USG CORP, S-4/A, 1994-03-21

USG CORP
S-4/A, 1994-03-21
CONCRETE, GYPSUM & PLASTER PRODUCTS

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As filed with the Securities and Exchange Commission on March 21, 1994.

Registration No. 33-52433

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

__________________

AMENDMENT NO. 1

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________

USG CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 3275
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)

36-3329400
(I.R.S. Employer
Identification No.)

125 SOUTH FRANKLIN STREET
CHICAGO, ILLINOIS 60606-4678
(312) 606-4000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)

___________________

ARTHUR G. LEISTEN, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
125 SOUTH FRANKLIN STREET
CHICAGO, ILLINOIS 60606-4678
(312) 606-4000
(Name, address and telephone number of agent for service)

________________

Copies to:
FRANCIS J. GERLITS, P.C.
KIRKLAND & ELLIS
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
________________

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE ON OR AFTER THE EFFECTIVE DATE
OF THIS REGISTRATION STATEMENT.

________________

If the securities being registered on this Form are to be offered
in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. / /
________________

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K

S-4 Item Number and Caption Location in Prospectus
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1. Forepart of Registration Statement Facing Page; Outside Front Cover
and Outside Front Cover Page of Page of Prospectus.
Prospectus . . . . . . . . . . . . . . .

2. Inside Front and Outside Back Cover Inside Front and Outside Back
Pages of Prospectus. . . . . . . . . . . Cover Pages of Prospectus;
Table of Contents; Available
Information.

3. Risk Factors, Ratio of Earnings to Prospectus Summary; Risk Factors;
Fixed Charges and Other Information. . . Selected Financial Data.

4. Terms of the Transaction . . . . . . . . Prospectus Summary; Risk Factors;
The Exchange Offer; Description of
New Notes; Description of
Registration Rights Agreement;
Certain Federal Income Tax
Considerations.

5. Pro Forma Financial Information. . . . . Pro Forma Condensed Consolidated
Financial Statements.

6. Material Contacts with the Not Applicable.
Corporation Being Acquired . . . . . . .

7. Additional Information Required for Not Applicable.
Reoffering by Persons and Parties
Deemed to be Underwriters. . . . . . . .

8. Interests of Named Experts and Legal Matters.
Counsel. . . . . . . . . . . . . . . . .

9. Disclosure of Commission Position on Not Applicable.
Indemnification for Securities Act
Liabilities. . . . . . . . . . . . . . .

10. Information with Respect to Information Incorporated by
S-3 Registrants. . . . . . . . . . . . . Reference.

11. Incorporation of Certain Information Information Incorporated by
by Reference . . . . . . . . . . . . . . Reference.

12. Information with Respect to S-2 or Not Applicable.
S-3 Registrants. . . . . . . . . . . . .

13. Incorporation of Certain Information Not Applicable.
by Reference . . . . . . . . . . . . . .

14. Information with Respect to Not Applicable.
Registrants Other Than S-3 or S-2
Registrants. . . . . . . . . . . . . . .

15. Information with Respect to S-3 Not Applicable.
Companies. . . . . . . . . . . . . . . .

16. Information with respect to S-2 or S-3 Not Applicable.
Companies. . . . . . . . . . . . . . . .

17. Information with Respect to Companies Not Applicable.
Other Than S-2 or S-3 Companies. . . . .

18. Information if Proxies, Consents or Not Applicable.
Authorizations are to be Solicited . . .

19. Information if Proxies, Consents or Not Applicable.
Authorizations are not to be Solicited
or in an Exchange Offer. . . . . . . . .

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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

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Subject To Completion, Dated March 21, 1994.

PROSPECTUS USG CORPORATION

OFFER TO EXCHANGE ITS
9 1/4% SENIOR NOTES DUE 2001, SERIES B
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/4% SENIOR NOTES DUE 2001

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THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON APRIL 22, 1994 UNLESS EXTENDED.

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USG Corporation ("USG" or the "Corporation"), a Delaware corporation,
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal" which, together with the Prospectus, constitutes the
"Exchange Offer"), to exchange its 9 1/4% Senior Notes due 2001, Series B (the
"New Notes"), which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to the Registration Statement of which
this Prospectus is a part, for a like principal amount of its issued and
outstanding 9 1/4% Senior Notes due 2001 (the "Old Notes"), of which an
aggregate of $150,000,000 in principal amount is outstanding. The Old Notes and
the New Notes are referred to herein collectively as the "Senior 2001 Notes."

Upon the terms and subject to the conditions of the Exchange Offer, the
Corporation will, on a continuing basis, accept for exchange any and all Old
Notes validly tendered prior to 5:00 p.m., New York City time, on April 22,
1994, unless extended (such date, or such later date to which the Exchange Offer
may be extended, the "Expiration Date"), at any time and from time to time on or
after the next business day following the proper tender of any Old Note through
and including the next business day following the Expiration Date. Tenders of
Old Notes may not be withdrawn. The New Notes will be delivered, as promptly as
practicable after acceptance of the Old Notes for exchange by the Corporation.
See "The Exchange Offer -- Acceptance of Old Notes for Exchange; Delivery of New
Notes." Any Old Notes not accepted for exchange for any reason will be returned
without expense to the tendering holders thereof as promptly as practicable
after the expiration or termination of the Exchange Offer. The Exchange Offer
is not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain conditions,
which may be waived by the Corporation. See "The Exchange Offer -- Conditions
to the Exchange Offer."

The terms of the New Notes are substantially identical (including principal
amount, interest rate and maturity) to the terms of the Old Notes for which they
may be exchanged pursuant to this offer, except that the New Notes are freely
transferable by holders thereof (except as provided in the next paragraph below)
because they will be registered under the Securities Act and except that they
will be issued free from any covenant regarding registration under the
Securities Act and will not be entitled to the related Liquidated Damages (as
defined herein). The New Notes will evidence the same debt as the Old Notes and
will be entitled to the benefits of the same 1986 Indenture (as defined herein)
governing the Old

(CONTINUED ON NEXT PAGE)

THIS PROSPECTUS, TOGETHER WITH THE LETTER OF TRANSMITTAL, IS BEING SENT TO
ALL REGISTERED HOLDERS OF OLD NOTES AS OF MARCH 21, 1994.

INVESTMENT IN THE NEW NOTES IS SUBJECT TO CERTAIN RISK FACTORS. SEE "RISK
FACTORS."

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

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THE DATE OF THIS PROSPECTUS IS MARCH 21, 1994.
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(COVERED PAGE CONTINUED)

Notes. As of December 31, 1993, $500 million principal amount of debt
securities were outstanding pursuant to the 1986 Indenture. On a pro forma
basis, as of December 31, 1993, assuming consummation of the Transactions (as
defined herein) on such date, $364 million principal amount of securities would
have been outstanding pursuant to the 1986 Indenture. For a more complete
description of the terms of the New Notes and the 1986 Indenture, see
"Description of New Notes." The Corporation will not receive any proceeds in
connection with the Exchange Offer.

The Old Notes were originally issued and sold to certain institutional
investors (the "Initial Purchasers") on February 17, 1994 in a transaction not
registered under the Securities Act in reliance upon the exemption provided in
Section 4(2) of the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable exemption from the
registration requirements of the Securities Act is available. The New Notes are
being offered hereunder in order to satisfy the obligations of the Corporation
under a registration rights agreement relating to the Old Notes. See
"Description of Registration Rights Agreement." Based on no-action letters
issued by the staff of the Securities and Exchange Commission (the "Commission")
to third parties, the Corporation believes that, except as noted below with
respect to certain broker-dealers, the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes generally may be offered for resale, resold and
otherwise transferred by holders thereof (other than any holder that is an
"affiliate" of the Corporation within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such New
Notes. Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with resales of such New Notes. See "Plan of Distribution" for
additional information regarding prospectus delivery requirements that may be
imposed on such broker-dealer.

The New Notes are a series of securities which are limited to $150 million
aggregate principal amount. The New Notes bear interest at 9 1/4% per annum and
will mature on September 15, 2001. Interest on the New Notes is payable semi-
annually on March 15 and September 15 of each year, commencing September 15,
1994 to the persons in whose names the New Notes are registered at the close of
business on the next preceding March 1 or September 1, as the case may be.
Interest on the New Notes shall accrue from the last March 15 or September 15
(an "Interest Payment Date") on which interest was paid on the Old Notes so
surrendered or, if no interest has been paid on such Old Notes, from February
17, 1994. The New Notes are not redeemable or callable by the Corporation. See
"Description of New Notes."

The New Notes, along with the Bank Debt Obligations and certain other
senior indebtedness of the Corporation, are secured by first priority security
interests in the capital stock of certain Subsidiaries, pursuant to the
Collateral Trust Agreement and related pledge and security agreements. As of
December 31, 1993, $1,462 million was secured pursuant to the Collateral Trust
Agreement. On a pro forma basis, as of December 31, 1993, assuming consummation
of the Transactions on such date, such amount would have been $1,186 million.
Holders of the Bank Debt Obligations primarily control the operation of the
Collateral Trust. See "Description of Collateral Trust Agreement."

The Corporation's operations are conducted through its subsidiaries (the
"Subsidiaries"). The Corporation's ability to service its indebtedness is
largely dependent upon the receipt of funds from its Subsidiaries by way of
dividends, interest, loans or otherwise. The rights of the Corporation and its
creditors, including holders of the New Notes, to realize upon the assets of any
Subsidiary upon the latter's liquidation or reorganization will be subject to
the prior claims of such Subsidiary's creditors, except to the extent that the
Corporation itself may be a creditor with enforceable claims against such
Subsidiary. Therefore, the New Notes will be effectively subordinated to
existing and future liabilities of the Corporation's Subsidiaries.

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(COVERED PAGE CONTINUED)

Guarantors (as defined herein) have guaranteed pursuant to the Amended
Subsidiary Guarantees Agreement (as defined herein) the Bank Debt Obligations
and the Senior 2002 Notes (as defined herein). Such obligations were
approximately $926 million as of December 31, 1993. On a pro forma basis to
give effect to the Transactions such obligation would have been approximately
$786 million as of December 31, 1993. The Credit Agreement (as defined herein)
contains certain restrictions on the ability of the Corporation and certain of
the Subsidiaries ("Restricted Subsidiaries") to incur additional indebtedness,
subject to certain exceptions, including an exception allowing an aggregate of
$50 million of capitalized lease obligations and an aggregate of $75 million of
indebtedness to be incurred by foreign subsidiaries that are not Restricted
Subsidiaries. See "Description of the Credit Agreement." In addition to the
restrictions and covenants contained in the Credit Agreement, the Senior 2002
Notes (as defined herein) contain restrictions on the ability of the Corporation
and the Subsidiaries to incur additional indebtedness. Other than the
foregoing, the Subsidiaries are not subject to any other material restrictions
on their ability to incur additional indebtedness in the future.

The New Notes constitute new issues of securities with no established
trading market. The Corporation does not intend to list the New Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. Any Old Notes not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the rights and preferences
and will be subject to the limitations applicable thereto under the 1986
Indenture (as defined below). Following consummation of the Exchange Offer, the
holders of Old Notes will continue to be subject to the existing restrictions
upon transfer thereof, and, subject to certain exceptions, the Corporation will
have no obligation to such holders to provide for the registration under the
Securities Act of the Old Notes held by them. See "Description of Registration
Rights Agreement." To the extent that Old Notes are tendered and accepted in
the Exchange Offer, a holder's ability to sell untendered Old Notes could be
adversely affected. There can be no assurance that an active market for either
the Old Notes or the New Notes will develop.

Except for underwriting discounts or commissions and transfer taxes, if
any, the Corporation will pay all of the expenses incident to the Exchange
Offer. Such expenses are estimated to be approximately $150,000 in the
aggregate. See "Plan of Distribution."

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE EXCHANGE
OFFER, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY USG. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE NEW NOTES TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT BE LEGALLY MADE.

NO ACTION HAS BEEN OR WILL BE TAKEN BY THE CORPORATION THAT WOULD PERMIT A
PUBLIC OFFERING OF THE NEW NOTES OF THE CORPORATION OR THE CIRCULATION OR
DISTRIBUTION OF THIS PROSPECTUS OR ANY OFFERING MATERIAL IN RELATION TO THE
CORPORATION OR THE NEW NOTES OF THE CORPORATION IN ANY COUNTRY OR JURISDICTION
OTHER THAN THE UNITED STATES WHERE ACTION FOR THAT PURPOSE IS REQUIRED.

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TABLE OF CONTENTS

AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

INFORMATION INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . . . . . . . 2

PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

PRO FORMA CONDENSED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . .18

SELECTED CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . 23

CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT . . . . . . . . . . . . . . . . 31

DESCRIPTION OF NEW NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . 33

DESCRIPTION OF CREDIT AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 37

DESCRIPTION OF COLLATERAL TRUST. . . . . . . . . . . . . . . . . . . . . . . 48

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS. . . . . . . . . . . . . . . . . . 49

PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

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AVAILABLE INFORMATION

The Corporation has filed with the Securities and Exchange Commission (the
"Commission" or the "SEC") a Registration Statement on Form S-4 (the
"Registration Statement") (which term shall encompass all amendments, exhibits
and schedules thereto) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities being offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and to which reference is hereby made. Such
additional information can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following regional offices of
the Commission: Northwestern Atrium Center, 500 W. Madison Street, Suite 1400,
Chicago, Illinois 60661; and Seven World Trade Center, New York, New York 10048.
Copies of such material can be obtained by mail from the public reference
section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Statements made in this Prospectus
as to the contents of any contract, agreement or other document referred to are
not necessarily complete but such statements are complete in all material
respects for the purposes herein made. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.

The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files periodic reports and other information with the
Commission. Such reports and other information filed with the Commission, as
well as the Registration Statement, can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and
Seven World Trade Center, New York, New York 10048. Copies of such material can
also be obtained by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
reports and other information with respect to the Corporation are available for
inspection at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005 and the Chicago Stock Exchange, Inc., One Financial
Place, 440 South LaSalle Street, Chicago, Illinois 60605.

INFORMATION INCORPORATED BY REFERENCE

The Corporation's Annual Report on Form 10-K for the year ended December
31, 1993 has been filed by the Corporation with the Commission (File No. 1-8864)
and is specifically incorporated herein by reference.

All documents filed by the Corporation with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination or completion of the Exchange Offer
shall be deemed to be incorporated by reference in this Prospectus and to be
part of this Prospectus from the date of the filing of such document. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

The Corporation hereby undertakes to provide without charge to each person,
including a beneficial owner, to whom a copy of this Prospectus has been
delivered, upon the written or oral request of such person, a copy of any or all
of the information filed by it that has been incorporated by reference in this
Prospectus (not including exhibits to the information that is incorporated by
reference herein unless such exhibits are specifically incorporated by reference
in such information). Requests for such information should be directed to USG
Corporation, 125 South Franklin Street, Chicago, Illinois 60606-4678,
Attention: Investor Relations (telephone number: (312) 606-4000).

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO)
CONTAINED ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. CERTAIN
CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROSPECTUS.
UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO "USG" AND THE "CORPORATION"
MEAN USG CORPORATION, A DELAWARE CORPORATION, AND THE SUBSIDIARIES. PROSPECTIVE
INVESTORS ARE URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. SEE "RISK FACTORS"
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN
INVESTMENT IN THE NEW NOTES PURSUANT TO THE EXCHANGE OFFER.

OVERVIEW

Through the Subsidiaries, USG is a leading manufacturer of building
materials in North America which produces a wide range of products for use in
residential and nonresidential construction, repair and remodeling, as well as
products used in certain industrial processes. United States Gypsum Company
("U.S. Gypsum") is the largest producer of gypsum wallboard in the United States
and accounted for approximately one-third of total domestic gypsum wallboard
sales in 1993. USG Interiors, Inc. ("USG Interiors") is a leading supplier of
interior ceiling, wall and floor products used primarily in commercial
applications. In 1993, USG Interiors was the largest producer of ceiling grid
and the second largest producer of ceiling tile in the United States. L&W
Supply Corporation ("L&W Supply") is the largest distributor of wallboard and
related products in the United States and in 1993 distributed approximately 22%
of U.S. Gypsum's wallboard production. In addition to its United States
operations, the Corporation's 76% owned Subsidiary, CGC Inc. ("CGC"), is the
largest manufacturer of gypsum products in eastern Canada and the Corporation's
USG International unit ("USG International") supplies interior systems and
gypsum wallboard products in Europe, the Pacific and Latin America. In the year
ended December 31, 1993, the Corporation had net sales of $1,916 million and
generated EBITDA of $218 million.

On May 6, 1993, the Corporation completed a comprehensive restructuring of
its debt through the implementation of a "prepackaged" plan of reorganization
under the federal bankruptcy laws. This restructuring significantly reduced the
Corporation's overall interest and debt repayment obligations and extended the
maturities of a substantial portion of its remaining debt. See "Prospectus
Summary -- The Restructuring" and "Risk Factors."

BUSINESS

The Corporation participates in three industry segments: Gypsum Products,
Interior Systems and Building Products Distribution.

GYPSUM PRODUCTS. U.S. Gypsum has vertically integrated operations for
extracting, processing, producing and marketing gypsum and related products,
such as "SHEETROCK" brand wallboard, joint compound and industrial gypsum
cements and fillers. U.S. Gypsum also manufactures cement board, which it sells
under the "DUROCK" brand name. Due to the vertical integration of its key raw
materials (gypsum and paper), its technical expertise and the proximity of its
plants to major metropolitan areas, U.S. Gypsum believes that its delivered cost
for gypsum wallboard is generally lower than its competitors'. As a result of
efficiency improvements and cost reduction efforts, U.S. Gypsum's unit
manufacturing cost for gypsum wallboard in 1993 (measured in nominal dollars)
was lower than its unit manufacturing cost a decade ago. In the year ended
December 31, 1993, the Gypsum Products segment had net sales of $1,165 million
and generated EBITDA of $179 million before allocation of corporate expenses.

INTERIOR SYSTEMS. The Interior Systems segment manufactures and markets an
integrated line of products used primarily for commercial interiors. Products
include ceiling grid and ceiling tile, access floor systems, wall systems and
mineral wool insulation and soundproofing products. In 1993, USG Interiors
accounted for over one-half and approximately one-third of total domestic sales
of ceiling grid and ceiling tile, respectively. CGC is the largest producer of
ceiling grid and the second largest marketer of ceiling tile in Canada. USG
International's net sales in

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Europe, the Pacific and Latin America accounted for approximately 27% of the
Interior Systems segment's net sales in 1993. In the year ended December 31,
1993, the Interior Systems segment had net sales of $550 million and generated
EBITDA of $57 million before allocation of corporate expenses.

BUILDING PRODUCTS DISTRIBUTION. The Building Products Distribution segment
is conducted through L&W Supply, which distributed approximately 9% of all
gypsum wallboard in the United States in 1993. L&W Supply's 131 distribution
centers located in 34 states offer a wide range of building products to
construction contractors, including wallboard, drywall metal, ceiling tile and
ceiling grid. L&W Supply is able to provide less than truckload quantities of
materials directly to job sites and place the materials in areas where work is
in progress, thereby reducing contractors' material handling and inventory
requirements. In the year ended December 31, 1993, the Building Products
Distribution segment had net sales of $528 million and generated EBITDA of
$7 million before allocation of corporate expenses.

U.S. INDUSTRY TRENDS. Demand for the Corporation's products in the United
States is largely influenced by the three major components of the construction
industry: new residential construction (single and multi-family homes), new
non-residential construction (offices, schools, stores and other institutions)
and repair and remodel activity. In recent years, structural changes in
residential construction activity combined with growth in the repair and remodel
component have partially mitigated the impact of the cyclical demand in overall
new construction components. New residential construction has shifted toward
more single family housing, which typically requires twice as much wallboard as
a multi-family home, and the average single family home size has increased by
approximately 15% since 1986. In addition, the repair and remodel segment has
become an increasing percentage of the Corporation's business. The Corporation
estimates that the repair and remodel segment comprised approximately 36% of
1993 industry-wide demand for gypsum wallboard and approximately half of
industry-wide demand for interior systems products. Largely as a result of
these factors, United States industry shipments of gypsum wallboard were
21.6 billion square feet in 1993, as compared to 21.3 billion in 1986, despite
an approximate 28% decline in the number of housing starts from 1.8 million
units in 1986 to 1.3 million units in 1993.

The Corporation estimates that industry capacity utilization for gypsum
wallboard has increased from an average of approximately 83% during 1992 to
approximately 93% during the fourth quarter of 1993. USG's average gypsum
wallboard price increased to $82.46 per thousand square feet ("MSF") in the
three months ended December 31, 1993, as compared to its 14 year low of $67.77
reached in the three months ended March 31, 1992.

There can be no assurance, however, that recent increases in demand and
pricing in the gypsum wallboard industry will continue or that current levels of
demand and pricing can be sustained in the future. In this regard, the
Corporation's business is cyclical in nature and sensitive to changes in general
economic conditions, including changes in interest rates. See "Risk Factors."

The Corporation's principal executive offices are located at 125 South
Franklin Street, Chicago, Illinois 60606. Its telephone number at that address
is 312-606-4000.

THE RESTRUCTURING

In July 1988, the Corporation consummated a plan of recapitalization (the
"1988 Recapitalization") in part in response to an unsolicited takeover attempt.
Approximately $2.5 billion in new debt was incurred by the Corporation to
finance the 1988 Recapitalization, pay related costs and repay certain debt
existing at that time. The 1988 Recapitalization immediately changed the
Corporation's capital structure to one that was highly leveraged. At the time
of the 1988 Recapitalization, the Corporation projected that it would have
sufficient cash flows to meet its debt service obligations in a timely manner.
However, the Corporation was adversely affected by a cyclical downturn in its
construction-based markets which resulted in the Corporation's inability to
achieve projected operating results and service certain debt obligations in a
timely manner.

-4-
<PAGE>

On May 6, 1993 (the "Effective Date"), the Corporation completed a
comprehensive restructuring of its debt (the "Restructuring") through the
implementation of a "prepackaged" plan of reorganization (the "Prepackaged
Plan") which was confirmed under Chapter 11 of Title 11 of the United States
Code (the "Bankruptcy Code") by the United States Bankruptcy Court for the
District of Delaware. The principal components of the Restructuring were:

- Conversion of approximately $1.4 billion of subordinated debt and
accrued interest into approximately 36.1 million shares of Common Stock and
Warrants to purchase approximately 2.6 million additional shares of Common
Stock.

- Extension of the maturity of the Corporation's bank obligations
through the issuance of approximately $340 million of Senior 2002 Notes,
approximately $56 million aggregate principal amount of capitalized interest
notes and approximately $540 million of term loans with mandatory amortizations
from 1994 to 2000; the implementation of mandatory prepayment provisions and a
cash sweep mechanism; the extension of the Corporation's then existing revolving
credit facility through July 13, 1998; and the making available of an interest
rate on the bank term loans and revolving credit loans of LIBOR plus 1 7/8% (or,
at USG's option, a base rate maintained by the administrative agent plus 7/8%.)

- Extension of the maturity of $100 million of senior notes due in 1991
and $10 million of Senior 1996 Notes through the issuance of $75 million of
Senior 1995 Notes and $35 million of Senior 1998 Notes.

Substantially all other obligations of the Corporation and the Subsidiaries,
including obligations arising out of asbestos litigation and certain other legal
proceedings against the Corporation or the Subsidiaries, were not affected by
the Restructuring and remained outstanding. At December 31, 1993, the
Corporation's bank terms loans were subject to an interest rate of approximately
5.4%. The Corporation's bank obligations, as well as the Senior 2002 Notes, are
entitled to the benefit of guarantees made by certain of the Corporation's
Subsidiaries. See "Risk Factors -- Asbestos Litigation" and "Description of the
Credit Agreement."

Subsequent to the Restructuring, on August 10, 1993 the Corporation issued
$138 million of additional Senior 2002 Notes in exchange for $92 million of bank
term loans and $46 million of capitalized interest notes. In connection with
the issuance of the additional Senior 2002 Notes, USG's bank credit agreement
(the "Credit Agreement") was modified as follows: (i) scheduled bank term loan
amortization payments totaling $95 million due in 1994, 1995 and 1996 were
eliminated ($3 million was added to the final maturity of the bank term loan due
in 2000); (ii) $9 million of capitalized interest notes originally due in 1998
were paid; and (iii) the cash sweep mechanism was modified to permit the
application of up to $165 million of cash otherwise subject to the cash sweep
mechanism in 1994, 1995 and 1996 to repayment or purchase of senior debt due
prior to January 1, 1999 or bank term loans, at the discretion of the
Corporation.

RECENT TRANSACTIONS AND PURPOSE OF THE EXCHANGE OFFER

On March 16, 1994, the Corporation completed a public offering (the
"Offering") of 12,500,000 shares of common stock, par value $0.10 per share
("Common Stock") at a price of $29.875 per share. Of the 12,500,000 shares of
Common Stock sold in the Offering, 7,000,000 shares were sold by the Corporation
and 5,500,000 shares were sold by Water Street Corporate Recovery Fund I, L.P.
(the "Selling Stockholder.") In the Offering, the Corporation received
approximately $198 million in net proceeds. The Corporation did not receive any
of the proceeds from the sale of Common Stock by the Selling Stockholder. In
connection with the Offering, the Corporation and the Selling Stockholder
granted to the Underwriters a 30-day option to purchase up to 900,000 and
975,000 additional shares of Common Stock, respectively, solely to cover
over-allotments, if any. On March 16, 1994, the underwriters informed the
Corporation that they intend to exercise such over-allotments options in full.
The net proceeds to the Corporation if such over-allotments are exercised in
full is expected to be $26 million.

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<PAGE>

The Offering is part of a refinancing strategy which also includes (i) the
placement (the "Old Note Placement") of $150 million principal amount of the Old
Notes with certain institutional investors (the "Initial Purchasers") whereby
the Initial Purchasers exchanged approximately $30 million aggregate principal
amount of USG's outstanding 8% Senior Notes due 1996 (the "Senior 1996 Notes")
and approximately $35 million aggregate principal amount of USG's outstanding 8%
Senior Notes due 1997 (the "Senior 1997 Notes") and paid $85 million balance of
the purchase price in cash, and (ii) the amendment of the Credit Agreement (the
"Credit Agreement Amendments" and, together with the Offering and the Old Note
Placement, the "Transactions"). The Credit Agreement Amendments increased the
size of the Corporation's revolving credit facility by $70 million and amended
mandatory bank term loan prepayment provisions to allow USG, upon the
achievement of certain financial tests, to retain additional free cash flow for
capital expenditures and the purchase of its public debt.

From proceeds received in the Old Note Placement, USG repaid $75 million of
its Bank Term Loans in satisfaction of the $40 million scheduled payment for
1997 and in reduction of the scheduled payment for 1998 from $100 million to $65
million. USG will use the remaining $10 million in cash proceeds it received
from the Old Note Placement and a portion of the net proceeds from the Offering,
together with approximately $158 million of existing cash generated from
operations, to pay an additional $65 million of its Bank Term Loans and to
redeem, at 100% of principal amount, $75 million of its 8% Senior Notes due 1995
(the "Senior 1995 Notes") and $35 million of its 9% Senior Notes due 1998 (the
"Senior 1998 Notes"). The Corporation also expects to use such proceeds to
purchase up to an additional $111 million aggregate principal amount of the
Senior 1996 Notes and the Senior 1997 Notes, depending upon market conditions.
The remainder of such proceeds will be available for general corporate purposes,
including capital expenditures for cost reduction, capacity improvement and
future growth opportunities. The Corporation has no present plans, commitments
or understandings with respect to significant future acquisitions, but may take
advantage of opportunities, if any, that may rise in the future.

Sources and uses of funds in the Transactions are estimated to be as
follows:

(Dollars in millions)
<S> <C>
Sources:
The Offering, net of the estimated underwriting discount and expenses (a) . . . . . . . . . . . . . . .$224
The Old Note Placement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Cash on hand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
----
$532
----
----

Uses:
Payment of bank debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$140
Redemption of Senior 1995 Notes and Senior 1998 Notes . . . . . . . . . . . . . . . . . . . . . . . . . 110
Acquisition of Senior 1996 Notes and Senior 1997 Notes. . . . . . . . . . . . . . . . . . . . . . . . . 176
General corporate purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
----
$532
----
----

<FN>
________________________________________

(a) Reflects the sale by the Corporation of 7,000,000 shares of Common Stock in
the Offering and the sale of an additional 900,000 shares of Common Stock
pursuant to the underwriters' over-allotments options, at an offering price
of $29.875.

</TABLE>

Collectively, the Transactions are designed, among other things, to
(i) reduce the Corporation's financial leverage through the retirement of up to
$276 million principal amount of the Corporation's total debt (net of the
issuance of $150 million principal amount of Old Notes in the Old Note
Placement), (ii) reduce the amount of the Corporation's public debt maturing in
1995 through 1998 by up to $286 million (depending on the principal amount

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<PAGE>

of outstanding Senior 1996 Notes and Senior 1997 Notes purchased) and prepay the
$140 million of scheduled bank debt amortization in those years, (iii) extend
the final maturity of a significant portion of the Corporation's debt through
the Old Note Placement, (iv) improve the Corporation's financial and operating
flexibility under its bank credit agreement and (v) provide an estimated
$106 million in funds for general corporate purposes, including capital
expenditures for cost reduction, capacity improvement and future growth
opportunities.

In connection with the Old Note Placement, the Old Notes were originally
issued and sold to the Initial Purchasers on February 17, 1994. Such sales were
not registered under the Securities Act in reliance upon the exemption provided
by Section 4(2) of the Securities Act. In connection with the sale of the Old
Notes, the Corporation agreed, among other things, to file with the Commission
and have declared effective a registration statement relating to an exchange
offer (the "Exchange Offer Registration Statement") pursuant to which another
series of notes of the Corporation covered by such registration statement and
containing substantially the same terms as the Old Notes would be offered in
exchange for the Old Notes tendered at the option of the holders thereof.

If, at any time prior to the consummation of the Exchange Offer, (i) the
Corporation reasonably determines, in good faith, that (A) the New Notes would
not, upon receipt, be tradeable by holders of at least $37.5 million in
aggregate principal amount of Old Notes without restriction under the Securities
Act and the Exchange Act and without material restrictions under applicable blue
sky or state securities laws, (B) the interests of the holders of the Old Notes,
taken as a whole, would be materially adversely affected by the consummation of
the Exchange Offer, or (C) after conferring with counsel, the SEC is unlikely to
permit the consummation of the Exchange Offer, or (ii) the holders of at least
$30 million in aggregate principal amount of Old Notes notify the Corporation in
writing that they have reasonably determined in good faith, based upon advice of
counsel, that (A) the participation of such holders in the Exchange Offer is not
legally permitted, (B) the New Notes would not, upon receipt, be tradeable by
such holders without restrictions under the Securities Act and the Exchange Act
and without material restrictions under applicable blue sky or state securities
laws, or (C) after conferring with counsel, there exists a court decision or
administrative action that might reasonably be expected to have a material
adverse effect on such holders in the event such holders participated in the
Exchange Offer, then the Corporation shall promptly deliver to the holders and
the 1986 Indenture Trustee notice thereof (the "Shelf Notice") and as soon as
practicable thereafter shall file a shelf registration statement covering
resales of the Old Notes (the "Shelf Registration Statement"). Upon the
delivery of a Shelf Notice for any of the foregoing reasons, the Corporation
shall have no further obligation with respect to the Exchange Offer and may
terminate the Exchange Offer unless the holders of at least $37.5 million in
aggregate principal amount of Old Notes notify the Corporation in writing that
such holders intend to and may, under applicable law, participate in the
Exchange Offer, in which case the Corporation's obligations under the
Registration Rights Agreement with respect to such holders concerning the
Exchange Offer and with respect to other holders of the Old Notes concerning
Shelf Registration Statement shall be concurrent and independent. The
Corporation will pay all expenses incurred in connection with the Exchange
Offer, whether or not it becomes effective or is consummated. See "The Exchange
Offer" and "Description of Registration Rights Agreement."

The purpose of the Exchange Offer is to fulfill certain of the
Corporation's obligations with respect to the Registration Rights Agreement.

THE EXCHANGE OFFER

Securities Offered $150 million aggregate principal amount of
9 1/4% Notes Due September 15, 2001, Series
B. The New Notes will be issued under the
1986 Indenture pursuant to which the Old
Notes were issued. The terms of the New
Notes and the Old Notes are substantially
identical in all material respects, except
that (i) the New Notes are freely
transferable by holders thereof (except as
provided herein), and (ii) the New Notes are
not subject to the

-7-
<PAGE>

registration requirements of the Registration
Rights Agreement, including the provisions
thereof relating to Liquidated Damages upon
the failure of the Corporation to meet
certain conditions with respect to the
Exchange Offer and the Shelf Registration
Statement. See "Description of Registration
Rights Agreement," and "Description of New
Notes."

The Exchange Offer $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of
Old Notes duly tendered prior to the
Expiration Date. The Corporation will accept
for exchange, on a continuing basis, any and
all Old Notes properly tendered in the
Exchange Offer, at any time and from time to
time on or after the next business day
following the proper tender of any Old Note
through and including the next business day
following the Expiration Date. The New Notes
will be delivered, as promptly as practicable
after acceptance of the Old Notes for
exchange by the Corporation. See "The
Exchange Offer -- Acceptance of Old Notes for
Exchange; Delivery of New Notes."

Based on an interpretation by the staff of
the Commission set forth in no-action letters
issued to third parties, the Corporation
believes that New Notes issued pursuant to
the Exchange offer in exchange for Old Notes
may be offered for resale, resold and
otherwise transferred by any holder thereof
(other than broker-dealers, as set forth
below, and any such holder that is an
"affiliate" of the Corporation within the
meaning of Rule 405 under the Securities Act)
without compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that such New Notes
are acquired in the ordinary course of such
holder's business and that such holder has no
arrangement or understanding with any person
to participate in the distribution of such
New Notes. Each broker-dealer that receives
New Notes for its own account in exchange for
Old Notes that were acquired as a result of
market-making or other trading activity must
acknowledge that it will deliver a prospectus
in connection with any resale of such New
Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a
prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
See "Plan of Distribution." Any holder who
tenders in the Exchange Offer with the
intention to participate, or for the purpose
of participating, in a distribution of the
New Notes could not rely on the position of
the staff of the Commission enunciated in
EXXON CAPITAL HOLDINGS CORPORATION (available
May 13, 1988) or similar no-action letters
and, in the absence of an exemption
therefrom, must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with a secondary
resale transaction. Failure to comply with
such requirements in such instance may result
in such holder incurring liability under the

-8-
<PAGE>

Securities Act for which the holder is not
indemnified by the Corporation.

This Exchange Offer is not being made to, nor
will the Corporation accept surrenders for
exchange from, holders of Old Notes in any
jurisdiction in which this Exchange Offer or
the acceptance thereof would not be in
compliance with the securities or blue sky
laws of such jurisdiction.

Expiration Date 5:00 p.m., New York City time, on April 22,
1994 unless the Exchange Offer is extended,
in which case the term "Expiration Date"
means the latest date and time to which the
Exchange Offer is extended.

Accrued Interest on the New Holders of the Old Notes that are accepted
Notes and Old Notes for exchange will not receive any accrued
interest thereon. However, each New Note
will bear interest from the most recent date
to which interest has been paid on the Old
Note for which such New Note was exchanged,
or if no interest has been paid, from
February 17, 1994.

Conditions to the Exchange The Exchange Offer is subject to certain
Offer conditions, which may be waived by the
Corporation. See "The Exchange Offer --
Conditions to the Exchange Offer." The
Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered.

Procedures for Tendering Notes Each holder of an Old Note wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
the Old Notes and any other required
documentation to the Exchange Agent at the
address set forth herein prior to 5:00 p.m.,
New York City time, on the Expiration Date.

Special Procedure for Any beneficial owner whose Old Notes are
Beneficial Owners registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender should
contact such registered holder promptly and
instruct such registered holder to tender on
such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing a Letter of
Transmittal and delivering his Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power form the registered holder. The
transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date. See
"Risk Factors -- Exchange Offer Procedures,"
and "The Exchange Offer -- How to Tender."

-9-
<PAGE>

Guaranteed Delivery Procedures Holders of the Old Notes who wish to tender
their Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, a Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to
the Expiration Date, must tender their Old
Notes according to the guaranteed delivery
procedures set forth in Notice of Guaranteed
Delivery. See "The Exchange Offer -- How to
Tender."

No Withdrawal Rights Tenders of Old Notes may not be withdrawn.

Acceptance of Old Notes and Subject to the terms and conditions of the
Delivery of Exchange Offer, including the reservation of certain rights
New Notes by the Corporation, the Corporation will
accept for exchange, on a continuing basis,
any and all Old Notes properly tendered in
the Exchange Offer, at any time and from time
to time on or after the next business day
following the proper tender of any Old Note
through and including the next business day
following the Expiration Date. The New Notes
will be delivered, as promptly as practicable
after acceptance of the Old Notes for
exchange by the Corporation. See "The
Exchange Offer -- Acceptance of Old Notes for
Exchange; Delivery of New Notes."

By executing a Letter of Transmittal, each
holder will represent to the Corporation
that, among other things, the New Notes
acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of
business of the person receiving such New
Notes, whether or not such person is the
holder, and that neither the holders nor any
such other person has any arrangement or
understanding with any person to participate
in the distribution of such New Notes and
that neither the holder nor any such other
person is an "affiliate" of the Corporation,
as defined under Rule 405 of the Securities
Act. See "The Exchange Offer -- Terms of
Exchange."

Exchange Agent Harris Trust and Savings Bank, 311 West
Monroe Street, Chicago, Illinois 60690

Federal Income Tax Consequences The Corporation believes that the exchange
pursuant to the Exchange Offer will not
result in any income, gain or loss to the
holders or the Corporation for Federal income
tax purposes. Each person should consult
their own tax adviser as to the particular
tax consequences to them of participating in
the Exchange Offer and holding the Old Notes
or the New Notes, including the applicability
and effect of any state, local or foreign tax
laws. See "Certain Federal Income Tax
Considerations."

Use of Proceeds There will be no cash proceeds to the
Corporation from the exchange pursuant to the
Exchange Offer.

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<PAGE>

DESCRIPTION OF NEW NOTES

Issuer USG Corporation.

Amount and Title $150 million aggregate principal amount of
9 1/4% Senior Notes Due September 15, 2001,
Series B.

Interest Payment Dates March 15, and September 15 of each year,
beginning September 15, 1994, to the persons
in whose names the New Notes are registered
at the close of business on the next
preceding March 1 or September 1, as the case
may be.

Maturity Date September 15, 2001.

Redemption The New Notes are not redeemable or callable
by the Corporation.

Amortization of Principal None.

Certain Covenants and The 1986 Indenture contains covenants which
Restrictions restrict the ability of the Corporation and
its Restricted Subsidiaries to (i) incur or
suffer to exist certain secured debt without
providing that the securities issued under
the 1986 Indenture, including the New Notes,
are equally and ratably secured and (ii)
enter into certain sale and leaseback
transactions.

Ranking and Security The New Notes, along with the Bank Debt
Obligations and certain other senior
indebtedness of the Corporation, are secured
by first priority security interests in the
capital stock of certain Subsidiaries,
pursuant to the Collateral Trust Agreement
and related pledge and security agreements.
Holders of the Bank Debt Obligations
primarily control the operation of the
Collateral Trust. See "Description of
Collateral Trust Agreement."

The Corporation's operations are conducted
through the Subsidiaries. The Corporation's
ability to service its indebtedness is
largely dependent upon the receipt of funds
from the Subsidiaries by way of dividends,
interest, loans or otherwise. The rights of
the Corporation and its creditors, including
holders of the New Notes, to realize upon the
assets of any Subsidiary upon the latter's
liquidation or reorganization will be subject
to the prior claims of such Subsidiary's
creditors, except to the extent that the
Corporation itself may be a creditor with
enforceable claims against such Subsidiary.
Therefore, the New Notes will be effectively
subordinated to existing and future
liabilities of the Corporation's
Subsidiaries.

As of December 31, 1993, the Corporation and
the Subsidiaries had $1,531 million total
principal amount of debt (before unamortized
reorganization discount) on a consolidated
basis.

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<PAGE>

As of December 31, 1993, Subsidiaries of the
Corporation are directly liable for $105
million principal amount of such debt. On a
pro forma basis, as of December 31, 1993,
assuming consummation of the Transactions on
such date, the Corporation and the
Subsidiaries would have had $1,255 million
total principal amount of debt (before
unamortized reorganization discount) on a
consolidated basis and Subsidiaries of the
Corporation would have been directly liable
for $105 million principal amount of such
debt. The Subsidiary Guarantors have
guaranteed pursuant to the Amended Subsidiary
Guarantees Agreement the Bank Debt
Obligations and the Senior 2002 Notes. Such
obligations were approximately $926 million
as of December 31, 1993. On a pro forma
basis to give effect to the Transactions,
such obligation would have been approximately
$786 million as of December 31, 1993. See
"Description of the Credit Agreement."

Effect on Holders of Old Notes As a result of the making of, and upon timely
acceptance for exchange of all validly
tendered Old Notes pursuant to, this Exchange
Offer, the Corporation will have fulfilled an
obligation contained in the Registration
Rights Agreement (the "Registration Rights
Agreement") dated February 17, 1994, among
the Corporation and the Initial Purchasers.
Assuming that the Exchange Offer is completed
as contemplated herein, and the Corporation
fulfills its obligation with respect to the
Shelf Registration Statement, if any, the
holders of the Old Notes will not be entitled
to any Liquidated Damages pursuant to the
terms of the Registration Rights Agreement.
Holders of the Old Notes who do not tender
their Old Notes in the Exchange Offer will
continue to hold such Old Notes and will be
entitled to all the rights and limitations
applicable thereto under the 1986 Indenture,
except for any such rights under the
Registration Rights Agreement which by their
terms terminate or cease to have further
effectiveness as a result of the making of,
and the acceptance for exchange of all
validly tendered Old Notes pursuant to, the
Exchange Offer. See "Description of
Registration Rights Agreement." All
untendered Old Notes will continue to be
subject to the restrictions on transfer
provided for in the Old Notes. To the extent
that the Old Notes are tendered and accepted
in the Exchange Offer, any trading market for
untendered Old Notes could be adversely
affected.

-12-
<PAGE>

RISK FACTORS

HOLDERS OF THE OLD NOTES SHOULD CONSIDER CAREFULLY THE FACTORS SET FORTH
BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS PRIOR TO
DECIDING WHETHER OR NOT TO ACCEPT THE EXCHANGE OFFER. CAPITALIZED TERMS USED
HEREIN AND NOT OTHERWISE DEFINED HAVE THE MEANINGS ASCRIBED TO THEM ELSEWHERE IN
THIS PROSPECTUS.

CONSEQUENCES OF FAILURE TO EXCHANGE

Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Except under limited circumstances set forth
in the Registration Rights Agreement, the Corporation does not currently
anticipate that it will register the Old Notes under the Securities Act. See
"Description of Registration Rights Agreement." Based on interpretations by the
staff of the Commission, New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes generally may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder which is an
"affiliate" of the Corporation within the meaning of Rule 405 under the
Securities Act or who is a broker-dealer) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement with any person to participate in
the distribution of such New Notes. See "Plan of Distribution" for additional
information regarding prospectus delivery requirements that may be imposed on
certain broker-dealers.

EXCHANGE OFFER PROCEDURES

Issuance of the New Notes pursuant to the Exchange Offer will be made only
after a properly completed and duly executed Letter of Transmittal or completion
of a Notice of Guaranteed Delivery and all other required documents, in
accordance with the procedures set forth in this Prospectus and the Letter of
Transmittal. Therefore, holders of Old Notes desiring to tender such Old Notes
in exchange for New Notes should allow sufficient time to ensure timely
delivery. The Corporation is under no duty to give notification of defects or
irregularities with respect to the tenders of Old Notes for exchange. Old Notes
that are not tendered or are tendered but not accepted will, following the
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer hereof and, except under certain limited
circumstances provided for in the Registration Rights Agreement with respect to
a shelf registration statement, the Corporation will have no further obligation
to provide for the registration of such Old Notes under the Securities Act. See
"Description of Registration Rights Agreement." In addition, any holder of Old
Notes who tenders in the Exchange Offer for the purpose of further distribution
of the New Notes or who is a broker-dealer may be deemed to be an "underwriter"
with respect to the Exchange Offer and, if so, will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. See "Plan of Distribution." To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market, if any, for untendered and tendered but unaccepted Old Notes
could be adversely affected. See "The Exchange Offer."

HIGH LEVERAGE

The Corporation will remain highly leveraged upon completion of the
Transactions. As of December 31, 1993, the Corporation had $1,531 million
principal amount of total debt (which had a carrying amount of $1,476 million on
the Corporation's balance sheet after deducting unamortized reorganization debt
discount of $55 million) and a deficit in stockholders' equity of $134 million.
As adjusted to reflect the Offering and the debt repayments to be made in
connection with the Transactions, the Corporation's total principal amount of
debt and stockholders' equity as of December 31, 1993 would have been $1,255
million and $89 million, respectively. The Corporation is expected to have a
deficit in stockholders' equity at least during the period from 1993 through
1998 when reorganization value in excess of identifiable assets ("Excess
Reorganization Value") will be amortized. See "Risk Factors -- Recent Losses,"
"Selected Consolidated Financial Data," and "Capitalization."

-13-
<PAGE>

The degree to which the Corporation is leveraged will pose risks to holders
of the Common Stock, including, but not limited to, the following: (i) a
significant portion of the Corporation's cash flow from operations will be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Corporation for its operations; (ii) the
Corporation's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or other
purposes will be restricted; (iii) certain of the Corporation's borrowings are
and will continue to carry variable rates of interest, which could result in
higher interest expense in the event of an increase in interest rates; and
(iv) certain indebtedness contains financial and restrictive covenants, the
failure to comply with which may result in an event of default which, if not
cured or waived, could have a material adverse effect on the Corporation. These
and other factors could have material adverse effects on the marketability,
price and future value of the Common Stock.

LIQUIDITY; RELIANCE ON RECOVERY IN CONSTRUCTION-BASED MARKETS

The Corporation believes that cash generated by operations and the
estimated levels of liquidity available to the Corporation will be sufficient to
permit the Corporation to satisfy its debt service requirements and other
capital requirements for the foreseeable future. However, the Corporation is
subject to significant business, economic and competitive uncertainties that are
beyond its control. Therefore, there can be no assurance that the Corporation's
financial resources will be sufficient for the Corporation to satisfy its debt
service obligations and other capital requirements. See "Risk Factors --
Cyclical Business"

RECENT LOSSES

During the period from May 7 through December 31, 1993, the Corporation
reported a net loss of $129 million after the amortization of $113 million of
Excess Reorganization Value. The Corporation expects to report net losses at
least until its Excess Reorganization Value is fully amortized in 1998. Such
amortization will be $170 million per year in 1994 through 1997 and $57 million
in 1998. Although a significant portion of the Corporation's recent net losses
are the result of non-cash items, there can be no assurance that the Corporation
will have net income in the future.

CYCLICAL BUSINESS

The Corporation's business is cyclical in nature and sensitive to changes
in general economic conditions, including, in particular, conditions in the
housing and construction-based markets. These markets are in turn influenced by
a variety of factors beyond the Corporation's control, including interest rates.
As a result of this cyclicality, the Corporation has experienced and in the
future could experience reduced revenues and margins, which may affect the
Corporation's ability to satisfy its debt service obligations on a timely basis.
During 1992, a modest recovery in the Corporation's markets was evidenced by
increases in housing starts and wallboard pricing and shipments, in addition to
improvement in sales of other construction products over 1991. This recovery
continued in 1993. However, there can be no assurance that the modest recovery
which began in 1992 will continue.

HOLDING COMPANY STRUCTURE; RELATIVE PRIORITY OF DEBT CLAIMS

The Corporation's operations are conducted through the Subsidiaries. The
Corporation's ability to service its indebtedness is largely dependent upon the
receipt of funds from the Subsidiaries by way of dividends, interest, loans or
otherwise. The rights of the Corporation and its creditors, including holders
of the New Notes, to realize upon the assets of any Subsidiary upon the latter's
liquidation or reorganization will be subject to the prior claims of such
Subsidiary's creditors, except to the extent that the Corporation itself may be
a creditor with enforceable claims against such Subsidiary. Therefore, the New
Notes will be effectively subordinated to existing and future liabilities of the
Corporation's Subsidiaries.

-14-
<PAGE>

of the Corporation would have been directly liable for $105 million principal
amount of such debt. The Subsidiary Guarantors have guaranteed pursuant to the
Amended Subsidiary Guarantees Agreement the Bank Debt Obligations and the Senior
2002 Notes. Such obligations were approximately $926 million as of December 31,
1993. On a pro forma basis to give effect to the Transactions such obligation
would have been approximately $786 million as of December 31, 1993. See
"Description of the Credit Agreement."

At present, there are no contractual restrictions on the payment of
dividends by the Corporation's domestic Subsidiaries. However, certain of the
Corporation's foreign Subsidiaries are subject to loan covenants or other
contractual provisions which could limit their ability to pay dividends to the
Corporation.

NONCOMPARABILITY OF HISTORICAL FINANCIAL INFORMATION

As a result of the adoption of fresh start accounting upon emergence from
bankruptcy, the Corporation's assets and liabilities were adjusted to fair
values and retained earnings were restated to zero. The historical financial
information presented herein should not, therefore, be viewed as indicative of
the Corporation's future financial performance.

ASBESTOS LITIGATION

One of the Corporation's Subsidiaries, U.S. Gypsum, is a defendant in
asbestos lawsuits alleging property damage (the "Property Damage Cases") and
personal injury (the "Personal Injury Cases") and seeking compensatory and, in
many cases, punitive damages. This litigation has not had a material effect on
the Corporation's liquidity or earnings. To date, virtually all costs of the
Personal Injury Cases have been paid by insurance. U.S. Gypsum estimates that it
is probable that the Personal Injury Cases pending at December 31, 1993 can be
disposed of for an amount between $100 million and $120 million, virtually all
of which is expected to be paid by insurance. U.S. Gypsum is unable to make a
reasonable estimate of the cost of disposing of its pending Property Damage
Cases, some of which are class actions or involve multiple buildings. Many of
U.S. Gypsum's insurance carriers are denying coverage for the Property Damage
Cases, although U.S. Gypsum believes that substantial coverage exists and the
trial court in U.S. Gypsum's insurance coverage action (the "Coverage Action")
against its carriers has so ruled (such ruling has been appealed).

In view of the limited insurance funding currently available to U.S. Gypsum
for Property Damage Cases resulting from continued resistance by a number of its
insurers to providing coverage, the effect of the asbestos litigation on the
Corporation will depend upon a variety of factors, including the damages sought
in Property Damage Cases that reach trial prior to the completion of the
Coverage Action, U.S. Gypsum's ability to successfully defend or settle such
cases, and the resolution of the Coverage Action. As a result, management is
unable to determine whether an adverse outcome in the asbestos litigation will
have a material adverse effect on the results of operations or the consolidated
financial position of the Corporation. The Corporation's independent public
accountants have also noted this uncertainty in their report with respect to the
financial statements of the Corporation.

CREDIT AGREEMENT AND OTHER RESTRICTIONS

The Credit Agreement contains certain restrictions on the Corporation's
operations including, among other things, limitations on the ability of the
Corporation and certain of the Subsidiaries ("Restricted Subsidiaries") to
(i) incur additional indebtedness, subject to certain exceptions, including an
exception allowing an aggregate of $50 million of capitalized lease obligations
and an aggregate of $75 million of indebtedness to be incurred by foreign
Subsidiaries that are not Restricted Subsidiaries, (ii) make any investments in
excess of $5 million in the aggregate, subject to certain exceptions, including
an exception allowing the Corporation (subject to certain terms and conditions)
to repurchase its public senior debt with certain proceeds of permitted asset
sales, certain proceeds from the issuance of public equity or debt securities
and certain excess cash flow otherwise payable to the Banks under the Credit
Agreement, (iii) make capital expenditures, subject to various exceptions and
limitations, or sell assets outside the ordinary course of business, subject to
certain exceptions, including an exception allowing for sales of up to $20
million in any fiscal year and $5 million in any single transaction or series of
related transactions, (iv) make certain payments with respect to outstanding
stock and debt, (v) give guarantees, and (vi) effect certain fundamental
changes, such as the sale of all or substantially all of the Corporation's or
any Restricted Subsidiary's assets, or enter into mergers, recapitalizations or
other similar transactions. Although the Credit Agreement Amendments are
designed

-15-
<PAGE>

to increase the Corporation's financial and operating flexibility in certain
regards, the foregoing restrictions nonetheless will continue to limit the
Corporation's ability to respond to opportunities or changes in its business.
See "Description of Credit Agreement."

In addition, after January 1, 1995, the Credit Agreement will require the
Corporation to achieve and maintain certain financial ratios and tests. There
can be no assurance that the Corporation will be able to achieve and maintain
compliance with the prescribed financial ratios and tests or other requirements
under the Credit Agreement. Failure to achieve or maintain compliance with such
financial ratios and tests or other requirements under the Credit Agreement
would result in a default that could lead to the acceleration of the
Corporation's obligations under the Credit Agreement. An acceleration under the
Credit Agreement would in turn permit the acceleration of other indebtedness of
the Corporation. The acceleration of any such indebtedness would result in its
becoming immediately due and payable and could result in the Corporation
becoming subject to a proceeding under the federal bankruptcy laws. See
"Description of Credit Agreement."

In addition to the restrictions and covenants contained in the Credit
Agreement, the Corporation's 10 1/4% Senior Notes due 2002 (the "Senior 2002
Notes") contain restrictions on the ability of the Corporation and the
Subsidiaries to incur additional indebtedness, to pay dividends on the Common
Stock, to effect certain fundamental changes and to enter into certain types of
transactions.

CERTAIN TRADING CONSIDERATIONS

There is no established trading market for the Senior 2001 Notes. The
trading markets for the New Notes will depend on the future performance of the
Corporation and other factors generally affecting the securities markets
(including, for example, interest rates), which factors are influenced by
conditions beyond the Corporation's control. The New Notes are not listed on any
exchange.

CONTROL OF COLLATERAL TRUST AGREEMENT BY BANK GROUP

The New Notes, together with the Bank Debt Obligations and certain other
indebtedness of the Corporation indicated in the table below, are secured by a
pledge of all of the shares of the Corporation's major domestic Subsidiaries and
65% of certain foreign Subsidiaries (including CGC) (the "Collateral") under the
Collateral Trust Agreement and certain related pledge and security agreements.
Decisions with respect to the Collateral under the Collateral Trust Agreement
are subject to the control of the Bank Group (by majority action). All of the
Collateral will be released upon the consent and direction of the Bank Group.
In addition, the holders of a majority of the Bank Debt Obligations may instruct
the Collateral Trustee to release specified portions of the Collateral (e.g., in
the case of asset sales approved by the holders of the Bank Debt Obligations
under the Credit Agreement) provided that no Actionable Default has occurred and
is continuing. The Collateral will be released in any event at such time as the
obligations under the Credit Agreement have been paid in full notwithstanding
the fact that there may be outstanding obligations under the New Notes. The
holders of the New Notes will not have any similar rights to authorize the
release of the Collateral.

The Bank Group also has the exclusive right without consent of the holders
of the New Notes to direct the Collateral Trustee to exercise, or refrain from
exercising, any rights or remedies with respect to the Collateral following
receipt of a Notice of Actionable Default. Consequently, the holders of New
Notes will have no right to direct the Collateral Trustee to foreclose upon the
Collateral or take or refrain from taking any other actions with respect thereto
even at such times as the value of the Collateral may be diminishing. See
"Description of Collateral Trust."

-16-
<PAGE>

The relative rankings of the Bank Debt Obligations and certain other direct
indebtedness of the Corporation after the Restructuring are summarized in the
following table: (a):

1. SECURED DEBT: (b)(c)
Bank Debt (d)
Senior 2004 Debentures (e)
Senior 1995 Notes
Senior 1996 Notes
Senior 1997 Notes
Senior 1998 Notes
Senior 2001 Notes
Senior 2002 Notes
Senior 2017 Debentures
2. UNSECURED DEBT (f)

________________________________________

(a) As of December 31, 1993, there were $1,462 million of obligations of the
Corporation secured pursuant to the Collateral Trust Agreement. On a pro
forma basis, assuming consummation of the Transactions as of such date,
there would have been $1,186 million of such obligations. See
"Capitalization" for the outstanding amounts of the specific debt
obligations listed in the table as of December 31, 1993.

(b) Equally and ratably secured by a pledge of the capital stock of certain
Subsidiaries under the Collateral Trust Agreement and certain related
pledge and security agreements.

(c) All "Secured Debt," to the extent of the value of the security interests
securing any such "Secured Debt," ranks ahead of all "Unsecured Debt." To
the extent any amount of the "Secured Debt" is undersecured or becomes
unsecured, any such amount will have the relative priority of "Unsecured
Debt."

(d) Each of the principal domestic Subsidiaries has guaranteed the Bank Debt
Obligations, subject to certain limits, and, pursuant to the Amended
Contingent Payment Guarantees, the Senior 2002 Notes are entitled to
participate in any collections made under the Amended Subsidiary Guarantees
of the Bank Debt Obligations. Accordingly, the holders of such debt may
have the ability (indirectly) to obtain repayment from the Subsidiaries.

(e) U.S. Gypsum is a co-obligor. Accordingly, holders of the Senior 2004
Debentures also have the ability to seek repayment directly from U.S.
Gypsum.

(f) Includes IRBs of $38 million as of December 31, 1993 assumed by the
Corporation and certain guarantee obligations (including the Corporation's
guarantee of borrowings under the Revolving Credit Facility).

USE OF PROCEEDS

The Corporation will not receive any proceeds in connection with the
Exchange Offer. The proceeds the Corporation received in the Old Note Placement
along with proceeds expected to be received in connection with the Offering and
additional cash on hand will be used to pay indebtedness and general corporate
purposes, including capital expenditures for cost reduction, capacity
improvement and future growth opportunities. The Corporation has no present
plans, commitments or understandings with respect to significant future
acquisitions, but may take advantage of opportunities, if any, that may rise in
the future.

-17-
<PAGE>

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited Pro Forma Condensed Consolidated Statement of Earnings for
the year ended December 31, 1993 and the unaudited Pro Forma Condensed
Consolidated Balance Sheet as of December 31, 1993 illustrate the effect of the
Transactions, including the sale by the Corporation of 7,000,000 shares of
Common Stock in the Offering and the sale of an additional 900,000 shares of
Common Stock pursuant to the underwriters' over-allotments options, yielding net
proceeds of $224 million at an offering price of $29.875 per share. The
unaudited pro forma condensed consolidated financial statements should be read
in conjunction with "Selected Consolidated Financial Data," and the
Corporation's Consolidated Financial Statements and related notes thereto
incorporated by reference in this Prospectus.

The unaudited Pro Forma Condensed Consolidated Statement of Earnings for
the year ended December 31, 1993 was prepared as if the Transactions had
occurred on January 1, 1993. Due to the Restructuring and implementation of
fresh start accounting, financial statements effective May 7, 1993 are not
comparable to financial statements prior to that date. However, for presentation
of the Pro Forma Condensed Consolidated Statement of Earnings, total results for
1993 are shown under the caption "Total Before Adjustments." The adjustments
set forth under the caption "Restructuring" reflect the implementation of the
Prepackaged Plan on May 6, 1993, including the adoption of fresh start
accounting prescribed by AICPA Statement of Position 90-7, and the issuance of
$138 million in aggregate principal amount of Senior 2002 Notes on August 10,
1993 in exchange for bank debt as if those transactions had also occurred on
January 1, 1993.

The unaudited Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 1993 was prepared as if the consummation of the Transactions had
occurred on December 31, 1993.

USG CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1993
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

TOTAL BEFORE PRO FORMA ADJUSTMENTS
------------ ---------------------
ADJUSTMENTS (A) RESTRUCTURING (B) TRANSACTIONS PRO FORMA
--------------- ----------------- ------------ ---------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . $1,916 $ $ $1,916
Cost of products sold. . . . . . . . . . . . . . . . . . . 1,544 1,544
------ ------ ------ ------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . 372 372
Selling and administrative expenses. . . . . . . . . . . . 220 220
Amortization of Excess Reorganization Value. . . . . . . . 113 57 (c) 170
------ ------ ------ ------
Operating profit/(loss). . . . . . . . . . . . . . . . . . 39 (57) (18)

Interest expense . . . . . . . . . . . . . . . . . . . . . 178 (39) (d) (19) (e) 120
Interest income. . . . . . . . . . . . . . . . . . . . . . (6) (6)
Other income, net. . . . . . . . . . . . . . . . . . . . . (2) (1) (3)
Reorganization items . . . . . . . . . . . . . . . . . . . (709) 709 (f) --
------ ------ ------ ------
Earnings/(loss) before taxes on income, extraordinary gain
and changes in accounting principles. . . . . . . 578 (726) 19 (129)
Taxes on income. . . . . . . . . . . . . . . . . . . . . . 46 (17) 7 36
------ ------ ------ ------
Earnings/(loss) before extraordinary gain and changes in
accounting principles . . . . . . . . . . . . . . 532 (709) 12 (165)
------ ------ ------ ------
------ ------ ------ ------
Earnings/(loss) before extraordinary gain and changes in
accounting principles per common share. . . . . . --(g) (3.66) (h)
------ ------
------ ------

</TABLE>

SEE ACCOMPANYING NOTES TO THE PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF EARNINGS.

-18-
<PAGE>
USG CORPORATION
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1993
(UNAUDITED)
(DOLLARS IN MILLIONS)

The following notes set forth the explanations and assumptions used in
preparing the unaudited Pro Forma Condensed Consolidated Statement of Earnings.
The pro forma adjustments are based on estimates by the Corporation's management
using information currently available.

(a) Due to the Restructuring and implementation of fresh start accounting,
financial statements for periods after May 6, 1993 are not comparable to
financial statements prior to that date. However, for presentation of the
Pro Forma Condensed Consolidated Statement of Earnings, results for 1993
are shown under the caption "Total Before Adjustments."

(b) The adjustments set forth under the caption "Restructuring" reflect the
implementation of the Prepackaged Plan on May 6, 1993, including the
adoption of fresh start accounting prescribed by AICPA Statement of
Position 90-7, and the issuance of Senior 2002 Notes on August 10, 1993 in
exchange for bank debt, as if those transactions had occurred on January 1,
1993.

(c) Reflects amortization of Excess Reorganization Value which would have been
recorded during the period of January 1 through May 6, 1993 had the
Restructuring been consummated on January 1, 1993.

(d) Reflects net reduction of interest expense for the period of January 1
through May 6, 1993 as a result of the assumed implementation of the
Prepackaged Plan and issuance of Senior 2002 Notes on January 1, 1993. The
net reduction has been estimated as follows:

<TABLE>

<S> <C> <C>
Decrease in interest expense:
Bank debt. . . . . . . . . . . . . . . . . . . . . . . . . . . $(21)
7 3/8% senior notes due 1991 . . . . . . . . . . . . . . . . . (3)
13 1/4% senior subordinated debentures . . . . . . . . . . . . (22)
16% junior subordinated debentures . . . . . . . . . . . . . . (18)
------
$(64)
Increase in interest expense:
Senior 1995 Notes. . . . . . . . . . . . . . . . . . . . . . . 2
Senior 1998 Notes. . . . . . . . . . . . . . . . . . . . . . . 1
Senior 2002 Notes. . . . . . . . . . . . . . . . . . . . . . . 18
21
Amortization of reorganization debt discount. . . . . . . . . . . . 4
------
Net reduction of interest expense . . . . . . . . . . . . . . . . . (39)
------

</TABLE>

(e) Reflects net reduction of interest expense as a result of the Transactions.
The net reduction has been estimated as follows:

<TABLE>

<S> <C> <C>
Decrease in interest expense:
Bank debt. . . . . . . . . . . . . . . . . . . . . . . . . . . $(8)
Senior 1995 Notes. . . . . . . . . . . . . . . . . . . . . . . (6)
Senior 1996 Notes. . . . . . . . . . . . . . . . . . . . . . . (7)
Senior 1997 Notes. . . . . . . . . . . . . . . . . . . . . . . (7)
Senior 1998 Notes. . . . . . . . . . . . . . . . . . . . . . . (3)
------
$(31)
Increase in interest expense:
Senior 2001 Notes . . . . . . . . . . . . . . . . . . . . . . 14
Amortization of reorganization debt discount. . . . . . . . . (2)
------
Net reduction of interest expense . . . . . . . . . . . . . . . . . (19)
------

</TABLE>

-19-
<PAGE>

Gives effect to the acquisition of approximately $30 million aggregate
principal amount of Senior 1996 Notes and approximately $35 million
aggregate principal amount of Senior 1997 Notes in the Old Note Placement.
Assumes additional purchases by the Corporation of approximately $60
million principal amount of Senior 1996 Notes and $51 million principal
amount of Senior 1997 Notes. The additional purchases are assumed to be
made at 100% of principal amount. However, the Senior 1996 Notes and Senior
1997 Notes are not callable and there can be no assurance that the
Corporation will be able to purchase the additional Senior 1996 Notes or
Senior 1997 Notes as shown. Funds not used to purchase additional Senior
1996 Notes and Senior 1997 Notes within 12 months after the consummation of
the Offering may become subject to the cash sweep mechanism under the
Credit Agreement. If the Corporation is unable to purchase the additional
Senior 1996 Notes and Senior 1997 Notes as shown, pro forma pre-tax
interest expense could increase by up to $3 million and pro forma earnings
before extraordinary gain and changes in accounting principles could
decrease by up to $2 million, or $0.04 per share. See "Description of
Credit Agreement."

(f) Reflects the elimination of the net gain from reorganization items
associated with the implementation of the Prepackaged Plan and the adoption
of fresh start accounting, since this gain would have been recorded in the
period prior to January 1, 1993.

(g) Due to the Restructuring and implementation of fresh start accounting,
earnings/(loss) before extraordinary gain and changes in accounting
principles per common share for 1993 shown under the caption "Total Before
Adjustments" is not meaningful and therefore has been omitted.

(h) Pro forma earnings/(loss) before extraordinary gain and changes in
accounting principles per common share is computed based upon an average of
45,057,590 shares of Common Stock assumed to be outstanding during the year
ended December 31, 1993. Amortization of Excess Reorganization Value
($170 million) and reorganization debt discount ($10 million) reduced pro
forma earnings/(loss) before extraordinary gain and changes in accounting
principles per common share by $3.99 (or $180 million in total).
Reorganization debt discount is a component of interest expense.

-20-
<PAGE>

USG CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1993
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

ASSETS

HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . $211 $(52)(a) $159
Receivables. . . . . . . . . . . . . . . . . . . . . . . 264 264
Inventories. . . . . . . . . . . . . . . . . . . . . . . 145 145

---------- ---------- ---------
Total current assets. . . . . . . . . . . . . . . . . 620 (52) 568
Property, plant and equipment, net . . . . . . . . . . . . 754 754
Excess Reorganization Value, net . . . . . . . . . . . . . 735 735
Other assets . . . . . . . . . . . . . . . . . . . . . . . 54 54
---------- ---------- ---------
Total assets. . . . . . . . . . . . . . . . . . . . . 2,163 (52) 2,111
---------- ---------- ---------
---------- ---------- ---------

</TABLE>

LIABILITIES AND STOCKHOLDERS' EQUITY

<S> <C> <C> <C>
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . $104 $ $104
Accrued expenses . . . . . . . . . . . . . . . . . . . . 208 208
Notes payable. . . . . . . . . . . . . . . . . . . . . . 2 2
Long-term debt maturing within one year. . . . . . . . . 165 (158)(b) 7
Taxes on income. . . . . . . . . . . . . . . . . . . . . 20 20
---------- ---------- ---------
Total current liabilities . . . . . . . . . . . . . . 499 (158) 341
---------- ---------- ---------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 1,309 (117)(b) 1,192
Deferred income taxes. . . . . . . . . . . . . . . . . . . 180 180
Other liabilities. . . . . . . . . . . . . . . . . . . . . 309 309
Stockholders' equity/(deficit):
Preferred stock. . . . . . . . . . . . . . . . . . . . . -- --
Common stock . . . . . . . . . . . . . . . . . . . . . . 4 1(c) 5
Capital received in excess of par value. . . . . . . . . -- 223(c) 223
Deferred currency translation. . . . . . . . . . . . . . (9) (9)
Reinvested earnings/(deficit). . . . . . . . . . . . . . (129) (1)(d) (130)
---------- ---------- ---------
Total stockholders' equity/(deficit). . . . . . . . . (134) 223 89
---------- ---------- ---------
Total liabilities and stockholders' equity. . . . . . 2,163 (52) 2,111
---------- ---------- ---------
---------- ---------- ---------

Book value/(deficit) per common share. . . . . . . . . . . (3.61) 5.59 1.98
---------- ---------- ---------
---------- ---------- ---------

</TABLE>

SEE ACCOMPANYING NOTES TO THE PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET.

-21-
<PAGE>

USG CORPORATION
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1993
(UNAUDITED)
(DOLLARS IN MILLIONS)

The following notes set forth the explanations and assumptions used in
preparing the unaudited Pro Forma Condensed Consolidated Balance Sheet. The pro
forma adjustments are based on estimates by the Corporation's management using
information currently available.

(a) Reflects the reduction in cash and cash equivalents as follows:

<TABLE>

<S> <C>
Payment of bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(140)
Retirement of Senior 1995 Notes. . . . . . . . . . . . . . . . . . . . . . . . (75)
Retirement of Senior 1996 Notes. . . . . . . . . . . . . . . . . . . . . . . . (60)
Retirement of Senior 1997 Notes. . . . . . . . . . . . . . . . . . . . . . . . (51)
Retirement of Senior 1998 Notes. . . . . . . . . . . . . . . . . . . . . . . . (35)
Issuance for cash of Old Notes in the Old Note Placement . . . . . . . . . . . 85
Issuance of Common Stock in the Offering . . . . . . . . . . . . . . . . . . . 224
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (52)

--------
--------

</TABLE>

(b) Reflects net reduction of short and long-term debt as follows:

<TABLE>

<S> <C>
Payment of bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(140)
Retirement of Senior 1995 Notes. . . . . . . . . . . . . . . . . . . . . . . . (75)
Retirement of Senior 1996 Notes. . . . . . . . . . . . . . . . . . . . . . . . (90)
Retirement of Senior 1997 Notes. . . . . . . . . . . . . . . . . . . . . . . . (86)
Retirement of Senior 1998 Notes. . . . . . . . . . . . . . . . . . . . . . . . (35)
Issuance of Old Notes in the Old Note Placement. . . . . . . . . . . . . . . . 150
--------
(276)
Write-off of related unamortized reorganization discount . . . . . . . . . . . 1
--------

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (275)
--------
--------

</TABLE>

(c) Reflects the sale by the Corporation of 7,000,000 shares of Common Stock in
the Offering and the sale of an additional 900,000 shares of Common Stock
pursuant to the underwriters' over-allotments options, yielding net
proceeds of $224 million at an offering price of $29.875 per share.

(d) Reflects the write-off of an additional $1 million of unamortized
reorganization debt discount which would have been recorded on December 31,
1993 if the Transactions had occurred on that date.

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<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA AND GYPSUM WALLBOARD PRICES)

The following table presents selected historical consolidated financial
information of the Corporation for the post-Restructuring period of May 7
through December 31, 1993 and for the pre-Restructuring periods of January 1
through May 6, 1993 and the five years ended December 31, 1992. Due to the
Restructuring and implementation of fresh start accounting, financial statements
effective May 7, 1993 are not comparable to financial statements for periods
prior to that date. Accordingly, a vertical line has been added to separate such
information. The information provided below has not been audited. However, the
selected annual historical consolidated financial information presented below
has been derived from the Consolidated Financial Statements of the Corporation
and the Subsidiaries which were examined by Arthur Andersen & Co., whose report
with respect to certain of such financial statements is incorporated by
reference in this Prospectus. The following financial information should be read
in conjunction with "Pro Forma Condensed Consolidated Financial Statements," and
the Corporation's Consolidated Financial Statements and notes thereto,
incorporated by reference in this Prospectus.

JANUARY 1 YEARS ENDED DECEMBER 31
MAY 7 THROUGH THROUGH MAY 6, --------------------------------------------
DECEMBER 31, 1993 1993(A) 1992 1991 1990 1989 1988
----------------- -------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net sales. . . . . . . . . . . . . . . . . . . . $1,325 $591 $1,777 $1,712 $1,915 $2,007 $2,070
Cost of products sold. . . . . . . . . . . . . . 1,062 482 1,460 1,385 1,499 1,506 1,536
----------------- -------------- ------ ------ ------ ------ ------
Gross profit . . . . . . . . . . . . . . . . . . 263 109 317 327 416 501 534
Selling and administrative expenses. . . . . . . 149 71 218 194 203 209 223
Amortization of Excess Reorganization Value. . . 113 -- -- -- -- -- --
Restructuring expenses . . . . . . . . . . . . . -- -- -- -- 18 -- 20
----------------- -------------- ------ ------ ------ ------ ------

Operating profit . . . . . . . . . . . . . . . . 1 38 99 133 195 292 291
Interest expense . . . . . . . . . . . . . . . . 92 86 334 333 292 297 178
Interest income. . . . . . . . . . . . . . . . . (4) (2) (12) (11) (8) (10) (13)
Other (income)/expense, net. . . . . . . . . . . (8) 6 1 5 5 15 16
Reorganization items . . . . . . . . . . . . . . -- (709)(b) -- -- -- -- --
Nonrecurring gain. . . . . . . . . . . . . . . . -- -- -- -- (34) (33) --
Taxes on income/(income tax benefit) . . . . . . 29 17 (33) (53) (6) 3 43
Extraordinary gain/(loss), net of taxes. . . . . (21) 944 -- -- -- -- --
Changes in accounting principles, net. . . . . . -- (150) -- -- -- -- --
Earnings/(loss) from discontinued
operations, net. . . . . . . . . . . . . . . . -- -- -- (20) (36) 8 58
----------------- -------------- ------ ------ ------ ------ ------

Net earnings/(loss) (c). . . . . . . . . . . . . (129) 1,434 (191) (161) (90) 28 125
----------------- -------------- ------ ------ ------ ------ ------
----------------- -------------- ------ ------ ------ ------ ------

Average number of common shares (d). . . . . . . 37,157,672
Loss before extraordinary loss per
common share . . . . . . . . . . . . . . . . . (2.90)
Net loss per common share (c)(d) . . . . . . . . (3.46)
Dividends paid per common share (d). . . . . . . --
BALANCE SHEET DATA (as of the end of the period):
Total assets . . . . . . . . . . . . . . . . . . 2,163 2,194 1,659 1,626 1,675 1,585 1,806
Total debt . . . . . . . . . . . . . . . . . . . 1,531(e) 1,556(e) 2,711 2,660 2,600 2,428 2,643
Total stockholders' equity/(deficit) . . . . . . (134) 4 (1,880) (1,680) (1,518) (1,438) (1,471)
OTHER INFORMATION:
EBITDA (f) . . . . . . . . . . . . . . . . . . . 155 63 159 194 280 361 383
Depreciation, depletion and
amortization (g) . . . . . . . . . . . . . . . 44 22 66 68 76 79 79
Capital expenditures . . . . . . . . . . . . . . 29 12 49 49 64 76 81
Gross margin (h) . . . . . . . . . . . . . . . . 19.8% 18.4% 17.8% 19.1% 21.7% 25.0% 25.8%
EBITDA margin (i). . . . . . . . . . . . . . . . 11.7% 10.7% 8.9% 11.3% 14.6% 18.0% 18.5%
Ratio of earnings to fixed charges (j) . . . . . --(k) 8.5(l) --(m) --(m) --(m) 1.1 1.6
Gypsum wallboard shipments: (n). . . . . . . . .
Total U.S. Industry. . . . . . . . . . . . . . 14.9 6.7 20.3 18.4 20.7 21.3 21.3
U.S. Gypsum. . . . . . . . . . . . . . . . . . 5.0 2.3 7.2 6.6 7.2 7.2 7.3
Average U.S. Gypsum wallboard price (o). . . . . $80.58 $75.81 $71.58 $72.53 $79.08 $85.68 $90.65

</TABLE>

23
<PAGE>

NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA

________________________________________

(a) Fresh start accounting adjustments were recorded on May 6, 1993.

(b) Reflects one-time gain from reorganization items, including an $851 million
gain from recording Excess Reorganization Value, partially offset by other
fresh start adjustments, fees and expenses associated with the
Restructuring and a write-off of deferred financing costs associated with
the 1988 Recapitalization.

(c) For the period of May 7 through December 31, 1993, amortization of Excess
Reorganization Value ($113 million) and reorganization debt discount
($8 million) reduced reported net earnings by $121 million, or $3.26 per
share. Reorganization debt discount is a component of interest expense.

(d) Common shares and per share data for periods prior to May 7, 1993 have been
omitted because, due to the Restructuring and implementation of fresh start
accounting, they are not meaningful.

(e) Total debt as of December 31 and May 6, 1993 are shown at principal
amounts. The carrying amounts (net of unamortized reorganization debt
discount) as reflected on the Corporation's balance sheets as of those
dates are $1,476 million and $1,461 million, respectively.

(f) EBITDA represents earnings before interest, taxes, depreciation, depletion,
amortization, non-cash postretirement charges, reorganization items,
extraordinary gain, discontinued operations and changes in accounting
principles. The Corporation believes EBITDA is helpful in understanding
cash flow generated from operations that is available for taxes, debt
service and capital expenditures. In addition, EBITDA facilitates the
monitoring of covenants related to certain long-term debt and other
agreements entered into in conjunction with the Restructuring. EBITDA
should not be considered by investors as an alternative to net earnings as
an indicator of the Corporation's operating performance or to cash flows as
a measure of its overall liquidity.

(g) Excludes amortization of Excess Reorganization Value, which is shown
separately under "Earnings Statement Data."

(h) Gross profit as a percentage of net sales.

(i) EBITDA as a percentage of net sales.

(j) For purposes of computing the ratio of earnings from continuing operations
to fixed charges, earnings from continuing operations are defined as
earning/(loss) from continuing operations before taxes on income, plus
interest expense, plus amortization of capitalized financing costs. Fixed
charges are defined as interest expense plus amortization of capitalized
financing costs. The interest factor in rental expense had an
insignificant effect on the ratios.

(k) For the period May 7 through December 31, 1993 earnings from continuing
operations were inadequate to cover fixed charges. The amount of the
coverage deficiency was $79 million. Included in earnings from continuing
operations before taxes was a non-cash charge for amortization of Excess
Reorganization Value of $113 million.

(l) Earnings from continuing operations for the period January 1 through May 6,
1993 includes a restructuring gain of $709 million. Without this gain,
earnings from continuing operations would have been inadequate to cover
fixed charges by $52 million.

(m) For the years ended December 31, 1992, 1991, and 1990, earnings from
continuing operations were inadequate to cover fixed charges. The amount
of the coverage deficiency were $224 million, $194 million, and $60
million,

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<PAGE>

respectively, of which $74 million, $63 million and $54 million,
respectively, of such fixed charges were pay-in-kind interest on the Old
Junior Subordinated Debentures.

(n) In billions of square feet.

(o) Represents average price per thousand square feet realized by U.S. Gypsum
during the periods shown.

CAPITALIZATION

The following table sets forth the unaudited consolidated capitalization of
the Corporation and the Subsidiaries as of December 31, 1993 and as adjusted to
give effect to the Transactions, including the issuance and sale of 7,000,000
shares of Common Stock by the Corporation in the Offering and the sale of an
additional 900,000 shares of Common Stock pursuant to the underwriters' over-
allotments options, yielding net proceeds of $224 million at an offering price
of $29.875 per share. This table should be read in conjunction with the Pro
Forma Condensed Consolidated Financial Statements contained elsewhere in this
Prospectus.

AS OF DECEMBER 31, 1993
---------------------------
HISTORICAL PRO FORMA(A)
---------- ------------
(unaudited)
(Dollars in millions)
<S> <C> <C>
Total Debt:
Bank debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $448 $308
Senior notes and debentures:
8% Senior Notes due 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 --
8% Senior Notes due 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 --
8% Senior Notes due 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 14
9% Senior Notes due 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 --
9 1/4% Senior Notes due 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 150
10 1/4% Senior Notes due 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . 478 478
7 7/8% Sinking Fund Debentures due 2004. . . . . . . . . . . . . . . . . . . . . . 36 36
8 3/4% Sinking Fund Debentures due 2017. . . . . . . . . . . . . . . . . . . . . . 200 200
Industrial revenue bonds and other secured debt. . . . . . . . . . . . . . . . . . . 69 69
------- -------
Total principal amount of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,531 1,255
Less unamortized reorganization discount . . . . . . . . . . . . . . . . . . . . . . (55) (54)
------- -------
Total carrying amount of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,476 1,201
------- -------
Stockholders' Equity/(Deficit):
Preferred Stock, $1 par value, 36,000,000 shares authorized, no shares outstanding -- --
Common Stock, $0.10 par value, 200,000,000 shares authorized, 37,158,085 shares
outstanding prior to the Offering, 45,058,085 shares outstanding upon
consummation of the Offering (b) . . . . . . . . . . . . . . . . . . . . . . . . 4 5
Capital received in excess of par value. . . . . . . . . . . . . . . . . . . . . . -- 223
Deferred currency translation. . . . . . . . . . . . . . . . . . . . . . . . . . . (9) (9)
Reinvested earnings/(deficit). . . . . . . . . . . . . . . . . . . . . . . . . . . (129) (130)
------- -------
Total stockholders' equity/(deficit) . . . . . . . . . . . . . . . . . . . . . . (134) 89
------- -------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,342 $1,290
------- -------
------- -------

<FN>
___________________________________

(a) Gives effect to the acquisition of approximately $30 million aggregate
principal amount of Senior 1996 Notes and approximately $35 million
aggregate principal amount of Senior 1997 Notes in the Old Note Placement.
Assumes additional purchases by the Corporation of approximately
$60 million principal amount of Senior 1996 Notes

</TABLE>

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<PAGE>

and $51 million principal amount of Senior 1997 Notes. The additional
purchases are assumed to be made at 100% of principal amount. However, the
Senior 1996 Notes and Senior 1997 Notes are not callable and there can be
no assurance that the Corporation will be able to purchase the additional
Senior 1996 or 1997 Senior Notes as shown. Funds not used to purchase
Senior 1996 Notes and Senior 1997 Notes within 12 months after the
consummation of the Offering may become subject to the cash sweep mechanism
under the Credit Agreement. See "Description of Credit Agreement."

(b) Does not include (i) warrants to purchase up to an aggregate of 2,601,619
shares of Common Stock which are immediately exercisable at a price of
$16.14 per share, (ii) options held by management to purchase up to an
aggregate of 1,673,000 shares of Common Stock which will become exercisable
at a price of $10.3125 per share in the years 1994 through 1996 and (iii)
options granted to management on February 9, 1994 to purchase up to an
aggregate of 933,000 shares of Common Stock which will become exercisable
at a price of $32.5625 per share in the years 1995 through 1997.

</TABLE>

THE EXCHANGE OFFER

PURPOSE OF THE EXCHANGE OFFER

In connection with the Old Note Placement, the Old Notes were originally
issued and sold to the Initial Purchasers on February 17, 1994. Such sales were
not registered under the Securities Act in reliance upon the exemption provided
by Section 4(2) of the Securities Act. In connection with the sale of the Old
Notes, pursuant to the Registration Rights Agreement the Corporation agreed,
among other things, to file with the Commission and have declared effective a
registration statement relating to an exchange offer (the "Exchange Offer
Registration Statement") pursuant to which another series of notes of the
Corporation covered by such registration statement and containing substantially
the same terms as the Old Notes would be offered in exchange for the Old Notes
tendered at the option of the holders thereof. Therefore, the purpose of the
Exchange Offer is to fulfill certain of the Corporation's obligations with
respect to the Registration Rights Agreement. See "Description of Registration
Rights Agreement."

Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of the State of Delaware or the 1986 Indenture in
connection with the Exchange Offer. The Corporation intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.

TERMS OF EXCHANGE

The Corporation hereby offers to exchange, subject to the conditions set
forth herein and in the Letter of Transmittal accompanying this Prospectus,
$1,000 in principal amount of New Notes for each $1,000 in principal amount of
the Old Notes. The terms of the New Notes are substantially identical to the
terms of the Old Note for which they may be exchanged pursuant to this Exchange
Offer, except that the New Notes will generally be freely transferable by
holders thereof and except that they will not be subject to any covenant
regarding registration or entitled to the payment of Liquidated Damages. The
New Notes will evidence the same debt as the Old Notes and will be entitled to
the benefits of the 1986 Indenture. See "Description of New Notes."

Upon the terms and subject to the conditions of the Exchange Offer, the
Corporation will accept for exchange, on a continuing basis, any and all Old
Notes properly tendered in the Exchange Offer, at any time and from time to time
on or after the next business day following the proper tender of any Old Note
through and including the next business day following the Expiration Date. The
New Notes will be delivered, as promptly as practicable after acceptance of the
Old Notes for exchange by the Corporation. See "The Exchange Offer --
Acceptance of Old Notes for Exchange; Delivery of New Notes." Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer. The
Exchange Offer is not conditioned upon any minimum aggregate principal amount of
Old Notes being tendered for exchange.

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<PAGE>

Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to third parties, the Corporation believes that New Notes
issued pursuant to the Exchange offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by any holder thereof (other than
broker-dealers, as set forth below, and any such holder that is an "affiliate"
of the Corporation within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and that such holder has no arrangement or
understanding with any person to participate in the distribution of such New
Notes. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes that were acquired as a result of market-making or other
trading activity must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. See "Plan of Distribution." Any holder who tenders in the
Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the New Notes could not rely on the position
of the staff of the Commission enunciated in EXXON CAPITAL HOLDINGS CORPORATION
(available May 13, 1988) or similar no-action letters and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Failure to comply with such requirements in such instance may
result in such holder incurring liability under the Securities Act for which the
holder is not indemnified by the Corporation.

Interest on the New Notes shall accrue from the last Interest Payment Date
on which interest was paid on the Old Notes surrendered in the Exchange Offer
or, if no interest has been paid on such Old Notes, from February 17, 1994.

EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS

The Exchange Offer shall expire on the Expiration Date. The term
"Expiration Date" means 5:00 p.m., New York time, on April 22, 1994, unless the
Corporation in its sole discretion extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" shall mean the latest
time and date on which the Exchange Offer, as so extended by the Corporation,
shall expire. The Corporation reserves the right to extend the Exchange Offer
at any time and from time to time by timely public announcement communicated,
unless otherwise required by applicable law or regulation, by issuing a press
release to the Dow Jones News Service. During any extension of the Exchange
Offer, all Old Notes previously tendered pursuant to the Exchange Offer will
remain subject to the Exchange Offer. The Corporation expressly reserves the
right (i) to terminate the Exchange Offer and not accept for exchange any Old
Notes if any of the events set forth below under "Conditions to the Exchange
Offer" shall have occurred and shall not have been waived by the Corporation and
(ii) to amend the terms of the Exchange Offer in any manner which, in its good
faith judgment, is advantageous to the holders of the Old Notes, whether before
or after any tender of the Old Notes.

HOW TO TENDER

The tender to the Corporation of Old Notes by a beneficial holder thereof
constitutes an agreement between such holder and the Corporation in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.

A holder of notes may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and any required signature guarantees, and delivering the same to the
Exchange Agent at the address set forth herein on or prior to the Expiration
Date, or (ii) complying with the guaranteed delivery procedures described below.

A tender of Old Notes must be accompanied by written instruments of
transfer in form satisfactory to the Corporation and duly executed by the
registered holder and the signature or the endorsement or instrument of transfer
must be guaranteed by a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States (any of the foregoing hereinafter referred to
as an "Eligible Institution"). The signatures need not be guaranteed if tendered
Old Notes

-27-
<PAGE>

are registered in the name of the signer of the Letter of Transmittal and the
New Notes to be issued in exchange therefor are to be issued (and any untendered
Old Notes are to be reissued) in the name of the registered holder.

The method of delivery of Old Notes and all other documents is at the
election and risk of the holder. If sent by mail, it is recommended that
registered mail, return receipt requested, be used, proper insurance obtained,
and the mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent on or before the Expiration Date.

If a holder of the Old Notes desires to accept the Exchange Offer and time
will not permit a Letter of Transmittal to reach the Exchange Agent before the
Expiration Date, a tender may be effected if the Exchange Agent has received at
its office listed on the back cover hereof on or prior to the Expiration Date a
letter, telegram or facsimile transmission from an Eligible Institution setting
forth the name and address of the tendering holder, the names in which the Old
Notes are registered, and stating that the tender is being made thereby and
guaranteeing that within five New York Stock Exchange trading days after the
date of execution of such letter, telegram or facsimile transmission by the
Eligible Institution, will be delivered by such Eligible Institution together
with a properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Old Notes being tendered by the above-described
method (and any other required documents are timely delivered) are recorded by
or deposited with the Exchange Agent within the time period set forth above the
Corporation may, at its option, reject the tender. Copies of a Notice of
Guaranteed Delivery which may be used by Eligible Institutions for the purposes
described in this paragraph are available from the Exchange Agent.

A tender will be deemed to have been received as of the date when the
Exchange Agent actually receives the tendering holder's properly completed and
duly signed Letter of Transmittal (or a facsimile thereof), together with
(i) the Old Note being tendered, properly endorsed for transfer, or (ii) a
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to
similar effect (as provided above) from an Eligible Institution. Issuances of
New Notes in exchange for Old Notes tendered pursuant to a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) by an Eligible Institution will be made only against deposit of
the Old Notes being tendered.

All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Corporation, whose determination will be final and binding.
The Corporation reserves the absolute right to reject any or all tenders not in
proper form or the acceptance for exchange of which may, in the opinion of the
Corporation's counsel, be unlawful. The Corporation also reserves the absolute
right to waive any of the conditions of the Exchange Offer or any defect or
irregularity in the tender of any Old Notes. The Corporation, the Exchange
Agent or any other person will not be under any duty to give notification of any
defects or irregularities in tenders or incur any liability for failure to give
any such notification.

TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL

The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.

The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Corporation and irrevocably
constitutes and appoints the Exchange Agent as the Transferor's agent and
attorney-in-fact to cause the Old Notes to be assigned, transferred and
exchanged. The Transferor represents and warrants that it has full power and
authority to tender, exchange, assign and transfer its interest in the Old Notes
and to acquire New Notes issuable upon exchange of such tendered Old Notes, and
that, when the same are accepted for exchange, the Corporation will acquire good
and unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim.
The Transferor also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Corporation to be necessary or desirable to
complete the exchange, assignment and transfer of tendered Old Note or transfer
ownership of such Old Notes. All authority conferred by the Transferor will
survive the death or incapacity of the Transferor and every obligation of the
Transferor shall be binding upon the heirs, legal representatives, successors,
assigns, executors and administrators of such Transferor.

The Transferor certifies that it is not an "affiliate" of the Corporation
within the meaning of Rule 405 under the Securities Act (or, if it is an
affiliate, that it will comply with the applicable requirements of the
Securities Act) and that it is

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<PAGE>

acquiring the New Notes offered hereby in the ordinary course of such
Transferor's business and that such Transferor has no arrangement with any
person to participate in the distribution of such New Notes. The Letter of
Transmittal requires each broker-dealer to represent that it will deliver a
prospectus in connection with any resale of any New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.

NO WITHDRAWAL RIGHTS

Tenders of Old Notes pursuant to the Exchange Offer are irrevocable and may
not be withdrawn.

ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES

Upon the terms and subject to the conditions of the Exchange offer, the
Corporation will accept for exchange, on a continuing basis, any and all Old
Notes properly tendered in the Exchange Offer, at any time and from time to time
on or after the next business day following the proper tender of any Old Note
through and including the next business day following the Expiration Date. For
the purposes of the Exchange Offer, the Corporation shall be deemed to have
accepted for exchange validly tendered Old Notes as, if and when, the
Corporation has given oral or written notice thereof to the Exchange Agent.

The Exchange Agent will act as agent for the tendering holders of Old Notes
for the purposes of causing the Old Note to be assigned, transferred and
exchanged. Upon the terms and subject to the conditions of the Exchange Offer,
delivery of New Notes to be issued in exchange for accepted Old Notes will be
made by the Exchange Agent as promptly practicable after acceptance of Old Notes
for exchange by the Corporation. Tendered Old Notes not accepted for exchange
by the Corporation will be returned without expense to the tendering holders
promptly following the Expiration Date or, if the Corporation terminates the
Exchange Offer prior to the Expiration Date, promptly after the Exchange Offer
is terminated.

CONDITIONS TO THE EXCHANGE OFFER

Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Corporation will not be required to issue New Notes
in respect of any properly tendered Old Notes not previously accepted and may
terminate the Exchange Offer (by oral or written notice to the Exchange Agent
and by timely public announcement communicated, unless otherwise required by
applicable law or regulation, by issuing a press release to the Dow Jones News
Service), or at its option, modify or otherwise amend the Exchange Offer, if
either of the following events occur:

(a) any statute, rule or regulation shall have been enacted, or
any action shall have been taken by any court or governmental
authority which, in the sole judgment of the Corporation, would
prohibit, restrict or otherwise render illegal, consummation of the
Exchange Offer;

(b) there shall have occurred a change in the current
interpretation by the staff of the Commission that the New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by the holders
thereof (other than any such holder that is an "affiliate" of the
Corporation within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such New Notes are
acquired in the ordinary course of such holders' business and such
holders have no arrangements with any person to participate in the
distribution of such New Notes; and

(c) subject to the provisions described below, if, at any time
prior to the consummation of the Exchange Offer, (i) the Corporation
reasonably determines, in good faith, that (A) the New Notes would
not, upon receipt, be tradeable by holders of at least $37.5 million
in aggregate principal amount of Old Notes without restriction under
the Securities Act and the Exchange Act and without material
restrictions under applicable blue sky or state securities laws, (B)
the interests of the holders of the Old Notes, taken as a whole, would
be materially adversely affected by the consummation of the Exchange
Offer, or (C) after conferring with counsel, the SEC is unlikely to
permit the consummation of the Exchange Offer, or (ii) the holders of
at least $30 million in aggregate principal amount of Old Notes notify
the Corporation in writing

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<PAGE>

that they have reasonably determined in good faith, based upon advice of
counsel, that (A) the participation of such holders in the Exchange Offer
is not legally permitted, (B) the New Notes would not, upon receipt, be
tradeable by such holders without restrictions under the Securities Act and
the Exchange Act and without material restrictions under applicable blue
sky or state securities laws, or (C) after conferring with counsel, there
exists a court decision or administrative action that might reasonably be
expected to have a material adverse effect on such holders in the event
such holders participated in the Exchange Offer.

Subject to the provisions described below with respect to events specified
in clause (c), the Corporation expressly reserves the right to terminate the
Exchange Offer and not to accept for exchange any Old Notes upon the occurrence
of either of the foregoing conditions (which represent all of the material
conditions to the acceptance by the Corporation of properly tendered Old Notes).
In addition, the Corporation may amend the Exchange Offer at any time prior to
the Expiration Date if any of the conditions set forth above occurs. Moreover,
regardless of whether either of such conditions has occurred, the Corporation
may amend the Exchange Offer in any manner which, in its good faith judgment, is
advantageous to holders of the Old Notes and is not prohibited by the
Registration Rights Agreement.

The conditions specified above are for the sole benefit of the Corporation
and may be waived by the Corporation, in whole or in part, in its sole
discretion. Any determination made by the Corporation concerning an event,
development or circumstance described or referred to in clauses (a) and (b) will
be final and binding on all parties.

If any of the events specified in clause (c) occur, then the Corporation
shall promptly deliver to the holders of the Old Notes and the 1986 Indenture
Trustee the Shelf Notice and as soon as practicable thereafter shall file the
Shelf Registration Statement. Upon the delivery of a Shelf Notice for any of
the reasons specified clause (c), the Corporation shall have no further
obligation with respect to the Exchange Offer and may terminate the Exchange
Offer unless the holders of at least $37.5 million in aggregate principal amount
of Old Notes notify the Corporation in writing that such holders intend to and
may, under applicable law, participate in the Exchange Offer, in which case the
Corporation's obligations under the Registration Rights Agreement with respect
to such holders concerning the Exchange Offer and with respect to other holders
of the Old Notes concerning the Shelf Registration Statement, shall be
concurrent and independent. The Corporation will pay all expenses incurred in
connection with the Exchange Offer, whether or not it becomes effective or is
consummated. See "Description of Registration Rights Agreement."

EXCHANGE AGENT

Harris Trust and Savings Bank, 311 West Monroe Street, Chicago, Illinois
60690, has been appointed as the Exchange Agent for the Exchange Offer. Letters
of Transmittal must be addressed to the Exchange Agent at its address set forth
herein. Harris Trust and Savings Bank also acts as the Transfer Agent (the
"Transfer Agent") with respect to the Senior 2001 Notes and the trustee under
the 1986 Indenture.

Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.

SOLICITATION OF TENDERS; EXPENSES

The Corporation will pay all Registration Expenses (as defined in the
Registration Rights Agreement) incurred in connection with the Exchange Offer,
whether or not it becomes effective or is consummated. The Corporation has not
retained any dealer-manager or similar agent in connection with the Exchange
Offer and will not make any payments to brokers, dealers or others for
soliciting acceptance of the Exchange Offer. Each holder of the Old Notes shall
pay all of its expenses that are not Registration Expenses including, without
limitation, all underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of the Old Notes. The Corporation
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Corporation will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of the Old Notes and in handling or forwarding tenders
for their customers.

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<PAGE>

No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus and, if given or made, such information or representations
should not be relied upon as having been authorized by the Corporation. Neither
the delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implications that there has been no change in the
affairs of the Corporation since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. The Corporation may, however, at
its discretion, take such action as it may deem necessary to make the Exchange
Offer in any such jurisdiction and extend the Exchange Offer to holders of Old
Notes in such jurisdiction. In any jurisdiction the securities laws or blue sky
laws of which require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of the Corporation by one or
more registered brokers or dealers that are licensed under the laws of such
jurisdiction.

OTHER

Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.

As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Corporation will have fulfilled a covenant contained in the terms of the Old
Notes and the Registration Rights Agreement. Holders of the notes who do not
tender their Old Notes in the Exchange Offer will continue to beneficially hold
such Old Notes and will be entitled to all rights, and limitations applicable
thereto, under the 1986 Indenture, except for any such rights under the
Registration Rights Agreement, which by their terms terminate or cease to have
further effectiveness as a result of the making of this Exchange Offer. See
"Description of Registration Rights Agreement." All untendered Old Notes will
continue to be subject to the restrictions on transfer set forth in the Old
Notes and in the 1986 Indenture. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered Old Notes
could be adversely affected.

The Corporation may in the future seek to acquire untendered Old Notes in
the open market or privately negotiated transactions, through subsequent offers
or otherwise. The Corporation has, however, no present plan to acquire any Old
Notes that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any Old Notes that are not tendered pursuant to
the Exchange Offer.

Broker-dealers may be obligated to deliver a prospectus meeting the
requirements of the Securities Act with respect to resales of New Notes. See
"Plan of Distribution."

DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT

Pursuant to the Registration Rights Agreement among the Corporation and the
Initial Purchasers, the Corporation agreed to use its reasonable best efforts to
file with the Commission as soon as practicable after consummation of the Old
Note Placement, but in no event later than February 28, 1994 the Exchange Offer
Registration Statement and to cause it to become effective by April 28, 1994
(the "Target Effective Date"), with respect to the New Notes, and upon becoming
effective, to offer the holders of the Old Notes the opportunity to exchange
their Old Notes for such notes. The Corporation therefore is conducting the
Exchange Offer.

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<PAGE>

not, upon receipt, be tradeable by such holders without restrictions under the
Securities Act and the Exchange Act and without material restrictions under
applicable blue sky or state securities laws, or (C) after conferring with
counsel, there exists a court decision or administrative action that might
reasonably be expected to have a material adverse effect on such holders in the
event such holders participated in the Exchange Offer, then the Corporation
shall promptly deliver to the holders of the Old Notes and the 1986 Indenture
Trustee notice thereof (the "Shelf Notice") and as soon as practicable
thereafter shall file a shelf registration statement covering resales of the Old
Notes (the "Shelf Registration Statement"). Upon the delivery of a Shelf Notice
for any of the foregoing reasons, the Corporation shall have no further
obligation with respect to the Exchange Offer and may terminate the Exchange
Offer unless the holders of at least $37.5 million in aggregate principal amount
of Old Notes notify the Corporation in writing that such holders intend to and
may, under applicable law, participate in the Exchange Offer, in which case the
Corporation's obligations under the Registration Rights Agreement with respect
to such holders concerning the Exchange Offer and with respect to other holders
of the Old Notes concerning the Shelf Registration Statement shall be concurrent
and independent. The Corporation will pay all expenses incurred in connection
with the Exchange Offer, whether or not it becomes effective or is consummated.

Under the Registration Rights Agreement, if the Exchange Offer is not
consummated on or before May 27, 1994 (the "Target Consummation Date"), the
Corporation shall pay, subject to certain limitations as discussed below,
liquidated damages ('Liquidated Damages") to each holder of Registrable
Securities (under the Registration Rights Agreement, Registrable Securities
means each Old Note; PROVIDED, HOWEVER, that such Old Note shall cease to be a
Registrable Security when (i) a Registration Statement with respect to such Old
Note shall have been declared effective under the Securities Act and such
Security shall have been disposed of pursuant to such Registration Statement,
(ii) such Old Note has been sold to the public pursuant to Rule 144 (or any
similar provision then in force, but not Rule 144A) under the Securities Act, or
(iii) such Old Note shall have ceased to be outstanding), in an amount equal to
$.10 per $1,000 outstanding principal amount of Registrable Securities per week
beginning on the Target Consummation Date. If the Shelf Registration is filed
but has not become effective on or before the Target Effective Date or the
Extended Effective Date (as defined in the Registration Rights Agreement), as
the case may be, the Corporation shall pay Liquidated Damages to each holder of
Registrable Securities in an amount equal to $.10 per $1,000 outstanding
principal amount of Registrable Securities per week beginning on the Target
Effective Date or the Extended Effective Date, as the case may be. The weekly
Liquidated Damages associated with a late declaration of effectiveness or a late
consummation of the Exchange Offer shall increase by an amount equal to $.05 per
$1,000 outstanding principal amount of Registrable Securities 90 days after the
Target Consummation Date, the Target Effective Date or the Extended Effective
Date, as the case may be, and shall thereafter increase by an amount equal to
$.05 per $1,000 outstanding principal amount at the end of each subsequent
90 day period for so long as the Exchange Offer or the Shelf Registration is not
declared effective or consummated, as the case may be.

If a stop order is imposed or if, subject to certain exceptions, for any
other reason the effectiveness of the Shelf Registration Statement is suspended
during the Shelf Registration Period (as defined in the Registration Rights
Agreement), then the Corporation shall pay Liquidated Damages to each holder of
Registrable Securities in an amount equal to $.10 per $1,000 outstanding
principal amount of Registrable Securities per week beginning on the date of
such stop order or other suspension of effectiveness. The weekly Liquidated
Damages associated with a suspension of the effectiveness of the Shelf
Registration shall increase by an amount equal to $.05 per $1,000 outstanding
principal amount of Registrable Securities 90 days after the stop order was
imposed or the Shelf Registration was otherwise suspended, and shall thereafter
increase by an amount equal to $.05 per $1,000 outstanding principal amount of
Registrable Securities at the end of each subsequent 90 day period for so long
as the effectiveness remains suspended. Liquidated Damages shall be deemed to
commence accruing on the day in which the event triggering such Liquidated
Damages occurs. Notwithstanding the foregoing, the Liquidated Damages on the
Registrable Securities (i) may not exceed an amount equal to $.20 per week per
$1,000 outstanding principal amount of Registrable Securities in the aggregate,
and (ii) shall automatically cease to accrue upon the date that the event giving
rise to such Liquidated Damages ceases to exist or has been cured (i.e., on the
date on which the declaration of effectiveness or consummation occurs, or the
stop order or other suspension is narrowed, as the case may be).

Under the Registration Rights Agreement, the Corporation and the Initial
Purchasers have agreed that the Liquidated Damages constitute a reasonable
estimate of the damages that will be suffered by holders of Registrable
Securities by reason of the failure of the Shelf Registration or Exchange Offer,
to be declared effective, to remain effective, or be consummated, as the case
may be, in accordance with the Registration Rights Agreement. In the event the
Corporation shall fail, for whatever reason, to comply with its obligations
under the Registration Rights Agreement with respect to the Exchange Offer or
the Shelf

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<PAGE>

Registration described therein, whether or not such failure is in the control of
the Corporation, but provided that such failure is not primarily as a result of
the action of any holder of the Old Notes, the sole and exclusive remedy
available to each holder with respect to such failure shall be the application
of Liquidated Damages in accordance with of the Registration Rights Agreement.

DESCRIPTION OF NEW NOTES

The Senior 1996 Notes, the Senior 1997 Notes and the Senior 2017 Debentures
were issued under an indenture and certain related instruments delivered
thereunder (collectively, the "Original 1986 Indenture"), dated as of October 1,
1986, between the Corporation and the Harris Trust and Savings Bank, as trustee
(the "1986 Indenture Trustee"). As part of the Restructuring, the Original 1986
Indenture was supplemented by resolutions adopted by the Board (the "Bond Board
Resolutions") and an officer's certificate delivered in accordance therewith to
provide for the Senior 1995 Notes and the Senior 1998 Notes. In connection with
the Old Note Placement, the Original 1986 Indenture was supplemented by further
resolutions adopted by the Board (the "Old Note Bond Board Resolutions") and an
officer's certificate delivered in accordance therewith to provide for the Old
Notes. In connection with the Exchange Offer, the Original 1986 Indenture was
again supplemented by further resolutions adopted by the Board (the "New Note
Bond Board Resolutions" and collectively with the Old Note Bond Board
Resolutions, the "1994 Bond Board Resolutions") and an officer's certificate
delivered in accordance therewith to provide for the New Notes. The Senior 1995
Notes, the Senior 1996 Notes, the Senior 1997 Notes, the Senior 1998 Notes, the
Senior 2001 Notes and the Senior 2017 Debentures are collectively referred to
herein as the "1986 Indenture Securities." Conformed copies of the Original
1986 Indenture, the Bond Board Resolutions and the 1994 Bond Board Resolution
have been filed as exhibits to the Registration Statement and are available as
described under "Available Information." Whenever particular provisions or
defined terms of the 1986 Indenture Securities or the Original 1986 Indenture,
as supplemented by the Bond Board Resolutions and the 1994 Bond Board
Resolutions, are referred to, such provisions or defined terms are deemed
incorporated herein by reference and such statements are qualified in their
entirety by such reference. The Original 1986 Indenture as supplemented by the
Bond Board Resolutions and the 1994 Bond Board Resolutions is referred to herein
as the "1986 Indenture." Initial capitalized terms which are defined in the 1986
Indenture are used herein as so defined.

GENERAL

Principal (and premium, if any) and interest is payable, and the transfer
of the New Notes is registrable, at the office or agency of the Corporation
maintained for such purpose in the City of Chicago, State of Illinois, currently
the Corporate Trust Office of the 1986 Indenture Trustee, Harris Trust and
Savings Bank, 311 West Monroe Street, Chicago, Illinois 60690; provided,
however, that payment of interest may be made at the option of the Corporation
by check or draft mailed to the person entitled thereto as such person's address
appears in the security register maintained for such purpose pursuant to the
1986 Indenture. No service charge will be made for any transfer or exchange
except the Corporation may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection therewith.

The New Notes will be issued in fully registered form without coupons and
in denominations of $1,000 and integral multiples thereof.

RANKING AND SECURITY

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<PAGE>

and related pledge and security agreements. Holders of the Bank Debt
Obligations primarily control the operation of the Collateral Trust. See
"Description of Collateral Trust Agreement."

The Corporation's operations are conducted through the Subsidiaries. The
Corporation's ability to service its indebtedness is largely dependent upon the
receipt of funds from the Subsidiaries by way of dividends, interest, loans or
otherwise. The rights of the Corporation and its creditors, including holders
of the New Notes, to realize upon the assets of any Subsidiary upon the latter's
liquidation or reorganization will be subject to the prior claims of such
Subsidiary's creditors, except to the extent that the Corporation itself may be
a creditor with enforceable claims against such Subsidiary. Therefore, the New
Notes will be effectively subordinated to existing and future liabilities of the
Corporation's Subsidiaries.

As of December 31, 1993, the Corporation and the Subsidiaries had $1,531
million total principal amount of debt (before unamortized reorganization
discount) on a consolidated basis. As of December 31, 1993, Subsidiaries of the
Corporation are directly liable for $105 million principal amount of such debt.
On a pro forma basis, as of December 31, 1993, assuming consummation of the
Transactions on such date, the Corporation and the Subsidiaries would have had
$1,255 million total principal amount of debt (before unamortized reorganization
discount) on a consolidated basis and Subsidiaries of the Corporation would have
been directly liable for $105 million principal amount of such debt. The
Subsidiary Guarantors have guaranteed pursuant to the Amended Subsidiary
Guarantees Agreement the Bank Debt Obligations and the Senior 2002 Notes. Such
obligations were approximately $926 million as of December 31, 1993. On a pro
forma basis to give effect to the Transactions such obligation would have been
approximately $786 million as of December 31, 1993. See "Description of the
Credit Agreement."

REDEMPTION

The New Notes may not be redeemed or called at the option of the
Corporation prior to maturity.

RESTRICTED AND UNRESTRICTED SUBSIDIARIES

The various restrictive provisions of the 1986 Indenture summarized below,
while applicable to the Corporation and its Restricted Subsidiaries, do not
apply to Unrestricted Subsidiaries. A "Subsidiary" is any corporation, a
majority of the Voting Stock of which is at the time owned directly or
indirectly by the Corporation and its other Subsidiaries. "Voting Stock," as
applied to the stock of any corporation, is stock of any class or classes having
ordinary voting power for the election of a majority of the directors of such
corporation, other than stock having such power only by reason of the happening
of a contingency. A "Restricted Subsidiary" is any Subsidiary which owns any
Principal Operating Property. "Principal Operating Property" is any principal
manufacturing plant, or distribution or research facility, and related
facilities located in the United States and owned and operated by the
Corporation or any Subsidiary for more than 90 days, other than (i) any facility
acquired for the control or abatement of atmospheric pollutants or contaminants,
water pollution, noise, odor or other pollution or (ii) any plant or other
facility which, in the opinion of the Board, is not of material importance to
the business of the Corporation and its Restricted Subsidiaries taken as a
whole. An "Unrestricted Subsidiary" is any Subsidiary other than a Restricted
Subsidiary. A substantial majority of the Corporation's consolidated assets,
revenues and profits are attributable to the Restricted Subsidiaries. See the
Corporation's Annual report on Form 10-K for the year ended December 31, 1993
as filed on March 14, 1994, Item 8. "Financial Statements and Supplementary
Data - Notes to Financial Statements -- Geographic and Industry Segments."

RESTRICTIONS ON MERGER

So long as any 1986 Indenture Securities are outstanding, the Corporation
may not consolidate with or merge into any other corporation or sell or transfer
all or substantially all of its properties and assets to another Person unless
(i) the successor is a corporation organized and existing under the laws of the
United States of America or a state thereof and expressly assumes the due and
punctual payment of the principal of (and premium, if any), interest, if any,
and Additional Amounts, if any, on all the 1986 Indenture Securities and any
coupons and the due and punctual performance and observance of all covenants and
conditions of the Corporation in the 1986 Indenture and (ii) such successor
corporation shall not, immediately after such merger or consolidation, or such
sale or conveyance, be in default in the performance of any covenant or
condition of the 1986 Indenture.

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<PAGE>

LIMITATION UPON SECURED DEBT OF THE CORPORATION AND ITS RESTRICTED SUBSIDIARIES

So long as any 1986 Indenture Securities are outstanding, the Corporation
will not itself, and will not permit any Restricted Subsidiary to, incur, issue,
assume, guarantee or suffer to exist any indebtedness for money borrowed
("Debt") secured by a mortgage, pledge, lien or security interest ("Mortgage")
on any Principal Operating Property or on any shares of stock or Debt of any
Restricted Subsidiary, without effectively providing that such 1986 Indenture
Securities (together with, if the Corporation so determines, any other Debt of
the Corporation or such Restricted Subsidiary then existing or thereafter
created which is not subordinated Debt) shall be secured equally and ratably
with (or, at the Corporation's option, prior to) such secured Debt so long as
such secured Debt shall be so secured, unless the aggregate amount of all such
secured Debt, together with all Attributable Debt of the Corporation and its
Restricted Subsidiaries in respect of sale and leaseback transactions involving
Principal Operating Properties (other than those exempt under clauses
(ii) through (iv) under "Limitation Upon Sale and Leaseback Transactions"
below), would not exceed 5% of Consolidated Net Tangible Assets. "Consolidated
Net Tangible Assets" means the Corporation's aggregate amount of assets minus
(a) all liabilities except (i) indebtedness for money borrowed maturing on, or
extendable at the option of the obligor to, a date more than one year from the
date of determination thereof, (ii) deferred income taxes and
(iii) stockholders' equity and (b) all goodwill, trade names, trademarks,
patents, unamortized debt discount and expense and other like intangibles. This
restriction does not apply to, and there will be excluded from secured Debt in
any computation under such restriction, Debt secured by (i) Mortgages on
property of, or on any shares of stock or Debt of, any corporation existing at
the time such corporation becomes a Restricted Subsidiary; (ii) Mortgages in
favor of the Corporation or a Restricted Subsidiary; (iii) Mortgages in favor of
governmental bodies to secure progress, advance or other payments pursuant to
any contract or provision of any statute; (iv) certain Mortgages created (A) in
the ordinary course of business, (B) in connection with taxes, assessments or
other governmental charges or (C) in connection with legal proceedings;
(v) Mortgages on property (including leasehold estates), shares of stock or Debt
existing at the time of acquisition thereof (including acquisition through
merger or consolidation); (vi) purchase money and construction Mortgages which
are entered into within specified time limits; and (vii) any extension, renewal,
replacement or refunding of any Mortgage referred to in the foregoing clauses
(i) through (vi), inclusive. "Attributable Debt" is defined in general to mean
the total net amount of rent required to be paid during the remaining term of
any lease, discounted at a rate per annum equal to one-fourth of one percent
over the rate per annum borne by the applicable 1986 Indenture Securities
(except that for 1998 Senior Notes such rate shall be 8 1/4%) compounded
semi-annually.

LIMITATION UPON SALE AND LEASEBACK TRANSACTIONS

So long as any of the following 1986 Indenture Securities are outstanding,
the Corporation will not itself, and will not permit any Restricted Subsidiary
to, sell or transfer any Principal Operating Property owned as of the following
dates with the intention of taking back a lease thereof (a "sale and leaseback
transaction"):

<TABLE>

<S> <C>
Senior 1995 Notes. . . . . . . . . . . . . . December 15, 1986
Senior 1996 Notes. . . . . . . . . . . . . . December 15, 1986
Senior 1997 Notes. . . . . . . . . . . . . . March 15, 1987
Senior 1998 Notes. . . . . . . . . . . . . . December 15, 1986
Senior 2017 Debentures . . . . . . . . . . . March 1, 1987
Senior 2001 Notes. . . . . . . . . . . . . . September 15, 2001

</TABLE>

This restriction does not apply to any sale and leaseback transaction if:
(i) the Corporation or such Restricted Subsidiary could mortgage such Principal
Operating Property under the restrictions set forth under "Limitation Upon
Secured Debt of the Corporation and its Restricted Subsidiaries" above in an
amount equal to the Attributable Debt with respect to such sale and leaseback
transaction without equally and ratably securing the 1986 Indenture Securities;
(ii) within 120 days after the sale or transfer is completed, the Corporation or
a Restricted Subsidiary applies to the retirement of Senior Funded Debt of the
Corporation or Funded Debt of a Restricted Subsidiary an amount equal to the
greater of (A) the net proceeds of the sale of the Principal Operating Property
leased or (B) the fair market value of the Principal Operating Property leased;
(iii) the lease in such sale and leaseback transaction is for a period,
including renewals, of no more than three years; or (iv) such arrangement is
between the Corporation and a Restricted Subsidiary or between Restricted
Subsidiaries.

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EVENTS OF DEFAULT

The following will be Events of Default under the 1986 Indenture:
(i) default in the payment of any principal or premium, if any, on the 1986
Indenture Securities; (ii) default for 30 days in the payment of any interest or
Additional Amounts on the 1986 Indenture Securities; (iii) default for 90 days
after written notice thereof in the performance of any other covenant applicable
to such Notes; (iv) acceleration of the maturity of any indebtedness of the
Corporation or any Subsidiary in excess of $50 million principal amount in the
aggregate if such acceleration results from a default under the instruments
giving rise to such indebtedness and is not annulled within 10 days after
written notice of such default; or (v) certain events of bankruptcy, insolvency
or reorganization. No Event of Default with respect to a particular series of
securities issued under the 1986 Indenture, necessarily constitutes an Event of
Default with respect to any other series of securities issued thereunder. In
case an Event of Default (other than an Event of Default under clause (v)) shall
occur and be continuing with respect to any series, the 1986 Indenture Trustee
or the holders of not less than 25% in aggregate principal amount of all series
of securities affected thereby then outstanding under the 1986 Indenture,
(voting as one class) by notice to the Corporation may declare the principal
(or, in the case of discounted securities, the amount specified in the terms
thereof) of such series to be due and payable immediately. In case an Event of
Default under clause (v) shall occur and be continuing, the 1986 Indenture
Trustee or the holders of not less than 25% in aggregate principal amount of all
securities then outstanding under the 1986 Indenture, (voting as one class) by
notice may declare the principal (or, in the case of discounted securities, the
amount specified in the terms thereof) of all such outstanding securities to be
due and payable immediately. Any Event of Default with respect to a particular
series of securities issued under the 1986 Indenture, may be waived, and a
declaration of acceleration rescinded, by the holders of a majority in aggregate
principal amount of the outstanding securities of such series (or if all such
outstanding securities, as the case may be), except in a case of failure to pay
principal or premium, if any, or interest or Additional Amounts in respect of
such security for which payment had not been subsequently made. The 1986
Indenture, provides that the 1986 Indenture Trustee may withhold notice to the
security holders of any default (except in payment of principal, premium, if
any, or interest or Additional Amounts) if it determines in good faith that it
is in the interest of the security holders to do so.

Subject to the provisions of the 1986 Indenture, relating to the duties of
the 1986 Indenture Trustee in case an Event of Default occurs and is continuing,
the 1986 Indenture Trustee will be under no obligation to exercise any of its
rights or powers under the 1986 Indenture, at the request, order or direction of
any of the security holders, unless such security holders have offered to the
1986 Indenture Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the 1986 Indenture Trustee and to certain other limitations,
the holders of a majority in aggregate principal amount of the securities of all
series affected (voting as one class) at the time outstanding have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the 1986 Indenture Trustee, or exercising any trust or power
conferred on the 1986 Indenture Trustee.

The Corporation is required to file with the 1986 Indenture Trustee
annually an officers' certificate as to the absence of certain defaults under
the terms of the 1986 Indenture.

DEFEASANCE

The Corporation, at its option, (i) will be discharged from any and all
obligations in respect of any series of the 1986 Indenture Securities (except
for certain obligations to register the transfer or exchange of such 1986
Indenture Securities, replace such stolen, lost, destroyed or mutilated 1986
Indenture Securities, maintain paying agencies and hold moneys for payment in
trust) or (ii) will not be under any obligation to comply with certain covenants
and provisions applicable to such 1986 Indenture Securities, including those
described above under "Limitation Upon Secured Debt of the Corporation and
Restricted Subsidiaries" and "Limitation Upon Sale and Leaseback Transactions,"
if the Corporation (i) irrevocably deposits with the 1986 Indenture Trustee, in
trust for the holders of such 1986

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<PAGE>

Indenture Securities, (A) money or (B) noncallable obligations issued or fully
guaranteed by the United States of America which through the payment of interest
and income thereon and principal thereof will provide money, in each case in an
amount sufficient to pay all the principal of (and premium, if any) and interest
on such 1986 Indenture Securities on the dates such payments are due in
accordance with the terms of such 1986 Indenture Securities and (ii) shall have
paid or caused to be paid all other sums payable with respect to such 1986
Indenture Securities. To exercise either of the options described above, the
Corporation is required, among other things, to deliver to the 1986 Indenture
Trustee an opinion of nationally recognized tax counsel to the effect that
holders of such 1986 Indenture Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit and discharge
and will be subject to federal income tax in the same amount and in the same
manner and at the same times as would have been the case if such deposit and
discharge had not occurred, and an officer's certificate and opinion of counsel
to the effect that all conditions precedent relating to such deposit and
discharge under the 1986 Indenture, have been complied with, and that such
deposit and discharge will not cause any violation of the Investment Company Act
of 1940, as amended, on the part of the Corporation, the trust, the trust funds
representing such deposit or the 1986 Indenture Trustee.

MODIFICATION OF THE INDENTURE

The 1986 Indenture, contains provisions permitting the Corporation and the
1986 Indenture Trustee to modify or otherwise amend the 1986 Indenture, or any
supplemental indenture thereto or the rights of the holders of the securities
issued thereunder, with the consent of the holders of not less than a majority
in principal amount of the securities of all series at the time outstanding
under such 1986 Indenture, which are affected by such modification or amendment
(voting as one class); provided that no such modification or amendment shall
(i) change the fixed maturity of any securities, or reduce the principal amount
thereof, or premium, if any, or reduce the rate or extend the time of payment of
interest or Additional Amounts thereon, or reduce the amount due and payable
upon the acceleration of the maturity thereof or the amount provable in
bankruptcy, or make the principal of, or interest, premium or Additional Amounts
on, any security payable in any coin or currency other than that provided in
such security; (ii) impair the right to institute suit for the enforcement of
any such payment on or after the stated maturity thereof; or (iii) reduce the
aforesaid percentage in principal amount of securities, the consent of the
holders of which is required for any such modification or amendment, or the
percentage required for the consent of the holders to waive defaults, without
the consent of the holder of each security so affected.

DESCRIPTION OF CREDIT AGREEMENT

INTRODUCTION

Pursuant to the Prepackaged Plan, the Credit Agreement was entered into by
the Corporation, USG Interiors and the Bank Group. The Credit Agreement amended
and restated a previous credit agreement which was entered into in connection
with the 1988 Recapitalization. In connection with the Prepackaged Plan and the
implementation of the Credit Agreement, the following transactions occurred:
(i) the exchange of $324 million of principal and accrued but unpaid interest on
outstanding term loans for Senior 2002 Notes; (ii) the extension of final
maturity of the remaining principal of the term loans from 1996 to 2000 and the
deferral of all scheduled principal payments until December 1994; (iii) the
capitalization of $51 million in accrued interest originally due on or after
December 31, 1991 and the issuance of capitalized interest notes ("Capitalized
Interest Notes") to represent the capitalized amounts; (iv) the making available
(at the Corporation's option but subject to certain limitations on the
availability of LIBOR pricing) an annual interest rate applicable to the term
loans and the Revolving Credit Facility of LIBOR plus 1 7/8% or Citibank's
Alternate Base Rate III ("Base Rate") plus 7/8%, with the option to capitalize
the amount of such interest in excess of LIBOR plus 1% per annum (such
capitalized interest to bear interest at an annual rate of LIBOR plus 2 1/4% or
Citibank's Base Rate plus 1 1/4% and mature in the years 1998 and 2000); (v) the
implementation of mandatory prepayment provisions, including an excess cash flow
sweep, that takes into account certain liquidity thresholds; (vi) the suspension
of all financial covenants through January 1, 1995 and providing for new
covenants thereafter; (vii) the extension to 1998 of the maturity date of, and
the establishment of a maximum borrowing capacity of $175 million under the then
existing revolving credit facility, including a $110 million letter of credit
subfacility (the "Revolving Credit Facility"); and (viii) the exchange of
$16 million owed in connection with certain interest rate swap contracts for an
equal principal amount of Senior 2002 Notes and, in addition, the exchange of
approximately $5 million owed in connection with such interest rate swap
contracts for an equal principal amount of Capitalized Interest Notes. In
connection with the Restructuring, all existing defaults under the previous
credit agreement were waived or cured. Whenever defined terms under the Credit
Agreement, as amended, are referred to but not defined herein, such defined
terms are incorporated herein by reference.

On August 10, 1993, the parties to the Credit Agreement entered into an
amendment to the Credit Agreement (the "1993 Amendments"), pursuant to which
(i) scheduled bank term loan amortization payments totaling $95 million due in
1994, 1995 and 1996 were eliminated ($3 million was added to the final maturity
of the bank term loan due in 2000); (ii) $9 million

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<PAGE>

of Capitalized Interest Notes originally due in 1998 were paid; and (iii) the
cash sweep mechanism was modified to apply up to $165 million of cash otherwise
subject to the cash sweep mechanism in 1994, 1995 and 1996 to repayment or
purchase of senior debt due prior to January 1, 1999 or Bank Term Loans, at the
discretion of the Corporation. In addition, $46 million of Capitalized Interest
Notes and $92 million of Bank Term Loans were exchanged for Senior 2002 Notes.
Following such transactions, approximately $1 million principal amount of
Capitalized Interest Notes remained outstanding. Such remaining amount was
repaid in December 1993 and accordingly, no Capitalized Interest Notes are
outstanding.

In connection with the Transactions, the parties to the Credit Agreement
are entering into the Credit Agreement Amendments, pursuant to which, among
other things, the size of the Revolving Credit Facility will be increased by
$70 million and the mandatory prepayment provisions and cash sweep mechanism
will be modified as described below. The Credit Agreement Amendments require
that (i) $75 million of the proceeds of the Old Note Placement be used to prepay
Bank Term Loans in the order of maturity (thus fully prepaying the scheduled
amortization payment due December 31, 1997 and partially prepaying the scheduled
amortization payment due December 31, 1998) and (ii) up to $65 million of the
proceeds of the Offering be used to prepay Bank Term Loans in the order of
maturity (thus, in such event, fully prepaying the remaining portion of the
scheduled amortization payment due December 31, 1998). Giving effect to such
prepayments, the remaining scheduled amortization of the Bank Term Loans will
consist of $125 million in 1999 and $183 million in 2000.

CREDIT AGREEMENT OVERVIEW

ELIMINATION OF ABILITY TO CAPITALIZE INTEREST

The Credit Agreement Amendments provide that USG's ability to defer the
payment of interest in excess of LIBOR plus 1% by issuing Capitalized Interest
Notes will be terminated.

REVOLVING CREDIT FACILITY

The maximum borrowing capacity under the Revolving Credit Facility, as
currently in effect, is $175 million. As part of the Credit Agreement
Amendments, the size of the Revolving Credit Facility will be increased by
$68 million. The increased amount of the Revolving Credit Facility is intended
to provide the Corporation with additional funds for the purchase or payment of
the Senior 1996 Notes and Senior 1997 Notes remaining after the Transactions are
consummated. Accordingly, the Credit Agreement Amendment limits borrowing of the
additional commitment (the "Note Purchase Facility") for the purpose of
purchasing or paying Senior 1996 Notes and Senior 1997 Notes. The Revolving
Credit Facility's maturity date is July 13, 1998. Material conditions precedent
to borrowing under the Revolving Credit Facility are limited to the accuracy of
certain representations and warranties, the absence of injunctions and of
certain events of default, such as payment defaults, bankruptcy and certain
cross-defaults to other indebtedness of the Corporation exceeding $25 million in
principal amount, unstayed judgments and intentional breaches of negative
covenants, but prior to January 1, 1995 do not include the satisfaction of
financial covenants or a material adverse change condition precedent.

LETTER OF CREDIT SUBFACILITY

The Revolving Credit Facility also includes a letter of credit subfacility
(the "Letter of Credit Subfacility"). The Issuing Bank or Banks will issue
letters of credit under the Letter of Credit Subfacility ("Facility Letters of
Credit") in amounts not to exceed $110 million in the aggregate.

CASH SWEEP MECHANISM

Under the Credit Agreement as currently in effect, within 30 days after
January 15th of each year (a "Test Date"), commencing on January 15, 1994, the
amount of "Cash Available for Sweep" is calculated in accordance with a
pre-determined formula and paid to holders of the Bank Term Loans on or before
February 15th of each year; provided that, in the case of Test Dates occurring
on January 15, 1994, 1995 and 1996 payments shall instead be made: (i) first, up
to $165 million to either the Corporation's public debt having maturities prior
to January 1, 1999 or Bank Term Loans in order of maturity, as the Corporation
shall elect in its discretion (PROVIDED, that after the payment or repurchase in
full of such public

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<PAGE>

debt (which may occur as a result of an equity or debt offering), such
$165 million of Cash Available for Sweep (or remaining portion thereof) shall be
applied 90% to the Bank Term Loans in order of maturity and 10% to the
Corporation as Retained Amounts); and (ii) second, two-thirds to the Bank Term
Loans in order of maturity and one-third to the Corporation as Retained Amounts
(until such Retained Amounts, when added to the Retained Amounts described in
clause (i), equal $50 million, at which time 100% of Cash Available for Sweep
would be applied to the Bank Term Loans in order of maturity). "Cash Available
for Sweep" means, with respect to each Test Date, an amount equal to the product
of (i) the "Sweep Percentage" applicable to such Test Date and (ii) the excess,
if any, of the "Available Liquidity" for such Test Date over the "Minimum
Liquidity" for such Test Date. The "Sweep Percentage" is 100% for the 1994
through 1996 Test Dates, inclusive, 90% for the 1997 and 1998 Test Dates, and
85% for the 1999 and subsequent Test Dates. "Available Liquidity" for any Test
Date means (i) the daily average of all domestic cash and cash balances during
the applicable Test Period, excluding net proceeds of certain debt and equity
issuances (which are separately required to be applied to repay the Bank Term
Loans and/or senior debt securities); PLUS (ii) the daily average of all cash of
the Corporation's non-domestic Subsidiaries in excess of certain minimum cash
balances during the applicable Test Period, subject to certain limitations and
adjustments for repatriation taxes and exchange rates; PLUS (iii) the average
daily amount available for borrowing under the Revolving Credit Facility (not
including any availability under the Note Purchase Facility) during the
applicable Test Period; SUBJECT TO (iv) certain adjustments for changes in
working capital. "Minimum Liquidity" for any Test Date means (i) the sum of the
Retained Amount for all prior Test Dates, net of the amount thereof utilized to
fund additional Capital Expenditures and repurchases of senior debt securities
(through the maturity dates thereof); plus (ii) the amount set forth below
opposite such Test Date; minus (iii) the Senior Note Prepayment Amount for such
Test Date:

TEST DATE MINIMUM LIQUIDITY
--------- -----------------
<S> <C>
1/15/94. . . . . . . . . . . . $100,000,000 (PLUS the Asbestos Adjustment)
1/15/95. . . . . . . . . . . . 100,000,000
1/15/96. . . . . . . . . . . . 100,000,000
1/15/97. . . . . . . . . . . . 200,000,000
1/15/98. . . . . . . . . . . . 135,000,000
Thereafter . . . . . . . . . . 100,000,000

</TABLE>

The "Asbestos Adjustment" will equal $40 million minus the actual aggregate
amount of payments made by U.S. Gypsum to settle property damage asbestos cases
in 1992 and 1993. The amount of such settlement payments for 1992 was $21.7
million. "Retained Amount" means, for any Test Date, an amount equal to the
product of (i) 100% minus the Sweep Percentage for such Test Date and (ii) the
excess, if any, of the Available Liquidity for such Test Date over the Minimum
Liquidity for such Test Date. "Senior Note Prepayment Amount" means, for any
Test Date on or after January 15, 1997, the principal amount of the
Corporation's public debt originally due during the same calendar year which has
been prepaid as of such Test Date out of funds other than any Retained Amounts.

The Credit Agreement Amendments will provide that the Sweep Percentage for
the January 15, 1997 Test Date and for each Test Date thereafter shall be 50% if
(i) the aggregate outstanding amount of Bank Term Loans at such time does not
exceed $148 million and (ii) USG's public senior debt is then rated at least BB
by Standard & Poor's Corporation and Ba2 by Moody's Investors Service, Inc.

EVENTS OF DEFAULT

The Credit Agreement provides that if an event of default occurs, then, in
the case of an event of default involving certain bankruptcy or insolvency
events, the maturity of loans made under the Credit Agreement will automatically
be accelerated and the obligation of the Senior Lenders to make future revolving
loans or issue letters of credit will terminate or, in the case of any other
event of default, so long as such event of default exists, the Requisite Senior
Lenders will be entitled to accelerate the maturity of loans made under the
Credit Agreement and terminate their obligation to make future revolving loans
or issue letters of credit.

Events of default include: failure to pay any principal, interest or other
amount due to the Senior Lenders; failure to pay other indebtedness, including
subordinated debt, if the aggregate amount of such other indebtedness is
$25 million or more or any breach or default under any instrument, agreement or
indenture relating to such indebtedness if the effect thereof is to

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<PAGE>

accelerate or permit the holders of such indebtedness to accelerate the maturity
of such indebtedness; any single stockholder or group acquiring 50% or more of
the Corporation's stock (directly or indirectly); failure to discharge a
judgment or writ of attachment involving an amount exceeding $5 million, net of
insurance; certain events involving the bankruptcy or insolvency of the
Corporation or certain significant Restricted Subsidiaries; the invalidation or
ineffectiveness of any security agreement governing, or any lien upon,
collateral securing the obligations under the Credit Agreement; the incurring of
certain termination liabilities under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"); and failure of the Corporation to meet
covenants (subject to certain grace periods), including various financial
covenants described below. The events of default are applicable only to the
Corporation and its Restricted Subsidiaries.

AFFIRMATIVE COVENANTS

Affirmative covenants under the Credit Agreement require the Corporation
to, among other things, submit periodic financial, labor, environmental and
litigation reports; maintain its corporate existence and franchises; remain
qualified to do business in all appropriate jurisdictions; comply with all
requirements of law; pay all taxes and material claims unless contested in good
faith and covered by reserves in accordance with GAAP; permit members of the
Bank Group to inspect its properties, books and records; maintain its properties
in good repair and maintain proper insurance policies; and maintain licenses,
permits, governmental approvals and authorizations.

NEGATIVE COVENANTS

The Credit Agreement contains negative covenants that cover: restrictions
on the incurring of additional indebtedness, subject to certain exceptions;
sales of assets outside the ordinary course of business, subject to certain
exceptions including a blanket exception for up to $20 million in any fiscal
year and $5 million in any single transaction or group of related transactions;
the incurring of liens and encumbrances on the property of the Corporation and
its Restricted Subsidiaries; investments; guarantees; dividends and
distributions, and payments upon securities junior in right to the Bank Debt
Obligations; operating leases; mergers, consolidations or sales, leases or
transfers of all or any substantial part of the business, property or assets of
the Corporation or any of its Restricted Subsidiaries; acquisitions of the
business, property or assets of any person, except for acquisitions not
exceeding certain permitted capital expenditure limits; ERISA prohibited
transactions; amendments to corporate charter and by-laws; sale of Subsidiaries;
amendments of material debt documents; sale and leaseback transactions;
prepayment (including acquisitions for value) of long-term debt; and certain
other transactions and activities.

The negative covenants in the Credit Agreement permit the prepayment or
purchase with Cash Available for Sweep of the Corporation's senior debt
securities having maturities prior to January 1, 1999; PROVIDED, that to the
extent such prepayment or purchase involves the payment of a premium in excess
of 100% of the face amount of any such security, such excess will reduce the
Corporation's existing or future Retained Amounts.

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<PAGE>

FINANCIAL COVENANTS

From and after January 1, 1995, the Corporation will be required to satisfy
the Financial Covenants set forth below:

MINIMUM SENIOR INTEREST COVERAGE RATIO. The Senior Interest Coverage Ratio for
the Coverage Period ending with each fiscal quarter of each Fiscal Year set
forth below (commencing with the first fiscal quarter of 1995), shall not be
less than the minimum ratio set forth below opposite such fiscal quarter:

MINIMUM MINIMUM
1995 RATIO 1996 RATIO
---- ----- ---- -----
<S> <C> <C> <C> <C>
Quarter 1 1.00 1 2.20
2 1.25 2 2.30
3 1.75 3 2.40
4 2.00 4 2.50

</TABLE>

MINIMUM MINIMUM
1997 RATIO 1998 RATIO
---- ----- ---- -----
<S> <C> <C> <C> <C>
Quarter 1 2.50 1 2.80
2 2.60 2 2.80
3 2.70 3 2.80
4 2.80 4 2.80

</TABLE>

MINIMUM MINIMUM
1999 RATIO 2000 RATIO
---- ----- ---- -----
<S> <C> <C> <C> <C>
Quarter 1 2.80 1 2.80
2 2.80 2 2.80
3 2.80 3 2.80
4 2.80 4 2.80

</TABLE>

MINIMUM TOTAL INTEREST COVERAGE RATIO. The Total Interest Coverage Ratio for
the Coverage Period ending with each fiscal quarter of each Fiscal Year set
forth below (commencing with the first fiscal quarter of 1995), shall not be
less than the minimum ratio set forth below opposite such fiscal quarter:

MINIMUM MINIMUM
1995 RATIO 1996 RATIO
---- ----- ---- -----
<S> <C> <C> <C> <C>
Quarter 1 1.00 1 2.05
2 1.25 2 2.10
3 1.75 3 2.15
4 2.00 4 2.20

</TABLE>

MINIMUM MINIMUM
1997 RATIO 1998 RATIO
---- ----- ---- -----
<S> <C> <C> <C> <C>
Quarter 1 2.25 1 2.40
2 2.30 2 2.40
3 2.35 3 2.40
4 2.40 4 2.40

</TABLE>

MINIMUM MINIMUM
1999 RATIO 2000 RATIO
---- ----- ---- -----
<S> <C> <C> <C> <C>
Quarter 1 2.40 1 2.40
2 2.40 2 2.40
3 2.40 3 2.40
4 2.40 4 2.40

</TABLE>

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<PAGE>

MINIMUM FIXED CHARGE COVERAGE RATIO. The Fixed Charge Coverage Ratio for the
Coverage Period ending with each fiscal quarter of each Fiscal Year set forth
below (commencing with the first fiscal quarter of 1995), shall not be less than
the minimum ratio set forth below opposite such fiscal quarter:

MINIMUM MINIMUM
1995 RATIO 1996 RATIO
---- ----- ---- -----
<S> <C> <C> <C> <C>
Quarter 1 1.0 1 1.3
2 1.1 2 1.4
3 1.1 3 1.4
4 1.2 4 1.5

</TABLE>

MINIMUM
1997 RATIO
---- -----
<S> <C> <C>
Quarter 1 1.5
2 1.5
3 1.5
4 1.5

</TABLE>

MINIMUM ADJUSTED CUMULATIVE NET WORTH. The Adjusted Cumulative Net Worth as of
the end of each Fiscal Year set forth below and the end of the three immediately
succeeding fiscal quarters shall not be less than the minimum amount set forth
below opposite such year:

END OF FISCAL YEAR MINIMUM AMOUNT
------------------ --------------
<S> <C>
1995. . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,000,000
1996. . . . . . . . . . . . . . . . . . . . . . . . . . 102,000,000
1997. . . . . . . . . . . . . . . . . . . . . . . . . . 179,000,000
1998. . . . . . . . . . . . . . . . . . . . . . . . . . 244,000,000
1999. . . . . . . . . . . . . . . . . . . . . . . . . . 296,000,000
2000. . . . . . . . . . . . . . . . . . . . . . . . . . 345,000,000

</TABLE>

LEVERAGE RATIO. The Leverage Ratio as of the end of each Fiscal Year set forth
below and the end of the three immediately succeeding fiscal quarters shall not
be greater than the maximum amount set forth below opposite such year:

END OF FISCAL YEAR MAXIMUM RATIO
------------------ -------------
<S> <C>
1995. . . . . . . . . . . . . . . . . . . . . . . . . . 0.97
1996. . . . . . . . . . . . . . . . . . . . . . . . . . 0.93
1997. . . . . . . . . . . . . . . . . . . . . . . . . . 0.87
1998. . . . . . . . . . . . . . . . . . . . . . . . . . 0.81
1999. . . . . . . . . . . . . . . . . . . . . . . . . . 0.76
2000. . . . . . . . . . . . . . . . . . . . . . . . . . 0.70

</TABLE>

MINIMUM CURRENT RATIO. The ratio of Consolidated Current Assets to
Consolidated Current Liabilities as of the end of each calendar quarter shall
not be less than the minimum ratio set forth below opposite such Fiscal Year in
which such quarter occurs:

FISCAL YEAR MINIMUM RATIO
----------- -------------
<S> <C>
1995. . . . . . . . . . . . . . . . . . . . . . . . . . 1.05
1996. . . . . . . . . . . . . . . . . . . . . . . . . . 1.10
1997. . . . . . . . . . . . . . . . . . . . . . . . . . 1.15
1998. . . . . . . . . . . . . . . . . . . . . . . . . . 1.20
1999. . . . . . . . . . . . . . . . . . . . . . . . . . 1.20
2000. . . . . . . . . . . . . . . . . . . . . . . . . . 1.20

</TABLE>

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<PAGE>

MAXIMUM CAPITAL EXPENDITURES. Domestic Capital Expenditures made by the
Corporation and its U.S. Subsidiaries on a consolidated basis shall not exceed,
for any Fiscal Year, the sum of the following items:

(i) The Base Capital Expenditure Allowance for such year LESS the
amount, if any, of such Base Capital Expenditure Allowance which was used during
the immediately preceding Fiscal Year under clause (ii) below;

(ii) (a) the excess of (1) the sum of (x) the actual cumulative
principal payments (for the period beginning on May 6, 1993) of the Term Loans
as a result of mandatory amortization payments through such date and (y) the
actual cumulative prepayments of Public Debt (including Investments therein),
Term Loans and Capitalized Interest Loans, in each case under this clause (y),
as a result of Cash Available for Sweep over (2) the Projected Cumulative
Principal Payments (such excess being the "Excess Principal Payments") LESS
(b) the cumulative amount of such Excess Principal Payments used for Capital
Expenditures in all prior years, PROVIDED, that in no event shall the amount
included under this clause (ii) for any Fiscal Year exceed 50% of the Base
Capital Expenditure Allowance for the immediately succeeding Fiscal Year;

(iii) (a) the excess of the actual cumulative net cash proceeds arising
from the sale of assets occurring after January 1, 1992 over the Projected
Cumulative Asset Sale Proceeds (the "Excess Sale Proceeds") LESS (b) the
cumulative amount of such Excess Sale Proceeds used for Capital Expenditures and
Investments in all prior years, PROVIDED, that in no event shall any amount be
included under this clause (iii) for any Fiscal Year if the sum of (x) the
actual cumulative principal payments of the Term Loans as a result of mandatory
amortization payments as of the end of the immediately preceding Fiscal Year and
(y) the actual cumulative prepayments of Public Debt (including Investments
therein), Term Loans and Capitalized Interest Loans, in each case under this
clause (y), as a result of Cash Available for Sweep as of the end of the
immediately preceding Fiscal Year (but including any prepayments of Cash
Available for Sweep made on or prior to February 15th of the current Fiscal
Year) does not exceed the Projected Cumulative Principal Payments as of the end
of the immediately preceding Fiscal Year;

(iv) all amounts used for Capital Expenditures the source of which
constitutes Project Financing;

(v) the cumulative amount of the portion of the Cash Available for
Sweep which has been retained by the Corporation in all prior Fiscal Years (the
"Cash Sweep Retention Amount") LESS the cumulative amount of such Cash Sweep
Retention Amount used for Capital Expenditures and other permitted purposes in
all prior years;

(vi) the amount of Capital Expenditures used for creating additional
plant capacity, PROVIDED, that (a) the aggregate amount of such Capital
Expenditures under this clause (vi) for all Fiscal Years shall not exceed
$30,000,000 and (b) at least thirty days prior to making or becoming committed
to make any such Capital Expenditures, the Corporation has notified the Agents
thereof in a writing which describes the additional plant capacity and the
business purpose therefor;

(vii) Capital Expenditures for assets the purchase price of which is paid
with the Common Stock of the Corporation; and

(viii) the aggregate amount of the Base Capital Expenditures Allowances
for all prior Fiscal Years which have not been used for Capital Expenditures.

The Credit Agreement Amendments will permit the Corporation to make
additional Strategic Capital Expenditures in an aggregate amount equal to the
net proceeds of the Offering in excess of $100,000,000 PLUS the Cash Available
for Sweep with respect to the January 15, 1994 Test Date in excess of
$100,000,000.

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<PAGE>

DEFINED TERMS USED IN FINANCIAL COVENANTS. Capitalized terms used in the
financial covenants in the Credit Agreement shall have the meanings set forth
below or, if not defined below, the meanings set forth in the Old Credit
Agreement:

"ADJUSTED CUMULATIVE NET WORTH" of the Corporation, at the end of any
quarter, shall mean the cumulative after tax net income (adjusted to
exclude fresh start accounting) from January 1, 1995 through the end of
such quarter PLUS the aggregate net cash proceeds received by the
Corporation from the issuance of equity securities after May 6, 1993.

"BASE CAPITAL EXPENDITURE ALLOWANCE" for each Fiscal Year, shall mean
the amount set forth below opposite such Fiscal Year:

<TABLE>

<S> <C>
1993 . . . . . . . . . . . . . . . . . . . . . . . . $33,900,000
1994 . . . . . . . . . . . . . . . . . . . . . . . . 34,200,000
1995 . . . . . . . . . . . . . . . . . . . . . . . . 39,300,000
1996 . . . . . . . . . . . . . . . . . . . . . . . . 39,800,000
1997 . . . . . . . . . . . . . . . . . . . . . . . . 51,900,000
1998 . . . . . . . . . . . . . . . . . . . . . . . . 52,200,000
1999 . . . . . . . . . . . . . . . . . . . . . . . . 52,200,000

</TABLE>

"CONSOLIDATED CURRENT ASSETS" on any date, shall mean the total
consolidated assets of the Corporation and the Subsidiaries (with
inventories being stated on a FIFO basis) which may properly be classified
as current assets in conformity with GAAP.

"CONSOLIDATED CURRENT LIABILITIES" on any date, shall mean the total
consolidated liabilities of the Corporation and the Subsidiaries which may
properly be classified as current liabilities in conformity with GAAP, not
including current maturities of long-term debt, but including any Revolving
Loans which may, in accordance with GAAP, be considered long-term.

"COVERAGE PERIOD" means (i) with respect to the first fiscal quarter
of 1995, the three-month period ending on March 31, 1995, (ii) with respect
to the second fiscal quarter of 1995, the six-month period ending on
June 30, 1995, (iii) with respect to the third fiscal quarter of 1995, the
nine-month period ending on September 30, 1995, and (iv) with respect to
any succeeding fiscal quarter, the twelve-month period ending on the last
day of such fiscal quarter.

"DEBT" at any time, shall mean, with respect to the Corporation and
the Subsidiaries on a consolidated basis, the sum of (i) the outstanding
principal balance of the Revolving Loans at such time or any indebtedness
at such time arising from a permitted revolving credit facility replacement
thereof (less the aggregate amount of cash held by the Corporation and its
consolidated Subsidiaries located in the United States at such time),
(ii) the aggregate amount of long-term indebtedness at such time (including
the current portions thereof), (iii) the outstanding amount of capital
leases (classified as such according to GAAP) shown as a liability on the
Corporation's consolidated balance sheet at such time and (iv) the
aggregate amount of all Accommodation Obligations with respect to
third-party indebtedness of the type described in clauses (ii) and
(iii) above at such time.

"EBITDA" for any period, means the consolidated operating earnings
from continuing operations of the Corporation and the Subsidiaries before
interest, taxes, depreciation, amortization, other income and expense,
minority interests, the impact of fresh start accounting and other non-cash
adjustments to income for such period.

"FIXED CHARGE COVERAGE RATIO" of the Corporation as of the end of any
fiscal quarter shall mean the ratio of (a) EBITDA for the 12-month period
ending on the last day of such fiscal quarter, excluding the impact of
non-cash fresh start accounting adjustments for such 12-month period, MINUS
actual Capital Expenditures during such 12-month period (excluding Capital
Expenditures under clauses (iv) and (vi) of the Capital Expenditures
covenant described above) to (b) the total net consolidated interest
expense of the Corporation and the Subsidiaries during such 12-month

-44-
<PAGE>

period, excluding the impact of non-cash amortizations resulting from fresh
start accounting during such period plus the aggregate scheduled principal
payments due (and not previously prepaid) on senior indebtedness of the
Corporation and the Subsidiaries during the 12-month period immediately
succeeding the end of such fiscal quarter.

"LEVERAGE RATIO" of the Corporation on any date, shall mean the ratio
of Debt to Total Capital on such date.

"PROJECTED CUMULATIVE PRINCIPAL PAYMENTS" means the following amounts
as of February 15 of each Fiscal Year below of projected cumulative
principal payments of (i) the Capitalized Interest Notes and the Bank Term
Loans as a result of mandatory amortization payments and cash sweep
prepayments and (ii) any prepayments on or purchases of the Corporation's
public debt securities having maturities prior to January 1, 1999 through
such date:

FEBRUARY 15 OF FISCAL YEAR CUMULATIVE PAYMENTS
-------------------------- -------------------
<S> <C>
1994 . . . . . . . . . . . . . . . . . . . . . $0
1995 . . . . . . . . . . . . . . . . . . . . . 57,000,000
1996 . . . . . . . . . . . . . . . . . . . . . 133,000,000
1997 . . . . . . . . . . . . . . . . . . . . . 220,000,000
1998 . . . . . . . . . . . . . . . . . . . . . 332,000,000
1999 . . . . . . . . . . . . . . . . . . . . . 456,000,000
2000 . . . . . . . . . . . . . . . . . . . . . 579,000,000

</TABLE>

"PROJECTED CUMULATIVE ASSET SALE PROCEEDS" means the following amounts
as of the end of each Fiscal Year below of projected cumulative cash
proceeds arising from the sale of assets PLUS for the Fiscal Year in which
the Libertyville facility is sold and each Fiscal Year thereafter, an
amount equal to the net cash proceeds received from the sale of the
Libertyville facility:

END OF FISCAL YEAR CUMULATIVE PROCEEDS
------------------ -------------------
<S> <C>
1992 . . . . . . . . . . . . . . . . . . . . . $7,000,000
1993 . . . . . . . . . . . . . . . . . . . . . 16,000,000
1994 . . . . . . . . . . . . . . . . . . . . . 21,000,000
1995 . . . . . . . . . . . . . . . . . . . . . 26,000,000
1996 . . . . . . . . . . . . . . . . . . . . . 31,000,000
1997 . . . . . . . . . . . . . . . . . . . . . 36,000,000
1998 . . . . . . . . . . . . . . . . . . . . . 41,000,000
1999 . . . . . . . . . . . . . . . . . . . . . 46,000,000

</TABLE>

"SENIOR INTEREST COVERAGE RATIO" of the Corporation for any Coverage
Period shall mean the ratio of (i) EBITDA for such period, excluding the
impact of non-cash fresh start accounting adjustments for such period to
(ii) the total net consolidated interest expense (excluding interest on
Subordinated Debt) of the Corporation and the Subsidiaries during such
period, excluding the impact of non-cash amortizations resulting from fresh
start accounting during such period.

"TOTAL CAPITAL" on any date, shall mean the sum of (i) Debt on such
date and (ii) Adjusted Cumulative Net Worth on such date. the total net
consolidated interest expense of the Corporation and the Subsidiaries
during such period, excluding the impact of non-cash amortizations
resulting from fresh start accounting during such period.

DOMESTIC NATURE OF COVENANTS. Each of the financial covenants will be
calculated on a domestic basis only, PROVIDED, that, if at anytime the
Corporation's non-domestic consolidated revenues for a Fiscal Year constitute
35% or more of the Corporation's total consolidated revenues for such year,
then, effective as of the first test date in the immediately succeeding Fiscal
Year, such financial covenants shall be calculated to include the financial
performance of the Corporation and all of its consolidated Subsidiaries,
PROVIDED further, that, if such event occurs and the Corporation so requests,
the Corporation, the Bank Group, the Agents and the Administrative Agent shall
in good faith recast the foregoing financial covenants to account for the
inclusion of the financial performance of the non-domestic Subsidiaries.

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CERTAIN LIMITS ON COMPLIANCE WITH FINANCIAL COVENANTS. No Event of Default or
Potential Event of Default would be deemed to exist or be continuing with
respect to a breach of the Senior Interest Coverage Ratio and/or the Total
Interest Coverage Ratio for any quarter during Fiscal Years 1995, 1996 and 1997
unless there would also exist a breach of the Fixed Charge Coverage Ratio for
such quarter. Conversely, no Event of Default or Potential Event of Default
would be deemed to exist or be continuing with respect to a breach of the Fixed
Charge Coverage Ratio for any quarter during fiscal years 1995, 1996 and 1997
unless there would also exist a breach of either the Senior Interest Coverage
Ratio or the Total Interest Coverage Ratio for such quarter. No Event of
Default or Potential Event of Default would be deemed to exist or be continuing
with respect to the financial covenants described above unless either (i) such
Event of Default shall be disclosed in or determinable on the basis of the
financial statements, compliance statements or officer's certificates delivered
to the Bank Group pursuant to the Credit Agreement or (ii) the Administrative
Agent, at the direction of the Requisite Senior Lenders, shall have given
written notice of such Event of Default to the Corporation. All calculations of
the foregoing financial covenants shall be rounded to the nearest 1/100. For
purposes of calculating the foregoing covenants, GAAP shall be constant from and
after the date of the Credit Agreement, unless the Corporation and the Requisite
Senior Lenders agree to modify such covenants to account for any subsequent
changes to GAAP.

COLLATERAL

Borrowings under the Credit Agreement are all secured by first priority
security interests in the capital stock of certain Subsidiaries. Such security
interests were granted pursuant to the Collateral Trust Agreement and related
Pledge Agreements which provide that the collateral will also equally and
ratably secure certain other debt of the Corporation and one of the
Subsidiaries, including the Senior 2002 Notes. See "Description of Collateral
Trust Agreement."

AMENDED GUARANTEES

The Corporation has guaranteed all obligations of USG Interiors under the
Credit Agreement. Each of United States Gypsum Company, USG Industries, Inc.,
USG Interiors, Inc., USG Foreign Investments, Ltd., L&W Supply Corporation,
Westbank Planting Company, USG Interiors International, Inc., American Metals
Corporation and La Mirada Products Co., Inc. (together, the "Subsidiary
Guarantors") in turn has guaranteed pursuant to the Amended Subsidiary
Guarantees both the obligations of the Corporation under the Credit Agreement
and the Senior 2002 Notes and the obligations of USG Interiors under the Credit
Agreement. In connection with the 1993 Amendments, the Subsidiary Guarantors
executed the Amended Subsidiary Guarantees, which entitle the Senior 2002 Notes
issued at such time to participate on a PARI PASSU basis in the benefits of the
Amended Subsidiary Guarantees. The Amended Subsidiary Guarantees are full and
unconditional guarantees of prompt payment and performance, when due, of all
(i) the Obligations (as defined in the Credit Agreement) of the Borrowers (as
defined therein) and (ii) all obligations of the Corporation under the Senior
2002 Notes. The Bank Group has the right to enforce the Amended Subsidiary
Guarantees and seek collection thereunder (for the ratable benefit of the Bank
Group and holders of the Senior 2002 Notes) at any time when one or more Events
of Default have occurred and are continuing under the Credit Agreement (which
Events of Default will include the occurrence and continuation of any event of
default under the Senior 2002 Notes Indenture). The Bank Group will have the
right to (i) determine whether, when and to what extent the Amended Subsidiary
Guarantees will be enforced (provided that each Amended Subsidiary Guarantee
payment will be applied to the Bank Term Loans, Revolving Credit Facility,
Capitalized Interest Notes and Senior 2002 Notes pro rata based on the
respective principal amounts owed thereon) and (ii) amend or eliminate the
Amended Subsidiary Guarantees; provided that the pro rata sharing requirement
contemplated in (i) above is not waivable (in the absence of a complete release
of the Amended Subsidiary Guarantees) without the approval of the holders of a
majority in principal amount of each of the two series of Senior 2002 Notes,
voting separately. The Amended Subsidiary Guarantees will terminate when the
Bank Term Loans, the Revolving Credit Facility and the Capitalized Interest
Notes are retired, regardless of whether any portion of the Senior 2002 Notes
then remains outstanding. The liability of each Subsidiary Guarantor on its
Amended Subsidiary Guarantee is limited to the greater of (i) 95% of the lowest
amount, calculated as of the date of delivery of the original Amended Subsidiary
Guarantee, sufficient to render the guarantor insolvent, leave the guarantor
with unreasonably small capital or leave the guarantor unable to pay its debts
as they become due (each as defined under applicable law) and (ii) the same
amount calculated as of the date any demand for payment under such guarantee is
made, in each case plus collection costs.

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INTEREST

The Corporation may elect, subject to the availability of LIBOR pricing, to
have interest on the Bank Term Loans and Revolving Loans calculated either at
reserve adjusted LIBOR plus 1 7/8% or at Citibank's Base Rate plus 7/8% per
annum. An increase of 2% on all of the above interest rates would automatically
take place five business days after notice of the occurrence of an Event of
Default, and will remain at such increased level for so long as the default
continues. Interest is calculated on the basis of the actual number of days
elapsed in the period during which interest accrues and a year of 360 days.
Interest is payable as follows: (i) for loans bearing interest calculated by
reference to LIBOR, interest is payable on the last day of each interest period,
consisting of one, two, three or, when available, six month periods (interest is
also payable after three months in the latter case); (ii) for the Bank Term
Loans bearing interest calculated by reference to Citibank's Base Rate, interest
is payable on the last day of each calendar quarter; and (iii) for Revolving
Loans bearing interest calculated by reference to Citibank's Base Rate, interest
is payable on the last day of each calendar month. The Corporation may purchase
interest rate caps, swaps, collars or similar devices on terms mutually
acceptable to the Corporation and the Agents.

VOLUNTARY PREPAYMENTS

Voluntary prepayments of the Bank Term Loans, Revolving Loans and
Capitalized Interest Loans may be made upon two business days' prior notice,
PROVIDED THAT the Bank Group shall be indemnified for any breakage costs
resulting from such voluntary prepayment.

MANDATORY PREPAYMENTS

In addition to the excess cash sweep described above, the Corporation is
required to make mandatory prepayments on the Bank Term Loans as a result of the
issuance for cash of new debt and equity securities. Prior to the payment in
full of all outstanding senior debt securities having maturity dates before
January 1, 1999 (other than the Bank Term Loans), 100% of the net proceeds
resulting from the issuance for cash of new debt and equity securities (the
"Refinancing Proceeds") would be applied to the outstanding principal balance of
the Corporation's Bank Term Loans and senior debt securities in order of
maturity; PROVIDED that to the extent such Refinancing Proceeds are insufficient
to repay all of such Bank Term Loans and other senior debt securities due in any
given calendar year, the amount of such Refinancing Proceeds available for such
year will be applied pro rata to the mandatory amortization of the Bank Term
Loans and senior debt securities due during such year based on the principal
amount of Bank Term Loans and senior debt securities due during such year.
Subject to the following sentence, following the payment in full of all existing
senior debt securities having maturity dates before January 1, 1999, 100% of the
Refinancing Proceeds would be applied as follows: (i) first, to the outstanding
principal balance of the Bank Term Loans in the order of maturity, but only to
the extent that the principal balance of the Bank Term Loans has not been
reduced by at least $300 million, and (ii) second, to any of the Corporation's
senior debt securities having a final maturity prior to December 31, 2002,
including the Bank Term Loans (to scheduled installments in the order of
maturity), as determined by the Corporation in its discretion; provided that the
minimum amount of such Refinancing Proceeds applied to the Bank Term Loans under
this clause (ii) shall be a percentage of such Refinancing Proceeds obtained by
dividing the outstanding principal balance of the Bank Term Loans at such time
by the sum of such outstanding principal balance of the Bank Term Loans and the
outstanding principal balance of the Senior 2002 Notes at such time. In the
event that all existing senior debt securities having maturity dates before
January 1, 1999 have been paid in full, the outstanding principal balance of the
Bank Term Loans has been reduced by at least $300 million and the Corporation's
senior debt securities are rated at least BB+ by Standard & Poor's Corporation
or Ba1 by Moody's Investors Service, Inc., the amount of Refinancing Proceeds
subject to the immediately preceding sentence shall be reduced from 100% to 66
2/3%, with the remaining 33 1/3% of such Refinancing Proceeds not being subject
to the mandatory prepayment provisions.

The Credit Agreement Amendments (i) permit, prior to the repayment in full
of all existing senior public debt due before 1999, the use by USG of any
Refinancing Proceeds for the prepayment, at USG's option, of any such public
debt and/or Bank Term Loans in any order of maturity; (ii) require the
application of any such Refinancing Proceeds within one year of issuance; and
(iii) provide that USG may retain 33 1/3% of future Refinancing Proceeds if all
existing senior public debt due before 1999 has been paid in full, the aggregate
outstanding Bank Term Loans at such time does not exceed $148,000,000 and

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<PAGE>

USG's public senior debt is then rated at least BB by Standard & Poor's
Corporation and Ba2 by Moody's Investors Service, Inc.

FEES

Commitment fees on the unused portion of the Revolving Credit Facility
accrue at a per annum rate of 3/8% and are payable quarterly in arrears.
Commitment fees on the undrawn face amount of all Facility Letters of Credit
accrue at a per annum rate of 1 1/2% and are payable quarterly in advance.

DESCRIPTION OF COLLATERAL TRUST

In connection with the 1988 Recapitalization, the Corporation established a
collateral trust pursuant to the Collateral Trust Agreement, dated as of
July 13, 1988 (the "Old Collateral Trust Agreement"), among the Corporation and
certain of the Subsidiaries (collectively, the "Grantors") and Wilmington Trust
Company and William J. Wade (collectively, the "Collateral Trustee"). Under the
Old Collateral Trust Agreement, the Grantors granted a first priority security
interest in (i) all of the capital stock of the Corporation's principal domestic
Subsidiaries, including U.S. Gypsum, USG Interiors, L&W Supply and USG Foreign
Investments, Ltd.; and (ii) 65% of the capital stock of CGC and certain other of
the Corporation's foreign Subsidiaries (collectively, the "Collateral"). The
Collateral is held in trust for the equal and ratable benefit of the holders of
(i) the Bank Debt Obligations; and (ii) the senior debt securities, including
the 1986 Indenture Securities. In connection with the Restructuring, the Old
Collateral Trust Agreement was amended to provide that the Senior 1995 Notes,
the Senior 1998 Notes and Senior 2002 Notes (together with the Bank Debt
Obligations and the previously existing senior debt securities, the "Senior
Secured Obligations") be equally and ratably secured with the other Senior
Secured Obligations (the "Collateral Trust Agreement"). In connection with the
Old Note Placement and the Exchange Offer, the Collateral Trust Agreement was
being further amended to provide that the Senior 2001 Notes will be equally and
ratably secured with the other Senior Secured Obligations. As of December 31,
1993, there were $1,462 million of obligations of the Corporation secured
pursuant to the Collateral Trust Agreement. On a pro forma basis, assuming
consummation of the Transactions as of such date, there would have been $1,186
million of such obligations.

Under the Collateral Trust Agreement, an "Actionable Default" occurs upon
the acceleration of any of the Senior Secured Obligations. A "Notice of
Actionable Default" may be given (i) in the case of an acceleration of the Bank
Debt Obligations, by the Administrative Agent under the Credit Agreement or the
holders of a majority of the Bank Debt Obligations (the "Requisite Senior
Lenders"); or (ii) in the case of an acceleration of any series of securities,
by the trustee under the indenture governing such series or, if provided under
the terms of such series, by the requisite holders of such series. A Notice of
Actionable Default may be withdrawn by the party which gave it (i) at any time
when the Collateral Trustee has not exercised any remedies with respect to the
Collateral as a result thereof or (ii) after the Collateral Trustee has
exercised remedies if the Requisite Senior Lenders consent to such withdrawal.
In addition, a Notice of Actionable Default is deemed withdrawn when the party
giving such Notice has acknowledged payment in full of the Senior Secured
Obligations owing to it. Until such time as any Notice of Actionable Default is
given (and after the time when any such Notice has been withdrawn), the pledgor
thereof may vote any securities comprising the Collateral. At any time when a
Notice of Actionable Default has been given and not withdrawn, the Collateral
Trustee may, upon written notice to the Corporation, vote any securities
comprising the Collateral.

All of the Collateral will be released (i) upon the consent and direction
of the Bank Group or (ii) at such time as the Bank Debt Obligations have been
repaid in full. In addition, the Requisite Senior Lenders may instruct the
Collateral Trustee to release specified portions of the Collateral (e.g., in the
case of asset sales approved by the holders of the Bank Debt Obligations under
the Credit Agreement) provided that no Actionable Default has occurred. The
holders of the Corporation's Securities do not have any similar rights to
authorize release of the Collateral. Under the terms of the Collateral Trust
Agreement, the Collateral and proceeds so released revert to the Grantors and
are not required to be distributed into the Collateral Account (defined below).
For a description of the rights of the holders of the Bank Debt Obligations
under the Credit Agreement, see "Description of Credit Agreement."

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Following receipt of a Notice of Actionable Default, the Requisite Senior
Lenders have the right to direct the Collateral Trustee to exercise, or refrain
from exercising, any rights or remedies with respect to the Collateral. The
holders of the Securities do not have any similar right to direct the actions of
the Collateral Trustee. See "Risk Factors -- Control of Collateral Trust
Agreement by Bank Group." In the absence of relevant directions, the Collateral
Trustee has the power to act on its own initiative. At any time when a Notice of
Actionable Default has been given and not withdrawn, the Collateral Trustee may,
and at the direction of the Requisite Senior Lenders shall, sell the Collateral
for the benefit of the holders of the Senior Secured Obligations. Funds derived
from any sale of Collateral and (at all times after a Notice of Actionable
Default has been given and not withdrawn) dividends and distributions received
on the Collateral are to be deposited to the collateral account established
under the Collateral Trust Agreement (the "Collateral Account"). The Collateral
Trustee shall distribute all moneys in the Collateral Account as follows:
(i) first, to the Collateral Trustee for unpaid fees; (ii) second, to the
holders of the Senior Secured Obligations ratably (on the basis of unpaid
amounts) to (a) pay the portion of the Senior Secured Obligations which is then
due and payable and (b) provide cash collateral (on a dollar-for-dollar basis)
for the portion of the Senior Secured Obligations which is not then due and
payable; and (iii) third, to the Grantors.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following summary describes the principal United States Federal income
tax consequences to holders resulting from the exchange of the Old Notes for the
New Notes pursuant to the Exchange Offer and the ownership and disposition of
the New Notes. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations (including proposed and temporary
regulations) promulgated thereunder, rulings, official pronouncements and
judicial decisions, all as in effect on the date hereof and all of which are
subject to change, possibly with retroactive or different interpretations. This
summary addresses only the Old Notes and the New Notes that are held as capital
assets. Moreover, it does not discuss all of the tax consequences that may be
relevant to the particular circumstances of a holder or to holders subject to
special rules, such as certain financial institutions, insurance companies,
dealers in securities and tax-exempt organizations. Holders acquiring the New
Notes should consult their tax advisors with regard to the application of the
United States Federal income tax laws to their particular situations as well as
any tax consequences arising under the laws of any state, local or foreign
taxing jurisdiction.

As used herein, the term "United States Holder" means a holder of a New
Note that is, for United States Federal income tax purposes, (a) a citizen or
resident of the United States, (b) a corporation or partnership created under
the laws of the United States or of any political subdivision thereof or (c) an
estate or trust the income of which is subject to United States Federal income
taxation regardless of source. The term "Foreign Holder" means a holder of an
Exchange Note that is not a United States Holder.

EXCHANGE OF NOTES

The exchange of the Old Notes for the New Notes pursuant to the Exchange
Offer should not be a taxable event to the holder and thus the holder should not
recognize any taxable gain or loss as a result of the exchange. A holder's
adjusted tax basis in the New Notes will be the same as his adjusted tax basis
in the Old Notes exchanged therefor, and his holding period for the Old Notes
will be included in his holding period for the New Notes. To the extent that a
holder acquired the Old Notes at a "market discount" or with "amortizable bond
premium," such discount or premium would generally carry over to the New Notes
received in exchange for the Old Notes. Such holders should consult their tax
advisors regarding the United States Federal income tax treatment of such market
discount and amortizable bond premium.

UNITED STATES HOLDERS

Interest paid on a New Note will generally be taxable to a United States
Holder as ordinary interest income in accordance with such holder's method of
accounting for United States Federal income tax purposes.

Upon the sale, exchange or retirement of a New Note, a United States Holder
will generally recognize taxable gain or loss equal to the difference between
the amount realized on the sale, exchange or retirement (except to the extent
such

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amount is attributable to accrued interest, which is taxable as ordinary
interest income) and such holder's adjusted tax basis in such New Note. Such
gain or loss will be capital gain or loss and will be long-term capital gain or
loss if the United States Holder's holding period in the Exchange Note is more
than one year at the time of disposition.

FOREIGN HOLDERS

Payments of principal, retirement premium, if any, and interest received by
a Foreign Holder who is not engaged in a trade or business within the United
States will not be subject to United States Federal income or withholding tax
provided that in the case of interest (a)(i) the Foreign Holder does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Corporation entitled to vote, (ii) the Foreign
Holder is not a controlled foreign corporation for United States tax purposes
that is related to the Corporation through stock ownership, and (iii) such
interest is not received by a bank on an extension of credit made pursuant to a
loan agreement entered into in the ordinary course of business and (b) either
(i) the beneficial owner of the New Note, under penalties of perjury, provides
the Corporation or its agent with its name and address and certifies that it is
not a United States Holder or (ii) a securities clearing organization, bank, or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "financial institution") certifies to the
Corporation or its agent, under penalties of perjury, that such a statement has
been received from the beneficial owner by it or another financial institution
and furnishes the payor a copy thereof. A Foreign Holder, however, may be
subject to United States Federal income tax at the normal graduated rates on its
net interest income if such interest is effectively connected with the conduct
of a U.S. trade or business of such holder.

A Foreign Holder will not be subject to United States Federal income or
withholding tax on any gain realized on the sale or exchange of a New Note,
unless (a) the gain is effectively connected, or treated as effectively
connected, with a United States trade or business of the Holder or (b) in the
case of a Foreign Holder who is an individual, such Foreign Holder is present in
the United States for a period or periods aggregating 183 days or more during
the taxable year of the sale or exchange and either (i) the Foreign Holder has a
"tax home," as defined in section 911(d)(3) of the Code, in the United States or
(ii) the gain is attributable to an office or other fixed place of business
maintained by the Foreign Holder in the United States.

BACKUP WITHHOLDING AND INFORMATION REPORTING ON NEW NOTES

Certain noncorporate United States Holders generally will be subject to
information reporting and may be subject to backup withholding at a rate of 31%
on payments of principal, premium, if any, and interest on, and the proceeds of
disposition of, a New Note. Backup withholding will apply only if the United
States Holder (a) fails to furnish its Taxpayer Identification Number ("TIN"),
which for an individual would be the holder's Social Security number, (b)
furnishes an incorrect TIN, (c) is notified by the Internal Revenue Service that
it has failed to properly report payments of interest and dividends or (d) under
certain circumstances, fails to certify, under penalty of perjury, that it has
furnished a correct TIN and has not been notified by the Internal Revenue
Service that it is subject to backup withholding for failure to report interest
and dividend payments. Holders should consult their own tax advisors regarding
their qualification for exemption from backup withholding and the procedure for
obtaining such an exemption if applicable.

Information reporting and backup withholding will not apply to payments of
principal, premium, if any, and interest made by the Corporation or a paying
agent to a Foreign Holder on a New Note if the certification described in clause
(b) of the first paragraph under "Foreign Holders" above is received, provided
that the payor does not have actual knowledge that the holder is a United States
person.

Payments of the proceeds from the sale by a Foreign Holder of a New Note
made to or through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the broker is a
United States person, a controlled foreign corporation for United States Federal
income tax purposes or a foreign person 50% or more of whose gross income is
effectively connected with a United States trade or business for a specified
three-year period, information reporting may apply to such payments. Payments
of the proceeds from the sale of a New Note to or through the United States
office of a broker is subject to information reporting and backup withholding
unless the holder or beneficial owner certifies as to its non-United States
status or otherwise establishes an exemption from information reporting and
backup withholding.

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The amount of any backup withholding from a payment to a holder will be
allowed as a credit against such holder's United States Federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.

PLAN OF DISTRIBUTION

Based on a no-action letter issued by the staff of the Commission to a
third party, the Corporation believes that any broker-dealer who holds Old Notes
acquired for its own account as a result of market-making activities or other
trading activities, and who receives New Notes in exchange for such Old Notes
pursuant to the Exchange Offer, may be a statutory underwriter and, in
connection with any resale of such New Notes, may be obligated to deliver a
prospectus meeting the requirements of the Securities Act. Each broker-dealer
that receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with resale of such
New Notes. Accordingly, such broker-dealer may determine to use this Prospectus
after the Expiration Date in connection with resales of New Notes that they
receive in exchange for Old Notes acquired for their own account as a result of
market-making activities or other trading activities, to the extent that a
prospectus is required to be delivered for that reason. However, the
Corporation has not agreed to make this Prospectus available to any such broker-
dealer for use in connection with any such resale or to amend or supplement the
Prospectus after the Expiration Date. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer, will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.

LEGAL MATTERS

The validity of the New Notes will be passed upon by Kirkland & Ellis,
Chicago, Illinois.

EXPERTS

The consolidated financial statements and supplemental schedules of the
Corporation and the Subsidiaries, incorporated in this prospectus by reference
have been audited by Arthur Andersen & Co., independent public accountants, as
stated in their report appearing therein and have been so incorporated in
reliance upon such report given upon the authority of that firm as experts in
giving said reports. Reference is made to said reports, which (1) for the
Restructured Company, includes an explanatory paragraph with respect to the
asbestos litigation as discussed in Notes to the Financial Statements --
"Litigation" note; and (2) for the Predecessor Company, includes an explanatory
paragraph with respect to the asbestos litigation as discussed in Notes to the
Financial Statements -- "Litigation" note and an explanatory paragraph with
respect to the changes in the methods of accounting for post retirement benefits
other than pensions and accounting for income taxes as discussed in Notes to
Financial Statements -- "Cumulative Effect of Changes in Accounting Principles"
note.

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law ("SECTION 145")
(a) gives Delaware corporations broad powers to indemnify their present and
former directors and officers and those of affiliated corporations against
expenses incurred in the defense of any lawsuit to which they are made parties
by reason of being or having been such directors or officers, subject to
specified conditions and exclusions, (b) gives a director or officer who
successfully defends an action the right to be so indemnified and (c) authorizes
the corporation to buy directors' and officers' liability insurance. Such
indemnification is not exclusive of any other right to which those indemnified
may be entitled under any bylaw, agreement, vote of stockholders or otherwise.

A bylaw provides that the Corporation (a) shall indemnify every person who
is or was a director or officer of the Corporation or is or was serving at the
Corporation's request as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise and (b) shall, if the
board of directors so directs, indemnify any person who is or was an employee or
agent of the Corporation or is or was serving at the Corporation's request as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, to the extent, in the manner, and subject to compliance with
the applicable standards of conduct, provided by Section 145 as the same (or any
substitute provision therefor) may be in effect from time to time.

Any such indemnification shall continue as to a person who has ceased to be
a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.

The Corporation has procured insurance for the purpose of substantially
covering its future potential liability for indemnification under Section 145 as
discussed above and certain future potential liability of individual officers or
directors incurred in their capacity as such which is not subject to
indemnification.

The Corporation has entered into Indemnification Agreements with each of
its officers and directors. The Indemnification Agreements provide that the
Corporation shall indemnify and keep indemnified the indemnitee to the fullest
extent authorized by Section 145 as it may be in effect from time to time from
and against any expenses (including expenses of investigation and preparation
and reasonable fees and disbursements of legal counsel, accountants and other
experts), judgments, fines and amounts paid in settlement by the indemnitee in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, and whether or not the
cause of action, suit or proceeding incurred before or after the date of the
Indemnification Agreement. The Indemnification Agreements further provide for
advancement of amounts to cover expenses incurred by the indemnitee in defending
any such action, suit or proceeding subject to an undertaking by the indemnitee
to repay any expenses advanced which it is later determined he or she was not
entitled to receive.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following is a complete list of Exhibits filed as a part of this
Registration Statement:

See Exhibit Index

ITEM 22. UNDERTAKINGS

The Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;

(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;

PART II-1
<PAGE>

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be the initial bona fide offering
thereof.

(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed int he Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.

PART II-2
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois on March 21, 1994.

USG CORPORATION

By: /s/ Richard H. Fleming
---------------------------------------------
Richard H. Fleming
Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 has been signed on March 21, 1994, by the following persons in the
capacities indicated:

Signature Title
--------- -----

* Chairman of the Board, Chief Executive
- ----------------------------------- Officer, and Director (Principal
Eugene B. Connolly Executive Officer)

/s/ Richard H. Fleming Vice President and Chief Financial
- ----------------------------------- Officer (Principal Financial Officer)
Richard H. Fleming

/s/ Raymond T. Belz Vice President and Controller
- ----------------------------------- (Principal Accounting Officer
Raymond T. Belz

* Director
- -----------------------------------
Robert L. Barnett

* Director
- -----------------------------------
Keith A. Brown

* Director
- -----------------------------------
W.H. Clark

* Director
- -----------------------------------
James C. Cotting

* Director
- -----------------------------------
Lawrence M. Crutcher

PART II-3
<PAGE>

* Director
- -----------------------------------
Wade Fetzer III

* Director
- -----------------------------------
David W. Fox

* Director
- -----------------------------------
Philip C. Jackson, Jr.

* Director
- -----------------------------------
Marvin E. Lesser

* Director
- -----------------------------------
John B. Schwemm

* Director
- -----------------------------------
Alan G. Turner

* Director
- -----------------------------------
Barry L. Zubrow

*By: /s/ Richard H. Fleming
----------------------------------------------
Richard H. Fleming
Attorney-in-fact

PART II-4
<PAGE>

USG CORPORATION

EXHIBIT INDEX

The following documents are the exhibits to this Amendment No. 1. For
convenient reference, each exhibit is listed according to the Exhibit Table of
Regulation S-K. The page number, if any, listed opposite an exhibit indicates
the page number in the sequential numbering system in the manually signed
original of this Amendment No. 1 where such exhibit can be found.

Exhibit
No. Page
- ------- ----

4. Instruments defining the rights of security holders,
including indentures:
(a) Indenture dated as of October 1, 1986 between USG
Corporation and Harris Trust and Savings Bank,
Trustee (incorporated by reference to Exhibit 4(a)
of USG Corporation's Registration Statement
No. 33-9294 on Form S-3, dated October 7, 1986).
(b) Resolutions dated December 16, 1986 of a Special
Committee created by the Board of Directors of USG
Corporation (incorporated by reference to
Exhibit 4(b) of USG Corporation's 1993 Annual
Report on Form 10-K, filed on February 24, 1994).
(c) Resolutions dated March 5, 1987 of a Special
Committee created by the Board of Directors of USG
Corporation (incorporated by reference to
Exhibit 4(c) of USG Corporation's 1993 Annual
Report on Form 10-K, filed on February 24, 1994).
(d) Resolutions dated March 6, 1987 of a Special
Committee created by the Board of Directors of USG
Corporation (incorporated by reference to
Exhibit 4(d) of USG Corporation's 1993 Annual
Report on Form 10-K, filed on February 24, 1994).
(e) Resolutions dated April 26, 1993 of a Special
Committee created by the Board of Directors of USG
Corporation relating to USG Corporation's 8%
Senior Notes due 1995 and 9% Senior Notes due 1998
(incorporated by reference to Exhibit 4.1 of USG
Corporation's Form 8-K, dated May 7, 1993).
(f) Consent Resolutions adopted by a Special Committee
created by the Board of Directors of USG
Corporation relating to USG Corporation's 9 1/4%
Senior Notes due 2001 (incorporated by reference
to Exhibit 4(f) of USG Corporation's Amendment No.
1 to Registration Statement No. 33-51845 on Form
S-1, filed on February 16, 1994).

(g) Consent Resolutions adopted by a Special Committee
created by the Board of Directors of USG
Corporation relating to USG Corporation's 9 1/4%
Senior Notes due 2001, Series B. *

(h) Indenture dated as of April 26, 1993 among USG
Corporation, certain guarantors and State Street
Bank and Trust Company, as Trustees, relating to
USG Corporation's 10 1/4% Senior Notes due 2002
(incorporated by reference to Exhibit 4.2 of USG
Corporation's Form 8-K, dated May 7, 1993).

(i) Indenture dated as of August 10, 1993 among USG
Corporation, certain guarantors and State Street
Bank and Trust Company, as Trustee, relating to
USG Corporation's 10 1/4% Senior Notes due 2002,
Series B (incorporated by reference to
Exhibit 4(f) of USG Corporation's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1993
dated August 12, 1993.
(j) Warrant Agreement dated May 6, 1993 between USG
Corporation and Harris Trust and Savings Bank, as
Warrant Agent, relating to USG Corporation's
Warrants (incorporated by reference to Exhibit 4.3
of USG Corporation's Form 8-K, dated May 7,
1993).
(k) Form of Warrant Certificate (incorporated by
reference to Exhibit 4(g) of Amendment No. 4 to
USG Corporation's Registration Statement
No. 33-40136 on Form S-4, dated November 12,
1992).

<PAGE>

(l) Rights Agreement dated May 6, 1993 between USG
Corporation and Harris Trust and Savings Bank, as
Rights Agent (incorporated by reference to
Exhibit 10.1 of USG Corporation's Form 8-K, dated
May 7, 1993).
(m) Form of Common Stock certificate (incorporated by
reference to Exhibit 4.4 to USG Corporation's Form
8-K, dated May 7, 1993).
The Corporation and certain of its consolidated
subsidiaries are parties to long-term debt
instruments under which the total amount of
securities authorized does not exceed 10% of the
total assets of the Corporation and its
subsidiaries on a consolidated basis. Pursuant to
paragraph (b)(4)(iii)(A) of Item 601 of Regulation
S-K, the Corporation agrees to furnish a copy of
such instruments to the Securities and Exchange
Commission upon request.

5. Opinions of counsel as to the legality of the securities
being registered. *

12. Statement re computation of ratio of earnings to fixed
charges. *

23. Consents of experts and counsel.
(a) Consent of Arthur Andersen & Co.
(b) Consents of counsel (included in Exhibit 5).

24. Power of attorney. *

25. Statement of eligibility of trustee. *

27. Additional exhibits.
(a) Form of Letter of Transmittal *
(b) Form of Notice of Guaranteed Delivery *

__________________________

* Filed Previously.

<PAGE>

EXHIBIT 23 (a)

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our reports dated January 31,
1994, and to all references to our Firm included in this registration statement.

/s/ Arthur Andersen & Co.

ARTHUR ANDERSEN & CO.

Chicago, Illinois,
March 21, 1994