1 SCHEDULE 14A (RULE 14A-101) SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant / / Filed by a Party other than the Registrant /x/ 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 Under Rule 14a-12 USG Corporation (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Hakatak Enterpises, Inc. (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: 2 LET'S MAKE THE SHAREHOLDERS A PRIORITY AT USG! YOUR VOTE CAN HELP DECIDE THE FUTURE OF YOUR INVESTMENT. SIGN AND RETURN THE GREEN PROXY TODAY! ------------------------ HAKATAK ENTERPRISES, INC. 100 WILSHIRE BOULEVARD, SUITE 1700 SANTA MONICA, CALIFORNIA 90401 (310) 260-6007 OR (800) 358-8660 ------------------------ April 24, 2000 Dear Fellow Shareholders: I am the beneficial owner of over one million shares (including those I hold as trustee) of USG Corporation (the "Company") and have been a patient and committed investor since 1991. During the last several years, I have become increasingly concerned about whether the interests of the Board of Directors and management are directly aligned with those of the shareholders. I have often wondered how a well-positioned company like ours trades at such low price earnings and cash flow multiples. This depressed valuation was recently underscored when our Company was mentioned in an April 17, 2000 Forbes magazine article as a top "LBO" candidate. The Company's market capitalization(1) dropped by over $900 million, or approximately 30% from 1/31/99 to 1/31/00, while the S&P 500 increased by approximately 9% in the same period. My core belief is that we very much need a Board of Directors and management team whose interests and actions are directly aligned with shareholders. This core belief has prompted me to take a more vigorous and active role in maximizing shareholder value through two important steps: (1) I HAVE SUBMITTED A PROPOSAL AT THIS YEAR'S ANNUAL MEETING TO RESCIND THE COMPANY'S CURRENT "POISON PILL" AND REQUIRE SHAREHOLDER APPROVAL BEFORE ANY OTHER SO-CALLED SHAREHOLDERS RIGHTS PLAN BECOMES EFFECTIVE; AND, (2) I AM NOMINATING THREE PERSONS FOR ELECTION AS DIRECTORS OF THE COMPANY. THEIR NAMES ARE JAY BUCHBINDER, KEITH OGATA AND HERBERT DENTON. AS A MATTER OF FACT, JAY BUCHBINDER AND TRUSTS FOR HIS BENEFIT OWN MORE SHARES THAN THE ENTIRE BOARD AND MANAGEMENT COMBINED. You should be aware that two of the three incumbent directors we are opposing and more than half of the current directors were officers or directors of the Company when the Company filed for bankruptcy in 1993. Collectively, these three incumbent directors own 9,090 shares (as of the most recent proxy statement) demonstrating their lackluster commitment to the financial success of USG's shareholders. We are not, however, opposing the fourth incumbent nominated by the Company, who was designated independently after the Company's bankruptcy filing in 1993, and who has an apparent alignment with the success of the Company's shareholders through ownership of 138,800 shares of common stock. I have come to believe that the current Board requires new directors who will take aggressive steps to maximize shareholder value, as well as to influence policy decisions in corporate governance and management compensation. - --------------- (1) Value of shares held by non-affiliates as reported on the Company's 1998 and 1999 Form 10-K. 1 3 WHY THIS PROXY CONTEST IS NECESSARY I believe that the Company is competitively well-positioned in the marketplace and is a tremendous generator of earnings and cash, but has been seriously undervalued by the market, in part because the Board and management are entrenched and insulated and have not pursued an aggressive policy to enhance shareholder value. My deep concern is that if the Company continues to allocate an excessive amount of its free cash flow to capital expenditure programs we shareholders may never see the enhancement of share value that management claims to be seeking. As a regular participant in analyst conference calls over the years, I have noticed that analysts and investors regularly question management about its policies towards capital expenditure programs, as well as specific steps to increase shareholder value such as share repurchase programs and cash dividend distributions. In the past, management's response had been that it would turn its attention to "shareholder initiatives" once an "investment grade" rating was achieved for the Company's debt. While this objective was first reached in December 1997, the following graph will clearly demonstrate the market's poor reaction to management's approach. DATE USG CORPORATION S&P500 - -------- --------------- ------ 12/12/97 100 100 02/06/98 110 105 03/04/98 115 120 05/29/98 110 120 07/24/98 110 120 09/18/98 95 105 11/13/98 100 120 01/08/99 105 135 03/05/99 100 135 04/30/99 120 140 06/25/99 110 140 08/20/99 105 140 10/15/99 90 135 12/10/99 95 150 02/04/00 75 145 04/07/00 80 160 (Comparing the % change between 12/12/97 and 4/20/00 of USG common stock and the S&P 500 when both are set to a par value of 100 on 12/12/97.) From this base, USG's stock price has declined approximately 20% while the S&P 500 index has increased by approximately 40%. Source: Bloomberg 2 4 Several analysts have suggested that the Company's expansion program, when combined with the industry wide expansion in wallboard capacity, has actually dampened the stock's performance and may continue to affect its future performance prospects. I agree with the analysts' views. As a matter of fact, in 1998 and 1999 I personally met with the Company's senior officers and expressed my concerns with the Company's devoting a disproportionate amount of its cash flow to increase plant capacity in a potentially risky part of the economic cycle. The Company's focus on growing its business has clearly not grown its stock price. I felt it was necessary to make certain that the Board and management did not feel too insulated from accountability to the shareholders for the Company's poor stock price performance. Therefore, in 1999, I submitted a shareholder proposal to remove the "poison pill" hoping that management and the Board would be motivated to recognize the poor grade they are getting on two important report cards -- the stock's price and P/E Ratio. The Board's paternalistic response to my shareholder proposal has forced me to nominate Jay Buchbinder, Keith Ogata and Herbert Denton as candidates for the Company's Board at the next annual meeting. WHY YOU SHOULD VOTE FOR THE HAKATAK NOMINEES Two of the Company's nominees began to serve on the Board in 1987 and 1988. They served on the Board that, in an effort to fend off a take-over, implemented a re-capitalization plan -- which was a contributing factor to the Company's eventual bankruptcy filing in 1993. Two of the Company's nominees also currently serve on the Compensation Committee, which has generously rewarded management without regard for the poor stock performance. Three of the Company's four nominees serve on the Executive Committee which failed even to meet in 1998 and 1999. REMEMBER: THESE THREE INCUMBENT DIRECTORS OWN ONLY 9,090 SHARES (AS OF THE MOST RECENT PROXY STATEMENT). I wish to be very clear -- this is not a takeover attempt. The election of these three directors (out of thirteen), all of whom will bring a vigorous focus on maximizing shareholder value, is not a change in control of the Board. Their election, however, would provide an enormous influence and bring a fresh perspective to the Board, especially on utilization of free cash flow, corporate governance and management compensation issues. I strongly believe that it is now time to elect these three new Directors who will focus on aggressively increasing shareholder value. IF ELECTED, MY NOMINEES WOULD SEEK TO PRESS THE INCUMBENT DIRECTORS AND MANAGEMENT TO TAKE THE FOLLOWING STEPS: REALLOCATE FREE CASH FLOW TO BENEFIT STOCKHOLDERS. For the three years ending December 31, 2000 (including management's projections for this year), the Company will spend over $1 billion on capital expenditures. While we recognize the 3 5 importance of the plant modernizations over the past several years to improving our competitive position in the marketplace, the Company is now at a point in the economic cycle where it should allocate a much higher percentage of cash flow to stock buybacks and cash dividends. Should the Company's operating performance stay on course in coming years, I believe this reallocation of cash flow could allow the company to acquire significantly more shares in the open market than it is prepared to purchase right now, as well as increase the dividend by a multiple of its present amount -- all to the benefit of the shareholders and the value of our stock. We realize that the Company has recently announced an additional five million share buyback program. However, in their press release, they were decidedly non-committal as to the time frame in which this buyback will occur. SEEK TO INSTITUTE A PRO SHAREHOLDER CORPORATE GOVERNANCE POLICY. At the Annual Meeting I am also submitting a shareholder proposal to rescind the Company's current "poison pill" and require shareholder approval before any other so-called Shareholder Rights Plan becomes effective. The Board, as expected, is opposing my initiative. The directors have taken the position that even if the requisite 80% vote is achieved for adoption of this proposal, they may decide to ignore the wishes of the shareholders by seeking to invalidate the proposal on legal grounds. THIS PRO-ENTRENCHMENT POSTURE COMPLETELY UNDERSCORES THE NEED FOR NEW DIRECTORS WHO ARE MORE ALIGNED WITH SHAREHOLDER INTERESTS. In addition to the "poison pill," management has other protective devices such as a staggered board and supermajority voting requirement in the Charter. All the senior managers have "golden parachutes" -- which provide certain lucrative benefits in the event of their termination after a "change in control." IN MY OPINION, A CORPORATE GOVERNANCE REVIEW IS URGENTLY NEEDED TO MAKE CERTAIN THAT THE BOARD AND MANAGEMENT DO NOT FEEL TOO INSULATED FROM ACCOUNTABILITY TO THE SHAREOWNERS FOR THE COMPANY'S POOR STOCK PRICE PERFORMANCE. REVIEW EXECUTIVE COMPENSATION POLICY. In 1999, the five most highly compensated managers of the Company received $2,255,500 in salary (raises totaling more than $151,000), bonuses of $2,051,257 ($537,798 more than the 1998 bonuses) and restricted stock awards of more than $4,418,250 (an increase of $1,645,000 over 1998). In addition, the value of their options could reach more than $4,378,860, according to their own proxy statement. The restricted stock award portion of their compensation allows vesting of 100% of the grants if the stock price performance is at least in the 70th percentile of the building materials group (which has woefully underperformed the S&P 500 Index) and allows managers to keep at least part of their awards unless performance falls below the 50th percentile. THESE DO NOT SEEM TO BE CHALLENGING THRESHOLDS TO ACHIEVE. IF YOU REWARD MEDIOCRE STOCK PERFORMANCE, YOU ARE LIKELY TO GET IT. The current stock option program allows for full vesting in just two years. I question whether this executive 4 6 compensation policy is truly designed to provide incentives to management to MAXIMIZE long-term shareholder value. I believe a thorough review by an independent committee, which includes new directors with no long-term ties to management, is warranted. EXPLORE ALTERNATIVES FOR ENHANCING STOCKHOLDER VALUE. We believe an independent investment-banking firm, and if appropriate, other experts, should be retained specifically to perform a study on various ways to maximize value. We believe that the findings of any such report to the board should be made available for shareholder review. AN IMPORTANT OPPORTUNITY FOR SHAREHOLDERS It is a rare occurrence when individual investors take up the burden of time, effort and expense to wage a proxy contest against a sizable company to seek a commitment to enhance shareholder value. We do not guarantee that we will attempt any additional initiatives should this one fail. Therefore we urge you to give careful consideration to the issues raised and take full advantage of this opportunity to make a significant impact on the future of your investment. In my opinion, this is what corporate democracy is all about. SHAREHOLDER PRESSURE CAN WORK! In September 1998, management announced a plan to buy back up to five million shares of Common Stock. This announcement followed by about five weeks my own request to management that they consider such a plan, along with similar requests made by other shareholders. On March 24, 2000, management announced another buyback program, also for five million shares of Common Stock. This announcement followed by little more than a week my notification to the Company that I intended to nominate independent directors to the Board. It is interesting to note that the Company announced the second buyback plan even though they had completed only about 75% of the original buyback plan in approximately a year-and-a-half. I do not take full credit for the announcement of either plan. HOWEVER, I DO BELIEVE THAT SHAREHOLDER PRESSURE CAN FORCE A BOARD AND MANAGEMENT TO FOCUS ON VALUE ENHANCING MEASURES. I BELIEVE IT CAN WORK FOR US IN THE PROXY CONTEST. 5 7 I urge you to join my nominees and me in bringing new direction to USG. YOUR VOTE COULD BE THE CATALYST IN MAKING SHAREHOLDER VALUE A PARAMOUNT CONCERN IN OUR COMPANY. Please sign and return the GREEN proxy today. Thank you for your support. Very truly yours, Hakatak Enterprises, Inc. Tom Hacker, President 6 8 If your shares are registered in your own name, please mark, sign and date the enclosed GREEN proxy card and return it to Hakatak, in the enclosed envelope in time to be voted at the Annual Meeting. If any of your shares are held in the name of a brokerage firm, bank, bank nominee or other institution on the record date, only it can vote such Company shares and only upon receipt of your specific instructions. Sign and return the GREEN proxy card in the envelope provided by your broker or bank. To be certain your vote is received in time, please contact the person responsible for your account and instruct that person to execute on your behalf the GREEN proxy card. I urge you to confirm your instructions in writing to the person responsible for your account and to provide a copy of such instructions to Hakatak at the address indicated below: HAKATAK ENTERPRISES, INC. 100 Wilshire Boulevard, Suite 1700 Santa Monica, California 90401 (800) 358-8660 OR (310) 260-6007 thackert@bloomberg.net If you need assistance in voting your GREEN proxy, please call my proxy solicitor, at: BEACON HILL PARTNERS, INC. Toll Free: (800) 475-9320 Collect: (212) 843-8500 IMPORTANT YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY OR HOW FEW SHARES YOU OWN. I URGE YOU TO MARK, SIGN, DATE AND RETURN THE ENCLOSED GREEN PROXY CARD TO VOTE FOR ELECTION OF MY NOMINEES. A VOTE FOR MY NOMINEES WILL ENABLE YOU -- AS OWNERS OF THE COMPANY -- TO ELECT NON-INSIDER DIRECTORS WHO OWN SIGNIFICANT SHARES IN THE COMPANY AND WHO WILL WORK TO INCREASE SHAREHOLDER VALUE. I URGE YOU NOT TO SIGN ANY PROXY CARD SENT TO YOU BY THE COMPANY. If you have already done so, you may revoke your proxy by delivering a later dated proxy for the Annual Meeting or a written notice of revocation to Hakatak, or to the Secretary of USG Corporation or by voting in person at the Annual Meeting. ONLY YOUR LATEST DATED PROXY WILL COUNT AT THE ANNUAL MEETING. 7 9 PROXY STATEMENT OF HAKATAK ENTERPRISES, INC., IN OPPOSITION TO THE BOARD OF DIRECTORS OF USG CORPORATION ------------------------ ANNUAL MEETING OF SHAREHOLDERS OF USG CORPORATION TO BE HELD MAY 10, 2000 This Proxy Statement, dated April 24, 2000 ("Proxy Statement") and the accompanying GREEN proxy card are being furnished in connection with the solicitation of proxies by Hakatak Enterprises, Inc. ("Hakatak") to be voted at the annual meeting of the Company to be held at 9:15 a.m. on Wednesday, May 10, 2000, and at any adjournments, postponements, or reschedulings thereof (the "Annual Meeting"). At the Annual Meeting, four directors of the Company will each be elected for a three year term or until the election and qualification of each of their successors. I am soliciting your proxy in support of the election of my three nominees, Jay Buchbinder, Keith Ogata and Herbert Denton (each individually a "Hakatak Nominee," and collectively, the "Hakatak Nominees") as directors of the Company. I am also soliciting your proxy in support of a Bylaw amendment requiring majority shareholder approval of any Shareholder Rights Plan or other form of "poison pill" (the "Shareholder Value Amendment"). The proxy statement and GREEN proxy card are first being mailed to the stockholders of the Company on or about April 24, 2000. I. ELECTION OF DIRECTORS GENERAL The Board of Directors 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. The remaining classes will be elected in 2001 and 2002, respectively. The three Hakatak Nominees -- Jay Buchbinder, Keith Ogata and Herbert Denton -- are described in more detail below. None of the Hakatak Nominees are 8 10 members of the present board, and each Hakatak Nominee is a citizen of the United States. Each Hakatak Nominee has consented in writing to being named as a nominee for election as a director in the proxy materials to be used in connection with the Annual Meeting and, if elected, has consented to serving as a director. Hakatak is unaware of any reason why any Hakatak Nominee, if elected, should be unable to serve as a director. If for any reason any Hakatak Nominee is unable or declines to serve, the GREEN proxy cards solicited by Hakatak Enterprises, Inc. will be voted for any substitute nominee who shall be designated by Tom Hacker to fill the vacancy. Each Hakatak Nominee has furnished Hakatak with information concerning his principal occupation for the proceeding five-year period, business addresses and other matters. Except as disclosed herein, (a) no Hakatak Nominee has ever served as an officer, director or employee of the Company; (b) there are no arrangements or understandings between any Hakatak Nominee and any other person pursuant to which that Hakatak Nominee was selected as a nominee to serve as a director of the Company or with respect to any future employment by the Company or any future transactions to which the Company or any of its affiliates will or may be a party; and (c) no Hakatak Nominee shall receive any form of compensation for serving in the capacity as a director of the Company, other than any compensation currently paid by the Company to its directors in their capacity as directors. THE HAKATAK NOMINEES JAY BUCHBINDER, 67, CEO of JBI, Inc., a private vertically integrated manufacturing corporation. He is also the CEO of Emeco Industries Inc., Decor Products Inc. and Playground Concepts. Mr. Buchbinder's address is 2650 El Presidio, Long Beach, California 90810. KEITH OGATA, 45, President of 3K Financial Corp., a private investment company. He is a director of Career Education Corp. (NASDAQ:CECO), a vocational education company. Until its recent sale to Harcourt General (NYSE:H) in 1997, Mr. Ogata served as the CFO of National Education Corporation (NYSE:NEC). Mr. Ogata also served as President of National Education Centers and Chairman of the Board of Spartan Aviation. Mr. Ogata's address is 1056 Ikena Circle, Honolulu, HI 96821. HERBERT DENTON, 52, President of Providence Capital, Inc., a private broker-dealer corporation. He is a director of Chic by H.I.S., Inc., a garment company, Mesa Air Group, Inc. (NASDAQ:MESA), an airline, Baldwin Piano & Organ, Inc. (NasdaqNM:BPAO), a musical instrument company, and U.S. Value Investment Co., PLC, an investment company. Mr. Denton's address is 730 Fifth Ave., Suite 2102, New York, NY 10019. 9 11 COMMON STOCK OWNERSHIP OF THE HAKATAK NOMINEES The following table sets forth the beneficial ownership, as of the Record Date, of the Common Stock by each of the Hakatak Nominees and the other shares in which they have an economic interest. Except as otherwise indicated below, all shares indicated are held with sole voting and disposition rights. NUMBER OF SHARES TOTAL AS PERCENT BENEFICIALLY OTHER TOTAL OF OUTSTANDING NAME OWNED SHARES SHARES SHARES ---- ---------------- ------- --------- ---------------- Jay Buchbinder............. 609,644(2) 474,653(3) 1,084,304(3) 2.267% Keith Ogata................ 8,000(4) -- 8,000(4) 0.017% Herbert Denton............. 10,000(5) -- 10,000(5) 0.021% ------- ------- --------- ----- AGGREGATE:................. 637,644(2)(4)(5) 474,653 1,102,304(3)(4)(5) 2.305% ======= ======= ========= ===== For information with respect to all securities purchased or sold by the Hakatak Nominees in the past two years, please see Exhibit A attached hereto. ADDITIONAL INFORMATION REGARDING THE HAKATAK NOMINEES No Hakatak Nominee has any family relationships with any executive officer or director of the Company or each other, or has been involved in any legal proceedings of the type required to be disclosed by the rules governing this solicitation. No Hakatak Nominee is currently, or has been, involved in any business relationship with the Company or any of its affiliates. No Hakatak Nominee has been indebted to the Company or any of its affiliates. When you return the Hakatak GREEN proxy card you are voting for the Hakatak Nominees. However, since Hakatak is only nominating three candidates for the four available Board seats, if the three Hakatak Nominees are elected, one of the Company nominees who receives the highest number of shares will also be elected. Hakatak intends to use this proxy to vote for one person who has been nominated by the Company to serve as a director, other than James C. Cotting and John B. Schwemm -- the two Company nominees who have the longest tenure -- and W. Douglas Ford, who does not have a significant equity position in the Company. There is no assurance that any of - --------------- (2) Includes 20,000 shares of Common Stock owned by the Terry Trust, to which Mr. Hacker and Mr. Buchbinder serve as trustees, to which Mr. Buchbinder has share voting and disposition rights. (3) Includes the 474,653 shares of Common Stock owned by the Armin Trust, for which Mr. Hacker serves as trustee, to which Mr. Buchbinder has no voting or disposition rights. Mr. Buchbinder is the beneficiary of this trust. (4) Mr. Ogata has agreed to purchase 50,000 shares of Common Stock within 3 months of election to the Board. (5) Includes 3000 shares of Common Stock owned of record by Providence Investors, LLC, to which Mr. Denton shares voting and disposition rights. 10 12 the Company's nominees will serve as directors if the Hakatak Nominees are elected to the Board. WE STRONGLY RECOMMEND A VOTE FOR THE HAKATAK NOMINEES, JAY BUCHBINDER, KEITH OGATA AND HERBERT DENTON. II. AMENDING THE BYLAWS THE PROPOSAL 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 Shareholders 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. Accordingly, we submit the following proposal for shareholder approval at the Annual Meeting: PROPOSAL RESOLVED THAT the Shareholders exercise their power under Delaware General Corporation Law Section 109 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." 11 13 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. REBUTTAL TO BOARD RECOMMENDATION The Board has opposed our proposal. In considering the Board's response to our proposal, the following points should be kept in mind by shareholders: THE BOARD WILL DO WHATEVER IT TAKES TO PROTECT ITS OWN INTERESTS -- EVEN IF IT MEANS THEY HAVE TO TAKE COMPLETELY INCONSISTENT POSITIONS OVER A SHORT PERIOD OF TIME. For example, the Board has taken the position that our Shareholder Value Amendment may violate Delaware law because it is a "mandatory" proposal and not a "recommendation." However, one of the Hakatak Nominees, Mr. Jay Buchbinder, also submitted a shareholder proposal to the Company, and Mr. Buchbinder's proposal was only a "recommendation" that the "poison pill" be removed -- not a "mandatory" proposal. Ironically, the Company's Board of Directors refused to include Mr. Buchbinder's proposal on the grounds that it was "duplicative" of the current "mandatory" proposal. We think this inconsistency is indicative of the Board's entrenchment, as it shows that this board is quite willing to ignore a policy that receives overwhelming shareholder approval in order to maintain the status quo and protect its own narrow interests. POISON PILLS ARE DETRIMENTAL TO SHAREHOLDER VALUE. The Board continues to adhere to an archaic, paternalistic notion that they, and they alone, are in a position to determine whether an offer is fair and in the best interest of all shareholders. However, as the true owners of the Company, shareholders are the ones who must decide whether or not an offer should be accepted -- not the Board. The Board's claim that it has a greater ability than an "individual stockholder" to negotiate a higher price is simply irrelevant. In any offer, solicited or unsolicited, the majority of the Company's shareholders would have to tender their shares to the offeror for the acquisition to be completed. Surely the Board cannot have such little regard for those whom it serves -- the shareholders -- that it believes that we would sell our shares in the face of a financially inadequate proposal. In fact, if shareholders representing more than a majority of the outstanding shares accept an offer, that is confirmation that the offer is indeed adequate. 12 14 In the absence of a "poison pill," the Company may be in a superior negotiating position since more potential bidders may come forward. Though the Board claims that a "poison pill" is essential to control the negotiation of a proposed transaction, it fails to tell you that potential purchasers may be discouraged from approaching the Company with a proposal because of the costs and time involved with removing a "poison pill" or acquiring a Company with a "poison pill" provision. Ultimately, 'poison pills' have a chilling effect on potential bidders who may never surface. "POISON PILLS" PROTECT MANAGEMENT -- NOT SHAREHOLDERS. Though the Board claims to recognize its fiduciary duties to the Company's shareholders, it fails to note that 'poison pills' can be used by management to protect its own interests -- interests which may be at odds with those of its stockholders. In the face of an offer in which their jobs might be eliminated, management may find it easy to hide behind a "poison pill," while claiming it is for the shareholders' benefit. The inherent conflict that management faces between its personal interests and its fiduciary duties to shareholders makes "poison pills" a dangerous road block that can be used for the advancement of personal goals at the expense of shareholders. WE STRONGLY RECOMMEND A VOTE FOR THE SHAREHOLDER VALUE AMENDMENT. III. OTHER MATTERS We take no position on how you should vote on the proposals of the Board of Directors to (1) approve the amendment to the Omnibus Management Incentive Plan, and (2) ratify the appointment of Arthur Andersen LLP as the Company's independent public accountants. ALTHOUGH WE ARE NOT OPPOSED TO SEEING SHARES AVAILABLE UNDER THE OMNIBUS MANAGEMENT INCENTIVE PLAN, WE THINK THE SHAREHOLDERS NEED TO ELECT DIRECTORS WHO WILL BE CERTAIN THAT THE STANDARDS SET FOR THE AWARD AND VESTING OF SHARES ARE CONSISTENT WITH SHAREHOLDER INTERESTS. On these matters, we will vote your shares as you instruct on the GREEN proxy card. We do not know of any other matters that will be brought before the Annual Meeting. However, if any other matter properly comes before the Annual Meeting, it is intended that the person named in and acting under the enclosed form of GREEN proxy card, or his substitutes, will vote on such matters in accordance with the best judgment. IV. ADDITIONAL INFORMATION Portions of this Proxy Statement have been prepared based on publicly available information on the Company and we assume no responsibility for the accuracy or completeness of any such information contained herein. In reliance upon Rule 14a-5(c) of the Securities Exchange Act of 1934, reference is made to the Company's proxy 13 15 statement dated April 6, 2000, which was sent to you by the Company, for a full description of management's director nominees as well as information with respect to the amendment to the Omnibus Management Incentive Plan, the ratification of the Company's independent public accountants, the number of shares eligible to vote at the meeting, the date, the quorum, the securities ownership of the Company, and information about the Company's officers and directors, including compensation information. Also included in the Company's proxy statement is the date by which shareholder proposals intended to be submitted at the Annual Meeting must be received by the Company for inclusion in the Company's proxy statement and form of proxy. VOTING The Company's Board of Directors has fixed the close of business on March 15, 2000, as the record date for the determination of shareholders entitled to notice of and to vote at, the Annual Meeting or any adjournment thereof (the "Record Date"). According to the Company, as of the Record Date the Company had outstanding 47,831,313 shares of common stock, par value $0.10 per share (the "Common Stock"). Each share of Common Stock is entitled to one vote on each proposal. In the election of directors, each shareholder has the right to vote the number of shares owned by such shareholder for as many persons as there are directors to be elected. The affirmative vote of the holders of a majority of the Common Stock entitled to vote and present in person or represented by proxy is required for election of directors. The affirmative vote of not less than 80% of the voting power of the Company's outstanding stock is required for approval of the Shareholder Value Amendment. The proxy holder identified in the GREEN proxy card accompanying this Proxy Statement will vote all GREEN proxy cards in accordance with the instructions contained in the GREEN proxy card and, if no choice is specified, shares represented by the enclosed GREEN proxy card will be voted FOR the election of the Hakatak Nominees as directors of the Company and FOR the Shareholder Value Amendment. Broker non-votes with respect to the election of directors or a particular matter, as the case may be, 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. Broker non-votes and abstentions DO affect the outcome of the vote on the Shareholder Value Amendment because it requires the affirmative vote of 80% of all shares of Common Stock, not just those shares voting at the meeting. 14 16 REMEMBER, YOUR LATEST DATED PROXY IS THE ONLY ONE WHICH COUNTS, so return the GREEN proxy card accompanying this Proxy Statement even if you delivered a prior proxy to the Company. We urge you not to vote any proxy card sent to you by the company with respect to either the Company's slate of nominees to the Board of Directors or against the Shareholder Value Amendment. REVOCABILITY OF PROXIES Any person giving a GREEN proxy card in the form accompanying this Proxy Statement has the power to revoke it at any time before its exercise. It may be revoked by filing with Hakatak Enterprises, Inc. or Beacon Hill Partners, Inc. ("Beacon Hill"), an instrument of revocation or a duly executed proxy bearing a later date. It also may be revoked by furnishing the Company a later-dated proxy or by attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not itself revoke a proxy. SOLICITATION These proxies are being solicited by Tom Hacker, president of Hakatak Enterprises, Inc. ("Hakatak") on behalf of Hakatak. Hakatak is a private company through which Mr. Hacker holds his investments. Mr. Hacker is the beneficial owner of 1,002,637 shares of Common Stock.(6) Mr. Hacker is also a licensed stockbroker through Equibond, a private corporation. Mr. Hacker's address is 100 Wilshire Boulevard, Suite 1700, Santa Monica, California 90401. Copies of solicitation material will be furnished without charge to banks brokerage houses, fiduciaries and custodians holding in their name shares of Common Stock beneficially owned by others to forward to such beneficial owners. The solicitation of proxies will be made by the use of the mails and through direct communication with certain shareholders or their representatives by Tom Hacker and Hakatak, who will receive no additional compensation therefor. In addition, Hakatak has decided to engage Beacon Hill to solicit proxies, and Hakatak will pay a fee for these services, which is estimated to be up to $100,000. Approximately 25 persons will be used by Beacon Hill in its solicitation efforts. Hakatak and Jay Buchbinder will bear the entire cost of this solicitation. Although no precise estimate can be made at the present time, we currently estimate that the total expenditures relating to the proxy solicitation incurred by Hakatak will be approximately $750,000. No determination has been made by Hakatak at this time as to whether it will seek reimbursement from the Company for the costs incurred in connection with the solicitation of shareholders or whether the question of such reimbursement will be submitted to a vote of shareholders. The Hakatak Nominees may - --------------- (6) Includes 474,650 shares of Common Stock owned of record by the Armin Trust, for which Mr. Hacker serves as trustee, and 20,000 shares of Common Stock owned by the Terry Trust, for which Mr. Hacker and Mr. Jay Buchbinder serve as trustees. 15 17 incur incidental expenses if they meet in person or by telephone with shareholders, which Hakatak may or may not be asked to reimburse. If you have any questions about the issues raised in this proxy contest please contact: Tom Hacker, President HAKATAK ENTERPRISES, INC. 100 Wilshire Boulevard, Suite 1700 Santa Monica, California 90401 (800) 358-8660 or (310) 260-6007 thackert@bloomberg.net If you need assistance in voting your GREEN proxy card, please call: BEACON HILL PARTNERS, INC. Toll Free: (800) 475-9320 Collect: (212) 843-8500 PLEASE INDICATE YOUR SUPPORT FOR MAXIMIZING SHAREHOLDER VALUE BY COMPLETING, SIGNING AND DATING THE ENCLOSED GREEN PROXY CARD AND RETURNING IT PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS NECESSARY IF THE ENVELOPE IS MAILED IN THE UNITED STATES. 16 18 EXHIBIT A LIST OF ALL SECURITIES PURCHASED OR SOLD BY THE HAKATAK NOMINEES AND TOM HACKER IN THE LAST TWO YEARS JAY BUCHBINDER NAME DATE ACTIVITY QUANTITY PRICE ---- -------- -------- -------- ------- Armin Trust(1) 01/22/99 Bought 31100 51.6722 01/25/99 Bought 51900 50.4977 01/26/99 Bought 4400 51 1/4 01/28/99 Bought 12000 54.9531 07/06/99 Sold 1750 57.45 07/07/99 Sold 2500 57 1/2 08/06/99 Bought 4000 49.1875 10/15/99 Bought 40100 44.3055 10/27/99 Bought 5000 47 1/16 10/27/99 Sold 3100 47.1875 11/08/99 Bought 3100 48.1042 11/09/99 Bought 5000 48.0638 11/10/99 Bought 10000 48.2263 11/11/99 Bought 5000 48.0 11/22/99 Sold 1900 52.0 11/22/99 Sold 10000 47.5 12/29/99 Bought 5700 46.4035 01/05/00 Bought 3000 45.00 01/11/00 Bought 6000 45.25 01/13/00 Bought 7000 42.8425 Terry Trust(2) 12/16/98 Bought 10000 42 3/4 12/16/98 Bought 10000 42 3/4 JBI Inc. 01/16/98 Bought 25000 53 1/4 01/22/98 Sold 4000 53.86 02/19/98 Sold 1500 53 3/4 09/08/98 Bought 5000 44 5/8 10/07/98 Bought 5000 39 1/2 10/08/98 Bought 15000 37.0 10/12/98 Bought 6000 37.125 11/13/98 Sold 200 45.0 11/23/98 Sold 12000 45.0 02/25/99 Bought 10000 51.3472 03/24/99 Bought 25000 47.7638 04/13/99 Bought 2500 53 3/4 04/14/99 Sold 2500 55 1/2 04/19/99 Sold 12500 62.5665 05/26/99 Bought 5000 55.7188 05/28/99 Sold 1950 57.3992 06/01/99 Bought 2500 55 1/2 06/08/99 Sold 4000 56.8281 06/11/99 Bought 2500 54.2813 06/16/99 Bought 2500 55 1/16 06/18/99 Bought 2500 53.6188 06/24/99 Bought 900 53 1/4 06/30/99 Sold 1250 56.0025 07/08/99 Sold 2500 58.5 07/14/99 Bought 2500 58.0 07/19/99 Bought 5000 59.5938 07/20/99 Bought 2500 58.0 NAME DATE ACTIVITY QUANTITY PRICE ---- -------- -------- -------- ------- 07/21/99 Bought 2500 57 15/16 07/26/99 Bought 2500 54 3/4 09/17/99 Bought 5000 52.3625 09/21/99 Bought 9000 51 3/4 09/27/99 Bought 3000 50 1/16 09/28/99 Bought 9300 47.9798 09/28/99 Sold 4300 48.1265 09/29/99 Bought 12500 47.275 10/08/99 Bought 5000 48.9763 10/12/99 Bought 1500 47.375 10/13/99 Bought 7000 45.6696 10/18/99 Bought 22000 46.3651 11/19/99 Bought 2500 50.0 11/19/99 Sold 600 51 1/2 11/22/99 Sold 10000 47.5 01/20/00 Bought 7500 39.2083 01/21/00 Bought 7900 38.0 01/24/00 Bought 2100 37.128 01/26/00 Bought 1550 35.6512 01/27/00 Bought 22000 38.5301 01/28/00 Bought 5000 39 5/8 01/31/00 Bought 10000 39.3088 02/18/00 Bought 10000 33 3/4 02/22/00 Bought 15000 33.565 02/25/00 Bought 16900 30 3/4 02/29/00 Bought 10000 32.5 Jay Buchbinder 01/12/98 Bought 5000 47 3/4 01/14/98 Sold 5000 50.0625 01/15/98 Bought 5000 51.9375 01/16/98 Bought 1000 52 7/8 01/20/98 Sold 5000 50.0 01/21/98 Bought 2600 53 3/8 02/23/98 Sold 2500 50.0 02/23/98 Sold 7700 55.0 03/10/98 Bought 10000 52.0 04/23/98 Bought 2500 54 1/2 04/27/98 Bought 1500 52 1/4 04/29/98 Bought 3350 50.7106 04/30/98 Bought 3850 51.7281 05/08/98 Bought 1500 54 1/4 05/18/98 Sold 5000 50.0 06/04/98 Bought 5000 52 1/2 06/05/98 Bought 2000 52 1/2 06/09/98 Sold 1250 53 1/2 06/22/98 Sold 5000 53.9375 06/25/98 Bought 2500 53.2188 07/16/98 Bought 2500 57.0 07/20/98 Sold 2500 55.0 07/28/98 Bought 2500 53 11/16 07/29/98 Bought 5000 53.625 08/03/98 Bought 14750 51.8581 -1- 19 NAME DATE ACTIVITY QUANTITY PRICE ---- -------- -------- -------- ------- 08/04/98 Bought 2500 50 9/16 08/05/98 Bought 6900 49.4846 08/07/98 Bought 2500 49.375 08/12/98 Bought 900 47.4896 08/17/98 Sold 17000 55.0 08/17/98 Sold 17000 55.0 08/18/98 Bought 5000 49.0 08/19/98 Bought 5000 49.1875 08/28/98 Bought 6000 46.125 09/18/98 Sold 5000 47.125 09/21/98 Bought 10000 47.5 09/21/98 Sold 1000 45.0 09/25/98 Sold 3000 46.875 10/21/98 Sold 5000 45 1/4 11/05/98 Sold 10000 48.8422 11/13/98 Sold 13000 45.0 11/23/98 Sold 2000 45.0 11/23/98 Sold 10000 42.5 11/23/98 Sold 16500 47.5 11/24/98 Sold 200000 49 5/8 01/22/99 Bought 26350 51.9288 02/02/99 Bought 2500 55 1/2 02/03/99 Bought 3800 55.2895 02/04/99 Bought 2900 56.0 02/09/99 Bought 5900 54.5646 02/10/00 Bought 2500 54.9888 02/12/99 Sold 20100 53.0 02/12/99 Sold 29600 53.0 02/19/99 Bought 15000 50.0 02/22/99 Bought 1850 52 3/8 02/26/99 Bought 10000 50.3122 03/02/99 Bought 5000 49 9/16 03/04/99 Bought 12500 47.9625 03/05/99 Bought 5000 49 1/4 03/09/99 Bought 300 45 1/4 03/18/99 Bought 5000 47 7/8 03/22/99 Sold 2500 47 1/2 03/24/99 Sold 12500 49 1/4 03/25/99 Sold 12500 51 1/4 04/15/99 Sold 5000 58.25 04/19/99 Sold 2500 55.0 04/19/99 Sold 5500 50.0 04/19/99 Sold 11550 62.5665 04/20/99 Sold 12950 63.584 04/21/99 Sold 13000 64.3409 04/30/99 Bought 5000 58.575 05/03/99 Bought 7500 58.0 05/05/99 Sold 2500 58 15/16 05/06/99 Sold 5000 59.465 05/24/99 Sold 2500 55.0 06/17/99 Bought 5000 55.0 06/22/99 Sold 2500 54.76 06/29/99 Sold 1250 55 7/8 07/23/99 Bought 7500 56.7083 07/27/99 Bought 5000 56 1/4 08/10/99 Bought 3850 49.6299 NAME DATE ACTIVITY QUANTITY PRICE ---- -------- -------- -------- ------- 08/11/99 Bought 5000 49.25 08/13/99 Bought 7500 50.3583 08/17/99 Bought 5000 51.2094 08/18/99 Bought 5000 50.1625 08/25/99 Bought 7500 49.3333 08/26/99 Sold 4750 50.0493 09/01/99 Bought 4000 48.4531 09/02/99 Sold 4000 49.0938 09/03/99 Bought 1250 51.0 09/07/99 Bought 1000 50 3/8 09/20/99 Sold 2500 50.00 10/28/99 Sold 6900 48.0833 11/22/99 Sold 5000 47.5 11/30/99 Bought 50000 49 1/2 12/09/99 Bought 2000 44 3/4 12/20/99 Bought 10000 45.375 12/20/99 Sold 3300 46.1818 12/22/99 Sold 2700 46.75 12/23/99 Bought 4000 47.0 12/23/99 Sold 700 47 1/2 01/14/00 Bought 30000 41.6167 01/19/00 Bought 2500 39.65 Decore Products 10/19/99 Bought 24000 46.520 10/20/99 Bought 19000 45.0987 10/26/99 Bought 4000 45.4 11/23/99 Bought 11900 50.2101 11/24/99 Bought 6400 48.3906 KEITH OGATA NAME DATE ACTIVITY QUANTITY PRICE ---- -------- ------------- -------- ------- Keith Ogata 05/01/98 Bought 10000 50.8325 05/01/98 Sold Warrants 10000 34.6513 05/05/98 Sold Warrants 5000 36.3364 10/21/98 Sold 2000 46.6034 10/27/98 Sold 2000 49.2184 06/10/98 Sold 3000 52.6032 12/14/98 Sold 3000 44.1293 10/21/99 Bought 2000 42.025 01/12/00 Bought 2000 44.5063 01/13/00 Bought 2000 44 01/27/00 Bought 2000 37.15 HERBERT DENTON NAME DATE ACTIVITY QUANTITY PRICE ---- -------- -------- -------- ----- Providence Investors 03/09/00 Bought 3000 32.25 US Value 03/09/00 Bought 7000 32.25 TOM HACKER(3) NAME DATE ACTIVITY QUANTITY PRICE ---- -------- -------- -------- ------- Account #1 06/24/98 Sold 560 54.1638 06/24/98 Sold 1940 54.1638 06/24/98 Sold 3850 54.1638 06/24/98 Sold 5000 54.1638 06/24/98 Sold 6710 54.1638 -2- 20 NAME DATE ACTIVITY QUANTITY PRICE ---- -------- -------- -------- ------- 06/24/98 Sold 6940 54.1638 09/18/98 Bought 10000 46.4875 09/18/98 Sold 10000 47.125 11/05/98 Sold 10000 49.0 11/10/98 Sold 1000 49 3/8 11/10/98 Sold 2600 49 1/4 11/24/98 Bought 100000 49 5/8 12/29/98 Bought 7462 49.5536 01/22/99 Bought 26350 51.9288 01/22/99 Sold 1100 52 1/2 02/12/99 Bought 49700 53.0 03/04/99 Bought 12500 47.9625 03/05/99 Bought 5000 49 1/4 03/24/99 Bought 25000 47.7638 04/15/99 Sold 5000 58.25 04/19/99 Sold 24050 62.5665 04/20/99 Sold 12950 63.584 04/21/99 Sold 13000 64.3409 07/23/99 Bought 7500 56.7083 08/10/99 Bought 3850 49.6299 08/11/99 Bought 5000 49.25 08/13/99 Bought 7500 50.3583 08/17/99 Bought 5000 51.2094 08/18/99 Bought 5000 50.1625 08/25/99 Bought 7500 49.3333 08/26/99 Sold 4750 50.0493 08/27/99 Sold 200 50.3438 09/17/99 Bought 5000 52.3625 09/21/99 Bought 9000 51 3/4 10/13/99 Bought 20000 45 1/2 Account #2 01/15/98 Bought 5000 51.9375 01/16/98 Bought 25000 53 1/4 01/21/98 Bought 2600 53 3/8 02/18/98 Sold 1000 54.0 02/19/98 Sold 1500 53 3/4 03/10/98 Bought 10000 52.0 04/27/98 Bought 1500 52 1/4 04/29/98 Bought 3350 50.7106 05/08/98 Bought 1500 54 1/4 06/04/98 Bought 5000 52 1/2 06/05/98 Bought 2000 52 1/2 06/09/98 Sold 1250 53 1/2 06/22/98 Sold 5000 53.9375 06/25/98 Bought 2500 53.2188 07/16/98 Bought 2500 57.0 07/28/98 Bought 2500 53 11/16 07/29/98 Bought 5000 53.625 08/03/98 Bought 14750 51.8581 08/04/98 Bought 2500 50 9/16 08/05/98 Bought 6900 49.4846 08/07/98 Bought 2500 49.375 08/12/98 Bought 900 47.4896 08/18/98 Bought 5000 49.0 08/19/98 Bought 5000 49.1875 08/26/98 Sold 1900 49 7/8 08/27/98 Sold 6000 47.5833 NAME DATE ACTIVITY QUANTITY PRICE ---- -------- -------- -------- ------- 08/31/98 Sold 100000 45 3/8 09/01/98 Sold 100000 42 1/8 09/25/98 Sold 3000 46.875 10/12/98 Sold 900 36.7822 11/05/98 Sold 6400 48.8422 11/06/98 Sold 13700 49.6788 11/24/98 Bought 100000 49 5/8 01/12/99 Bought 175 50 5/16 01/29/99 Bought 5000 56.625 01/29/99 Sold 13500 56.9583 02/02/99 Bought 2500 55 1/2 02/03/99 Bought 3800 55.2895 02/04/99 Bought 2900 56.0 02/08/99 Bought 500 54 1/2 02/09/99 Bought 5900 54.5646 02/10/99 Bought 2500 54.9888 02/22/99 Bought 1850 52 3/8 02/25/99 Bought 10000 51.3475 02/26/99 Bought 10000 50.3122 03/02/99 Bought 5000 49 9/16 03/18/99 Bought 5000 47 7/8 03/24/99 Sold 12500 49 1/4 03/25/99 Sold 12500 51 1/4 04/01/99 Sold 5000 52 5/8 04/13/99 Bought 2500 53 3/4 04/14/99 Sold 2500 55 1/2 04/30/99 Bought 5000 58.575 05/03/99 Bought 7500 58.0 05/05/99 Sold 2500 58 15/16 05/06/99 Sold 5000 59.465 05/26/99 Bought 5000 55.7188 05/28/99 Sold 1950 57.3992 06/01/99 Bought 2500 55 1/2 06/04/99 Bought 3000 55.0 06/07/99 Sold 3000 56.0 06/08/99 Sold 4000 56.8281 06/11/99 Bought 2500 54.2813 06/16/99 Bought 2500 55 1/16 06/17/99 Bought 5000 55.0 06/18/99 Bought 2500 53.6188 06/22/99 Sold 2500 54.76 06/24/99 Bought 900 53 1/4 06/29/99 Sold 1250 55 7/8 06/30/99 Sold 1250 56.0025 07/06/99 Sold 1750 57.45 07/07/99 Sold 2500 57 1/2 07/08/99 Sold 2500 58.5 07/14/99 Bought 2500 58.0 07/19/99 Bought 5000 59.5938 07/20/99 Bought 2500 58.0 07/21/99 Bought 2500 57 15/16 07/26/99 Bought 2500 54 3/4 07/27/99 Bought 5000 56/14 08/31/99 Bought 2000 48.8 08/31/99 Sold 3000 49.0 09/01/99 Bought 4000 48.4531 -3- 21 NAME DATE ACTIVITY QUANTITY PRICE ---- -------- -------- -------- ------- 09/02/99 Sold 4000 49.0938 09/03/99 Bought 1250 51.0 09/07/99 Bought 1000 50 3/8 10/05/99 Sold 5000 48.0 NAME DATE ACTIVITY QUANTITY PRICE ---- -------- -------- -------- ------- 10/13/99 Sold 20000 45 1/2 11/19/99 Sold 600 51 1/2 11/22/99 Sold 1900 52.0 - --------------- (1) Mr. Hacker serves as a trustee of the Armin Trust. Mr. Buchbinder has no voting or disposition rights over the shares, but is the beneficiary of the Trust. (2) Mr. Buchbinder and Mr. Hacker serve as trustees to the Terry Trust. Mr. Buchbinder has share voting and disposition rights. (3) Mr. Hacker also owns beneficially certain shares listed for Mr. Buchbinder in Mr. Hacker's capacity as trustee of the Armin and of the Terry Trust. Transactions by the Trusts are not repeated here. -4- 22 LET'S MAKE THE SHAREHOLDERS A PRIORITY AT USG! SUPPORT OUR EFFORTS TO ENHANCE SHAREHOLDER VALUE. VOTE THE GREEN PROXY CARD TODAY! If you have any questions about the issues raised in this proxy contest please contact: Tom Hacker, President HAKATAK ENTERPRISES, INC. (800) 358-8660 or (310) 260-6007 For immediate assistance in voting your shares, please call: BEACON HILL PARTNERS, INC. Toll free: (800) 475-9320 Collect: (212) 843-8500 The USG Corporation Annual Meeting is May 10, 2000. To support the Hakatak Nominees, you must sign, date and return the enclosed GREEN proxy card in the envelope provided. Even if you have already returned a proxy card to management, you have every right to revoke your earlier vote by signing, dating and mailing a GREEN proxy card today. ONLY YOUR LATEST-DATED PROXY COUNTS! REMEMBER . . . ONLY YOUR LATEST DATED PROXY COUNTS AND YOU CAN VOTE FOR THE HAKATAK NOMINEES ONLY ON THE GREEN PROXY CARD 23 PROXY THIS PROXY IS SOLICITED IN OPPOSITION TO THE BOARD OF DIRECTORS OF USG CORPORATION BY HAKATAK ENTERPRISES, INC. ("HAKATAK") ANNUAL MEETING OF STOCKHOLDERS The undersigned hereby appoints Tom Hacker and Keith Ogata, and each or any of them with full power of substitution, as Proxy for the undersigned to vote all shares of common stock, par value $0.10 per share of USG Corporation (the "Company"), which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on May 10, 2000, at 9:15 a.m. (local time) or any adjournment(s) or postponement(s) thereof (the "Annual Meeting"), as follows: Hakatak Recommends a Vote "FOR" Proposal 1. 1. ELECTION OF DIRECTORS HAKATAK NOMINEES THE HAKATAK NOMINEES ARE: JAY BUCHBINDER, KEITH OGATA, HERBERT DENTON FOR [ ] WITHHOLD AUTHORITY FOR ALL [ ] (Authority to vote for any individual nominee(s) may be withheld by lining through or otherwise striking out the name(s) of such nominee(s).) COMPANY NOMINEES Hakatak intends to use this proxy to vote for persons who have been nominated by the Company to serve as directors, other than James C. Cotting, W. Douglas Ford and John B. Schwemm, three of the four Company nominees. You may withhold authority to vote for one or more additional Company nominees, by writing the name of the nominee(s) below. You should refer to the proxy statement and form of proxy distributed by the Company for the names, background, qualifications, and other information concerning the Company's nominees. - ------------------------------- There is no assurance that any of the Company's nominees will serve as directors if the Hakatak Nominees are elected to the board. Hakatak takes no position on how you should vote on Proposals 2 & 3. 2. APPROVAL OF AMENDMENT TO THE CORPORATION'S OMNIBUS FOR [ ] AGAINST [ ] ABSTAIN [ ] MANAGEMENT INCENTIVE PLAN 3. RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS FOR [ ] AGAINST [ ] ABSTAIN [ ] INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 2000 Hakatak Recommends a Vote "FOR" Proposal 4. 4. THE RATIFICATION OF THE HAKATAK AMENDMENT TO THE FOR [ ] AGAINST [ ] ABSTAIN [ ] COMPANY'S BYLAWS REQUIRING SHAREHOLDER APPROVAL OF SHAREHOLDER RIGHTS PLANS 5. IN THEIR DISCRETION ON ANY OTHER MATTER THAT MAY COME BEFORE THE MEETING IMPORTANT: PLEASE SIGN AND DATE ON THE REVERSE SIDE. 24 The undersigned hereby revokes any other proxy or proxies heretofore given to vote or act with respect to the shares of common stock of the Company held by the undersigned. If properly executed, this proxy will be voted as directed above. If no direction is given, this proxy will be voted FOR the election of all Hakatak Nominees, FOR one of the Company nominees other than James C. Cotting, W. Douglas Ford and John B. Schwemm, ABSTAIN on Proposals 2 and 3, and FOR Proposal 4. Dated: , 2000 ---------------------------------- Signature Name: Title: ---------------------------------- Signature Name: Title: 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.