<PAGE> 1
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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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April 1, 1996
Dear Fellow Stockholder:
You are cordially invited to attend our annual meeting of stockholders to
be held on Wednesday, May 8, 1996, 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,
WILLIAM C. FOOTE
WILLIAM C. FOOTE
Chairman of the Board
<PAGE> 2
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 8, 1996, at 9:15 a.m., Central Daylight
Time, for the following purposes:
1. To elect four directors for a term of three years, pursuant to the
Corporation's by-laws.
2. To consider ratification of the appointment of Arthur Andersen LLP
as independent public accountants for the year ending December 31, 1996.
3. 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 13, 1996,
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, 1996, and running through the time of the meeting.
By order of the Board of Directors
DEAN H. GOOSSEN
Corporate Secretary
Chicago, April 1, 1996
IMPORTANT -- PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY PROMPTLY IN
THE ENCLOSED ENVELOPE.
<PAGE> 3
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 8, 1996, 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 April
1, 1996.
The Board of Directors has selected the close of business on March 13, 1996
(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 45,395,961 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 ratification of the appointment of
independent public accountants. 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 and for ratification of the appointment of Arthur
Andersen LLP as independent public accountants for the year ending December 31,
1996.
The Northern Trust Company, as trustee of the USG Corporation Investment
Plan, held of record 500,433 shares of Common Stock as of December 31, 1995, or
approximately 1.1% 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.
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Except as otherwise expressly indicated, all information in this proxy
statement is provided as of March 13, 1996.
PRINCIPAL STOCKHOLDERS
The following table lists the beneficial ownership of Common Stock as of
December 31, 1995 with respect to all persons known by the Corporation to be the
beneficial owner of more than 5% of the Common Stock outstanding on such date.
The information shown was provided by the respective persons.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- - ------------------------------------------------------- -------------------- ----------------
<S> <C> <C>
FMR Corp.(a)........................................... 5,872,200 13.0%
82 Devonshire Street
Boston, MA 02109
J. P. Morgan & Co., Incorporated(b).................... 4,708,477 10.4%
60 Wall Street
New York, NY 10260
Glickenhaus & Co.(c)................................... 2,416,000 5.4%
6 East 43rd Street
New York, NY 10017
</TABLE>
- - ---------------
(a) Based solely on a Schedule 13G filed with the Securities and Exchange
Commission, as of December 31, 1995: (i) FMR Corp., a parent holding
company, had sole voting power with respect to 4,300 shares and sole
investment power with respect to 5,872,200 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
5,846,600 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
4,508,000 shares, and the Fund's Board of Trustees had sole power to vote
such shares; and (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 25,600 shares and sole power to vote 4,300 shares
and no power to vote the remaining 21,300 shares owned by the accounts.
According to such Schedule 13G, Edward C. Johnson 3d, Chairman of FMR Corp.,
and Abigail P. Johnson, a director of FMR Corp., own 12.0% and 24.5%,
respectively, of the aggregate outstanding voting 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.
(b) Based solely on a Schedule 13G filed with the Securities and Exchange
Commission, as of December 31, 1995, J. P. Morgan & Co., Incorporated, a
parent holding company, and its subsidiaries Morgan Guaranty Trust Company
of New York, a bank, and J. P. Morgan Investment Management, Inc. and J. P.
Morgan Florida Federal Savings Bank, investment advisors, were the
beneficial owners of 4,708,477 shares, with sole power to vote 3,187,375
shares, shared power to
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vote 16,100 shares, sole power to dispose of 4,682,177 shares, and shared
power to dispose of 26,300 shares. The response to Item 6 (Ownership of
more than 5 percent on behalf of another person) of such Schedule 13G
reads as follows: "Virtually all of our accounts involve outside persons
who have the right to receive or direct the receipt of dividends from, or
the proceeds from the sale of, securities in such accounts with respect to
the class of securities which are the subject of this report. However, no
such person's rights relate to more than five percent of the class, unless
such person is identified below." (No person or persons were so
identified.)
(c) Based solely on a Schedule 13G filed with the Securities and Exchange
Commission, as of December 31, 1995, Glickenhaus & Co., an investment
advisor, was the beneficial owner of 2,416,000 shares, with sole voting
power with respect to 1,989,900 shares and sole dispositive power with
respect to 2,416,000 shares.
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, five new directors were nominated to the Board of
Directors by various classes of the Corporation's creditors. 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 were nominated by
Water Street Corporate Recovery Fund I, L. P., a limited partnership which has
subsequently distributed its holdings in the Corporation's common stock to its
partners and waived its rights to representation on the Board of Directors; 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 exercisable for shares of Common Stock at the rate of one
warrant for one share (the "Warrants") under the Prepackaged Plan (a "Junior
Subordinated Director"). The Prepackaged Plan also provided that two New
Directors be appointed to the Finance Committee of the Board of Directors and
that the Finance Committee be comprised of four non-employee directors through
June 22, 1997.
As the respective terms of office of the remaining three 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 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 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 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
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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
four each, with one current vacancy in the class whose term expires in 1997.
Each class is elected for a three-year term. One class will be elected at the
annual meeting of stockholders on May 8, 1996. The remaining classes will be
elected in 1997 and 1998, respectively.
The four candidates nominated by the Board of Directors for election as
directors at the annual meeting of stockholders on May 8, 1996, are identified
below. One of the nominees, Marvin E. Lesser, is a New Director and has 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 Mr. Lesser's unavailability, would be a
candidate recommended by Mr. Crutcher), 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 1999
ROBERT L. BARNETT, 55, Vice President and General Manager, iDEN Group,
Motorola Corporation (since May 1995), private consultant, international
telecommunications (1993-1994); 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. 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 Illinois University 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 Public Affairs
Committee.
DAVID W. FOX, 64, formerly Chairman and Chief Executive Officer (1990-1995)
and President (1987-1993) of Northern Trust Corporation and The Northern Trust
Company, banking and financial services. Mr. Fox is a director of The Federal
Reserve Bank of Chicago and the Chicago Central Area Committee. He is a Governor
of the Chicago Stock Exchange, Chairman of Northwestern Memorial
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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.
PHILIP C. JACKSON, JR., 67, 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;
currently 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 serves as a
Director of Saul Centers, Inc. and International Realty Corp. 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.
MARVIN E. LESSER, 54, 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,
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.
DIRECTORS WHOSE TERM EXPIRES IN 1997
KEITH A. BROWN, 44, President (since 1987) of Chimera Corporation, a
private management holding company. 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.
JAMES C. COTTING, 62, retired Chairman (1987-1996) 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, The Interlake Corporation, MIM Holdings Limited, and Navistar
International Corporation. He is a member of the Board of Governors of the
Chicago Stock Exchange. Mr. Cotting has been a director of the Corporation since
October 1987, is a member of the Board's Executive Committee, Committee on
Directors and Public Affairs Committee, and is Chairman of its Finance
Committee.
JOHN B. SCHWEMM, 61, retired Chairman (1983-1989) and Chief Executive
Officer (1983-1988) of R.R. Donnelley & Sons Company, commercial and financial
printing. He serves as a director of Walgreen Company and William Blair Mutual
Funds; he also serves as a Life Trustee of Northwestern University and is
Chairman of the Illinois Chapter of the American Liver Foundation. Mr. Schwemm
has been a director of the Corporation since May 1988 and is a member of the
Board's Audit Committee and Compensation and Organization Committee, and is
Chairman of its Committee on Directors.
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DIRECTORS WHOSE TERM EXPIRES IN 1998
W.H. CLARK, 63, formerly Chairman of the Board (1984-1994), Chief Executive
Officer (1982-1994) and President (1982-1990) of Nalco Chemical Company of
Naperville, Illinois, specialized chemicals and technology. He is a director of
Bethlehem Steel Corporation, Diamond Shamrock Corporation, James River
Corporation, Merrill Lynch Corporation, and Nicor Corporation. Mr. Clark has
been a director of the Corporation since August 1985, is a member of the Board's
Executive Committee, Compensation and Organization Committee and Committee on
Directors, and is Chairman of its Audit Committee.
LAWRENCE M. CRUTCHER, 53, Managing Director (since 1990) of Veronis, Suhler
& Associates, investment bankers. Mr. Crutcher 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.
WILLIAM C. FOOTE, 45, Chairman (since April 1996), President (since January
1994) and Chief Executive Officer (since January 1996); President and Chief
Operating Officer (January 1994-December 1995); 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). 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 also
serves as a member of the INROADS Joint Advisory Council and the Presidents'
Council of the Museum of Science and Industry. He has been a director of the
Corporation since March 1994 and is Chairman of the Board's Executive Committee.
JUDITH A. SPRIESER, 42, Senior Vice President and Chief Financial Officer
(since 1994) 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. She has been a director of the Corporation
since February 1994 and is a member of the Board's Audit Committee, Committee on
Directors and Compensation and Organization Committee.
The Board of Directors held seven meetings during 1995, and the standing
committees of the Board of Directors held an aggregate of 29 meetings during
that year. Each director attended at least 75% of the aggregate number of
meetings in 1995 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. Foote, as Chairman, and Messrs. Clark, Cotting, 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 1995. 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.
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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, Marvin E. Lesser, John B.
Schwemm and Judith A. Sprieser. The Audit Committee held four meetings during
1995.
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, John B.
Schwemm and Judith A. Sprieser. The Compensation and Organization Committee held
five meetings during 1995.
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, Lawrence M. Crutcher, David W. Fox and Marvin E.
Lesser. The Finance Committee held seven meetings during 1995.
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.
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Jackson, Jr., Chairman, Robert L. Barnett, Keith A. Brown, James C. Cotting,
Lawrence M. Crutcher and Marvin E. Lesser. The Committee held one meeting in
1995.
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, Keith A. Brown, W. H. Clark, James C. Cotting, Lawrence M.
Crutcher, Philip C. Jackson, Jr. and Judith A. Sprieser. The Committee held four
meetings during 1995.
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.
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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 1995, and by all current directors and executive officers
of the Corporation as a group (27 persons). Such information is derived from the
filings made with the Securities and Exchange Commission 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, restricted stock subject to
risk of forfeiture, and any shares allocated to the accounts of those
individuals through December 31, 1995 under the USG Corporation Investment Plan.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OPTION SHARES TOTAL AND
OWNED, EXCLUDING EXERCISABLE PERCENT OF
NAME OPTIONS(A)(B) WITHIN 60 DAYS CLASS(F)
---- ------------------- --------------- -----------
<S> <C> <C> <C>
Robert L. Barnett............................ 1,252 0 1,252
Keith A. Brown............................... 135,946(c) 0 135,946
W. H. Clark.................................. 2,523 0 2,523
Eugene B. Connolly........................... 7,479 87,500(d) 94,979
James C. Cotting............................. 752 0 752
Lawrence M. Crutcher......................... 8,722(e) 0 8,722
William C. Foote............................. 26,269 82,250 108,519
David W. Fox................................. 1,344 0 1,344
Philip C. Jackson, Jr. ...................... 2,994 0 2,994
Marvin E. Lesser............................. 732 0 732
P. Jack O'Bryan.............................. 12,897 57,000 69,897
Harold E. Pendexter, Jr. .................... 13,268 67,000 80,268
Donald E. Roller............................. 8,652 33,000 41,652
John B. Schwemm.............................. 911 0 911
Judith A. Sprieser........................... 432 0 432
All directors and executive officers as a
group (27 persons), including those
directors and executives named above....... 276,144 749,450 1,025,594
</TABLE>
- - ---------------
(a) Includes Warrants that are currently exercisable, as follows: Mr. Brown,
16,458 Warrants; Mr. Connolly, 1,003 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 21,185.
(b) Includes restricted stock granted in 1996 to executive officers and subject
to risk of forfeiture, as follows: Mr. Foote, 15,000 shares; Mr. O'Bryan,
7,000 shares; Mr. Roller, 7,000 shares; Mr. Pendexter, 5,000 shares; all
executive officers as a group: 76,200 shares.
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(c) Includes 119,256 shares held by trusts of which Mr. Brown is a trustee.
(d) Includes options to purchase 38,544 shares directly and 48,956 shares by a
family limited partnership of which Mr. Connolly is the general partner.
(e) Includes 5,990 shares held by Mr. Crutcher as trustee for the benefit of his
adult children in which shares he disclaims beneficial ownership.
(f) Total beneficial ownership of 1,025,525 shares of Common Stock by members of
the group identified above represents approximately 2.3% of total
outstanding shares of Common Stock; no individual holding within such group
exceeded approximately 0.3% of total outstanding shares.
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 1995 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.
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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 --------------------- ----------
ANNUAL RESTRICTED ALL OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
NAME AND SALARY BONUS SATION AWARDS SARS PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($)(D) ($)(E) ($) (#) ($)(F) ($)(G)
- - ------------------------ ---- -------- -------- ------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eugene B.Connolly 1995 $685,000 $482,802 $63,051 -- -- $ -- $62,103
Chairman of the Board 1994 640,000 795,366 60,757 -- -- -- 69,571
(retired April 1, 1993 612,500 717,624 52,952 -- 250,000 1,164,005 42,426
1996)
William C. Foote 1995 373,333 285,380 -- -- -- -- 35,253
Chairman, President 1994 335,000 467,016 -- -- 50,000 -- 35,238
and CEO(a) 1993 275,000 255,096 -- -- 100,000 322,740 17,636
P. Jack O'Bryan 1995 310,000 181,609 -- -- -- -- 25,555
Executive Vice 1994 296,667 299,160 -- -- -- -- 31,491
President -- Worldwide 1993 280,000 255,096 -- -- 100,000 470,448 17,739
Ceilings; President
and CEO, USG
Interiors, Inc.(b)
Donald E. Roller 1995 330,000 196,884 -- -- -- -- 26,394
Executive Vice 1994 305,000 299,160 -- -- -- -- 32,306
President -- North 1993 280,000 255,096 -- -- 100,000 446,614 17,574
American Gypsum;
President and CEO,
United States Gypsum
Company(c)
Harold E. Pendexter, Jr. 1995 306,000 178,356 -- -- -- -- 25,163
Senior Vice President 1994 290,000 293,820 -- -- -- -- 30,793
and Chief 1993 269,583 250,614 -- -- 100,000 408,524 17,739
Administrative Officer
</TABLE>
- - ---------------
(a) Mr. Foote became President and CEO on January 1, 1996 and Chairman on April
1, 1996. During 1995, he was President and COO.
(b) Mr. O'Bryan assumed these positions on October 1, 1995. Prior thereto, he
was Senior Vice President -- Worldwide Technology and Manufacturing.
(c) Mr. Roller was named Executive Vice President -- North American Gypsum on
October 1, 1995. Prior thereto, he was Group Vice President -- North
American Gypsum. His position as President and CEO of United States Gypsum
Company was unchanged in 1995.
(d) 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.
(e) Mr. Connolly's Other Annual Compensation for 1995, 1994 and 1993 included
$14,400, 13,800 and $14,100, respectively, in automobile allowance and
$17,321, $16,394 and $16,724, respectively, as
12
<PAGE> 14
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
$50,000 or 10 percent of salary and bonus for 1995, 1994 or 1993.
(f) Reflects cash settlements in 1993 of reduced awards, otherwise potentially
payable in 1994, in connection with termination of the Corporation's
three-year Incentive Recovery Plan pursuant to and concurrently with the
effectiveness of the Prepackaged Plan. The amounts shown are taken into
account for purposes of computing benefits under the Corporation's
retirement plans. None of the Named Executives received long-term incentive
plan payouts in 1995 or 1994.
(g) All Other Compensation for the Named Executives for each year consisted
solely of matching contributions from the Corporation to defined
contribution plans.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES(A)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
UNDERLYING AT FISCAL YEAR-END AT FISCAL YEAR-END
OPTIONS VALUE --------------------------- ---------------------------
EXERCISED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
---- --------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eugene B. Connolly(b)........... 80,000 $1,615,000 87,500 82,500 $ 1,722,656 $ 1,624,218
William C. Foote................ 0 0 92,250 57,750 1,388,126 783,752
P. Jack O'Bryan................. 10,000 178,125 57,000 33,000 1,122,188 649,689
Donald E. Roller................ 34,000 618,375 33,000 33,000 649,689 649,689
Harold E. Pendexter, Jr......... 0 0 67,000 33,000 1,319,063 649,689
</TABLE>
- - ---------------
(a) No SARs were outstanding as of December 31, 1995.
(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. In 1995,
Mr. Connolly directly exercised options for 35,240 shares and the family
limited partnership exercised options for 44,760 shares. On December 31,
1995, Mr. Connolly directly held exercisable options to purchase 38,544
shares and unexercisable options to purchase 36,341 shares, and the family
limited partnership held exercisable options to purchase 48,956 shares and
unexercisable options to purchase 46,159 shares; on that date, the values of
Mr. Connolly's and the partnership's exercisable in-the-money options were
$758,835 and $963,821, respectively, and the values of Mr. Connolly's and
the partnership's unexercisable in-the-money options were $715,463 and
$908,755, 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
13
<PAGE> 15
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 the
Named Executives, 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 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, 1997, 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 the earlier
of his retirement or 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
14
<PAGE> 16
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 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.
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. 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.
15
<PAGE> 17
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 benefit 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 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
1,600,000................... 512,000 640,000 768,000 896,000 1,024,000
</TABLE>
The Named Executives participate in the Retirement Plan. The Named
Executives' full years of continuous credited service at December 31, 1995 were
as follows: Mr. Connolly, 37; Mr. Foote, 12; Mr. O'Bryan, 37; Mr. Roller, 35;
and Mr. Pendexter, 38. Compensation under the Retirement Plan includes salary
and cash incentive compensation 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.
16
<PAGE> 18
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 $1,000 per quarter for each such chairmanship. The
third quarter retainer is paid in common stock of the Corporation having a value
of $6,500 while retainers for the other three quarters, as well as meeting fees
and chairmen's retainers, are paid in cash. 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,
stockbased 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.
17
<PAGE> 19
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 1995, the Committee compared
the Corporation's salary and cash incentive programs to those of a peer group of
600 participants representing 350 industrial organizations as well as to a
smaller group of 116 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 $2.4 billion for the year
ended December 31, 1995. The Committee also reviewed annualized option grant
values of a peer group of 306 industrial organizations. (The peer groups
reviewed for compensation purposes are significantly broader than the Building
Materials Group 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 the Chief
Executive Officer, the Committee also considers the Chief Executive Officer'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.
18
<PAGE> 20
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 1995. 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
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 1995 were based upon an
income goal and a working capital management goal (based on improvement in
average monthly net working capital (net accounts receivable plus FIFO inventory
minus accounts payable) as a percent of net sales over year-end 1994.
Improvement in working capital results in an adjustment factor being applied to
the basic income goal achievement. A third step in the award calculation
provides for an adjustment, either upward or downward, for personal performance
(except in the case of the nine most senior executives, including the Named
Executives), 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 for 1995 resulted in awards averaging 117.9% of par to the Named
Executives.
Long-Term Equity Program
The Corporation's Prepackaged Plan 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 substantially all of the authorized shares (exclusive of forfeitures) were
granted in 1993 and 1994 to 91 executives and senior managers, in each case at
an exercise price equal to market value on the date of grant. 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. No options were
granted in 1995. 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 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 in any year
by the
19
<PAGE> 21
Corporation paid to its chief executive officer and the four other most highly
compensated executive officers for such year. Based upon such review, the
Committee believes that compensation to any such executive officer in 1995 from
(i) annual incentive cash awards for that year, or (ii) in connection with
exercises of stock options, 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 provision of the Internal Revenue Code as
currently in effect.
THE CHIEF EXECUTIVE OFFICER'S 1995 COMPENSATION
In 1995, the compensation for Eugene B. Connolly consisted principally of
(i) salary of $685,000; and (ii) a 1995 annual incentive cash award of $482,802.
William C. Foote became the Chief Executive Officer on January 1, 1996, and was
named Chairman on April 1, 1996, upon Mr. Connolly's retirement.
Base Salary
Mr. Connolly's base salary for 1995 was approved by the Committee in
November 1994 with effect as of January 1, 1995. No action was taken with
respect to his base salary in 1995. 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 at an annual rate of $685,000, 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 1995 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
1995 annual incentive opportunity (par) was expressed as 65% of the midpoint of
his annualized position values ($630,180). The corporate goal achievement for
1995 described earlier in this report resulted in an award of 117.9% of par
($482,802) to Mr. Connolly.
Consulting Agreement
In September, 1995, the Committee considered and approved an executive
consulting agreement between the Corporation and Mr. Connolly for the nine
months of 1996 following his retirement on April 1, 1996. The agreement calls
for Mr. Connolly's services and advice on the Corporation's business and affairs
to the extent mutually agreed to by the parties, including advice and counsel to
the Chairman and Chief Executive Officer with respect to relations with the
Board and external parties, product liability and general litigation, and
international development. Mr. Connolly will receive $100,000 in nine
20
<PAGE> 22
equal monthly installments for his services under the agreement. It was the
Committee's judgment that the agreement would represent a valuable transitional
arrangement for the Corporation.
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 1995, the Named Executives received approximately 40% 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
JOHN B. SCHWEMM
JUDITH A. SPRIESER
21
<PAGE> 23
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, 1990 through May 6, 1993 (the
effective date of the Prepackaged Plan) and May 7, 1993 through December 31,
1995 (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 a peer group of companies in the building
materials industry selected by the Corporation for purposes of comparison and
described more fully below (the "Building Materials Group").
<TABLE>
<CAPTION>
Building
Measurement Period USG Corpo- Materials
(Fiscal Year Covered) ration S&P 500 Group
<S> <C> <C> <C>
1990 100 100 100
1991 200 130 122
1992 69 140 148
May 6, 1993 35 144 160
May 7, 1993 100 100 100
1993 244 107 112
1994 163 109 97
1995 250 149 131
</TABLE>
All amounts rounded to nearest dollar.
The Building Materials Group selected by the Corporation for the
Performance Graph above is comprised of 21 publicly traded companies in the
building materials industry. The Building Materials Group also comprised the
Building Materials Index identified by Value Line Publishing, Inc., as of
22
<PAGE> 24
December 31, 1994, and was utilized in the Corporation's Performance Graph in
its 1995 proxy statement. The companies included in the Building Materials Group
are: Ameron, Inc., Apogee Enterprises, Inc., Armstrong World Industries, Inc.,
Bird Corp., Butler Manufacturing Co., Crane Co., Elcor Corp., Fluor Corp.,
International Aluminum Corp., Jannock, Ltd., Justin Industries, Inc., Manville
Corp., Masco Corp., Morgan Products Ltd., Morrison Knudsen Corp., Owens-Corning
Fiberglass Corp., Perini Corp., Ply-Gem Industries, Inc., PPG Industries, Inc.,
Thomas Industries, Inc., and TJ International, Inc.
ITEM NO. 2 -- 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, 1996, 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, 1996, 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.
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.
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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 $8,000 plus reimbursement of normal
expenses. The Corporation also will reimburse upon 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, 1997, must be received by the Corporate Secretary, USG
Corporation, 125 South Franklin Street, Chicago, Illinois 60606-4678, no later
than December 2, 1996, 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
DEAN H. GOOSSEN
Corporate Secretary
Dated: April 1, 1996
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<S><C>
PROXY
PROXY
USG CORPORATION
This proxy is solicited on behalf of the Board of Directors
for the Annual Meeting of Stockholders -- May 8, 1996
The undersigned hereby appoints 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 of 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 8, 1996 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 address. (Continued and to be signed on reverse side.)
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<PAGE> 27
USG CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
<TABLE>
<S><C>
[ ]
A VOTE FOR ALL NOMINEES AND FOR
ITEM 2 IS RECOMMENDED.
For All
1. ELECTION OF DIRECTORS TO SERVE FOR A THREE For Withheld Except 2. Ratification of the appointment
YEAR TERM NOMINEES: Robert L. Barnett, / / / / / / of Arthur Andersen LLP as For Against Abstain
David W. Fox, Philip C. Jackson, Jr., independent public accoun- / / / / / /
Marvin E. Lesser. _________________ tants for the year ending
Nominee Exception December 31, 1996.
3. In their discretion, on any other matter that may
properly come before the meeting.
Dated:______________________________________, 1996
__________________________________________________
Signature
The signature above should agree with the name shown
on this 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
Item 2.
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