SCHEDULE 14A
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 Section 240.14a-12
USG CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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USG CORPORATION
[USG LOGO] -------------------------------------------
125 South Franklin Street
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Chicago, IL 60606-4678
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312 606-4000
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March 29, 2002
Dear Fellow Stockholder:
You are cordially invited to attend the USG Corporation annual meeting of
stockholders to be held at 9:15 a.m. on Wednesday, May 8, 2002, in the third
floor Business Library of the corporate headquarters of USG Corporation at 125
South Franklin Street, Chicago, Illinois. 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 you vote by Internet or telephone it is
not necessary for you to return your proxy card or voting instruction form. 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. This is your
meeting and YOUR PARTICIPATION IS IMPORTANT.
In light of recent events, we must request that you adhere to new meeting
admission requirements. If you are a registered stockholder and plan to attend
the annual meeting, you will be required to present the detachable non-voting
bottom portion of the enclosed proxy to gain admission. If you hold shares
through a broker or other nominee, you will be required to present a current
statement from that institution showing a USG shareholding or the non-voting
portion of the voting instruction form you may receive from that entity. Please
note that a document evidencing your shareholdings and which will be used to
gain entry to the meeting is non-transferable.
Please vote your shares promptly and attend the meeting. By attending the
meeting, you will have an opportunity to visit your company's beautiful Chicago
headquarters.
Sincerely,
/s/ William C. Foote
WILLIAM C. FOOTE
Chairman of the Board
125 South Franklin Street USG CORPORATION Chicago, IL 60606-4678
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
The USG Corporation annual meeting of stockholders will be held in its
headquarters in the third floor Business Library, 125 South Franklin Street,
Chicago, Illinois, on Wednesday, May 8, 2002, at 9:15 a.m., Central Standard
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 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 must be seconded
before it may be considered or before a vote on it may be taken.
The Board of Directors has fixed the close of business on March 13, 2002,
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting or any adjournment thereof.
A list of stockholders entitled to vote at the meeting and the number of
shares registered in the name of each will be available for examination by any
stockholder at the office of the Corporate Secretary of the Corporation, 125
South Franklin Street, Chicago, Illinois, during ordinary business hours
beginning April 24, 2002, and running throughout the course of the meeting.
By order of the Board of Directors
/s/ J. E. Schaal
J. E. SCHAAL
Corporate Secretary
Chicago, March 29, 2002
IMPORTANT! PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE -- EXCEPT IF YOU
VOTE BY TELEPHONE OR THE INTERNET.
PROXY STATEMENT AND PROXY
This proxy statement has been prepared by the management of USG Corporation
(the "Corporation"). It is being furnished to stockholders in connection with
the solicitation of proxies by the Board of Directors for use at the annual
meeting of stockholders of the Corporation to be held on May 8, 2002, and any
adjournment thereof. The notice of the annual meeting accompanies this proxy
statement. The Corporation intends to commence distribution of this proxy
statement together with the notice, proxy, and any accompanying materials, on or
about March 29, 2002.
The Board of Directors has selected the close of business on March 13, 2002
(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, 43,250,738 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. 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.
The Northern Trust Company, as trustee of the USG Corporation Investment
Plan, held of record 621,167 shares of Common Stock as of the Record Date, or
approximately 1.43% of all shares outstanding. All shares so held by the Trustee
on the Record Date will be voted in accordance with the voting instructions
given by Plan participants. Investment Plan shares for which no voting
instructions
2
are received by Plan participants 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 13, 2002.
PRINCIPAL STOCKHOLDERS
The following table lists the beneficial ownership of Common Stock, with
respect to all persons known by the Corporation to be the beneficial owner of
more than 5% of the Common Stock outstanding on the Record Date. The information
shown was provided by the respective persons pursuant to Schedules 13D or 13G as
filed with the Securities and Exchange Commission ("SEC").
<Table>
<Caption>
NAME AND ADDRESS AMOUNT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------- -------------------- ----------------
Berkshire Hathaway, Inc.(a)............ 6,500,000 15.03%
1440 Kiewit Plaza
Omaha, NE 68131
Southeastern Asset Management,
Inc.(b).............................. 5,416,500 12.52%
6410 Poplar Avenue
Memphis, TN 38119
Knauf International GmbH(c)............ 4,300,878 9.94%
Am Bahnhof 7
97346 Iphofen
Federal Republic of Germany
John R. Simplot
Self-Declaration of Revocable
Trust(d)............................... 2,377,000 5.50%
999 Main Street
Boise, ID 83702
</Table>
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(a) Berkshire Hathaway, Inc., a Delaware corporation, reported in a Schedule 13G
group filing (with Warren E. Buffett, an individual who reported he may be
deemed to control Berkshire Hathaway, Inc., OBH, Inc., a Delaware
corporation, and National Indemnity Company, a Nebraska insurance
corporation) beneficial ownership of 6,500,000 shares and that Berkshire
Hathaway, Inc. exercises shared voting and dispositive power with respect to
such shares with Mr. Buffet, OBH, Inc., and National Indemnity Company.
Under the Corporation's stockholder rights plan if an acquiring stockholder
buys 15% or more of the Corporation's outstanding common stock, the rights
of other stockholders to buy additional shares of the Corporation at a 50%
discount are triggered. However, where in the case of Berkshire Hathaway,
Inc., its stockholder's ownership interest reached 15% or more as a result
of the Corporation's reacquisition of outstanding shares as has happened in
February, 2002 through its reacquisition of performance-based restricted
shares which were not earned as a result of non-attainment of requisite
performance criteria, the special purchase rights of the other stockholders
did not trigger. The acquiring stockholder generally may not thereafter
acquire any additional shares without triggering these special rights.
3
(b) Southeastern Asset Management, Inc., a Tennessee corporation and a
registered investment advisor, reported in a Schedule 13G group filing that
Longleaf Partners Small-Cap Fund (the "Fund"), a series of Longleaf Partners
Funds Trust (the "Trust"), its advisory clients, beneficially own 5,416,500
shares and that the Fund and Trust exercise shared voting and dispositive
power with respect to 3,061,900 shares, that the Trust exercises sole power
to vote 1,157,700 and sole power to dispose of 2,354,600 shares, and that
neither the Fund nor the Trust exercise voting power with respect to
1,196,900 shares. Mr. O. Mason Hawkins, Chairman of the Board and Chief
Executive Officer of Southeastern Asset Management, Inc., is named in the
filing in the event he could be deemed a controlling person of Southeastern
Asset Management, Inc. Mr. Hawkins and Southeastern Asset Management, Inc.
disclaim any beneficial ownership in the reported shares.
(c) Knauf International GmbH, a German Federal Republic corporation, reported in
a Schedule 13D filing that it was the beneficial owner of 4,300,878 shares
and that it exercises sole voting and dispositive power with respect to such
shares.
(d) The John R. Simplot Self-Declaration of Revocable Trust (the "Trust") is the
beneficial owner of 2,277,000 shares (170,000 of which are held through JRS
Properties III LP, an Idaho limited partnership, and JRS Investments, LLC,
an Idaho limited liability company). As Trustee, Mr. Simplot exercises sole
voting and dispositive power with respect to the 2,277,000 Trust shares. He
also exercises shared voting and dispositive power with Donald J. and Scott
R. Simplot with respect to 100,000 shares held by the J.R. Simplot
Foundation. Donald J. and Scott R. Simplot disclaim any beneficial interest
in the J.R. Simplot Foundation shares.
ITEM NO. 1 -- ELECTION OF DIRECTORS
The Board of Directors of the Corporation currently is composed of 11
directors, divided into three classes, two of which currently have four members
each, the other having three 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 8, 2002. The remaining classes will be elected in 2003 and
2004, respectively.
The four candidates nominated by the Board of Directors for election as
directors at the annual meeting of stockholders on May 8, 2002, 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
that required 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 has been waived by resolution of the Board in order to
promote continuity during the Corporation's Chapter 11 proceedings.
4
Information shown for nominees and directors has been furnished to the
Corporation by such nominees and directors.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR A THREE-YEAR TERM TO EXPIRE IN 2005
ROBERT L. BARNETT, 61, 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 also
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 chairs its Corporate Affairs Committee.
DAVID W. FOX, 70, 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 former director of The
Federal Reserve Bank of Chicago and the Chicago Central Area Committee, a former
Public Governor and past Chairman of the Chicago Stock Exchange, a director and
past Chairman of Northwestern Memorial Hospital, and a trustee of the Adler
Planetarium, The Orchestral Association, and DePaul University. He also is a
trustee of the Equitable Advisors Trust in New York. Mr. Fox has been a director
of the Corporation since May 1987, is a member of the Board's Executive and
Finance Committees and chairs its Compensation and Organization Committee.
VALERIE B. JARRETT, 45, Executive Vice President (since 1995) of The
Habitat Company. Ms. Jarrett 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 Governor of the Chicago Stock Exchange and a
director of the Metropolitan Planning Council, The University of Chicago
Laboratory Schools, the Southeast Chicago Commission, The Fund for Community
Redevelopment and Revitalization and The Commercial Club of Chicago and the
Chicagoland Chamber of Commerce and co-chairs The Local Initiative Support
Corporation Advisory Board. Ms. Jarrett is a trustee of the Museum of Science
and Industry, the University of Chicago, University of Chicago Hospitals and
Windows to the World Communications, Inc. She also is 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.
MARVIN E. LESSER, 60, Managing Partner (since 1993) of Sigma Partners,
L.P., a private investment partnership, and President (since 2000) of Alpina
Management, L.L.C., an investment advisor. Mr. Lesser also has been a private
consultant since 1992. He is a director of Pioneer Companies Inc. and St. Moritz
2000 Fund, Ltd. He is a Trustee and past Chair of the Seacoast Area Chapter (New
5
Hampshire and Maine) of the American Red Cross. Mr. Lesser has been a director
of the Corporation since May 1993, and is a member of the Board's Audit and
Finance Committees.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES LISTED
ABOVE.
DIRECTORS WHOSE TERMS EXPIRE IN 2003
KEITH A. BROWN, 50, President (since 1987) of Chimera Corporation, a
private management holding company. He also is a director of Myers Industries,
Inc. 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 and chairs
its Committee on Directors.
JAMES C. COTTING, 68, 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 its Committee on Directors and chairs its
Finance Committee.
W. DOUGLAS FORD, 58, 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 a managing director of BP
Amoco p.l.c. and has been appointed a director of United Airlines (effective
March 18, 2002). (His retirement from BP Amoco p.l.c. both as an officer and a
director has been announced to be effective as of March 31, 2002.) 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 and its Committee on Directors.
JOHN B. SCHWEMM, 67, 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 a
Life Trustee of Northwestern University. Mr. Schwemm has been a director of the
Corporation since May 1988, and is a member of the Board's Executive, Audit and
Compensation and Organization Committees and its Committee on Directors.
DIRECTORS WHOSE TERMS EXPIRE IN 2004
LAWRENCE M. CRUTCHER, 59, Managing Director (since 1990) of Veronis Suhler
Stevenson, investment bankers. Mr. Crutcher has been a director of the
Corporation since May 1993 and is a member of the Board's Finance and Committee
on Directors and its Corporate Affairs Committees.
WILLIAM C. FOOTE, 51, Chairman (since April 1996), President (January
1996-June 1997 and since August 1999) and Chief Executive Officer (since January
1996); President and Chief Operating Officer (January 1994-December 1995). 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.
6
JUDITH A. SPRIESER, 48, Chief Executive Officer of Transora, Inc. (since
September 2000), business-to-business transaction site for the global consumer
products industry. Ms. Sprieser was with Sara Lee Corporation, packaged food and
consumer products (1987-2000) and served as its Executive Vice President and
Chief Executive Officer of its foods and foodservice segments (1999-2000),
Executive Vice President and Chief Financial Officer (1998-1999), and Senior
Vice President and Chief Financial Officer (1994-1998). She also is a director
of Transora, Inc. and Allstate Insurance Company, and is a trustee of
Northwestern University. 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, its Committee on Directors, and chairs its
Audit Committee.
The Board of Directors held ten meetings during 2001, and the standing
committees of the Board of Directors held an aggregate of 18 meetings during the
year. Each director attended at least 75% of the aggregate number of meetings in
2001 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. 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 in 2001. 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 to assist the Board of
Directors in monitoring the integrity of the financial statements of the
Corporation, the Corporation's compliance with financial reporting, legal and
statutory requirements, and the independence and performance of the
Corporation's internal and external auditors. The Committee selects and employs
on behalf of the Corporation, subject to ratification by the stockholders, a
firm of independent public accountants to audit the Corporation's books and
accounts for the applicable year, which firm is ultimately accountable to the
Committee and the Board of Directors. The Committee's charter as adopted by the
Board of Directors is set forth in full as Annex A. The Committee members are
Judith A. Sprieser, Chair, Robert L. Barnett, Keith A. Brown, Marvin E. Lesser,
and John B. Schwemm, each of whom meets the independence requirements of the New
York Stock Exchange ("NYSE"), on which the Common Stock is listed. The Audit
Committee held four meetings during 2001.
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. Douglas
7
Ford, Valerie B. Jarrett, John B. Schwemm and Judith A. Sprieser. The
Compensation and Organization Committee held three meetings during 2001.
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; dividend policy; and acquisitions, divestitures, and significant
transactions affecting the Corporation's capital structure and ownership. 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 2001.
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 2001.
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 Keith A. Brown, Chair,
James C. Cotting, Lawrence M. Crutcher, W. Douglas Ford, John B. Schwemm and
Judith A. Sprieser. The Committee held three meetings during 2001.
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.
Involvement in Certain Legal Proceedings
On June 25, 2001 the Corporation and 10 of its U.S. subsidiaries filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. As a result, all of
the executive officers and directors have been associated with a corporation
that filed a petition under the general bankruptcy laws within the last five
years.
8
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information known to the Corporation
regarding Record Date beneficial Common Stock ownership by each current director
and each of the executive officers identified in the Summary Compensation Table
and by all of its executive officers as a group (27 persons). Information in the
table is derived from SEC filings made by such persons under Section 16(a) of
the Securities Exchange Act of 1934, as amended, and other information received
by the Corporation. The totals include shares that such individuals have the
right to acquire within 60 days of the Record Date through the exercise of stock
options or restricted stock subject to risk of forfeiture. Any equivalent shares
allocated to the accounts of the individuals identified in the Summary
Compensation Table and other executive officers under the USG Corporation
Investment Plan also are included.
<Table>
<Caption>
SHARES BENEFICIALLY OPTION SHARES TOTAL AND
OWNED, EXCLUDING EXERCISABLE PERCENT OF
NAME OPTIONS(A)(B) WITHIN 60 DAYS CLASS(G)
---- ------------------- -------------- ----------
Robert L. Barnett............................ 5,626 -- 5,626
Edward M. Bosowski........................... 30,860 63,500 94,360
Keith A. Brown(c)............................ 140,046 -- 140,046
James C. Cotting............................. 5,044 -- 5,044
Lawrence M. Crutcher(d)...................... 12,332 -- 12,332
Stanley L. Ferguson.......................... 20,985 34,000 54,985
Richard H. Fleming........................... 51,113 134,000 185,113
William C. Foote(e).......................... 92,574 195,000 287,574
W. Douglas Ford.............................. 3,161 -- 3,161
David W. Fox................................. 7,278 -- 7,278
Valerie B. Jarrett........................... 4,056 -- 4,056
Marvin E. Lesser............................. 6,165 -- 6,165
John H. Meister(f)........................... 43,509 62,500 106,009
John B. Schwemm.............................. 5,663 -- 5,663
Judith A. Sprieser........................... 4,225 -- 4,225
All directors and executive officers as a
group (27 persons), including the directors
and executives named above................... 584,938 761,250 1,346,188
</Table>
- ---------------
(a) Includes restricted stock grants to executive officers subject to risk of
forfeiture, as follows: Mr. Bosowski, 22,000 shares; Mr. Ferguson, 13,000
shares; Mr. Fleming, 23,000 shares; Mr. Foote, 40,000 shares; Mr. Meister,
25,000 shares; all executive officers as a group: 222,000 shares.
(b) Includes deferred stock units under the Stock Compensation Program for
Non-Employee Directors, as follows: Mr. Cotting, 2,040 units; Ms. Jarrett,
3,105 units, and Mr. Lesser, 3,334 units. See "Director Compensation" below.
(c) Includes 135,715 shares held by trusts of which Mr. Brown is a trustee.
(d) Includes 5,990 shares held by Mr. Crutcher as trustee for the benefit of his
adult children in which shares he disclaims beneficial ownership.
9
(e) Includes 5,000 shares held by Mr. Foote's spouse, Kari H. Foote, and 400
shares held for the benefit of his minor children, in which shares he
disclaims beneficial ownership.
(f) Mr. Meister resigned from his officer position in February, 2002.
(g) Total beneficial ownership of 1,346,188 shares of Common Stock by members
of the group identified above represents approximately 3.11% of the total
outstanding shares of Common Stock; no individual holding within such group
exceeded approximately 0.32% of total outstanding shares.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Corporation's executive officers, directors and 10% owners file reports of
ownership and changes of ownership of Common Stock with the SEC and the New York
Stock Exchange. Based on a review of copies of such reports provided to the
Corporation during 2001, 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 2001 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.
10
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>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
----------------------------- ------------------------------------
OTHER
ANNUAL RESTRICTED
COMPEN- STOCK OPTIONS/ ALL OTHER
NAME AND SALARY BONUS SATION AWARDS SARS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(A) ($)(B) ($)(C) (#) ($)(D)
- --------------------------- ---- -------- -------- ------- ---------- -------- ------------
William C. Foote 2001 880,417 648,875 94,625 -- 80,000 1,333
Chairman, President 2000 808,334 193,463 69,729 -- 20,000 21,759
and CEO 1999 712,500 779,773 60,628 1,541,250 20,000 98,722
Richard H. Fleming 2001 431,250 284,375 -- -- 40,000 1,333
Executive Vice President 2000 370,000 62,813 -- -- 8,000 8,588
and Chief Financial 1999 340,833 265,046 -- 616,500 8,000 43,835
Officer
John H. Meister* 2001 370,626 237,500 61,183 -- 40,000 1,333
Senior Vice President; 2000 309,170 117,825 -- -- 6,000 5,805
President, Building 1999 253,333 137,022 -- 582,625 4,000 31,303
Systems
Edward M. Bosowski 2001 370,626 237,500 99,250 -- 40,000 1,333
Senior Vice President, 2000 320,000 55,275 -- -- 6,000 6,796
Marketing and Corporate 1999 258,333 192,257 -- 582,625 4,000 31,012
Strategy; President,
International
Stanley L. Ferguson 2001 311,250 209,375 -- -- 25,000 1,333
Senior Vice President 2000 243,125 31,169 -- -- 4,000 4,631
and General Counsel 1999 213,333 108,097 -- 308,250 4,000 24,341
</Table>
- ---------------
(a) Reflects payments arising from cash award opportunities under the
Corporation's Annual Management Incentive Program in 1999 and 2000 and
payments under the bankruptcy court-approved Retention Plan (as defined
below) with respect to 2001. 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 $34,250 for club fees and
dues in 2001; Mr. Meister's included $20,649 for club fees and dues and
$15,840 in automobile allowance in 2001; and Mr. Bosowski's included $54,113
for club fees and dues in 2001. No other Named Executive had perquisites and
other personal benefits aggregating the lesser of $50,000 or 10 percent of
salary and bonus for 2001, 2000, or 1999.
(c) Indicated amounts arise from performance-based restricted stock awards to
each of the Named Executives on January 2, 1999, and the grant of
time-vested restricted stock awards of 5,000 shares each to Messrs. Meister
and Bosowski on February 10, 1999. There were no performance-based
restricted stock awards to any Named Executives during 2001; however there
were several time-vested awards, which are described in the chart below
titled "Long Term Incentive Plans --
11
Awards in Last Fiscal Year". The aggregate restricted stock holdings of each
of the Named Executives as of December 31, 2001, and the value of such
holdings on such date, are as follows: Mr. Foote, 70,000 shares, $400,400;
Mr. Fleming, 40,000 shares, $228,800; Mr. Meister, 31,000 shares, $177,320;
Mr. Bosowski, 28,000 shares, $160,160; and Mr. Ferguson, 19,000 shares,
$108,680. Such restricted stock is eligible for any dividend paid on shares
of Common Stock. In addition to such restricted stock awards, the Named
Executives were granted the nonqualified stock options described in the
chart below titled "Option/SAR Grants in Last Fiscal Year" on January 2,
2001. Performance-based restricted stock awards made on January 2, 1999,
were not earned as the result of non-attainment of requisite performance
criteria (cumulative USG shareholder return in relation to a group of 13
building material companies for the three fiscal years ended December 31,
2001), and resulted in forfeitures on February 13, 2002, as follows: Mr.
Foote, 30,000 shares; Mr. Fleming, 12,000 shares; Mr. Meister, 6,000 shares;
Mr. Bosowski, 6,000 shares; Mr. Ferguson, 6,000 shares; and all executive
officers as a group (16 persons), 113,000 shares.
(d) All other Compensation for the Named Executives for each year consisted
solely of matching contributions from the Corporation to defined
contribution plans.
* Mr. Meister resigned from his officer position in February, 2002.
OPTION/SAR GRANTS IN LAST FISCAL YEAR(a)
<Table>
<Caption>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
--------------------------------------------------- ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK PRICE
UNDERLYING OPTIONS/SARS APPRECIATION FOR
OPTIONS/SARS GRANTED TO EXERCISE OPTION TERM(C)
GRANTED EMPLOYEES PRICE EXPIRATION ---------------------
NAME (#)(B) IN 2001 ($/SH) DATE 5%($) 10%($)
- ------------------------------- ------------ ------------ -------- ---------- --------- ---------
William C. Foote............... 80,000 10.04 22.49 1/2/11 1,131,507 2,867,461
Richard H. Fleming............. 40,000 5.02 22.49 1/2/11 565,754 1,433,731
John H. Meister................ 40,000 5.02 22.49 1/2/11 565,754 1,433,731
Edward M. Bosowski............. 40,000 5.02 22.49 1/2/11 565,754 1,433,731
Stanley L. Ferguson............ 25,000 3.14 22.49 1/2/11 353,569 896,082
</Table>
- ---------------
(a) No SARs were granted in 2001, 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, 2001, at an exercise price equal to the
average of the closing prices of a share of Common Stock on the NYSE
composite tape during the ten trading day period beginning five trading days
prior to the date of grant and ending on the fourth trading day after the
date of grant. 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, disability or termination
without cause, 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.
12
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 (#) ($) (#) (#) ($) ($)
- --------------------------------- ---------- -------- ----------- ------------- ----------- -------------
William C. Foote................. 0 0 175,000 100,000 0 0
Richard H. Fleming............... 0 0 126,000 48,000 0 0
John H. Meister.................. 0 0 56,500 46,000 0 0
Edward M. Bosowski............... 0 0 57,500 46,000 0 0
Stanley L. Ferguson.............. 0 0 30,000 29,000 0 0
</Table>
- ---------------
(a) No SARs were outstanding as of December 31, 2001.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<Table>
<Caption>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK
PRICE-BASED PLAN
PERFORMANCE ------------------------------
NUMBER OF OR OTHER PERIOD THRESHOLD TARGET MAXIMUM
NAME SHARES(A) UNTIL PAYOUT (#) (#) (#)
- ------------------------------------------ --------- --------------- --------- ------ -------
William C. Foote.......................... 10,000 01/02/04
Richard H. Fleming........................ 6,000 01/02/04
John H. Meister........................... 5,000 01/02/04 NOT APPLICABLE
Edward M. Bosowski........................ 2,000 01/02/04
Stanley L. Ferguson....................... 4,000 01/02/04
</Table>
- ---------------
(a) Time-vested restricted stock granted on January 2, 2001, will vest and are
scheduled to be distributed on January 2, 2004. The awards provide immediate
vesting in the event of death or permanent disability. Such restricted stock
is eligible for any dividend paid on shares of Common Stock.
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 the Named Executives that have a current term
expiring on December 31, 2002, 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 Named
Executive devote full attention and best efforts during the term of such
agreement to the performance of assigned duties. A Named Executive discharged
without cause or constructively
13
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 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 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 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, 2002, 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
14
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 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.
The Employment Agreements and the Termination Compensation Agreements
described above are executory contracts (i.e., contracts that remain to be
performed by each party to the contract) under the Bankruptcy Code and are
subject to assumption or rejection only with approval of the Bankruptcy Court.
15
To the date of this Proxy Statement, no motion has been filed seeking either to
assume or reject these agreements.
Chapter 11 Related Compensation Plans
On September 20, 2001, the United States Bankruptcy Court for the District
of Delaware approved the Corporation's request for authority to implement (a) a
key employee retention plan (the "Retention Plan") and (b) a severance plan for
senior executives (the "Severance Plan"). These two plans, or "Key Employee
Programs", are designed to provide key employees, including the Named
Executives, with competitive financial incentives to remain in their current
positions with the Corporation or its subsidiaries through the conclusion of the
Chapter 11 cases and to assume the additional administrative and operational
burdens imposed by the Chapter 11 cases.
Retention Plan
The Retention Plan entitles eligible employees to a cash payment equal to a
specified percentage of their annual base salary payable in semi-annual
installments in return for continued employment with the Corporation or its
subsidiaries. To be eligible for a retention payment, a participant must be an
employee in good standing on the last day of the semi-annual period. The
retention payment percentages range from 30% to 170% on annual basis. For
certain participants, a portion of their annual awards become payable only if
the participant remains employed in good standing as of the Termination Date.
The Court has granted authority to implement the plan for a period of up to
three years from the date of filing of the Chapter 11 cases through and
including the earlier of (a) emergence from bankruptcy or (b) June 30, 2004 (the
"Termination Date"). The Retention Plan covers approximately 225 employees,
including the Named Executives.
Severance Plan.
The Severance Plan establishes severance benefits for participants in the
event of involuntary termination without cause on or prior to December 31, 2004.
The Severance Plan, which establishes severance benefits for approximately
19 senior executives, including the Named Executives, provides that senior
executives who suffer an employment loss may elect one of two options: (a) the
Corporation provides the senior executive with base salary and par incentive
under the annual management incentive program, continuing welfare benefits and
certain stock option benefits for twenty-four months; or (b) the Corporation,
within 30 days of receipt of a signed general release, pays the senior executive
a lump sum calculated as follows: (i) a lump sum payment to the executive in an
amount equal to one and one-half weeks of base salary for each full year of
continuous service with the Corporation or its subsidiaries, subject to a
minimum of two months salary, plus (ii) two weeks base salary at the rate in
effect immediately prior to such termination date for each full $15,000 of
annualized salary at the same rate, plus (iii) a lump sum cash payment equal to
the cost of continuation of medical, vision and dental benefits.
16
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.
RETIREMENT PLAN TABLE
<Table>
<Caption>
YEARS OF BENEFIT SERVICE
COVERED ----------------------------------------------------------
COMPENSATION 20 25 30 35 40
------------ -------- -------- -------- -------- ----------
$ 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, 2001, were
as follows: Mr. Foote, 18; Mr. Fleming, 28; Mr. Meister, 20; Mr. Bosowski, 25;
and Mr. Ferguson, 14. Compensation under the Retirement Plan includes salary,
Retention Plan payments 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. In addition, the Corporation has authorized
establishment by certain individuals, including the Named Executives, of grantor
trusts owned by such individuals to hold accrued benefits under the supplemental
plan as a means of assuring the security of such benefits.
17
Director Compensation
Directors who are not employees of the Corporation are currently entitled
to receive a retainer of $10,000 per quarter plus a fee of $1,500 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 $1,500 per quarter for each such chair. Directors may elect to
receive some or all of the retainers, 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 $1,500 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 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 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.
18
4. With the Corporation's filing of its Chapter 11 cases, the element of
employee retention has become a paramount consideration in the
compensation strategy of the Corporation.
The components of the Corporation's executive compensation program have in
general comprised base salary, annual incentive cash awards, and a long-term
equity program. With the filing of the Chapter 11 cases, the Corporation has
added the Retention Plan to make up for the decline in the long-term equity
program as a compensation device and to assure retention of management over the
longer term.
Each year, the Committee conducts a comprehensive evaluation of the
Corporation's executive compensation programs. For 2001, the Committee compared
the Corporation's salary incentive programs with participant information from
five national compensation surveys with survey populations of 400 to 1,300
companies (of which 65 to 170 were industrial companies with similar annual
revenues of approximately $3 billion). The Committee also reviewed annualized
option grant values and cash incentive programs of a peer group of over 500
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 other corporations generally, and comparably sized
companies specifically, with which the Corporation competes for executive
talent, while the latter group was selected to reflect business compatibility in
stockholder return comparisons.) In addition, the Committee considers
recommendations from the Corporation's Human Resources Department, which works
closely with independent compensation consultants. In reviewing the compensation
of executives other than the Chief Executive Officer, the Committee also
considers the Chief Executive Officer's counsel and recommendations. Taking into
account the changes in the executive compensation program during 2001 and the
overall situation of Corporation and its performance results for the year, the
Committee has determined to make no merit increases for corporate officer
salaries in 2002.
Base Salaries
Except for the 17 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 17 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.
19
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 252 officers and managers with position values above a specified
threshold were eligible to participate in the program in 2001. 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 2001 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 17 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 2001 resulted
in no awards to the Named Executives.
Long-Term Equity Program
Non-qualified stock options for 796,450 shares were granted in 2001 to 195
executives and senior managers, in each case at an exercise price equal to
market value on the date of grant (determined as described in the chart above
titled "Option/SAR Grants in Last Fiscal Year"). 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.
As a method of providing enhanced retention value for the long-term equity
program and before development of the Retention Plan for this purpose, the
Corporation made time-vested grants to select managers and executives for
retention and motivational purposes during the next several years. In February,
2001 a total of 60,000 shares having 3 year time-vested restrictions were
granted to approximately 45 key managers and executives.
Retention Plan
Due to the impact of the Corporation's filing of the Chapter 11 cases, the
benefits of the long-term equity program are not able to be realized at present
and for the foreseeable future. Therefore, the Corporation adopted the Retention
Plan to achieve the primary goal of preservation and enhancement of enterprise
value by keeping employees focused on their jobs and minimizing the loss of key
managers. The Retention Plan is comparable to plans adopted in other pending
Chapter 11 cases involving other
20
building materials companies. As approved by the Court, the Retention Plan will
extend for up to three years from the date of filing of the Chapter 11 cases
through the earlier of emergence from Chapter 11 or June 30, 2004. The Retention
Plan covers approximately 225 employees, including the Named Executives.
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 compensation that is not deemed performance-based in
excess of $1 million in any year paid to its chief executive officer and the
four other most highly compensated executive officers for such year. There is no
practicable action that could be taken to qualify regular salaries, the
Retention Plan payments, the time-vested restricted stock awards, or other
annual compensation for exemption under the applicable provisions of the
Internal Revenue Code as currently in effect. With respect to the Corporation's
performance-based compensation plans, compensation to any of the Named
Executives in connection with exercises of stock options or shares earned under
any award of performance-based stock would be exempt from the calculation of
covered compensation subject to the deductibility limitation. For the year 2002,
annual incentive cash awards earned by the Named Executives would not be exempt.
THE CHIEF EXECUTIVE OFFICER'S 2001 COMPENSATION
In 2001, the compensation for William C. Foote consisted principally of
salary of $880,417; a Retention Plan payment of $648,875; and long-term
incentive compensation consisting of (a) a grant of a non-qualified stock option
for 80,000 shares of Common Stock, and (b) an award of 10,000 shares of
time-vested restricted stock.
Base Salary
Mr. Foote's base salary as of March 1, 2001, was approved by the Committee
in February 2001. The Committee set Mr. Foote's base salary at an annual rate of
$895,000, an increase of $70,000 over the base salary effective on March 1,
2000, the date of his last increase. Following such increase, Mr. Foote's base
salary ranked in the 63rd 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
operating performance in 2000, 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 did not receive a 2001 Annual Management Incentive Program award.
Long-Term Compensation
Mr. Foote's long-term compensation in 2001 was provided by: (a) the grant
of a non-qualified stock option for 80,000 shares of Common Stock; and (b) the
award of 10,000 shares of time-vested restricted
21
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 2001 grants.
Retention Plan
In keeping with the primary goal of the Corporation's compensation strategy
to maintain and enhance enterprise value by keeping employees focused on their
jobs and minimizing the loss of key managers, the largest component of Mr.
Foote's long-term compensation will for the next several years be the Retention
Plan payments. The payment for 2001, representing a payment for approximately
six months of the year, was $648,875.
The Committee believes that the Corporation's executive compensation
program provides competitive opportunities for executives who contribute to the
success of the Corporation. The Committee intends to continue the policy of
linking a significant portion of 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. Douglas Ford
Valerie B. Jarrett
John B. Schwemm
Judith A. Sprieser
22
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors has:
- Reviewed and discussed the audited financial statements with management;
- Discussed with Arthur Andersen LLP, the Corporation's independent public
accountants, the matters required to be discussed by Statement on
Auditing Standards No. 61; and
- Received the written disclosures and the letter from Arthur Andersen LLP
required by Independence Standards Board Standard No. 1, and has
discussed with Arthur Andersen LLP its independence and has considered
whether the provision of non-audit services by Arthur Andersen LLP is
compatible with maintaining its independence.
In reliance on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Corporation's Annual Report on Form 10-K for the
year ended December 31, 2001.
Judith A. Sprieser, Chair
Robert L. Barnett
Keith A. Brown
Marvin E. Lesser
John B. Schwemm
The Audit Committee Report shall not be deemed to be incorporated by
reference into any filing made by the Corporation under the Securities Act of
1933 or the Securities Exchange Act of 1934, notwithstanding any general
statement contained in any such filing incorporating this proxy statement by
reference, except to the extent the Corporation incorporates such Report by
specific reference.
AUDIT AND NON-AUDIT FEES
For the year ended December 31, 2001, the following fees were billed by
Arthur Andersen LLP to the Corporation for the indicated services:
<Table>
- - Audit Fees: $ 990,000
- - Financial Information Systems Design and Implementation
Fees: $ 0
- - Fees for Bankruptcy Related Services: $2,415,000
- - Other non-Audit Fees: $1,635,000
</Table>
23
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, 2001.
[PERFORMANCE GRAPH]
<Table>
<Caption>
USG CORPORATION S&P 500 BUILDING MATERIALS GROUP
--------------- ------- ------------------------
1996 100.00 100.00 100.00
1997 145.00 133.00 104.00
1998 151.00 171.00 113.00
1999 141.00 208.00 106.00
2000 68.00 189.00 92.00
2001 17.00 166.00 98.00
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 2000 Dec. 31, 2001
- ------------------------------------------------------------------------------------------------------------------------
USG Corporation $100 $145 $151 $141 $ 68 $ 17
S&P 500 100 133 171 208 189 166
Building Materials
Group 100 104 113 106 92 98
</Table>
All amounts rounded to nearest dollar.
The Building Materials Group comprises the following 20 publicly traded
companies in the building materials industry for all periods reflected in the
performance graph, except as noted: Ameron International, Inc., Apogee
Enterprises, Inc., Armstrong Holdings, Inc., Bird Corp. (through 1997), Butler
Manufacturing Co., Crane Co., Elcor Corp., Fluor Corp., International Aluminum
Corp., Jannock, Ltd. (through 1999), Johns-Manville Corp., Justin Industries
(through 1999), Masco Corp., Morgan Products, Ltd. (through 1998), Morrison
Knudsen Corp. (from mid-1996 through 1999; prior periods reflect returns of
merger partner Washington Construction Group, Inc.), Owens-Corning, Perini
Corp., PPG Industries, Inc., Thomas Industries, Inc., and TJ International, Inc.
(through 1999).
24
Ply-Gem Industries, included in the Corporation's peer group of companies
through 2000, has since been omitted because more than five years have lapsed
since its acquisition by a third party.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
In past years, in accordance with the Corporation's bylaws, the Audit
Committee has selected the independent public accountants for the year subject
to ratification of such selection by stockholders. This year, in light of
unprecedented circumstances involving Arthur Andersen LLP, the Audit Committee
has not yet finally selected the independent public accountants for the year
ending December 31, 2002, and the Board of Directors, upon recommendation of the
Audit Committee, has amended the Corporation's bylaws to remove this item from
the matters to be voted on at the 2002 annual meeting of stockholders. While the
Corporation is continuing to work with Arthur Andersen LLP as independent public
accountants on the financial statement review for the first quarter of 2002, the
Corporation is soliciting proposals for audit services from a number of
independent accounting firms. Accordingly, the stockholders are not being asked
to ratify the appointment of independent public accountants to audit the
Corporation's financial statements for the year ending December 31, 2002. The
Audit Committee will review the proposals received and select and employ on
behalf of the Corporation independent public accountants for the year ending
December 31, 2002. The Corporation expects to seek stockholder ratification of
the appointment of independent public accountants in subsequent years.
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 Georgeson Shareholder
Communications Corporation to assist in this solicitation at a fee of $9,500,
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 the Corporation's proxy materials
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.
25
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
2003 must be received not later than November 28, 2002. 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 2003 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 14, 2003, nor later than
March 14, 2003, and must comply with the procedures outlined in the
Corporation's by-laws, a copy of which is available upon request from the
Corporate Secretary, 125 South Franklin Street, Chicago, Illinois 60606-4678.
By order of the Board of Directors
/s/ J. E. SCHAAL
J. E. SCHAAL
Corporate Secretary
Dated: March 29, 2002
26
ANNEX A
USG CORPORATION
AUDIT COMMITTEE CHARTER
BE IT RESOLVED: That, as recommended by the Audit Committee, Article IV,
Section 1(c) of the by-laws be and it hereby is amended to read in its entirety
as follows:
"[The corporation shall have the following standing committees:. . .](c) An
Audit Committee which shall have ongoing responsibilities to assist the Board of
Directors in monitoring the integrity of the financial statements of the
Corporation, the Corporation's compliance with financial reporting and related
legal and statutory requirements, and the independence and performance of the
Corporation's internal and external auditors. The Audit Committee additionally
shall select and employ on behalf of the Corporation, subject to ratification by
the stockholders, and approve the fees of, a firm of certified public
accountants whose duty shall be to audit the books and accounts of the
Corporation and its subsidiaries and affiliates for the fiscal year for which it
is appointed, and which firm shall ultimately be accountable to the Committee
and the Board of Directors. Such Committee shall also retain special legal,
accounting or other consultants to advise it as it shall determine, and may
request any officer or employee of the Corporation or its outside counsel or
independent auditor to meet with it, individually or jointly, or any of its
consultants. The Committee periodically shall report and make appropriate
recommendations to the Board of Directors. It shall consist of not less than
three members of the Board of Directors who are not officers or employees of the
Corporation and who meet the independence, financial literacy and experience
requirements of the New York Stock Exchange and the Securities and Exchange
Commission. Such members shall be appointed by the Board of Directors on the
recommendation of the Committee on Directors."
BE IT FURTHER RESOLVED: That, as recommended by the Audit Committee, to
implement the provision of the Corporation's by-laws defining the duties of the
Audit Committee, said Committee be and it hereby is charged with the following
specific responsibilities (herein, collectively with such by-law
responsibilities, referred to as said Committee's "Charter"):
1. to review and reassess the adequacy of its Charter annually.
2. to ensure that the Charter is published as required by the
Securities and Exchange Commission.
3. to review with management and the independent auditor, upon
completion of their audit, the annual audited financial statements,
and to request that the independent auditor report on matters
required to be communicated to the Committee in accordance with
current auditing standards.
4. to engage the independent auditor to perform quarterly reviews in
accordance with current auditing standards and review with
management and the independent auditor, either jointly or by its
Chair, the results of such review of the Corporation's quarterly
A-1
financial statements prior to the filing of its quarterly reports
on Form 10-Q and its annual report on Form 10-K.
5. to meet periodically with management to review the Corporation's
major financial risk exposures and the steps management has taken
to monitor and control such exposures.
6. to review major changes to the Corporation's accounting principles
and practices with the independent auditor, internal auditors or
management.
7. to require the independent auditor to summarize audit and non-audit
services fees annually and to submit a formal written statement
disclosing all relationships between the independent auditor and
the Corporation in accordance with current independence rules; to
be responsible for actively engaging in a dialogue with the
independent auditor with respect to any disclosed relationships or
services that impact the objectivity and independence of the
independent auditor and to recommend that the Board of Directors
take appropriate action to insure the independence of the auditor.
8. to evaluate the performance of the independent auditor and, if so
determined by the Committee, recommend that the Board of Directors
replace the independent auditor.
9. to meet with the independent auditor prior to the annual audit to
review the planning, staffing and conduct of the audit, and to
review with the independent auditor any problems or difficulties
the auditor may have encountered in the conduct of the audit.
10. to provide guidance and oversight to the internal auditors, and to
review the organization, audit plans and results of such
activities.
11. to be responsible for the preparation of the report required by the
rules of the Securities and Exchange Commission to be included in
the Corporation's annual proxy statement.
12. to review with the Corporation's senior internal legal counsel and
advise the Board of Directors with respect to the financial
reporting of (i)legal matters that may have a material impact on
the financial statements, (ii)the Corporation's compliance policies
and (iii) any material reports or inquires received from regulators
or governmental agencies.
13. to meet periodically, as the Committee shall deem necessary or
appropriate, with the chief financial officer, the senior internal
auditing executive and the independent auditor in separate
executive sessions.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Corporation's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles,
which is the responsibility of management and the independent auditor. Nor is it
the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent auditor, or to
assure compliance with laws and regulations and the Corporation's internal
policies.
A-2
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================================================================================
ANNUAL MEETING PROXY CARD
================================================================================
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
USG CORPORATION FOR ITS ANNUAL MEETING OF STOCKHOLDERS ON MAY 8, 2002
The undersigned hereby appoints William C. Foote and J. Eric Schaal 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 USG
Corporation, third floor Business Library, 125 South Franklin Street, Chicago,
Illinois on May 8, 2002, and any adjournment thereof, on the matters shown on
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PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY USING THE ENCLOSED
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(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
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PROXY - USG CORPORATION
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[A] ELECTION OF DIRECTORS PLEASE REFER TO THE REVERSE SIDE FOR INTERNET
AND TELEPHONE VOTING INSTRUCTIONS.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM A.
FOR WITHHOLD
--------------
01 - Robert L. Barnett
02 - David W. Fox
03 - Valerie B. Jarrett
04 - Marvin E. Lesser
--------------
[B] I PLAN TO ATTEND THE ---------
ANNUAL MEETING.
---------
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Signature 1 Signature 2(or title) Date(dd/mm/yyyy)
======================== ======================== ========================
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A632 1UPX 007TDA
- --------------------------------------------------------------------------------
[USG LOGO] MEETING OF STOCKHOLDERS
OF USG CORPORATION
MAY 8, 2002, 9:15 A.M.
THIRD FLOOR BUSINESS LIBRARY
125 SOUTH FRANKLIN STREET
CHICAGO, ILLINOIS
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You must present this ticket to the USG representatives at the entrance to
be admitted to the Annual Meeting.