Stock Incentive Plans

Equity Plans

As a result of the Merger, all outstanding CSC awards of stock options, stock appreciation rights, restricted stock units ("CSC RSUs"), including performance-based restricted stock units, relating to CSC common stock granted under the 2011 Omnibus Incentive Plan, the 2007 Employee Incentive Plan and the 2010 Non-Employee Director Incentive Plan (the “CSC Equity Incentive Plans”) held by CSC employees and non-employee directors were converted into an adjusted award relating to DXC common shares subject to the same terms and conditions after the Merger as the terms and conditions applicable to such awards prior to the Merger.

Under the terms of the CSC Equity Incentive Plans and the individual award agreements, all unvested equity incentive awards, including all stock options and CSC RSUs held by all participants under the plans, including its named executive officers and directors, are subject to accelerated vesting in whole or in part upon the occurrence of a change in control or upon the participant’s termination of employment on or after the occurrence of a change in control under certain circumstances ("CIC events"). As a result of CIC events triggered by the Merger, approximately $3.6 million unvested awards became vested on April 1, 2017 and $26 million of incremental stock compensation expense was recognized during the three months ended June 30, 2017. CSC options granted in fiscal 2017 vested 33% upon the Merger; the remaining 67% were converted into DXC RSUs based on the accounting value of the options. These RSUs will vest on the second and third anniversaries of the original option grant date. For equity incentive awards granted by HPE under HPE equity incentive plans to HPES prior to the Merger, outstanding options (vested and unvested) and unvested RSU awards were converted upon the Merger into economically equivalent DXC option and RSU awards, with terms and conditions substantially the same as the terms of such awards prior to the Merger.

In March 2017, prior to the Merger, the board of directors and shareholders of HPES approved DXC’s 2017 Omnibus Incentive Plan (the “DXC Employee Equity Plan”), DXC’s 2017 Non-Employee Director Incentive Plan (the “DXC Director Equity Plan”) and DXC’s 2017 Share Purchase Plan (“DXC Share Purchase Plan”). The terms of the DXC Employee Equity Plan and DXC Director Equity Plans are substantially similar to the terms of the CSC Equity Incentive Plans. The former allows DXC to grant stock options (including incentive stock options), stock appreciation rights (“SARs”), restricted stock, RSUs (including PSUs), and cash awards intended to qualify for the performance-based compensation exemption to the $1 million deduction limit under Section 162(m) of the Internal Revenue Code (collectively the "Awards"). Awards are typically subject to vesting over the 3-year period following the grant date. Vested stock options are generally exercisable for a term of 10 years from the grant date. All of DXC’s employees are eligible for awards under the plan. The Company issues authorized but previously unissued shares upon the granting of stock options and the settlement of RSUs and PSUs.

The Compensation Committee of the Board of Directors (the "Board") has broad authority to grant awards and otherwise administer the DXC Employee Equity Plan. The plan became effective March 30, 2017 and will continue in effect for a period of 10 years thereafter, unless earlier terminated by the Board. The Board has the authority to amend the plan in such respects as it deems desirable, subject to approval of DXC’s stockholders for material modifications.

RSUs represent the right to receive one share of DXC common stock upon a future settlement date, subject to vesting and other terms and conditions of the award, plus any dividend equivalents accrued during the award period. In general, if the employee’s status as a full-time employee is terminated prior to the vesting of the RSU grant in full, then the RSU grant is automatically canceled on the termination date and any unvested shares and dividend equivalents are forfeited. Certain executives were awarded service-based "career share" RSUs for which the shares are settled over the 10 anniversaries following the executive's separation from service as a full-time employee, provided the executive complies with certain non-competition covenants during that period.

The Company also grants PSUs, which generally vest over a period of 3 years. The number of PSUs that ultimately vest is dependent upon the Company’s achievement of certain specified financial performance criteria over a three-year period. If the specified performance criteria are met, awards are settled for shares of DXC common stock and dividend equivalents upon the filing with the SEC of the Annual Report on Form 10-K for the last fiscal year of the performance period. PSU awards include the potential for up to 25% of the shares granted to be earned after the first and second fiscal years if certain of the Company's performance targets are met early, subject to vesting based on the participant's continued employment through the end of the three-year performance period.

The terms of the DXC Director Equity Plan allow DXC to grant RSU awards to non-employee directors of DXC. Such RSU awards vest in full at the earlier of (i) the first anniversary of the grant date or (ii) the next annual meeting date, and are automatically redeemed for DXC common stock and dividend equivalents either at that time or, if an RSU deferral election form is submitted, upon the date or event elected by the director. Distributions made upon a director’s separation from the Board may occur in either a lump sum or in annual installments over periods of 5, 10, or 15 years, per the director’s election. In addition, RSUs vest in full upon a change in control of DXC.

The DXC Share Purchase Plan allows DXC’s employees located in the United Kingdom to purchase shares of DXC’s common stock at the fair market value of such shares on the applicable purchase date. There were no shares purchased under this plan during the three months ended June 30, 2017.

The Board has reserved for issuance shares of DXC common stock, par value $0.01 per share, under each of the plans as detailed below:



	As of June 30, 2017
	Reserved for issuance	Available for future grants
DXC Employee Equity Plan	34,200,000	22,581,808
DXC Director Equity Plan	230,000	139,734
DXC Share Purchase Plan	250,000	250,000
Total	34,680,000	22,971,542

Stock Options



	Number of Option Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (in millions)
Outstanding as of March 31, 2017	4,767,396		$	38.70	8.01	$	145
Granted	1,067		$	77.00
HPE options converted to DXC options at Merger	2,654,872		$	46.56
CSC Options converted to RSUs due to Merger	(1,521,519	)	$	51.00
Exercised	(711,432	)	$	35.93		$	29
Canceled/Forfeited	(925	)	$	54.20
Expired	(12,492	)	$	27.59
Outstanding as of June 30, 2017	5,176,967		$	39.53	5.99	$	193
Vested and expected to vest in the future as of June 30, 2017	5,166,000		$	39.47	5.98	$	193
Exercisable as of June 30, 2017	5,119,465		$	39.27	5.97	$	192

Restricted Stock Units



	Employee Equity Plan				Director Equity Plan
	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
Outstanding as of March 31, 2017	3,710,985		$	34.86	85,766		$	34.19
Granted	1,231,656		$	77.12	4,500		$	80.53
HPE RSUs converted to DXC RSUs due to Merger	95,302		$	69.30	—		$	—
Options converted to RSUs due to Merger	609,416		$	32.58	—		$	—
Settled	(1,795,025	)	$	34.91	(19,500	)	$	44.57
Canceled/Forfeited	(55,860	)	$	38.36	—		$	—
Outstanding as of June 30, 2017	3,796,474		$	48.99	70,766		$	34.28

Share-Based Compensation



	Three Months Ended
(in millions)	June 30, 2017		July 1, 2016
Total share-based compensation cost	$	40	$	14
Related income tax benefit	$	13	$	5
Total intrinsic value of options exercised	$	29	$	44
Tax benefits from exercised stock options and awards	$	35	$	19

Weighted-average Assumptions Used in Black-Scholes-Merton Model for Stock Options



	Three months ended
	June 30, 2017		July 1, 2016
Risk-free interest rate	1.87	%	1.56	%
Expected volatility	25	%	29	%
Expected term (in years)	5.50		6.19
Dividend yield	0.98	%	1.67	%

As of June 30, 2017, total unrecognized compensation expense related to unvested DXC stock options and unvested DXC RSUs, net of expected forfeitures was $1 million and $139 million, respectively. The unrecognized compensation expense for unvested RSUs is expected to be recognized over a weighted-average period of 2.28 years.