<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
The McGraw-Hill Companies, Inc.
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(Name of Registrant as Specified In Its Charter)
The McGraw-Hill Companies, Inc.
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
1221 Avenue of the Americas
New York, NY 10020
The McGraw-Hill Companies Logo
March 25, 1997
DEAR SHAREHOLDER:
On behalf of the Board of Directors and management, we cordially invite you to
the Annual Meeting of Shareholders to be held Wednesday, April 30, 1997, at 11
A.M., at the principal executive offices of the Corporation, 1221 Avenue of the
Americas, New York City. In the pages that follow you will find the Notice of
Meeting and Proxy Statement describing the formal business to be transacted at
this Meeting. Please read them carefully.
At the Annual Meeting, there will be a report to shareholders regarding the
operations of The McGraw-Hill Companies, Inc. In addition, time will be made
available for shareholders to discuss the formal business items as well as to
ask other questions about The McGraw-Hill Companies' operations.
It is important that your shares be voted at the Meeting in accordance with your
preference whether or not you plan to attend in person. We urge you to specify
your choices on the matters presented by filling in the appropriate boxes on the
enclosed Proxy Card. Please sign, date and return the Proxy Card in the prepaid
envelope provided. Your cooperation in promptly returning the Proxy Card will
save your Corporation additional solicitation costs and is appreciated. If you
do attend the meeting and wish to vote in person, you may withdraw your Proxy at
that time.
Sincerely,
JOSEPH L. DIONNE
Chairman of the Board and Chief
Executive Officer
<PAGE> 3
1221 Avenue of the Americas
New York, NY 10020
The McGraw-Hill Companies Logo
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 30, 1997
To the Shareholders of The McGraw-Hill Companies, Inc.:
The Annual Meeting of Shareholders of The McGraw-Hill Companies, Inc. (the
"Corporation") will be held at the principal executive offices of the
Corporation, 1221 Avenue of the Americas, New York, New York 10020, Wednesday,
April 30, 1997, at 11 A.M., for the purpose of considering and voting upon the
following:
1. Election of five directors;
2. Approval of Amendments to and Restatement of the 1993 Key Employee Stock
Incentive Plan;
3. Ratification of the appointment of independent auditors for 1997; and
4. Such other business as may properly come before the Meeting or any
adjournment thereof.
Information relating to the above matters is set forth in the accompanying Proxy
Statement.
In accordance with the By-Laws and resolutions of the Board of Directors, only
shareholders of record at the close of business on March 13, 1997 shall be
entitled to notice of and to vote at the Meeting.
By Order of the Board of Directors
SCOTT L. BENNETT
Senior Vice President, Associate General
Counsel and Secretary
New York, New York
March 25, 1997
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Please sign and return the enclosed proxy in the envelope provided.
No postage is necessary, if mailed in the United States.
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<PAGE> 4
THE MCGRAW-HILL COMPANIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 30, 1997
PROXY STATEMENT
To the Shareholders of The McGraw-Hill Companies, Inc.:
This statement is furnished in connection with the solicitation of proxies by
the Board of Directors of The McGraw-Hill Companies, Inc. (the "Corporation")
for use at the Annual Meeting of Shareholders to be held at 11 A.M. on April 30,
1997, at the principal executive offices of the Corporation, 1221 Avenue of the
Americas, New York, New York, and at any adjournment thereof. A Notice of
Meeting is attached hereto and a form of proxy is enclosed.
THE PROXY
The persons named as proxies were selected by the Board of Directors of the
Corporation and are officers of the Corporation.
When the proxies in the enclosed form are properly executed and returned, the
shares they represent will be voted at the Meeting. If a shareholder
participates in the Corporation's Dividend Reinvestment Plan, any proxy given by
such shareholder will also govern the voting of all shares held for the
shareholder's account under the Dividend Reinvestment Plan, unless contrary
instructions are received. Any shareholder giving a proxy has the power to
revoke it at any time before it is voted at the Meeting by filing with the
Secretary of the Corporation an instrument revoking it or by filing a duly
executed proxy bearing a later date.
The cost of soliciting proxies will be borne by the Corporation. The Corporation
will request banks and brokers to solicit their customers who have a beneficial
interest in the Corporation's shares registered in the names of nominees and
will reimburse such banks and brokers for their reasonable out-of-pocket
expenses of such solicitations. In addition, officers and full-time employees of
the Corporation may solicit proxies by telephone, telegraph or personal
interview. The Corporation has retained Kissel-Blake Inc. to assist in the
solicitation of proxies. It is estimated the Corporation will pay Kissel-Blake a
fee of $16,500 for these services.
These proxy materials are being mailed to shareholders of the Corporation
commencing on March 25, 1997. A copy of the 1996 Annual Report to Shareholders
was mailed to shareholders on March 18, 1997.
VOTING SECURITIES
The outstanding securities of the Corporation on March 13, 1997 were 99,907,949
shares of Common Stock, par value $1 per share, and 1,388 shares of
$1.20 Convertible Preference Stock, par value $10 per share. Each share of
Common Stock and $1.20 Convertible Preference Stock is entitled to one vote at
the Meeting.
VOTING PROCEDURES
Under the New York Business Corporation Law (the "BCL") and the Corporation's
Restated Certificate of Incorporation, the presence, in person or by proxy, of
the holders of a majority of the outstanding shares of Common Stock and $1.20
Convertible Preference Stock is necessary to constitute a quorum of shareholders
to take action at this Annual Meeting. For these purposes, shares which are
present, or represented by a proxy, at the Meeting will be counted for quorum
purposes regardless of whether the holder of the shares or proxy fails to vote
on any particular matter or whether a broker with discretionary authority fails
to exercise its discretionary voting authority with respect to any particular
matter. Once a quorum of the shareholders is established, under the BCL and the
Corporation's Restated Certificate of Incorporation, (A) the directors standing
for election as set forth on pages 3 and 4 must be elected by a plurality of the
votes cast (Proposal One); (B) the affirmative vote of the holders of a majority
of the outstanding shares of Common Stock and Preference Stock, voting together
as a single class, is required to approve the Amendments to and Restatement of
the 1993 Key Employee Stock Incentive Plan, as described on pages 17 through 21
(Proposal Two); and (C) the affirmative vote of a majority of the votes cast is
required to ratify the appointment of the auditors as described on pages 21 and
22 (Proposal Three). For voting purposes (as opposed to for purposes of
establishing a quorum) abstentions and broker non-votes will not be counted in
determining whether the directors standing for election have been elected or
whether any other item has been approved; however, with respect to the approval
of the Amendment to and Restatement of the 1993 Key Employee Stock Incentive
Plan (Proposal Two), abstentions and broker non-votes will have the effect of a
negative vote.
Votes at the Meeting will be tabulated by two inspectors of election appointed
by the Board of Directors.
1
<PAGE> 5
1. ELECTION OF FIVE DIRECTORS
Under the Corporation's Restated Certificate of Incorporation, there are three
classes of directors which are to be as equal in number as possible. Two
directors, Pedro Aspe and Robert P. McGraw, were elected in 1996 for two-year
terms expiring at the 1998 Annual Meeting. Three directors, George B. Harvey,
Richard H. Jenrette and Lois Dickson Rice, were elected in 1995 for three-year
terms expiring at the 1998 Annual Meeting. None of these five incumbent
directors is standing for re-election at this Meeting.
Five directors, Joseph L. Dionne, Don Johnston, Linda Koch Lorimer, Harold W.
McGraw III and Alva O. Way, were elected in 1996 for three-year terms expiring
at the 1999 Annual Meeting. Mr. Johnston, a director of the Corporation since
1986, will be retiring from the Board after this Meeting, pursuant to the Board
of Directors' long-standing retirement age policy. None of the other four
incumbent directors is standing for re-election at this Meeting.
Five directors, Vartan Gregorian, John T. Hartley, Peter O. Lawson-Johnston,
Paul J. Rizzo and James H. Ross, were elected for three-year terms expiring at
the 1997 Annual Meeting. Peter O. Lawson-Johnston, a director of the Corporation
since 1975, will be retiring from the Board after this Meeting pursuant to the
Board's retirement age policy. Accordingly, Messrs. Gregorian, Hartley, Rizzo
and Ross are to be elected at this Meeting for three-year terms expiring at the
2000 Annual Meeting. In addition, Sidney Taurel was elected a director on
October 30, 1996, by action of the Board of Directors taken pursuant to the
Corporation's By-Laws, for a term expiring at the 1997 Annual Meeting. Mr.
Taurel is also to be elected at this Meeting for a three-year term expiring at
the 2000 Annual Meeting.
Harold W. McGraw, Jr., a director of the Corporation from 1954 to 1988, Chairman
of the Board from 1976 to 1988, and Chief Executive Officer of the Corporation
from 1975 to 1983, retired from the Board after the 1988 Annual Meeting pursuant
to the Board's retirement age policy. However, in recognition of Mr. McGraw's
past service and contributions to the Corporation and to assure his continued
close association with the Board and the Corporation, the Board of Directors
several years ago elected Mr. McGraw permanently to the position of Chairman
Emeritus.
2
<PAGE> 6
THE BOARD OF DIRECTORS' RECOMMENDATION
Unless otherwise specified by the shareholder, the Board of Directors intends
the accompanying proxy to be voted FOR the election of the named five nominees
as directors.
The Board of Directors does not contemplate that any nominee will be unable or
unwilling to serve as a director. However, if that should occur, the individuals
named as the proxies reserve the right to substitute another person as may be
selected by the Board of Directors when voting at the Annual Meeting.
Following is information about each of the five nominees for director who are
being proposed for election at this Annual Meeting and about each of the nine
incumbent directors.
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NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING AT THE 2000 ANNUAL MEETING
PHOTO VARTAN GREGORIAN, age 62, has been President of Brown
University and a Professor of History at Brown University
since 1989. He was President and Chief Executive Officer of
the New York Public Library from 1981 to 1989. Prior to
1981, Dr. Gregorian taught and held administrative posts at
several American universities. Dr. Gregorian is a director
of the Institute for Advanced Study, the J. Paul Getty
Trust, the Aaron Diamond Foundation, the Institute for
International Education, the International League for Human
Rights, the Fund for Free Expression, the Brookings
Institute and the Museum of Modern Art (New York). Dr.
Gregorian is currently President Emeritus of the New York
Public Library and was appointed by President Bush to be a
member of the Fulbright Commission. He is also a member of
the American Philosophical Society and a Fellow of the
American Academy of Arts and Sciences. Dr. Gregorian has
served as a director of the Corporation since 1990 and is a
member of the Financial Policy Committee.
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PHOTO JOHN T. HARTLEY, age 67, is Chairman of the Executive
Committee and a director of the Harris Corporation, a
supplier of information, communication and semiconductor
systems, products and services to government and commercial
markets worldwide. He was Chairman of the Board and Chief
Executive Officer of the Harris Corporation from 1987 to
1995. Mr. Hartley was elected President and Chief Operating
Officer of the Harris Corporation in 1982, Chief Executive
Officer in 1986 and Chairman of the Board in 1987. Mr.
Hartley is a director of The Equitable Companies
Incorporated and The Equitable Life Assurance Society of
the United States and formerly the Chairman of the National
Association of Manufacturers. He was a member of President
Reagan's and President Bush's National Security
Telecommunications Advisory Committee and is a past
Chairman of the Defense Policy Advisory Committee on Trade.
Mr. Hartley is also a Trustee of the Florida Institute of
Technology. Mr. Hartley has served as a director of the
Corporation since 1989 and is a member of the Audit,
Compensation, and Nominating and Corporate Governance
Committees.
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PHOTO PAUL J. RIZZO, age 69, is a partner in Franklin Street
Partners, an investment firm. He was Vice Chairman of the
Board of International Business Machines Corporation, a
manufacturer and distributor of advanced information
technologies, from 1993 to 1994. He was Dean of the
Graduate School of Business Administration at the
University of North Carolina from 1987 to 1993. He was Vice
Chairman of the Board of Directors of the IBM Corporation
from 1983 to 1987. Prior to that, Mr. Rizzo was Senior Vice
President of the IBM Corporation from 1971 to 1982. He is a
director of Johnson & Johnson, Ryder Systems, Inc. and
Morgan Stanley Group Inc. Mr. Rizzo has served as a
director of the Corporation since 1988 and is Chairman of
the Compensation Committee and is a member of the Audit and
Executive Committees.
3
<PAGE> 7
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PHOTO JAMES H. ROSS, age 58, has been since 1996 Chairman of The
Littlewoods Organisation, a private company in Great
Britain operating in the retail, home shopping and leisure
businesses. Mr. Ross was Chief Executive and Deputy
Chairman of Cable & Wireless plc, an international provider
of telecommunications services, between 1992 and 1995. He
was a Managing Director of British Petroleum plc, which
engages in all phases of the petroleum business, from 1991
to 1992, and Chairman and Chief Executive Officer of BP
America Inc., a subsidiary of British Petroleum plc, from
1988 to 1991. He was Chief Executive Officer and Managing
Director of BP Oil International Limited from 1986 to 1988.
Prior to that, he was General Manager of Corporate Planning
for British Petroleum plc from 1982 through 1985. Mr. Ross
is a trustee of the Cleveland Orchestra, a member of the
Advisory Board of the Center for Strategic and
International Studies and Chairman of the Board of the
Manchester Business School. Mr. Ross has served as a
director of the Corporation since 1989 and is a member of
the Financial Policy and Nominating and Corporate
Governance Committees.
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PHOTO SIDNEY TAUREL, age 48, has been President and Chief
Operating Officer of Eli Lilly and Company, a
pharmaceutical company, since 1996. He was elected a
director of Eli Lilly and Company in 1991. Mr. Taurel
joined Eli Lilly and Company in 1971 and has held
management positions in the company's operations in Brazil
and Europe. He served as president of Eli Lilly
International Corporation from 1986 until 1991, as
Executive Vice President of the Pharmaceutical Division
from 1991 until 1993 and as Executive Vice President of Eli
Lilly and Company from 1993 until his appointment in 1996
as President and Chief Operating Officer. Mr. Taurel is
Chairman-elect of the Board of Directors of the
Pharmaceutical Research and Manufacturers of America. He
also serves on the Board of ITT Industries, Inc. and the
Board of Overseers of the Columbia Business School. Mr.
Taurel was elected a director on October 30, 1996 and is a
member of the Audit Committee.
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DIRECTORS WHOSE TERMS EXPIRE AT THE 1998 ANNUAL MEETING
PHOTO PEDRO ASPE, age 47, has been Chairman of the Board of
Vector Casa de Bolsa, S.A. de C.V. ("Vector"), an
investment banking firm in Mexico providing financial
services to corporations, financial institutions and
individual investors, since 1996. Vector is a subsidiary of
Pulsar International, S.A. de C.V., an industrial and
financial company headquartered in Mexico. He has also been
since 1996 Managing Director and a partner of a newly
formed investment banking unit of Vector aimed at
attracting capital and technology to Mexico. Dr. Aspe has
been since 1995 a professor at the Instituto Technologico
Autonomo de Mexico, located in Mexico City, and is a member
of its Governing Board. Dr. Aspe has held a number of
positions with the Mexican government and was most recently
the Secretary of Finance and Public Credit of Mexico from
1988 through 1994. Dr. Aspe is a director of Seguros
Comercial America (Mexico), Schering Plough (Mexico) and on
the Advisory Board of Marvin & Palmer. Dr. Aspe is also a
member of the Advisory Board of the Massachusetts Institute
of Technology and a member of the Board of Stanford
University's Institute of International Studies. Dr. Aspe
has served as a director of the Corporation since 1996 and
is a member of the Audit Committee.
4
<PAGE> 8
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PHOTO GEORGE B. HARVEY, age 65, was Chairman, President and Chief
Executive Officer of Pitney Bowes Inc., a manufacturer of
office equipment and business supplies and provider of
financial services, from 1983 through 1996. Mr. Harvey was
President and Chief Operating Officer of Pitney Bowes from
1981 to 1983. He is a director of Merrill Lynch, Pfizer,
Inc. and Massachusetts Mutual Life Insurance Co. Mr. Harvey
has served as a director of the Corporation since 1985 and
is Chairman of the Audit Committee and is a member of the
Executive and Financial Policy Committees.
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PHOTO RICHARD H. JENRETTE, age 67, was Chairman of the Board and
Chief Executive Officer from 1990 to 1996 of The Equitable
Companies Incorporated. He was also Chairman of Equitable's
wholly-owned investment banking subsidiary, Donaldson,
Lufkin & Jenrette, Inc. Mr. Jenrette was Chairman of The
Equitable Life Assurance Society of the United States, a
mutual life insurance company, prior to its
de-mutualization in 1992. He is a director of Groupe AXA,
S.A. Mr. Jenrette has served as a director of the
Corporation since 1993 and is a member of the Financial
Policy Committee.
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PHOTO ROBERT P. MCGRAW, age 42, has been Executive Vice President
of the Professional Publishing Group of the Corporation
since 1989. He was Executive Vice President of the
Healthcare Group from 1987 to 1989, and Group Vice
President of that same group from 1985 to 1987. Prior to
that he served in several key positions in the Health
Professions Division: as General Manager from 1983 to 1985;
as Editorial Director from 1982 to 1983; and as Editor from
1979 to 1982. He joined the Corporation in 1976 as a sales
representative for the College Division. Mr. McGraw has
served as a director of the Corporation since 1995 and is a
member of the Financial Policy Committee. (a)
5
<PAGE> 9
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PHOTO LOIS DICKSON RICE (Mrs. Alfred B. Fitt), age 64, has been a
guest scholar since 1991 in the Economics Study Program at
the Brookings Institute, a research and education
organization. Prior to that she had been for more than five
years Senior Vice President, Government Affairs, and a
director of Control Data Corporation, which applies
technology to specialized computer, information and
management needs. She has held various positions with the
College Board, an educational association, and from 1971
through 1981 served as one of its Vice Presidents. Mrs.
Rice is a director of Fleet Financial Group, International
Multifoods, Hartford Steam Boiler Inspection and Insurance
Company and Unum Corporation. Mrs. Rice is a Trustee of the
Harry Frank Guggenheim Foundation and Reading Is
Fundamental. She is a member of the President's Foreign
Intelligence Advisory Board and a director of the Public
Agenda Foundation. Mrs. Rice has served as a director of
the Corporation since 1988 and is a member of the Audit
and Compensation Committees.
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DIRECTORS WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING
PHOTO JOSEPH L. DIONNE, age 63, has been Chairman of the Board
and Chief Executive Officer of the Corporation since April
1988. He was President and Chief Executive Officer of the
Corporation from 1983 to April 1988. Mr. Dionne was
President and Chief Operating Officer of the Corporation
from 1981 to 1983. He was Executive Vice President,
Operations, of the Corporation from 1979 to 1981 and
President of McGraw-Hill Information Systems Company from
1977 to 1979. He is a director of The Equitable Companies
Incorporated, The Equitable Life Assurance Society of the
United States, the Harris Corporation, Ryder Systems, Inc.
and a Trustee of Hofstra University. Mr. Dionne has served
as a director of the Corporation since 1981 and is Chairman
of the Executive Committee.
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PHOTO LINDA KOCH LORIMER, age 45, has been Vice President and
Secretary of Yale University since 1995, having returned to
Yale as Secretary of the University in 1993. She was
President of Randolph-Macon Woman's College from 1987 to
1993 and was Associate Provost of Yale University from 1983
to 1987. She is a director of Sprint Corporation. Ms.
Lorimer also serves on the Board of Governors of the Center
for Creative Leadership and is a director of Yale-New Haven
Hospital. Ms. Lorimer has served as a director of the
Corporation since 1994 and is a member of the Audit and
Financial Policy Committees.
6
<PAGE> 10
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PHOTO HAROLD W. MCGRAW III, age 48, has been President and Chief
Operating Officer of the Corporation since 1993. He was
Executive Vice President, Operations, of the Corporation
from 1989 to 1993. Prior to that he was President of the
McGraw-Hill Financial Services Company, President of the
McGraw-Hill Publications Company, publisher of
McGraw-Hill's Aviation Week & Space Technology magazine and
Vice President, Corporate Planning. Before joining the
Corporation in 1980, he held several financial positions at
the GTE Corporation. He is a Trustee of Hartley House (a
New York City community settlement house). Mr. McGraw has
served as a director of the Corporation since 1987 and is a
member of the Financial Policy Committee. (a)
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PHOTO ALVA O. WAY, age 67, is Chairman of the Board of IBJ
Schroder Bank & Trust Company and a consultant and a
director of Schroder (PLC) (London). Mr. Way was the
President of the Travelers Corporation, a financial
services organization, from 1983 to 1984. He was President
of the American Express Company from 1981 to 1983 and Vice
Chairman from 1979 to 1981. Previously, Mr. Way was Senior
Vice President -- Finance for the General Electric Company
from 1977 to 1979 and its Financial Vice President from
1973 to 1977. He is a director of Ryder Systems, Inc.,
Gould, Inc. and Eli Lilly and Company. He is Chancellor of
Brown University and a Trustee of the Committee for
Economic Development. Mr. Way has served as a director of
the Corporation since 1983 and is Chairman of the Financial
Policy Committee and is a member of the Nominating and
Corporate Governance and Executive Committees.
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(a) Harold W. McGraw III and Robert P. McGraw are brothers and the sons of
Harold W. McGraw, Jr.
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7
<PAGE> 11
INFORMATION AS TO COMMITTEES, ATTENDANCE
AND FEES OF THE BOARD OF DIRECTORS
The Corporation's Board of Directors has standing Audit, Compensation and
Nominating and Corporate Governance Committees.
The Audit Committee is comprised of Ms. Linda Koch Lorimer and Lois Dickson Rice
and Messrs. Pedro Aspe, John T. Hartley, George B. Harvey, Paul J. Rizzo, and
Sidney Taurel. During 1996 the Audit Committee held three meetings. The
functions performed by the Audit Committee include: (a) reviewing and approving
the scope and coverage of the Corporation's annual audit and the division of
duties between the Corporation's independent auditors and internal auditors; (b)
discussing any significant difficulties encountered or significant findings made
during the annual audit; (c) reviewing and approving the annual audit, financial
statements and management letters following completion of the Corporation's
annual audit; (d) reviewing with the Corporation's independent auditors and the
Corporation's management the accounting systems, financial controls and
procedures used by the Corporation; (e) reviewing and approving the scope of the
duties of the internal audit function; (f) reviewing and approving, from time to
time, with the Corporation's senior management the Corporation's Code of
Business Ethics to determine compliance with such Code; (g) reviewing and
approving the annual audit budget and actual fees paid to the Corporation's
independent auditors; and (h) recommending to the Board of Directors each year
the firm of independent auditors to be retained for the following year.
The Compensation Committee is comprised of Ms. Lois Dickson Rice and Messrs.
John T. Hartley, Don Johnston, Peter O. Lawson-Johnston, and Paul J. Rizzo.
During 1996 the Compensation Committee held five meetings. The functions
performed by the Compensation Committee include: (a) establishing and approving
the compensation to be paid to members of the Corporation's senior management;
(b) administering the Corporation's executive incentive plans; (c) administering
the Corporation's stock incentive plans; and (d) authorizing and approving
special compensation arrangements for senior management.
The Nominating and Corporate Governance Committee is comprised of Messrs. John
T. Hartley, Don Johnston, Peter O. Lawson-Johnston, James H. Ross and Alva O.
Way. During 1996 the Nominating and Corporate Governance Committee held four
meetings. The functions performed by the Committee include: (a) recommending to
the Board of Directors the slate of nominees for election as directors at each
Annual Meeting or for election by the Board of Directors on an interim basis;
(b) recommending to the Board of Directors individuals to fill vacancies on it;
(c) evaluating, on a continuing basis, possible candidates to serve on the Board
of Directors; (d) recommending to the Board of Directors appropriate
compensation to be paid to the directors; (e) administering the Director
Deferred Stock Ownership Plan; (f) determining whether any relationship exists
between an outside director and the Corporation that might affect the status of
the director as independent; and (g) making recommendations from time to time to
the Board of Directors as to matters of corporate governance and periodically
monitoring the Board's performance. The Nominating and Corporate Governance
Committee is willing to consider recommendations of nominees by a shareholder if
the shareholder submits the nomination in compliance with the advance notice,
informational and other requirements set forth in the Corporation's By-Laws.
Shareholders should direct such recommendations of nominees to the Nominating
and Corporate Governance Committee, c/o the Secretary of the Corporation at 1221
Avenue of the Americas, New York, New York 10020. The Corporation's By-Laws also
contain detailed procedures, including time limitations, which a shareholder
must comply with in order to introduce an item of business at a meeting of
shareholders.
In addition to the above mentioned three committees, the Corporation's Board of
Directors has an Executive Committee and a Financial Policy Committee.
The Board of Directors of the Corporation held a total of eight meetings during
1996. All directors attended at least 75% of (1) all meetings of the Board of
Directors and (2) all meetings of all board committees on which they served. The
overall attendance record for all directors as a group during 1996 was 94.4%.
During 1996, several changes were enacted in the Board of Directors'
compensation. For the first half of 1996, directors were compensated under
arrangements previously in effect, whereby directors received an annual retainer
of $30,000. Pursuant to the Corporation's 1993 Stock Payment Plan For Directors,
20% of this annual retainer fee was paid to the outside directors in the form of
Common Stock in lieu of cash. Accordingly, for the first half of 1996, outside
directors received a total retainer of $15,000, of which $12,000 was paid to
directors in cash and $3,000 was paid to directors in the form of Common Stock
pursuant to the Corporation's 1993 Stock Payment Plan For Directors. In
addition, outside directors received from the Corporation $1,000 for each board
meeting which they attended and $800 for each meeting of the Audit,
Compensation, Executive, Financial Policy and Nominating and Corporate
Governance Committees which they attended. Inside directors, who are employees
of the Corporation, do not receive any fees for serving on the board or for
attending meetings of board committees.
Effective July 1, 1996, certain changes to Board of Directors' compensation were
adopted in order to more closely align directors' compensation with the
financial interests of shareholders by significantly increasing the percentage
of such compensation payable in shares of the Corporation's Common Stock. First,
the Board and the shareholders of the Corporation at the 1996 Annual Meeting
adopted the Director Deferred Stock Ownership Plan, which took effect as of July
1, 1996. Under this Plan, approximately 50% of an outside director's total
compensation during the year (or a greater percentage should a director so
elect) shall be paid in shares of the Corporation's Common Stock, which shall be
credited on an annual basis to a bookkeeping account maintained for each such
non-employee director and which shall be delivered in the form of stock
certificates at the time such director ceases to be a member of the Board.
Pursuant to the Director Deferred Stock Ownership Plan, the Corporation
currently has written agreements with Messrs. Aspe, Harvey, Lawson-Johnston and
Taurel, respectively, to receive 100% of their annual retainer and board and
committee fees payable in shares of the Corporation's Common Stock. In addition,
outside directors received from the Corporation a reduced cash retainer of
$7,500 ($15,000 on an annual basis) for the second half of 1996, plus $1,000 for
each board meeting which they attended and $800 for each meeting of the Audit,
Compensation, Executive, Financial Policy and Nominating and Corporate
Governance Committees which they attended. Second, the Board terminated the 1993
Stock Payment Plan For
8
<PAGE> 12
Directors as of June 30, 1996. Finally, the Board amended the Directors
Retirement Plan to provide that current Board members shall not accrue any
additional benefits under the Directors Retirement Plan after June 30, 1996, and
any future new Board members after such date shall not participate in said
Directors Retirement Plan. The Directors Retirement Plan provided for annual
retirement and disability benefits to be paid to each non-employee director of
the Corporation upon retirement at or after age 65 or in the event of disability
in an amount equal to 10% of the then annual retainer fee for each year of
service on the Board, provided that the director shall have been a Board member
for at least five years.
Pursuant to the Director Deferred Compensation Plan, the Corporation currently
has written agreements with Ms. Linda Koch Lorimer and Lois Dickson Rice and
Messrs. Vartan Gregorian, John T. Hartley, Paul J. Rizzo and Alva O. Way,
respectively, to defer payment to them of all or a portion of their annual cash
retainer and board and committee meeting fees which would otherwise be due and
payable to them in connection with their service on the Board of Directors.
Interest on the deferred amount is to be based on the monthly equivalent of a
corporate bond index for the preceding year plus 2% (up to a maximum of 150% of
the bond index), except that with respect to agreements to defer entered into
prior to December 3, 1986, interest will be payable at the average of a
corporate bond index for the previous five calendar years plus an additional
amount currently estimated at 6%.
INDEMNIFICATION
Each of the directors and certain of the executive officers have entered into an
indemnification agreement with the Corporation pursuant to which each director
and executive officer shall be indemnified against judgments, fines, amounts
paid in settlement and reasonable expenses, including attorneys' fees actually
and necessarily incurred in any action or proceeding, whether civil or criminal,
or any appeal therein, to the fullest extent permitted by the applicable
provisions of the New York Business Corporation Law. Such indemnification will
be reduced to the extent that a director or executive officer is effectively
indemnified by directors' and officers' liability insurance maintained by the
Corporation. The Corporation has for many years carried directors' and officers'
liability insurance coverage. The Corporation's current insurance coverage was
purchased for the three year period commencing at 12:01 a.m. on December 31,
1996 and extending through 12:01 a.m. of December 31, 1999, for a three-year
aggregate premium of approximately $1,786,500. This coverage, subject to a
number of standard exceptions, indemnifies the directors and officers of the
Corporation, whether elected or appointed, for liabilities or losses incurred in
the performance of their duties up to an aggregate sum of $65,000,000. This
coverage is also subject to the following deductibles: $5,000 per director or
officer per claim; $50,000 for all directors and officers in the aggregate per
claim; and $350,000 per loss for corporate reimbursement. The Corporation has
purchased this insurance coverage from National Union Fire Insurance Company of
Pittsburgh, PA.; Federal Insurance Company; and Great American Insurance
Companies. No sums have been paid under this coverage to the Corporation or any
directors or officers nor have any claims for reimbursement been made under this
policy.
BENEFICIAL OWNERSHIP OF THE CORPORATION'S COMMON STOCK (A)
The following table indicates the beneficial ownership of the Corporation's
Common Stock as of February 6, 1997, by (1) each of the directors and nominees,
(2) the chief executive officer and the other five most highly compensated
executive officers and (3) all directors, nominees and executive officers of the
Corporation as a group, based upon information supplied by each of the
directors, nominees and officers:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Sole Voting Total Director
Power and Shared Voting Right to Acquire Number Deferred
Sole Power and Shares within 60 of Shares Percent of Stock
Investment Shared Invest- Days by Exercise Beneficially Common Ownership
Name of Beneficial Owner Power ment Power of Options Owned Stock(a) Plan(b)
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Pedro Aspe 548 548 (c) 646
Robert J. Bahash 65,910 101,800 167,710 (c)
Joseph L. Dionne(d),(e) 200,381 10,204 289,610 500,195 (c)
Robert E. Evanson 12,130 10,000 22,130 (c)
Vartan Gregorian 895 895 (c) 345
John T. Hartley 2,480 2,480 (c) 345
George B. Harvey 1,911 1,911 (c) 345
Richard H. Jenrette 480 480 (c) 345
Don Johnston 4,480 4,480 (c) 345
Peter O. Lawson-Johnston 4,480 5,400 9,880 (c) 725
As a Trustee of a Trust(f) 4,000 4,000 (c)
Linda Koch Lorimer 1,354 1,354 (c) 345
Harold W. McGraw III 173,109 144,404 317,513 (c)
Robert P. McGraw 45,489 37,564 83,053 (c)
Barbara A. Munder 12,330 25,234 37,564 (c)
As a Trustee of a Trust(f) 1,000 1,000 (c)
Lois Dickson Rice 880 880 (c) 345
Paul J. Rizzo 2,480 2,480 (c) 345
James H. Ross 1,550 1,550 (c) 345
Sidney Taurel 1,000 1,000 (c) 110
Kenneth M. Vittor 10,963 16,910 27,873 (c)
Alva O. Way 2,480 2,480 (c) 345
All Directors and Executive Officers
of the Corporation as a group (a
total of 26 persons, including
those named above) (g)(h) 601,400 20,604 701,806 1,323,810 1.3% 4,206
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 13
(a) To the Corporation's knowledge, no person is the beneficial owner of more
than 5% of the Corporation's Common Stock other than Delaware Management
Company, Inc. ("Delaware Management"), which is a registered investment adviser,
and which in that capacity through operating subsidiaries manages client
accounts. On February 21, 1997, Delaware Management advised the Corporation by
furnishing the Corporation with its Schedule 13G filed with the Securities and
Exchange Commission that it beneficially owned in the aggregate 9,638,689 shares
or approximately 9.69% of the outstanding Common Stock of the Corporation.
Delaware Management has certified in its Schedule 13G filings that the
Corporation's Common Stock was acquired in the ordinary course of business and
was not acquired for the purpose of changing or influencing control of the
Corporation. None of the directors, nominees or officers owns securities of the
Corporation other than Common Stock. The number of shares of Common Stock
outstanding on February 6, 1997 (excluding treasury shares) was 99,808,474. The
percent of Common Stock is based on such number of shares and is rounded off to
the nearest one percent.
(b) This amount represents the number of shares of the Corporation's Common
Stock which have been credited to a bookkeeping account maintained for each
non-employee director of the Corporation pursuant to the Director Deferred Stock
Ownership Plan. This Plan is further described on page 8.
(c) Less than 1%.
(d) Joan F. Dionne, the wife of Joseph L. Dionne, is the beneficial owner of
11,196 shares of Common Stock. These shares have not been included in the above
table.
(e) Mr. Dionne made a gift of 10,204 shares of Common Stock to a private
charitable foundation. These shares have been included in the above table.
(f) The Trustee disclaims any beneficial interest in these shares.
(g) Spouses and children of some members of this group may own other shares in
which the members of this group disclaim any beneficial interest and which are
not included in the above table.
(h) Harold W. McGraw, Jr., Chairman Emeritus of the Corporation, is the
beneficial owner of 2,476,475 shares of Common Stock, which is approximately
2.5% of the Corporation's issued and outstanding Common Stock. In addition, Anne
P. McGraw, the wife of Harold W. McGraw, Jr., is the beneficial owner of 80,000
shares of Common Stock. None of these shares has been included in the above
table.
INFORMATION AS TO EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of the
Corporation's chief executive officer and each of the other five most highly
compen-
sated executive officers (the "Named Officers") for services rendered in all
capacities to the Corporation in 1994, 1995 and 1996:
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ----------------------
------------------- Awards Payouts
Name Other ---------------------- ---------- ALL
and Annual Restricted Securities Long-Term OTHER
Principal Compen- Stock Underlying Incentive COMPEN-
Position Year Salary Bonus sation(a) Awards(b) Options Payouts(c) SATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Joseph L. Dionne 1996 $935,000 $908,119 $ 69,714 0 47,600 $1,326,456 $197,145(d)
Chairman and 1995 850,000 678,181 66,144 0 39,500 1,234,935 158,698
Chief Executive Officer 1994 800,000 739,480 63,737 0 39,500 958,056 174,607
Harold W. McGraw III 1996 $616,000 $512,820 $ 41,989 0 27,800 $ 792,239 $ 93,335(d)
President and 1995 560,000 382,973 39,430 0 23,200 734,593 89,756
Chief Operating Officer 1994 528,500 400,904 36,113 0 23,200 488,700 82,104
Robert J. Bahash 1996 $417,000 $318,223 $ 28,660 0 18,000 $ 555,393 $ 66,365(d)
Executive Vice President, 1995 390,000 244,487 27,814 0 14,000 529,506 61,574
Chief Financial Officer 1994 364,000 274,368 27,378 0 14,000 422,013 59,547
Robert E. Evanson(e) 1996 $350,000 $242,813 $ 10,119 0 8,000 $ 126,007 $ 48,990(d)
Executive Vice President, 1995 319,667 182,178 4,169 0 3,000 N/A 43,534
Corporate Development 1994 273,237 163,837 1,946 0 3,000 N/A 23,864
Kenneth M. Vittor 1996 $275,000 $152,625 $ 7,308 0 6,000 $ 88,460 $ 33,350(d)
Senior Vice President and 1995 229,000 92,552 4,997 0 3,000 79,600 25,807
General Counsel 1994 178,000 58,762 4,046 0 2,000 57,015 20,479
Barbara A. Munder 1996 $241,500 $125,656 $ 9,000 0 4,000 $ 170,763 $ 30,715(d)
Senior Vice President, 1995 230,000 98,308 8,573 0 4,000 161,340 29,822
Corporate Affairs 1994 213,667 100,028 7,408 0 4,000 86,541 27,137
</TABLE>
- -------------------------------------------------------------------------------
10
<PAGE> 14
(a) Represents dividend equivalents paid on outstanding Long-Term Restricted
Performance Share Awards.
(b) The number and value of Restricted Performance Share holdings at year end
was as follows:
- ------------------------------------------------------------
<TABLE>
<CAPTION>
1996
-------------------------------
Unearned LTIP
Restricted
Performance Value
Shares (at $46.125)*
<S> <C> <C>
- ------------------------------------------------------------
J. L. Dionne 52,814 $ 2,436,046
H. W. McGraw III 31,810 1,467,236
R. J. Bahash 21,712 1,001,466
R. E. Evanson 7,666 353,594
K. M. Vittor 5,536 255,348
B. A. Munder 6,818 314,480
</TABLE>
- ------------------------------------------------------------
* Based on a closing price of the Corporation's Common Stock on December 31,
1996 of $46.125.
Dividend equivalent payments equal to the dividend paid on the Corporation's
Common Stock were paid in cash on Restricted Performance Shares in 1996.
(c) The 1996 payout amount is based on a fair market value of $50.0625 for the
Corporation's Common Stock on February 4, 1997.
(d) For 1996, the dollar value reported in this column includes the following
items:
- ------------------------------------------------------------
<TABLE>
<CAPTION>
1996 Company
Above Market Contribution
Interest on to Defined
Deferred Contribution
Compensation Plans Total
<S> <C> <C> <C>
- ------------------------------------------------------------
J. L. Dionne $ 45,460 $ 151,685 $197,145
H. W. McGraw III -- 93,335 93,335
R. J. Bahash 5,091 61,274 66,365
R. E. Evanson -- 48,990 48,990
K. M. Vittor -- 33,350 33,350
B. A. Munder -- 30,715 30,715
</TABLE>
- ------------------------------------------------------------
(e) Mr. Evanson became President of the Corporation's Higher Education and
Consumer Group on September 25, 1996.
OPTION GRANTS IN 1996
The following table sets forth all grants of stock options made during 1996
pursuant to the 1987 and 1993 Key Employee Stock Incentive Plans to the Named
Officers in the Summary Compensation Table:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------- Potential Realizable Value at
Number of % of Total Assumed Annual Rates of Stock
Securities Options Price Appreciation for Option
Underlying Granted to Exercise Term(a)
Options Employees in or Base Expiration -----------------------------------
Name Granted 1996 Price Date 5% 10%
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J. L. Dionne 47,600(b) 4.82% $43.4063 01/01/2006 $ 1,299,385 $ 3,292,897
H. W. McGraw III 27,800(b) 2.81% $43.4063 01/01/2006 $ 758,884 $ 1,923,162
R. J. Bahash 18,000(b) 1.82% $43.4063 01/01/2006 $ 491,364 $ 1,245,213
R. E. Evanson 8,000(b) 0.81% $43.4063 01/01/2006 $ 218,384 $ 553,428
K. M. Vittor 6,000(b) 0.61% $43.4063 01/01/2006 $ 163,788 $ 415,071
B. A. Munder 4,000(b) 0.40% $43.4063 01/01/2006 $ 109,192 $ 276,714
All Shareholders N/A N/A N/A N/A $2,738,634,943(c) $6,940,239,483(c)
All Optionees 988,200 100% $43.4778(d) (d) $ 27,020,353 $ 68,474,750
Optionees' Gain as % of
All Shareholders' Gain N/A N/A N/A N/A 0.99% 0.99%
</TABLE>
- --------------------------------------------------------------------------------
(a) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates required by the Securities and Exchange Commission for the
maximum option term of 10 years and therefore are not intended to and may not
accurately forecast possible future appreciation, if any, of the Corporation's
Common Stock price.
(b) The awards, which were granted pursuant to the 1993 Key Employee Stock
Incentive Plan, were for nonqualified stock options and provide that one-half of
the option vests on January 2, 1997, the first anniversary of the grant, and the
remaining one-half vests on January 2, 1998, the second anniversary of the
grant. In the event of a change in control of the Corporation, the option
becomes fully vested.
(c) The amount shown represents the hypothetical return to all shareholders of
the Corporation's Common Stock assuming that all the shareholders purchased the
Corporation's Common Stock at the close of business on January 2, 1996 at a
purchase price of $43.48, the average price for all optionees, and that all
shareholders hold the Common Stock continuously for a ten-year period. The
number of outstanding shares of Common Stock on January 2, 1996 was 100,323,648.
The hypothetical return presented is not intended as a projection of the future
performance of the Corporation's Common Stock, but rather is provided for
illustrative purposes only.
(d) Expiration dates range from January 1, 2006 through September 23, 2006.
$43.48 represents the average exercise price of the grants to all optionees. All
grants were made at the fair market value of the Corporation's Common Stock at
the time of the grant.
11
<PAGE> 15
AGGREGATE OPTION EXERCISES IN 1996 AND 1996 YEAR-END OPTION VALUES
The following table sets forth information with respect to options exercised by
each of the Named Officers during 1996 and the number and value of unexercised
options as of December 31, 1996:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
December 31, 1996 at December 31, 1996(a)
Shares Acquired Value --------------------------- --------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J. L. Dionne 10,210 $146,450 246,060 67,350 $3,827,478 $ 377,519
H. W. McGraw III 560 7,753 118,904 39,400 1,842,175 221,305
R. J. Bahash 6,408 100,808 85,800 25,000 1,341,861 136,875
R. E. Evanson 0 0 4,500 9,500 55,313 40,594
K. M. Vittor 1,240 17,941 13,784 7,500 209,070 35,156
B. A. Munder 0 0 21,234 6,000 322,683 36,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on a closing price of the Corporation's Common Stock on December 31,
1996 of $46.125 as reported on the New York Stock Exchange Composite
Transactions Tape.
LONG TERM INCENTIVE PLAN AWARDS IN 1996
The following table sets forth information concerning long-term incentive awards
granted during 1996 to the Named Officers pursuant to the 1993 Key Employee
Stock Incentive Plan:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Estimated Future Payout
Under Non-Stock Price Based Plans
---------------------------------
Number of Performance Period Threshold Target Maximum
Restricted Until Number of Number of Number of
Name Performance Shares(a) Maturation or Payout Shares Shares Shares
- --------------------------------- --------------------- -------------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
J. L. Dionne 16,156 shares 3 Years 3,231 16,156 24,234
H. W. McGraw III 9,934 shares 3 Years 1,987 9,934 14,901
R. J. Bahash 6,450 shares 3 Years 1,290 6,450 9,675
R. E. Evanson 4,192 shares 3 Years 838 4,192 6,288
K. M. Vittor 2,562 shares 3 Years 512 2,562 3,843
B. A. Munder 2,086 shares 3 Years 417 2,086 3,129
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Restricted Performance Share Awards pursuant to the 1993 Key Employee Stock
Incentive Plan with payment in the Corporation's Common Stock based upon the
degree of achievement of a three-year cumulative compound earnings per share
growth goal ("the EPS goal") maturing on December 31, 1998. The awards do not
provide for interim payments (other than the payment of dividend equivalents).
The threshold amount will be earned at the achievement of 60% of the EPS goal,
the target amount will be earned at the achievement of 100% of the EPS goal and
the maximum award amount will be earned at the achievement of 120% or more of
the EPS goal. The Awards will be forfeited if the achievement is less than 60%
of the EPS goal. The Restricted Performance Shares are entitled to dividend
equivalent payments and voting rights comparable to the Corporation's Common
Stock based upon the target number of shares awarded.
In the event of a change in control of the Corporation, all of the financial
goals are deemed to have been satisfied, and the recipient will receive the
target amount no later than the normal maturity date of the award.
12
<PAGE> 16
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a graph comparing the yearly percentage change in the
cumulative total shareholder return on the Corporation's Common Stock with the
cumulative total return of the S&P Composite 500 Stock Index and the cumulative
total return for a group of peer companies for the five-year period commencing
on January 1, 1992 and ending on December 31, 1996.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG THE MCGRAW-HILL COMPANIES, S&P 500 INDEX AND PEER GROUP INDEX**
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) MCGRAW-HILL S&P 500 PEER GROUP
<S> <C> <C> <C>
1991 100 100 100
1992 111 108 110
1993 127 118 126
1994 130 120 118
1995 174 165 151
1996 190 203 176
</TABLE>
Assumes $100 Invested on December 31, 1991 in The McGraw-Hill Companies Common
Stock, S&P 500 Index and Peer Group Index
* Total return assumes reinvestment of dividends.
** Companies comprising the Peer Group: Dow Jones & Company, Inc., The Dun &
Bradstreet Corporation, Gannett Co., Inc., Houghton Mifflin Company,
Knight-Ridder Inc., Meredith Corporation, The New York Times Company, The
Times Mirror Company, and Tribune Company. One of the members of the Peer
Group, The Dun & Bradstreet Corporation ("D&B"), spun-off two subsidiaries in
November 1996, as a result of which shareholders of the original D&B ("Old
D&B") became holders of shares in reorganized D&B ("New D&B") and in each of
the spun-off subsidiaries (the "Spin-Offs"). In calculating the total
shareholder return for D&B, the shares of the Spin-Offs received by the Old
D&B shareholders were deemed to be reinvested in shares of New D&B.
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
INTRODUCTION
The McGraw-Hill Companies' executive compensation program (the "Program") is
administered by the Compensation Committee of the Board of Directors (the
"Committee") which is composed of the individuals listed below who are
independent non-employee directors of the Corporation. The Committee has sole
responsibility for all compensation matters with respect to the Corporation's
senior management. The Committee regularly reports to the Board of Directors on
its activities and decisions and meets in executive session with all
non-employee directors at year end to review the CEO's performance and
compensation.
PHILOSOPHY
The Program has been designed to enable the Corporation to attract, motivate and
retain senior management by providing a fully competitive total compensation
opportunity based on performance. The Program consists of three key elements:
(1) base salaries which reflect competitive marketplace data and evaluated
individual performance; (2) annual incentive opportunities which are payable for
the achievement of annual financial performance goals established by the
Committee; and (3) long-term stock-based incentive opportunities consisting of
annual grants of restricted performance shares, which are
13
<PAGE> 17
payable for the achievement of three-year financial performance goals
established by the Committee, and annual stock option grants. The stock-based
incentive opportunities are intended to align the interests of senior management
with those of the Corporation's shareholders. The Corporation's executive
compensation program is structured so that at higher management levels a larger
portion of annual compensation is variable, based on company performance, and a
larger portion of total compensation is composed of stock-based compensation.
Approximately two-thirds of Mr. Dionne's total compensation package is at risk
depending upon the Corporation's performance.
The Committee's policy with respect to the tax deductibility of executive
compensation under Section 162(m) of the Internal Revenue Code is to qualify
such compensation for deductibility where practicable. In this regard, the
Corporation is presenting an amended version of the 1993 Key Employee Stock
Incentive Plan to shareholders for approval at this year's Annual Meeting. The
Plan has been amended to fully comply with the requirements of Section 162(m)
and, as such, all stock options granted and restricted performance shares earned
under the Plan are expected to be tax deductible by the Corporation when paid.
Following is a discussion of each of the elements of the Program and a
description of the specific decisions and actions taken by the Committee with
regard to 1996 compensation for the CEO.
PROGRAM COMPETITIVENESS
Each element of the Program is intended to be fully competitive with comparable
elements of competitor companies in the publishing, information and media
industry. Base salaries are determined within the framework of position
responsibility, individual performance and the external market place.
Competitive market data are derived annually using a third-party consultant
survey of the publishing, information and media industry, which includes
reported data from companies in the peer group index of the Performance Graph
(the "Peer Group").
The annual incentive award opportunities are established by the Committee based
on recommendations developed by an independent compensation consulting firm
selected by the Committee. These recommended incentive opportunities are
competitive with median levels of competitor incentive opportunities using
available incentive opportunity data for the competitor companies included in
the Peer Group and incentive opportunity data from a third-party media industry
compensation survey of other publishing, information and media companies.
The long-term incentive grant guidelines provide competitive long-term
compensation opportunities in the form of restricted performance share and stock
option grants. The grant guidelines for these awards are derived from general
industry long-term incentive grant data and are adjusted by an independent
compensation consultant to reflect median long-term incentive grant practices of
publishing, information and media industry companies including those in the Peer
Group. Further, these grant guidelines are established on a regular basis by the
Committee and are anticipated to remain in effect for multiple-year periods
until reviewed and reset by the Committee.
ANNUAL SALARY AND INCENTIVE
COMPENSATION
Annual compensation for senior management consists of base salary and the annual
incentive awards earned under the Key Executive Short-Term Incentive
Compensation Plan. The base salaries for senior executives other than the CEO
are recommended by Mr. Dionne and are reviewed and approved by the Committee.
Target awards established under the Key Executive Short-Term Incentive
Compensation Plan are expressed as a percentage of each participant's base
salary. Mr. Dionne's target annual incentive award for 1996 was 70% of salary.
The maximum payment opportunity was set at 200% of the annual target award.
Payment of the annual incentive awards for Mr. Dionne and the other executives
named in the Summary Compensation Table was based on the Corporation's
performance in relation to minimum, target and maximum earnings per share goals
which were approved by the Committee at the beginning of the plan year. Each
year, the Committee establishes annual performance goals which, in its view,
represent a significant achievement in relation to the general outlook and
prospects for publishing, information and media companies during the coming year
and the Corporation's prior performance.
LONG-TERM INCENTIVE COMPENSATION
The long-term incentive compensation program for senior management consists of
two types of annual stock awards: restricted performance shares and stock
options. Restricted performance shares are granted annually under
Committee-approved grant guidelines which relate the size of the awards to
salary or salary range midpoints. The grant guideline for Mr. Dionne is 75% of
salary. The awards vest at the end of a three-year award cycle within a range of
20% to 150% of the shares awarded based on the achievement of minimum, target
and maximum cumulative compound earnings per share growth goals which are
established by
14
<PAGE> 18
the Committee at the beginning of the award cycle. These restricted performance
share awards are subject to forfeiture if the minimum performance goal is not
attained, or if a participant's employment is terminated for certain reasons
before the shares become vested. During the award cycle, participants receive
dividend equivalent payments on the shares and have the right to vote the
awarded shares.
The second component of the long-term incentive award program consists of stock
options which provide participants with the right to purchase shares of
The McGraw-Hill Companies Common Stock at its market value on the date of grant.
These grants are awarded under Committee-approved guidelines which relate the
number of shares to salary grade levels and individual performance
considerations for senior management. Each stock option grant becomes
exercisable in two equal annual installments commencing one year after grant,
and each grant has a ten-year maximum term.
1996 CEO COMPENSATION AND COMPANY PERFORMANCE
Mr. Dionne's base salary is reviewed annually by the Committee which considers
competitive CEO base salary information from the Peer Group companies, Mr.
Dionne's individual performance and contributions since his last review, and the
merit increase guidelines in effect for other salaried employees during this
period. Effective January 1, 1996, the Committee increased Mr. Dionne's base
salary by 10% to $935,000, based on its review and assessment of the factors and
criteria described above.
In January 1996, the 1996 stock-based long-term incentive awards were granted to
Mr. Dionne and the other named executives in accordance with the
Committee-approved grant guidelines. Mr. Dionne's 1996 stock-based awards
consist of 16,156 restricted performance shares which will mature on December
31, 1998, subject to the achievement of the Committee-approved earnings per
share performance goals established for this award, and 47,600 stock option
shares. These awards are disclosed in the Long-Term Incentive Plan Awards Table
and the Option Grants Table along with the 1996 awards to the other named
executives.
Despite economic unevenness in some of The McGraw-Hill Companies' markets, 1996
was a successful year. Revenue for 1996 increased to $3.1 billion. Earnings per
share for the year which included the gain on the sale of Shepard's were $4.96
versus $2.28 for 1995.
In early 1997, the Committee reviewed and approved the 1996 annual incentive
award payments for Mr. Dionne and the other named executives under the Key
Executive Short-Term Incentive Compensation Plan. These payments are shown in
the Bonus column of the Summary Compensation Table. For purposes of determining
the 1996 short-term and the 1994 long-term incentive payments, the Committee
adjusted reported 1996 Earnings Per Share to exclude the gain realized by the
Corporation on the sale of Shepard's and the unfavorable impact of the one-time
charge associated with the cost to integrate the McGraw-Hill Companies College
business with the Times Mirror Higher Education operations and the negative
seasonal impact of the Shepard's divestiture and the Times Mirror acquisition.
Based on the adjusted earnings per share for 1996, as measured against the
earnings per share payment goal established by the Committee at the beginning of
the plan year, the earned incentive payments to the participants were equal to
138.75% of target opportunity which resulted in a 1996 short-term incentive
payment to Mr. Dionne of $908,119.
In early 1997, the Committee also reviewed and approved the degree of
achievement and award payments to Mr. Dionne and the other named executives
under the cumulative compound earnings per share growth goal established for the
1994 Long-Term Restricted Performance Share Award which matured on December 31,
1996. The adjusted cumulative compound earnings per share growth for the
three-year award cycle exceeded the maximum 150% payment goal established by the
Committee for this Award. As a result, Mr. Dionne received a share payment of
26,496 shares representing 150% of his target award. The dollar value of Mr.
Dionne's 1994 Long-Term Restricted Performance Share Award payout is shown in
the LTIP Payout column of the Summary Compensation Table.
CLOSING STATEMENT
The Committee believes that the caliber and motivation of the Corporation's key
employees and the quality of their leadership makes a significant difference in
the long-term performance of the Corporation. The Committee further believes
that compensation should vary with the Corporation's financial performance so
that executives are well rewarded when performance meets or exceeds standards
established by the Committee, and commensurately, there should be comparable
downside risks to compensation when performance does not meet these standards.
In its view, the Committee believes that The McGraw-Hill Companies' executive
compensation program is meeting and fulfilling the goals contained in the
Program's philosophy.
The foregoing report has been furnished on behalf of the Board of Directors by
the members of its Compensation Committee
Paul J. Rizzo (Chairman)
John T. Hartley
Don Johnston
Peter O. Lawson-Johnston
Lois Dickson Rice
15
<PAGE> 19
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Ms. Lois Dickson Rice and Messrs.
John T. Hartley, Don Johnston, Peter O. Lawson-Johnston and Paul J. Rizzo.
Mr. Joseph L. Dionne, the Corporation's Chairman and Chief Executive Officer, is
a director of and chairman of the compensation committee of The Equitable
Companies Incorporated and The Equitable Life Assurance Society of the United
States. Mr. Richard H. Jenrette was until February 14, 1996 Chairman, Chief
Executive Officer and a director of The Equitable Companies Incorporated and The
Equitable Life Assurance Society of the United States, as well as being a
director of The McGraw-Hill Companies.
DEFINED BENEFIT RETIREMENT PLANS
The officers named in the Summary Compensation Table are entitled to retirement
benefits under three defined benefit plans maintained by the Corporation: the
Employee Retirement Plan ("ERP"), the Employee Retirement Plan Supplement ("ERP
Supplement") and the Senior Executive Supplemental Death, Disability and
Retirement Benefits Plan (the "Supplemental Benefits Plan"), except that Ms.
Munder and Messrs. Evanson and Vittor participate in ERP and ERP Supplement and
do not participate in the Supplemental Benefits Plan. Under the Supplemental
Benefits Plan, a participant is entitled to receive upon normal retirement at
age 65, an annual retirement benefit equal to 55% of the participant's highest
rate of annual base salary and highest target opportunity under the Key
Executive Short-Term Incentive Compensation Plan during the 36-month period
before retirement, reduced by the participant's annual retirement benefits under
ERP and ERP Supplement, the annual annuity value of a hypothetical savings
account, the participant's annual retirement benefit under pension plans of any
previous employers and the participant's annual Social Security retirement
benefit.
ERP provides participants with retirement benefits based upon career
compensation. These benefits are subject to limitation under certain provisions
of the Internal Revenue Code. Prior to July 1, 1986, ERP required participants
to make contributions to said Plan. Subsequent to July 1, 1986, ERP was amended
so that the Corporation is to make all of the required contributions to the Plan
and participants are no longer required to make contributions thereto. In
addition, effective as of January 1, 1989, the benefit formula for service after
December 31, 1988 was amended to be 1.4% of each year's earnings for
participants age 45 with five years of continuous service as of June 30, 1986
and whose age and service totalled at least sixty, and 1.0% of each year's
earnings for other participants, and the vesting schedule of ERP was amended to
provide that participants are 100% vested after completion of five years of
continuous service with the Corporation. Under ERP Supplement, participants are
provided with retirement benefits which would have been provided under ERP
except for the limitations imposed by the Internal Revenue Code.
The following table sets forth the annual benefits under ERP, ERP Supplement and
the Supplemental Benefits Plan (computed based on a straight life annuity)
payable upon retirement at age 65 to each of the Named Officers based upon the
Corporation's contributions and the executive's 1996 compensation (salary and
1996 target opportunity under the Key-Executive Short-Term Incentive
Compensation Plan for purposes of the Supplemental Benefits Plan), which are not
subject to any deduction for Social Security benefits:
ANNUAL RETIREMENT BENEFIT FROM
CORPORATE CONTRIBUTIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Supplemental
ERP and Benefits
Name ERP Supplement Plan Total
- ------------------------------------------------------------ -------------- ------------ ---------
<S> <C> <C> <C>
Joseph L. Dionne $255,000 $427,000 $ 682,000
Harold W. McGraw III $199,000 $100,000 $ 299,000
Robert J. Bahash $125,000 $ 81,000 $ 206,000
Robert E. Evanson $ 35,000 $ 0 $ 35,000
Kenneth M. Vittor $ 94,000 $ 0 $ 94,000
Barbara A. Munder $ 69,000 $ 0 $ 69,000
</TABLE>
- --------------------------------------------------------------------------------
Pursuant to the Supplemental Benefits Plan, in the event of involuntary
termination of employment without cause or resignation of employment by the
employee for good reason within two years after a change of control of the
Corporation, or resignation by the employee for any reason during the 30 day
period
16
<PAGE> 20
following the first anniversary of such change of control, participants shall
receive a lump sum payment actuarially equivalent to the monthly retirement
benefit they would have received based upon from 44% to 55% of their final
monthly earnings and target opportunity under the Key Executive Short-Term
Incentive Compensation Plan, depending upon their age at the date of
termination. The Supplemental Benefits Plan is administered by the Compensation
Committee of the Board of Directors, which Committee approves participants who
are recommended by the Corporation's Chief Executive Officer.
SENIOR EXECUTIVE SEVERANCE PLAN
Effective January 28, 1987, the Board of Directors adopted the Senior Executive
Severance Plan, which Plan provides that if the employment of a participating
senior executive of the Corporation is involuntarily terminated without cause or
the executive resigns for good reason, the executive shall receive a minimum
severance payment of 12 months base salary and a maximum severance payment of 24
months base salary, the actual amount of severance to be based upon 1.6
multiplied by the number of years of continuous service with the Corporation. In
addition, each participant shall continue to participate in the Corporation's
retirement, life, medical and other insurance benefit plans and programs during
the period the participant receives severance payments, or in lieu thereof, each
participant shall receive an additional cash payment equal to 10% of the
severance amount. The receipt of payments by participants pursuant to the Senior
Executive Severance Plan is in lieu of receiving benefits pursuant to the
Corporation's regular separation allowance plan, which plan is applicable to all
full-time employees of the Corporation. On September 28, 1988 the Plan was
amended to provide that benefits will be payable to participants who voluntarily
terminate their employment within a 30 day period one year after a change in
control of the Corporation has occurred. The Senior Executive Severance Plan is
administered by the Compensation Committee of the Board of Directors, which
Committee approves participants who are recommended by the Corporation's Chief
Executive Officer.
Ms. Munder and Mr. Vittor do not participate in the Senior Executive Severance
Plan. In lieu thereof, these officers participate in the Executive Severance
Plan. The Executive Severance Plan is similar to the Senior Executive Severance
Plan except that the minimum severance payment is 9 months base salary and the
maximum severance payment is 18 months base salary, with the actual amount of
severance to be based on 0.9 multiplied by the number of years of continuous
service with the Corporation.
2. AMENDMENTS TO AND RESTATEMENT OF
1993 KEY EMPLOYEE STOCK INCENTIVE PLAN
On February 24, 1993, the Board of Directors unanimously adopted the 1993 Key
Employee Stock Incentive Plan (the "Plan"), which was approved by the
Corporation's shareholders on April 28, 1993. The corporate purpose underlying
the Plan is to provide an opportunity for selected key employees of the
Corporation to acquire a proprietary interest in the Corporation, thereby
furnishing added incentive to contribute to the Corporation's future success and
prosperity, and thus enhance the value of the Corporation for the benefit of the
shareholders. The Board believes that the Plan improves the Corporation's
ability to attract and retain individuals of exceptional ability and talent upon
whom the sustained growth and profitability of the Corporation in large measure
depend.
On December 4, 1996, the Board of Directors approved the amendment and
restatement of the Plan, subject to shareholder approval, to provide for, among
other items, the following principal changes:
- - The terms of the Plan approved in 1993 initially reserved and made available
for distribution thereunder 4,600,000 shares (after giving effect to a 2-for-1
stock split distributed on April 26, 1996). As of March 13, 1997,
approximately 1,780,000 shares remained available for issuance in connection
with future grants. As a result of the limited number of remaining shares, the
Board of Directors believes it is appropriate at this time to reserve and make
available for distribution thereunder additional shares for future awards in
the amount of 4.9% of the Corporation's outstanding common shares as of March
13, 1997.
- - The Plan as amended and restated will specify performance criteria and limits
for certain grants. These amendments are intended to meet the requirements of
Section 162(m) of the Internal Revenue Code ("Section 162(m)") and will enable
the Corporation to continue to deduct for tax purposes certain compensation
paid to the Corporation's chief executive officer ("CEO") and the highest
compensated executives other than the CEO named in the proxy statement (the
"covered executives").
The full text of the Plan, as amended and restated, is attached to this Proxy
Statement as Exhibit A. The principal features of the Plan and the proposed
amendments are described below, but such description is qualified in its
entirety by reference to the text. The
17
<PAGE> 21
amendments will not become effective unless shareholder approval is obtained.
As part of its previously announced share repurchase program, the Corporation
currently intends to continue its practice of minimizing the dilutive effect of
the Plan and other stock-based programs through the acquisition of shares to
offset share issuances. Since April 1, 1996 the Corporation has purchased
1,362,900 shares and is currently authorized to purchase an aggregate of
4,000,000 shares of Common Stock.
SUMMARY OF PLAN
The Plan permits the granting of any or all of the following types of awards:
(i) stock options, including incentive stock options ("ISOs") and non-qualified
stock options; (ii) stock appreciation rights ("SARs"), including limited stock
appreciation rights; (iii) restricted stock; and (iv) other awards valued in
whole or in part by reference to, or otherwise based upon, the Common Stock of
the Corporation ("other stock-based awards"). The aggregate number of shares of
stock which may be awarded or granted under the Plan beginning on or after April
30, 1997 for restricted stock and other stock-based awards may not exceed, after
the amendments hereof take effect, 33% of the total number of shares available
for awards or grants under the Plan on April 30, 1997. There is no comparable
restriction on the aggregate number of shares of stock that may be awarded or
granted under the Plan for stock options and SARs.
The Plan is administered by the Compensation Committee of the Board of
Directors. The Committee has the authority to select employees to whom awards
are to be granted, to determine the types of awards and the number of shares
covered thereby, and to establish the terms, conditions and provisions of such
awards. The Committee has the authority to interpret the Plan and to establish,
amend and repeal administrative rules and regulations relating to the Plan, and
to otherwise supervise the overall administration of the Plan. Officers and
other key employees of the Corporation and its subsidiaries and affiliates are
eligible to be participants under the Plan; provided, however, no outside
director of the Corporation or member of the Compensation Committee shall be
eligible to participate in the Plan. As of March 22, 1997, approximately 350
officers and key employees were eligible to participate in the Plan.
With respect to the unexercised portion of any lapsed or canceled options or if
any shares of stock that are subject to a restricted stock or other stock based
award are forfeited, such shares shall again be available for distribution in
connection with future grants and awards under the Plan. The Plan shall operate
in addition to the Corporation's existing executive benefit plans and programs.
In particular, grants pursuant to the 1987 Key Employee Stock Incentive Plan
shall continue to be made.
In the event of any merger, reorganization, consolidation, recapitalization,
stock dividend or other change in corporate structure affecting the Common
Stock, an appropriate adjustment shall be made in the aggregate number of shares
which may be distributed under the Plan, in the number and option price of
shares subject to outstanding options, and in the number of shares subject to
other outstanding awards as the Compensation Committee shall determine.
STOCK OPTIONS
The Plan provides that the option price pursuant to which Common Stock may be
purchased shall be fixed by the Compensation Committee, but shall not be less
than 100% of the fair market value of the Corporation's Common Stock on the date
the option is granted. The term of each option shall be fixed by the
Compensation Committee; however, no option shall be exercisable more than ten
years after grant. Payment of the purchase price shall be in cash or if
permitted by the Committee through delivery of shares of Common Stock having a
fair market value equal to the purchase price, or by a combination of cash and
Common Stock. Unless otherwise determined by the Committee, if a participant's
employment with the Corporation is terminated, except for cause, a stock option
may generally be exercised for six months after termination. In the event of
retirement, disability or death of a participant, any stock option may be
exercised for a specified period of time after such event as set forth in the
Plan.
STOCK APPRECIATION RIGHT
The Compensation Committee has the right to grant SARs in conjunction with all
or any part of a stock option. Upon the exercise of a SAR, the holder shall be
entitled to receive the excess of the fair market value of the shares for which
the SAR is exercised over the option price of the related stock option. Payment
by the Corporation upon such exercise shall be in cash or in Common Stock of the
Corporation, or a combination of cash and Common Stock, as the Committee shall
determine. Upon the exercise of a SAR, the stock option to which such SAR is
related shall be deemed to have been exercised.
RESTRICTED STOCK
The Plan permits the Compensation Committee to make awards of restricted stock.
The Committee shall determine the time or times within which the restricted
stock shall be subject to forfeiture, and all of the other terms and conditions
of the grant. Recipients of restricted stock are not required to provide
consideration to the Corporation, other than the rendering of services.
18
<PAGE> 22
Restricted stock may not be sold by the recipient during the forfeiture period
determined by the Committee. The participant shall have with respect to
restricted stock all of the rights of a shareholder of the Corporation,
including the right to vote such shares and the right to receive dividends.
Subject to certain exceptions set forth in the Plan, upon termination of
employment during the restriction period, all shares still subject to
restriction shall be forfeited by the participant.
OTHER STOCK-BASED AWARDS
The Compensation Committee shall have the authority under the Plan to make
awards of stock that are valued in whole or in part by reference to, or are
otherwise based upon, the Common Stock of the Corporation, including but not
limited to restricted performance shares and freestanding SARs. Each stock-based
award shall be confirmed by and shall be subject to the terms of an agreement
executed by the participant and the Corporation. The terms and conditions of
said award shall be specified in said agreement and shall be determined at the
discretion of the Committee. An award may include the right by a participant to
receive, either currently or on a deferred basis, dividends or dividend
equivalents with respect to the number of shares covered by the award.
AMENDMENTS TO THE PLAN
The Plan may be amended by the Board of Directors, except that without the
approval of the shareholders, the Board may not adopt any amendment which
requires shareholder approval under Section 162(m) and the securities laws.
CHANGE IN CONTROL
The Plan provides that in the event of a change in control of the Corporation,
all SAR's outstanding and all stock options granted shall become fully
exercisable and vested. Except as otherwise provided in an agreement of grant,
the restriction and deferral limitations applicable to any grants of restricted
stock and other stock-based awards shall lapse and such shares shall be fully
vested, and all outstanding stock options, SARs, restricted stock and other
stock-based awards shall be cashed out.
TAX ASPECTS OF THE PLAN
The Corporation believes that under present law the following are the federal
tax consequences generally arising with respect to awards granted under the
Plan. The grant of an option or SAR will create no tax consequences for an
optionee or the Corporation. The optionee will have no taxable income upon
exercising an ISO (except that the alternative minimum tax may apply), and the
Corporation will receive no deduction when an ISO is exercised. Upon exercising
an option (other than an ISO) or a SAR, the optionee must recognize ordinary
income equal to the difference between the exercise price and the fair market
value of the stock on the date of exercise, and the Corporation will be entitled
to a deduction for the same amount. The treatment of an optionee's disposition
of shares acquired through the exercise of an option depends on how long the
shares have been held and on whether such shares were acquired by exercising an
ISO, or by exercising a non-qualified option or a SAR. Generally, there will be
no tax consequences to the Corporation in connection with a disposition of
shares acquired under an option, except that the Corporation may be entitled to
a deduction in the case of a disposition of shares acquired under an ISO before
the applicable ISO holding periods have been satisfied.
With respect to awards of restricted stock or other stock-based awards granted
under the Plan which are either transferable or not subject to substantial risk
of forfeiture, the participant must recognize ordinary income equal to the fair
market value of the shares received, and the Corporation will be entitled to a
deduction for the same amount. With respect to awards that are restricted as to
transferability and subject to substantial risk of forfeiture, the participant
must recognize ordinary income equal to the fair market value of the shares
received at the time the shares become transferable or are not subject to
substantial risk of forfeiture, whichever occurs earlier, and the Corporation
would be entitled to a deduction for the same amount.
THE PROPOSED AMENDMENTS
ADDITIONAL SHARES. The terms of the Plan approved in 1993 initially reserved
and made available for distribution thereunder 4,600,000 shares (after giving
effect to a 2-for-1 stock split distributed on April 26, 1996). As of March 13,
1997, approximately 1,780,000 shares remained available for issuance in
connection with future grants. As a result of the limited number of remaining
shares, the Board of Directors believes it is appropriate at this time to
reserve and make available for distribution thereunder additional shares for
future awards in the amount of 4.9% of the Corporation's outstanding common
shares as of March 13, 1997. As of March 13, 1997, 4.9% of such outstanding
shares was equal to approximately 4,895,500 shares. The awards provided by the
Plan are designed to align key employee and shareholder interests and to enable
the Corporation to attract, motivate and retain experienced and highly qualified
individuals. The closing price of the
19
<PAGE> 23
Corporation's Common Stock on March 13, 1997 was $50.88.
SECTION 162(M). Section 162(m) limits the Corporation's tax deduction to $1
million per year for certain compensation paid to each of the Corporation's
covered executives. This limitation does not apply to "performance-based
compensation." Options and SARs may qualify as performance-based compensation if
shareholders approve a maximum limit on the number of shares underlying such
awards that may be granted to any participant over a specified period. Other
awards may qualify as performance-based compensation if payment under such
awards is made (i) on account of the achievement of one or more objective
performance goals established by a compensation committee consisting exclusively
of two or more outside directors, (ii) pursuant to certain terms approved by
shareholders, including the maximum amount payable to any individual and
performance goals to be used, and (iii) following certification by such a
compensation committee that the performance goals and other material conditions
precedent to payment have been satisfied.
Accordingly, the Board of Directors is seeking shareholder approval of
amendments to the Plan to permit the Corporation to continue to deduct for tax
purposes compensation paid to covered executives under awards that qualify as
performance-based compensation ("Qualifying Awards").
The amendments provide that two types of Qualifying Awards may be granted under
the Plan. The first type is stock options and SARs. No participant may be
granted in any 60-month period beginning on or after April 30, 1997 stock
options (including stock options granted in tandem with a SAR) under the Plan
which, in the aggregate, cover more than 500,000 shares of the Corporation's
Common Stock.
The second type includes performance grants and any other award (other than
options and SARs) whose payment is conditioned upon the attainment of the
performance objectives for the performance goals established by the Committee
for a performance cycle in accordance with the provisions of Section 162(m).
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 that may be selected by the Committee
for a performance cycle include any of the following: 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.
For any performance cycle with a duration of 36 months, no participant may
receive Qualifying Awards covering more than 50,000 shares of stock or which
provide for the payment for such performance cycle of more than 50,000 shares of
stock (or cash amounts based on the value of more than 50,000 shares of stock).
For a performance cycle that is longer or shorter than 36 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 36.
OTHER MATERIAL AMENDMENTS. Aggregate limits on Restricted Stock and Other
Stock-Based Awards. The aggregate number of shares to be awarded or granted by
the Corporation under the Plan beginning on or after April 30, 1997 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 Corporation under the
Plan as of April 30, 1997. The current limitation in the Plan is 49%. There
shall be no comparable limitation, however, on the aggregate number of shares
awarded or granted by the Corporation under the Plan for stock options or SARs.
Transferability of Options. An amendment to the Plan enables the Committee, in
its discretion, to grant options that are transferable by the optionee. In the
absence of such specific Committee action, options will continue to be
non-transferable.
Restricted Stock Minimum Restriction Period. 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.
20
<PAGE> 24
Because the amounts to be received under the 1993 Key Employee Stock Incentive
Plan can only be determined with precision in the future, the table below shows
the grants that were made in early 1997 for the named executive officers; for
all current executive officers, as a group; for all current directors who are
not executive officers, as a group; and for all employees, including all current
officers who are not executive officers, as a group.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OTHER STOCK-BASED
OPTION AWARDS AWARDS: LONG-TERM
---------------------------- RESTRICTED PERFORMANCE
Shares SHARES(2)
Exercise or Underlying ---------------------------
Base Price Options Dollar
Name Per Share Granted Value(1) Shares(#)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph L. Dionne $45.625 47,600 $ 776,264 17,014
Chairman and
Chief Executive Officer
Harold W. McGraw III 45.625 26,000 466,196 10,218
President and
Chief Operating Officer
Robert J. Bahash 45.625 16,000 290,540 6,368
Executive Vice President,
Chief Financial Officer
Robert E. Evanson 45.625 8,000 197,602 4,331
Executive Vice President,
Corporate Development
Kenneth M. Vittor 45.625 6,000 135,004 2,959
Senior Vice President and
General Counsel
Barbara A. Munder 45.625 4,000 95,995 2,104
Senior Vice President,
Corporate Affairs
All current executive officers, as a group 45.625 125,700 2,338,418 51,253
All current directors who are not executive officers,
as a group 45.625 6,000 156,996 3,441
All nominees herein for election as directors -- 0 -- 0
All employees, including all current officers who are
not executive officers, as a group 45.625 901,800 9,080,424 199,023
</TABLE>
- --------------------------------------------------------------------------------
(1) Based on the average of the high and low trading prices of the Corporation's
Common Stock on January 2, 1997 of $45.625.
(2) Actual amount earned may be less than, equal to, or greater than the amount
shown depending upon the Corporation's performance during 1997 to 1999.
APPROVAL AND RELATED MATTERS
The affirmative vote of the holders of a majority of the outstanding shares of
Common Stock and $1.20 Convertible Preference Stock, voting together as a single
class, is required to approve the Plan.
The following resolution will be offered by the Board of Directors at the Annual
Meeting:
RESOLVED: That the Amended and Restated 1993 Key Employee Stock Incentive
Plan in the form of Exhibit A as appended to this Proxy Statement be, and
hereby is, authorized, approved and adopted.
THE BOARD OF DIRECTORS' RECOMMENDATION
Your Board recommends that you vote FOR this resolution. Unless otherwise
specified by the shareholder, the Board intends the accompanying proxy to be
voted for this resolution.
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<PAGE> 25
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
During the year ended December 31, 1996, Ernst & Young LLP audited the
consolidated financial statements of the Corporation and its subsidiaries.
The Board of Directors, after receiving a favorable recommendation from the
Audit Committee, has again selected Ernst & Young LLP to serve as the
Corporation's independent auditors for 1997. Although not required to do so, the
Board is submitting the selection of this firm for ratification by the
Corporation's shareholders to ascertain their views. Ernst & Young LLP has
advised the Corporation that it has no direct, nor any material indirect,
financial interest in the Corporation or any of its subsidiaries. A
representative of Ernst & Young LLP is expected to be present at the Annual
Meeting with the opportunity to make a statement if the representative desires
to do so, and such representative will be available to respond to appropriate
questions.
The following resolution will be offered by the Board of Directors at the Annual
Meeting:
RESOLVED: That the selection by the Board of Directors of Ernst & Young LLP
as independent auditors for this Corporation and its subsidiaries for 1997
be, and hereby is, ratified and approved.
THE BOARD OF DIRECTORS' RECOMMENDATION
Your Board recommends that you vote FOR this resolution. Unless otherwise
specified by the shareholder, the Board intends the accompanying proxy to be
voted for this resolution.
4. OTHER MATTERS
The Board of Directors knows of no other matters which may properly be brought
before the Annual Meeting. However, if other matters should properly come before
the Meeting, it is the intention of those named in the solicited proxy to vote
such proxy in accordance with their best judgment.
SHAREHOLDER PROPOSALS FOR 1998
Shareholder proposals which may be submitted for inclusion in the Corporation's
proxy statement and form of proxy for the 1998 Annual Meeting of Shareholders
must be received by the Corporation at its principal executive offices, 1221
Avenue of the Americas, New York, New York 10020, on or before November 21,
1997. Such proposals when submitted must be in full compliance with applicable
laws.
By Order of the Board of Directors
Scott L. Bennett
Senior Vice President,
Associate General Counsel and Secretary
New York, New York
March 25, 1997
22
<PAGE> 26
EXHIBIT A
THE MCGRAW-HILL COMPANIES, INC.
1993 KEY EMPLOYEE STOCK INCENTIVE PLAN
(AS AMENDED AND RESTATED AS OF APRIL 30, 1997)
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<C> <S> <C>
1. Purpose; Definitions 1
2. Administration 2
3. Stock Subject to Plan 2
4. Eligibility 3
5. Stock Options 3
6. Stock Appreciation Rights 5
7. Restricted Stock 6
8. Other Stock-Based Awards 7
9. Qualifying Awards 8
10. Change in Control Provisions 9
11. Amendments and Termination 10
12. Unfunded Status of Plan 10
13. General Provisions 10
14. Effective Date of Plan 11
15. Term of Plan 11
</TABLE>
<PAGE> 27
THE MCGRAW-HILL COMPANIES, INC.
1993 KEY EMPLOYEE STOCK INCENTIVE PLAN
Section 1. PURPOSE; DEFINITIONS
The purpose of The McGraw-Hill Companies, Inc. 1993 Key Employee Stock Incentive
Plan (the "Plan") is to enable The McGraw-Hill Companies, Inc. ("McGraw-Hill")
to offer key 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 key employees, and
strengthening the mutuality of interests between key 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 willful misconduct in respect of the
employee's obligations to the Company or other acts of willful misconduct
by the employee occurring during the course of the employee's employment
(including, but not limited to, conviction for a felony or perpetration of
a common law fraud).
(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.
(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 40% 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) "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.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time.
(k) "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 mean between the highest
and lowest prices at which the Stock is actually traded on such date as
reflected in the New York Stock Exchange Composite Transactions, or, if
there is no sale of the Stock on such date, such value as may be determined
by the Committee in good faith.
(l) "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.
(m) "INDIVIDUAL LIMIT" shall have the meaning set forth in Section 3.
(n) "NON-QUALIFIED STOCK OPTION" means any Stock Option that is not an
Incentive Stock Option.
(o) "NORMAL RETIREMENT" means retirement from active employment with the
Company on or after age 65.
(p) "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.
(q) "PLAN" means The McGraw-Hill Companies, Inc. 1993 Key Employee Stock
Incentive Plan, as hereinafter amended from time to time, including any
rules, guidelines or interpretations of the Plan adopted by the Committee.
(r) "QUALIFYING AWARD" means an award under the Plan made in accordance
with the provisions of Section 9.
(s) "RESTRICTED STOCK" means an award of shares of Stock that is subject to
restrictions under Section 7 below.
(t) "RETIREMENT" means Normal or Early Retirement.
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(u) "STOCK" means the Common Stock, $1.00 par value per share, of
McGraw-Hill.
(v) "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).
(w) "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 key 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 key 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 limitation, 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(k).
(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) 4,600,000 shares
(previously approved by the shareholders of the Company on April 28, 1993)
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 30, 1997. 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 60-month period
beginning on or after April 30, 1997 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 500,000 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 30, 1997 for Restricted
Stock and Other Stock-Based Awards shall not exceed 33% of the shares of
Stock
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<PAGE> 29
available for awards or grants of Stock by the Company under the Plan as of
April 30, 1997. 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 (other than a dividend or its equivalent
which is credited to a Plan participant or a regular cash dividend), Stock
split, or other change in corporate structure affecting the Stock, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the maximum number of shares
issuable to any single participant, in the number and option price of
shares subject to outstanding Options granted under the Plan, and in the
number of shares subject to other outstanding awards (including but not
limited to awards of Restricted Stock and Other Stock-Based Awards) granted
under the Plan, as may be determined to be appropriate by the Committee, in
its sole discretion, provided that the number of shares subject to any
award shall always be a whole number. Such adjusted option price shall also
be used to determine the amount payable by the Company upon the exercise of
any Stock Appreciation Right associated with any Stock Option.
Section 4. ELIGIBILITY
Officers and other key 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.
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, 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) and (h) 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 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.
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<PAGE> 30
(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 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 therefor, 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).
(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(j), 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(j), 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 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(j), 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
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<PAGE> 31
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 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) 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 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.
(j) 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 or Retirement 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) or (h), 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 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.
(k) 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 deter-
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<PAGE> 32
mined 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 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 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, 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
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<PAGE> 33
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 Key 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.
(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.
(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
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<PAGE> 34
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.
(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.
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 perform-
8
<PAGE> 35
ance 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: 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 50,000 shares of Stock or which provide for the
payment for such performance cycle of more than 50,000 shares of Stock
(or cash amounts based on the value of more than 50,000 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, 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 -- 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:
(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.
(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.
(iii) All outstanding Stock Options, Stock Appreciation Rights,
Restricted Stock and Other Stock Based Awards (including Qualifying
Awards), shall 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.
(b) DEFINITION OF "CHANGE IN CONTROL" -- For purposes of this Plan, the
term "Change in Control" shall mean any of the following events:
(i) The acquisition (other than from the Company) by any person,
entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act (excluding, for this purpose, the Company or its
subsidiaries, or any employee benefit plan of the Company or its
subsidiaries) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of either the
then outstanding shares of common stock or the combined voting power
of McGraw-Hill's then outstanding voting securities entitled to vote
generally in the election of directors; or
(ii) Individuals who, as of the date hereof, constitute the Board (as
of the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose elec-
9
<PAGE> 36
tion, or nomination for election by McGraw-Hill's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election
of the Directors of McGraw-Hill, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) shall be, for
purposes of this Plan, considered as though such person were a member
of the Incumbent Board; or
(iii) Approval by the stockholders of McGraw-Hill of a reorganization,
merger, or consolidation, in each case, with respect to which persons
who were the stockholders of McGraw-Hill immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, own, directly or indirectly, more than 50% of the combined
voting power entitled to vote generally in the election of directors
of the reorganized, merged or consolidated company's then outstanding
voting securities, or a liquidation or dissolution of McGraw-Hill or
of the sale of all or substantially all of the assets 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 New York Stock Exchange Composite Index, or paid or offered
in any bona fide transaction related to a Change in Control of McGraw-Hill
at any time during the preceding sixty-day period 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
exercises such Incentive Stock Options or Stock Appreciation Rights (or,
where applicable, the date on which a cashout 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.
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.
10
<PAGE> 37
(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 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
The Plan shall be effective as of February 24, 1993 subject to 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 the 1993 annual shareholders
meeting scheduled to be held as of April 28, 1993. The amendments to the Plan to
be submitted to shareholders at the Company's annual shareholders meeting
scheduled to be held on April 30, 1997 shall be effective as of January 1, 1997,
subject to Approval, provided that with respect to the qualifications of
Committee members contained herein such amendments shall be effective as of
November 1, 1996.
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.
11
<PAGE> 38
THE MCGRAW-HILL COMPANIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Scott L. Bennett and Kenneth M. Vittor, and each of
them, proxies with full power of substitution, to vote the shares of stock of
The McGraw-Hill Companies, Inc., which the undersigned is entitled to vote, at
the Annual Meeting of Shareholders of said Corporation to be held at the
principal executive offices of the Corporation, 1221 Avenue of the Americas,
New York, N.Y. 10020 on Wednesday, April 30, 1997, at 11 A.M., and any
adjournment thereof.
THE MATTERS TO BE VOTED UPON AND THE INSTRUCTIONS ARE SET FORTH ON THE REVERSE
SIDE. PLEASE VOTE, SIGN AND RETURN PROMPTLY.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 39
THIS PROXY WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER(S). Please mark
IF NOT OTHERWISE SPECIFIED, THE PROXY WILL BE VOTED FOR THE your votes
ELECTION OF DIRECTORS AND FOR PROPOSALS 2 AND 3. like this [X]
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR PROPOSALS 1, 2, AND 3: FOR ALL
NOMINEE(S)
except as set WITHHOLD AUTHORITY
forth below FOR ALL NOMINEES
<S> <C> <C>
1. Election of the following nominees as directors for three-year terms
expiring at the 2000 Annual Meeting: [ ] [ ]
Vartan Gregorian, John T. Hartley, Paul J. Rizzo, James H. Ross
and Sidney Taurel
INSTRUCTION: To withhold authority to vote for any individual nominee(s)
write that nominee(s) name below.
- -------------------------------------------------------------------------
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. Approval of Amendments to and Restatement of the 1993 Key Employee [ ] [ ] [ ]
Stock Incentive Plan.
FOR AGAINST ABSTAIN
3. Ratification of the appointment of independent auditors for 1997. [ ] [ ] [ ]
And, in their discretion, in the transaction of such other business as
may properly come before the Meeting.
</TABLE>
Signature(s) Date
---------------------------------------------------- ------------
NOTE: Please sign exactly as your name appears on this card and return the card
in the enclosed envelope.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 40
THE MCGRAW-HILL COMPANIES, INC.
VOTING INSTRUCTIONS FOR ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, APRIL 30, 1997
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: THE NORTHERN TRUST COMPANY, AS TRUSTEE UNDER THE EMPLOYEE RETIREMENT
ACCOUNT PLAN OF THE MCGRAW-HILL COMPANIES, INC. AND ITS SUBSIDIARIES ("ERAP")
The Trustee named is hereby instructed to vote all the shares of Common Stock
of The McGraw-Hill Companies, Inc. which are credited to the undersigned's
account as of March 13, 1997, at the Annual Meeting of Shareholders to be held
on April 30, 1997, and any adjournment thereof, on the Items set forth on the
reverse hereof, as described in the accompanying Proxy Statement and upon such
other business as may properly come before the Meeting.
Voting rights will be exercised by the Trustee as directed, provided
instructions are received by April 23, 1997. Your instructions will be kept
confidential by the Trustee.
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND RETURN THIS
VOTING INSTRUCTIONS CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(continued and to be signed on the reverse side)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 41
THIS PROXY WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER(S). Please mark
IF NOT OTHERWISE SPECIFIED, THE PROXY WILL BE VOTED FOR THE your votes
ELECTION OF DIRECTORS AND FOR PROPOSALS 2 AND 3. like this [X]
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR PROPOSALS 1, 2, AND 3: FOR ALL
NOMINEE(S)
except as set WITHHOLD AUTHORITY
forth below FOR ALL NOMINEES
<S> <C> <C>
1. Election of the following nominees as directors for three-year terms
expiring at the 2000 Annual Meeting: [ ] [ ]
Vartan Gregorian, John T. Hartley, Paul J. Rizzo, James H. Ross
and Sidney Taurel
INSTRUCTION: To withhold authority to vote for any individual nominee(s)
write that nominee(s) name below.
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. Approval of Amendments to and Restatement of the 1993 Key Employee [ ] [ ] [ ]
Stock Incentive Plan.
FOR AGAINST ABSTAIN
3. Ratification of the appointment of independent auditors for 1997. [ ] [ ] [ ]
And, in their discretion, in the transaction of such other business as
may properly come before the Meeting.
</TABLE>
Signature(s) Date
---------------------------------------------------- ------------
NOTE: Please sign exactly as your name appears on this card and return the card
in the enclosed envelope.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 42
THE MCGRAW-HILL COMPANIES, INC.
VOTING INSTRUCTIONS FOR ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, APRIL 30, 1997
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: THE NORTHERN TRUST COMPANY, AS TRUSTEE UNDER THE EMPLOYEES INVESTMENT PLAN
OF MCGRAW-HILL BROADCASTING COMPANY, INC. AND ITS SUBSIDIARIES ("EIP")
The Trustee named is hereby instructed to vote all the shares of Common Stock
of The McGraw-Hill Companies, Inc. which are credited to the undersigned's
account as of March 13, 1997, at the Annual Meeting of Shareholders to be held
on April 30, 1997, and any adjournment thereof, on the items set forth on the
reverse hereof, as described in the accompanying Proxy Statement and upon such
other business as may properly come before the Meeting.
Voting rights will be exercised by the Trustee as directed, provided
instructions are received by April 23, 1997. Your instructions will be kept
confidential by the Trustee.
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND RETURN THIS
VOTING INSTRUCTIONS CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(continued and to be signed on the reverse side)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 43
THIS PROXY WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER(S). Please mark
IF NOT OTHERWISE SPECIFIED, THE PROXY WILL BE VOTED FOR THE your votes
ELECTION OF DIRECTORS AND FOR PROPOSALS 2 AND 3. like this [X]
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR PROPOSALS 1, 2, AND 3: FOR ALL
NOMINEE(S)
except as set WITHHOLD AUTHORITY
forth below FOR ALL NOMINEES
<S> <C> <C>
1. Election of the following nominees as directors for three-year terms
expiring at the 2000 Annual Meeting: [ ] [ ]
Vartan Gregorian, John T. Hartley, Paul J. Rizzo, James H. Ross
and Sidney Taurel
INSTRUCTION: To withhold authority to vote for any individual nominee(s)
write that nominee(s) name below.
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. Approval of Amendments to and Restatement of the 1993 Key Employee [ ] [ ] [ ]
Stock Incentive Plan.
FOR AGAINST ABSTAIN
3. Ratification of the appointment of independent auditors for 1997. [ ] [ ] [ ]
And, in their discretion, in the transaction of such other business as
may properly come before the Meeting.
</TABLE>
Signature(s) Date
---------------------------------------------------- ------------
NOTE: Please sign exactly as your name appears on this card and return the card
in the enclosed envelope.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 44
THE MCGRAW-HILL COMPANIES, INC.
VOTING INSTRUCTIONS FOR ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, APRIL 30, 1997
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: THE NORTHERN TRUST COMPANY, AS TRUSTEE UNDER THE SAVINGS INCENTIVE PLAN
OF STANDARD & POOR'S ("SIP")
The Trustee named is hereby instructed to vote all the shares of Common Stock
of The McGraw-Hill Companies, Inc. which are credited to the undersigned's
account as of March 13, 1997, at the Annual Meeting of Shareholders to be held
on April 30, 1997, and any adjournment thereof, on the items set forth on the
reverse hereof, as described in the accompanying Proxy Statement and upon such
other business as may properly come before the Meeting.
Voting rights will be exercised by the Trustee as directed, provided
instructions are received by April 23, 1997. Your instructions will be kept
confidential by the Trustee.
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND RETURN THIS
VOTING INSTRUCTIONS CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(continued and to be signed on the reverse side)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 45
THIS PROXY WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER(S). Please mark
IF NOT OTHERWISE SPECIFIED, THE PROXY WILL BE VOTED FOR THE your votes
ELECTION OF DIRECTORS AND FOR PROPOSALS 2 AND 3. like this [X]
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR PROPOSALS 1, 2, AND 3: FOR ALL
NOMINEE(S)
except as set WITHHOLD AUTHORITY
forth below FOR ALL NOMINEES
<S> <C> <C>
1. Election of the following nominees as directors for three-year terms
expiring at the 2000 Annual Meeting: [ ] [ ]
Vartan Gregorian, John T. Hartley, Paul J. Rizzo, James H. Ross
and Sidney Taurel
INSTRUCTION: To withhold authority to vote for any individual nominee(s)
write that nominee(s) name below.
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. Approval of Amendments to and Restatement of the 1993 Key Employee [ ] [ ] [ ]
Stock Incentive Plan.
FOR AGAINST ABSTAIN
3. Ratification of the appointment of independent auditors for 1997. [ ] [ ] [ ]
And, in their discretion, in the transaction of such other business as
may properly come before the Meeting.
</TABLE>
Signature(s) Date
---------------------------------------------------- ------------
NOTE: Please sign exactly as your name appears on this card and return the card
in the enclosed envelope.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 46
THE MCGRAW-HILL COMPANIES, INC.
VOTING INSTRUCTIONS FOR ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, APRIL 30, 1997
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: THE NORTHERN TRUST COMPANY, AS TRUSTEE UNDER THE SAVINGS INCENTIVE PLAN
OF THE MCGRAW-HILL COMPANIES, INC. AND ITS SUBSIDIARIES ("SIP")
The Trustee named is hereby instructed to vote all the shares of Common Stock
of The McGraw-Hill Companies, Inc. which are credited to the undersigned's
account as of March 13, 1997, at the Annual Meeting of Shareholders to be held
on April 30, 1997, and any adjournment thereof, on the items set forth on the
reverse hereof, as described in the accompanying Proxy Statement and upon such
other business as may properly come before the Meeting.
Voting rights will be exercised by the Trustee as directed, provided
instructions are received by April 23, 1997. Your instructions will be kept
confidential by the Trustee.
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND RETURN THIS
VOTING INSTRUCTIONS CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(continued and to be signed on the reverse side)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 47
THIS PROXY WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER(S). Please mark
IF NOT OTHERWISE SPECIFIED, THE PROXY WILL BE VOTED FOR THE your votes
ELECTION OF DIRECTORS AND FOR PROPOSALS 2 AND 3. like this [X]
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR PROPOSALS 1, 2, AND 3: FOR ALL
NOMINEE(S)
except as set WITHHOLD AUTHORITY
forth below FOR ALL NOMINEES
<S> <C> <C>
1. Election of the following nominees as directors for three-year terms
expiring at the 2000 Annual Meeting: [ ] [ ]
Vartan Gregorian, John T. Hartley, Paul J. Rizzo, James H. Ross
and Sidney Taurel
INSTRUCTION: To withhold authority to vote for any individual nominee(s)
write that nominee(s) name below.
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. Approval of Amendments to and Restatement of the 1993 Key Employee [ ] [ ] [ ]
Stock Incentive Plan.
FOR AGAINST ABSTAIN
3. Ratification of the appointment of independent auditors for 1997. [ ] [ ] [ ]
And, in their discretion, in the transaction of such other business as
may properly come before the Meeting.
</TABLE>
Signature(s) Date
---------------------------------------------------- ------------
NOTE: Please sign exactly as your name appears on this card and return the card
in the enclosed envelope.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 48
THE MCGRAW-HILL COMPANIES, INC.
VOTING INSTRUCTIONS FOR ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, APRIL 30, 1997
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: THE NORTHERN TRUST COMPANY, AS TRUSTEE UNDER THE EMPLOYEE
RETIREMENT ACCOUNT PLAN OF STANDARD & POOR'S ("ERAP")
The Trustee named is hereby instructed to vote all the shares of Common Stock
of The McGraw-Hill Companies, Inc. which are credited to the undersigned's
account as of March 13, 1997, at the Annual Meeting of Shareholders to be held
on April 30, 1997, and any adjournment thereof, on the items set forth on the
reverse hereof, as described in the accompanying Proxy Statement and upon such
other business as may properly come before the Meeting.
Voting rights will be exercised by the Trustee as directed, provided
instructions are received by April 23, 1997. Your instructions will be kept
confidential by the Trustee.
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND RETURN THIS
VOTING INSTRUCTIONS CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(continued and to be signed on the reverse side)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 49
THIS PROXY WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER(S). Please mark
IF NOT OTHERWISE SPECIFIED, THE PROXY WILL BE VOTED FOR THE your votes
ELECTION OF DIRECTORS AND FOR PROPOSALS 2 AND 3. like this [X]
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR PROPOSALS 1, 2, AND 3: FOR ALL
NOMINEE(S)
except as set WITHHOLD AUTHORITY
forth below FOR ALL NOMINEES
<S> <C> <C>
1. Election of the following nominees as directors for three-year terms
expiring at the 2000 Annual Meeting: [ ] [ ]
Vartan Gregorian, John T. Hartley, Paul J. Rizzo, James H. Ross
and Sidney Taurel
INSTRUCTION: To withhold authority to vote for any individual nominee(s)
write that nominee(s) name below.
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. Approval of Amendments to and Restatement of the 1993 Key Employee [ ] [ ] [ ]
Stock Incentive Plan.
FOR AGAINST ABSTAIN
3. Ratification of the appointment of independent auditors for 1997. [ ] [ ] [ ]
And, in their discretion, in the transaction of such other business as
may properly come before the Meeting.
</TABLE>
Signature(s) Date
---------------------------------------------------- ------------
NOTE: Please sign exactly as your name appears on this card and return the card
in the enclosed envelope.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
