<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
USG CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
[COMPANY NAME]
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
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<PAGE> 2
-------------------------------------------
USG CORPORATION
[USG LOGO] -------------------------------------------
125 South Franklin Street
-------------------------------------------
Chicago, IL 60606-4678
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312 606-4000
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April , 2000
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 10, 2000, 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 1999 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.
It is important that your shares are represented at the Annual Meeting
whether or not you plan to attend. To ensure that you will be represented, we
ask you to sign, date and return the enclosed proxy card or proxy voting
instruction form as soon as possible. If your bank or broker offers telephone or
Internet voting and you choose to use one of those forms of voting, it is not
necessary for you to return your proxy card. In any event, please vote as soon
as possible. If you then attend the meeting, you may, in your discretion,
withdraw your proxy and vote in person.
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> 3
125 South Franklin Street USG CORPORATION Chicago, IL 60606-4678
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
The annual meeting of stockholders of USG Corporation will be held in the
Sixth Floor Auditorium, The Northern Trust Building, 50 South LaSalle Street,
Chicago, Illinois, on Wednesday, May 10, 2000, 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 an amendment of the Corporation's Omnibus Management
Incentive Plan adding 2,400,000 shares of the Corporation's common
stock for awards under the Plan through 2003.
3. To consider ratification of the appointment of Arthur Andersen LLP as
independent public accountants for the year ending December 31, 2000.
4. To consider a stockholder proposal relating to the Corporation's
stockholder rights plan, if such proposal is presented at the
meeting.
5. To transact such other business as may properly come before the
meeting.
Pursuant to 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 have
satisfied the procedural and legal requirements referred to in the accompanying
proxy statement and must be introduced by a motion, which 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 15, 2000,
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 26, 2000, 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, April , 2000
IMPORTANT -- PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY PROMPTLY IN
THE ENCLOSED ENVELOPE.
<PAGE> 4
PROXY STATEMENT AND PROXY
This proxy statement has been prepared by the management of USG Corporation
(the "Corporation"). It is being furnished to stockholders in connection with
the solicitation of proxies by the Board of Directors for use at the annual
meeting of stockholders of the Corporation to be held on May 10, 2000, and any
adjournment thereof. The notice of the meeting accompanies this proxy statement.
The Corporation intends to commence distribution of this proxy statement
together with notice, proxy, and other accompanying materials, on or about April
7, 2000.
The Board of Directors has selected the close of business on March 15, 2000
(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 47,831,313 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. In the election of directors, each stockholder has
the right to vote the number of shares owned by such stockholder for as many
persons as there are directors to be elected. 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, for approval of an
amendment to the Omnibus Management Incentive Plan, and for ratification of the
appointment of independent public accountants. The affirmative vote of not less
than 80% of the voting power of the Corporation's outstanding stock is required
for approval of the stockholder proposal described below. 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 an amendment to the Corporation's
Omnibus Management Incentive Plan adding 2,400,000 shares of Common Stock for
awards through 2003, FOR ratification of the appointment of Arthur Andersen LLP
as independent public accountants for
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<PAGE> 5
the year ending December 31, 2000, and AGAINST the stockholder proposal relating
to the Corporation's stockholder rights plan.
The Northern Trust Company, as trustee of the USG Corporation Investment
Plan, held of record 887,526 shares of Common Stock as of December 31, 1999, or
approximately 1.8% 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 15, 2000.
PRINCIPAL STOCKHOLDERS
The following table lists the beneficial ownership of Common Stock as of
December 31, 1999, (except as indicated otherwise below), 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 13D or 13G filed with the
Securities and Exchange Commission ("SEC").
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------- -------------------- ----------------
<S> <C> <C>
John R. Simplot
Self-Declaration of Revocable Trust
(a).................................... 6,204,100 12.7%
999 Main Street Boise, ID 83702
Harris Associates L.P. (b)............. 3,977,420 8.1%
Two North LaSalle Street Chicago, IL
60602
Barclays Global Investors, N.A. (c).... 3,270,612 6.7%
45 Fremont Street San Francisco, CA
94105
FMR Corp. (d).......................... 2,948,360 6.0%
82 Devonshire Street Boston, MA 02109
</TABLE>
- ---------------
(a) The John R. Simplot Self-Declaration of Revocable Trust reported on
Amendment No. 5 to a Schedule 13D that as of December 29, 1999, it was the
beneficial owner of 6,104,100 shares. As trustee of the Trust, Mr. Simplot
has sole voting and dispositive power with respect to 6,104,100 shares owned
by the Trust and shared voting and dispositive power with his son, Don J.
Simplot, with respect to 100,000 shares held by the J.R. Simplot Foundation,
in which the Messrs. Simplot disclaim any beneficial interest. The filing
also indicates that Mr. Don J. Simplot beneficially owns 113,900 shares in
an account controlled solely by him.
(b) Harris Associates L.P., an investment advisor, reported that it, together
with Harris Associates Inc., its general partner, was the beneficial owner
of 3,977,420 shares, having shared voting power
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<PAGE> 6
with respect to all such shares, sole dispositive power with respect to
492,520 shares and shared dispositive power with respect to 3,484,900
shares.
(c) Barclays Global Investors, N.A., a national banking association, reported in
an initial Schedule 13G filing that as of February 10, 2000, it and
affiliated banks held 3,270,612 shares in trust accounts for the economic
benefit of the beneficiaries of those accounts, with sole volting power with
respect to 2,909,645 such shares and sole dispositive power with respect to
all such shares.
(d) 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 2,948,360 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 2,948,360 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, his daughter and 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 such shareholders'
voting agreement, form a controlling group with respect to FMR Corp.
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 of four directors will be elected at the annual meeting of
stockholders on May 10, 2000. The remaining classes will be elected in 2001 and
2002, respectively.
The four candidates nominated by the Board of Directors for election as
directors at the annual meeting of stockholders on May 10, 2000, are identified
below. If any nominee identified below should for any reason become unavailable
prior to the meeting, which the Board of Directors does not anticipate, the
Board of Directors prior to the 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 retire from Board
service 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.
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<PAGE> 7
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR A THREE-YEAR TERM TO EXPIRE IN 2003
KEITH A. BROWN, 48, President (since 1987) of Chimera Corporation, a
private management holding company. He 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 is a member of the Board's
Audit, Finance and Corporate Affairs Committees.
JAMES C. COTTING, 66, 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 member of the
Board of Governors of the Chicago Stock Exchange. Mr. Cotting has been a
director of the Corporation since 1987, is a member of the Board's Executive and
Corporate Affairs Committees and chairs its Finance Committee.
W. DOUGLAS FORD, 56, Chief Executive, Refining & Marketing, of BP Amoco
p.l.c. (since 1999); and Executive Vice President of BP Amoco p.l.c. and its
predecessor, Amoco Corporation (1993 -1999). He is also a managing director of
BP Amoco p.l.c. Mr. Ford was elected a director of the Corporation in November
1996, and is a member of the Board's Executive, Compensation and Organization
and Corporate Affairs Committees.
JOHN B. SCHWEMM, 65, retired Chairman (1983-1989) and Chief Executive
Officer (1983-1988) of R.R. Donnelley & Sons Company, commercial and financial
printing. He is a director of Walgreen Co. and William Blair Mutual Funds and is
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.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES LISTED
ABOVE.
ADVANCE NOTICE OF STOCKHOLDER NOMINEES
Hakatak Enterprises, Inc., which claims to be the beneficial owner of more
than 500,000 shares of Common Stock, has notified the Corporation of its
intention to nominate three individuals in opposition to three of the nominees
of your Board of Directors. According to information provided by Hakatak, for
which the Corporation disclaims any responsibility, these individuals are: Jay
Buchbinder, 67, CEO of JBI, Inc., 2650 El Presidio, Long Beach, CA 90810;
Herbert Denton, 52, President of Providence Capital, Inc., 730 Fifth Avenue,
Suite 2102, New York, NY 10019; and Keith Ogata, 45, President of 3K Financial
Corp., 1056 Ikena Circle, Honolulu, HI 96821. At the date of this proxy
statement, Hakatak has not indicated whether it intends to solicit proxies from
stockholders for the election of its proposed nominees. See also "Item No.
4-Stockholder Proposal".
DIRECTORS WHOSE TERMS EXPIRE IN 2001
W.H. CLARK, 67, retired Chairman of the Board (1984-1994), Chief Executive
Officer (1982-1994) and President (1982-1990) of Nalco Chemical Company of
Naperville, Illinois, specialized
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<PAGE> 8
chemicals and technology. He is a director of Bethlehem Steel Corporation,
Ultramar Diamond Shamrock Corporation, Fort James Corporation, Merrill Lynch
Corporation, and Millennium Chemicals, Inc. 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 chairs its Committee on Directors.
LAWRENCE M. CRUTCHER, 57, Managing Director (since 1990) of Veronis Suhler,
investment bankers. Mr. Crutcher has been a director of the Corporation since
May 1993, and is a member of the Board's Finance and Corporate Affairs
Committees and Committee on Directors.
WILLIAM C. FOOTE, 49, Chairman (since April 1996), President (since August
1999) and Chief Executive Officer (since January 1996); President and Chief
Operating Officer (January 1994-December 1995); President (January 1996-June
1997). He joined the Corporation in January 1984. Mr. Foote is a director of
GATX Corporation and Walgreen Co. He also serves as a director of Northwestern
Memorial Hospital and as a trustee of the Museum of Science and Industry. He has
been a director of the Corporation since March 1994, and chairs the Board's
Executive Committee.
P. JACK O'BRYAN, 64, Vice Chairman (since August 1999); President and Chief
Operating Officer (from June 1997 to August 1999); Executive Vice President
Operations (October 1996 to May 1997); Senior Vice President, Worldwide
Manufacturing and Technology (September 1994 to October 1995); President and
Chief Executive Officer, United States Gypsum Company (October 1996 to February
1999), and USG Interiors, Inc. (October 1995 to February 1999). Mr. O'Bryan
joined the Corporation in 1958. He is a director of the National Association of
Manufacturers. Mr. O'Bryan has been a director since August 1997.
JUDITH A. SPRIESER, 46, Executive Vice President of Sara Lee Corporation,
packaged food and consumer products. Ms. Sprieser has been with Sara Lee
Corporation since 1987 and served as Executive Vice President and Chief
Financial Officer (1998-1999), and as Senior Vice President and Chief Financial
Officer (1994-1998). She also is a director of Sara Lee Corporation, The Chicago
Network, and Allstate Insurance Company. Ms. Sprieser has been a director of the
Corporation since February 1994, and is a member of the Board's Compensation and
Organization and Finance Committees and its Committee on Directors, and chairs
its Audit Committee.
DIRECTORS WHOSE TERMS EXPIRE IN 2002
ROBERT L. BARNETT, 59, President, Commercial Governmental and Industrial
Solutions Sector, Motorola Corporation (since July 1998); President, Land Mobile
Products Sector, Motorola Corporation (1997-1998); Vice President and General
Manager, iDEN Group, Motorola Corporation (1995-1997). He is a director of
Johnson Controls, Inc. and Central Vermont Public Service Corporation, 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, is a member of
the Board's Audit Committee and Committee on Directors, and chairs its Corporate
Affairs Committee.
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<PAGE> 9
DAVID W. FOX, 68, retired 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 its Committee on Directors, and chairs its
Compensation and Organization Committee.
VALERIE B. JARRETT, 43, Executive Vice President (since 1995) of The
Habitat Company, a private real estate development firm. Ms. Jarrett was the
Commissioner, Department of Planning and Development, of the City of Chicago
(1992-1995), and is the Chair of the Board of Directors of the Chicago Transit
Authority and a director of the Regional Transportation Authority (Illinois).
She is a director of The Chicago Network, the Metropolitan Planning Council, The
German Marshall Fund, The University of Chicago Laboratory Schools, the
Southeast Chicago Commission, The Fund for Community Redevelopment and
Revitalization, and HT Insight Funds, Inc. Ms. Jarrett is a Trustee of the
Museum of Science and Industry, University of Chicago Hospitals, Windows to the
World Communications, Inc., and Harris Insight Funds. She is also a member of
the Visiting Committee of the University of Chicago School of Public Policy. Ms.
Jarrett has been a director of the Corporation since August 1998, and is a
member of the Board's Compensation and Organization and Corporate Affairs
Committees and its Committee on Directors.
MARVIN E. LESSER, 58, Managing Partner (since 1993) of Sigma Partners,
L.P., a private investment partnership. Mr. Lesser has also been a private
consultant since 1992. Mr. Lesser is a Trustee 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 its Committee on Directors.
The Board of Directors held six meetings during 1999, and the standing
committees of the Board of Directors held an aggregate of 17 meetings during the
year. Each director attended at least 75% of the aggregate number of meetings in
1999 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, Ford, Fox 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 but
acted once by unanimous written consent in 1999. The other standing committees
of the Board of Directors are the Audit, Compensation and Organization, Finance
and Corporate 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
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<PAGE> 10
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 Judith A. Sprieser, Chair, Robert L. Barnett, Keith A.
Brown, W.H. Clark, Marvin E. Lesser, and John B. Schwemm. The Audit Committee
held four meetings during 1999.
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, Chair, W. H.
Clark, W. Douglas Ford, Valerie B. Jarrett, John B. Schwemm and Judith A.
Sprieser. The Compensation and Organization Committee held three meetings during
1999.
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, Chair, Keith A. Brown, Lawrence M.
Crutcher, David W. Fox, Marvin E. Lesser and Judith A. Sprieser. The Finance
Committee held six meetings during 1999.
The Corporate Affairs Committee reviews and recommends policies and
programs important to the Corporation's position with those various
constituencies 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 Robert L. Barnett, Chair, Keith A.
Brown, James C. Cotting, Lawrence M. Crutcher, W. Douglas Ford and Valerie B.
Jarrett. The Committee held two meetings in 1999.
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<PAGE> 11
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 W.H. Clark, Chair,
Robert L. Barnett, Lawrence M. Crutcher, David W. Fox, Valerie B. Jarrett,
Marvin E. Lesser, and Judith A. Sprieser. The Committee held two meetings during
1999.
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.
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<PAGE> 12
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 1999, and by all current directors and executive officers
of the Corporation as a group (30 persons). Such information is derived from the
filings made with the SEC by such persons under Section 16(a) of the Securities
Exchange Act of 1934, as amended, and subsequent information received by the
Corporation. The totals include any shares that such individuals have the right
to acquire within 60 days of the Record Date through the exercise of stock
options, restricted stock subject to risk of forfeiture, and any shares
allocated to the accounts of those individuals through December 31, 1999, under
the USG Corporation Investment and Supplemental Retirement Plans.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OPTION SHARES TOTAL AND
OWNED, EXCLUDING EXERCISABLE PERCENT OF
NAME OPTIONS(A)(B) WITHIN 60 DAYS CLASS(F)
---- ------------------- -------------- ----------
<S> <C> <C> <C>
Robert L. Barnett............................ 4,380 -- 4,380
Keith A. Brown(c)............................ 138,800 -- 138,800
W. H. Clark.................................. 5,988 -- 5,988
James C. Cotting............................. 2,758 -- 2,758
Lawrence M. Crutcher(d)...................... 11,086 -- 11,086
Richard H. Fleming........................... 65,497 118,000 183,497
William C. Foote(e).......................... 127,928 155,000 282,928
W. Douglas Ford.............................. 1,915 -- 1,915
David W. Fox................................. 6,032 -- 6,032
Valerie B. Jarrett........................... 1,350 -- 1,350
Arthur G. Leisten............................ 35,491 41,000 76,491
Marvin E. Lesser............................. 4,348 -- 4,348
P. Jack O'Bryan.............................. 92,283 82,000 174,283
Harold E. Pendexter, Jr.(g).................. 40,585 86,000 126,585
John B. Schwemm.............................. 4,417 -- 4,417
Judith A. Sprieser........................... 2,979 -- 2,979
All directors and executive officers as a
group (30 persons), including those directors
and executives named above................... 876,946 829,500 1,706,371
</TABLE>
- ---------------
(a) Includes restricted stock grants to executive officers subject to risk of
forfeiture, as follows: Mr. Fleming, 41,000 shares; Mr. Foote, 75,000
shares; Mr. Leisten, 29,000 shares; Mr. O'Bryan, 50,000 shares; Mr.
Pendexter, 19,000 shares; all executive officers as a group: 451,000 shares.
(b) Includes deferred stock units under the Stock Compensation Program for
Non-Employee Directors, as follows: Mr. Cotting, 1,012 units; Ms. Jarrett,
1,280 units, and Mr. Lesser, 1,901 units. See "Director Compensation" below.
(c) Includes 135,715 shares held by trusts of which Mr. Brown is a trustee.
10
<PAGE> 13
(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) Includes 5,000 shares held by Mr. Foote's spouse, Kari H. Foote, in which
shares he disclaims beneficial ownership.
(f) Total beneficial ownership of 1,706,371 shares of Common Stock by members of
the group identified above represents approximately 3.5% of total
outstanding shares of Common Stock; no individual holding within such group
exceeded approximately 0.6% of total outstanding shares.
(g) Mr. Pendexter retired effective January 1, 2000.
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 with the SEC and the New York
Stock Exchange. Based on a review of copies of such reports provided to the
Corporation during 1999, the Corporation believes that all filing requirements
were met during such year.
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 1999 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.
11
<PAGE> 14
SUMMARY COMPENSATION TABLE
The following table summarizes for the years indicated the compensation
awarded to, earned by or paid to the Named Executives for services rendered in
all capacities to the Corporation and its subsidiaries.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------- --------------------- -------------------
OTHER
ANNUAL RESTRICTED ALL OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
NAME AND SALARY BONUS SATION AWARDS SARS PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($)(A) ($)(B) ($)(C) (#) ($) ($)(D)
- --------------------------- ---- -------- -------- ------- ---------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William C. Foote 1999 712,500 779,774 60,628 1,541,250 20,000 -- 98,722
Chairman, President 1998 637,500 524,615 50,997 726,300 35,000 -- 75,259
and CEO (e) 1997 562,500 598,280 79,627 498,750 35,000 -- 68,958
P. Jack O'Bryan 1999 496,667 460,950 52,603 1,027,500 10,000 -- 66,133
Vice Chairman (e) 1998 475,000 332,064 53,012 484,200 25,000 -- 49,347
1997 435,417 335,300 -- 332,500 22,000 -- 43,566
Harold E. Pendexter, Jr. 1999 362,500 280,411 52,861 616,500 8,000 -- 49,049
Senior Vice President 1998 346,333 233,275 55,718 338,940 15,000 -- 35,613
and Chief Administrative 1997 326,333 238,440 -- 166,250 13,000 -- 33,334
Officer (retired
Jan. 1, 2000)
Arthur G. Leisten 1999 342,500 265,046 -- 616,500 8,000 -- 44,489
Senior Vice President 1998 328,000 214,995 -- 338,940 15,000 -- 34,828
and General Counsel 1997 316,333 243,890 -- 166,250 13,000 -- 32,671
Richard H. Fleming 1999 340,833 265,046 -- 616,500 8,000 -- 43,835
Executive Vice President 1998 316,667 208,480 -- 884,565 15,000 -- 32,525
and Chief Financial 1997 295,000 208,410 -- 232,750 15,000 -- 31,256
Officer
</TABLE>
- ---------------
(a) Reflects payments arising from cash award opportunities under the
Corporation's Annual Management Incentive Program. The amounts shown are
taken into account for purposes of computing benefits under the
Corporation's retirement plans.
(b) Mr. Foote's Other Annual Compensation included $14,400 in automobile
allowance in each of the years 1997 and 1998 and $28,568 in estate planning
reimbursement in 1997, respectively; Mr. O'Bryan's Other Annual Compensation
included $13,904 in club dues in 1999 and $14,400 in automobile allowance in
1998, respectively; Mr. Pendexter's Other Annual Compensation included
$17,923 and $14,684 in Executive Death Benefit Plan and Accidental Death and
Dismemberment coverage for 1999 and 1998, respectively, and $13,464 and
$14,400 in automobile allowance in 1999 and 1998, 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 1999, 1998 or
1997.
(c) Indicated amounts arise from performance-based restricted stock awards on
January 2, 1999, January 2, 1998, and January 2, 1997, respectively, and the
grant of a time-vested restricted stock award of 10,000 shares to Mr.
Fleming on February 11, 1998. The aggregate restricted stock
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<PAGE> 15
holdings of each of the Named Executives as of December 31, 1999, and the
value of such holdings on such date, are as follows: Mr. Foote, 60,000
shares, $2,827,500; Mr. O'Bryan, 40,000 shares, $1,885,000; Mr. Pendexter,
24,000 shares, $1,131,000; Mr. Leisten, 24,000 shares, $1,131,000; and Mr.
Fleming, 36,000 shares, $1,696,500. Such restricted stock is eligible for
any dividend paid on shares of the Corporation's common stock. In addition
to such restrictive stock awards, the Named Executives were granted the
nonqualified stock options described in the chart below titled "Option/ SAR
Grants in Last Fiscal Year" on January 2, 1999.
(d) All other Compensation for the Named Executives for each year consisted
solely of matching contributions from the Corporation to defined
contribution plans.
(e) As of August 11, 1999; prior thereto, Mr. Foote was Chairman and Chief
Executive Officer and Mr. O'Bryan was President and Chief Operating Officer,
respectively.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (a)
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION
--------------------------------------------------- FOR OPTION
SECURITIES % OF TOTAL TERM(C)
UNDERLYING OPTIONS/SARS -------------------
OPTIONS/SARS GRANTED TO EXERCISE
GRANTED EMPLOYEES PRICE EXPIRATION 5% 10%
NAME (#)(B) IN 1999 ($/SH) DATE ($) ($)
- --------------------------------- ------------ ------------ -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
William C. Foote................. 20,000 6.32 50.87 1/2/09 639,800 1,621,800
P. Jack O'Bryan.................. 10,000 3.16 50.87 1/2/09 319,900 810,900
Harold E. Pendexter, Jr.......... 8,000 2.53 50.87 1/2/09 255,920 648,720
Arthur G. Leisten................ 8,000 2.53 50.87 1/2/09 255,920 648,720
Richard H. Fleming............... 8,000 2.53 50.87 1/2/09 255,920 648,720
</TABLE>
- ---------------
(a) No SARs were granted in 1999, 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, 1999, 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 annual rate compounded.
13
<PAGE> 16
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES(a)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
UNDERLYING AT FISCAL YEAR-END AT FISCAL YEAR-END
OPTIONS VALUE --------------------------- ---------------------------
EXERCISED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- --------------------------------- ---------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William C. Foote................. 50,000 2,309,875 120,000 55,000 2,054,443 0
P. Jack O'Bryan.................. 30,000 1,499,525 57,000 35,000 1,277,675 0
Harold E. Pendexter, Jr.......... 20,000 1,047,500 71,000 23,000 2,049,813 0
Arthur G. Leisten................ 35,000 1,628,287 26,000 23,000 393,250 0
Richard H. Fleming............... 15,000 794,063 103,000 23,000 2,502,988 0
</TABLE>
- ---------------
(a) No SARs were outstanding as of December 31, 1999.
Employment Agreements
In order to assure continued availability of services of the Named
Executives, the Corporation has entered into employment agreements (the
"Employment Agreements") with such Named Executives that have a current term
expiring on December 31, 2000, 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.
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 devotes full attention and best efforts during the term of such
agreement to the performance of assigned duties. A Named Executive discharged
without cause or constructively discharged 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. The Corporation is obligated to reimburse a Named Executive for all
reasonable legal fees incurred in order to enforce an Employment Agreement for a
right or benefit wrongfully denied by the Corporation. 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 18 months thereafter, not to (i)
participate, directly or indirectly, in any enterprise that
14
<PAGE> 17
competes with the Corporation or any of its subsidiaries in any line of products
in any region of the United States, or (ii) interfere in any way with the
relationship between the Corporation and any of its employees or any person or
entity doing business with it. 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 that have a current term expiring on December 31, 2000, 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 retirement.
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. In the event such lump sum payment would
constitute a "parachute payment" under the Internal Revenue Code, it may be
decreased by the smallest amount that would eliminate such parachute payment
unless the decrease would be 10% or more of the payment, in which case it shall
not be decreased but rather increased by a gross-up amount to provide for
applicable federal excise taxes related to such payment. The Corporation is
required to maintain in full force and effect until the earlier of (i) three
years after the date of any
15
<PAGE> 18
termination that 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 employee welfare 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 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 that 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.
Immediately upon any change in control, the Corporation will establish a
so-called "rabbi trust" to provide a source of payment for benefits payable
under such agreements and will immediately thereafter deposit with the trustee
under such trust an amount reasonably estimated to be potentially payable under
all such agreements. In the event that the assets of such trust 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 15
years of employment immediately preceding retirement. Participants become fully
vested after five years of continuous credited service.
16
<PAGE> 19
RETIREMENT PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE
COVERED ----------------------------------------------------------
COMPENSATION 20 25 30 35 40
------------ -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
$ 200,000............ $ 64,000 $ 80,000 $ 96,000 $112,000 $ 128,000
400,000............ 128,000 160,000 192,000 224,000 256,000
600,000............ 192,000 240,000 288,000 336,000 384,000
800,000............ 256,000 320,000 384,000 448,000 512,000
1,000,000............ 320,000 400,000 480,000 560,000 640,000
1,200,000............ 384,000 480,000 576,000 672,000 768,000
1,400,000............ 448,000 560,000 672,000 784,000 896,000
1,600,000............ 512,000 640,000 768,000 896,000 1,024,000
</TABLE>
The Named Executives participate in the Retirement Plan. The full years of
continuous credited service of the Named Executives at December 31, 1999, were
as follows: Mr. Foote, 16; Mr. O'Bryan, 41; Mr. Pendexter, 42; Mr. Leisten, 24;
and Mr. Fleming, 26. 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 chairing a committee is entitled to receive an additional
retainer of $1,000 per quarter for each such chair. The third quarter retainer
is paid in common stock of the Corporation having a value of $6,500. Directors
may elect to receive some or all of the retainers for the other three quarters,
as well as meeting fees and chair retainers, in cash or in the form of 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, with 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. Non-employee
directors also receive an annual grant 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
17
<PAGE> 20
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.
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 primary executive compensation program
includes 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 1999, the Committee compared
the Corporation's salary and cash incentive programs with those of a peer group
of approximately 600 participants representing 400 organizations as well as with
a smaller group of approximately 100 industrial companies with similar annual
revenues of approximately $3 billion that represent the Corporation's direct
competition for executive talent. 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
18
<PAGE> 21
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 advice and
recommendations.
Base Salaries
Except for the 20 most senior positions, salary ranges are established for
each managerial position, and the amount and timing of individual manager salary
increases vary based upon performance rating and contribution, current salary
relative to midpoint for the established salary range, career progress and the
annual salary budget allotment.
Internal market rates, in lieu of salary ranges, are utilized as managing
points for the base salaries of the 20 most senior executive positions. The
Committee believes that the use of internal market rates, given the uniqueness
of the applicable positions, enhances 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 is 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 are 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.
Approximately 290 officers and managers with position values above a specified
threshold were eligible to participate in the program in 1999. 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 annualized salary and
varies with the participant's level of management accountability. Program
measurements for 1999 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 20 senior positions, 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 1999 resulted
in awards averaging 153.65 of target to the Named Executives.
19
<PAGE> 22
Long-Term Equity Program
Non-qualified stock options for 320,500 shares were granted in 1999 to 184
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 50th percentile of surveyed companies.
The 20 most senior executives and managers received a portion approximating
75% of their 1999 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 17 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 50th
percentile.
Senior executives and managers are expected to acquire certain levels of
equity ownership commensurate with their responsibilities.
Limitations On Compensation Deductibility
The Committee has reviewed the effect on the Corporation's executive
compensation programs of provisions of the Internal Revenue Code 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 1999 from
(i) annual incentive cash awards for that year, or (ii) in connection with
exercises of stock options or shares deemed earned under any award of
performance-based restricted stock, will be deemed performance-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 1999. It is the view of the Committee that there is no
practicable action that could be taken to qualify regular salaries or other
likely annual compensation, other than the aforementioned performance-based
compensation, for such exemption under the applicable provision of the Internal
Revenue Code as currently in effect.
THE CHIEF EXECUTIVE OFFICER'S 1999 COMPENSATION
In 1999, the compensation for William C. Foote consisted principally of (i)
salary of $712,500; (ii) a 1999 annual incentive cash award of $779,774; and
(iii) long-term incentive compensation consisting of (a) a grant of a
non-qualified stock option for 20,000 shares of Common Stock, and (b) an award
of 30,000 shares of performance-based restricted stock.
20
<PAGE> 23
Base Salary
Mr. Foote's base salary as of March 1, 1999, was approved by the Committee
in February 1999. The Committee set Mr. Foote's base salary at an annual rate of
$725,000, an increase of $75,000 over the base salary effective on March 1,
1998, the date of his last increase. Following such increase, Mr. Foote's base
salary ranked in the 50th 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 1998, and Mr. Foote's tenure and individual
performance as Chief Executive Officer, including execution of the Corporation's
principal executive assignment and leadership in development of strategic and
financial plans and legal affairs.
Annual Management Incentive Plan
Mr. Foote's 1999 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 1999 annual
incentive opportunity (target) was expressed as 70%, or $507,500, of the
annualized salary for his position ($725,000) determined as discussed above. The
corporate goal achievement for 1999 described earlier in this report resulted in
an award of 153.65%, of target or $779,774, to Mr. Foote.
Long-Term Compensation
Mr. Foote's long-term compensation in 1999 was provided by: (a) the grant
of a non-qualified stock option for 20,000 shares of Common Stock; and (b) the
award of 30,000 shares of performance-based restricted 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 1999 grants.
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 1999 the Named Executives received approximately 83% 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, CHAIR
W. H. CLARK
W. DOUGLAS FORD
VALERIE B. JARRETT
JOHN B. SCHWEMM
JUDITH A. SPRIESER
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<PAGE> 24
PERFORMANCE GRAPH
The following graph and table compare the cumulative total stockholder
return on the Corporation's Common Stock with 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"), in each case assuming an initial
investment of $100 and full dividend reinvestment, for the five-year period
ended December 31, 1999.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
USG Corporation $100 $154 $174 $251 $262 $244
S&P 500 100 138 169 226 290 351
Building Materials
Group 100 135 156 163 176 166
</TABLE>
All amounts rounded to nearest dollar.
The Building Materials Group comprises 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. (through 1997), Butler
Manufacturing Co., Crane Co., Elcor Corp., Fluor Corp., International Aluminum
Corp., Jannock, Ltd., Johns-Manville Corp., Justin Industries, Masco Corp.,
Morgan Products, Ltd., (through 1998), 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.
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<PAGE> 25
ITEM NO. 2 -- APPROVAL OF AMENDMENT TO THE
OMNIBUS MANAGEMENT INCENTIVE PLAN
The Board of Directors believes the Corporation's Omnibus Management
Incentive Plan, as previously amended (the "Plan"), is accomplishing its purpose
which is to promote the interests of the Corporation and its stockholders by
providing key employees with an opportunity to acquire a proprietary interest in
the Corporation and thereby to develop a stronger incentive to put forth maximum
effort for the continued success and growth of the Corporation and its
subsidiaries. In addition, the ability to offer stock-based incentives has
become increasingly important in the recruitment and retention of key personnel
of outstanding ability. The Plan also provides for annual cash incentive awards
to officers, managers and key employees based upon the attainment of
pre-established performance criteria, which the Board of Directors believes to
be an essential element of a comprehensive and competitive executive
compensation program.
When originally approved by the stockholders at their 1997 annual meeting,
the Plan provided for 1,650,000 shares to be available for long-term incentive
awards under the Plan in calendar years 1997 through 2000, substantially all of
which were awarded during the period. The Compensation and Organization
Committee of the Board of Directors (the"Committee") has considered the needs of
the Plan in order to continue fulfilling its incentive and recruitment functions
and has recommended the addition of 2,400,000 shares to be made available for
long-term incentive awards under the Plan through 2003. Accordingly, at its
meeting held November 10, 1999, and upon recommendation of the Committee, the
Board of Directors approved an amendment to the Plan to add 2,400,000 shares of
Common Stock for awards under the Plan through 2003, subject to approval by the
stockholders at their 2000 annual meeting.
A summary description of the Plan as proposed to be amended follows. This
description is qualified in its entirety by reference to the specific provisions
of the Plan which has been filed with the SEC.
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.
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; determine the type,
size and term of awards; determine the time when awards will be granted and any
conditions for receiving awards; establish objectives and conditions for earning
awards; 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; determine whether
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<PAGE> 26
payment of an award should be reduced or eliminated; and determine whether such
awards should be intended to qualify, regardless of their amount, as deductible
in full for federal income tax purposes.
Eligibility to Receive Awards. Key employees of the Corporation and its
divisions, subsidiaries and affiliates are eligible to be granted awards under
the Plan. It is expected that officers, managers and key employees of the
Corporation and its divisions and subsidiaries, a group now consisting of
approximately 290 persons, will continue to be paid annual incentive awards in
2001 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 200 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. Awards of restricted stock that are not performance-based are
required to have restriction periods of not less than three years.
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
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<PAGE> 27
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 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.
Shares of Common Stock Subject to the Plan. Upon approval of the proposed
amendment to the Plan, the aggregate number of shares of Common Stock awarded
thereunder may not exceed 2,400,000 shares, of which not more than 800,000
shares of Common Stock are expected to be the subject of awards in any calendar
year, together with unissued shares and such shares as may again become
available for grant as the result of forfeitures or termination of awards under
the Plan or any predecessor plan. 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 him 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 first approved by
the stockholders, no amendment of the Plan may increase the maximum number of
shares that 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. In addition,
stockholder approval is required for any amendment of the Plan or any award
thereunder that would permit the re-pricing of outstanding stock options or the
waiver of restrictions on outstanding restricted stock awards. The Committee may
amend outstanding agreements evidencing awards under the Plan from time to time,
consistent with the Plan. Under its current terms, 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.
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<PAGE> 28
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 question will fully vest; (iii) all
performance criteria for full exercisability of stock options and tandem stock
appreciation rights 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 of 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. Under the Plan a grant 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.
The Amendment. The proposed amendment to the Plan would change the current
first sentence of Section 6 of the Plan to read as follows:
"The number of shares of Common Stock reserved for issuance under
the Plan after December 31, 2000, through December 31, 2003, is
2,400,000, together with such shares that are unissued or are the
subject of forfeitures of any award under the Plan or any
predecessor long-term incentive plan, which shall thereupon become
available for awards under the Plan."
Additional Information. Since awards under the Plan are at the discretion
of the Committee, the kind and number of awards to any employee cannot now be
determined. 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"
on pages 12 through 14 of this proxy statement, for detailed information on
stock option grants and restricted stock awards to certain executive officers
during the three most recent fiscal years. During
26
<PAGE> 29
1999 options for 96,000 shares were granted to all current executive officers
while 217,500 were issued to all other employees, and 177,000 shares of
restricted stock (of which 151,000 shares were performance-based) were awarded
to all current executive officers while 86,000 (of which 62,000 were
performance-based) were awarded to all other employees.
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 amendment, 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.
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, 2000, and to perform other related 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, 2000, 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.
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. 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.
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<PAGE> 30
ITEM NO. 4 -- STOCKHOLDER PROPOSAL
STOCKHOLDER PROPOSAL REGARDING
STOCKHOLDER RIGHTS PLAN BY-LAW AMENDMENT
Hakatak Enterprises, Inc., 100 Wilshire Boulevard, Suite 1700, Santa
Monica, California 90401, which claims to be the beneficial owner of more than
500,000 shares of Common Stock, has submitted the following proposal and
supporting statement for inclusion in this proxy statement.
PROPOSAL
"RESOLVED THAT the Shareholders exercise their power under Delaware General
Corporation Law Section 1.09 to approve the following bylaw:
1. No Shareholder Rights Plan or other form of 'poison pill' (meaning any
plan which confers additional rights on the holders of the Corporation's common
stock upon the acquisition of a large block of securities by a party not
approved by the Board of Directors or upon the making of a takeover or merger
proposal by a party not approved by the Board of Directors) shall become
effective, unless, after its approval by the Board of Directors, such plan has
been submitted to the stockholders of the Corporation for a vote and has been
approved by a majority of the shares voted at the meeting called for such
purpose. Any such plan in effect on the date this bylaw becomes effective upon
approval by the shareholders shall be redeemed or canceled.
2. This by-law shall be effective immediately upon approval by the holders
of shares at an annual meeting of the Corporation or at a special meeting of the
shareholders and may not be amended, altered, deleted or modified without
shareholder approval."
SUPPORTING STATEMENT
"So-called 'poison pills' are a tool used by incumbent management and
boards of directors to deter proposals by competing interests. As such, they
limit shareholder options and are designed to discourage offers from third
parties. This is not in the best interests of shareholders and it is impossible
to tell what types of offers might have been made for the Company, except for
the presence of a poison pill. The statements made by the Company when it
adopted its existing Shareholder Rights Plan are self-serving and fail to point
out that the Board of Directors can use its power to approve or disapprove a
proposal (by redeeming or not redeeming the pill) to discourage and avoid offers
from persons not favored by the board, such as acquirers that might make
management changes. This type of anti-takeover mechanism prevents all of us as
shareholders from evaluating all proposals on their merits, and restricts the
market for our common stock. The shareholders should adopt this bylaw to prevent
the board of directors from implementing poison pill tactics that are not
approved by the shareholders."
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<PAGE> 31
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
Your Board of Directors recommends a vote against this proposal because the
Board believes that (1) rights plans such as the Corporation's stockholder
rights plan (the "Rights Plan") help maximize stockholder value, and (2) the
Rights Plan protects stockholders and the Corporation from unfair and abusive
takeover tactics. The Board further believes that the Rights Plan is in the best
interest of the Corporation and its stockholders.
The Rights Plan is designed to protect stockholders against takeover
tactics that do not treat all stockholders fairly and equally, such as partial
and two-tiered tender offers and creeping stock accumulation programs. The
Rights Plan is intended to encourage potential acquirers to negotiate directly
with your Board. The Corporation believes the Board is in the best position to
negotiate on behalf of all stockholders, evaluate the adequacy of any potential
offer, and seek a higher price if there is to be a sale of the Corporation. The
Board's ability to seek a higher price in a takeover context on behalf of all
stockholders is significantly greater than the ability of an individual
stockholder to achieve such a result. Without the protections of a rights plan,
your Board could lose important bargaining power in negotiating a transaction
with a potential acquirer or pursuing a potentially superior alternative.
The Rights Plan does not prevent an offer to acquire the Corporation at a
price and on terms that are fair and in the best interest of stockholders. In
responding to an acquisition proposal and negotiating with a potential acquirer,
your Board, eleven of whose thirteen members are outside directors, recognizes
its obligation to fulfill its fiduciary duties to the Corporation and its
stockholders. If the Board determines that a proposal is fair and in the best
interest of stockholders, the Rights Plan allows the Board to approve the
proposal and redeem the Rights. However, to redeem the Rights now in the absence
of a proposal would leave the Corporation's stockholders unprotected in the
event of an unsolicited, and potentially coercive and unfair, takeover offer
and, in the Board's view, would potentially reduce long-term value for
stockholders.
Finally, the Board believes there is strong empirical evidence that the
Rights Plan better positions your Board to negotiate the most attractive and
fair price for all stockholders in the event there is a bid for the Corporation.
Many companies with rights plans have received unsolicited offers and have
redeemed their rights after their directors were satisfied that the offer, as
negotiated by the target company's board of directors, adequately reflected the
underlying value of the company and was fair and equitable to all stockholders.
Thus, the Board believes that experience indicates that rights plans neither
prevent unsolicited offers from occurring, nor prevent companies from being
acquired at prices that are fair and adequate to stockholders.
If legally valid, approval of the forgoing proposed amendment to the
Corporation's by-laws requires the affirmative vote of not less than 80% of the
voting power of the Corporation's outstanding voting stock. The Board has been
advised that the legality of this proposed by-law under Delaware law and the
Corporation's certificate of incorporation is questionable, and its
implementation if approved would ultimately depend on the Board's assessment of
its legal validity.
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<PAGE> 32
Your Board of Directors believes that the continued existence of the Rights
Plan is in the best interest of the Corporation and its stockholders. The Rights
Plan is an important tool that the Board of Directors should have in the event
of an unfair or coercive takeover attempt. Because the proposal requires
redemption of the Rights Plan and stockholder approval for any new plan, it is
clear that in all likelihood the Corporation would be unable to adopt a rights
plan in time to be effective against an unsolicited acquisition proposal and,
therefore, would be deprived of a proven and necessary tool to maximize
stockholder value.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
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 Innisfree M&A
Incorporated to assist in this solicitation at a fee of $10,000 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 management's 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
2001 must be received not later than December 8, 2000. 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 2001 annual meeting, including nominations
for election as directors of persons other than nominees of the Board of
Directors, must be received no earlier than February 9, 2001 nor later than
March 11, 2001, 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
DEAN H. GOOSSEN
DEAN H. GOOSSEN
Corporate Secretary
Dated: April , 2000
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<PAGE> 33
USG CORPORATION
PLEASE MARK VOTE IN OVALS IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. Election of four USG Corporation directors For Withheld For All
to serve for a three year term: All All Except
01-KEITH A. BROWN, 02-JAMES C. COTTING, [ ] [ ] [ ]
03-W. DOUGLAS FORD, 04-JOHN B. SCHWEMM.
---------------------------------------------
USG DIRECTOR NOMINEE EXCEPTION(S), IF ANY.
2. APPROVAL OF AMENDMENT TO THE CORPORATION'S For Against Abstain
OMNIBUS MANAGEMENT INCENTIVE PLAN. [ ] [ ] [ ]
3. RATIFICATION OF THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE YEAR ENDING DECEMBER 31, 2000.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEM 4.
4. APPROVAL OF STOCKHOLDER PROPOSAL REGARDING For Against Abstain
STOCKHOLDER RIGHTS PLANS, IF SUCH PROPOSAL [ ] [ ] [ ]
IS PROPERLY MADE AT THE ANNUAL MEETING.
5. IN THEIR DISCRETION, ON ANY OTHER MATTER
THAT MAY PROPERLY COME BEFORE THE MEETING.
I plan to attend the Annual Meeting. Yes!
[ ]
Dated:
---------------------------------------------
- ---------------------------------------------------
Signature
- ---------------------------------------------------
Signature
The signature(s) above should agree with the name(s) shown on this Proxy. Where
stock is owned by more than one person, all owners should sign the Proxy. This
proxy will then be voted as directed or, if no direction is indicated, it will
be voted FOR Items 1, 2 and 3 and AGAINST Item 4.
CONTROL NUMBER -Fold and Detach Here- USG CORPORATION
[insert control # box here] VOTE BY TELEPHONE
Call FREE OF CHARGE by Touch Tone Phone
[insert phone # here] - 24 HOURS A DAY
Telephone voting authorizes the proxies identified below to vote your shares in
the same manner as if you marked, signed and returned your proxy card.
Please note that if voting by telephone, you will be asked to enter the Control
Number located in the box located above and to the left of this form.
<PAGE> 34
PROXY USG CORPORATION PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 10, 2000
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 stockholders of said
Corporation in the Sixth Floor Auditorium, The Northern Trust Building, 50
South LaSalle Street, Chicago, Illinois, on May 10, 2000, 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.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE-EXCEPT IF YOU VOTE BY TELEPHONE
Please indicate any change in address.
(Continued and to be signed on reverse side.)
Dear Shareholder:
On the reverse side of this card are instructions that allow you to vote your
shares for the election of directors and all other proposals TOLL FREE by
telephone. Please consider voting by telephone. Your vote is recorded the same
as if you mailed in your proxy card. Telephone voting is designed to be quick,
convenient and FREE OF CHARGE to you.
