<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant / /
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
USG CORPORATION
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(Name of Registrant as Specified in Its Charter)
USG CORPORATION
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
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/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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USG CORPORATION
[USG LOGO] -------------------------------------------
125 South Franklin Street
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Chicago, IL 60606-4678
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312 606-4000
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March 31, 1995
Dear Fellow Stockholder:
You are cordially invited to attend our annual meeting of stockholders to
be held on Wednesday, May 10, 1995, in the Sixth Floor Auditorium, The Northern
Trust Building, 50 South LaSalle Street, Chicago, Illinois. The meeting will
begin at 9:15 a.m. Chicago time. The attached Notice of Annual Meeting and proxy
statement set forth and describe the items to be covered.
If you wish to attend the meeting, please let us know by marking the
designated box on the enclosed proxy card. Whether or not you plan to attend the
meeting, we ask that you execute and return the proxy in the envelope provided.
If you then attend the meeting, you may, in your discretion, withdraw your proxy
and vote in person. In any case, please vote. Your participation in our meeting
is important to us.
Sincerely,
EUGENE B. CONNOLLY
Chairman of the Board
<PAGE> 3
125 South Franklin Street USG CORPORATION Chicago, IL 60606-4678
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
The annual meeting of stockholders of USG Corporation will be held in the
Sixth Floor Auditorium, The Northern Trust Building, 50 South LaSalle Street,
Chicago, Illinois on Wednesday, May 10, 1995, at 9:15 a.m., Central Daylight
Time, for the following purposes:
1. To elect five directors for a term of three years, pursuant to the
Corporation's by-laws.
2. To consider approval of the Stock Compensation Plan for
Non-Employee Directors.
3. To consider approval of the 1995 Long-Term Equity Plan.
4. To consider ratification of the appointment of Arthur Andersen LLP
as independent public accountants for the year ending December 31, 1995.
5. To transact such other business as may properly come before the
meeting.
Pursuant to a provision in the Corporation's by-laws, any matter to be
presented at the meeting for consideration and with a view to obtaining a vote
thereon must be introduced by a motion, and any such motion must be seconded
before consideration of it may begin or before a vote on it may be obtained.
The Board of Directors has fixed the close of business on March 14, 1995,
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting or any adjournment thereof.
A list of stockholders entitled to vote at the meeting and the number of
shares registered in the name of each will be available for examination by any
stockholder at the office of the Corporate Secretary of the Corporation, 125
South Franklin Street, Chicago, Illinois during ordinary business hours
beginning April 24, 1995, and running through the time of the meeting.
By order of the Board of Directors
DEAN H. GOOSSEN
Corporate Secretary
Chicago, March 31, 1995
IMPORTANT -- PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE
ENCLOSED ENVELOPE.
<PAGE> 4
PROXY STATEMENT AND PROXY
This proxy statement has been prepared by the management of USG Corporation
(the "Corporation"). It is being furnished to stockholders in connection with
the solicitation of proxies by the Board of Directors for use at the annual
meeting of stockholders of the Corporation to be held on May 10, 1995, and any
adjournment thereof. The notice of the meeting accompanies this proxy statement.
The Corporation intends to commence distribution of this proxy statement
together with notice, proxy, and other accompanying materials, on or about March
31, 1995.
The Board of Directors has selected the close of business on March 14, 1995
(the "Record Date"), as the time for determining the holders of record of the
Corporation's common stock, par value $0.10 per share ("Common Stock"), entitled
to notice of and to vote at the annual meeting or any adjournment thereof. On
the Record Date, the Corporation had outstanding 45,001,679 shares of Common
Stock, and those are the only securities of the Corporation entitled to vote at
the annual meeting or any adjournment thereof. A majority of the shares entitled
to vote at the meeting will constitute a quorum for the transaction of business.
Each share of Common Stock outstanding on the Record Date is entitled to
one vote on each proposal. The affirmative vote of the holders of a majority of
the stock entitled to vote and present in person or represented by proxy is
required for election of directors and for approval of each of the other
matters. Broker non-votes (i.e., the failure to vote shares held of record by
nominees due to a lack of both discretionary authority and instructions from the
beneficial owners) with respect to any matter are not considered part of the
"voting power present" with respect to such matter and will not affect the
outcome of the vote on such matter. Abstentions are not treated as votes cast
for or against the election of directors or a particular matter, as the case may
be, but they are treated as part of the "voting power present" with respect to
such matter and therefore have the same legal effect as a vote against such
matter.
Any person giving a proxy may revoke it at any time before it has been
voted by (i) giving written notice of revocation to the Corporate Secretary of
the Corporation, (ii) submitting to the Corporation a valid proxy voting the
same shares and having a later date, or (iii) voting by ballot at the annual
meeting.
All proxies received (and not revoked) pursuant to this solicitation will
be voted by the individuals named in the proxy as indicated below, except as to
matters where authority to vote is specifically withheld and except as to
matters on which the person solicited specifies a choice, in which case the
proxy will be voted in accordance with such specification. If no instructions
are given and authority is not withheld, the individuals named in the proxy
solicited by the Board of Directors intend to vote FOR the nominees for election
as directors named below; FOR approval of the Stock Compensation Plan for Non-
Employee Directors; FOR approval of the 1995 Long-Term Equity Plan; and FOR
ratification of the appointment of Arthur Andersen LLP as independent public
accountants for the year ending December 31, 1995.
Water Street Corporate Recovery Fund I, L.P. ("Water Street") held of
record 9,418,231 shares of Common Stock as of the Record Date, or approximately
21% of the total of such shares outstanding. In addition, Goldman, Sachs & Co.,
the general partner of Water Street, owned directly 96,539 shares of
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<PAGE> 5
Common Stock as of the Record Date. See "Principal Stockholders" below. An
agreement between the Corporation and Water Street and its affiliates Goldman,
Sachs & Co. and The Goldman Sachs Group, L.P. (collectively, the "Water Street
Entities") requires (a) Water Street to vote all shares of Common Stock
beneficially owned by it, and (b) the other Water Street Entities to vote all
shares of Common Stock beneficially owned by them in excess of 10% of the then
outstanding shares of Common Stock, in each case in the same proportion as the
votes cast by all other holders of Common Stock, subject to certain exceptions
not currently applicable. See "Certain Relationships and Related Transactions"
below. The Corporation believes that all of the 9,418,231 shares of Common Stock
held of record by Water Street on the Record Date, or approximately 21% of the
total outstanding, are subject to such proportional voting requirement.
The Northern Trust Company, as trustee of the USG Corporation Investment
Plan, held of record 449,375 shares of Common Stock as of December 31, 1994, or
approximately 1% of the total of such shares outstanding. All shares so held by
the Trustee on the Record Date will be voted in accordance with instructions
given by Plan participants. Shares as to which no instructions are received will
be voted by the Trustee in the same proportions as those shares for which
instructions are received.
Except as otherwise expressly indicated, all information in this proxy
statement is provided as of March 14, 1995.
PRINCIPAL STOCKHOLDERS
The following persons may be deemed to be beneficial owners (as determined
in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of
1934) of more than five percent of the outstanding Common Stock as of the Record
Date.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------------------------------------------- -------------------- ----------------
<S> <C> <C>
Water Street Corporate Recovery Fund I, L.P.(a)........ 9,418,231 21%
85 Broad Street
New York, NY 10004
FMR Corp.(b)........................................... 5,574,100 12.4%
82 Devonshire Street
Boston, MA 02109
</TABLE>
---------------
(a) In addition to 9,418,231 shares of Common Stock, Water Street owns directly
116,070 warrants that are currently exercisable for shares of Common Stock
at the rate of one Warrant for one share (the "Warrants"). Goldman, Sachs &
Co. owns directly 96,539 shares of Common Stock and, as the general partner
of Water Street, may be deemed to be the beneficial owner of the 9,418,231
shares of Common Stock and 116,070 Warrants owned directly by Water Street
on the Record Date. Such shares and Warrants may also be deemed to be
beneficially owned by The Goldman Sachs Group, L.P., one of the general
partners of Goldman, Sachs & Co. Goldman, Sachs & Co. and The Goldman Sachs
Group, L.P. disclaim beneficial ownership of shares and Warrants held by
Water Street to the extent partnership interests in Water Street are held
by persons other than Goldman, Sachs & Co., The Goldman Sachs Group, L.P.,
and their affiliates.
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(b) Based solely on a Schedule 13G filed with the Securities and Exchange
Commission, as of December 31, 1994: (i) FMR Corp., a parent holding
company, had sole voting power with respect to 92,400 shares and sole
investment power with respect to 5,574,100 shares; (ii) Fidelity Management
& Research Company, an investment advisor and a wholly owned subsidiary of
FMR Corp., through certain funds advised by it, had sole power to dispose
of 5,413,400 shares and no power to vote such shares, which power resides
with the funds' Board of Trustees; (iii) Fidelity Magellan Fund, a fund
advised by Fidelity Management & Research Company, had sole power to
dispose of 4,334,300 shares, and the Fund's Board of Trustees had sole
power to vote such shares; (iv) Fidelity Management Trust Company, a bank
and a wholly owned subsidiary of FMR Corp., through certain accounts
managed by it, had sole power to dispose of 75,700 shares and sole power to
vote 7,400 shares and no power to vote the remaining 68,300 shares owned by
the accounts; and (v) Fidelity International Limited, an investment
adviser, had sole power to vote and sole power to dispose of 85,000 shares.
According to such Schedule 13G, Edward C. Johnson 3d, Chairman of FMR
Corp., and Abigail P. Johnson each own 24.9% of the outstanding common
stock of FMR Corp., and various Johnson family members own FMR Corp. voting
common stock; these Johnson family members, through their ownership of
voting common stock and the execution of a family shareholders' voting
agreement, form a controlling group with respect to FMR Corp.
ITEM NO. 1 -- ELECTION OF DIRECTORS
On May 6, 1993, the Corporation completed a comprehensive restructuring of
its debt (the "Restructuring") through implementation of a "prepackaged" plan of
reorganization under the federal bankruptcy laws (the "Prepackaged Plan"). Under
the Prepackaged Plan, the number of persons comprising the Board of Directors
was increased by five effective May 6, 1993 which, after the May 1993 retirement
of one director whose position was eliminated, brought the total Board
membership to 15. Of the five new directors (the "New Directors"), two, Messrs.
Crutcher and Lesser, were nominated by a committee representing holders of the
Corporation's senior subordinated debentures which were converted into Common
Stock under the Prepackaged Plan (each a "Senior Subordinated Director"); two,
Messrs. Fetzer and Zubrow, were nominated by Water Street (each a "Water Street
Director"); and one, Mr. Brown, was nominated by a committee representing
holders of the Corporation's junior subordinated debentures which were converted
into Common Stock and Warrants under the Prepackaged Plan (a "Junior
Subordinated Director"). The Prepackaged Plan also provided that one Water
Street Director (Mr. Zubrow) and one Senior Subordinated Director (Mr. Lesser)
be appointed to the Finance Committee of the Board of Directors and that the
Finance Committee be comprised of four non-employee directors, one of whom shall
be a Water Street Director and one of whom shall be a Senior Subordinated
Director, through June 22, 1997.
As the respective terms of office of the New Directors expire, the
Prepackaged Plan provides that each such New Director will be renominated. If a
New Director declines or is unable to accept such nomination, or in the event a
New Director resigns during his term or otherwise becomes unable to continue his
duties as a director, such New Director or, in the case of a Water Street
Director, Water Street, shall recommend his successor to the Committee on
Directors of the Board. In the event of the death or incapacity of a New
Director, his successor shall be recommended, in the case of a Water
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Street Director, by Water Street, in the case of a Senior Subordinated Director,
by the remaining Senior Subordinated Director, and in the case of a Junior
Subordinated Director, by the remaining New Directors. Any such nominee shall be
subject to approval by the Board's Committee on Directors and the Board, which
approval shall not be unreasonably withheld.
Until June 22, 1997, the time at which the director nomination and
selection procedures established by the Prepackaged Plan terminate, no more than
two employee directors may serve simultaneously on the Board. An "employee
director" is defined for this purpose as any officer or employee of the
Corporation or any direct or indirect subsidiary, or any director of any such
subsidiary who is not also a director of the Corporation.
The Board of Directors of the Corporation is divided into three classes of
five each, with one current vacancy in the class with terms expiring in 1996.
Each class is elected for a three-year term. One class will be elected at the
annual meeting of stockholders on May 10, 1995. The remaining classes will be
elected in 1996 and 1997, respectively.
The five candidates nominated by the Board of Directors for election as
directors at the annual meeting of stockholders on May 10, 1995, are identified
below. Two of the nominees, Lawrence M. Crutcher and Wade Fetzer III, are New
Directors and have been nominated pursuant to the requirements of the
Prepackaged Plan described above. If any nominee identified below should for any
reason become unavailable prior to such meeting, which the Board of Directors
does not anticipate, the Board of Directors prior to such meeting will nominate
a new candidate in place of any such person (which, in the case of either Mr.
Crutcher's or Mr. Fetzer's unavailability, would be a candidate recommended by
Mr. Lesser or Mr. Zubrow, respectively) and vote in favor of the new candidate
all shares represented by proxies received by the Board, unless authority to
vote for all candidates nominated by the Board is withheld.
A provision in the Corporation's by-laws requires that a person serving
both as a director and an officer shall not continue to serve as a director
beyond the date such person ceases to be an officer. Another by-law provision
requires that a director who is not an officer or employee leave the Board at
the end of the first annual meeting of stockholders following such director's
70th birthday.
Information shown for nominees and directors has been furnished to the
Corporation by such nominees and directors.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR A THREE-YEAR TERM TO EXPIRE IN 1998
W.H. CLARK, 62, Formerly Chairman of the Board (1984-1994), Chief Executive
Officer (1982-1994) and President (1984-1990) of Nalco Chemical Company of
Naperville, Illinois, specialized chemicals and technology. He is a director of
Northern Trust Corporation and The Northern Trust Bank, Nicor Corporation,
Bethlehem Steel Corporation, James River Corporation, Northern Illinois Gas
Company and Diamond Shamrock Corporation. Mr. Clark has been a director of the
Corporation
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since August 1985, is a member of the Board's Executive Committee and
Compensation and Organization Committee and is Chairman of its Audit Committee.
LAWRENCE M. CRUTCHER, 52, Managing Director (since 1990) of Veronis, Suhler
& Associates, investment bankers. From 1967 to 1989, Mr. Crutcher was with Time
Inc. He was President of Book-of-the-Month Club (1985-1989); Vice President for
Financial Planning (1984); Vice President, Magazines (1981-1983); and Vice
President, Circulation (1976-1980). Mr. Crutcher has been a director of the
Corporation since May 1993 and is a member of the Board's Compensation and
Organization Committee and Public Affairs Committee.
WADE FETZER III, 57, Limited partner (since 1994) and partner (1986-1994)
of Goldman,
Sachs & Co., investment bankers. Mr. Fetzer is a member of the Board of Trustees
and the Executive Committee of Rush-Presbyterian St. Luke's Medical Center, a
Trustee of Northwestern University and the University of Wisconsin Foundation,
and a member of the Board of United Charities of Chicago. Mr. Fetzer has been a
director of the Corporation since May 1993 and is a member of the Board's
Compensation and Organization Committee and Public Affairs Committee.
WILLIAM C. FOOTE, 44, President and Chief Operating Officer since January
1994; President and Chief Executive Officer, USG Interiors, Inc. (January
1993-December 1993); President and Chief Executive Officer, L&W Supply
Corporation (September 1991-December 1993); Executive Vice President and Chief
Operating Officer, L&W Supply Corporation (December 1990-August 1991); Senior
Vice President and General Manager, Central Construction Products Region, United
States Gypsum Company (April 1989-November 1990); Senior Vice President, USG
Interiors, Inc. (December 1988-March 1989); Vice President, USG Corporation and
Vice President, International & Business Development, USG Interiors, Inc.
(January 1988-November 1988). He joined the Corporation in January 1984 and was
appointed Vice President, Strategic Planning and Corporate Development, USG
Corporation in March 1985. Mr. Foote is a director of GATX Corporation. He is
also a director of the Del Nor Community Health Care Foundation. He has been a
director of the Corporation since March 1994 and is a member of the Board's
Executive Committee.
JUDITH A. SPRIESER, 41, Senior Vice President and Chief Financial Officer
(November 1994-present) of Sara Lee Corporation, packaged food and consumer
products. Ms. Sprieser has been with Sara Lee Corporation since 1987 and served
as President and Chief Executive Officer (1993-1994) and Chief Financial Officer
(1990-1993) of Sara Lee Bakery, North America, and Assistant Treasurer,
Corporate Finance (1987-1990). She has been a director of the Corporation since
February 1994 and is a member of the Board's Audit Committee and Public Affairs
Committee.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES LISTED
ABOVE.
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DIRECTORS CONTINUING IN OFFICE
DIRECTORS WHOSE TERM EXPIRES IN 1996
ROBERT L. BARNETT, 54, Formerly Vice Chairman of Ameritech (1991-1992) and
President of the Ameritech Bell Group (1989-1992), communications and
information services, which includes eight wholly owned subsidiaries of American
Information Technologies Corporation (Ameritech) and the Bell Group staff. Mr.
Barnett also served as President of Ameritech Enterprise Group (1987-1989),
President and Chief Executive Officer of Wisconsin Bell Company (1985-1987),
Vice President of Operations for Wisconsin Bell Company (1984-1985), President
of Ameritech Mobile Communications Company (1983-1984), and in various other
capacities with the Bell System, which he joined in 1964. He is a director of
Johnson Controls, Inc. and is a member of the Advisory Council of the Robert R.
McCormick School of Engineering and Applied Science at Northwestern University
and of the University's Electrical Engineering and Computer Science Industrial
Advisory Board. He is affiliated with the Institute of Electrical and
Electronics Engineers. Mr. Barnett has been a director of the Corporation since
May 1990. He is a member of the Board's Compensation and Organization Committee,
Audit Committee and Committee on Directors.
DAVID W. FOX, 63, Chairman and Chief Executive Officer (since 1990) of
Northern Trust Corporation and The Northern Trust Company, banking and financial
services. He has been with The Northern Trust Company since 1955 and served as
Senior Vice President (1974-1978), Executive Vice President (1978-1981), Vice
Chairman (1981-1987), and President (1987-1993). Mr. Fox is a director of The
Federal Reserve Bank of Chicago, Northern Trust of Florida Corp., Banque Rivaud
(Paris, France) and the Chicago Central Area Committee. He is a Governor of the
Chicago Stock Exchange, Chairman of Northwestern Memorial Hospital, and a
trustee of the Adler Planetarium, The Orchestral Association, and DePaul
University. Mr. Fox has been a director of the Corporation since May 1987, is a
member of the Board's Executive Committee, Finance Committee and Committee on
Directors, and is Chairman of its Compensation and Organization Committee.
MARVIN E. LESSER, 53, Managing Partner (since 1993) of Sigma Partners,
L.P., a private investment partnership. Mr. Lesser has also been a private
consultant since 1992. He was Managing Partner (1989-1994) of Cilluffo
Associates, L.P., a private investment partnership, and a director (1989-1991)
of Amdura Corporation. Mr. Lesser chairs the Seacoast Area Chapter (New
Hampshire and Maine) of the American Red Cross. He has been a director of the
Corporation since May 1993 and is a member of the Board's Finance Committee,
Committee on Directors and Public Affairs Committee.
BARRY L. ZUBROW, 42, Partner (since 1988) of Goldman, Sachs & Co.,
investment bankers. Mr. Zubrow is a member of the Board of Managers of Haverford
College. He has been a director of the Corporation since May 1993 and is a
member of the Board's Finance Committee and Committee on Directors.
DIRECTORS WHOSE TERM EXPIRES IN 1997
KEITH A. BROWN, 43, President (since 1987) of Chimera Corporation, a
private management holding company. Mr. Brown is a director (since 1988) of
Adelphia Incorporated, a director (since
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1988) of Global Film & Packaging Corporation, a director (since 1993) of Ashland
Castings Corporation, and a director (since 1994) of Mansfield Capital
Corporation and Poly Shapes Corporation. Mr. Brown has been a director of the
Corporation since May 1993 and he is a member of the Board's Audit Committee,
Committee on Directors and Public Affairs Committee.
EUGENE B. CONNOLLY, 63, Chairman and Chief Executive Officer since January
1994; Chairman, President and Chief Executive Officer (April 1993-December
1993); Chairman of the Board and Chief Executive Officer (June 1990-March 1993);
President and Chief Executive Officer (January 1990-May 1990); Executive Vice
President of the Corporation (1987-1989); and President and Chief Executive
Officer of USG Interiors, Inc. (March 1987-March 1989). He also was President
and Chief Executive Officer of DAP Inc. (July 1988-March 1989). Prior to that,
he served as President and Chief Operating Officer of United States Gypsum
Company. He joined the Corporation in 1958, was appointed General Manager of the
Southern Construction Products Division in 1980, and was elected a Group Vice
President, Subsidiaries in 1983 and Group Vice President, International and
Industrial in 1984. Mr. Connolly is a director of U.S. Can Corporation and The
Pepper Companies, Inc. He is a member of the Advisory Board of the Kellogg
Graduate School of Management, Northwestern University; the Dean's Advisory
Council, School of Business, Indiana University; and the Governing Council, Good
Shepherd Hospital (Barrington, Illinois). Mr. Connolly has been a director of
the Corporation since May 1988 and is Chairman of the Board's Executive
Committee.
JAMES C. COTTING, 61, Chairman (since March 1995) and former Chairman and
Chief Executive Officer (1987-1995) of Navistar International Corporation, truck
and diesel engine manufacturing and financial services. Mr. Cotting is a
director of Asarco Incorporated and the Interlake Corporation. He is a director
of the National Association of Manufacturers and is a member of the Conference
Board. Mr. Cotting has been a director of the Corporation since October 1987, is
a member of the Board's Executive Committee and Committee on Directors and is
Chairman of its Finance Committee.
PHILIP C. JACKSON, JR., 66, Formerly Vice Chairman and a director of
Central Bank of the South, Birmingham, Alabama, and of its parent company,
Central Bancshares of the South (1980-1989), banking and financial services;
presently Adjunct Professor, Birmingham-Southern College, Birmingham, Alabama
(since January 1989). Mr. Jackson was a member (April 1990-April 1993) of the
Thrift Depositors Protection Oversight Board, Washington, D.C. He is Director,
Saul Centers, Inc., Washington D.C. His past affiliations include: member of the
Board of Governors of the Federal Reserve System, Washington, D.C., (July
1975-November 1978) and Vice President and a director of the Jackson Company
(mortgage banking operations) of Birmingham, Alabama (October 1949-June 1975).
Mr. Jackson is Trustee, Birmingham -- Southern College, Birmingham, Alabama. He
has been a director of the Corporation since May 1979, is a member of the
Board's Executive Committee and Committee on Directors and is Chairman of its
Public Affairs Committee.
JOHN B. SCHWEMM, 60, Retired Chairman (1983-1989) and Chief Executive
Officer (1983-1988) of R.R. Donnelley & Sons Company, commercial and financial
printing and publishing. He joined that Company in 1965, prior to which he was
with the law firm of Sidley & Austin. Mr. Schwemm was appointed General Counsel
in 1969 and elected Group Vice President, Book Group
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in 1976. He serves as a director of Walgreen Company and William Blair Mutual
Funds; he also serves as a Trustee of Northwestern University. Mr. Schwemm has
been a director of the Corporation since May 1988 and is a member of the Board's
Audit Committee and is Chairman of its Committee on Directors.
The Board of Directors held seven meetings during 1994, and the standing
committees of the Board of Directors held an aggregate of 18 meetings during
that year. Each director except Mr. Schwemm attended at least 75% of the
aggregate number of meetings in 1994 of the Board of Directors and the Board
committees on which he or she served.
Committees of the Board of Directors
The Board of Directors has established an Executive Committee, consisting
of Mr. Connolly, as Chairman, and Messrs. Clark, Cotting, Foote, Fox, and
Jackson, which, to the extent permitted by law, is authorized to exercise the
power of the Board with respect to the management of the business and affairs of
the Corporation between Board meetings. The Executive Committee held one meeting
in 1994. The other standing committees of the Board of Directors are the Audit,
Compensation and Organization, Finance and Public Affairs Committees and the
Committee on Directors.
The Audit Committee has ongoing responsibilities with respect to adequacy
of financial reporting, compliance with corporate policies, and the efficacy of
corporate controls. These responsibilities include providing reasonable
assurance to the Board of Directors that the Corporation's financial disclosure
fairly portrays its financial condition, results of operations, and long-term
plans and commitments and that there has been substantial compliance with
corporate policies applicable to business conduct. The Committee also monitors
the Corporation's system of internal controls for adequacy and implementation.
It selects and employs a firm of certified public accountants (which selection
and employment is subject to ratification by stockholders). It confers with the
auditors regarding the scope of the audit and other services and the cost
thereof and reviews with the auditors the findings disclosed during the audit,
including matters relating to internal controls, the internal auditing function,
accounting policies and financial reporting. The Committee members are W. H.
Clark, Chairman, Robert L. Barnett, Keith A. Brown, John B. Schwemm, and Judith
A. Sprieser. The Audit Committee held three meetings during 1994.
The Compensation and Organization Committee reviews and makes
recommendations to the Board of Directors with respect to management
organization, succession and development programs, and the election of
Corporation officers. The Committee reviews and approves Corporation officers'
salaries, incentive compensation, and bonus awards. The Committee also makes the
decisions required by a committee of the Board of Directors under all stock
option and restricted and deferred stock plans which the Corporation has adopted
or may adopt and approves and reports to the Board of Directors changes in
salary ranges for all major position categories and changes in Corporation
retirement plans, group insurance plans, investment plans, and management
incentive compensation, bonus, and other benefit plans. The members of the
Committee are David W. Fox, Chairman, Robert L. Barnett, W. H. Clark, Lawrence
M. Crutcher and Wade Fetzer III. The Compensation and Organization Committee
held three meetings during 1994 and acted in two instances by unanimous written
consent in lieu of a meeting.
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The Finance Committee reviews all of the Corporation's significant
financial matters, including strategies, policies and transactions contemplated
by the Corporation. It provides review and oversight of and makes
recommendations to the Board of Directors on the Corporation's financing
requirements and programs to obtain funds; forecasting procedures on revenues,
expenses, earnings, and cash flow; operating and capital expenditures budgets;
relationships and communications with banks and other lenders and creditors; and
adoption of any stock-based or significant cash compensation plan for key
employees (other than an annual cash bonus plan consistent with past practice).
The Committee reports periodically to the Board on the funding and investment
performance of qualified pension plans of the Corporation and its subsidiaries
and authorizes necessary or desirable changes in actuarial assumptions for
funding those pension plans. The Committee also considers such other matters as
may be referred to it from time to time by the Board. The Committee members are
James C. Cotting, Chairman, David W. Fox, Marvin E. Lesser, and Barry L. Zubrow.
The Finance Committee held seven meetings during 1994.
The Public Affairs Committee reviews and recommends policies and programs
important to the Corporation's position with those various publics whose
understanding and goodwill are necessary to the Corporation's success. It
reports periodically to the Board on the Corporation's activities in fulfilling
its social responsibilities and complying with public policy. The members of the
Committee are Philip C. Jackson, Jr., Chairman, Keith A. Brown, Lawrence M.
Crutcher, Wade Fetzer III, Marvin E. Lesser, and Judith A. Sprieser. The
Committee held two meetings in 1994.
The Committee on Directors makes recommendations to the Board of Directors
concerning the size and composition of the Board and committees of the Board,
recommends nominees for election or reelection as directors, and considers other
matters pertaining to Board membership such as retirement policy and
compensation of non-employee directors. The members of the Committee are John B.
Schwemm, Chairman, Robert L. Barnett, Keith A. Brown, James C. Cotting, David W.
Fox, Philip C. Jackson, Jr., Marvin E. Lesser, and Barry L. Zubrow. The
Committee held two meetings during 1994.
The Committee on Directors will consider recommendations from Corporation
stockholders of director nominee candidates. Such recommendations must be in
writing and must include a brief account of the individual's business experience
during the past five years, including principal occupations and employment
during that period and the name and principal business of any corporation or
other organization in which that individual is a director. Such recommendations
should be sent to the Committee on Directors, attention of the Corporate
Secretary at the principal office of the Corporation. Recommendations may be
submitted at any time but will not be considered by the Committee in connection
with the annual meeting of a given year unless received on or before December 31
of the prior year.
10
<PAGE> 13
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information known to the Corporation
regarding the beneficial ownership of Common Stock as of the Record Date by each
current director and each of the five most highly compensated executive officers
of the Corporation in 1994, and by all current directors and executive officers
of the Corporation as a group (30 persons). Such information is derived from the
filings made with the SEC by such persons under Section 16(a) of the Securities
Exchange Act of 1934, as amended, and subsequent information received by the
Corporation. The totals include any shares which such individuals have the right
to acquire within 60 days of the Record Date through the exercise of stock
options or Warrants and any shares allocated to the accounts of those
individuals through December 31, 1994 under the USG Corporation Investment Plan.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OPTION SHARES TOTAL AND
OWNED, EXCLUDING EXERCISABLE PERCENT OF
NAME OPTIONS(A) WITHIN 60 DAYS CLASS(E)
--------------------------------------------- ------------------- --------------- -----------
<S> <C> <C> <C>
Robert L. Barnett............................ 1,020 -- 1,020
Keith A. Brown............................... 135,714 -- 135,714
W. H. Clark.................................. 2,311 -- 2,311
Eugene B. Connolly........................... 7,479 85,000(b) 92,479
James C. Cotting............................. 520 -- 520
Lawrence M. Crutcher......................... 8,490(c) -- 8,490
Wade Fetzer III.............................. (d) -- (d)
William C. Foote............................. 1,369 42,500 43,869
David W. Fox................................. 1,131 -- 1,131
Philip C. Jackson, Jr. ...................... 2,762 -- 2,762
Marvin E. Lesser............................. 500 -- 500
P. Jack O'Bryan.............................. 6,538 34,000 40,538
Harold E. Pendexter, Jr. .................... 6,169 34,000 40,169
Donald E. Roller............................. 5,465 34,000 39,465
John B. Schwemm.............................. 179 -- 179
Judith A. Sprieser........................... 200 -- 200
Barry L. Zubrow.............................. (d) -- (d)
All directors and executive officers as a
group
(30 persons), including those directors and
executives named above..................... 179,847 229,500 409,347
</TABLE>
---------------
(a) Includes Warrants that are currently exercisable are follows: Mr. Brown,
16,458 Warrants; Mr. Clark, 20 Warrants; Mr. Connolly, 1,003 Warrants; Mr.
Fox, 19 Warrants; Mr. Jackson, 879 Warrants; Mr. O'Bryan, 831 Warrants; Mr.
Pendexter, 619 Warrants; Mr. Roller, 975 Warrants; Mr. Schwemm, 25
Warrants. Warrants held by directors and executive officers as a group
totaled 22,267.
(b) Includes options to purchase 37,443 shares directly and 47,557 shares by a
family limited partnership of which Mr. Connolly is the general partner.
11
<PAGE> 14
(c) Includes 5,990 shares held by Mr. Crutcher as trustee for the benefit of
his adult children.
(d) Mr. Fetzer is a limited partner and Mr. Zubrow is a general partner of
Goldman, Sachs & Co. As such, Messrs. Fetzer and Zubrow may be deemed to be
the beneficial owners of shares beneficially owned or held by Goldman,
Sachs & Co. and its affiliates, including Water Street and The Goldman
Sachs Group, L.P. As described in "Principal Stockholders" above, Goldman,
Sachs & Co. owned directly 96,539 shares of Common Stock and, as the
general partner of Water Street, may be deemed to be the beneficial owner
of the 9,418,231 shares of Common Stock and 116,070 Warrants owned directly
by Water Street on the Record Date. Messrs. Fetzer and Zubrow disclaim
beneficial ownership of such shares and Warrants other than to the extent
such ownership corresponds to their respective percentage interests in
Goldman, Sachs & Co., The Goldman Sachs Group, L.P. and Water Street.
(e) Total beneficial ownership of 409,347 shares of Common Stock by members of
the group identified above represents approximately 0.9% of the total
outstanding shares of Common Stock, excluding the shares that Messrs.
Fetzer and Zubrow may be deemed to beneficially own as described in the
preceding note.
COMPENSATION OF EXECUTIVE OFFICERS
The discussion that follows has been prepared based on the actual
compensation paid and benefits provided by the Corporation to the five most
highly compensated executive officers of the Corporation (collectively, the
"Named Executives"), for services performed during 1994 and the other periods
indicated. This historical data is not necessarily indicative of the
compensation and benefits that may be provided to such persons in the future.
In general, the Prepackaged Plan provided for the continuation by the
Corporation of the existing employment, compensation and benefit arrangements.
The Prepackaged Plan resulted in a substantial reduction on May 6, 1993 in the
amounts otherwise potentially payable to the Named Executives in 1994 under the
Corporation's three-year Incentive Recovery Program (the "IRP") and the
concurrent cash settlement of such reduced awards. Although no further awards
will be made to the Named Executives under the IRP, the Named Executives were
eligible for incentive awards under the Corporation's 1993 and 1994 Annual
Management Incentive Programs.
12
<PAGE> 15
SUMMARY COMPENSATION TABLE
The following table summarizes for the years indicated the compensation
awarded to, earned by or paid to the Named Executives for services rendered in
all capacities to the Corporation and its subsidiaries.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------
ANNUAL COMPENSATION AWARDS
-------------------------------- -------------------- PAYOUTS
OTHER RESTRICTED ----------
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(A) ($)(B) ($) (#)(C) ($)(D) ($)(E)
------------------------- ---- -------- -------- ------------ ---------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eugene B. Connolly....... 1994 $640,000 $795,366 $ 60,757 -- -- -- $ 69,571
Chairman of the Board 1993 612,500 717,624 52,952 -- 250,000 $1,164,005 42,426
and CEO 1992 555,000 -- -- -- -- -- 530
William C. Foote......... 1994 335,000 467,016 -- -- 50,000 -- 35,238
President and Chief 1993 275,000 255,096 -- -- 100,000 322,740 17,636
Operating Officer 1992 227,500 -- -- -- -- -- 530
P. Jack O'Bryan.......... 1994 296,667 299,160 -- -- -- -- 31,491
Senior Vice
President -- 1993 280,000 255,096 -- -- 100,000 470,448 17,739
Worldwide Technology 1992 256,000 -- -- -- -- -- 530
and Manufacturing
Donald E. Roller......... 1994 305,000 299,160 -- -- -- -- 32,306
Group Vice President -- 1993 280,000 255,096 -- -- 100,000 446,614 17,574
North American 1992 250,000 -- -- -- -- -- 530
Gypsum; President and
CEO, United States
Gypsum Company
Harold E. Pendexter,
Jr..................... 1994 290,000 293,820 -- -- -- -- 30,793
Senior Vice President 1993 269,583 250,614 -- -- 100,000 408,524 17,739
and Chief
Administrative 1992 242,500 -- -- -- -- -- 530
Officer
</TABLE>
---------------
(a) Reflects payments arising from cash award opportunities under the
Corporation's Annual Management Incentive Program. The amounts shown are
taken into account for purposes of computing benefits under the
Corporation's retirement plans. None of the Named Executives received an
annual cash bonus for 1992.
(b) Mr. Connolly's Other Annual Compensation for 1994 and 1993 included $13,800
and $14,100, respectively, in automobile allowance and $16,394 and $16,724,
respectively, as the estimated cost of equivalent life insurance provided
by the Corporation's executive death benefit plan; no other Named Executive
had perquisites and other personal benefits aggregating the lesser of
either $50,000 or 10 percent of salary and bonus for 1994 or 1993, and none
of the Named Executives had such perquisites or other personal benefits for
1992.
(c) Option awards to Mr. Foote in 1994 were as follows: options to purchase
25,000 were granted February 9, 1994, and options to purchase 25,000 shares
were granted August 10, 1994. Option awards to Named Executives in 1993
were granted effective June 1, 1993. No option awards were granted to the
Named Executives in 1992 and all option awards outstanding as of May 6,
1993 were cancelled without consideration by the terms of the Prepackaged
Plan.
13
<PAGE> 16
(d) Reflects cash settlements in 1993 of reduced awards, otherwise potentially
payable in 1994, in connection with termination of the IRP pursuant to and
concurrently with the effectiveness of the Prepackaged Plan. The amounts
shown are taken into account for purposes of computing benefits under the
Corporation's retirement plans. None of the Named Executives received
long-term incentive plan payouts in 1994 or 1992.
(e) All Other Compensation for the Named Executives for each year consisted
solely of matching contributions from the Corporation to defined
contribution plans.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (A)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATES
INDIVIDUAL GRANTS OF STOCK PRICE
----------------------------------------------------- APPRECIATION
SECURITIES % OF TOTAL FOR OPTION TERM(C)
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE ---------------------
GRANTED EMPLOYEES PRICE EXPIRATION 5% 10%
NAME (#)(B) IN 1994 ($/SH) DATE ($) ($)
----------------------- ------------- ------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eugene B. Connolly..... 0 -- -- -- -- --
William C. Foote....... 25,000 2.15 $32.5625 2/9/04 $511,960 $1,297,410
25,000 2.15 21.875 8/10/04 343,930 871,580
P. Jack O'Bryan........ 0 -- -- -- -- --
Donald E. Roller....... 0 -- -- -- -- --
Harold E. Pendexter,
Jr................... 0 -- -- -- -- --
</TABLE>
---------------
(a) No SARs were granted in 1994.
(b) Options granted on February 9, 1994 and August 10, 1994, respectively, at
an exercise price equal to the mean of the high and low sales prices for a
share of Common Stock as reported on the NYSE Composite Tape for such date.
These options become exercisable at the rate of one-third of the aggregate
grant on each of the first three anniversaries of the date of the grant and
expire on the tenth anniversary of the date of grant except in the case of
retirement, death or disability in which case they expire on the earlier of
the fifth anniversary of such event or the expiration of the original
option term.
(c) Assumes appreciation in value from the date of grant to the end of the
option term, at the indicated rate.
14
<PAGE> 17
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES(A)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
UNDERLYING AT FISCAL YEAR-END AT FISCAL YEAR-END
OPTIONS VALUE --------------------------- ----------------------------
EXERCISED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
------------------------- ---------- -------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Eugene B. Connolly(b).... 0 $0 85,000 165,000 $ 780,937 $1,515,937
William C. Foote......... 0 0 34,000 116,000 312,375 606,375
P. Jack O'Bryan.......... 0 0 34,000 66,000 312,375 606,375
Donald E. Roller......... 0 0 34,000 66,000 312,375 606,375
Harold E. Pendexter,
Jr..................... 0 0 34,000 66,000 312,375 606,375
</TABLE>
---------------
(a) No SARs were outstanding as of December 31, 1994.
(b) In February 1994, Mr. Connolly transferred options to purchase 139,875
shares, out of his outstanding award of options to purchase 250,000 shares,
to a family limited partnership of which he is the general partner. On
December 31, 1994, Mr. Connolly directly held exercisable options to
purchase 37,443 shares and unexercisable options to purchase 72,682 shares,
and the family limited partnership held exercisable options to purchase
47,557 shares and unexercisable options to purchase 92,318 shares; on that
date, the values of Mr. Connolly's and the partnership's exercisable
options were $334,008 and $436,929, respectively, and the values of Mr.
Connolly's and the partnership's unexercisable options were $667,766 and
$848,171, respectively
Employment Agreements
In order to assure continued availability of services of the Named
Executives, the Corporation (or, in the case of Mr. Roller, U.S. Gypsum) entered
into employment agreements (the "Employment Agreements") with the Named
Executives in 1993 which superseded substantially identical agreements entered
into on various dates prior to 1993. The Employment Agreements have a current
term expiring on December 31, 1996 and will automatically renew for successive
two-year terms unless the Corporation elects not to renew not less than 120 days
before the expiration of the then current term.
The Employment Agreements provide for minimum annual salaries at the then
current rate to be paid at normal pay periods and at normal intervals to Messrs.
Connolly ($585,000), Foote ($275,000), O'Bryan ($280,000), Roller ($280,000),
and Pendexter ($255,000), with the minimum annual salaries deemed increased
concurrently with salary increases authorized by the Compensation and
Organization Committee of the Board of Directors. The Employment Agreements
require that each Named Executive devote his full attention and best efforts
during the term of such agreement to the performance of assigned duties. If a
Named Executive is discharged without cause by the Corporation during the term
of his Employment Agreement, he may elect to be treated as a continuing employee
under such agreement, with salary continuing at the minimum rate specified in
such agreement or at the rate in effect at the time of discharge, if greater,
for the balance of the term of the Employment Agreement or for a period of two
years, whichever is greater. In the event of any such salary
15
<PAGE> 18
continuation, certain benefits will be continued at corresponding levels and for
the same period of time. If a Named Executive becomes disabled during the term
of his Employment Agreement, his compensation continues for the unexpired term
of the Employment Agreement at the rate in effect at the inception of the
disability. In the event of a Named Executive's death during the term of his
Employment Agreement, one-half of the full rate of compensation in effect at the
time of his death will be paid to his beneficiary for the remainder of the
unexpired term of the Employment Agreement.
Each of the Named Executives has undertaken, during the term of his
Employment Agreement and for a period of three years thereafter, not to
participate, directly or indirectly, in any enterprise which competes with the
Corporation or any of its subsidiaries in any line of products in any region of
the United States. Each Named Executive has also agreed not to, at any time, use
for his benefit or the benefit of others or disclose to others any of the
Corporation's confidential information except as required by the performance of
his duties under his Employment Agreement.
Termination Compensation Agreements
The Corporation is a party to termination compensation agreements with the
Named Executives which have a current term expiring on December 31, 1995, and
which will automatically renew for successive two-year terms unless the
Corporation elects not to renew not less than 120 days before the expiration of
the then current term. A Named Executive's agreement terminates upon his
attaining age 65.
The agreements provide certain benefits in the event of a "change in
control" and termination of employment within three years thereafter or prior to
the Named Executive attaining age 65, whichever is earlier, but only if such
termination occurs under one of several sets of identified circumstances. Such
circumstances include termination by the Corporation other than for "cause" and
termination by the Named Executive for "good reason". Each "change in control"
will begin a new three-year period for the foregoing purposes. For purposes of
the agreements: (i) a "change in control" is deemed to have occurred, in
general, if any person or group of persons acquires beneficial ownership of 20%
or more of the combined voting power of the Corporation's then outstanding
voting securities, if there is a change in a majority of the members of the
Board within a two-year period and in certain other events; (ii) the term
"cause" is defined as, in general, the willful and continued failure by the
Named Executive substantially to perform his duties after a demand for
substantial performance has been delivered or the willful engaging of the Named
Executive in misconduct which is materially injurious to the Corporation; and
(iii) "good reason" for termination by a Named Executive means, in general,
termination subsequent to a change in control based on specified changes in the
Named Executive's duties, responsibilities, titles, offices or office location,
compensation levels and benefit levels or participation.
The benefits include payment of full base salary through the date of
termination at the rate in effect at the time of notice of termination, payment
of any unpaid bonus for a past fiscal year and pro rata payment of bonus for the
then current fiscal year, and continuation through the date of termination of
all stock ownership, purchase and option plans and insurance and other benefit
plans. In the event of a termination giving rise to benefits under the
agreements, the applicable Named Executive will be entitled to payment of a lump
sum amount equal to 2.99 times the sum of (i) his then annual base salary,
computed at 12 times his then current monthly pay and (ii) his full year
position par bonus for
16
<PAGE> 19
the then current fiscal year, subject to all applicable federal and state income
taxes, together with payment of a gross-up amount to provide for applicable
federal excise taxes in the event such lump sum and all other benefits payable
to the Named Executive constitute an "excess parachute payment" under the
Internal Revenue Code. The Corporation is required to maintain in full force and
effect until the earlier of (i) two years after the date of any termination
which gives rise to benefits under any of the agreements and (ii) commencement
by the Named Executive of full-time employment with a new employer, all
insurance plans and arrangements in which the Named Executive was entitled to
participate immediately prior to his termination in a manner which would give
rise to benefits under his agreement, provided that if such participation is
barred, the Corporation will be obligated to provide substantially similar
benefits. In the event of any termination giving rise to benefits under the
agreements, the Corporation is required to credit the applicable Named Executive
with three years of benefit and credited service in addition to the total number
of years of benefit and credited service the Named Executive accrued under the
USG Corporation Retirement Plan. See "Retirement Plans" below. If the Named
Executive has a total of less than five years of credited service following such
crediting, he nonetheless will be treated as if he were fully vested under that
Plan, but with benefits calculated solely on the basis of such total benefit
service.
The Corporation is obligated to pay to each Named Executive all legal fees
and expenses incurred by him as a result of a termination which gives rise to
benefits under his agreement, including all fees and expenses incurred in
contesting or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided under such agreement. No amounts are payable under
such agreements if the Named Executive's employment is terminated by the
Corporation for "cause" or if the Named Executive terminates his employment and
"good reason" does not exist.
Although Water Street's ownership of more than 20% of the Corporation's
voting securities as a result of the Restructuring constituted a "change in
control" under the agreements, each of the Named Executives agreed to waive this
occurrence. Such waivers do not constitute a waiver of any other occurrence of a
change in control.
The Corporation has established a so-called "rabbi trust" to provide a
source of payment for benefits payable under such agreements. Immediately upon
any change in control, the Corporation may deposit with the trustee under such
trust an amount reasonably estimated to be potentially payable under all such
agreements, taking into account any previous deposits. The Corporation did not
make any such deposit to the trust as a result of Water Street's ownership. In
the event that the assets of such trust in fact prove insufficient to provide
for benefits payable under all such agreements, the shortfall would be paid
directly by the Corporation from its general assets.
Retirement Plans
The following table shows the annual pension benefits on a straight-life
annuity basis for retirement at normal retirement age under the terms of the
Corporation's contributory retirement plan (the "Retirement Plan"), before the
applicable offset of one-half of the primary social security benefits at time of
retirement. The table has been prepared for various compensation classifications
and representative years of credited service under the Plan. Each participating
employee contributes towards the cost of his or her retirement benefit.
Retirement benefits are based on the average rate of annual covered
17
<PAGE> 20
compensation during the three consecutive years of highest annual compensation
in the ten years of employment immediately preceding retirement. Participants
become fully vested after five years of continuous credited service.
RETIREMENT PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDIT SERVICE
COVERED ------------------------------------------------------------
COMPENSATION 20 25 30 35 40
------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 200,000..................... $ 64,000 $ 80,000 $ 96,000 $112,000 $128,000
400,000..................... 128,000 160,000 192,000 224,000 256,000
600,000..................... 192,000 240,000 288,000 336,000 384,000
800,000..................... 256,000 320,000 384,000 448,000 512,000
1,000,000..................... 320,000 400,000 480,000 560,000 640,000
1,200,000..................... 384,000 480,000 576,000 672,000 768,000
1,400,000..................... 448,000 560,000 672,000 784,000 896,000
</TABLE>
The Named Executives participate in the Retirement Plan. The Named
Executives' full years of continuous credited service at December 31, 1994 were
as follows: Mr. Connolly, 36; Mr. Foote, 11; Mr. O'Bryan, 36; Mr. Roller, 34;
and Mr. Pendexter, 37. Compensation under the Retirement Plan includes salary
and incentive compensation (bonus and IRP payments) for the year in which
payments are made.
Pursuant to a supplemental retirement plan, the Corporation has undertaken
to pay any retirement benefits otherwise payable to certain individuals,
including the Named Executives, under the terms of the Corporation's
contributory Retirement Plan but for provisions of the Internal Revenue Code
limiting amounts payable under tax-qualified retirement plans in certain
circumstances. The Corporation has established a so-called "rabbi trust" to
provide a source of payment for benefits under this supplemental plan. Amounts
are deposited in this trust from time to time to provide a source of payments to
participants as they retire as well as for periodic payments to certain other
retirees. In addition, the Corporation has authorized establishment by certain
individuals, including each of the Named Executives other than Mr. Foote, of
special retirement accounts with independent financial institutions as an
additional means of funding the Corporation's obligations to make such
supplemental payments. The Corporation also has an agreement with Mr. Connolly
to pay to his spouse, in the event of his death prior to retirement while in the
employ of the Corporation, an amount equal to the amount by which the net
present value of his principal death benefits is less than the net present value
of his principal retirement benefits. Such agreement does not have the effect of
increasing Mr. Connolly's retirement benefits and terminates upon his
retirement.
Director Compensation
Directors who are not employees of the Corporation are currently entitled
to receive a retainer of $6,500 per quarter plus a fee of $1,200 for each Board
or Board committee meeting attended, together with reimbursement for
out-of-pocket expenses incurred in connection with attendance at meetings. A
non-employee director serving as chairman of a committee is entitled to receive
an additional retainer of
18
<PAGE> 21
$1,000 per quarter for each such chairmanship. Additional fees for pre-meeting
consultations may be paid as applicable to non-employee directors, the amount of
such fees to bear a reasonable relationship to the regular meeting fee of $1,200
and the customary length of a meeting of the Board committee involved. No
director of the Corporation has received any compensation of any kind for
serving as a director while also serving as an officer or other employee of the
Corporation or any of its subsidiaries.
In the past, the Corporation has entered into consulting agreements with
retiring non-employee directors who had specified minimum periods of service on
the Board. Those agreements continued the annualized retainer which was in
effect in each instance at the time of retirement from the Board in return for
an undertaking to serve in an advisory capacity and to refrain from any activity
in conflict or in competition with the Corporation. The Board has determined to
continue to offer such agreements on a case-by-case basis but also has
determined to limit any such agreement to a term not to exceed five years.
COMPENSATION AND ORGANIZATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Compensation and Organization Committee of the Board of Directors (the
"Committee"), which is composed entirely of independent, non-employee directors,
has overall responsibility for the Corporation's executive compensation
programs. The Committee approves the policy and design of all compensation plans
covering executive officers and approves performance goals, position values,
base salary ranges and increases, incentive opportunity awards and payouts,
stock-based awards and related executive compensation issues.
The Corporation's executive compensation strategy has been designed to
reward executives who plan and lead the Corporation in achieving its financial
and strategic business objectives. Accordingly, executive compensation programs
are developed and administered to promote the linkage of pay to corporate
performance and the alignment of the interests of the Corporation's executives
with that of its stockholders. This philosophy encompasses the following guiding
principles:
1. A significant portion of the total compensation opportunity is
variable and dependent upon the Corporation's annual and long-term business
and financial performance.
2. Compensation programs are designed to drive and reinforce the
attainment of short-term operational objectives through annual incentive
cash awards and longer range strategic initiatives through a long-term
equity program.
3. The programs provide overall compensation opportunities that are at
competitive levels with comparably sized industrial companies. Compensation
levels are increased when established performance goals are exceeded and
reduced when established targets are not achieved.
The components of the Corporation's executive compensation program are
comprised of BASE SALARY, ANNUAL INCENTIVE CASH AWARDS AND A LONG-TERM EQUITY
PROGRAM.
Each year, the Committee conducts a comprehensive evaluation of the
Corporation's executive compensation programs. For 1994, the Committee compared
the Corporation's salary and cash incentive
19
<PAGE> 22
programs to those of a peer group of 630 participants representing 387
industrial organizations as well as to a smaller group of 60 industrial
companies with similar annual revenues ($1 billion to $3 billion) that represent
the Corporation's direct competition for executive talent. The Corporation had
net sales of $2.3 billion for the year ended December 31, 1994. The Committee
also reviewed annualized option grant values of a peer group of 304 industrial
organizations. (The peer groups reviewed for compensation purposes are
significantly broader than the Value Line Building Materials Index used in the
graph of cumulative stockholder return included in this proxy statement, with
any overlapping coincidental. The former groups are utilized to assess
compensation practices and trends among industrial enterprises generally and
comparably sized companies with which the Corporation competes for executive
talent specifically, while the latter group was chosen solely for business
compatibility in stockholder return comparisons.) In addition, the Committee
considers recommendations from the Corporation's Human Resources Department
which works closely with independent compensation consultants. In reviewing the
compensation of executives other than Eugene B. Connolly, Chairman and Chief
Executive Officer, the Committee also considers Mr. Connolly's counsel and
recommendations.
Base Salaries
Executive salary management is governed by the following precepts:
1. Salary range increases and budget allotments for executive officers
are considered annually based upon business, economic and competitive
conditions.
2. There are no "cost of living" or automatic twelve-month salary
reviews/increases. Salaries are administered on an individual "pay for
performance" basis.
3. Amount and timing of individual salary increases vary based upon
performance rating and contribution, current salary relative to midpoint
for the established salary range, career progress and the annual salary
budget allotment.
Each year, the Chairman and Chief Executive Officer prepares a salary plan
covering each of the Corporation's executive officers recognizing individual
performance and contribution. These plans utilize base salary ranges that
reflect the competitive market value of each position. The base salary ranges
are reviewed and, if appropriate, adjusted each year predicated on economic and
competitive issues including national salary survey data. The Corporation's
target is to establish salary midpoints within applicable ranges at
approximately the competitive 60th percentile of the survey group of comparably
sized industrial companies.
Annual Incentive Cash Awards
The Corporation's executive officers are eligible for annual incentive cash
awards under the provisions of the Annual Management Incentive Program
established under the Corporation's Management Performance Plan ("MPP") approved
by the stockholders in 1988. Approximately 235 officers and managers with
position values above a specified threshold were eligible to participate in the
program in 1994. The program provides for cash awards based upon the achievement
of established, quantifiable operational and financial objectives designed to
enhance the Corporation's overall performance. A lesser incentive award is paid
for goal achievement above threshold but below target and an increased incentive
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<PAGE> 23
award is paid for goal achievement above target. Each Named Executive has an
annual incentive opportunity (par) which is expressed as a percentage of the
midpoint of annualized position values and varies with the participant's level
of management accountability. Program measurements for 1994 were based upon an
income goal and a liquidity goal determined by cash available for domestic debt
paydown (defined as the domestic cash balance at year-end in excess of a minimum
liquidity amount including all cash generated from domestic operations and
financing activities, plus the available balance of a revolving credit
facility). Achievement of the cash available for domestic debt paydown threshold
results in an adjustment factor being applied to the basic income goal
achievement to determine an annual management incentive award. Maximum awards
are capped at 200% of par. Annual goals are reviewed and approved by the
Committee. Awards are approved by the Committee following its written
certification of goal attainment and are payable in cash. Corporate goal
achievement above targets for 1994 resulted in maximum awards of 200% of par to
the Named Executives.
Long-Term Equity Program
The Corporation's long-term equity program is governed by the MPP. The
Prepackaged Plan resulted in cash settlements of outstanding restricted and
deferred share awards under the MPP in May 1993 except for the 28 most senior
managers, including the Named Executives, who agreed to forego the conversion to
cash provision for their restricted stock at that time (which would have
aggregated approximately $351,000 for all Named Executives and $128,000 for
Eugene B. Connolly) to facilitate negotiations for the Prepackaged Plan. In
November 1993, the Committee determined that the purpose of the waivers to
facilitate the Prepackaged Plan had been achieved and that the outstanding post-
reverse split awards retained little of their original motivational and
incentive value following the 50 to one reverse common stock split effected by
the Prepackaged Plan. Accordingly, the Committee accelerated the vesting of the
outstanding restricted and deferred share awards, including those held by the
Named Executives as indicated in the Summary Compensation Table, to February 14,
1994.
The Corporation's Prepackaged Plan provided for the continuation of the MPP
and authorized 2,788,350 shares of Common Stock (equal to 7.5% of the number of
shares of Common Stock then outstanding) to be reserved for future issuance in
conjunction with stock options. Options for 1,673,000 of these shares were
granted June 1, 1993 to 45 executives at the exercise price of $10.3125 per
share. Options for 933,000 shares were granted on February 9, 1994 to 76
executives at the exercise price of $32.5625 per share, and options for 228,500
shares (including options for 46,200 shares forfeited by a former grantee who
resigned from the Corporation) were granted on August 10, 1994 to 24 executives
at the exercise price of $21.875 per share. In each case the option exercise
price is the mean of the high and low trade prices for a share of Common Stock
as reported on the New York Stock Exchange composite tape for that date. These
options generally become exercisable at the rate of one-third of the aggregate
grant on each of the first three anniversaries of the date of the grant. Option
awards in 1994 were made to individuals recently promoted and select managers
with apparent significant growth potential beyond their current assignments.
William C. Foote, who was elected President and Chief Operating Officer
effective January 1, 1994, was the only Named Executive to be awarded stock
options in 1994. In determining individual award levels of such grants to
executive officers, the Committee considered a number of subjective factors,
without relative weight assigned to any particular factor, including the
diminution of previous incentive awards effected by the Prepackaged Plan, the
individual's assigned
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<PAGE> 24
position value and anticipated career path, and the individual's performance
rating. The Committee also considered survey data indicating that annualized
option grant values as a multiple of base salary for such awards on the date of
grant ranked in the approximate 40th percentile of surveyed companies.
Limitations On Compensation Deductibility
The Committee has reviewed the effect on the Corporation's executive
compensation programs of recent amendments to the Internal Revenue Code,
including implementing regulations and transitional rules, limiting the
deductibility of annual covered compensation in excess of $1 million by the
Corporation for 1994 and subsequent years paid to its chief executive officer
and the four other most highly compensated executive officers for such years.
Based upon such review, the Committee believes that compensation to any such
executive officer (i) in 1994 from annual incentive cash awards for that year,
or (ii) in connection with exercises of stock options under the MPP or, if
approved by the stockholders, the 1995 Long-Term Equity Plan, will be deemed
performanced-based and exempt from the calculation of covered compensation
subject to the deductibility limitation. The Committee also believes that there
is no practicable action that could be taken to qualify regular salaries or
other likely annual compensation for such exemption under the applicable
provisions of the Internal Revenue Code as currently in effect.
THE CHIEF EXECUTIVE OFFICER'S 1994 COMPENSATION
In 1994, the compensation for Eugene B. Connolly consisted principally of
(i) salary of $640,000; and (ii) a 1994 annual incentive cash award of $795,366.
Base Salary
In determining Mr. Connolly's base salary, the Committee considered the
base salaries of chief executive officers of 60 comparably sized industrial
companies, the Corporation's strong operating performance in 1994, and Mr.
Connolly's individual performance. Corporation performance in 1994 was reflected
in a 19.5% increase in net sales over the prior year and a 49.1% increase in
operating profitability. Mr. Connolly's individual performance included
leadership in development of strategic plans, succession planning, debt
reduction and legal affairs. The Committee set Mr. Connolly's base salary in
November 1994 at an annual rate of $685,000 commencing January 1, 1995, an
increase of $45,000 or 7.0% over the base salary effective on July 1, 1993.
Following such increase, Mr. Connolly's base salary ranked slightly above the
50th percentile of the survey group.
Annual Management Incentive Plan
Mr. Connolly's 1994 Annual Management Incentive Program award was
determined on the basis of the Corporation's overall achievement versus
previously determined goals described earlier in this report. Mr. Connolly's
1994 annual incentive opportunity (par) was expressed as 65% of the midpoint of
his annualized position values ($611,820). With the strong corporate goal
achievement in 1994 described earlier in this report resulting in maximum awards
of 200% of par to all eligible participants, Mr. Connolly earned an incentive
award of $795,366 for 1994.
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<PAGE> 25
The Committee believes that the Corporation's executive compensation
program provides competitive opportunities for executives who contribute to the
success of the Corporation in achieving its financial and strategic business
objectives. In 1994, the Named Executives received over half of their
compensation from corporate performance-based variable elements. The Committee
intends to continue the policy of linking executive compensation to corporate
performance and to monitor the effectiveness of the program, and the Committee
will institute changes as it deems appropriate to promote policy goals.
This report is submitted by the members of the Compensation and
Organization Committee:
DAVID W. FOX, CHAIRMAN
ROBERT L. BARNETT
W. H. CLARK
LAWRENCE M. CRUTCHER
WADE FETZER III
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<PAGE> 26
PERFORMANCE GRAPH
The following graph and table depict the cumulative total stockholder
returns following an assumed investment of $100 in shares of the Corporation's
Common Stock for the periods of December 31, 1989 through May 6, 1993 (the
effective date of the Prepackaged Plan) and May 7, 1993 through December 31,
1994 (subsequent to consummation of the Prepackaged Plan and emergence from
bankruptcy). All shares of common stock, $0.10 par value per share, outstanding
on May 6, 1993 ("Old Common Stock") were subject to a 50 to one reverse stock
split on that date pursuant to the Prepackaged Plan. Following the issuance of
Common Stock to subordinated debt holders in exchange for such debt pursuant to
the Prepackaged Plan, holders of Old Common Stock held approximately 3% of the
Common Stock outstanding on May 7, 1993. Also presented below for comparison are
the cumulative total stockholder returns of a like assumed investment and the
reinvestment of all dividends for the same periods in each of the Standard and
Poor's 500 Index (the "S&P 500") and the Value Line Building Materials Index,
which comprises 21 publicly traded companies in the building materials industry
group and does not include the Corporation (the "Value Line Index").
<TABLE>
<CAPTION>
Measurement Period USG Corpo- Value Line
(Fiscal Year Covered) ration S&P 500 Index
<S> <C> <C> <C>
1989 100 100 100
1990 18 97 90
1991 36 126 110
1992 12 136 133
May 6, 1993 6 140 143
May 7, 1993 100 100 100
1993 244 107 112
1994 163 109 97
</TABLE>
The above figures have been rounded to the nearest dollar.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Water Street Agreement
On February 25, 1993, the Corporation entered into an agreement with the
Water Street Entities (the "Water Street Agreement"). The Water Street
Agreement, among other things, (i) restricts the
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<PAGE> 27
Water Street Entities from purchasing, or offering or agreeing to purchase, any
shares of Common Stock or other voting securities of the Corporation, except for
Permitted Acquisitions (as defined in the Water Street Agreement) and
acquisitions by any Water Street Entity other than Water Street of up to an
aggregate of 10% of the then outstanding shares of Common Stock in the ordinary
course of its business; (ii) requires (a) Water Street to vote all shares of
Common Stock and other voting securities of the Corporation beneficially owned
by it and (b) the other Water Street Entities to vote all shares of Common Stock
beneficially owned by them in excess of 10% of the then outstanding shares of
Common Stock, in each case, in the same proportion as the votes cast by all
other holders of Common Stock and other voting securities of the Corporation,
subject to certain exceptions described below; (iii) places restrictions on the
ability of the Water Street Entities to transfer shares of Common Stock to any
person, except for (a) sales consistent with Rule 144 of the Securities Act of
1933, (b) underwritten public offerings, (c) persons not known to be 5% holders,
(d) pledgees who agree to be bound by certain provisions of the Water Street
Agreement, (e) in the case of Water Street, distributions to Water Street's
partners in accordance with the governing partnership agreement, (f) pursuant to
certain tender or exchange offers for shares of Common Stock and (g) pursuant to
transactions approved by the Board; (iv) provides Water Street with certain
rights to nominate directors to the Board and Finance Committee (see "Item No.
1 -- Election of Directors"); (v) requires the maintenance of directors' and
officers' liability insurance and indemnification rights; (vi) requires that the
Corporation's shareholder rights plan provide temporary exemptions for ownership
of Common Stock by the Water Street Entities; (vii) provides Water Street with
four demand registrations and unlimited piggyback registrations, subject to
certain limitations; and (viii) provides for indemnification by the Corporation
of Water Street, its underwriters and related parties for securities law claims
related to any demand or piggyback registration contemplated in clause (vii)
above.
In connection with the Restructuring, Water Street nominated two New
Directors to the Board, Wade Fetzer III and Barry L. Zubrow. See "Item No.
1 -- Election of Directors." In the event that the Water Street Directors are
removed from office without the consent of Water Street, then the restrictions
on the Water Street Entities relating to (i) the purchases of voting securities
of the Corporation other than Permitted Acquisitions, (ii) the voting of
securities of the Corporation and (iii) the transfer of shares of Common Stock,
as described above, shall terminate. These restrictions shall also terminate
upon the earliest to occur of: (i) the consummation of a merger, consolidation
or other business combination to which the Corporation is a constituent
corporation, if the stockholders of the Corporation immediately before such
merger, consolidation or combination do not own more than 50% of the combined
voting power of the then outstanding voting securities of the surviving
corporation, (ii) the Board consisting of a majority of directors not approved
by a vote of the directors serving at the time the Water Street Agreement was
executed, and (iii) the tenth anniversary of the Water Street Agreement. In
addition, the restrictions on purchases of voting securities and transfers of
Common Stock shall also terminate upon the Water Street Entities owning less
than 5% of the then outstanding shares of Common Stock.
Furthermore, the Water Street Entities will not be subject to the voting
restrictions contained in the Water Street Agreement if, among other things: (i)
the Corporation defaults on the payment of principal or interest required to be
paid pursuant to any indebtedness if the aggregate amount of such indebtedness
is $25 million or more; (ii) the principal of any of the Corporation's
indebtedness is
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<PAGE> 28
declared due and payable prior to the date on which it would otherwise become
due and payable if the aggregate amount of such indebtedness is $25 million or
more; (iii) any person other than Water Street becomes the beneficial owner of
more than 10% of the then outstanding shares of Common Stock; or (iv) the
Corporation fails to comply with certain financial covenants. If the Corporation
complies with the financial covenants within the two fiscal quarters following
the first failure to comply, the voting restrictions shall apply again. However,
if the Corporation thereafter fails to comply with any of the financial
covenants, the voting restrictions shall terminate.
Note Placement
Fidelity Management & Research Company and Fidelity Management Trust
Company may beneficially own in excess of 5% of the outstanding shares of Common
Stock. See "Principal Stockholders". On February 17, 1994, certain funds and
accounts managed or advised by Fidelity Management & Research Company and
Fidelity Management Trust Company purchased $150 million in aggregate principal
amount of the Corporation's 9 1/4% Senior Notes due 2001. Such purchasers
exchanged approximately $30 million aggregate principal amount of the
Corporation's outstanding 8% Senior Notes due 1996 and approximately $35 million
aggregate principal amount of the Corporation's outstanding 8% Senior Notes due
1997 and paid the $85 million balance of the purchase price in cash. In April
1994, the Corporation completed the exchange of all of its 9 1/4% Senior Notes
due 2001 for a like principal amount ($150,000,000) of its substantially
identical 9 1/4% Senior Notes due 2001, Series B, which were registered under
the Securities Act of 1933.
ITEM NO. 2 -- APPROVAL OF STOCK COMPENSATION PROGRAM
FOR NON-EMPLOYEE DIRECTORS
Subject to approval of the stockholders, the Board of Directors has adopted
the Stock Compensation Program for NonEmployee Directors. Under this plan,
non-employee directors will receive 25% of their annual Board retainer fee in
Common Stock of the Corporation instead of 100% in cash. Currently, the annual
Board retainer fee is $26,000, paid in quarterly installments of $6,500. After
the 1995 annual meeting, if the nominees for directors are reelected, 12 members
of the Board of Directors will participate in the plan. The adoption of this
plan will not result in any additional cost to the Corporation or represent
additional compensation for the directors.
The Board of Directors is of the opinion that the plan will help to advance
the interests of the Corporation by helping to attract, motivate and retain
highly qualified outside directors and by providing compensation which will even
more closely align the interests of the directors with those of the
stockholders. This plan is consistent with the Corporation's compensation
objectives for its executive officers and other key employees in that rewards
under the plan are dependent on those factors which directly benefit the
Corporation's stockholders. The adoption of this plan will give greater relative
weight to the long-term incentive component of the compensation program for
outside directors of the Corporation.
The material features of the proposed plan and other information about the
plan are described below and in the New Plan Benefits table on page 32.
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<PAGE> 29
Under the proposed plan, 25% of each non-employee director's annual Board
retainer fee, an amount currently equal to $6,500, earned on and after July 1,
1995 will be paid in Common Stock of the Corporation, either from authorized but
unissued shares or from the treasury. The payment of the installment of the
annual retainer for the third calendar quarter consisting of the months of July,
August and September will be made entirely in shares of Common Stock. The value
of the shares will be based upon the mean of the high and low sales prices of a
share of Common Stock on the 25th of September as reported on the New York Stock
Exchange composite tape, or the next day that the New York Stock Exchange shall
be open for trading if not open on the 25th of September. The plan will be
administered by the Committee on Directors of the Board of Directors.
Shares of Common Stock paid to a non-employee director under the plan shall
be fully earned when paid. Shares of Common Stock paid under the plan will not
be registered with the Securities and Exchange Commission and may not be sold or
transferred by the recipient unless they are so registered, which the
Corporation is not obligated to do, or they are eligible for an exemption from
the registration requirements of the Securities Act of 1933. The plan has a term
expiring on December 31, 1999 and is limited to 100,000 shares of Common Stock,
subject to adjustment in the case of stock splits or dividends or other capital
structure changes.
The Board of Directors may terminate the plan or amend the plan at any time
except that no amendment or termination may adversely affect a director's rights
with respect to prior Common Stock payments, and the plan may be amended only
once every six months, other than to comport with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder. In addition, approval by the stockholders of the Company will be
required for any increase in the shares available under the plan.
Approval of the proposed plan by the stockholders will exempt the payment
of the shares of Common Stock for the accounts of the directors from being
treated as purchases for purposes of Section 16 of the Securities Exchange Act
of 1934.
The value of the shares paid to a non-employee director under the proposed
plan will be taxable as income to the director for U.S. tax purposes in the year
when paid, and the Corporation will be entitled to a corresponding deduction of
such value as compensation paid.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
The affirmative vote of the holders of a majority of shares represented at
the meeting is required for adoption of this proposal.
ITEM NO. 3 -- APPROVAL OF 1995 LONG-TERM EQUITY PLAN
The Board of Directors believes that the continued success of the
Corporation depends on its ability to attract, retain and motivate key
employees. Accordingly, the Compensation and Organization Committee of the Board
of Directors (the "Committee"), has reviewed the Corporation's long-term
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<PAGE> 30
compensation program for key employees and recommends that stockholders approve
the 1995 Long-Term Equity Plan (the "1995 Plan" or the "Plan"). The 1995 Plan
continues many of the features of the Management Performance Plan which was
approved by stockholders in 1988. In addition, in order for payment of certain
incentive awards made under the 1995 Plan to be deductible by the Corporation
under the current provisions of the Internal Revenue Code, they must be paid
under a plan like the 1995 Plan following stockholder approval.
The principal features of the 1995 Plan and of the operating guidelines
which the Committee has adopted to implement the Plan (the "Operating
Guidelines") are described below. The full text of the Plan is annexed hereto as
Exhibit A and should be referred to for a complete description of its
provisions.
Generally. The 1995 Plan provides for the grant of various types of
long-term incentive awards to key employees, consistent with the objectives and
limitations of the Plan. These awards include options to purchase shares of
Common Stock, including performance options and incentive stock options, stock
appreciation rights, performance units and grants of restricted stock and
deferred stock. If approved by stockholders, it is anticipated that the first
awards under the 1995 Plan will be made in early 1996. The Management
Performance Plan will remain in effect solely for annual cash incentive awards
under the Annual Management Incentive Program.
Administration. The 1995 Plan vests broad powers in the Committee to
administer and interpret the Plan. The Committee shall consist of two or more
members of the Board of Directors who are considered outside and disinterested
for the purposes of the Internal Revenue Code and the Securities Exchange Act of
1934.
The Committee's powers include authority, within the limitations set forth
in the Plan, to select the persons to be granted awards, to determine the type,
size and term of awards, to determine the time when awards will be granted and
any conditions for receiving awards, to establish objectives and conditions for
earning awards, to determine whether such conditions have been met and whether
payment of an award will be made at the end of an award period, or at the time
of exercise, or deferred, to determine whether payment of an award should be
reduced or eliminated, and to determine whether such awards should be intended
to qualify, regardless of their amount, as deductible in full for federal income
tax purposes.
Eligibility to Receive Awards. Key employees of the Corporation and its
divisions, subsidiaries and affiliates are eligible to be granted awards under
the Plan. It is expected that executives of the Corporation and its divisions
and subsidiaries, a group now consisting of approximately 110 persons, will be
granted awards under the 1995 Plan. The Committee may also grant awards to
non-executive employees who are in a position to contribute to the success of
the Corporation. Because the number of executives may change and because the
selection of additional participants is discretionary, it is impossible to
determine the exact number of persons who will be eligible for awards under the
Plan during its term.
Awards. The Plan provides for grants of stock options and performance
options. In addition, the Committee has the discretion to grant incentive stock
options, stock appreciation rights, performance units, restricted stock and
deferred stock under the Plan. The terms of these various awards are discussed
below.
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<PAGE> 31
Stock Options. The 1995 Plan provides for regular grants of stock options,
and for supplemental pro rata grants of stock options to certain participants
who are promoted or newly hired during the vesting period for a regular grant.
Under the Plan and the Operating Guidelines, the purchase price per share
of Common Stock covered by each stock option shall be at least equal to the fair
market value of a share of Common Stock on the date of grant. Fair market value
shall be the mean of the high and low sales prices for Common Stock on the New
York Stock Exchange composite tape. The Operating Guidelines provide that the
term for exercise of a stock option may not exceed 10 years from the date of
grant.
The Operating Guidelines currently provide that 25% of the regular stock
option awards to executive officers with specified position values and
anticipated tenures will be deemed performance options, with the number of
shares for which a performance option will ultimately be exercisable subject to
adjustment based on the Corporation's long-term average return on net assets
("RONA") compared to that of a pre-selected comparison group of other publicly
traded companies in the building materials industry, currently comprised of 14
companies (the "Peer Group"). The number of shares under a performance option
will be multiplied by a factor of 2.7 to determine the shares subject thereto
("performance shares"). The number of performance shares for which a performance
option will be exercisable will thereafter be determined by the Corporation's
RONA ranking in the Peer Group for the three-year period commencing at the
beginning of the fiscal year in which the award is made, ranging from
exercisability for 100% of the performance shares in the event of a RONA ranking
above the 90th percentile to 0% exercisability in the event of a RONA ranking
below the 50th percentile in the Peer Group.
The Operating Guidelines also provide that, at any time prior to the time
at which an option is exercised, the Committee may, without the consent of the
holder, cancel the option and pay to the holder the difference between the
exercise price and the fair market value of the shares covered by the option.
Other Awards. As indicated above, the Committee may also make other types
of awards, including incentive stock options, stock appreciation rights,
performance units, restricted stock grants and deferred stock grants, although
it is not the Committee's present intention to do so. The value of incentive
stock options and stock appreciation rights awarded pursuant to the Plan would
be based on the fair market value of Common Stock on the date of grant. The full
and/or partial vesting of any performance units award or any restricted stock or
deferred stock grant that is intended to qualify in full as deductible for
federal tax purposes will occur only upon the attainment by the Corporation of
financial targets established at the time the award is made. These targets shall
be established by the Committee and shall be based on one or more of the
following performance measures: corporate earnings, earnings per share, return
on investment, return on net assets, total shareholder return, division or
subsidiary earnings, market value added or economic value added.
Shares of Common Stock Subject to the Plan. The aggregate number of shares
of Common Stock which may be the subject of awards under the 1995 Plan may not
exceed 900,000 shares, of which not more than 450,000 shares of Common Stock may
be the subject of awards in any calendar year. In the event of any change in
outstanding Common Stock by reason of a split, stock dividend, merger or similar
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<PAGE> 32
event, such equitable adjustment shall be made in the Plan and awards as shall
be deemed necessary by the Committee.
Individual Maximum. No participant may receive awards under the 1995 Plan
which would result in his or her receiving more than 20% of the maximum number
of shares available for award under the Plan.
Assignment. Unless the Committee shall specifically determine otherwise,
no award under the Plan shall be assignable or transferable.
Death, Disability, Retirement or Termination. Generally, in the event of
the death, disability or, with the approval of the Committee, early retirement
of a holder of stock options (other than performance options), such options
shall become exercisable in full and remain exercisable during the shorter of
the five-year period following such event or the remaining term of the options.
In the event of the death, disability or approved early retirement of a holder
of performance options, such options shall revert to the status of regular stock
options for the applicable number of shares of Common Stock before their
conversion to performance options and shall thereafter be treated for all
purposes as such regular stock options. Generally, if any participant shall
cease to be an employee for any reason other than death, disability or approved
early retirement, the participant's rights to any unvested award shall
terminate.
Amendment and Termination. The Committee may amend or terminate the 1995
Plan so long as such action does not adversely affect any rights or obligations
with respect to awards already outstanding under the Plan. Unless the
shareholders shall have first approved thereof, no amendment of the Plan may
increase the maximum number of shares which can be delivered under the Plan or
to any one individual, extend the maximum period during which awards may be
granted under the Plan, change the performance goal, if any, pursuant to which
an award is to be earned, or modify the requirements as to eligibility for
participation in the Plan. The Committee may amend the Operating Guidelines from
time to time, consistent with the Plan. No awards may be made under the 1995
Plan after December 31, 1999.
Change in Control Provisions. The Plan provides that in the event of a
change in control (i) all stock options and tandem stock appreciation rights
will become immediately exercisable; (ii) the restrictions and deferral
limitations applicable to outstanding restricted stock, deferred stock and other
awards will lapse and the shares in questions will fully vest; and (iii) the
value of all outstanding options and other awards under the Plan, unless
otherwise determined by the Committee, will be cashed out on the basis of the
highest price paid (or offered) during the preceding 60-day period, as
determined by the Committee. In addition, at any time prior to or after a change
in control, the Committee may accelerate awards and waive conditions and
restrictions on any awards to the extent it may determine appropriate. Change in
control is defined in the Plan generally as (i) the acquisition by a person or
group on more than 20% of the combined voting power of the Corporation's
securities, excluding the ownership acquired by Water Street in conjunction with
the effectiveness of the Plan of Reorganization, (ii) a change in the membership
of the Board of Directors during any 24-month period other than by reason of
death resulting in a change in the majority of the Board, or (iii) the approval
by the stockholders of the Corporation of a transaction involving the
acquisition of the Corporation by a non-affiliated entity.
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<PAGE> 33
Federal Tax Consequences. Under the Internal Revenue Code as currently in
effect, a grant under the 1995 Plan of stock options, including performance
options, would have no federal income tax consequence. Upon exercise under the
Plan of a stock option or performance option that is not qualified as an
incentive stock option under applicable federal tax regulations, the excess of
the fair market value of the stock at the date of exercise over the exercise
price is taxable to a participant as ordinary income. All amounts taxable to
employees under the Plan in respect of stock options are deductible by the
Corporation as compensation. Upon a sale of Common Stock acquired under the
Plan, the participant realizes long- or short-term gain or loss, and the
Corporation receives no further deduction.
Additional Information. Reference should be made to the sections captioned
"Summary Compensation Table," "Option/SAR Grants in Last Fiscal Year" and
"Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values" at page 13 through 15 of this proxy statement, for detailed
information on stock option awards to certain executive officers during the
three most recent fiscal years.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS RESOLUTION.
The affirmative vote of the holders of a majority of the shares represented
at the meeting is required for adoption of this proposal. In the event the
stockholders do not approve the 1995 Plan, the Compensation and Organization
Committee will consider such other forms of incentive compensation, including
the payment of cash, that may or may not be deductible for federal income tax
purposes, as it shall deem necessary in order for the Corporation to remain
competitive in the recruitment and retention of qualified executive personnel.
ITEM NO. 4 -- RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Arthur Andersen LLP, Chicago, Illinois, has examined the
financial statements of the Corporation for many years. The following resolution
will be presented at the meeting to ratify the appointment by the Audit
Committee of the firm of Arthur Andersen LLP, as independent public accountants,
to examine the financial statements of the Corporation for the current year
ending December 31, 1995, and to perform other appropriate accounting services.
RESOLVED: That the appointment by the Audit Committee of the Board of
Directors of Arthur Andersen LLP as independent public accountants of
the Corporation for the current year ending December 31, 1995, is hereby
ratified, approved, and confirmed.
The Corporation has been advised by Arthur Andersen LLP that no member of
the firm has any financial interest, either direct or indirect, in the
Corporation, nor has any connection with the Corporation in any capacity other
than that of public accountants. A member of Arthur Andersen LLP will be present
at the meeting to answer questions by stockholders and will have the opportunity
to make a statement if he or she so desires.
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<PAGE> 34
If the stockholders do not ratify the appointment of Arthur Andersen LLP,
the selection of independent public accountants will be reconsidered by the
Audit Committee.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS RESOLUTION.
The affirmative vote of the holders of a majority of the shares represented
at the meeting is required for adoption of this resolution.
NEW PLAN BENEFITS
Set forth below are the dollar values of the Common Stock that will be paid
to non-employee directors in 1995 under the Stock Compensation Plan for
Non-Employee Directors, provided that such Plan is approved by the stockholders.
The stock options that will be received in 1995 by the indicated persons or
groups under the 1995 Long-Term Equity Plan or that would have been received by
such persons or groups if the 1995 Long-Term Equity Plan had been in effect for
1994 are not determinable.
<TABLE>
<CAPTION>
STOCK COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
DOLLAR VALUE ($)
--------------------------
<S> <C>
Eugene B. Connolly N/A
Chairman and Chief Executive Officer
William C. Foote N/A
President and Chief Operating Officer
P. Jack O'Bryan N/A
Senior Vice President -- Worldwide
Technology and Manufacturing
Donald E. Roller N/A
Group Vice President -- North American Gypsum; President and
Chief Executive Officer, United States Gypsum Company
Harold E. Pendexter, Jr. N/A
Senior Vice President and Chief Administrative Officer
All current executive officers as a group N/A
All non-executive outside directors $ 78,000
All non-executive officer employees as a group N/A
</TABLE>
ADDITIONAL INFORMATION
The Corporation will bear the cost of the annual meeting and the cost of
this proxy solicitation, including mailing costs. In addition to solicitation by
mail, directors, officers, and regular employees of the Corporation may solicit
proxies by telephone or otherwise, with no specific additional compensation to
be paid for such services. The Corporation has retained Kissel-Blake Inc. to
assist in this solicitation at a fee of $9,000 plus reimbursement of normal
expenses. The Corporation also will reimburse upon
32
<PAGE> 35
request all brokers and other persons holding shares for the benefit of others
for their reasonable expenses in forwarding proxies and accompanying material to
the beneficial owners of such shares and in obtaining authorization from such
beneficial owners to give proxies.
The Board of Directors does not know of any matter that will be presented
for action at the annual meeting other than the matters identified in this proxy
statement. If any other matter is presented for such action, the individuals
named in the proxy solicited by the Board of Directors intend to vote on it on
behalf of the stockholders they represent in accordance with their best
judgment.
Proposals of stockholders intended to be presented at the next annual
meeting in May, 1996, must be received by the Corporate Secretary, USG
Corporation, 125 South Franklin Street, Chicago, Illinois 60680-4678, no later
than December 2, 1995, for inclusion in the proxy statement and form of proxy
relating to that meeting. Such proposals also must meet other requirements under
applicable federal securities laws and regulations relating to stockholders'
proposals.
By order of the Board of Directors
DEAN H. GOOSSEN
Corporate Secretary
Dated: March 31, 1995
33
<PAGE> 36
EXHIBIT A
USG CORPORATION
1995 LONG-TERM EQUITY PLAN
1. PURPOSE.
The purposes of the 1995 Long-Term Equity Plan (the "Plan") are to provide
long-term incentives to those persons with significant responsibility for the
success and growth of USG Corporation and its subsidiaries, divisions and
affiliated businesses (the "Corporation"), to assist the Corporation in
attracting and retaining key employees on a competitive basis, and to associate
the interests of such employees with those of the Corporation's shareholders.
2. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Compensation and Organization
Committee of the Board of Directors of the Corporation (the "Committee"). The
Committee shall be appointed by the Board of Directors and shall consist of two
or more of its members who are considered outside and disinterested for purposes
of the Internal Revenue Code and the Securities Exchange Act of 1934.
The Committee shall have all the powers vested in it by the terms of the
Plan, such powers to include authority (within the limitations described herein)
to select the persons to be granted awards under the Plan, to determine the
type, size and terms of awards to be made to each employee selected, to
determine the time when awards will be granted and any conditions which must be
satisfied by employees before an award is made, to establish objectives and
conditions for earning awards, to determine whether such conditions have been
met and whether awards will be paid at the end of the award period, or when the
award is exercised, or deferred, to determine whether payment of an award should
be reduced or eliminated, and to determine whether such awards should qualify,
regardless of their amount, as deductible in their entirety for federal income
tax purposes.
The Committee shall have full power and authority to administer and
interpret the Plan and to adopt such rules, regulations, agreements, guidelines
and instruments for the administration of the Plan and for the conduct of its
businesses the Committee deems necessary or advisable. The Committee's
interpretations of the Plan, and all actions taken and determinations made by
the Committee pursuant to the powers vested in it hereunder, shall be conclusive
and binding on all parties concerned, including the Corporation, its
shareholders and any person receiving an award under the Plan.
3. ELIGIBILITY.
Key employees of the Corporation and its divisions, subsidiaries and
affiliates are eligible to be granted awards under the Plan. Executives of USG
Corporation and its subsidiaries and divisions shall be granted awards of stock
options and may, in the Committee's discretion, be granted other awards
available under the Plan. The Committee, in its discretion, may also grant
awards under the Plan to other employees of the Corporation, its divisions,
subsidiaries and affiliates who are in a position to
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contribute to the success of the Corporation. Notwithstanding the foregoing,
incentive stock options may only be granted to employees of the Corporation or
its divisions and subsidiaries.
4. AWARDS.
(a) Types. Awards under the Plan include stock options, including
performance options and incentive stock options, stock appreciation rights,
performance units, restricted stock and deferred stock.
(i) Stock Options. Stock options are rights to purchase shares of the
Corporation Common Stock, $0.10 par value ("Common Stock"), at a fixed price for
a specified period of time. The purchase price per share of Common Stock covered
by a stock option awarded pursuant to this Plan, including any performance or
incentive stock option, shall be equal to or greater than the fair market value
of a share of Common Stock on the date the stock option is awarded. The
Committee may determine that a portion of any stock option awards to select
executives shall be deemed performance options in which the number of shares
subject thereto shall ultimately be determined by the Corporation's attainment,
as certified by the Committee, of return on net asset targets over a three-year
period established by the Committee. Such performance options will not become
exercisable in the event the minimum target is not met. The established targets
for performance options will not be amended without shareholder approval.
(ii) Stock Appreciation Rights. Stock appreciation rights are rights to
receive the difference between the fair market value of a share of Common Stock
on the grant date and the fair market value of a share of the Corporation Common
Stock on the date the stock appreciation right vests.
(iii) Performance Units. Performance units are rights to receive up to
100% of the value of a specified number of shares of Common Stock as of the date
of grant, which value may be paid in cash or Common Stock, without payment of
any amounts to the Corporation. The full and/or partial payments of performance
units awards under this Plan will be made only upon certification by the
Committee of the attainment by the Corporation of a financial target or targets
established by the Committee at the time the award is made. These targets shall
include one or more of the following: corporate earnings, return on investment,
return on net assets, total shareholder return, division or subsidiary earnings,
market value added or economic value added.
(iv) Restricted Stock and Deferred Stock. Restricted Stock awards are
grants of shares of Common Stock that may not be sold or transferred by the
grantee for a period of time determined by the Committee. Deferred Stock awards
are non-transferable rights to receive shares of Common Stock without any
payment to the Corporation in one or more installments at a future date or
dates, as determined by the Committee. The full and/or partial vesting of any
restricted stock or deferred stock award made under this Plan that is intended
to qualify in full as deductible for federal income tax purposes will occur only
upon certification by the Committee of the attainment by the Corporation of
targets established by the Committee at the time the award is made. These
targets shall include one or more of the following: corporate earnings, return
on investment, return on net assets, total shareholder return, division or
subsidiary earnings, market value added or economic value added.
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<PAGE> 38
(b) Supplemental Awards. Participants who are newly hired or promoted
during the vesting period for stock options or during the first two years of the
award period for performance options may be granted supplemental pro rata grants
of stock options.
(c) Guidelines. The Committee shall adopt from time to time written
policies for its implementation of the Plan. Such policies shall be consistent
with the Plan and may include, but need not be limited to, the type, size and
term of awards to be made, and the conditions for payment of such awards.
(d) Maximum Awards. An employee may be granted multiple awards under the
Plan but no one employee may be granted, in the aggregate, awards which would
resulting in his or her receiving in the aggregate during the term of the Plan,
more than 20% of the maximum number of shares available for award under the
Plan.
5. SHARES OF STOCK SUBJECT TO THE PLAN.
The shares that may be the subject of awards under the Plan shall not
exceed an aggregate of 900,000 shares of Common Stock, of which not more than
450,000 of Common Stock may be the subject of awards in any calendar year,
subject in each case to adjustment, if appropriate, pursuant to Section 7
hereof.
6. DEFERRED PAYMENTS.
The Committee may determine that all or a portion of a payment to a
participant under the Plan, whether it is to be made in cash, shares of Common
Stock or a combination thereof, shall be deferred. Deferrals shall be for such
periods and upon such terms as the Committee may determine in its sole
discretion.
7. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding shares of Common Stock by
reason of any split, stock dividend, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change, such
equitable adjustments shall be made in the Plan and the award thereunder as the
Committee determines are necessary and appropriate, including, if necessary, an
adjustment in the maximum number or kind of shares subject to the Plan or which
may be or have been awarded to any participant. Such adjustment shall be
conclusive and binding for all purposes of the Plan.
8. MISCELLANEOUS PROVISIONS.
(a) Rights as Shareholder. A participant in the Plan shall have no rights
as a holder of Common Stock with respect to awards hereunder, unless and until
certificates for shares of Common Stock are issued to the participant.
(b) Assignment or Transfer. Unless the Committee shall specifically
determine otherwise, no award under the Plan or any rights or interests therein
shall be assignable or transferable by a participant except by will or the laws
of descent and distribution.
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<PAGE> 39
(c) Agreements. All awards granted under the Plan shall be evidenced by
agreements in such form and containing such terms and conditions (not
inconsistent with the Plan) as the Committee shall approve.
(d) Requirements for Transfer. No share of Common Stock shall be issued or
transferred under the Plan until all legal requirements applicable to the
issuance or transfer of such shares have been complied with to the satisfaction
of the Committee. The Committee shall have the right to condition any issuance
of share of Common Stock made to any participant upon such participant's written
undertaking to comply with such restrictions on his subsequent disposition of
such shares as the Committee or the Corporation shall deem necessary or
advisable as a result of any applicable law, regulation or official
interpretation thereof, and certificates representing such shares may be
legended to reflect any such restrictions.
(e) Withholding Taxes. The Corporation shall have the right to deduct from
all awards hereunder paid in cash any federal, state, local or foreign taxes
required by law to be withheld with respect to such awards and, with respect to
awards paid in stock or upon exercise of stock options, to require the payment
(through withholding from the participant's salary or otherwise) of any such
taxes. The obligations of the Corporation to make delivery of awards in cash or
Common Stock shall be subject to currency or other restrictions imposed by any
government.
(f) No Rights to Awards. Except as set forth herein, no employee or other
person shall have any claim or right to be granted an award under the Plan.
Neither the Plan nor any action taken hereunder shall be construed as giving any
employee any right to be retained in the employ of the Corporation or any of its
subsidiaries, divisions or affiliates.
(g) Cost and Expenses. The cost and expenses of administering the Plan
shall be borne by the Corporation and not charged to any award nor to any
employee receiving an award.
(h) Funding of Plan. The Plan shall be unfunded. The Corporation shall not
be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of awards under the Plan.
9. EFFECTIVE DATE, AMENDMENTS AND TERMINATION.
(a) Effective Date. The Plan shall become effective on the date it is
approved by the Corporation's shareholders.
(b) Amendments. The Committee may at any time terminate or from time to
time amend the Plan in whole or in part, but no such action shall adversely
affect any rights or obligations with respect to any awards theretofore made
under the Plan.
Unless the shareholders of the Corporation shall have first approved
thereof, no amendment of the Plan shall be effective which would increase the
maximum number of shares of Common Stock which may be delivered under the Plan
or to any one individual, except to the extent such amendment is made pursuant
to Section 7 hereof, extend the maximum period during which awards may be
granted under the Plan, change the performance goal, if any, pursuant to which
an award is to be earned, or modify the requirements as to eligibility for
participation in the Plan.
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With the consent of the employee affected, the Committee may amend
outstanding agreements evidencing awards under the Plan in a manner not
inconsistent with the terms of the Plan.
(c) Termination. No awards of stock options, performance options,
incentive stock options, stock appreciation rights, performance units,
restricted stock or deferred stock shall be made under the Plan after December
31, 1999.
10. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. In the event of a "Change in Control" as defined in
Section 10(b) the following acceleration and valuation provisions shall apply.
(i) Any stock appreciation rights and any stock options awarded under
the Plan not previously exercisable shall become fully exercisable.
(ii) The restrictions and deferral limitations applicable to any
restricted stock and deferred stock shall lapse and such shares shall be
deemed fully vested.
(iii) Any outstanding performance units awards shall be vested and
paid out based on the prorated target results for the performance periods
in questions, unless the Committee provides prior to any Change in Control
for a different payment.
(iv) The value of all outstanding stock options, stock appreciation
rights, restricted stock, deferred stock, and performance units payable in
the form of Common Stock, in each case to the extent vested, shall, unless
otherwise determined by the Committee in its sole discretion at or after
grant but prior to any Change in Control be cashed out on the basis of the
"Change in Control Price" as defined in Section 10(c) as of the date such
Change in Control is determined to have occurred or such other date as the
Committee may determine prior to the Change in Control.
(b) Definition of "Change in Control." A "Change in Control" means the
happening of any of the following:
(i) When any "person" as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934 ("Exchange Act") and as used in Sections 13(d) and
14(d) thereof, including a "group" as defined in Section 13(d) of the
Exchange Act but excluding the Corporation and any subsidiary and any
employee benefit plan sponsored or maintained by the Corporation or any
subsidiary (including any trustee of such plan acting as trustee), directly
or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act, as amended from time to time), after the effective
date of the Plan of securities of the Corporation representing 20 percent
or more of the combined voting power of the Corporation's then outstanding
securities;
(ii) When, during any period of 24 consecutive months during the
existence of the Plan, the individuals who, at the beginning of such
period, constitute the Board (the "Incumbent Directors") cease for any
reason other than death to constitute at least a majority thereof,
provided, however, that a director who was not a director at the beginning
of such 24-month period shall be deemed to have satisfied such 24-month
requirement (and be an Incumbent Director) if such director was elected by,
or on the recommendation of or with the approval of, at least two-thirds of
the directors
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who then qualified as Incumbent Directors either actually (because they
were directors at the beginning of such 24-month period) or by prior
operation of this Section 10(b)(ii); or
(iii) The approval by the stockholders of the Corporation of a
transaction involving the acquisition of the Corporation by an entity other
than the Corporation or a subsidiary through purchase of assets, by merger,
or otherwise.
(c) Change in Control Price. For purposes of this Section 10, "Change in
Control Price" means the highest price per share paid in any transaction
reported on the New York Stock Exchange composite tape, or paid or offered in
any bona fide transaction related to a Change in Control of the Corporation at
any time during the sixty-day period immediately preceding the occurrence of the
Change in Control, in each case as determined by the Committee.
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Card A: Registered Holder
PROXY PROXY
USG CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS -- MAY 10, 1995
The undersigned hereby appoints Eugene B. Connolly, William C. Foote and
Dean H. Goossen and each or any of them, attorneys, with power of substitution
and with powers the undersigned would possess if personally present, to vote
all stock for the undersigned in USG CORPORATION at the annual meeting of the
stockholders of said Corporation in the Sixth Floor Auditorium, The Northern
Trust Building, 50 LaSalle Street, Chicago, Illinois on May 10, 1995 and any
adjournment thereof, on the matters shown below and as set forth in the
accompanying Notice of Annual Meeting of Stockholders and Proxy Statement.
I plan to attend the Annual Meeting. / /
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
Please indicate any change in (Continued and to be signed on reverse
address. side.)
USG CORPORATION
PLEASE MARK YOUR VOTE IN THE OVALS IN THE FOLLOWING MANNER
USING DARK INK ONLY. /X/
[ ]
<TABLE>
<CAPTION>
A VOTE FOR ALL NOMINEES AND FOR ITEMS 2 THROUGH 4 IS RECOMMENDED.
For All
For Withheld Except For Against Abstain
<S> <C>
1. ELECTION OF DIRECTORS TO SERVE FOR / / / / / / ____________ 3. Approval of the 1995 Long- / / / / / /
A THREE YEAR TERM Nominee Term Equity Plan.
Nominees: W. H. Clark, Lawrence M. Crutcher, Exception
Wade Fetzer III, William C. Foote, 4. Ratification of the
Judith A. Sprieser. appointment of Arthur For Against Abstain
Anderson LLP as inde- / / / / / /
2. Approval of the Stock Compensation pendent public accountants
Plan for Non-Employee Directors. For Against Abstain for the year ending
/ / / / / / December 31, 1995.
5. In their discretion, on any other matter that
may properly come before the meeting.
Dated: ____________________________________, 1995
_________________________________________________
Signature
The signature above should agree with the name shown
on the Proxy. Where stock is owned by more than one
person, all owners should sign the Proxy.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR ALL CANDIDATES NAMED IN ITEM 1 AND FOR
ITEMS 2 THROUGH 4.
</TABLE>
<PAGE> 43
Card B: Plan Participants
PROXY PROXY
USG CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS -- MAY 10, 1995
The undersigned hereby appoints Eugene B. Connolly, William C. Foote and
Dean H. Goossen and each or any of them, attorneys, with power of substitution
and with powers the undersigned would possess if personally present, to vote
all stock for the undersigned in USG CORPORATION at the annual meeting of the
stockholders of said Corporation in the Sixth Floor Auditorium, The Northern
Trust Building, 50 LaSalle Street, Chicago, Illinois on May 10, 1995 and any
adjournment thereof, on the matters shown below and as set forth in the
accompanying Notice of Annual Meeting of Stockholders and Proxy Statement.
I plan to attend the Annual Meeting. / /
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
Please indicate any change in (Continued and to be signed on reverse
address. side.)
USG CORPORATION
PLEASE MARK YOUR VOTE IN THE OVALS IN THE FOLLOWING MANNER
USING DARK INK ONLY. /X/
[ ]
<TABLE>
<CAPTION>
A VOTE FOR ALL NOMINEES AND FOR ITEMS 2 THROUGH 4 IS RECOMMENDED.
For All
For Withheld Except For Against Abstain
<S> <C>
1. ELECTION OF DIRECTORS TO SERVE FOR / / / / / / ____________ 3. Approval of the 1995 Long- / / / / / /
A THREE YEAR TERM Nominee Term Equity Plan.
Nominees: W. H. Clark, Lawrence M. Crutcher, Exception
Wade Fetzer III, William C. Foote, 4. Ratification of the
Judith A. Sprieser. appointment of Arthur For Against Abstain
Anderson LLP as inde- / / / / / /
2. Approval of the Stock Compensation pendent public accountants
Plan for Non-Employee Directors. For Against Abstain for the year ending
/ / / / / / December 31, 1995.
5. In their discretion, on any other matter that
may properly come before the meeting.
Dated: ____________________________________, 1995
_________________________________________________
Signature
The signature above should agree with the name shown
on the Proxy. Where stock is owned by more than one
person, all owners should sign the Proxy.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR ALL CANDIDATES NAMED IN ITEM 1 AND FOR
ITEMS 2 THROUGH 4.
</TABLE>
