Document:

EX-10.5

 

Exhibit 10.5

THE McGRAW-HILL COMPANIES, INC.

1993 Employee Stock Incentive Plan

(As amended and restated as of December 6, 2006)

 

 

THE McGRAW-HILL COMPANIES, INC.

1993 Employee Stock Incentive Plan

     SECTION 1. Purpose; Definitions.

     The purpose of The McGraw-Hill Companies, Inc. 1993 Employee Stock Incentive Plan (the “Plan”)
is to enable The McGraw-Hill Companies, Inc. (“McGraw-Hill”) to offer employees of the Company (as
defined below) long term performance-based stock incentives and/or other equity interests in the
Company, thereby attracting, retaining and rewarding such employees, and strengthening the
mutuality of interests between employees and the Company’s shareholders.

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

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

          (b) “Cause” shall mean 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.”

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

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

1

 

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

          (f) “Committee” means the Compensation Committee of the Board. If at any time no
Committee shall be in office, then the functions of the Committee specified in the Plan shall be
exercised by the Board or by a committee of Board members.

          (g) “Company” means McGraw-Hill, a corporation organized under the laws of the State
of New York, or any successor corporation, and includes all domestic and foreign corporations,
partnerships and other legal entities in which at least 20% of the voting securities or ownership
interests are owned directly or indirectly by McGraw-Hill.

          (h) “Disability” means disability as determined under procedures established by the
Committee for purposes of this Plan.

          (i) “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.

          (j) “Early Retirement” means retirement, with the approval of the Committee for
purposes of one or more award(s) hereunder, from active employment with the Company prior to age
65, provided that the Committee may
establish rules and procedures pursuant to which the Committee’s approval shall be deemed to
have been given.

          (k) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to
time.

          (l) “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

2

 

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.

          (m) “Incentive Stock Option” means any Stock Option intended to be and designated as
an “Incentive Stock Option” within the meaning of Section 422 of the Code.

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

          (o) “Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock
Option.

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

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

          (r) “Plan” means The McGraw-Hill Companies, Inc. 1993 Employee Stock Incentive Plan,
as hereinafter amended from time to time, including any rules, guidelines or interpretations of the
Plan adopted by the Committee.

          (s) “Qualifying Award” means an award under the Plan made in accordance with the
provisions of Section 9.

          (t) “Restricted Stock” means an award of shares of Stock that is subject to
restrictions under Section 7 below.

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

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

3

 

          (w) “Stock Appreciation Right” means the right pursuant to an award granted under
Section 6 below to surrender to the Company all (or a portion) of a Stock Option in exchange for an
amount equal to the difference between (i) the Fair Market Value, as of the date such Stock Option
(or such portion thereof) is surrendered, of the shares of Stock covered by such Stock Option (or
such portion thereof), and (ii) the aggregate exercise price of such Stock Option (or such portion
thereof).

          (x) “Stock Option” or “Option” means any option to purchase shares of Stock
granted pursuant to Section 5 below.

     SECTION 2. Administration.

          (a) The Plan shall be administered by the Committee. The Committee shall have full authority
to grant, pursuant to the terms of the Plan, to officers and other employees eligible under Section
4: (i) Stock
Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock and/or (iv) Other Stock-Based
Awards.

     In particular, the Committee shall have the authority:

          (i) to select the officers and other employees of the Company to whom Stock Options,
Stock Appreciation Rights, Restricted Stock and/or Other Stock-Based Awards may from time to
time be granted hereunder;

          (ii) to determine whether and to what extent Incentive Stock Options, Non-Qualified
Stock Options, Stock Appreciation Rights, Restricted Stock and/or Other Stock-Based Awards
or any combination thereof, are to be granted hereunder to one or more eligible employees;

          (iii) to determine the number of shares to be covered by each such award granted
hereunder;

          (iv) to determine the terms and conditions, not inconsistent with the terms of the
Plan, of any award granted hereunder (including, but not limited to, the share price, any
restriction or

4

 

limitation, the granting of restoration options, or any vesting acceleration
or forfeiture waiver regarding any Stock Option or other award and/or the shares of Stock
relating thereto, based on such factors as the Committee shall determine, in its sole
discretion);

          (v) to determine whether, to what extent and under what circumstances grants of Options
and/or other awards under this Plan are to operate on a tandem basis and/or in conjunction
with or apart from other cash awards made by the Company outside of this Plan; and

          (vi) to determine whether, to what extent and under what circumstances a Stock Option
may be settled in cash under Section 5(l).

          (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
issued under the Plan (and any agreements relating thereto); and to otherwise supervise the
administration of the Plan.

     Subject to Section 11 hereof, all decisions made by the Committee pursuant to the provisions
of the Plan shall be made in the Committee’s sole discretion and shall be final and binding on all
persons, including the Company and Plan participants.

     SECTION 3. Stock Subject to Plan.

          (a) The total number of shares of Stock reserved and available for distribution under the Plan
shall be the aggregate of (i) 18,990,978 shares (previously approved by the shareholders of the
Company on April 28, 1993 and April 30, 1997) and (ii) 4.9 % of the number of issued and
outstanding shares as of the shareholder record date for the Annual Meeting of Shareholders to be
held on April 26, 2000. Such shares may consist, in whole or in part, of authorized and unissued
shares or treasury shares. In addition, subject to Section 9(b), no eligible person may be granted
in any

5

 

60-month period beginning on or after April 26, 2000 Stock Options (including, for this
purpose, Stock Options granted in tandem with a Stock Appreciation Right or Limited Stock
Appreciation Right) under the Plan which, in the aggregate, cover more than 2,000,000 shares of
Stock (the “Individual Limit”).

          (b) The aggregate number of shares of Stock awarded or granted by the Company under this Plan
beginning on or after April 26, 2000 for
Restricted Stock and Other Stock-Based Awards shall not exceed 33% of the shares of Stock
available for awards or grants of Stock by the Company under the Plan as of April 26, 2000. There
shall be no comparable limitation, however, on the aggregate number of shares of Stock awarded or
granted by the Company under this Plan for Stock Options or Stock Appreciation Rights.

          (c) To the extent that any shares of Stock that are subject to any Restricted Stock or Other
Stock-Based Award granted hereunder are forfeited or any such award otherwise terminates without
payment being made to the participant in the form of Stock, such shares shall again be available
for distribution in connection with future grants and awards under the Plan. Subject to Section
6(b)(iv) if any shares of Stock that have been optioned cease to be subject to a Stock Option
without being exercised, such shares shall again be available for distribution in connection with
future grants and awards under the Plan. In addition, shares of Stock tendered to the Company to
pay the exercise price of a Stock Option shall again be available for issuance under the Plan.

          (d) 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

6

 

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.

     SECTION 4. Eligibility.

     Officers and other employees of the Company (but excluding members of the Committee and any
person who serves only as a director of the Board) who are responsible for or contribute to the
management, growth and/or profitability of the business of the Company are eligible to be granted
Options and/or other awards under the Plan. Eligibility under the Plan shall be determined solely
by the Committee.

7

 

     SECTION 5. Stock Options.

     Stock Options may be granted alone or in addition to other awards granted under the Plan. Any
Stock Option granted under the Plan shall be in such form as the Committee may from time to time
approve.

     Stock Options granted under the Plan may be of two types; (i) Incentive Stock Options and (ii)
Non-Qualified Stock Options.

     The Committee shall have the authority to grant to any optionee Incentive Stock Options,
Non-Qualified Stock Options or both types of Stock Options (in each case with or without Stock
Appreciation Rights). To the extent that any Stock Option does not qualify as an Incentive Stock
Option, it shall constitute a separate Non-Qualified Stock Option.

     Options granted under the Plan shall be subject to the following terms and conditions and
shall contain such additional terms and conditions, including the grant of restoration options, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:

          (a) Option Price. The option price per share of Stock purchasable under a Stock
Option shall be determined by the Committee at the time of grant but shall be not less than 100% of
the Fair Market Value of the Stock at grant.

          (b) Option Term. The term of each Stock Option shall be fixed by the Committee, but
no Option shall be exercisable more than ten years after the date the Option is granted.

          (c) Exercisability. 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 provided in Sections
5(f), (g), (h) and (i) and Section 10, unless otherwise determined by the Committee at or after
grant, no Stock Option shall be exercisable prior to the first anniversary date of the granting of
the Option. If the Committee

8

 

provides, in its discretion, that any Stock Option is exercisable
only in installments, the Committee may waive such installment exercise provisions at any time at
or after grant in whole or in part, based on such factors as the Committee shall determine, in its
sole discretion.

          (d) Method of Exercise.

          (i) Subject to whatever 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 period, by giving written notice of exercise to the Company specifying the number of
shares to be purchased. Such notice shall be accompanied by payment in full of the purchase
price in such form as the Committee may accept.

          (ii) If and to the extent determined by the Committee in its sole discretion at or
after grant, payment in full or in part may also be made in the form of unrestricted Stock
duly owned for a period of six months or more 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, as determined
by the Committee. Unless otherwise determined by the committee at or after grant, such
payment may be made by constructive delivery of
such shares of owned and unrestricted Stock pursuant to an attestation form as determined by
the Committee

          (iii) No shares of Stock shall be issued until payment therefore, as provided herein,
has been made. An optionee shall generally have the rights to dividends or other rights of
a shareholder with respect to shares subject to the Option when the optionee has given
written notice of exercise, has paid for such shares as provided herein, and, if requested,
has given the representation described in Section 13(a).

9

 

          (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. Subject to Section 5(k), if an optionee’s employment by the
Company terminates by reason of death, any Stock Option held by such optionee, unless otherwise
determined by the Committee at or after grant, shall be fully vested and may thereafter be
exercised by the legal representative of the estate or by the legatee of the optionee under the
will of the optionee, for a period of one year (or such other period as the Committee may specify
at or after grant) from the date of such death or until the expiration of the stated term of such
Stock Option, whichever period is the shorter.

          (g) Termination by Reason of Disability. Subject to Section 5(k), if an optionee’s
employment by the Company terminates by reason of Disability, any Stock Option held by such
optionee, unless otherwise determined by the Committee at or after grant, shall be fully vested and
may thereafter be exercised by the optionee for a period of three years (or such other period as
the Committee may specify at or after grant) from the date of such termination of employment or
until the expiration of the stated term of such Stock Option, whichever period is the shorter;
provided, however, that, if the optionee dies within such three-year period (or such other period
as the Committee shall specify at or after grant), 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 twelve months from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is the shorter. In the event of termination of

10

 

employment by reason of Disability, if an Incentive Stock Option is exercised after the expiration
of the exercise periods that apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.

          (h) Termination by Reason of Retirement. Subject to Section 5(k), if an optionee’s
employment by the Company terminates by reason of Normal Retirement, any Stock Option held by such
optionee, unless otherwise determined by the Committee at or after grant, shall be fully vested and
may thereafter be exercised by the optionee for a period of three years (or such other period as
the Committee may specify at or after grant) from the date of such termination of employment or the
expiration of the stated term of such Stock Option, whichever period is the shorter; provided,
however, that, if the
optionee dies within such three-year period (or such other period as the Committee shall
specify at or after grant), 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 twelve
(12) months from the date of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter. 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 for a period of thirty-six (36) months (or
such other period as the Committee may specify at or after grant) from the date of such termination
of employment or the expiration of the stated term of such Stock Option, whichever period is
shorter; provided, however, if the optionee dies within such thirty-six month period (or such other
period as the Committee shall specify at or after grant), 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 twelve months from the date of such death or until the expiration of the
stated term of such Stock

11

 

Option, whichever period is shorter. 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 in connection with termination of
employment by reason of Normal Retirement. In the event of termination of employment by reason of
Retirement, if an Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a
Non-Qualified Stock Option.

          (i) Termination by Reason of a Division Sale. Subject to Section 5(k), if an
optionee’s employment by the Company terminates by reason of a Division Sale, any Stock Option held
by such optionee, unless otherwise determined by the Committee at or after grant, shall be fully
vested and may thereafter be exercised by the optionee for a period of six months (or such other
period as the Committee may specify at or after grant) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option, whichever period is the
shorter; provided, however, that, if the optionee dies within such six-month period
(or such other period as the Committee shall specify at or after grant), 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 twelve months from the date of such death or until
the expiration of the stated term of such Stock Option, whichever period is the shorter;
provided, further, that, if the optionee shall be, on the date of the Division
Sale, age 55 or older with at least 10 years of service and eligible to receive a Company pension
benefit payable upon termination, any unexercised Stock Option held by such optionee may thereafter
be exercised by the optionee until the expiration of the stated term of such Stock Option. In the
event of termination of employment, if an Incentive Stock Option is exercised after the expiration
of the exercise

12

 

periods that apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.

          (j) Other Termination. Unless otherwise determined by the Committee 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, unless otherwise
determined by the Committee at or after grant, may thereafter be exercised by the optionee to
the extent it was exercisable at the date of termination for a period of six months (or such other
period as the Committee may specify at or after grant) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option, whichever period is the
shorter; provided, however, if the optionee dies within such six-month period (or such other period
as the Committee shall specify at or after grant), any unexercised Stock option held by such
optionee shall thereafter be exercisable to the extent that it was exercisable at the date of
termination for a period of twelve months from the time of such death, or until the expiration of
the stated term of such Stock Option, whichever period is the shorter. In the event of termination
of employment, if an Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option. 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) Special Rules Applicable to Incentive Stock Options. To the extent (i) a
participant’s employment with the Company is terminated by reason of death, Disability, Retirement
or Division Sale and (ii) the portion of any Incentive Stock Option that is otherwise first
exercisable in any calendar year during the post-termination period specified under Section 5(f),
(g), (h) or (i) applied without regard to the $100,000 limitation contained in Section 422(d) of
the Code, is greater than the portion of such option that is

13

 

immediately exercisable as an
“incentive stock option” in any calendar year during such post-termination period under Section
422, such excess shall be
treated as a Non-Qualified Stock Option. If the exercise of an Incentive Stock Option is
accelerated by reason of a Change In Control, any portion of such option that is not exercisable as
an Incentive Stock Option by reason of the $100,000 limitation contained in Section 422(d) of the
Code shall be treated as a Non-Qualified Stock Option.

          (l) Buyout and Settlement Provisions. The Committee may at any time cause the Company
to offer to buy out an Option previously granted, based on such terms and conditions as the
Committee shall approve and communicate to the optionee at the time that such offer is made.

     SECTION 6. Stock Appreciation Rights.

          (a) Grant and Exercise. Stock Appreciation Rights may be granted in conjunction with
all or part of any Stock Option granted under the Plan. In the case of a Non-Qualified Stock
Option, such rights may be granted either at or after the time of the grant of such Stock Option.
In the case of an Incentive Stock Option, such rights may be granted only at the time of the grant
of such Stock Option.

     A Stock Appreciation Right or applicable portion thereof granted with respect to a given Stock
Option shall terminate and no longer be exercisable upon the termination or exercise of the related
Stock Option, except that, unless otherwise determined by the Committee, in its sole discretion, at
the time of grant, a Stock Appreciation Right granted with respect to less than the full number of
shares covered by a related Stock Option shall not be reduced until the number of shares covered by
an exercise or termination of the related Stock Option exceeds the number of shares not covered by
the Stock Appreciation Right.

     A Stock Appreciation Right may be exercised by an optionee, in accordance with Section 6(b),
by surrendering the applicable portion of the

14

 

related Stock Option. Upon such exercise and
surrender, the optionee shall be entitled to receive an amount determined in the manner prescribed
in Section 6(b). Stock Options which have been so surrendered, in whole or in part, shall no
longer be exercisable to the extent the related Stock Appreciation Rights have been exercised.

          (b) Terms and Conditions. Stock Appreciation Rights shall be subject to such terms
and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time
to time by the Committee, including the following:

          (i) Stock Appreciation Rights shall be exercisable only at such time or times and to
the extent that the Stock Options to which they relate shall be exercisable in accordance
with the provisions of Section 5 and this Section 6 of the Plan.

          (ii) Upon the exercise of a Stock Appreciation Right, an optionee shall be entitled to
receive up to, but not more than, an amount in cash and/or shares of Stock equal in value to
the excess of the Fair Market Value of one share of Stock over the option price per share
specified in the related Stock Option multiplied by the number of shares in respect of which
the Stock Appreciation Right shall have been exercised. Subject to Section 6(b)(v), the
form of payment of a Stock Appreciation Right may be specified by the Committee at or after
the date of grant or be subject to Committee approval after grant, or the Committee may
specify at or after the time of grant that a participant
may elect the form of payment at the time of the exercise of a Stock Appreciation
Right.

          (iii) Stock Appreciation Rights shall be transferable only when and to the extent that
the underlying Stock Option would be transferable under Section 5(e) of the Plan.

          (iv) Upon the exercise of a Stock Appreciation Right, the Stock Option or part thereof
to which such Stock Appreciation Right is

15

 

related shall be deemed to have been exercised for
the purpose of the limitation set forth in the first sentence of Section 3 of the Plan on
the number of shares of Stock to be issued under the Plan, but only to the extent of the
number of shares issued under the Stock Appreciation Right at the time of exercise based on
the value of the Stock Appreciation Right at such time.

          (v) In its sole discretion, the Committee may grant at or after the date of grant of an
Option “Limited Stock Appreciation Rights” i.e., 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 grant. Said Limited Stock Appreciation Rights shall be
settled solely in cash.

     SECTION 7. Restricted Stock.

          (a) Administration. Shares of Restricted Stock may be issued either alone or in
addition to other awards granted under the Plan. The Committee shall determine the eligible
persons to whom, and the time or times at which, grants of Restricted Stock will be made, the
number of shares to be awarded, the price (if any) to be paid by the recipient (subject to Section
7(b)), the time or times within which such awards may be subject to
forfeiture, the vesting schedule and rights to acceleration thereof, and all other terms and
conditions of the awards.

     The Committee may condition the grant of Restricted Stock upon the attainment of specified
performance goals or such other factors as the Committee may determine, in its sole discretion.

     The provisions of Restricted Stock awards need not be the same with respect to each recipient,
and such awards to individual recipients need not be the same in subsequent years.

          (b) Awards and Certificates. The prospective recipient of a Restricted Stock award
shall not have any rights with respect to such award,

16

 

unless and until such recipient has executed
an agreement evidencing the award and has delivered a fully executed copy thereof to the Company,
and has otherwise complied with the applicable terms and conditions of such award. Further, such
award shall be subject to the following conditions:

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

          (ii) Awards of Restricted Stock must be accepted within a period of 60 days (or such
shorter period as the Committee may specify at grant) after the award date, by executing a
Restricted Stock Award Agreement and by paying whatever price (if any) is required under
Section 7(b)(i).

          (iii) Each participant receiving a Restricted Stock award shall be issued a stock
certificate in respect of such shares of Restricted Stock. Such certificate shall be
registered in the name of such participant, and shall bear an appropriate legend referring
to the
terms, conditions, and restrictions applicable to such award, substantially in the
following form:

“The transferability of this certificate and the shares of stock represented hereby
are subject to the terms and conditions (including forfeiture) of The McGraw-Hill
Companies, Inc. 1993 Employee Stock Incentive Plan, as restated and amended, and an
Agreement entered into between the registered owner and The McGraw-Hill Companies,
Inc. dated                     . Copies of such Plan and Agreement are on file in the offices of
The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY 10020.”

          (iv) The Committee shall require that the stock certificates evidencing such shares be
held in custody by the Company until the restrictions thereon shall have lapsed, and that,
as a condition of any Restricted Stock award, the participant shall have delivered a duly
signed stock power, endorsed in blank, relating to the Stock covered by such award. The
Company may, in lieu of the above

17

 

provisions of this subparagraph (iv) and the aforesaid
subparagraph (iii) with respect to stock certificates, provide for a book entry on behalf of
the participant in respect of such shares of Restricted Stock which shall be subject to the
same limitations contained therein.

          (c) Restrictions and Conditions. The shares of Restricted Stock awarded pursuant to
this Section 7 shall be subject to the following restrictions and conditions:

          (i) Unless otherwise determined at or after grant by the Committee, shares of
Restricted Stock shall not vest prior to the first anniversary of the granting of such
Restricted Stock.

          (ii) Subject to the provisions of this Plan and the award agreement, during a period
set by the Committee commencing with the date of such award (the “Restriction Period”), the
participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted
Stock awarded under the Plan. Within these limits, the Committee, in its sole discretion,
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 and/or such other
factors or criteria as the Committee may determine, in its sole discretion.

          (iii) Except as provided in Section 7(c)(ii), the participant shall have, with respect
to the shares of Restricted Stock, the right to vote the shares, and the right to receive
any dividend or dividend equivalent payments in cash with respect to such shares.

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

18

 

          (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, in its sole discretion, waive in whole or in part any or all remaining
restrictions with respect to such participant’s shares of Restricted Stock based on such
factors as the Committee may deem appropriate.

          (vi) If and when the Restriction Period expires without a prior forfeiture of the
Restricted Stock subject to such Restriction Period, the certificates for such shares shall
be delivered to the participant. Subject to Section 13(a), all legends shall be removed
from said certificates at the time of delivery to the participant.

     SECTION 8. Other Stock-Based Awards.

          (a) Administration. 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, cash or Stock settled
performance shares, cash or Stock settled stock appreciation rights, shares valued by reference to
subsidiary performance, and phantom stock and similar units, may be granted either alone or in
addition to or in tandem with Stock Options, Stock Appreciation Rights, or Restricted Stock.

     Subject to the provisions of the Plan, the Committee shall have authority to determine the
persons to whom and the time or times at which such
awards shall be made, the number of shares of Stock to be awarded pursuant to such awards, the
cash payment to be made pursuant to any such award, and all other conditions of the awards. The
Committee may also provide for the grant of Stock under such awards upon the completion of a
specified performance period.

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

19

 

          (b) Terms and Conditions. Other Stock-Based Awards made pursuant to this Section 8
shall be subject to the following terms and conditions:

          (i) Subject to the provisions of this Plan and the award agreement referred to in
Section 8(b)(v) below, the participant’s rights with respect to the award, including the
shares subject to awards made under this Section 8, may not be sold, assigned, transferred,
pledged or otherwise encumbered prior to the date on which the shares are issued, or, if
later, the date on which any applicable restriction, performance or deferral period lapses.

          (ii) Unless otherwise determined by the Committee at the time of award, subject to the
provisions of this Plan and the award agreement, the recipient of an award under this
Section 8 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 the award, as determined at or after the time of the award by the Committee, in its sole
discretion.

          (iii) Any award under this Section 8, any cash payment covered by any such award and
any Stock covered by any such award shall vest or be forfeited to the extent so provided in
the award agreement, as determined by the Committee, in its sole discretion.

          (iv) In the event of the participant’s Retirement, Disability or death, or in cases of
special circumstances, the Committee
may, in its sole discretion, waive in whole or in part any or all of the limitations
imposed hereunder (if any) with respect to any or all of an award under this Section 8.

          (v) Each award under this Section 8 shall be confirmed by, and subject to the terms of,
an agreement or other instrument by the Company and by the participant.

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

20

 

     SECTION 9. Qualifying Awards.

          (a) General. The Committee may, in its sole discretion, 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 issued under the Plan. Qualifying Awards shall be
of the type set forth in paragraph (b) or (c) below.

          (b) Qualifying Stock Options and Stock Appreciation Rights. Qualifying Awards may be
issued as Stock Options and Stock Appreciation Rights granted by the 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
issued as performance grants and any other award 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 performance objectives for 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

21

 

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, net operating income, pretax profit, revenue growth,
return on sales, return on equity, return on assets, return on investment, total return to
shareholders, 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. The Committee shall have the
discretion, by participant and by award, to reduce (but, in the case of Qualifying Awards
only, not to increase) some or all of the amount that would otherwise be payable under the
award by reason of the satisfaction of the performance objectives set forth in 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 150,000 shares of Stock
or which provide for the payment for such performance cycle of more than 150,000 shares of
Stock (or cash amounts based on the value of more than 150,000 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. Anything in the
Plan to the contrary notwithstanding other than 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

22

 

compensation, that the criteria for payment of Qualifying Awards related to that cycle
have been achieved.

     SECTION 10. Change In Control Provisions.

          (a) Impact of Event. In the event of a “Change in Control” as defined in Section
10(b), unless otherwise determined by the Committee at the time of grant, the following
acceleration and valuation provisions shall apply notwithstanding any other provision of the Plan:

          (i) Any Stock Appreciation Rights (including, without limitation, any Limited Stock
Appreciation Rights) and any Stock Options (including Qualifying Awards) awarded under the
Plan 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 Restricted Stock and
Other Stock-Based Awards (including Qualifying Awards), in each case to the extent not
already vested under the Plan, shall lapse and such shares and awards shall be deemed fully
vested, notwithstanding any subsequent termination of the applicable Participant’s
employment for any reason.

          (iii) All outstanding Stock Options, Stock Appreciation Rights, Restricted Stock and
Other Stock-Based Awards (including Qualifying Awards), shall either (A) be cashed out by
the Company on the basis of the “Change in Control Price” as defined in Section 10(c) 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 the Company
in, with which the Company merges in, or which otherwise results from, the Change of
Control, with appropriate adjustments pursuant to Section 3(d) to preserve the value of the
Awards. The Committee shall determine, in its sole discretion,

23

 

which of the foregoing
clauses (A) and (B) shall apply; provided, however, that the Committee shall be obligated to
make such 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 Stock Options, Stock Appreciation
Rights, Restricted Stock and Other Stock-Based 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 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 common stock of the Company (the “Outstanding Company Common
Stock”) or (2) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the election
of directors (the “Outstanding Voting Securities”); excluding, however, the following: (1)
any acquisition directly from the Company, other than an acquisition by virtue of the
exercise of a conversion privilege unless the security being so converted was itself
acquired directly from the Company; (2) any acquisition by the Company; (3) any acquisition
by any employee benefit plan (or related trust) sponsored or maintained by the Company or
any entity controlled by the Company; or (4) any acquisition pursuant to a transaction which
complies

24

 

with clauses (1), (2) and (3) of subsection (iii) of this Section 10(b); or

          (ii) A change in the composition of the Board of Directors such that the individuals,
who, as of the Restatement Date (as defined in Section 14(b)), constitute the Board of
Directors (such Board of Directors 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 of Directors subsequent to the Restatement Date, whose election, or nomination for
election by the Company’s shareholders, was approved by a vote of at least a majority of
those individuals who are members of the Board of Directors 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 of Directors 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 the Company (“Corporate
Transaction”); excluding, however, such a Corporate Transaction pursuant to which (1) all or
substantially all of the individuals and entities who are the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately 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

25

 

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 the Company or all or substantially all of the Company’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 Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (2) no Person (other than the Company, any employee benefit plan (or related trust) of
the Company 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 (3) 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 the Company of a complete liquidation or
dissolution of the Company.

          (c) Change in Control Price. For purposes of this Section 10, “Change in Control
Price” means the highest price per share paid in any transaction reported on the New York Stock
Exchange Composite Index, 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 except that, in the case of Incentive Stock
Options and Stock Appreciation Rights relating to Incentive Stock Options, such price shall be
based only on transactions reported for the date on which the optionee

26

 

exercises such Incentive
Stock Options or Stock Appreciation Rights (or, where applicable, the date on which a cash-out
occurs under Section 10(a)(iii)).

     SECTION 11. Amendments and Termination.

     The Board may amend, alter, or discontinue the Plan, but no amendment, alteration, or
discontinuation shall be made which would impair the rights of an optionee or participant under a
Stock Option, Stock Appreciation Right, Limited Stock Appreciation Right, Restricted Stock award or
Other Stock-Based 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 Stock Option or other award theretofore granted,
prospectively or retroactively, but, subject to Section 3 above, no such amendment or other action
by the Committee shall impair the rights of any holder without the holder’s consent.

     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 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.

27

 

     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) The Committee may require each person purchasing shares pursuant to a Stock Option or
other award under the Plan 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. The certificates
for such shares may include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.

     All certificates for shares of Stock delivered under the Plan shall be subject to such
stock-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 applicable Federal or state securities law, and any applicable corporate law, and
the Committee may cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.

          (b) Nothing contained in this Plan shall prevent the Board from adopting other or additional
compensation 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) 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

28

 

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) 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 Option or other award under the Plan
(including dividends or dividend equivalents on any non-vested Restricted 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. Unless otherwise determined by
the Committee, tax withholding or payment obligations may be settled with Stock, including Stock
that is part of the award that gives rise to the withholding requirement. 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.

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

          (f) Any award 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.

     SECTION 14. Effective Date of Plan.

          (a) The Plan originally became effective as of February 24, 1993, with the approval of the
Plan by the holders of a majority of the shares of the Company’s Stock and $1.20 Convertible
Preference Stock, $10 par value, voting together as a single class and not as separate classes
(“Approval”), at

29

 

the 1993 annual shareholders meeting held as of April 28, 1993. Amendments to the
Plan submitted to shareholders at the Company’s annual shareholders meeting held on April 30, 1997
became effective as of January 1, 1997, with Approval, provided that with respect to the
qualifications of Committee members contained herein such amendments became effective as of
November 1, 1996.

          (b) The Plan as amended and restated on April 26, 2000 became effective as of January 1, 2000
(the “Restatement Date”), subject to the Approval of the restated Plan at the 2000 annual
shareholders meeting held on April 26, 2000. The amendments to the Plan approved by the Committee
on July 26, 2000 became effective on that date.

     SECTION 15. Term of Plan.

     No Stock Option, Stock Appreciation Right, Restricted Stock or Other Stock-Based Award shall
be granted pursuant to the Plan on or after the tenth
anniversary of the date of initial shareholder approval, but awards granted prior to such
tenth anniversary may extend beyond that date; provided, however, that no Incentive Stock Option shall be granted after the tenth
anniversary of the initial adoption of the Plan by the Board.

Board Approval:

February 23, 2000

Shareholder Approval:

April 26, 2000

Committee Amendments Approval:

July 26, 2000

December 6, 2006

30EX-10.6

 

Exhibit 10.6

THE McGRAW-HILL COMPANIES, INC.

2002 Stock Incentive Plan

(Amended and restated as of December 6, 2006)

 

 

Table of Contents

	 	 	 	 	 
	 	 	Page	 
	SECTION 1. Purpose; Definitions
	 	 	3	 
	 
	 	 	 	 
	SECTION 2. Administration
	 	 	7	 
	 
	 	 	 	 
	SECTION 3. Stock Subject to Plan
	 	 	9	 
	 
	 	 	 	 
	SECTION 4. Eligibility
	 	 	11	 
	 
	 	 	 	 
	SECTION 5. Stock Options
	 	 	12	 
	 
	 	 	 	 
	(a) Option Price
	 	 	12	 
	(b) Option Term
	 	 	12	 
	(c) Exercisability
	 	 	12	 
	(d) Method of Exercise
	 	 	13	 
	(e) Non-Transferability of Options
	 	 	14	 
	(f) Termination by Death
	 	 	14	 
	(g) Termination by Reason of Disability
	 	 	14	 
	(h) Termination by Reason of Retirement
	 	 	14	 
	(i) Termination by Reason of a Division Sale
	 	 	15	 
	(j) Cause
	 	 	15	 
	(k) Other Termination
	 	 	15	 
	 
	 	 	 	 
	SECTION 6. Stock Appreciation Rights
	 	 	16	 
	 
	 	 	 	 
	(a) In General
	 	 	16	 
	(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
	 	 	18	 
	(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
	 	 	21	 

 

 

	 	 	 	 	 
	 	 	Page	 
	SECTION 9. Qualifying Awards
	 	 	22	 
	 
	 	 	 	 
	(a) General
	 	 	22	 
	(b) Qualifying Stock Options and Stock Appreciation Rights
	 	 	23	 
	(c) Qualifying Awards other than Stock Options and Stock Appreciation Rights
	 	 	23	 
	 
	 	 	 	 
	SECTION 10. Change In Control Provisions
	 	 	24	 
	 
	 	 	 	 
	(a) Impact of Event
	 	 	24	 
	(b) Definition of “Change in Control”
	 	 	26	 
	(c) Change in Control Price
	 	 	28	 
	 
	 	 	 	 
	SECTION 11. Amendments and Termination
	 	 	28	 
	 
	 	 	 	 
	SECTION 12. Unfunded Status of Plan
	 	 	29	 
	 
	 	 	 	 
	SECTION 13. General Provisions
	 	 	29	 
	 
	 	 	 	 
	(a) Stock Subject to Awards
	 	 	30	 
	(b) Other Plans
	 	 	30	 
	(c) Continued Employment
	 	 	30	 
	(d) Taxes and Withholding
	 	 	30	 
	(e) Governing Law
	 	 	31	 
	(f) Computation of Benefits
	 	 	31	 
	(g) Division Sale
	 	 	31	 
	(h) Foreign Law
	 	 	31	 
	 
	 	 	 	 
	SECTION 14. Plan Effective Date and Duration
	 	 	32	 

ii

 

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

3

 

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
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.

4

 

     (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 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

5

 

amended
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
Section 10(b)(i).

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

6

 

     (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.

     (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

7

 

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 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

8

 

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 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 four million
(4,000,000) shares of Stock. Such shares may consist, in whole

9

 

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 increase in the Aggregate Limit under
Section 3(a) by four million (4,000,000) shares of Stock shall not increase the
total number of shares of Stock that may be issued under the Plan by more than
nine million, five hundred-thousand (9,500,000) 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;

10

 

          (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

          (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 two million (2,000,000) shares of Stock (the
“Individual Limit”).

     SECTION 4. Eligibility

     Officers and other employees of the Company (but excluding

11

 

individuals who
serve only as a director on the Board) who are responsible for or contribute to
the management, 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 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

12

 

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 form as determined by the Committee.

          (iii) Subject to Section 5(d)(iv), no shares of Stock shall be distributed
until payment therefore, 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

13

 

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 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),

14

 

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 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

15

 

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.

     (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.

16

 

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

17

 

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 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:

18

 

          (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 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

19

 

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.

          (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

20

 

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 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.

21

 

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

          (vi) 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

22

 

“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 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

23

 

shareholders, EBITDA, economic 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 (but, in
the case of Qualifying Awards only, not to increase) some or all of the
amount that would otherwise be payable under the Qualifying Award by
reason of the satisfaction of the performance objectives set forth in
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 300,000 shares of Stock or which provide for the
payment for such performance cycle of more than 300,000 shares of Stock
(or cash amounts based on the value of more than 300,000 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.

     (a) Impact of Event. Unless the Committee otherwise determines at
the time of grant, in the event of a Change in Control, the following

24

 

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 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

25

 

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 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

26

 

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 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

27

 

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 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.

28

 

     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 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.

29

 

     (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 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

30

 

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 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

31

 

be necessary or advisable to comply with such
legal or regulatory provisions.

     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.

December 6, 2006

32

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00118-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00118-of-00352.parquet"}]]