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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
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USG Corporation
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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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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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5) Total fee paid:
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
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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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April 4, 2003
Dear Fellow Stockholder:
You are cordially invited to attend the USG Corporation annual meeting of
stockholders at 9:00 a.m. on Wednesday, May 14, 2003, in USG Corporation's
third-floor Business Library 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 at the meeting.
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 mark, 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.
Please vote your shares as soon as possible. This is your annual meeting and
your participation is important.
If you are a registered stockholder and plan to attend the annual meeting,
you will be required to present the detachable 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 through that entity. Please note that the document
evidencing your shareholdings which will be used to gain entry to the meeting is
non-transferable.
Please vote your shares promptly and join us at the meeting.
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, 60606-4678, on Wednesday, May 14, 2003, at 9:00 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 consider ratification of the appointment of Deloitte & Touche LLP as
independent public accountants for the year ending 2003.
3. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
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 19, 2003,
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting or any adjournment or postponement thereof.
A list of stockholders entitled to vote at the meeting and the number of
shares registered in the name of each stockholder will be available for
examination by any stockholder at the office of the Corporate Secretary of the
Corporation, 125 South Franklin Street, Chicago, Illinois, 60606-4678, during
ordinary business hours beginning April 30, 2003, and running throughout the
course of the meeting.
By order of the Board of Directors
/s/ J. E. Schaal
J. E. SCHAAL
Corporate Secretary
April 4, 2003
IMPORTANT! PLEASE MARK, 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 (the "Board") for use at
the Corporation's annual meeting of stockholders to be held on May 14, 2003, and
any adjournment or postponement 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 April 4, 2003.
The Board has selected the close of business on March 19, 2003 (the "Record
Date"), as the time for determining the holders of record of the Corporation's
common stock, par value $0.10 per share (the "Common Stock"), entitled to notice
of, and to vote at, the annual meeting or any adjournment or postponement
thereof. On the Record Date, the Corporation had outstanding 43,036,758 shares
of Common Stock, and those are the only securities of the Corporation entitled
to vote at the annual meeting or any adjournment or postponement thereof. A
majority of the shares entitled to vote at the meeting will constitute a quorum
for the transaction of business. Abstentions and broker non-votes will be
counted for purposes of determining whether there is a quorum.
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 and for ratification
of the appointment of independent public accountants. Broker non-votes (i.e.,
the failure to vote shares held of record by nominees due to a lack of both
discretionary authority and instructions from the beneficial owners) with
respect to any matter are not considered part of the "voting power present" with
respect to such matter and will not affect the outcome of the vote on such
matter. Abstentions are not treated as votes cast for or against the election of
directors or a particular matter, as the case may be, but they are treated as
part of the "voting power present" with respect to such matter and therefore
have the same legal effect as a vote against such matter. Stockholders whose
shares are held in their name may vote by proxy through the mail, telephone or
Internet by following the instructions included with their proxy card.
Stockholders whose shares are held in "street name" may vote by proxy by
following the instructions included with their voting instruction card.
Any persons whose shares are held in their name may revoke their proxies 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. Any persons whose shares are held in "street name"
must contact their broker or nominee to revoke their proxies.
All proxies received (and not revoked) pursuant to this solicitation will
be voted by the individuals named in the proxy, except for matters where
authority to vote is specifically withheld and except for 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
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individuals named in the proxy solicited by the Board of Directors intend to
vote FOR the director nominees named below and the ratification of the
appointment of the independent public accountants.
The Northern Trust Company, as trustee of the USG Corporation Investment
Plan (the "Plan"), held of record 579,236 shares of Common Stock on the Record
Date, or approximately 1.35% of all shares outstanding. It is intended that
shares held by the Plan as of the record date for the USG Corporation annual
meeting will be voted in accordance with instructions given by Plan
participants. It is intended that shares that are not yet allocated and shares
as to which no instructions are received will be voted by The Northern Trust
Company proportionately to reflect the results indicated by participant
directions in the same proportion as those shares for which instructions are
received. The Northern Trust Company shall act as provided above unless it is
required to act otherwise by applicable law. Plan participants may revoke
previously given voting instructions by filing with the Trustee's tabulating
agent (Computershare Investor Services, Attn: Proxy Unit, 7600 Grant Street,
Burr Ridge, IL 60521-7275) either a written notice of revocation or a properly
completed and signed proxy card bearing a later date.
Except as otherwise expressly indicated, all information in this proxy
statement is provided as of the Record Date.
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 (the "SEC").
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
Gebr. Knauf Verwaltungsgellschaft
KG(b)................................. 4,300,878 9.94%
Am Bahnhof 7
97346 Iphofen
Federal Republic of Germany
Royce & Associates, LLC(c).............. 2,589,200 5.99%
1414 Avenue of the Americas
New York, NY 10019
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(a) Berkshire Hathaway Inc., a Delaware corporation, 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, each has shared voting and dispositive power
with respect to all such shares.
3
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 activated. Berkshire Hathaway, Inc.'s stockholder's ownership
interest reached 15% or more as a result of the Corporation's reacquisition
of outstanding shares in February 2002; however, the increase in percentage
ownership resulting from reacquisition of performance-based restricted
shares which were not earned as a result of non-attainment of requisite
performance criteria do not activate the special purchase rights of the
other stockholders. The acquiring stockholder generally may not thereafter
acquire any additional shares without invoking these special rights.
(b) Gebr. Knauf Verwaltungsgellschaft KG, a limited partnership organized under
the laws of Germany, has sole voting and dispositive power with respect to
all such shares.
(c) Royce & Associates, LLC, an institutional investment manager, has sole
voting and dispositive power with respect to all such shares.
ELECTION OF DIRECTORS
The Board 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 14, 2003.
The remaining classes will be elected in 2004 and 2005, respectively.
The four candidates nominated by the Board for election as directors at the
annual meeting of stockholders on May 14, 2003, are identified below. If any
nominee identified below should for any reason become unavailable prior to the
meeting, which the Board does not anticipate, the Board, 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.
Information shown for nominees and directors has been furnished to the
Corporation by such nominees and directors.
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NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR A THREE-YEAR TERM TO EXPIRE IN 2006
KEITH A. BROWN, 51, President 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.
JAMES C. COTTING, 69, retired Chairman and Chief Executive Officer of
Navistar International Corporation, truck and diesel engine manufacturing and
financial services. Mr. Cotting is a member of the Board of Governors of the
Chicago Stock Exchange. Mr. Cotting has been a director of the Corporation since
1987, is a member of the Board's Executive and Corporate Affairs Committees and
chairs its Finance Committee.
W. DOUGLAS FORD, 59, retired Chief Executive, Refining & Marketing, of BP
Amoco p.l.c. and Executive Vice President of BP Amoco p.l.c. and its
predecessor, Amoco Corporation. He is a director of UAL Corporation and is a
Trustee of the University of Notre Dame. Mr. Ford was elected a director of the
Corporation in November 1996, and is a member of the Board's Executive,
Compensation and Organization, and Corporate Affairs Committees.
JOHN B. SCHWEMM, 68, retired Chairman and Chief Executive Officer of R.R.
Donnelley & Sons Company, commercial and financial printing. He is a director of
Walgreen Co. and William Blair Mutual Funds and is a Life Trustee of
Northwestern University. Mr. Schwemm has been a director of the Corporation
since May 1988, and is a member of the Board's Executive, Audit, and
Compensation and Organization Committees.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES LISTED
ABOVE.
DIRECTORS WHOSE TERMS EXPIRE IN 2004
LAWRENCE M. CRUTCHER, 60, Managing Director of Veronis Suhler Stevenson,
investment bankers and private equity fund managers. Mr. Crutcher has been a
director of the Corporation since May 1993 and is a member of the Board's
Finance and Corporate Affairs Committees and chairs its Governance Committee.
WILLIAM C. FOOTE, 52, Chairman, President and Chief Executive Officer. He
joined the Corporation in January 1984. Mr. Foote is a director of GATX
Corporation and Walgreen Co. He is a director of Northwestern Memorial Hospital
and is 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.
5
JUDITH A. SPRIESER, 49, Chief Executive Officer of Transora, Inc.,
business-to-business transaction site for the global consumer products industry.
Ms. Sprieser was with Sara Lee Corporation, packaged food and consumer products
and served as Executive Vice President and Chief Executive Officer of its foods
and foodservice segments, Executive Vice President and Chief Financial Officer,
and Senior Vice President and Chief Financial Officer. She 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, Finance, and
Governance Committees and chairs its Audit Committee.
DIRECTORS WHOSE TERMS EXPIRE IN 2005
ROBERT L. BARNETT, 62, Executive Vice President, Motorola Corporation;
President, Commercial Governmental and Industrial Solutions Sector, Motorola
Corporation; previously President, Land Mobile Products Sector, Motorola
Corporation; Vice President and General Manager, iDEN Group, Motorola
Corporation. 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, and is a member of the Board's Audit and Governance
Committees and chairs its Corporate Affairs Committee.
DAVID W. FOX, 71, retired Chairman and Chief Executive Officer and
President 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. He is 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, and is a member of the Board's Executive,
Finance, and Governance Committees and chairs its Compensation and Organization
Committee.
VALERIE B. JARRETT, 46, is a Managing Director and the Executive Vice
President of The Habitat Company. Ms. Jarrett is Chairman of the Chicago Transit
Board, Vice Chairman of the University of Chicago Hospitals Board of Trustees,
the Executive Council of the Chicago Metropolis 2020 and the Local Initiative
Support Corporation Advisory Board, and President of the Board of the Southeast
Chicago Commission. She also is a director of The Chicago Stock Exchange, Harris
Insight Funds, Navigant Consulting, Inc., The Joyce Foundation, The Commercial
Club of Chicago, the Chicagoland Chamber of Commerce, the Regional
Transportation Authority, The Metropolitan Planning Council, and The University
of Chicago Laboratory Schools. Ms. Jarrett is a Trustee of The University of
Chicago, the Museum of Science and Industry, and Window to the World
Communications, Inc. Ms. Jarrett has been a director of the Corporation since
August 1998, and is a member of the Board's Compensation and Organization,
Governance, and Corporate Affairs Committees.
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MARVIN E. LESSER, 61, Managing Partner of Sigma Partners, L.P., a private
investment partnership, and President of Alpina Management, L.L.C., an
investment advisor. Mr. Lesser is also a private consultant. He is a director of
Pioneer Companies, Inc. and St. Moritz 2000 Fund, Ltd. Mr. Lesser has been a
director of the Corporation since May 1993, and is a member of the Board's
Audit, Finance, and Governance Committees.
Meetings of the Board of Directors
The Board held six meetings during 2002, and the standing committees of the
Board held an aggregate of 17 meetings during the year. Each director, except
for Mr. Barnett, attended at least 75% of the aggregate number of meetings in
2002 of the Board and the Board committees on which he or she served.
Committees of the Board of Directors
The Board has established an Executive Committee, consisting of William C.
Foote, as Chairman, and James C. Cotting, W. Douglas Ford, David W. Fox and John
B. Schwemm, which is authorized to the extent permitted by law, to exercise the
power of the Board with respect to the management of the business and affairs of
the Corporation between Board meetings. The Committee did not meet in 2002. The
other standing committees of the Board are the Audit, Compensation and
Organization, Finance, Corporate Affairs, and Governance Committees.
The Audit Committee has ongoing responsibilities to assist the Board 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 and the other responsibilities set
forth in the Committee's written charter adopted by the Board and filed with the
Corporation's 2002 proxy statement. 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. The Committee's charter is being revised to reflect changes to comply
with the Sarbanes-Oxley Act and the proposed Corporate Governance Listing
Standards of the New York Stock Exchange (the "NYSE"). See the section titled
"Corporate Governance" at page 10 for more information. 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 proposed rules of the SEC implementing the Sarbanes-Oxley Act and the
current and proposed listing standards of the NYSE, on which the Common Stock is
listed. The Committee held five meetings during 2002.
The Compensation and Organization Committee reviews and makes
recommendations to the Board 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 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 changes in salary ranges for all
major position categories and changes in Corporation retirement plans, group
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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 Ford, Valerie B. Jarrett, John B. Schwemm, and Judith A. Sprieser.
The Committee held four meetings during 2002.
The Finance Committee provides review and oversight of and makes
recommendations to the Board on the Corporation's financing requirements and
programs to obtain funds; 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 retirement plans of the Corporation and its
subsidiaries and authorizes necessary or desirable changes in actuarial
assumptions for funding those retirement 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 Committee
held five meetings during 2002.
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 one meeting in 2002.
The Governance Committee (formerly known as the Committee on Directors)
makes recommendations to the Board 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 Lawrence M. Crutcher, Chair, Robert L. Barnett,
Valerie B. Jarrett, David W. Fox, Marvin E. Lesser, and Judith A. Sprieser. The
Committee held two meetings during 2002.
The Governance Committee 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 of which that individual is a director. Such recommendations
should be sent to the Governance Committee, 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.
8
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information known to the Corporation
regarding beneficial ownership of the Corporation's Common Stock as of the
Record Date by each director and each of the executive officers identified in
the Summary Compensation Table and by all of its directors and executive
officers as a group (26 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 and 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.
SHARES BENEFICIALLY OPTION SHARES
OWNED, EXCLUDING EXERCISABLE NOW PERCENT
NAME OPTIONS(A)(B) OR WITHIN 60 DAYS TOTAL OF CLASS
---- ------------------- ----------------- --------- --------
Robert L. Barnett................ 6,126 -- 6,126 *
Edward M. Bosowski............... 19,306 103,500 122,808 *
Keith A. Brown(c)................ 139,323 -- 139,323 *
James C. Cotting................. 5,544 -- 5,544 *
Lawrence M. Crutcher(d).......... 12,832 -- 12,832 *
Raymond T. Belz.................. 15,318 46,000 61,318 *
Richard H. Fleming............... 39,119 174,000 213,119 *
William C. Foote(e).............. 62,310 275,000 337,310 *
W. Douglas Ford.................. 3,661 -- 3,661 *
David W. Fox..................... 7,778 -- 7,778 *
Valerie B. Jarrett............... 4,556 -- 4,556 *
Marvin E. Lesser................. 6,665 -- 6,665 *
James S. Metcalf................. 15,832 67,000 82,832 *
John B. Schwemm.................. 6,163 -- 6,163 *
Judith A. Sprieser............... 4,725 -- 4,725 *
All directors and executive
officers as a group (26
persons), including the
directors and executives named
above.......................... 404,181 1,053,000 1,460,935 3.39%
---------------
* Less than one-percent.
(a) Includes restricted stock grants subject to risk of forfeiture granted to
the following executive officers: Mr. Bosowski, 7,000 shares; Mr. Belz,
7,000 shares; Mr. Fleming, 11,000 shares; Mr. Foote, 10,000 shares; Mr.
Metcalf, 10,000 shares; all executive officers as a group, 85,000 shares.
(b) Includes deferred stock units under the Stock Compensation Program for
Non-Employee Directors, as follows: Mr. Cotting, 2,540 units; Ms. Jarrett,
3,105 units; and Mr. Lesser, 3,834 units. See the section titled "Director
Compensation" at page 17 for more information.
9
(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.
(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.
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 greater than 10% owners file
reports of ownership and changes of ownership of Common Stock with the SEC and
the NYSE. Based on a review of such reports filed during 2002, the Corporation
believes that all filing requirements were met during the year, except that
Keith A. Brown filed a report on Form 4 in December 2002, showing a private
transaction between his wife and a third-party in the month of August 2002.
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 have been associated with a corporation that filed a
petition under the general bankruptcy laws within the last five years.
CORPORATE GOVERNANCE
In 2002 the Sarbanes-Oxley Act was enacted and the NYSE proposed new
corporate governance standards for companies listed on the NYSE. Each of these
developments, when fully effective through regulations adopted by the SEC, will
bring significant changes to corporate governance requirements for public
companies in the U.S. In anticipation of these changes, the Corporation is in
the process of preparing, and ultimately will adopt, several new or revised
governing documents, including revised Corporate Governance Guidelines, separate
charter documents for each of its Board committees and a Code of Conduct for
Directors, officers and other employees. The Corporation expects to complete and
publish these items after both the final regulations under the Sarbanes-Oxley
Act become effective and the NYSE listing standards are promulgated through SEC
regulation, currently expected to be completed sometime during 2003.
COMPENSATION OF EXECUTIVE OFFICERS
The discussion that follows has been prepared based on the actual
compensation paid and benefits provided by the Corporation during the periods
indicated to the Chief Executive Officer and the four other most highly
compensated executive officers of the Corporation (collectively, the "Named
Executives") during 2002. This 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.
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------------------------ ------------------------------------
OTHER RESTRICTED
ANNUAL STOCK OPTIONS/ ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS SARS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(A) ($)(B) ($)(C) (#) ($)(D)
---------------------------- ---- -------- ---------- ------------ ---------- -------- ------------
William C. Foote 2002 895,000 2,297,752 71,478 -- -- 10,400
Chairman, President and 2001 880,417 648,875 94,625 -- 80,000 1,333
Chief Executive Officer 2000 808,334 193,463 69,729 -- 20,000 21,759
Richard H. Fleming 2002 455,000 961,190 -- -- -- 10,116
Executive Vice President 2001 431,250 284,375 -- -- 40,000 1,333
and Chief Financial
Officer 2000 370,000 62,813 -- -- 8,000 8,588
Edward M. Bosowski 2002 380,000 802,753 51,357 -- -- 10,163
Senior Vice President, 2001 370,626 237,500 99,250 -- 40,000 1,333
Corporate Strategy and 2000 320,000 55,275 -- -- 6,000 6,796
Marketing; President, USG
International
James S. Metcalf 2002 352,500 732,375 -- -- -- 10,203
Senior Vice President; 2001 297,293 196,875 61,771 -- 40,000 1,333
President, Building
Systems 2000 233,334 72,840 -- -- 4,000 4,721
Raymond T. Belz 2002 340,000 718,253 70,166 -- -- 10,188
Senior Vice President, 2001 317,085 178,500 -- -- 17,000 1,333
Financial Operations 2000 261,670 39,949 -- -- 4,000 5,638
---------------
(a) Reflects payments arising from cash award opportunities under the
Corporation's Annual Management Incentive Program in 2000 and 2002 and
payments under the Key Employee Retention Plan (as discussed below) in 2001
and 2002. The Named Executives received no payments under the Annual
Management Incentive Plan in 2001.
(b) Mr. Foote's Other Annual Compensation included $34,250 for club fees and
dues in 2001; Mr. Bosowski's included $16,116 for supplemental insurance and
$14,448 in automobile allowance in 2002 and $54,113 in club fees and dues in
2001; Mr. Metcalf's included $33,300 for club fees and dues in 2001. No
other Named Executive had perquisites and other personal benefits
aggregating the lower of $50,000 or 10 percent of salary and bonus for 2002,
2001 or 2000.
(c) There were no performance-based or time-vested restricted stock awards to
any Named Executives during 2002. The aggregate restricted stock holdings of
each of the Named Executives as of December 31, 2002, and the value of those
holdings on that date are presented in the table below. Restricted stock is
eligible for any dividend paid on shares of Common Stock; however, there
have been no dividends paid on the Corporation's Common Stock since before
the filing of its Chapter 11 cases in 2001, and there is no expectation that
any will be paid during the pendency of the Chapter 11 cases.
11
Performance-based restricted stock awards made on January 2, 2000
(previously reported in the Long-Term Incentive Plan table), were not
earned because performance criteria (cumulative USG shareholder return in
relation to a group of 13 building material companies for the three fiscal
years ended December 31, 2002) were not attained and resulted in
forfeitures on February 12, 2003, as presented in the following table.
PERFORMANCE-BASED
RESTRICTED STOCK VALUE OF RESTRICTED RESTRICTED STOCK RESTRICTED STOCK
HELD ON STOCK HELD ON FORFEITED ON HELD ON
NAME DECEMBER 31, 2002 DECEMBER 31, 2002 FEBRUARY 12, 2003 MARCH 19, 2003
---- ----------------- ------------------- ----------------- ----------------
William C. Foote 40,000 $338,000 30,000 10,000
Richard H. Fleming 23,000 $194,350 12,000 11,000
Edward M. Bosowski 17,000 $143,650 10,000 7,000
James S. Metcalf 18,000 $152,100 8,000 10,000
Raymond T. Belz 13,000 $109,850 6,000 7,000
---------------
(d) All other Compensation for the Named Executives for each year consisted
solely of matching contributions from the Corporation to defined
contribution plans.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No SARs or stock options were granted in 2002.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES(a)
NUMBER OF SECURITIES
NUMBER OF UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
UNDERLYING AT FISCAL YEAR-END AT FISCAL YEAR-END
OPTIONS VALUE --------------------------- ---------------------------
EXERCISED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
------------------------------- ---------- -------- ----------- ------------- ----------- -------------
William C. Foote............... 0 0 275,000 0 0 0
Richard H. Fleming............. 0 0 174,000 0 0 0
Edward M. Bosowski............. 0 0 103,500 0 0 0
James S. Metcalf............... 0 0 67,000 0 0 0
Raymond T. Belz................ 0 0 46,000 0 0 0
---------------
(a) No SARs were outstanding and no stock options were exercised.
12
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
No awards were made in 2002.
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 each of the Named Executives that have terms
expiring on December 31, 2004. The Employment Agreements include an automatic
renewal feature that renews the Employment Agreement for successive two-year
terms unless the Corporation elects not to renew not less than 120 days before
the expiration of the current term.
The Employment Agreements provide for minimum annual salaries at the
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. 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 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
the Corporation. Each Named Executive has also agreed to never 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.
13
Termination Compensation Agreements
The Corporation is a party to termination compensation agreements (the
"Termination Compensation Agreements") with the Named Executives that have terms
expiring on December 31, 2004, with an automatic renewal feature which renews
the Termination Compensation Agreements for successive two-year terms unless the
Corporation elects not to renew not less than 120 days before the expiration of
the current term. A Named Executive's agreement terminates upon retirement.
The Termination Compensation 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. Identified 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. Under the agreements: (i) a "change in control" is
deemed to have occurred, in general, if any person or group of persons acquires
beneficial ownership of 20% or more of the combined voting power of the
Corporation's then outstanding voting securities, if there is a change in a
majority of the members of the Board within a two-year period and in certain
other events, (ii) the term "cause" is defined as, in general, the willful and
continued failure by the Named Executive substantially to perform his or her
duties after a demand for substantial performance has been delivered or the
willful engaging of the Named Executive in misconduct which is materially
injurious to the Corporation, and (iii) "good reason" for termination by a Named
Executive means, in general, termination subsequent to a change in control based
on specified changes in the Named Executive's duties, responsibilities, titles,
offices or office location, compensation levels and benefit levels or
participation.
The benefits include payment of full base salary through the date of
termination at the rate in effect at the time of notice of termination, payment
of any unpaid bonus for a past fiscal year and pro rata payment of bonus for the
then current fiscal year, and continuation through the date of termination of
all stock ownership, purchase and option plans and insurance and other benefit
plans. In the event of a termination giving rise to benefits under the
agreements, the applicable Named Executive will be entitled to payment of a lump
sum amount equal to 2.99 times the sum of (i) the then annual base salary,
computed at 12 times the then current monthly pay, and (ii) the full-year
position par bonus for the then current fiscal year, subject to all applicable
federal and state income taxes. In the event a lump sum payment would constitute
a "parachute payment" under the Internal Revenue Code, it may be decreased by
the smallest amount that would eliminate the 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
14
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 the
section titled "Retirement Plans" at page 17. 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 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
the agreements if the Named Executive's employment is terminated by the
Corporation for "cause" or if the Named Executive terminates his employment
other than for "good reason."
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 the agreements and will immediately thereafter deposit with the trustee
under the trust an amount reasonably estimated to be potentially payable under
all such agreements. In the event that the assets of the trust prove
insufficient to provide for benefits payable under the 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.
As of 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 (i) a
key employee retention plan (the "Key Employee Retention Plan"), and (ii) 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.
Key Employee Retention Plan
The Key Employee 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 an annual basis. For
certain participants, a portion of the awards become payable only if the
participant remains employed in good standing as of June 30, 2004 (the
"Termination Date").
15
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 (i) emergence from bankruptcy, or (ii) the Termination
Date. The Key Employee 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
17 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 24 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.
Senior executives eligible to receive benefits under the Severance Plan are
not eligible to receive benefits under any other severance plan, employment
agreement or termination compensation agreement.
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 Retirement Plan. Each
participating employee contributes towards the cost of his or her retirement
benefit. Retirement benefits are based on the average rate of annual covered
compensation during the three consecutive years of highest annual compensation
in the 15 years of employment immediately preceding retirement. Participants
become fully vested after five years of continuous credited service.
16
RETIREMENT PLAN TABLE
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............ 192,000 240,000 288,000 336,000 348,000
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
The Named Executives participate in the Retirement Plan. The full years of
continuous credited service of the Named Executives at December 31, 2002, were
as follows: Mr. Foote, 19; Mr. Fleming, 29; Mr. Bosowski, 26; Mr. Metcalf, 22
and Mr. Belz, 38. Compensation under the Retirement Plan includes salary, Key
Employee Retention Plan payments and cash incentive compensation for the year in
which payments are made as set forth in the Summary Compensation Table above.
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.
Director Compensation
Directors who are not employees of the Corporation currently are entitled
to receive a retainer of $12,000 per quarter plus a fee of $1,600 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 $1,600 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 (the 'Deferred Stock Units"). Additional
compensation to individual directors for assistance to
17
management in planning or preparing for Board and Committee meetings or other
Board-related projects at a rate commensurate with the meeting fees may be paid
to non-employee directors. 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 the annual grant or
all or portions of their cash compensation 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 (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 programs.
The Corporation's executive compensation strategy has been designed to
reward executives that lead the Corporation in achieving its financial and
strategic business objectives. Accordingly, executive compensation programs are
designed 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 operating and
financial performance.
2. Compensation programs are designed to drive and reinforce the
attainment of short-term operational objectives through annual
incentive cash awards. 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.
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 and the Key Employee
Retention Plan has replaced the long term equity program.
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 Key Employee Retention Plan to replace the long-term equity program as
a compensation device during Chapter 11 and to assure retention of management
over the longer term.
18
Each year, the Committee conducts a comprehensive evaluation of the
Corporation's executive compensation programs. For 2002, the Committee compared
the Corporation's salary and incentive programs with participant information
from five national compensation surveys with survey populations of 400 to 1,800
companies (of which 50 to 90 were 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 386 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.
Base Salaries
Except for corporate officers, salary band ranges are established each
year. The amount and timing of individual salary increases vary based upon
performance rating and contribution, current salary relative to midpoint for the
established salary range, and the annual salary budget allotment.
Market rates, in lieu of salary ranges, are utilized as managing points for
the base salaries of corporate officers. 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. Where
necessary an adjustment is made, either up or down to take into account relevant
internal factors including impact on the Corporation and relative scope of the
position that may not be reflected in the survey data. Base salaries for
corporate officers are reviewed by the Committee annually and merit increases
are made (if warranted by personal performance, job description and market
rates) as of a common date. No merit salary increases were made for corporate
officers in 2002.
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 250 officers and managers with position values above a specified
threshold were eligible to participate in the program in 2002. 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 financial 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 2002 were based upon attainment of an earnings goal and
the attainment of strategic focus objectives derived from the formal planning
process. The Program also provides for an adjustment, either upward or downward,
for personal
19
performance (except in the case of corporate officers) 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.
Long-Term Equity Program
As a method of providing enhanced retention value for the long-term equity
program and before development of the Key Employee Retention Plan for this
purpose, the Corporation has in the past made time-vested grants to select
managers and executives for retention and motivational purposes during the
succeeding several years; however, no time-vested or performance based
restricted shares or non-qualified stock options were granted to any executive
or senior manager in 2002.
Key Employee Retention Plan
Due to the impact of the Corporation's filing of the Chapter 11 cases, the
benefits of the long-term equity program cannot be realized at present nor for
the foreseeable future. Therefore, the Corporation adopted the Key Employee
Retention Plan in 2001 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 Key Employee Retention Plan is
comparable to plans adopted in other pending Chapter 11 cases involving other
building materials companies. As approved by the Court, the Key Employee
Retention Plan will be in place 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 Key Employee Retention Plan covers approximately 225 employees,
including the Named Executives.
Limitations on Compensation Deductibility
The primary objective of the Corporation's compensation programs is to
maximize the value of its businesses by encouraging and rewarding superior
operating performance. The Committee has reviewed the effect on the
Corporation's executive compensation programs of certain provisions of the
Internal Revenue Code. These provisions limit the deduction of annual
compensation that is not deemed performance-based in excess of $1 million paid
to its Chief Executive Officer and four other most highly compensated executive
officers. Regular salaries, Key Employee Retention Plan payments, restricted
stock awards, and annual incentive cash awards earned by the Named Executives do
not qualify as performance-based under the applicable provisions of the Internal
Revenue Code. Compensation to the Named Executives in connection with exercises
of stock options would be exempt from the calculation of covered compensation
subject to the deduction limitation.
THE CHIEF EXECUTIVE OFFICER'S 2002 COMPENSATION
In 2002, the compensation for William C. Foote consisted principally of
salary of $895,000, an annual incentive plan payment of $1,000,000, and a
Retention Plan payment of $1,297,752.
20
Base Salary
Mr. Foote's 2002 annual base salary of $895,000 was established by
Committee in February, 2001. In determining his base salary at that time, the
Committee considered the base salaries of chief executive officers of comparably
sized industrial companies. In addition, the committee considered 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. Currently, Mr. Foote's base
salary ranks in the 52nd percentile of the survey group. Mr. Foote did not
receive a salary adjustment in 2002.
Annual Management Incentive Plan
Mr. Foote's 2002 Annual Management Incentive Program award was determined
on the basis of the Corporation's overall achievement versus previously
determined goals described earlier in this report. Mr. Foote's 2002 annual
incentive opportunity (target) was expressed as 70%, or $626,500, of the
annualized salary for his position as discussed above. The corporate goal
achievement for 2002 described earlier resulted in an award of 160% of target,
or $1,000,000, to Mr. Foote. Under the terms of the Omnibus Management Incentive
Plan all payments thereunder are subject to an annual maximum of $1 million,
which was the amount received by Mr. Foote in 2002.
Long-Term Compensation
Mr. Foote did not receive any long-term compensation in 2002 other than the
payments under the Key Employee Retention Plan described below.
Key Employee 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, Mr. Foote's long-term compensation
for 2003 and the first half of 2004 will consist of Key Employee Retention Plan
payments. The payments for 2002 were $1,297,752.
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 portion of executive compensation to corporate performance and will
monitor the effectiveness of the program and 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
21
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors has:
- Reviewed and discussed the audited financial statements with management;
- Discussed with Deloitte & Touche 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 Deloitte & Touche
LLP required by Independence Standards Board Standard No. 1, and has
discussed with Deloitte & Touche LLP its independence and has considered
whether the provision of non-audit services by Deloitte & Touche LLP is
compatible with maintaining its independence.
In reliance on the review and discussions referred to above, the Audit
Committee recommended to the Board that the audited financial statements be
included in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 2002.
This report is submitted by the members of the Audit Committee:
Judith A. Sprieser, Chair
Robert L. Barnett
Keith A. Brown
Marvin E. Lesser
John B. Schwemm
AUDIT AND NON-AUDIT FEES
For the year ended December 31, 2002, the following fees were billed to the
Corporation for the indicated services:
- Audit Fees $988,000
- Financial Information Systems Design $ 0
- All Other Fees:
- Fees for Bankruptcy Related Services $ 94,000
- Other Non-audit Fees $813,000
Arthur Andersen LLP performed audit services for the Corporation during the
first quarter of 2002 and until May 7, 2002 (as discussed more fully in the
section titled "Change in Auditors" immediately following) and the fees totaling
$84,000 are included in the totals reported for 2002.
CHANGE IN AUDITORS
The Audit Committee annually selects the independent public accountants. On
May 7, 2002, the Audit Committee dismissed Arthur Andersen LLP ("Andersen") as
the Corporation's independent public accountants and engaged Deloitte & Touche
LLP to serve as the independent public accountants for the year ending December
31, 2002.
22
Andersen's reports on the Corporation's consolidated financial statements
for each of the two fiscal years ending December 31, 2001, did not contain
adverse opinions or disclaimers of opinions, nor were they qualified or modified
as to audit scope or accounting principles. Andersen's report did contain a
qualification as to the Corporation's ability to continue as a going concern
subsequent to its filing for Chapter 11 bankruptcy protection on June 25, 2001.
In connection with its audits for the Corporation's two fiscal years ending
December 31, 2001, and during the subsequent interim period through May 7, 2002,
there were no disagreements between the Corporation and Andersen on any matter
of accounting principles and practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to Andersen's
satisfaction, would have caused Andersen to make reference to the subject matter
of the disagreement in connection with its report on the Corporation's
consolidated financial statements for such years or period. During the
Corporation's two fiscal years ending December 31, 2001, and through May 7,
2002, there were no reportable events as defined in Item 304(a)(1)(v) of
Regulation S-K. Andersen furnished the Corporation with a letter addressed to
the SEC confirming that it agreed with the above statements made by the
Corporation. A copy of the letter, dated May 13, 2002, was filed as Exhibit 16.1
to the Corporation's Current Report on Form 8-K, filed with the SEC on May 17,
2002.
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 investment, for the five-year period ended
December 31, 2002.
[PERFORMANCE GRAPH]
USG CORPORATION S&P 500 BUILDING MATERIALS GROUP
--------------- ------- ------------------------
1997 100 100 100
1998 104 129 108
1999 97 156 102
2000 47 141 89
2001 12 125 96
2002 18 97 85
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Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2002
------------------------------------------------------------------------------------------------------------------------
USG Corporation $100 $104 $ 97 $ 47 $ 12 $18
S&P 500 100 129 156 141 125 97
Building Materials
Group 100 108 102 89 96 85
All amounts rounded to nearest dollar.
The Building Materials Group comprises the following 18 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., Butler Manufacturing Co., Crane
Co., Elcor Corp., Fluor Corp., International Aluminum Corp., Jannock, Ltd.
(through 1999), Johns-Manville Corporation, a subsidiary of Berkshire Hathaway
(through February 2001), 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
Bird Corporation, previously included in the Corporation's peer group of
companies, has been omitted because more than five years has lapsed since its
acquisition by a third-party.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche LLP, headquartered in Wilton, Connecticut,
began examining the financial statements of the Corporation in 2002. The
following resolution will be presented at the meeting to ratify the appointment
by the Audit Committee of the firm of Deloitte & Touche LLP, as independent
public accountants, to examine the financial statements of the Corporation for
the current year ending December 31, 2003, and to perform other related
accounting services.
RESOLVED: That the appointment by the Audit Committee of the Board of
Directors of Deloitte & Touche LLP as independent public accountants of the
Corporation for the current year ending December 31, 2003, is hereby
ratified, approved, and confirmed.
The Corporation has been advised by Deloitte & Touche LLP that no member of
the firm has any financial interest, either direct or indirect, in the
Corporation, or has any connection with the Corporation in any capacity other
than that of public accountants. A member of Deloitte & Touche LLP will be
present at the meeting to answer questions by stockholders and will have the
opportunity to make a statement if he or she so desires.
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 Common Stock for the benefit of
others for their reasonable expenses in forwarding the Corporation's proxy
materials and any accompanying materials to the beneficial owners of Common
Stock and in obtaining authorization from beneficial owners to give proxies.
The Board 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 properly presented for action, the individuals named in the
proxy solicited by the Board intend to vote on it on behalf of the stockholders
they represent in accordance with their best judgment.
DEADLINE FOR STOCKHOLDER PROPOSALS
Stockholder proposals and nominations for directors intended for inclusion
in the Corporation's proxy statement relating to the next annual meeting in May
2004 must be received by the Corporation no later than December 5, 2003. Any
such proposal must comply with Rule 14a-8 of Regulation 14A of
25
the proxy rules of the SEC. 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 regularly scheduled annual meeting of
stockholders to be held on May 12, 2004, including nominations for election as
directors of persons other than nominees of the Board of Directors, must be
received no earlier than February 13, 2004, nor later than March 15, 2004, 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: April 4, 2003
26
Holder Account Number C 1234567890 JNT
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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.
1. YOUR BOARD OF DIRECTORS RECOMMENDS AVOTE FOR THE LISTED NOMINEES.
FOR WITHHOLD
01 - Keith A. Brown [ ] [ ]
02 - James C. Cotting [ ] [ ]
03 - W. Douglas Ford [ ] [ ]
04 - John B. Schwemm [ ] [ ]
B RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
YOUR BOARD OF DIRECTORS RECOMMENDS AVOTE FOR THE FOLLOWING PROPOSAL.
For Against Abstain
2. Ratification of the appointment of Deloitte & [ ] [ ] [ ]
Touche LLP as independent public accountants
for the year ending December 31, 2003
C I PLAN TO ATTEND THE ANNUAL MEETING. [ ]
D AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR INSTRUCTIONS TO BE EXECUTED.
Sign your name(s) EXACTLY as it or they appear ABOVE. If signing as attorney, trustee, executor, administrator, guardian or
corporate officer, please provide your FULL title.
Signature 1 - Please keep signature within the box Signature 2 - Please keep signature within the box Date (mm/dd/yyyy)
--------------------------------------------------- --------------------------------------------------- ----------------------
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6 U P X H H H P P P P 001802
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Meeting of Stockholders
[USG LOGO] of USGCorporation
May 14, 2003, 9:00 a.m.
Third Floor Business Library
125 South Franklin Street
Chicago, Ilinois
ADMISSION TICKET
YOU MUST PRESENT THIS TICKET (BOTTOM PORTION ONLY) TO A USG REPRESENTATIVE AT
THE ENTRANCE TO BE ADMITTED TO THE ANNUAL MEETING.
MR A SAMPLE Holder Account Number
DESIGNATION (IF ANY)
ADD 1 C 1234567890 JNT
ADD 2
ADD 3
ADD 4
ADD 5
ADD 6
000000 0000000000 0 0000
[USG LOGO] 000000000.000 ext
000000000.000 ext
000000000.000 ext
MR A SAMPLE 000000000.000 ext
DESIGNATION (IF ANY) 000000000.000 ext
ADD 1 000000000.000 ext
ADD 2 000000000.000 ext
ADD 3
ADD 4 Holder Account Number
ADD 5
ADD 6 C 1234567890 JNT
[ ] Mark this box with an X if you have made
changes to your name or address details above.
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ANNUAL MEETING PROXY CARD
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This proxy is solicited on behalf of the Board of Directors of USG Corporation for its Annual Meeting of Stockholders on
May 14, 2003
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 undersignedwouldpossess, 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
14, 2003, and any adjournment or postponement thereof, on the matters shown on the reverse side and as set forth in the accompanying
Notice of Annual Meeting of Stockholders and Proxy Statement.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE! EXCEPT IF YOU VOTE BY TELEPHONE OR INTERNET.
(Continued and to be signed on reverse side.)
[ ] 5 U P X H H H P P P P 001802 +
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INTERNET AND TELEPHONE VOTING INSTRUCTIONS
Please refer to the following instructions to vote your shares by TELEPHONE (TOLL-FREE) or through the INTERNET. Telephone and
Internet voting records and authorizes voting of your shares the same as if you return your proxy card!
TO VOTE USING THE TELEPHONE (WITHIN U.S. AND CANADA) TO VOTE USING THE INTERNET
o Call FREE OF CHARGE from the United States or Canada by Touch Tone o Go to the following web site:
Phone at 1-877-233-3084 - 24 HOURS A DAY. WWW.COMPUTERSHARE.COM/US/PROXY
o Enter the HOLDER ACCOUNT NUMBER (EXCLUDING THE LETTER "C") and o Enter the information requested on your computer
PROXY ACCESS NUMBER located below. screen and follow the simple instructions.
o Follow the simple recorded instructions.
Direct Inquiries to:
Option 1: To vote as the Board of Directors recommends on ALL proposals: Computershare Investor Services
Press 1. 2 North LaSalle Street
Chicago IL 60602
When prompted, please confirm your vote by pressing 1. Telephone 312.588.4993
Facsimile 312.601.4356
Option 2: If you choose to vote on EACH proposal separately, press 0 www.computershare.com
and follow the simple recorded instructions.
HOLDER ACCOUNT NUMBER C0123456789 PROXY ACCESS NUMBER 12345
IF YOU VOTE BY TELEPHONE OR THE INTERNET, PLEASE DO NOT MAIL BACK THIS PROXY CARD.
PROXIES SUBMITTED BY TELEPHONE OR THE INTERNET MUST BE RECEIVED BY 12:00 MIDNIGHT, CENTRAL TIME, ON MAY 13, 2003.
THANK YOU FOR VOTING.