EX-10.3





Exhibit (10.3)


THE McGRAW-HILL COMPANIES, INC.


2002 Stock Incentive Plan


(Amended and restated as of January 28, 2009)


 








 





Table of Contents




	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	SECTION 1. Purpose; Definitions
	 	 	1	 
	 
	 	 	 	 
	SECTION 2. Administration
	 	 	6	 
	 
	 	 	 	 
	SECTION 3. Stock Subject to Plan
	 	 	8	 
	 
	 	 	 	 
	SECTION 4. Eligibility
	 	 	10	 
	 
	 	 	 	 
	SECTION 5. Stock Options
	 	 	11	 
	 
	 	 	 	 
	(a) Option Price
	 	 	11	 
	(b) Option Term
	 	 	11	 
	(c) Exercisability
	 	 	11	 
	(d) Method of Exercise
	 	 	12	 
	(e) Non-Transferability of Options
	 	 	13	 
	(f) Termination by Death
	 	 	13	 
	(g) Termination by Reason of Disability
	 	 	14	 
	(h) Termination by Reason of Retirement
	 	 	14	 
	(i) Termination by Reason of a Division Sale
	 	 	14	 
	(j) Cause
	 	 	15	 
	(k) Other Termination
	 	 	15	 
	 
	 	 	 	 
	SECTION 6. Stock Appreciation Rights
	 	 	15	 
	 
	 	 	 	 
	(a) In General
	 	 	15	 
	(b) Stock Appreciation Rights Granted Alone
	 	 	16	 
	(c) Stock Appreciation Rights Granted in Tandem with Stock Options
	 	 	16	 
	(d) Stock Appreciation Rights Granted in Tandem with Awards Other Than Stock Options
	 	 	17	 
	(e) Stock Appreciation Rights Defined
	 	 	17	 
	 
	 	 	 	 
	SECTION 7. Stock Awards
	 	 	18	 
	 
	 	 	 	 
	(a) Stock Awards in General
	 	 	18	 
	(b) Performance Stock
	 	 	18	 
	(c) Restricted Stock
	 	 	18	 
	(d) Conditions of Stock Awards
	 	 	19	 
	(e) Restrictions and Conditions of Shares
	 	 	19	 
	 
	 	 	 	 
	SECTION 8. Other Stock-Based Awards
	 	 	21	 
	 
	 	 	 	 
	(a) Other Stock-Based Awards in General
	 	 	21	 
	(b) Terms and Conditions
	 	 	22	 






 









 






	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	SECTION 9. Qualifying Awards
	 	 	23	 
	(a) General
	 	 	23	 
	(b) Qualifying Stock Options and Stock Appreciation Rights
	 	 	23	 
	(c) Qualifying Awards other than Stock Options and Stock Appreciation Rights
	 	 	24	 
	 
	 	 	 	 
	SECTION 10. Change In Control Provisions
	 	 	25	 
	(a) Impact of Event
	 	 	26	 
	(b) Definition of “Change in Control”
	 	 	27	 
	(c) Change in Control Price
	 	 	29	 
	 
	 	 	 	 
	SECTION 11. Amendments and Termination
	 	 	30	 
	 
	 	 	 	 
	SECTION 12. Unfunded Status of Plan
	 	 	31	 
	 
	 	 	 	 
	SECTION 13. General Provisions
	 	 	31	 
	 
	 	 	 	 
	(a) Stock Subject to Awards
	 	 	31	 
	(b) Other Plans
	 	 	32	 
	(c) Continued Employment
	 	 	32	 
	(d) Taxes and Withholding
	 	 	32	 
	(e) Governing Law
	 	 	33	 
	(f) Computation of Benefits
	 	 	33	 
	(g) Division Sale
	 	 	33	 
	(h) Foreign Law
	 	 	33	 
	 
	 	 	 	 
	SECTION 14. Plan Effective Date and Duration
	 	 	34	 







 











 





THE McGRAW-HILL COMPANIES, INC.




2002 Stock Incentive Plan




          SECTION 1. Purpose; Definitions.




          The purpose of The McGraw-Hill Companies, Inc. 2002 Stock Incentive Plan is to enable the
Company to offer its employees long-term performance-based stock incentives and other equity
interests in McGraw-Hill, thereby attracting, retaining and rewarding such employees, and
strengthening the mutuality of interests between employees and McGraw-Hill’s shareholders.




          For purposes of the Plan, the following terms shall be defined as set forth below:




          (a) “Aggregate Limit” shall have the meaning set forth in Section 3(a).




          (b) “Amended Plan” shall have the meaning set forth in Section 14.




          (c) “Amended Plan Effective Date” means the date of McGraw-Hill’s 2004 Annual Meeting
of Shareholders.




          (d) “Award” means a Stock Option, Stock Appreciation Right, grant of Performance
Stock, Restricted Stock or Deferred Stock, Dividend Equivalent or other Stock-Based Award or
Qualifying Award.




          (e) “Award Documentation” shall have the meaning set forth in Section 2(d).




          (f) “Board” means the Board of Directors of McGraw-Hill.




          (g) “Cause” shall mean, except as otherwise defined in an employee’s



 









 




2


employment
agreement or the Award Documentation in respect of an Award, the employee’s misconduct in respect
of the employee’s obligations to the Company or other acts of misconduct by the employee occurring
during the course of the employee’s employment, which in either case results in or could reasonably
be expected to result in material damage to the property, business or reputation of the Company;
provided that in no event shall unsatisfactory job performance alone be deemed to be
“Cause”; and provided further that no termination of employment that is carried out
at the request of a person seeking to accomplish a Change in Control or otherwise in anticipation
of a Change in Control shall be deemed to be for “Cause”.




          (h) “Change in Control” and “Change in Control Price” shall have meanings set
forth, respectively, in Sections 10(b) and (c).




          (i) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and
any successor thereto.




          (j) “Commission” means the Securities and Exchange Commission or any successor
thereto.




          (k) “Committee” means the Compensation Committee of the Board. If at any time no
Committee shall be in office, then, subject to the applicable listing requirements of the New York
Stock Exchange, the functions of the Committee specified in the Plan shall be exercised by the
Board or by a committee of Board members.




          (l) “Company” means McGraw-Hill and all domestic and foreign corporations,
partnerships and other legal entities of which at least 20% of the voting securities
or ownership interests in such corporations, partnerships or other legal entities are owned
directly












 




3


or indirectly by McGraw-Hill.




          (m) “Deferred Stock” means a right to receive on a specified date following the
settlement date of an Award, at the election of the participant or as required by the terms of such
Award, an amount based on the value of the number of shares of Stock (or cash or other property in
consideration thereof) due upon settlement of such Award (or portion thereof). Payments in respect
of Deferred Stock may be in cash, Stock or other property, or any combination thereof.




          (n) “Disability” means, with respect to an Award, disability as defined under the
Company’s long-term disability plan applicable to the recipient of such Award.




          (o) “Dividend Equivalent” means a right attached to an Award to receive an amount
based on the value of the regular cash dividend paid on an equivalent number of shares of Stock.
Dividend Equivalents may be subject to the same vesting and other provisions of the underlying
Award and may be paid in cash, either currently or deferred, or shares of Stock or Deferred Stock.




          (p) “Division Sale” means the sale, transfer, or other disposition to a third party
not affiliated with the Company of substantially all of the assets or all of the capital stock of a
business unit of the Company, but excluding a Change in Control.




          (q) “Early Retirement” means retirement from the Company on or after attaining age 55,
but before attaining age 65, after having completed at least 10 years of service with the Company
and being eligible to receive Company pension benefits.




          (r) “Exchange Act” means the Securities Exchange Act of 1934, as amended












 




4


from time to
time, and any successor thereto.




          (s) “Fair Market Value” for purposes of this Plan, unless otherwise required by any
applicable provision of the Code or any regulations issued thereunder, shall mean, as of any given
date, the last price at which the Stock is sold on the New York Stock Exchange on such date, or, if
there is no such sale on such date, the last price at which the Stock is sold on the New York Stock
Exchange prior to such date.




          (t) “Individual Limit” shall have the meaning set forth in Section 3(f).




          (u) “McGraw-Hill” means The McGraw-Hill Companies, Inc., a corporation organized under
the laws of the State of New York, or any successor corporation.




          (v) “1993 Plan” means The McGraw-Hill Companies, Inc. 1993 Employee Stock Incentive
Plan.




          (w) “1993 Plan Award” means an award granted under the 1993 Plan.




          (x) “1993 Plan Stock Option” means a stock option granted under the 1993 Plan.




          (y) “Normal Retirement” means retirement from active employment with the Company on or
after age 65.




          (z) “Other Stock-Based Award” means an award under Section 8 that is payable in cash
or Stock and is valued in whole or in part by reference to, or is otherwise based on, Stock.




          (aa) “Outstanding Common Stock” shall have the meaning set forth in












 





5


Section 10(b)(i).




          (bb) “Outstanding Voting Securities” shall have the meaning set forth in Section
10(b)(i).




          (cc) “Performance Stock” means an award of shares of Stock under Section 7 whose
vesting and forfeiture restrictions relate to the attainment of performance goals and objectives.




          (dd) “Plan” means The McGraw-Hill Companies, Inc. 2002 Stock Incentive Plan, as
amended from time to time, including any rules, guidelines or interpretations thereof adopted by
the Committee.




          (ee) “Plan Effective Date” means April 24, 2002.




          (ff) “Qualifying Award” means an Award made in accordance with the provisions of
Section 9.




          (gg) “Restricted Stock” means an award of shares of Stock under Section 7 whose
vesting and forfeiture restrictions relate to the participant’s continued service with the Company
for a specified period of time.




          (hh) “Restriction Period” shall have the meaning set forth in Section 7(e)(ii).




          (ii) “Retirement” means Normal or Early Retirement.




          (jj) “Stock” means the Common Stock, $1.00 par value per share, of McGraw-Hill.













 





6



          (kk) “Stock Award” means an award of Performance Stock or Restricted Stock under
Section 7.




          (ll) “Stock Appreciation Right” shall have the meaning set forth in Section 6(e).




          (mm) “Stock Option” means any option to purchase shares of Stock granted under Section
5.




          SECTION 2. Administration.








          (a) The Plan shall be administered by the Committee. The Committee shall have full authority
to grant Awards, pursuant to the terms of the Plan, to officers and other employees eligible under
Section 4.




          In particular, the Committee shall have the authority:





               (i) to select the officers and other employees of the Company to whom Awards
may from time to time be granted;




               (ii) to determine whether and to what extent the individual types of Awards are
to be granted to one or more eligible employees;




               (iii) to determine the number of shares to be covered by each Award;




               (iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Award (including, but not limited to, the share
price, any restriction or limitation, the granting of restoration options, the
granting of












 





7


Dividend Equivalents, or any vesting acceleration or forfeiture waiver,
based on such factors as the Committee shall determine); and




               (v) to determine whether, to what extent and under what circumstances an Award
may be settled in cash.



          (b) Subject to Section 11 hereof, the Committee shall have the authority to adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan as it shall, from
time to time, deem advisable; to interpret the terms and provisions of the Plan and any Award (and
any agreements relating thereto); and to otherwise supervise the administration of the Plan. All
actions by the Committee hereunder shall be undertaken in the sole discretion of the Committee and,
absent manifest error, shall be final and binding on all interested persons.




          (c) Subject to the applicable listing requirements of the New York Stock Exchange, the
Committee may, but need not, from time to time delegate some or all of its authority under the Plan
to one or more members of the Committee or to one or more officers of the Company;
provided, that the Committee may not delegate its authority under Section 2(b) or its
authority to make Qualifying Awards or Awards to participants who are delegated authority hereunder
or who are subject to the reporting rules under Section 16(a) of the Exchange Act at the time the
Award is made. Any delegation hereunder shall be subject to the restrictions and limits that the
Committee specifies at the time of such delegation or thereafter. Nothing in the Plan shall be
construed as obligating the Committee to delegate any authority to any person or persons hereunder.
The Committee may, at any time, rescind any delegation hereunder and any
person or persons who are delegated authority hereunder shall, at all times, serve in such
capacity at the pleasure of the Committee. Any action undertaken by any person or persons in












 





8


accordance with a delegation hereunder shall have the same force and effect as if undertaken
directly by the Committee, and any reference in the Plan to the Committee shall, to the extent
consistent with the terms and limitations of such delegation, be deemed to include a reference to
such person or persons.




          (d) In connection with the grant of an Award, the Committee shall specify the form of award
documentation (the “Award Documentation”) to set forth the terms and conditions of the
Award. Award Documentation may include, without limitation, an agreement signed by the participant
and the Company or a grant or award notice signed only by the Company. Award Documentation may be
in written, electronic or other form approved by the Committee.




          SECTION 3. Stock Subject to Plan.









          (a) The total number of shares of Stock reserved and available for grants of Awards under the
Plan on or after the Amended Plan Effective Date (the “Aggregate Limit”) shall equal the
number of shares of Stock reserved and available for grants of Awards under the Plan immediately
prior to the Amended Plan Effective Date, increased by eight million (8,000,000) shares of Stock.
Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares.




          (b) Shares of Stock subject to an Award (other than a Stock Option, Stock Appreciation Right
or Dividend Equivalent), or shares of Stock paid in settlement of a Dividend
Equivalent, shall reduce the Aggregate Limit by one share for each such share granted or paid
on or after the Amended Plan Effective Date. Shares of Stock subject to a Stock Option or Stock
Appreciation Right shall reduce the Aggregate Limit by one-third of a share for each such share
granted on or after the Amended Plan Effective Date. Notwithstanding the foregoing, the












 






9


increase
in the Aggregate Limit under Section 3(a) by eight million (8,000,000) shares of Stock shall not
increase the total number of shares of Stock that may be issued under the Plan by more than
nineteen million (19,000,000) shares of Stock.




          (c) Notwithstanding Section 3(b), the Aggregate Limit shall not be reduced by:





               (i) shares of Stock subject to an Award payable only in cash or property other
than Stock, or other Award for which shareholder approval is not required under the
listing standards of the New York Stock Exchange, subject to the applicable
conditions therefore; or




               (ii) in the case of Awards granted in tandem with each other, shares of Stock
in excess of the number of shares of Stock issuable thereunder.



          (d) The Aggregate Limit shall be increased by the number of shares of Stock in the case of an
Award or 1993 Plan Award (other than a Stock Option, Stock Appreciation Right or 1993 Plan Stock
Option), or by one-third of the number of shares of Stock in the case of a Stock Option, Stock
Appreciation Right or 1993 Plan Stock Option, that are:





               (i) forfeited, settled in cash or property other than Stock, or otherwise not
distributable under an Award or 1993 Plan Award;




               (ii) tendered or withheld to pay the exercise or purchase price of an Award or
1993 Plan Award or to satisfy applicable wage or other required tax withholding in
connection with the exercise, vesting or payment of, or other event related to, an
Award or 1993 Plan Award; or












 




10


               (iii) repurchased by the Company with the option proceeds (determined under
generally accepted accounting principles) in respect of the exercise of a Stock
Option or 1993 Plan Stock Option; provided, however, that the
Aggregate Limit shall not be increased under this Section 3(d)(iii) in respect of
any Stock Option or 1993 Stock Option by a number of shares of Stock greater than
(A) the amount of such proceeds divided by (B) the Fair Market Value on the date of
exercise.



          (e) In the event of any merger, reorganization, consolidation, recapitalization, Stock
dividend or other dividend other than the regular cash dividend, Stock split, spin-off or other
change in corporate structure affecting the Stock, including any equity restructuring within the
meaning of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment,
and the applicable guidance and interpretations thereunder, or any successor thereto, the aggregate
number and the kind of shares reserved or available for issuance under the Plan, the maximum number
of shares issuable to any single participant, the number, kind and, where applicable, option or
exercise price of shares subject to outstanding Awards, will be substituted or adjusted by the
Committee.




          (f) No eligible person may be granted under the Plan in any 60-month period Stock Options or
Stock Appreciation Rights which, in the aggregate, cover more than four
million (4,000,000) shares of Stock (the “Individual Limit”).




          SECTION 4. Eligibility.




          Officers and other employees of the Company (but excluding individuals who serve only as a
director on the Board) who are responsible for or contribute to the management,

















 





11



growth or profitability of the business of the Company are eligible for Awards. Eligibility
under the Plan shall be determined by the Committee.




          SECTION 5. Stock Options.




          Stock Options may be granted alone or in tandem with other Awards (including Stock
Appreciation Rights), and may be granted in addition to, or in substitution for, other types of
Awards. Stock Options shall be subject to the following terms and conditions and contain such
additional terms and conditions, including the grant of restoration options, not inconsistent with
the terms of the Plan, as the Committee shall determine:




          (a) Option Price. The option price per share of Stock subject to a Stock Option shall
be determined by the Committee at the time of grant but, except in the case of Stock Options
granted in substitution of awards granted by a business or entity that is acquired by, or whose
assets are acquired by, the Company, shall be not less than 100% of the Fair Market Value of the
Stock at grant.




          (b) Option Term. The option term of each Stock Option shall be fixed by the
Committee; provided however, that no Stock Option shall be exercisable more than
ten years after the date of grant.




          (c)
Exercisability.





     (i) Stock Options shall be exercisable at such time or times and subject to
such terms and conditions as shall be determined by the Committee at or after grant;
provided, however, that, except as otherwise provided herein, unless
the Committee otherwise determines at or after the time of grant, no Stock









 



12



Option shall be exercisable prior to the first anniversary of the date of grant.




     (ii) Notwithstanding anything in this Section 5 to the contrary, if an optionee
dies during a post-termination exercise period under Section 5(g), (h), (i) or (k),
any unexercised Stock Option held by such optionee shall thereafter be exercisable,
to the extent to which it was exercisable at the time of death, for a period of one
year from the date of death.




            (d) Method of Exercise.





     (i) Subject to the applicable installment exercise and waiting period
provisions apply under Section 5(c), Stock Options may be exercised in whole or in
part at any time during the option term, by giving written notice of exercise to the
Company specifying the number of shares to be purchased. Subject to Section
5(d)(iv), such notice shall be accompanied by payment in full of the option price in
such form as the Committee may accept.




     (ii) If and to the extent determined by the Committee at or after grant,
payment in full or in part may also be made by withholding shares of Stock
otherwise issuable in connection with the exercise of the Stock Option or in shares of unrestricted Stock duly owned by the optionee (and for which the optionee
has good title free and clear of any liens and encumbrances) based, in each such
case, on the Fair Market Value of the Stock on the last trading date preceding
payment. Unless otherwise determined by the Committee at or after the time of
grant, such payment may be made by constructive delivery of such shares of owned and
unrestricted Stock pursuant to an attestation or other similar









 



13



form as determined by the Committee.




     (iii) Subject to Section 5(d)(iv), no shares of Stock shall be distributed
until payment therefor, as provided herein, has been made and, if requested, the
optionee has given the representation described in Section 13(a). An optionee shall
not have rights to dividends or other rights of a shareholder with respect to shares
subject to the Stock Option prior to issuance or reissuance of such shares.




     (iv) Stock Options may also be exercised pursuant to a cashless exercise
procedure approved by the Committee pursuant to which shares of Stock are sold by a
broker or other appropriate third party on the market with the proceeds of such sale
(or, if applicable, extension of credit pending such sale) remitted to the Company
to pay the exercise price of the Stock Option and the applicable withholding taxes,
and the balance of such proceeds (less commissions and other expenses of such sale)
paid to the optionee in cash or shares of Stock.



          (e) Non-Transferability of Options. Unless the Committee determines otherwise at or after grant, no Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent and distribution,
and, unless the Committee determines otherwise at or after grant, all Stock Options shall be
exercisable, during the optionee’s lifetime, only by the optionee.




          (f) Termination by Death. Unless the Committee otherwise determines at or after the
time of grant, if an optionee’s employment by the Company terminates by reason of death, any Stock
Option held by such optionee shall be fully vested and may thereafter be









 



14


exercised by the legal representative of the estate or by the legatee of the optionee under the will of the optionee,
notwithstanding anything to the contrary in this Section 5, for a period of one year (or such other
period as the Committee may specify at or after grant) from the date of death.




          (g) Termination by Reason of Disability. Unless the Committee otherwise determines at
or after the time of grant, if an optionee’s employment by the Company terminates by reason of
Disability, any Stock Option held by such optionee shall be fully vested and may thereafter be
exercised by the optionee, subject to Section 5(c)(ii), until the expiration of the option term.




          (h) Termination by Reason of Retirement. Unless the Committee otherwise determines at
or after the time of grant, if an optionee’s employment by the Company terminates by reason of
Normal Retirement, any Stock Option held by such optionee shall be fully vested and may thereafter
be exercised by the optionee, subject to Section 5(c)(ii), until the expiration of the option term.
Unless the Committee otherwise determines at or after the time of grant, if an optionee’s employment with
the Company terminates by reason of Early Retirement, any Stock Option held by such optionee may
thereafter be exercised by the optionee to the extent it was exercisable at the date of retirement,
subject to Section 5(c)(ii), until the expiration of the option term. If and only if the Committee
so approves at the time of Early Retirement, if an optionee’s employment with the Company
terminates by reason of Early Retirement, any Stock Option held by the optionee shall be fully
vested and may thereafter be exercised by the optionee as provided above.




          (i) Termination by Reason of a Division Sale. Unless the Committee otherwise
determines at or after the time of grant, if an optionee’s employment by the Company









 



15


terminates by reason of a Division Sale, any Stock Option held by such optionee shall be fully vested and may
thereafter be exercised by the optionee, subject to Section 5(c)(ii), for a period of six months
from the date of such termination of employment or until the expiration of the option term,
whichever period is the shorter; provided, however, that, if the optionee shall be,
on the date of the Division Sale, eligible for Normal Retirement or Early Retirement, any
unexercised Stock Option held by such optionee may thereafter be exercised by the optionee, subject
to Section 5(c)(ii), until the expiration of the option term.




          (j) Cause. If an optionee’s employment with the Company is involuntarily terminated
by the Company for Cause, the Stock Option shall thereupon terminate and shall not be exercisable
thereafter.




          (k) Other Termination. Unless the Committee otherwise determines at or after the time
of grant, if an optionee’s employment terminates for any reason other than death, Disability,
Retirement, Division Sale or for Cause, any Stock Option held by such optionee may thereafter be
exercised by the optionee to the extent it was exercisable at the date of termination, subject to
Section 5(c)(ii), for a period of six months from the date of such termination of employment or
until the expiration of the option term, whichever period is the shorter.




          SECTION 6. Stock Appreciation Rights.




          (a) In General. Stock Appreciation Rights may be granted alone or in tandem with
other Awards (including Stock Options), and may be granted in addition to, or in substitution for,
other types of Awards. The form of payment of Stock Appreciation Rights may be specified by the
Committee at or after the time of grant, or the Committee may specify at or after grant that a
participant may elect the form of payment at the time of the exercise.








 



16



           (b) Stock Appreciation Rights Granted Alone. Stock Appreciation Rights granted alone
shall be subject, where applicable, to the terms and conditions of Section 5 applicable to Stock
Options and shall contain such additional terms and conditions not inconsistent with the terms of
the Plan, as the Committee shall determine.




          (c) Stock Appreciation Rights Granted in Tandem with Stock Options. Stock
Appreciation Rights granted in tandem with Stock Options shall be subject to the following terms
and conditions and shall contain such additional terms and conditions not inconsistent with the
terms of the Plan, as the Committee shall determine:





          (i) Grant. Stock Appreciation Rights granted in tandem with Stock
Options may be granted at or after the time of grant of such Stock Options.




          (ii) Exercise.




          (A) Stock Appreciation Rights granted in tandem with Stock Options
shall be exercisable only at such time or times and to the extent that the
Stock Options are exercisable in accordance with Section 5 and this Section
6. The Committee may grant in tandem with Stock Options conditional Stock
Appreciation Rights that become exercisable only in the event of a Change in
Control, subject to such terms and conditions as the Committee may specify
at or after grant.




          (B) Stock Appreciation Rights granted in tandem with Stock Options may
be exercised by giving written notice of exercise to the Company specifying
the number of shares for which a Stock Appreciation Right is being exercised
and surrendering the applicable Stock Option (or









 



17



portion thereof). Such Stock Option shall no longer be exercisable upon and to the extent of the exercise of such Stock Appreciation Right.




          (C) Stock Appreciation Rights granted in tandem with Stock Options
shall terminate and no longer be exercisable upon and to the extent of the
termination or exercise of such Stock Options; provided that, unless
the Committee otherwise determines at or after the time of grant, a Stock
Appreciation Right granted with respect to less than the full number of
shares covered by a Stock Option shall only terminate to the extent that the
number of shares covered by an exercise or termination of the Stock Option
exceeds the number of shares not covered by the Stock Appreciation Right.




          (iii) Transferability. Stock Appreciation Rights granted in tandem
with Stock Options shall be transferable only when and to the extent such Stock
Options would be transferable under Section 5(e).



          (d) Stock Appreciation Rights Granted in Tandem with Awards Other Than Stock Options.
Stock Appreciation Rights granted in tandem with Awards other than Stock Options shall be subject
to such terms and conditions as the Committee shall establish at or after the time of grant.




          (e) Stock Appreciation Rights Defined. As used in the Plan, the term “Stock Appreciation Right” shall mean the right
granted under this Section 6 to receive from the Company, upon exercise of such right (or portion
thereof), an amount, which may be paid in cash or shares of Stock (or a combination of cash and
Stock), equal to (i) the Fair Market Value,









 



18


as of the date of exercise, of the shares of Stock covered by such right (or such portion thereof), less (ii) the aggregate exercise price of such
right (or such portion thereof).




          SECTION 7. Stock Awards.




          (a) Stock Awards in General. Stock Awards may be of two types: (i) Performance Stock
and (ii) Restricted Stock. The Committee shall have authority to award to any participant
Performance Stock, Restricted Stock or both types of Stock Awards, and such Stock Awards may be
granted alone or in tandem with other Awards, and may be granted in addition to, or in substitution
for, other types of Awards. The Committee shall determine the eligible persons to whom, and the
time or times at which, grants of Stock Awards will be made, the number of shares subject to Stock
Awards, the price (if any) to be paid by the recipient (subject to Section 7(d)), the time or times
within which Stock Awards may be subject to forfeiture, the performance goals and objectives and
performance periods applicable to, the vesting schedule and rights to acceleration of, and all
other terms and conditions of the Stock Awards. The provisions of Stock Awards need not be the
same with respect to each recipient, and, with respect to individual recipients, need not be the
same in subsequent years.




          (b) Performance Stock. Performance Stock is an award of restricted performance shares
or other award of Stock whose vesting and forfeiture restrictions are related to the attainment of
one or more performance goals and objectives (including the goals and objectives described in
Section 9(c)(i)) and such other terms and conditions as may be specified by the Committee at or
after the date of grant.




          (c) Restricted Stock. Restricted Stock is an award of Stock whose vesting and
forfeiture restrictions are related to the participant’s continued service with the Company for a









 



19


specified period of time and such other terms and conditions as may be specified by the Committee
at or after the date of grant.




          (d) Conditions of Stock Awards. Stock Awards shall be subject to the following
conditions:





     (i) The purchase price, if any, for shares of Stock subject to a Stock Award
shall be set by the Committee at the time of grant.




     (ii) A participant who is selected to receive a Stock Award may be required, as
a condition to receipt of such Stock Award, to execute and to deliver to the Company
the applicable Award Documentation, and to pay whatever price (if any) is required
under Section 7(d)(i).




     (iii) Unless the Committee determines otherwise, in respect of
the shares subject to a Stock Award, the Company shall provide for a book entry
on behalf of the participant. The book entry in respect of shares subject to a
Stock Award shall be subject to the same limitations contained in the Stock Award.



          (e) Restrictions and Conditions of Shares. The shares subject to a Stock Award shall
be subject to the following restrictions and conditions:





     (i) Unless the Committee determines otherwise at or after the time of grant,
such shares shall not vest prior to the first anniversary of the date of grant.
Except in the case of Restricted Stock subject to which the aggregate number of shares does not exceed five percent of the Aggregate Limit, (A) the shares subject
to Restricted Stock shall not vest earlier than in pro rata









 



20



installments over a period of three years and (B) notwithstanding anything in Section 7(e)(v) to the
contrary, the Committee shall not waive or accelerate vesting and forfeiture
restrictions for shares subject to Restricted Stock, other than in connection with
death, Disability, Retirement, termination of employment, sale of the business unit
or Change in Control.




     (ii) Subject to the provisions of this Plan and the Award Documentation, during
a period set by the Committee commencing with the date of grant (the
“Restriction Period”), the participant shall not be permitted to sell,
transfer, pledge or assign such shares. Within these limits, the Committee may
provide for the lapse of such restrictions in installments and may accelerate or
waive such restrictions in whole or in part, based on service, performance or such
other factors or criteria as the Committee may determine.




     (iii) Except as provided in Section 7(e)(ii) and the applicable Award
Documentation, the participant shall have, with respect to such shares, the right to
vote and to receive payment of any cash dividends in cash or in the form of Dividend
Equivalents or such other form as the Committee may determine at or after grant.
Such dividends or Dividend Equivalents may be reinvested in additional Stock Awards
subject to the same vesting and performance conditions as the underlying Stock
Awards, in the discretion of the Committee. Dividends or Dividend Equivalents in
property other than cash shall be subject to the same vesting and forfeiture
conditions as the underlying Stock Awards, unless the Committee determines otherwise
at or after grant.
















 




21


     (iv) Subject to the applicable provisions of the Award Documentation and this
Section 7, upon termination of a participant’s employment with the Company for any
reason during the Restriction Period, all such shares still subject to restriction
shall vest or be forfeited in accordance with the terms and conditions established
by the Committee at or after grant.




     (v) In the event of hardship or other special circumstances of a participant
whose employment with the Company is involuntarily terminated (other than for
Cause), the Committee may waive in whole or in part any or all remaining
restrictions with respect to any such shares of the participant.




     (vi) If and when the Restriction Period expires without a prior forfeiture of
any such shares, such remaining shares shall be delivered to the participant, net of
applicable withholding taxes.



          SECTION 8. Other Stock-Based Awards.




          (a) Other Stock-Based Awards in General. Other awards of Stock and other awards that are payable in cash or Stock and are valued in
whole or in part by reference to, or are otherwise based in whole or in part on, Stock (“Other
Stock-Based Awards”), including, without limitation, Deferred Stock, Dividend Equivalents, cash
or Stock settled performance share units and restricted share units, shares valued by reference to
subsidiary performance, and phantom stock and similar units, may be granted alone or in tandem with
other Awards, and may be granted in addition to, or in substitution for, other types of Awards.




          Subject to the provisions of the Plan, the Committee shall have authority to













 





22



determine the persons to whom and the time or times at which Other Stock-Based Awards shall be made, the number
of shares of Stock to be awarded, the cash payment to be made pursuant to, and all other conditions
of, Other Stock-Based Awards.




          The provisions of Other Stock-Based Awards need not be the same with respect to each
recipient.




          (b) Terms and Conditions. Other Stock-Based Awards shall be subject to the following terms and conditions:





     (i) Subject to the provisions of this Plan and the applicable Award
Documentation, participants’ rights with respect to Other Stock-Based Awards,
including the shares subject to Other Stock-Based Awards, may not be sold, assigned,
transferred, pledged or otherwise encumbered prior to the date on which the shares
are distributed to the participant, or, if later, the date on which any applicable
restriction, performance or deferral period lapses.




     (ii) Unless the Committee otherwise determines at the time of award, subject to
the provisions of this Plan and the applicable Award Documentation, recipients of
Other Stock-Based Award shall be entitled to receive, currently or on a deferred
basis, dividends or Dividend Equivalents with respect to the number of shares or
deemed number of shares covered by Other Stock-Based Awards.




     (iii) Other Stock-Based Awards and any cash payments or Stock covered by Other
Stock-Based Awards shall vest or be forfeited to the











 





23


extent so provided in the applicable Award Documentation, as determined by the Committee.




     (iv) In the event of the participant’s Retirement, Disability or death, or in
cases of special circumstances, the Committee may waive in whole or in part any or
all of the limitations imposed hereunder (if any) with respect to any or all Other
Stock-Based Awards.




     (v) Each Other Stock-Based Award shall be confirmed by, and subject to the
terms of, the applicable Award Documentation.




     (vi) Stock distributed on a bonus basis under this Section 8 may be awarded for
no cash consideration.




          SECTION 9. Qualifying Awards.




          (a) General. The Committee may grant an Award to any participant with the intent that such Award
qualifies as “performance-based compensation” for “covered employees” under Section 162(m) of the
Code (a “Qualifying Award”). The provisions of this Section 9, as well as all other
applicable provisions of the Plan not inconsistent with this Section 9, shall apply to all
Qualifying Awards. Qualifying Awards shall be of the type set forth in paragraph (b) or (c)
below. In connection with Qualifying Awards, the functions of the Committee shall be exercised by
a committee of the Board comprised solely of two or more “outside directors” within the meaning of
Section 162(m) of the Code.




          (b) Qualifying Stock Options and Stock Appreciation Rights. Qualifying Awards may be in the form of Stock Options and Stock Appreciation Rights granted
by the













 





24


Committee and subject to the Individual Limit.




          (c) Qualifying Awards other than Stock Options and Stock
Appreciation Rights.





     (i) Qualifying Awards (other than Stock Options and Stock Appreciation Rights)
may be in the form of Stock Awards and Other Stock-Based Awards whose payment is
conditioned upon the achievement of the performance objectives described in this
paragraph. Amounts earned under such Qualifying Awards shall be based upon the
attainment of the performance goals established by the Committee for a performance
cycle in accordance with the provisions of Section 162(m) of the Code and the
applicable regulations thereunder related to performance-based compensation. More
than one performance goal may apply to a given performance cycle and payments may be
made for a given performance cycle based upon the attainment of the performance
objectives for any of the performance goals applicable to that cycle. The duration
of a performance cycle shall be determined by the Committee, and the Committee shall
be authorized to permit overlapping or consecutive performance cycles. The performance goals
and the performance objectives applicable to a performance cycle shall be
established by the Committee in accordance with the timing requirements set forth in
Section 162(m) of the Code and the applicable regulations thereunder. The
performance goals that may be selected by the Committee for a performance cycle
include any of the following: diluted earnings per share, net income, operating
margin, operating income and net operating income, pretax profit, revenue growth,
return on sales, return on equity, return on assets, return on investment, stock
price growth, total return to shareholders, EBITDA, economic











 




25


profit and cash flow, each of which may be established on a corporate-wide basis or established with
respect to one or more operating units, divisions, acquired businesses, minority
investments, partnerships or joint ventures, and may be measured on an absolute
basis or relative to selected peer companies or a market index. The Committee shall
have the discretion, by participant and by Qualifying Award, to reduce some or all
of the amount that would otherwise be payable under the Qualifying Award.




     (ii) For any performance cycle with a duration of thirty-six months, no
participant may receive Qualifying Awards under this Section 9(c) covering more than
600,000 shares of Stock or which provide for the payment for such performance cycle
of more than 600,000 shares of Stock (or cash amounts based on the value of more
than 600,000 shares of Stock). For a performance cycle that is longer or shorter
than thirty-six months, the maximum limits set forth in the previous sentence shall
be adjusted by multiplying such limit by a fraction, the numerator of which is the number of months in the performance cycle and the
denominator of which is thirty-six. Except as otherwise provided in Section 10, no
amounts shall be paid in respect of a Qualifying Award granted under this Section
9(c) unless, prior to the date of such payment, the Committee certifies, in a manner
intended to meet the requirements of Section 162(m) of the Code and the applicable
regulations thereunder related to performance-based compensation, that the criteria
for payment of Qualifying Awards related to that cycle have been achieved.



          SECTION 10. Change In Control Provisions.













 





26



          (a) Impact of Event. Unless the Committee otherwise determines at the time of grant, in the event of a Change in
Control, the following acceleration and valuation provisions shall apply notwithstanding any other
provision of the Plan:





     (i) Any Stock Appreciation Rights and any Stock Options (including Qualifying
Awards) not previously exercisable and vested shall become fully exercisable and
vested and shall remain exercisable for the remainder of their original terms,
notwithstanding any subsequent termination of the applicable participant’s
employment for any reason.




     (ii) The restrictions and deferral limitations applicable to any Stock Awards
and Other Stock-Based Awards (including Qualifying Awards), in
each case to the extent not already vested under the Plan, shall lapse and such
Awards shall be deemed fully vested, notwithstanding any subsequent termination of
the applicable participant’s employment for any reason.




     (iii) All outstanding Awards (including Qualifying Awards) shall either (A) be
cashed out by the Company on the basis of the Change in Control Price as of the date
such Change in Control is determined to have occurred or (B) be converted into
awards based upon publicly traded common stock of the corporation that acquires
McGraw-Hill, with which McGraw-Hill merges, or which otherwise results from the
Change in Control, with appropriate adjustments pursuant to Section 3(e) to preserve
the value of the Awards. The Committee shall determine which of the foregoing
clauses (A) and (B) shall apply; provided, however, that the
Committee shall be obligated to make such












 





27


determination not later than three
business days prior to a Change in Control; provided further that if
no such determination is made by the Committee in accordance with the preceding
clause, then the provisions of Section 10(a)(iii)(A) herein shall apply. In the
event that the provisions of Section 10(a)(iii)(B) herein shall apply following a
determination by the Committee, then all no-trading policies and other internal
corporate approvals required with respect to the exercise or sale of Awards
(including Qualifying Awards) and/or the underlying shares of Stock shall be waived.



          (b) Definition of “Change in Control”. For purposes of this Plan, the term “Change in Control” shall mean the first to occur of any of the following events:





     (i) An acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (1) the then outstanding shares of Stock (the “Outstanding
Common Stock”) or (2) the combined voting power of the then outstanding voting
securities of McGraw-Hill entitled to vote generally in the election of directors
(the “Outstanding Voting Securities”); excluding, however,
the following: (1) any acquisition directly from McGraw-Hill, other than an
acquisition by virtue of the exercise of a conversion privilege unless the security
being so converted was itself acquired directly from McGraw-Hill; (2) any
acquisition by McGraw-Hill; (3) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by McGraw-Hill or any entity controlled by
McGraw-Hill; or (4) any acquisition pursuant to a transaction which complies











 





28

with clauses (A), (B) and (C) of subsection (iii) of this Section 10(b); or




     (ii) A change in the composition of the Board such that the individuals who, as
of the Plan Effective Date, constitute the Board (such Board shall be hereinafter
referred to as the “Incumbent Board”) cease for any reason to constitute at
least a majority of the Board; provided, however, for purposes of
this Section 10(b), that any individual who becomes a member of the Board subsequent
to the Plan Effective Date, whose election, or nomination for election by
McGraw-Hill’s shareholders, was approved by a vote of at least a majority of those
individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be
considered as though such individual were a member of the Incumbent Board; but
provided further that any such individual whose initial assumption
of office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board shall not be so considered as a member of
the Incumbent Board; or




     (iii) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of McGraw-Hill
(“Corporate Transaction”); excluding, however, such a
Corporate Transaction pursuant to which all of the following conditions are met:
(A) all or substantially all of the individuals and entities who are the beneficial
owners, respectively, of the Outstanding Common Stock and Outstanding Voting
Securities immediately











 





29


prior to such Corporate Transaction will beneficially own,
directly or indirectly, more than 50% of, respectively, the outstanding shares of
common stock, and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns McGraw-Hill or
all or substantially all of McGraw-Hill’s assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately
prior to such Corporate Transaction, of the Outstanding Common Stock and Outstanding Voting Securities, as the case may be, (B) no Person
(other than McGraw-Hill, any employee benefit plan (or related trust) of McGraw-Hill
or such corporation resulting from such Corporate Transaction) will beneficially
own, directly or indirectly, 20% or more of, respectively, the outstanding shares of
common stock of the corporation resulting from such Corporate Transaction or the
combined voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors except to the extent that
such ownership existed prior to the Corporate Transaction, and (C) individuals who
were members of the Incumbent Board will constitute at least a majority of the
members of the board of directors of the corporation resulting from such Corporate
Transaction; or




     (iv) The approval by the shareholders of McGraw-Hill of a complete liquidation
or dissolution of McGraw-Hill.




(c) Change in Control Price. For purposes of this Section 10, “Change in












 





30


Control Price” means the highest price
per share paid in any transaction reported on the Consolidated Transaction Reporting System, or
paid or offered in the transaction or transactions that result in the Change in Control or any
other bona fide transaction related to a Change in Control or possible change in control of
McGraw-Hill at any time during the sixty-day period ending on the date of the Change in Control, as
determined by the Committee.




     SECTION 11. Amendments and Termination.




     The Board may amend, alter, discontinue or terminate the Plan, but no amendment, alteration,
discontinuation or termination shall be made which would impair the rights of an optionee or
participant under an Award theretofore granted, without the optionee’s or participant’s consent.
In addition, the Board shall have the right to amend, modify or remove the provisions of the Plan
which are included to permit the Plan to comply with the “performance-based” exception to Section
162(m) of the Code if Section 162(m) of the Code is subsequently amended, deleted or rescinded.




     The Committee may amend the terms of any Award theretofore granted, prospectively or
retroactively; but no such amendment or other action by the Committee shall impair the rights of
any holder without the holder’s consent or, subject to Section 3(e), reduce the option price per
share of Stock subject to a Stock Option or Stock Appreciation Right without prior shareholder
approval.




     Unless otherwise expressly provided in the applicable Award Documentation, the Plan and
the Awards are not intended to provide for the deferral of compensation within the meaning
of Section 409A(d)(1) of the Code, and they shall be interpreted and construed in accordance
with such intent. Notwithstanding the foregoing and anything to















 





 31





the contrary in the Plan or any Award, if any provision of the Plan or any Award would
cause the requirements of Section 409A of the Code to be violated, or otherwise cause any
participant to recognize income under Section 409A of the Code, then such provision may be
modified by the Committee or the Board in any reasonable manner that the Committee or the
Board, as applicable, deems appropriate; provided that the Committee or the Board, as
applicable, shall preserve the intent of such provision to the extent reasonably practicable
without violating the requirements of Section 409A of the Code.



          Subject to the above provisions, the Board shall have broad authority to amend the Plan to
take into account changes in applicable securities and tax laws and accounting rules, as well as
other developments.




          SECTION 12. Unfunded Status of Plan. The Plan is intended to constitute an “unfunded” plan for incentive and deferred
compensation. With respect to any payments not yet made to a participant or optionee by the
Company, nothing contained herein shall give any such participant or optionee any rights that are
greater than those of a general creditor of the Company.




          SECTION 13. General Provisions.




     (a) Stock Subject to Awards.
The Committee may require each person purchasing shares of Stock pursuant to
an Award to represent to and agree with the Company in writing that the optionee or
participant is acquiring the shares without a view to distribution thereof. Stock delivered under
the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations, and other requirements of the Commission, any stock
exchange upon which the Stock is then listed, any









 



32

applicable federal or state securities law, and
any applicable corporate law.




          (b) Other Plans.
Nothing contained in this Plan shall prevent the Board from adopting other or additional
compensation or equity plans or arrangements, subject to shareholder approval if such approval is
required; and such arrangements may be either generally applicable or applicable only in specific
cases.




          (c) Continued Employment. The adoption of the Plan shall not confer upon any employee of the Company any right to
continued employment with the Company, as the case may be, nor shall it interfere in any way with
the right of the Company to terminate the employment of any of its employees at any time.




          (d) Taxes and Withholding. No later than the date as of which an amount first becomes includible in the gross income
of the participant for income tax purposes with respect to any Award (including dividends or
Dividend Equivalents on any non-vested Stock Award or Other Stock-Based Award), the participant
shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any federal, FICA, state, or local taxes of any kind
required by law to be withheld or paid with respect to such amount. The obligations of the Company
under the Plan shall be conditional on such payment or arrangements and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the participant. Unless the Committee otherwise determines, at or before the time
of payment, tax withholding or payment obligations up to the participant’s minimum required
withholding rate shall be settled with Stock that is part of the Award that gives rise to the
withholding requirement. If and to the extent determined by the Committee, a participant may elect
to satisfy any additional tax withholding or payment










 



33



obligation up to the participant’s maximum
marginal tax rate by delivery of unrestricted stock duly owned by the participant (and for which
the participant has good title free and clear of any liens and encumbrances).




          (e) Governing Law. The Plan and all Awards and actions taken thereunder shall be governed by and construed in
accordance with the laws of the State of New York.




          (f) Computation of Benefits. Any payment under this Plan shall not be deemed compensation for purposes of computing
benefits under any retirement plan of the Company and shall not affect any benefits under any other
benefit plan now or subsequently in effect under which the availability or amount of benefits is
related to the level of compensation.




          (g) Division Sale.
Unless the Committee otherwise determines at or after the time of grant, and except as
otherwise provided herein, if any participant’s employment by the Company terminates by reason of a
Division Sale, such Division Sale shall be treated as an involuntary termination of employment of
such participant hereunder and under the terms of any Award.




          (h) Foreign Law. The Committee may grant Awards to eligible employees who are foreign nationals, who are
located outside the United States, or who are otherwise subject to or cause the Company to be
subject to legal or regulatory provisions of countries or jurisdictions outside the United States,
on such terms and conditions different from those specified in the Plan as may, in the judgment of
the Committee, be necessary or desirable to foster and promote achievement of the purposes of the
Plan and, in furtherance of such purposes, the Committee may make such modifications, amendments,
procedures, subplans and the like as may be necessary or advisable to comply with such legal or
regulatory provisions.










 



34




          SECTION 14. Plan Effective Date and Duration.
The Plan initially became effective as of the Plan Effective Date, and, the Plan, as
amended and restated hereby (the “Amended Plan”), shall become effective, upon shareholder
approval of the Amended Plan, on the Amended Plan Effective Date. If the shareholders of
McGraw-Hill fail to approve the Amended Plan on the Amended Plan Effective Date, then the Plan as
in effect prior thereto shall continue in effect thereafter. The Plan, in such form as shall be
effective as of the Amended Plan Effective Date, shall continue in effect for a period of ten years
thereafter, unless earlier terminated by the Board pursuant to Section 11.




January 28, 2009