USG Corporation
March 27, 1998
Dear Fellow Stockholder:
You are cordially invited to attend USG Corporation's annual meeting of
stockholders to be held at 9:15 a.m. on Wednesday, May 13, 1998, in the Sixth
Floor Auditorium, The Northern Trust Building, 50 South LaSalle Street, Chicago,
Illinois.
At the meeting, you will have the opportunity to learn more about USG's notable
performance in 1997 and our strategy for continuing profitable growth. The
attached Notice of Annual Meeting and proxy statement describe all known items
to be acted upon by stockholders.
If you wish to attend, please let us know by marking the designated box on the
enclosed proxy card. Whether or not you plan to attend, we ask that you execute
and return the proxy in the envelope provided. If you then attend the meeting,
you may, at your discretion, withdraw your proxy and vote in person. In any
case, please vote. Your participation is important to the Corporation.
As a reminder to those of you who hold USG warrants, all USG warrants will
expire without value at the close of business on May 5, 1998. Accordingly, in
order to realize the value of your warrants, you are urged either to exercise
your warrants for common stock according to the terms printed on the warrant
certificates (or to direct your broker to exercise on your behalf if your
warrants are held in a brokerage account), or to sell your warrants through a
registered broker, in either case, before the warrants expire.
In closing, I hope that you will be able to attend USG's annual meeting, and I
look forward to the chance to report to you on our progress and plans.
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 13, 1998, at 9:15 a.m., Central
Daylight Time, for the following purposes:
1. To elect five directors for a term of three years, pursuant to the
Corporation's by-laws.
2. To consider ratification of the appointment of Arthur Andersen
LLP as independent public accountants for the year ending December 31, 1998.
3. To transact such other business as may properly come before the meeting.
Pursuant to a provision in the Corporation's by-laws, any matter to be
presented at the meeting for consideration and with a view to obtaining a vote
thereon must be introduced by a motion, and any such motion must be seconded
before consideration of it may begin or before a vote on it may be obtained.
The Board of Directors has fixed the close of business on March 25,
1998, 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 29, 1998, and running throughout the course of the meeting.
By order of the Board of Directors
/s/ Dean H. Goossen
-------------------
Dean H. Goossen,
Corporate Secretary
Chicago, March 27, 1998
IMPORTANT -- PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY PROMPTLY IN
THE ENCLOSED ENVELOPE.
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 13,
1998, 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 27, 1998.
The Board of Directors has selected the close of business on March 25,
1998 (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 47,259,287 shares
of Common Stock, and those are the only securities of the Corporation entitled
to vote at the annual meeting or any adjournment thereof. A majority of the
shares entitled to vote at the meeting will constitute a quorum for the
transaction of business.
Each share of Common Stock outstanding on the Record Date is entitled
to one vote on each proposal. The affirmative vote of the holders of a majority
of the stock entitled to vote and present in person or represented by proxy is
required for election of directors and for ratification of the appointment of
independent public accountants. Broker non-votes (i.e., the failure to vote
shares held of record by nominees due to a lack of both discretionary authority
and instructions from the beneficial owners) with respect to any matter are not
considered part of the "voting power present" with respect to such matter and
will not affect the outcome of the vote on such matter. Abstentions are not
treated as votes cast for or against the election of directors or a particular
matter, as the case may be, but they are treated as part of the "voting power
present" with respect to such matter and therefore have the same legal effect as
a vote against such matter.
Any person giving a proxy may revoke it at any time before it has been
voted by (i) giving written notice of revocation to the Corporate Secretary of
the Corporation, (ii) submitting to the Corporation a valid proxy voting the
same shares and having a later date, or (iii) voting by ballot at the annual
meeting.
All proxies received (and not revoked) pursuant to this solicitation
will be voted by the individuals named in the proxy as indicated below, except
as to matters where authority to vote is specifically withheld and except as to
matters on which the person solicited specifies a choice, in which case the
proxy will be voted in accordance with such specification. If no instructions
are given and authority is not withheld, the individuals named in the proxy
solicited by the Board of Directors intend to vote for the nominees for election
as directors named below and for ratification of the appointment of Arthur
Andersen LLP as independent public accountants for the year ending December 31,
1998.
The Northern Trust Company, as trustee of the USG Corporation
Investment Plan, held of record 574,457 shares of Common Stock as of December
31, 1997, or approximately 1.23% 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 25, 1998.
PRINCIPAL STOCKHOLDERS
The following table lists the beneficial ownership of Common Stock as
of December 31, 1997, 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 ("SEC"). <TABLE>
Name and Address Amount of
of Beneficial Owner Beneficial Ownership Percent of Class
------------------- -------------------- ----------------
<CAPTION>
<S> <C> <C>
Neuberger & Berman, LLC (a) ............................... 5,848,404 12.5%
605 Third Avenue
New York, NY 10158
FMR Corp. (b) ............................................. 4,811,300 10.3%
82 Devonshire Street
Boston, MA 02109
Glickenhaus & Co. (c) ........................................ 2,719,538 5.8%
6 East 43rd Street
New York, NY 10017
Capital Growth Management LP (d) ............................... 2,581,000 5.5%
One International Place
Boston, MA 02110
</TABLE>
(a) Neuberger & Berman, LLC reported that it had sole power to vote
1,927,553 shares, shared power to vote 3,382,400 shares, sole power to dispose
of no shares, and shared power to dispose of 5,848,404 shares.
(b) 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 4,734,200
shares, and that Fidelity Magellan Fund, a fund advised by Fidelity, was the
beneficial owner of 2,413,000 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 4,734,200
shares owned by such funds; sole power to vote such shares was held by such
funds' respective boards of trustees; other affiliates of FMR Corp. are the
beneficial owners of an aggregate of 77,100 shares. 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.; the Johnson family group and all other Class B shareholders of FMR Corp.
have entered into a shareholders' voting agreement under which all Class B
shares of FMR Corp. will be voted in accordance with the majority vote of such
Class B shares; accordingly, members of the Johnson family, through their
ownership of voting common stock and the execution of a shareholders' voting
agreement, form a controlling group with respect to FMR Corp.
(c) Glickenhaus & Co., an investment advisor, reported that it was the
beneficial owner of 2,719,538 shares, having sole voting power with respect to
2,024,900 shares and sole dispositive power with respect to 2,719,538 shares.
(d) Capital Growth Management Limited Partnership, an investment advisor,
reported that it was the beneficial owner of 2,581,000 shares, with sole voting
power and shared dispositive power with respect to all such shares; it
subsequently amended its Schedule 13G as of February 28, 1998, to report
beneficial ownership of 2,151,000 shares as of such date, representing 4.6% of
the class, with sole voting power and shared dispositive power with respect to
all such shares.
ITEM NO. 1 - ELECTION OF DIRECTORS
The Board of Directors of the Corporation currently is composed of 13
directors, divided into three classes, two of which currently have four members
each, the other having five members. Each class is elected for a three-year
term. One class will be elected at the annual meeting of stockholders on May 13,
1998. The remaining classes will be elected in 1999 and 2000, respectively.
The five candidates nominated by the Board of Directors for election as
directors at the annual meeting of stockholders on May 13, 1998, are identified
below. 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 either (i) reduce the size of the
Board to eliminate the position for which that person was nominated, or (ii)
nominate a new candidate in place of any such person 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 2001
W.H. CLARK, 65, 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, Fort James
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 and Compensation and Organization
Committees, and is Chairman of its Audit Committee.
LAWRENCE M. CRUTCHER, 55, 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 and Public
Affairs Committees.
WILLIAM C. FOOTE, 47, 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.
P. JACK O'BRYAN, 62, President and Chief Operating Officer (since June
1997); Executive Vice President Operations (October 1996 to May 1997); Senior
Vice President - Worldwide Manufacturing and Technology (September 1994 to
October 1995); Senior Vice President and Chief Technology Officer (January 1993
to August 1994); President and Chief Executive Officer, United States Gypsum
Company (since October 1996), and USG Interiors, Inc. (since October 1995). Mr.
O'Bryan joined the Corporation in 1958. He is a director of A.P. Green
Industries, Inc. Mr. O'Bryan was appointed to a newly created directorship by
the Board of Directors in August 1997.
JUDITH A. SPRIESER, 44, 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, Finance and
Compensation and Organization Committees.
RECOMMENDATIONS OF THE BOARD OF
DIRECTORS The Board of Directors recommends a vote
FOR the election of the nominees listed
Directors Whose Terms Expire in 1999
ROBERT L. BARNETT, 57, 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 Corporation
(1991-1992). He is a director of Johnson Controls, Inc., Central Vermont Public
Service Corporation, and Objective Communications, 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, 66, 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., 69, 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, 56, 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. 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.
Directors Whose Terms Expire in 2000
KEITH A. BROWN, 46, President (since 1987) of Chimera Corporation, a
private management holding company. Mr. Brown is a director of Myers Industries,
Inc. and 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, Finance and Public Affairs Committees and Committee on Directors.
JAMES C. COTTING, 64, 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 Committee on Directors, and is Chairman of its Finance
Committee.
W. DOUGLAS FORD, 54, 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 Compensation and
Organization and Public Affairs Committees and Committee on Directors.
JOHN B. SCHWEMM, 63, 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. Mr. Schwemm
has been a director of the Corporation since May 1988 and is a member of the
Board's Executive, Audit and Compensation and Organization Committees, and is
Chairman of Committee on Directors.
The Board of Directors held six meetings during 1997 and the standing
committees of the Board of Directors held an aggregate of 19 meetings during
that year. Each director other than Messrs. Barnett and Ford attended at least
75% of the aggregate number of meetings in 1997 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 did not meet in
1997. The other standing committees of the Board of Directors are the Audit,
Compensation and Organization, Finance and Public Affairs Committees and the
Committee on Directors.
The Audit Committee has ongoing responsibilities with respect to adequacy of
financial reporting, compliance with corporate policies, and the efficacy of
corporate controls. These responsibilities include providing reasonable
assurance to the Board of Directors that the Corporation's financial disclosure
fairly portrays its financial condition, results of operations, and long-term
plans and commitments and that there has been substantial compliance with
corporate policies applicable to business conduct. The Committee also monitors
the Corporation's system of internal controls for adequacy and implementation.
It selects and employs a firm of certified public accountants (which selection
and employment is subject to ratification by stockholders). It confers with the
auditors regarding the scope of the audit and other services and the cost
thereof and reviews with the auditors the findings disclosed during the audit,
including matters relating to internal controls, the internal auditing function,
accounting policies and financial reporting. The Committee members are W. H.
Clark, Chairman, Robert L. Barnett, Keith A. Brown, Marvin E. Lesser, John B.
Schwemm and Judith A. Sprieser. The Audit Committee held four meetings during
1997.
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, W. H. Clark, W. Douglas Ford, John B. Schwemm and Judith A.
Sprieser. The Compensation and Organization Committee held three meetings during
1997.
The Finance Committee 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, other lenders and creditors, and
stockholders; 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, Keith A. Brown, Lawrence M.
Crutcher, David W. Fox, Marvin E. Lesser and Judith E. Sprieser. The Finance
Committee held six meetings during 1997.
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, Lawrence M. Crutcher and W. Douglas Ford. The Committee held two
meetings in 1997.
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 benefits and compensation of
non-employee directors. The members of the Committee are John B. Schwemm,
Chairman, Keith A. Brown, Robert L. Barnett, James C. Cotting, W. Douglas Ford,
David W. Fox, Philip C. Jackson, Jr., and Marvin E. Lesser. The Committee held
four meetings during 1997.
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 1
of the prior year.
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 1997, and by all current directors and executive officers
of the Corporation as a group (22 persons). Such information is derived from the
filings made with the SEC by such persons under Section 16(a) of the Securities
Exchange Act of 1934, as amended, and subsequent information received by the
Corporation. The totals include any shares which such individuals have the right
to acquire within 60 days of the Record Date through the exercise of stock
options or Warrants, restricted stock subject to risk of forfeiture, and any
shares allocated to the accounts of those individuals through December 31, 1997
under the USG Corporation Investment and Supplemental Retirement Plans.
<TABLE>
Shares Beneficially Option Shares Total and
Owned, Excluding Exercisable Percent of
Name Options (a) Within 60 Days Class (d)
---- ----------- -------------- ---------
<CAPTION>
<S> <C> <C> <C>
Robert L. Barnett ............... 3,110 0 3,110
Keith A. Brown................... 137,530 (b) 0 137,530
W. H. Clark...................... 4,718 0 4,718
James C. Cotting................. 2,488 0 2,488
Lawrence M. Crutcher . . . ...... 9,816 (c) 0 9,816
Richard H. Fleming............... 39,063 103,000 142,063
William C. Foote................. 70,267 135,000 205,267
W. Douglas Ford.................. 645 0 645
David W. Fox..................... 4,762 0 4,762
Philip C. Jackson, Jr............ 4,475 0 4,475
Arthur G. Leisten................ 17,897 73,000 90,897
Marvin E. Lesser................. 2,315 0 2,315
P. Jack O'Bryan.................. 31,328 65,000 96,328
Harold E. Pendexter, Jr.......... 25,771 78,000 103,771
John B. Schwemm.................. 3,147 0 3,147
Judith A. Sprieser ............. 1,709 0 1,709
All directors and executive
officers as a group (22 persons),
including those directors and
executives named above........... 403,069 602,300 1,005,369
</TABLE>
(a) Includes restricted stock grants to executive officers subject to risk of
forfeiture, as follows: Mr. Fleming, 29,000 shares; Mr. Foote, 45,000 shares;
Mr. Leisten, 17,000 shares; Mr. O'Bryan, 27,000 shares; Mr. Pendexter, 17,000
shares; all executive officers as a group: 135,000 shares.
(b) Includes 135,715 shares held by trusts of which Mr. Brown is a trustee.
(c) Includes 5,990 shares held by Mr. Crutcher as trustee for the benefit of his
adult children in which shares he disclaims beneficial ownership.
(d) Total beneficial ownership of 1,005,369 shares of Common Stock by members of
the group identified above represents approximately 2.1% of total outstanding
shares of Common Stock; no individual holding within such group exceeded
approximately 0.4% of total outstanding shares.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Corporation's executive officers, directors and 10% owners file reports of
ownership and changes of ownership of Common Stock and Warrants with the SEC and
the New York Stock Exchange. Based on a review of copies of such reports
provided to the Corporation during 1997, the Corporation believes that all
filing requirements were met during such year, except for one filing each by
Messrs. Fox and Pendexter which were made later in the month when due following
absences from their respective offices.
<PAGE>
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
------------------- ----------------------------
Other
Annual Restricted All Other
Compen- Stock Options/ LTIP Compen-
Name and Salary Bonus sation Awards SARs Payouts sation
Principal Position Year ($) ($)(b) ($)(c) ($)(d) (#) ($) ($)(e)
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
William C. Foote 1997 $562,500 $598,280 $79,627 $498,750 35,000 - $68,958
(Chairman and 1996 500,000 477,593 59,236 440,625 35,000 - 42,881
CEO) 1995 373,333 285,380 - - - - 35,253
P. Jack O'Bryan 1997 435,417 335,300 - 332,500 22,000 - 43,566
(President and Chief 1996 363,335 221,708 - 205,625 15,000 - 29,754
Operating Officer; 1995 310,000 181,609 - - - - 25,500
President and CEO,
United States Gypsum
Company and USG
Interiors, Inc.) (a)
Harold E. Pendexter, Jr. 1997 326,333 238,440 - 166,250 13,000 - 33,334
(Senior Vice President 1996 318,000 176,456 - 146,875 13,000 - 27,101
and Chief 1995 306,000 178,356 - - - - 24,592
Administrative
Officer)
Arthur G. Leisten 1997 316,333 243,890 - 166,250 13,000 - 32,671
(Senior Vice President 1996 308,000 176,456 - 146,875 13,000 - 26,555
and General Counsel) 1995 292,420 178,356 - - - - 24,592
Richard H. Fleming 1997 295,000 208,410 - 232,750 15,000 - 31,256
(Senior Vice President 1996 270,000 176,456 - 205,625 13,000 - 24,480
and Chief Financial 1995 253,333 178,356 - - - - 20,794
Officer)
</TABLE>
(a) Mr. O'Bryan became President and Chief Operating Officer on June 1, 1997.
(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. Foote's Other Annual Compensation for 1997 and 1996 included $14,400 and
$14,400, respectively, in automobile allowance and $28,568 and $15,457 in estate
planning reimbursement, respectively; 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 1997, 1996, or 1995.
(d) Indicated amounts arise from performance-based restricted stock awards on
January 2, 1997, and January 2, 1996, respectively. The aggregate restricted
stock holdings of each of the Named Executives as of December 31, 1997, and the
value of such holdings on such date, are as follows: Mr. Foote, 30,000 shares,
$1,470,000; Mr. O'Bryan, 17,000 shares, $833,000; Mr. Pendexter, 10,000 shares,
$490,000; Mr. Leisten, 10,000 shares, $490,000; and Mr. Fleming, 12,000 shares,
$588,000. Such restricted stock is eligible for any dividend paid on shares of
the Corporation's common stock. In addition to such restrictive stock awards,
the Named Executives were granted the nonqualified stock options described in
the chart below titled "Option/SAR Grants in Last Fiscal Year" on January 2,
1997.
(e) All Other Compensation for the Named Executives for each year consisted
solely of matching contributions from the Corporation to defined contribution
plans.
<PAGE>
<TABLE>
Option/SAR Grants In Last Fiscal Year (a)
Potential
Realizable Value
At Assumed
Annual Rates
Individual Grants of Stock Price
----------------- Appreciation
Securities % of Total For Option
Underlying Options/SARs Term(c)
Options/SARs Granted To Exercise
Granted Employees Price Expiration 5% 10%
(#)(b) In 1997 ($/SH) Date ($) ($)
---------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
William C. Foote................ 35,000 9.27 34.60 1/2/07 761,591 1,929,786
P. Jack O'Bryan................. 22,000 5.83 34.60 1/2/07 475,612 1,257,080
Harold E. Pendexter, Jr......... 13,000 3.44 34.60 1/2/07 282,877 716,865
Arthur G. Leisten............... 13,000 3.44 34.60 1/2/07 282,877 716,865
Richard H. Fleming ............. 15,000 3.97 34.60 1/2/07 326,396 827,152
</TABLE>
(a) No SARs were granted in 1997, 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, 1997, 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.
<TABLE>
Aggregated Option/SAR Exercises In Last Fiscal Year And Fiscal Year-End Option/SAR Values (a)
Number of Number of Securities
Shares Underlying Value of Unexercised
Underlying Unexercised Options/SARs In-the-Money Options/SARs
Options At Fiscal Year-End At Fiscal Year-End
-------------------------------------------------------------------------------------
Value
Exercised Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) (#)
---- --- --- --- --- --- ---
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
William C. Foote 40,000 1,363,750 100,000 70,000 3,023,438 1,190,000
P. Jack O'Bryan 20,000 533,750 70,000 37,000 2,708,125 610,800
Harold E. Pendexter, Jr. 15,000 485,313 75,000 26,000 2,901,563 442,000
Arthur G. Leisten 40,000 1,248,750 60,000 26,000 2,321,250 442,000
Richard H. Fleming 0 0 100,000 28,000 3,192,500 470,800
</TABLE>
(a) No SARs were outstanding as of December 31, 1997.
Employment Agreements
In order to assure continued availability of services of the Named
Executives, 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 full attention and best efforts during the term of such
agreement to the performance of assigned duties. A Named Executive discharged
without cause by the Corporation during the term of an Employment Agreement 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 an Employment Agreement, 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 an Employment Agreement, one-half of the full rate of
compensation in effect at the time of death will be paid to the Named
Executive's beneficiary for the remainder of the unexpired term of the
Employment Agreement.
Each such Named Executive has undertaken, during the term of such
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 personal benefit or the benefit of others or disclose to others
any of the Corporation's confidential information except as required by the
performance of duties under an Employment Agreement.
Termination Compensation Agreements
The Corporation is a party to termination compensation agreements with the
Named Executives which have a current term expiring on December 31, 1999, 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 retirement or 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 or her 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) the then annual base salary,
computed at 12 times the then current monthly pay and (ii) the 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 termination in a manner which would
give rise to benefits under the agreements, 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. A Named Executive
with a total of less than five years of credited service following such
crediting will nonetheless will be treated as if fully vested under that Plan,
but with benefits calculated solely on the basis of such total benefit service.
The Corporation is obligated to reimburse all legal fees and expenses
incurred by a Named Executive as a result of a termination which gives rise to
benefits under an 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.
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
Years of Benefit Service
---------------------------------------------------------------------------
Covered Compensation 20 25 30 35 40
--------------------- -- -- -- -- --
<CAPTION>
<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, 1997 were as
follows: Mr. Foote, 14; Mr. O'Bryan, 39; Mr. Pendexter, 40; Mr. Leisten, 22; and
Mr. Fleming, 24. 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, were paid in 1997 in cash. Commencing in 1998,
directors will have the opportunity to defer cash retainers and fees into
deferred stock units which will increase or decrease in value in direct relation
to shares of Common Stock and be paid in cash upon termination of Board service
("Deferred Stock Units"). 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. Commencing in 1998,
non-employee directors will receive annual grants of 500 shares of common stock
(prorated in the event of less than one year's service) on July 1 each year.
Directors may elect to defer such annual grants into Deferred Stock Units. 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 termination 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.
There is currently one such agreement with a term expiring in August 1998. In
1997, the Board determined to discontinue to offer such agreements in the future
in return for the one-time payment to current non-employee directors of an
amount taking into account years of service and the estimated present value of
projected payments under such agreements.
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. Compensation levels are increased when
established performance goals are exceeded and reduced when established
targets are not achieved.
3. The programs provide overall compensation opportunities that are at
competitive levels with comparably sized industrial companies.
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 1997, 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 120 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 $2.87
billion for the year ended December 31, 1997. The Committee also reviewed
annualized option grant values of a peer group of over 305 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 Omnibus Management Incentive Plan approved
by the stockholders in 1997. Approximately 255 officers and managers with
position values above a specified threshold were eligible to participate in the
program in 1997. 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 1997 were based upon an
income goal and the attainment of strategic focus objectives derived from the
formal planning process. Actual income goal achievement may result in an upward
or downward adjustment to the portion of the award based on goal income. A third
step in the award calculation provides for an adjustment, either upward or
downward, for personal performance (except in the case of the 18 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 1997 resulted in awards averaging 148% of target
to the Named Executives.
Long-Term Equity Program
Non-qualified stock options for 377,550 shares were granted in 1997 to 70
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 20 most senior executives and managers received a portion approximating
30% of their 1997 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 shareholder 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 1997 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,
resulting in no limitation on the deductibility of annual covered compensation
for 1997. 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 1997 Compensation
In 1997, the compensation for William C. Foote consisted principally of (i)
salary of $562,500; (ii) a 1997 annual incentive cash award of $598,280; 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 of 15,000 shares of Common Stock.
Base Salary
Mr. Foote's base salary as of March 1, 1997, was approved by the Committee
in February, 1997. The Committee set Mr. Foote's base salary at an annual rate
of $575,000, an increase of $75,000 over the base salary effective on January 1,
1996, the date Mr. Foote assumed the position of Chief Executive Officer.
Following such increase, Mr. Foote's base salary ranked in the 32nd percentile
of the survey group. 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 1996,
and Mr. Foote's tenure as Chief Executive Officer and his individual
performance, including execution of the Corporation's principal executive
assignment and leadership in development of strategic plans, debt reduction and
legal affairs.
Annual Management Incentive Plan
Mr. Foote's 1997 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 1997 annual
incentive opportunity (target) was expressed as 65%, or $455,000, of the
internal market rate for his position ($700,000) determined as discussed above.
The corporate goal achievement for 1997 described earlier in this report
resulted in an award of 131%, or $598,200, of target to Mr. Foote.
Long-Term Compensation
Mr. Foote's long-term compensation in 1997 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 1997 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 1997, the Named Executives received approximately 40.5% of their
compensation from corporate performance-based variable elements. The Committee
intends to continue the policy of linking executive compensation to corporate
performance and to monitor the effectiveness of the program, and the Committee
will institute changes as it deems appropriate to promote policy goals.
This report is submitted by the members of the Compensation and Organization
Committee:
DAVID W. FOX, CHAIRMAN
ROBERT L. BARNETT
W. H. CLARK
W. DOUGLAS FORD
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, 1993 through May 6, 1993, the
effective date of the Corporation's "prepackaged" plan of reorganization under
the federal bankruptcy laws (the "Prepackaged Plan"), and May 7, 1993 through
December 31, 1997. 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 Index").
[GRAPHIC OMITTED] <TABLE>
[GRAPHIC OMITTED] Dec. 31, May 6, May 7, Dec. 31, Dec.31, Dec. 31, Dec. 31, Dec. 31,
1992 1993 1993 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
USG Corporation $100 $17 $100 $244 $163 $250 $282 $406
S&P 500 100 110 100 107 109 149 184 245
Building Materials 100 131 100 112 97 131 152 159
Group
</TABLE>
All amounts rounded to nearest dollar.
The Building Materials Group is comprised of the following 21 publicly
traded companies in the building materials industry for all periods reflected in
the performance graph except as noted: 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.,
Johns- Manville Corp., Justin Industries, Masco Corp., Morgan Products, Ltd.,
Morrison Knudsen Corp. (from mid-1996; prior periods reflect returns of merger
partner Washington Construction Group, Inc.), Owens-Corning, Perini Corp.,
Ply-Gem Industries (through 1996), PPG Industries, Inc., Thomas Industries,
Inc., and TJ International, Inc.
ITEM NO. 2--RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Arthur Andersen LLP, Chicago, Illinois, has examined the
financial statements of the Corporation for many years. The following resolution
will be presented at the meeting to ratify the appointment by the Audit
Committee of the firm of Arthur Andersen LLP, as independent public accountants,
to examine the financial statements of the Corporation for the current year
ending December 31, 1998, 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, 1998, 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, or 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 $8,000 plus reimbursement of normal
expenses. The Corporation also will reimburse upon request all brokers and other
persons holding shares for the benefit of others for their reasonable expenses
in forwarding proxies and accompanying material to the beneficial owners of such
shares and in obtaining authorization from such beneficial owners to give
proxies.
The Board of Directors does not know of any matter that will be presented
for action at the annual meeting other than the matters identified in this proxy
statement. If any other matter is presented for such action, the individuals
named in the proxy solicited by the Board of Directors intend to vote on it on
behalf of the stockholders they represent in accordance with their best
judgment.
DEADLINE FOR STOCKHOLDER PROPOSALS
Stockholder proposals and nominations for directors intended for inclusion
in the Corporation's proxy statement relating to the next annual meeting in May
1999 must be received not later than December 1, 1998. Any such proposal must
comply with Rule 14a-8 of Regulation 14A of the proxy rules of the Securities
and Exchange Commission. Under the Corporation's By-laws, proposals of
stockholders not intended for inclusion in the proxy statement, but intended to
be raised at the Corporation's May 1999 annual meeting, including nominations
for election as directors of persons other than nominees of the Board of
Directors, must be received not later than March 15, 1999, and must comply with
the procedures outlined in the Corporation's By-laws, a copy of which is
available upon request from the Corporate Secretary, 125 South Franklin Street,
Chicago, Illinois 60606-4678.
By order of the Board of Directors
/s/Dean H. Goossen,
-------------------
Dean H. Goossen,
Corporate Secretary
Dated: March 27, 1998
PROXY PROXY
USG CORPORATION
This proxy is solicited on behalf of the Board of Directors for the
Annual Meeting of Stockholders - May 13, 1998
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 13, 1998 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.)
<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 1 and
2 is recommended.
1. Election of Directors to serve for a three For Withheld For All Except
year term / / / / / /
Nominees: W.H. Clark, Lawrence M. Crutcher,
William C. Foote, P. Jack O'Bryan, Judith A. Sprieser -----------------
Nominee Exception
2. Ratification of the appointment of Arthur
Andersen LLP as independent accountants for For Against Abstain
the year ending December 31, 1998. / / / / / /
3. In their discretion, on any other matter that may properly come before the
meeting.
Dated: _____________________, 1998
- ----------------------------------
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 item 2.
</TABLE>
