March 28, 1997
Dear Fellow Stockholder:
You are cordially invited to attend our annual meeting of stockholders to be
held on Wednesday, May 14, 1997, 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,
/s/ William C. Foote
- ---------------------
William C. Foote,
Chairman of the Board
<PAGE>
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 14, 1997, 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 approval of the Omnibus Management Incentive Plan.
3. To consider ratification of the appointment of Arthur Andersen LLP as
independent public accountants for the year ending December 31, 1997.
4. 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 19,
1997, 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 30, 1997, and running through the time of the meeting.
By order of the Board of Directors
Dean H. Goossen
Corporate Secretary
Chicago, March 28, 1997
IMPORTANT -- PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY PROMPTLY IN
THE ENCLOSED ENVELOPE.
<PAGE>
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 14,
1997, 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 28, 1997.
The Board of Directors has selected the close of business on March 19,
1997 (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 45,989,674 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; for approval of the Omnibus Management Incentive Plan;
and for ratification of the appointment of Arthur Andersen LLP as independent
public accountants for the year ending December 31, 1997.
The Northern Trust Company, as trustee of the USG Corporation
Investment Plan, held of record 527,207 shares of Common Stock as of December
31, 1996, 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.
Except as otherwise expressly indicated, all information in this proxy
statement is provided as of March 19, 1997.
<PAGE>
<TABLE>
PRINCIPAL STOCKHOLDERS
The following table lists the beneficial ownership of Common Stock as
of December 31, 1996 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 pursuant to
Schedules 13G filed with the Securities and Exchange Commission.
<CAPTION>
Name and Address Amount of
of Beneficial Owner Beneficial Ownership Percent of Class
------------------- -------------------- ----------------
<S> <C> <C>
Neuberger & Berman, LLC (a) 6,528,252 14.29%
605 Third Avenue
New York, NY 10158
J. P. Morgan & Co., Incorporated (b) 5,150,322 11.2%
60 Wall Street
New York, NY 10260
FMR Corp. (c) 3,963,100 8.68%
82 Devonshire Street
Boston, MA 02109
Glickenhaus & Co. (d) 2,534,250 5.5%
6 East 43rd Street
New York, NY 10017
</TABLE>
(a) Neuberger & Berman, LLC reported that it had sole power to vote 868,305
shares, shared power to vote 3,544,800 shares, sole power to dispose of no
shares, and shared power to dispose of 6,528,252 shares.
(b) J. P. Morgan & Co., Incorporated, a parent holding company, reported that it
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 5,150,322 shares, with
sole power to vote 3,625,512 shares, shared power to vote 35,360 shares, sole
power to dispose of 5,106,587 shares, and shared power to dispose of 43,235
shares. The response to Item 6 (Ownership of more than 5 percent on behalf of
another person) of its 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) FMR Corp. reported that Fidelity Management & Research Company ("Fidelity"),
an investment advisor and a wholly owned subsidiary of FMR Corp., through
certain funds advised by it, was the beneficial owner of 3,963,100 shares, and
that Fidelity Magellan Fund, a fund advised by Fidelity, was the beneficial
owner of 2,813,000 shares. According to its Schedule 13G, FMR Corp. and its
Chairman, Edward C. Johnson 3d, through their control of Fidelity, and the funds
advised by Fidelity each had sole power to dispose of the 3,963,000 shares owned
by such funds; sole power to vote such shares was held by such funds' respective
boards of trustees; 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; and 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.
(d) Glickenhaus & Co., an investment advisor, reported that it was the
beneficial owner of 2,534,250 shares, having sole voting power with respect to
1,625,400 shares and sole dispositive power with respect to 2,534,250 shares.
<PAGE>
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 contractual 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, two of
whom shall be New 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 Corporation or any
direct or indirect subsidiary, or any director of any such subsidiary who is not
also a director of the Corporation. At present, Mr. Foote is the sole employee
director.
The Board of Directors of the Corporation is divided into three classes of
four each. Each class is elected for a three-year term. One class will be
elected at the annual meeting of stockholders on May 14, 1997. The remaining
classes will be elected in 1998 and 1999, respectively.
The four candidates nominated by the Board of Directors for election as
directors at the annual meeting of stockholders on May 14, 1997, are identified
below. One of the nominees, Keith A. Brown, 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. Brown's unavailability, would be a
candidate recommended by Messrs. Crutcher and Lesser), 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 2000
KEITH A. BROWN, 45, President (since 1987) of Chimera Corporation, a
private management holding company. Mr. Brown is a director of Morgan FunShares,
Inc., a closed-end investment company. Mr. Brown has been a director of the
Corporation since May 1993 and he is a member of the Board's Audit, Compensation
and Organization and Public Affairs Committees.
JAMES C. COTTING, 63, 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 and The Interlake 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 and Public
Affairs Committees, and is Chairman of its Finance Committee.
W. DOUGLAS FORD, 53, Executive Vice President (since 1993) of Amoco
Corporation; formerly President (1992-1993) and Executive Vice President
(1991-1992) of Amoco Oil Company. Mr. Ford was elected a director of the
Corporation in November 1996 and is a member of the Board's Public Affairs
Committee.
JOHN B. SCHWEMM, 62, 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 Co. 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 Executive and Compensation and Organization Committees, and is Chairman
of its Audit 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 1998
W.H. CLARK, 64, 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, Ultramar Diamond Shamrock Corporation, James River
Corporation, Merrill Lynch Corporation, Millenium Chemicals, Inc., and Nicor
Corporation. Mr. Clark has been a director of the Corporation since August 1985,
is a member of the Board's Executive, Audit and Compensation and Organization
Committees and is Chairman of its Committee on Directors.
LAWRENCE M. CRUTCHER, 54, 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, 46, 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). 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 and Walgreen Co. He also serves as a
director of Northwestern Memorial Hospital, as a trustee of the Museum of
Science and Industry, and as a member of the INROADS Joint Advisory Council. He
has been a director of the Corporation since March 1994 and is Chairman of the
Board's Executive Committee.
JUDITH A. SPRIESER, 43, 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.
Directors Whose Term Expires in 1999
ROBERT L. BARNETT, 56, President, Land Mobile Products Sector, Motorola
Corporation (since March 1997); Vice President and General Manager, iDEN Group,
Motorola Corporation (1995-1997); 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 Audit
and Compensation and Organization Committees and Committee on Directors.
DAVID W. FOX, 65, 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 past director of The
Federal Reserve Bank of Chicago and the Chicago Central Area Committee. He is a
Governor and current Chairman of the Chicago Stock Exchange, director and past
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 and Finance Committees and Committee on Directors, and is Chairman of
its Compensation and Organization Committee.
PHILIP C. JACKSON, JR., 68, formerly Vice Chairman and a director of
Compass Bank, Birmingham, Alabama, and of its parent company, Compass Bancshares
(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, 55, 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 is a director and past Chair of 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 Audit
and Finance Committees and Committee on Directors.
The Board of Directors held six meetings during 1996 and the standing
committees of the Board of Directors held an aggregate of 30 meetings during
that year. Each director attended at least 75% of the aggregate number of
meetings in 1996 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, Jackson and Schwemm,
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 two meetings in
1996. 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 John B.
Schwemm, Chairman, Robert L. Barnett, Keith A. Brown, W.H. Clark, Marvin E.
Lesser, and Judith A. Sprieser. The Audit Committee held three meetings during
1996.
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, or a
subcommittee thereof, 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, Keith A. Brown, W. H. Clark, John B. Schwemm and Judith A. Sprieser.
The Compensation and Organization Committee held five meetings during 1996.
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 eight meetings during 1996.
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, James C. Cotting
and Lawrence M. Crutcher. The Committee held three meetings in 1996.
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 W. H.
Clark, Chairman, Robert L. Barnett, Lawrence M. Crutcher, David W. Fox, Philip
C. Jackson, Jr., Marvin E. Lesser and Judith A. Sprieser. The Committee held
four meetings during 1996.
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.
<PAGE>
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 1996, and by all current directors and executive officers
of the Corporation as a group (24 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, 1996 under the USG Corporation Investment Plan.
<TABLE>
Shares Beneficially Option Shares Total and
Owned, Excluding Exercisable Percent of
Name Options (a)(b) Within 60 Days Class (e)
---- ------------------- --------------- ------------
<S> <C> <C> <C>
Robert L. Barnett.................... 1,472 0 1,472
Keith A. Brown....................... 136,166 (c) 0 136,166
W. H. Clark.......................... 2,743 0 2,743
James C. Cotting..................... 972 0 972
Lawrence M. Crutcher................. 8,942 (d) 0 8,942
William C. Foote..................... 47,127 116,750 163,877
W. Douglas Ford...................... 200 0 200
David W. Fox........................ 1,554 0 1,554
Philip C. Jackson, Jr................ 3,214 0 3,214
J. Bradford James.................... 16,726 80,000 96,726
Arthur G. Leisten.................... 10,897 80,000 90,897
Marvin E. Lesser..................... 952 0 952
P. Jack O'Bryan...................... 21,329 70,000 91,329
Harold E. Pendexter, Jr.............. 21,933 85,000 106,933
John B. Schwemm...................... 1,131 0 1,131
Judith A. Sprieser ................. 652 0 652
All directors and executive
officers as a group (24 persons),
including those directors and
executives named above.............. 328,353 787,118 1,115,472
</TABLE>
(a) Includes Warrants that are currently exercisable, as follows: Mr.
Brown, 16,458 Warrants; Mr. Jackson, 879 Warrants; Mr. James, 69 Warrants; Mr.
O'Bryan, 831 Warrants; Mr. Pendexter, 619 Warrants; Mr. Schwemm, 25 Warrants.
Warrants held by directors and executive officers as a group totaled 19,207.
(b) Includes restricted stock granted in 1996 and 1997 to executive
officers and subject to risk of forfeiture, as follows: Mr. Foote, 30,000
shares; Mr. James, 15,000 shares, Mr. Leisten, 10,000 shares, Mr. O'Bryan,
17,000 shares; Mr. Pendexter, 10,000 shares; all executive officers as a group:
127,200 shares.
(c) Includes 119,256 shares held by trusts of which Mr. Brown is a trustee.
(d) Includes 5,990 shares held by Mr. Crutcher as trustee for the benefit
of his adult children in which shares he disclaims beneficial ownership.
(e) Total beneficial ownership of 1,115,472 shares of Common Stock by
members of the group identified above represents approximately 2.4% of total
outstanding shares of Common Stock; no individual holding within such group
exceeded approximately 0.4% of total outstanding shares.
<PAGE>
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 1996 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.
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>
Long-Term Compensation
----------------------
Annual Compensation Awards Payouts
--------------------------------- --------------------- ----------
<CAPTION>
Other
Annual Restricted All Other
Compen- Stock Options/ LTIP Compen-
Nam invd Salary Bonus sation Awards SARs Payouts sation
Principal Position Year ($) ($)(b) ($)(c) ($)(d) (#) ($) ($)(e)
- ------------------- ------ ---------- ---------- --------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eugene B. Connolly 1996 $ 171,250 $ 118,399 $ 33,111 -- -- -- $ 35,710
Former Chairman of 1995 685,000 482,802 63,051 -- -- -- 62,103
the Board (retired 1994 640,000 795,366 60,757 -- -- -- 69,571
April 1, 1996)
William C. Foote 1996 500,000 477,593 59,236 $ 440,625 35,000 -- 42,881
Chairman, President 1995 373,333 285,380 -- -- -- -- 35,253
and CEO (a) 1994 335,000 467,016 -- -- 50,000 -- 35,238
P. Jack O'Bryan 1996 363,335 221,708 -- 205,625 15,000 -- 29,754
Executive Vice 1995 310,000 181,609 -- -- -- -- 25,500
President - 1994 296,667 299,160 -- -- -- -- 31,491
Operations;
President and CEO,
United States Gypsum
Company and USG
Interiors, Inc.
J. Bradford James 1996 320,000 221,708 -- 205,625 15,000 -- 27,388
Executive Vice 1995 305,000 181,609 -- -- -- -- 24,817
President - 1994 283,335 286,585 -- -- -- -- 30,141
Corporate
Development and
Distribution
Harold E. Pendexter, 1996 318,000 176,456 -- 146,875 13,000 -- 27,101
Jr. - Senior Vice 1995 306,000 178,356 -- -- -- -- 25,163
President and 1994 290,000 293,820 -- -- -- -- 30,793
Chief Administrative
Officer
Arthur G. Leisten 1996 308,000 176,456 -- 146,875 13,000 -- 26,555
Senior Vice 1995 292,420 178,356 -- -- -- -- 24,592
President and 1994 279,000 293,820 -- -- -- -- 29,717
General Counsel
</TABLE>
(a) Mr. Foote became President and CEO on January 1, 1996 and Chairman on
April 1, 1996.
(b) 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.
(c) Mr. Connolly's Other Annual Compensation for 1996, 1995 and 1994 included
$3,600, $1,400 and $13,800, respectively, in automobile allowance and
$8,034, $17,321 and $16,394, respectively, as the estimated cost of
equivalent life insurance provided by the Corporation's executive death
benefit plan; Mr. Foote's Other Annual Compensation for 1996 included
$14,400 in automobile allowance and $15,457 in estate planning
reimbursement; 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 1996, 1995 or 1994.
(d) Indicated amounts arise from performance-based restricted stock awards on
January 2, 1996. The number of shares of restricted stock in each award,
which also constitutes each recipient's total restricted stock holdings
as of December 31, 1996, and the value of such holdings on such date, are
as follows: Mr. Foote, 15,000 shares, $508,125; Mr. O'Bryan, 7,000
shares, $237,125; Mr. James, 7,000 shares, $237,125; Mr. Pendexter, 5,000
shares, $169,375; and Mr. Leisten, 5,000 shares, $169,375. Such
restricted stock will be eligible for any dividend paid on shares of the
Corporation's common stock. In addition to such restrictive stock awards,
the Named Executives other than Mr. Connolly were granted the
nonqualified stock options described in the chart below titled
"Option/SAR Grants in Last Fiscal Year" on January 2, 1996.
(e) All Other Compensation for the Named Executives for each year
consisted solely of matching contributions from the Corporation to
defined contribution plans.
<PAGE>
<TABLE>
Option/SAR Grants In Last Fiscal Year (a)
Potential
Realizable Value
At Assumed
Annual Rates
of Stock Price
Appreciation
For Option
Individual Grants Term(c)
---------------------------------------------------------- --------------------
<CAPTION>
Securities % of Total
Underlying Options/SARs
Options/SARs Granted T Exercise
Granted Employees Price Expiration 5% 10%
Name (#)(b) ($/SH) Date ($) ($)
---- ---------------- --------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Eugene B. Connolly . . . . . . -- -- -- -- -- --
William C. Foote . . . . . . 35,000 9.74 29.40 1/2/06 647,130 1,639,960
P. Jack O'Bryan . . . . . . 15,000 4.17 29.40 1/2/06 277,340 702,840
J. Bradford James . . . . . . 15,000 4.17 29.40 1/2/06 277,340 702,840
Harold E. Pendexter, Jr. . . . 13,000 3.62 29.40 1/2/06 240,360 609,130
Arthur G. Leisten . . . . . . 13,000 3.62 29.40 1/2/06 240,360 609,130
</TABLE>
(a) No SARs were granted in 1996, and no SARs have been granted or are
outstanding under any of the Corporation's long-term equity plans
with outstanding awards.
(b) Options granted on January 2, 1996, at an exercise price equal to
the market value of a share of Common Stock on such date. These
options become exercisable on the second anniversary 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.
<PAGE>
<TABLE>
Aggregated Option/SAR Exercises In Last Fiscal Year And Fiscal Year-End Option/SAR Values (a)
<CAPTION>
Number of Number of Securities 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) 100,000 $ 1,931,250 70,000 -- $ 1,649,200 --
William C. Foote 10,000 164,375 123,500 51,500 2,511,109 $ 523,953
P. Jack O'Bryan -- -- 90,000 15,000 2,120,625 142,125
J. Bradford James -- -- 100,000 15,000 2,356,250 142,125
Harold E. Pendexter, Jr. 10,000 201,875 90,000 13,000 2,120,625 123,175
Arthur G. Leisten -- -- 100,000 13,000 2,356,250 123,175
</TABLE>
(a) No SARs were outstanding as of December 31, 1996.
(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 1996, Mr. Connolly directly exercised options for 44,050
shares and the family limited partnership exercised options for 55,950
shares. On December 31, 1996, Mr. Connolly directly held exercisable
options to purchase 30,835 shares and the family limited partnership
held exercisable options to purchase 39,165 shares; on that date, the
values of Mr. Connolly's and the partnership's exercisable in-the-money
options were $726,550 and $922,825, respectively.
Employment Agreements
In order to assure continued availability of services of the Named
Executives (other than Mr. Connolly, who retired April 1, 1996), the
Corporation, or one of its subsidiaries, entered into employment agreements (the
"Employment Agreements") with such 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, 1998 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 such
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 such
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 such Named Executive 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 such 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 (other than Mr. Connolly, who retired April 1, 1996) 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 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.
<PAGE>
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.
<TABLE>
Retirement Plan Table
<CAPTION>
Covered Years of Benefit Service
----------------------------------------------------------------------------------
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 full years of
continuous credited service of the Named Executives at December 31, 1996 (except
for Mr. Connolly, who retired April 1, 1996 with 37 years of continuous credited
service) were as follows: Mr. Foote, 13; Mr. O'Bryan, 38; Mr. James, 23; Mr.
Pendexter, 39; and Mr. Leisten, 21. 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 Messrs. O'Bryan and Pendexter, of special retirement
accounts with independent financial institutions as an additional means of
funding the Corporation's obligations to make such supplemental payments.
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 five-year 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 discontinue to offer such agreements in the future
in conjunction with its on-going examination of non-employee director
compensation.
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 or a subcommittee thereof 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 1996, the Committee compared
the Corporation's salary and cash incentive programs to those of a peer group of
approximately 600 participants representing 350 industrial organizations as well
as to a smaller group of approximately 115 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 $2.59
billion for the year ended December 31, 1996. The Committee also reviewed
annualized option grant values of a peer group of over 300 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 selected to reflect 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
Prior to 1997, salary ranges were established for each position, and the
amount and timing of individual executive salary increases varied based upon
performance rating and contribution, current salary relative to midpoint for the
established salary range, career progress and the annual salary budget
allotment.
In September 1996, the Committee determined to institute the use of
internal market rates, in lieu of salary ranges, as managing points for the base
salaries of the 20 most senior executive positions, beginning in 1997. The
Committee believed that the change, due to the uniqueness of the applicable
positions, would enhance flexibility in executive salary administration.
External market rates for each of the positions at the approximate 60th
percentile of salaries for comparable positions were determined using survey
data from independent compensation consultants. An internal market rate was then
established for each position either at, below or above the external rate based
on relevant internal factors including impact on the Corporation and relative
scope of the position. Internal market rates for all applicable positions will
be reviewed by the Committee annually and adjusted, if warranted by personal
performance, job description and external market rates, as of a common date.
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. Annual incentive cash awards for 1997 and
subsequent years will be made under the Omnibus Management Incentive Plan
described in Item 2 later in this proxy statement, assuming approval of such
Plan by stockholders at the annual meeting. Approximately 235 officers and
managers with position values above a specified threshold were eligible to
participate in the program in 1996. 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 (target) 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
1996 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 1995. Improvement or decline in working capital results in an
adjustment factor, either upward or downward, 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 target. 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 1996 resulted
in awards averaging 113.2% of target to the Named Executives.
Long-Term Equity Program
The Corporation's 1995 Long-Term Equity Plan authorized 900,000 shares of
Common Stock (equal to approximately 2% of the number of shares of Common Stock
then outstanding), together with shares becoming available for grant again as a
result of forfeitures of awards made under the MPP, to be reserved for future
issuance in conjunction with stock options. Options for 359,500 shares were
granted in 1996 to 61 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 in full on the second anniversary of the date of
the grant. In determining individual award levels of such grants to executive
officers, the Committee considered a number of objective factors, such as survey
data with respect to award multiples among comparably sized corporations, and a
number of subjective factors, including the individual's assigned position
value, anticipated career path and performance rating. The Committee also
considered survey data indicating that annualized option grant values overall as
a multiple of base salary ranked in the approximate 40th percentile of surveyed
companies.
The 19 most senior executives and managers received a portion approximating
25% of their 1996 long-term equity grants in the form of performance-based
restricted stock which is subject to risk of forfeiture after three years based
on performance in relation to the cumulative shareholder returns of a peer group
of 21 building materials companies. A shareholders return (including
reinvestment of dividends) for the Corporation at the 70th percentile or better
of the peer group is required for a 100% pay-out, with smaller percentile
returns resulting in lower pay-outs and no pay-out for shareholder return below
the 40th percentile.
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 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 1996 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 1996 Compensation
In 1996, the compensation for William C. Foote consisted principally of (i)
salary of $500,000; (ii) a 1996 annual incentive cash award of $477,593; and
(iii) long-term incentive compensation consisting of (a) a grant of a
non-qualified stock option for 35,000 shares of Common Stock, and (b) a grant of
performance-based restricted stock for 15,000 shares of Common Stock. 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. Foote's base salary for 1996 was approved by the Committee in November
1995 with effect as of January 1, 1996, in contemplation of Mr. Foote becoming
the Chief Executive Officer on January 1, 1996, and the Chairman of the Board of
Directors on April 1, 1996. The Committee set Mr. Foote's base salary at an
annual rate of $500,000, an increase of $100,000 over the base salary effective
on September 1, 1995. Following such increase, Mr. Foote's base salary ranked in
the 25th percentile of the survey group. No action was taken with respect to his
base salary in 1996. In determining Mr. Foote's base salary, the Committee
considered the base salaries of chief executive officers of comparably sized
industrial companies, the Corporation's strong operating performance in 1995,
and Mr. Foote's individual performance. Corporation performance in 1995 was
reflected in a 6.7% increase in net sales over the prior year and an 83%
increase in operating profitability. Mr. Foote's individual performance included
assumption of the Corporation's principal executive position and leadership in
development of strategic plans, debt reduction and legal affairs.
Annual Management Incentive Plan
Mr. Foote's 1996 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. Foote's 1996 annual
incentive opportunity (target) was expressed as 65% of the midpoint of his
annualized position value ($649,080). The corporate goal achievement for 1996
described earlier in this report resulted in an award of 113.2% of par
($477,593) to Mr.
Foote.
Long-Term Compensation
Mr. Foote's long-term compensation in 1996 was provided by: (a) the grant
of a non-qualified stock option for 35,000 shares of Common Stock; and (b) the
grant of performance-based restricted stock for 15,000 shares of Common Stock
described earlier. These grants were upon the same terms, and involved the
Committee's consideration of the same factors, described earlier in this report
with respect to all 1996 grants. The Committee also considered survey data
indicating that Mr. Foote's annualized grant value as a multiple of base salary
ranked in the approximate 45th percentile of values among surveyed companies.
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 1996, the Named Executives received approximately 45% 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
KEITH A. BROWN
W. H. CLARK
JOHN B. SCHWEMM
JUDITH A. SPRIESER
<PAGE>
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, 1991 through May 6, 1993 (the
effective date of the Prepackaged Plan) and May 7, 1993 through December 31,
1996 (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>
December 31, December 31.
---------------- ----------------------------------------
May 6, May 7,
1991 1992 1993 1993 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
USG Corporation $100 $35 $17 $100 $244 $163 $250 $282
S&P 500 100 108 110 100 107 109 149 164
Building 100 121 131 100 112 97 131 152
Materials Group
</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
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, Masco Corp.,
Morgan Products, Ltd., Morrison Knudsen Corp., Owens-Corning, Perini Corp.,
Ply-Gem Industries, PPG Industries, Inc., Schuller Corp., Thomas Industries,
Inc., and TJ International, Inc.
<PAGE>
ITEM NO. 2--APPROVAL OF OMNIBUS MANAGEMENT INCENTIVE 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 and its Grants and Awards Subcommittee (collectively, the
"Committee"), have reviewed the Corporation's annual and long-term incentive
compensation programs for key employees and recommends that stockholders approve
the Omnibus Management Incentive Plan (the "Plan"). The Plan continues many of
the features of the Management Performance Plan and the 1995 Long-Term Equity
Plan which were approved by stockholders in 1988 and 1995, respectively. In
addition, in order for payment of certain incentive awards made under the Plan
to be deductible by the Corporation under the current provisions of the Internal
Revenue Code, they must be paid under such a plan following stockholder
approval.
The principal features of the Plan and of the annual and long-term
incentive programs which the Committee has adopted or is expected to adopt to
implement the Plan 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 Plan provides for the grant of various types of annual and
long-term incentive awards to key employees, consistent with the objectives and
limitations of the Plan. These awards include (i) annual incentive awards in the
form of cash, stock or a combination thereof for the achievement of annual
performance objectives, and (ii) long-term incentive awards in the form of
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 of long-term equity incentives under the Plan
will be made in early 1998. Stockholder approval would also qualify portions of
the Corporation's annual incentive program for 1997 for deductibility under the
Internal Revenue Code as described in the first paragraph of this Item.
Administration. The 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 directors" and "non-employee
directors" for the purposes of the Internal Revenue Code and the Securities
Exchange Act of 1934, respectively.
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
division, subsidiaries and affiliates are eligible to be granted awards under
the Plan. It is expected that officers, managers and key employees of the
Corporation and its division and subsidiaries, a group now consisting of
approximately 250 persons, will be paid annual incentive awards in 1998 and
thereafter for the achievement of annual performance objectives established by
the Committee at the time award grants were determined. It is also expected that
a group of approximately 100 officers, managers and key employees will be
eligible for grants of long-term equity awards under the 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 annual incentive awards and for grants of
stock options and performance-based restricted stock. In addition, the Committee
has the discretion to grant incentive stock options, stock appreciation rights,
performance units, time-vested restricted stock and deferred stock under the
Plan. The terms of these various awards are discussed below.
Annual Incentive Awards. Annual incentive awards may be paid in the form of
cash, stock or a combination thereof for the achievement of corporate and/or
individual annual performance objectives. The Committee may determine to offer
award recipients an election to defer award payments subject to administrative
procedures established by the Committee.
Stock Options. The 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, the purchase price per share of Common Stock covered by
each stock option shall be at least equal to the market value of a share of
Common Stock on the date of grant. Individual agreements for stock option grants
provide that the term for exercise of a stock option may not exceed 10 years
from the date of grant. Such agreements will 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 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
the value of incentive stock options and stock appreciation rights awarded
pursuant to the Plan would be based on the market value of Common Stock on the
date of grant.
Performance Awards. The payment of any annual incentive award or 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 by the
Corporation 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 onestment, return on net assets, total shareholder return,
division or subsidiary earnings, market value added, economic value added,
sales, unit volume, margins, cost reduction, market share, working capital
management, and project execution.
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 Plan may not exceed
1,650,000 shares, of which not more than 550,000 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
event, such equitable adjustment shall be made in the Plan and awards as shall
be deemed necessary by the Committee.
Individual Maximum. Under the Plan, no participant may receive (i) annual
incentive awards having an aggregate value in excess of the lesser of (y) $1
million, or (z) two times such participant's base salary at the commencement of
the relevant performance period, or (ii) long-term incentive awards 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, 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. 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 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 outstanding agreements evidencing awards under the
Plan from time to time, consistent with the Plan. No long-term incentive awards
may be made under the Plan after December 31, 2007, and no annual incentive
awards may be made under the Plan after March 31, 2008.
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; (iii) all
performance criteria for full exercisability of stock options and tandem stock
appreciation sights and full release or issuance of restricted and deferred
stock will be deemed satisfied; and (iv) 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, (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.
Federal Tax Consequences. Under the Internal Revenue Code as currently in
effect, annual incentive awards will be taxed as ordinary income at the time of
payment, and the Corporation will be entitled to a deduction for such awards at
the time of payment. A grant under the 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. A recipient of restricted
stock generally will be subject to tax at ordinary income rates on the excess of
the fair market value of the restricted stock over its purchase price, if any,
at the time the stock is no longer subject to forfeiture. All amounts taxable to
employees under the Plan in respect of stock options or restricted stock 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 pages 12 through 14 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 Plan, the 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.
NEW PLAN BENEFITS
The benefits that will be received by or allocated to each Named Executive,
all current executives as a group, and all other current employees as a group
under the Omnibus Management Incentive Plan, or that would have been received by
or allocated to such persons if such Plan had been in effect in 1996 cannot be
determined. Non-executive directors will not be eligible to participate in the
Omnibus Management Incentive Plan.
ITEM NO. 3--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, 1997, 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, 1997, 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.
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 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, 1998, must be received by the Corporate Secretary, USG
Corporation, 125 South Franklin Street, Chicago, Illinois 60606-4678, no later
than December 1, 1997, 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
/s/ Dean H. Goossen
--------------------
Dean H. Goossen,
Corporate Secretary
Dated: March 28, 1997
<PAGE>
EXHIBIT A
USG CORPORATION
Omnibus Management Incentive Plan
1. Purpose.
The purposes of the Omnibus Management Incentive Plan (the "Plan") are to
provide both short-term and 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. The Plan replaces the Corporation's 1995 Long-Term
Equity Plan (the "1995 Plan") and Management Performance Plan (the "MPP") which
will be discontinued without prejudice to prior grants and awards thereunder.
2. Administration of the Plan.
The Plan shall be administered by the Compensation and Organization
Committee (or a subcommittee thereof) of the Board of Directors of the
Corporation (the "Committee"). The Committee shall consist of two or more
members of the Board of Directors who are considered "outside directors" and
"non-employee directors" for purposes of Section 162(m) of the Internal Revenue
Code and Rule 16b-3 as promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, respectively.
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.
Officers and other key employees of the Corporation and its divisions,
subsidiaries and affiliates who are responsible for or contribute to the growth
and success of the Corporation are eligible to be granted awards under the Plan,
provided, however, that annual incentive awards and incentive stock options may
only be granted to employees of the Corporation or its divisions and
subsidiaries.
4. Annual Incentive Awards
The Corporation shall provide annual incentive compensation opportunities
to eligible employees based on target compensation levels and on financial and
operational results of the Corporation. The Committee may grant incentive awards
to individual employees based on achievement of corporate and/or individual
annual performance objectives. The full and/or partial payment of any such
annual incentive award that is intended to qualify in full as deductible by the
Corporation for federal income tax purposes will occur only upon certification
by the
Committee of the attainment by the Corporation or applicable division,
subsidiary or business unit of a performance goal or goals established by the
Committee at the time the award is made. These goals shall be based on one or
more of the following: corporate earnings, return on investment, return on net
assets, total shareholder return, division, subsidiary or business unit
earnings, market value added, economic value added, sales, unit volume, margins,
cost reduction, market share, working capital management, and project execution.
Annual incentive awards may be in the form of cash payments, stock awards or a
combination thereof, provided, however, that the aggregate value of an annual
incentive award to an individual may not exceed the lesser of (i) $1 million, or
(ii) two times such individual's base salary at the commencement of the relevant
annual performance period. The recipient of an annual incentive award may be
given an election to defer payment of an award subject to deferral opportunities
and administrative procedures established by the Committee.
5. Long-Term Awards.
(a) Types. Long-term 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 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 for which
they are ultimately exercisable shall be determined by the attainment
by the Corporation or applicable division, subsidiary or business unit
of a predetermined performance goal or goals, as certified by the
Committee, over a period established by the Committee.
(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, provided
predetermined performance goals are met during the term of the award.
(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.
(b) Performance Goals. The full and/or partial vesting of any performance
option, restricted stock or deferred stock award or payment of any performance
units award that is intended to qualify in full as deductible by the Corporation
for federal income tax purposes will occur only upon certification by the
Committee of the attainment by the Corporation or applicable division,
subsidiary or business unit of a performance goal or goals established by the
Committee at the time the award is made. These goals shall be based on 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, economic value added, sales, unit volume, margins, cost reduction, market
share, working capital management, and project execution.
(c) 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-based awards may be granted supplemental or pro
rata grants of such stock options or performance-based awards.
(d) Maximum Awards. An employee may be granted multiple long-term 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.
6. Shares on Stock Subject to the Plan.
The number of new shares of Common Stock reserved for issuance under the
Plan is 1,650,000, of which not more than 550,000 shares of Common Stock may be
the subject of awards in any calendar year, together with such shares of Common
Stock that are subject to any award under the 1995 Plan or the MPP that expires
or is otherwise terminated or forfeited without payment by the Corporation with
respect thereto, which shall thereupon become available for awards under the
Plan (as of March 19, 1997, the amount of shares of Common Stock reserved for
issuance in connection with outstanding awards under the 1995 Plan and the MPP
were 927,050 and 1,929,915, respectively). Shares that are subject to any award
under the Plan that expires or is otherwise terminated or forfeited without any
payment of Common Stock to the participant shall again be available for awards
under the Plan. All shares available for awards under the Plan are subject to
adjustment, if appropriate, pursuant to Section 8 hereof.
7. 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.
8. 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.
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 8 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.
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, 2007. No annual incentive awards shall be made under the Plan after March
31, 2008.
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,
and all performance criteria for full exercisability shall be deemed
satisfied.
(ii) The restrictions and deferral limitations applicable to any
restricted stock and deferred stock shall lapse and such shares shall
be deemed fully vested, and all performance criteria for full release
of restriction or issuance shall be deemed satisfied.
(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 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.
11. 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.
(c) Agreements. All long-term awards granted under the Plan shall be
evidenced by agreements, and all annual incentive awards granted under the Plan
shall be evidenced by an annual incentive award program document, in such form
and containing such terms and conditions (not inconsistent with this 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
<PAGE>
PROXY USG CORPORATION PROXY
This proxy is solicited on behalf of the Board of Directors for the
Annual Meeting of Stockholders - May 14, 1997
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 South
LaSalle Street, Chicago, Illinois on May 14, 1997 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.)
<PAGE>
<TABLE>
USG CORPORATION
PLEASE MARK VOTE IN THE OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
<S> <C> <C> <C>
A vote FOR all nominees and FOR items 2 and
3 is recommended.
1. Election of Directors to serve for a three For Withheld For All Except
year term / / / / / /
Nominees: Keith A. Brown, James C. Cotting,
W. Douglas Ford, John B. Schwemm. -----------------
Nominee Exception
2. Approval of Omnibus Management For Against Abstain
Incentive Plan. / / / / / /
3. Ratification of the appointment of Arthur
Andersen LLP as independent accountants for For Against Abstain
the year ending December 31, 1997. / / / / / /
4. In their discretion, on any other matter that
may properly come before the meeting.
Dated: , 1997
----------------------------------
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 and 3.
</TABLE>
