equivalents will accrue on RSUs and vest to the same extent as the underlying shares. In September 2011, the Compensation Committee amended the form of performance-vested restricted stock unit award agreement to include a provision whereby the Committee could provide for continuation of vesting of restricted stock units upon an employee's termination under certain circumstances such as a qualified retirement. This definition of qualified retirement (age 55 and with 15 years experience at the Company and a minimum of one year of service in the performance period) was further defined in January 2012 and the amended award agreements for all of our outstanding LTIP awards were finalized and distributed to participants.

2012 LTIP. During the fiscal year ended June 30, 2012, 86,188 RSUs were granted to certain of our executive officers for the 2011 to 2014 performance period. Awards are based on the value of the executive officer's annual base salary and a multiplier, which is then converted into a target number of RSUs based on our closing stock price as of the date of grant which was between $63.73 and $63.94. Between 0% and 204% of the target number of RSUs will vest based on the extent to which specified performance metrics are achieved over the three-year performance period from July 1, 2011 to June 30, 2014, subject to their continued employment with us through the end of the performance period, except in the case of a qualified retirement. The Compensation Committee approved the grants and established adjusted EBITDA margin and revenue growth during the performance period as the performance metrics for the awards. We accelerated the expense for participants that had achieved a qualified retirement requirement and recorded the remaining non-cash stock based compensation for their awards as if their service requirement has been achieved. We will adjust the stock-based compensation for their awards during the performance period based upon the level of performance achieved. For the year ended June 30, 2012, we recorded $5.7 million of stock-based compensation related to these grants.

2011 LTIP. During fiscal year ended June 30, 2011, 125,192 RSUs were granted to certain of our executive officers for the 2010 to 2013 performance period. Awards are based on the value of the executive officer's annual base salary and a multiplier, which is then converted into a target number of RSUs based on our closing stock price as of the date of grant of $45.25. Between 0% and 204% of the target number of RSUs will vest based on the extent to which specified performance metrics are achieved over the three-year performance period from July 1, 2010 to June 30, 2013, subject to their continued employment with us through the end of the performance period. The Compensation Committee approved the grants and established adjusted EBITDA margin for the six-month period ending June 30, 2013 and revenue growth during the performance period (based on fiscal year 2013 revenue versus fiscal year 2010 revenue) as the performance metrics for the awards. For the fiscal years ended June 30, 2012 and 2011, we recorded $5.5 million and $3.2 million, respectively, of stock-based compensation related to this grant.

RSUs. During the fiscal year ended June 30, 2012 and June 30, 2011, 16,239 and 28,500 RSUs, respectively, were granted to certain employees and vest in equal installments over a three-year period based on continued employment through the vesting period. In fiscal years 2012 and 2011, 1,575 and 7,200 RSUs of the awards granted vested immediately. For the fiscal years 2012 and 2011, we recorded $0.7 million and $1.5 million, respectively, of stock-based compensation related to these grants.

2011 SEP. During the first quarter of fiscal year 2012, we granted 577,190 equity awards to certain employees under our Select Equity Plan, of which 288,595 were issued as Class A common stock in conjunction with our annual fiscal year 2011 performance bonus. The remaining 288,595 were issued as RSUs that will vest annually over a three-year period. We assumed a 10% forfeiture rate for the RSUs which was adjusted to 5% based on the first year of experience. In the fourth quarter of fiscal year 2012, 95,045 of these RSUs vested. For the fiscal year ended June 30, 2012, we recorded $11.1 million of non-cash stock based compensation related to these grants.

In May 2010, the board of directors approved the Towers Watson & Co. Compensation Plan for Non-Employee Directors which provides for cash and stock compensation for outside directors. During the fiscal year ended June 30, 2012, 12,783 RSUs were granted for the annual award for outside directors for service on the board of directors in equal quarterly installments over fiscal year 2012. During the fiscal year ended June 30, 2011, 24,710 RSUs were granted for the annual award for outside directors for service on the board of directors in equal quarterly installments over fiscal year 2011. In fiscal year 2010, 22,149 RSUs were granted for the initial award for outside directors for service on the board of directors which vest in equal annual installments over a three year period ending January 1, 2013. Also in fiscal year 2010, 9,844 RSUs were granted for the annual award for outside directors for service on the board of directors from January 1, 2010 through June 30, 2010. A board member did not stand for re-election in fiscal year 2011 resulting in a reversal of previously recorded compensation expense. We recorded $1.0 million and $1.3 million, respectively, of non-cash stock based compensation for the fiscal years ended June 30, 2012 and 2011 related to these awards for outside directors.

The table below presents restricted stock units activity and weighted average fair values for the fiscal years 2012 and 2011:


	Number of	Weighted Average
	Shares	Fair Value

	(In thousands,
	except per-share amounts)

Nonvested at June 30, 2010	24		$ 48.98
Granted	186		46.07
Vested	(32)		47.54
Forfeited (1)	(5)		44.69
Nonvested and expected to vest as of June 30, 2011	173		$ 46.31
Granted	700		58.55
Vested	(432)		57.69
Forfeited (1)	(3)		57.43
Nonvested and expected to vest as of June 30, 2012	438		$ 54.57

As of June 30, 2012, $10.9 million of total stock-based compensation related to the nonvested awards above has not yet been recognized. We expect that this expense will be recognized in our consolidated statement of operations over the next 1.3 weighted-average years.

In May 2012, we assumed the Extend Health, Inc. 2007 Equity Incentive Plan and converted the outstanding unvested employee stock options into 377,614 Towers Watson's stock option awards using a conversion ratio stated in the agreement for the exercise price and number of options. The fair value of the vested stock options were calculated using the Black-Scholes model with a volatility and risk-free interest rate over the expected term of each group of options with the fair value share price of Towers Watson's closing share price on the date of acquisition. The fair value of the new awards were less than the acquisition date fair value of the replaced Extend Health options, accordingly, no compensation expense was recorded. The fair value of 199,620 of the 377,614 outstanding options using Towers Watson graded vesting methodology from the date of grant to the acquisition date, representing the employee service provided to date, was $11.2 million and was added to the consideration price. The fair value of 177,994 unvested options, less 10% estimated forfeitures, was $7.9 million and will be recorded over the future vesting periods. We accelerated and paid participants the net cash value after tax withholding and exercise price 43,317 of unvested options that would have vested between the acquisition date and June 30, 2012 and recorded $0.9 million of compensation expense in fiscal 2012.

There were no grants of stock options during the fiscal year ended June 30, 2012 and 2011 under the 2009 Plan.

During the fiscal year ended June 30, 2010, 108,933 fully vested stock options were granted under the 2009 Plan with an exercise price equal to the grant date fair value of Towers Watson Class A common stock of $45.88. As a result, the Company recorded $1.3 million of stock-based compensation in the fiscal year ended June 30, 2010.

Also during the fiscal year ended June 30, 2010, 125,648 stock options were granted under the Watson Wyatt 2000 Long-term Incentive Plan with an exercise price equal to the grant date market price of Watson Wyatt's common stock of $42.47 with a three-year vesting term. All outstanding Watson Wyatt stock options became fully vested at the time of the Merger with the exercise price as of the original grant date and the unamortized grant date fair value of the options was recorded as expense. As a result, we recorded stock-based compensation of $1.3 million during fiscal year 2010.

The weighted-average fair value of the stock option grants under both plans was calculated using the Black-Scholes formula and are included in the valuation assumptions table below. In addition, a post-vesting discount was calculated using 1.4%, the risk-free interest rate of a three-year bond, compounded over three years. The post-vesting discount was used to estimate fair value as there is a transfer restriction for three years of the stock option's underlying shares once vested. Compensation expense is recorded over a three-year graded vesting term as if one-third of the options granted to a participant are vested over one year, one-third are vested over two years and the remaining one-third are vested over three years.


		Year Ended			Year Ended			Year Ended
		June 30,			June 30,			June 30,
		2012			2011			2010
Stock option grants:
	Risk-free interest rate		0.33	%		-	%		1.40	%
	Expected lives in years		2.2			-			3
	Expected volatility		38.5	%		-	%		37.2	%
	Dividend yield		0.6	%		-	%		0.6	%
Weighted-average grant date fair value
	of options granted	$	52.70		$	-		$	11.02
Number of shares granted			377,614			-			234,581

The table below presents stock option activity and weighted average exercise prices for fiscal years 2012, 2011 and 2010:


		Weighted				Average
		Average		Aggregate		Remaining
	Number of	Exercise		Intrinsic		Contractual
	Shares	Price		Value		Life
	(thousands)			(thousands)		(years)

Outstanding at June 30, 2010	235	$	44.05			5.5
Granted	-		-
Exercised	(47)		(43.83)		$ 425
Forfeited	-		-
Expired	-		-
Outstanding at June 30, 2011	188	$	44.11		$ 4,052	6.4

Granted	378		8.27			8.3
Exercised	(17)		(43.44)		$ 273
Forfeited	-		-
Expired	-		-
Outstanding and Exercisable at June 30, 2012	549	$	19.42		$ 22,172	7.2

Information regarding stock options outstanding as of June 30, 2012 is as follows:


	Outstanding				Options Exercisable
Exercise Price	Number of Shares	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number of Shares	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price

$0.75 - $1.55	70,262	1.2	$	1.33	-	-	$	-
$3.31 - $3.97	183,861	2.0		3.39	-	-		-
$19.21 - $25.18	123,491	3.1		19.49	-	-		-
$42.47	84,945	4.5		42.47	84,945	4.5		42.47
$45.88	85,217	4.7		45.88	85,217	4.7		45.88
	547,776		$	19.43	170,162		$	44.18

The aggregate intrinsic value is the sum of the amounts by which he quoted market price of our common stock exceeded the exercise price of the options at June 30, 2012, for those options for which the quoted market price was in excess of the exercise price.