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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
USG CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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 1, 2004
Dear Fellow Stockholder:
You are cordially invited to attend the USG Corporation annual meeting of
stockholders at 9:00 a.m. on Wednesday, May 12, 2004, 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 your shares will be represented, we
ask that you vote your shares using the enclosed proxy form for registered
stockholders or the proxy voting instruction form for stockholders who hold
shares through a broker or other nominee, as soon as possible. If you vote by
Internet or telephone, it is not necessary for you to return your proxy form or
voting instruction form in the mail. 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 form 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 stockholding 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 12, 2004, at 9:00 a.m., Central
Standard Time, for the following purposes:
1. To elect three 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 December 31, 2004.
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 16, 2004,
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 Corporation's office of the Corporate
Secretary, 125 South Franklin Street, Chicago, Illinois, 60606-4678, during
ordinary business hours beginning April 30, 2004, 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 1, 2004
PLEASE VOTE YOUR SHARES PROMPTLY!
VOTING YOUR SHARES
The following subsections titled Registered Stockholders, Beneficial
Stockholders, and USG Corporation Investment Plan Participants are intended to
assist stockholders in voting their shares. Information about broker non-votes
and abstentions, as well as proxy revocations and USG Corporation Investment
Plan share units is located under the section titled PROXY STATEMENT AND PROXY
below.
Registered Stockholders
If your share holding is evidenced by a certificate or is through the
direct stock purchase plan, you will receive a proxy voting form from
Computershare Investor Services, the Corporation's common stock transfer agent
and registrar, showing the number of shares you own, your address, and each of
the items to be voted upon at this year's annual meeting. Please mark the voting
portion of the proxy voting form, at each space provided, indicating how you
would like your shares to be voted for each item presented and return the
detachable voting portion to Computershare Investor Services using the envelope
provided. Directions for voting by telephone or the Internet are located on the
bottom portion of the proxy form. If you plan to attend the annual meeting,
please mark that space on the proxy voting form and remember to bring the
non-voting portion of the proxy voting form to the annual meeting to gain
admission. Any questions you may have about your stock certificate or registered
address may be directed to Computershare Investor Services at the address or
phone number shown on the proxy voting form.
Beneficial Stockholders
If you hold shares through a brokerage firm, bank, or other nominee, you
will receive a voting instruction form from that institution showing the number
of shares you own and each of the items to be voted upon at this year's annual
meeting. Please mark the voting portion of the voting instruction form, at each
space provided, indicating how you would like your shares to be voted for each
item presented and return the detachable voting portion of the voting
instruction form to ADP Investor Communications, or other institution, using the
envelope provided. Instructions for voting by telephone or the Internet should
be located on the voting instruction form. If you plan to attend the annual
meeting, please mark that space on the voting instruction form and remember to
bring the non-voting portion of the voting instruction form, or a current
statement from your broker or nominee showing your USG stockholding, to the
annual meeting to gain admission. Any questions you may have about your
beneficial stockholdings or your address should be directed to your broker,
bank, or nominee.
If you have deposited your stock certificate with a broker, bank, or
nominee and the name and address that appears on the certificate is yours,
Computershare Investor Services will forward directly to you a proxy voting form
for the voting of those shares consistent with the methods described above under
the section titled Registered Stockholders.
USG Corporation Investment Plan Participants
Share units allocated to Plan participants through the USG Corporation
Investment Plan will be shown on a proxy voting form issued to Investment Plan
participants by Computershare Investor Services, the Investment Plan proxy
tabulator, in a manner consistent with the methods discussed under the section
titled Registered Stockholders above.
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 12, 2004, 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 1, 2004.
The Board has selected the close of business on March 16, 2004 (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 43,017,397 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 he, she, or it owns 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 registered in their own name may vote by proxy through the mail, by
telephone, or the Internet by following the instructions included in the proxy
form provided. Stockholders whose shares are held in "street name" (i.e.,
through a broker or other nominee) may vote by proxy by following the
instructions included with their voting instruction form.
Any persons whose shares are held of record in their name may revoke their
proxy at any time before it has been voted by (i) giving written notice of
revocation to the Corporation's Corporate Secretary, (ii) submitting to the
Corporation a valid proxy voting the same shares and bearing 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 a proxy.
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 intend to vote FOR the
director nominees and FOR the ratification of the appointment of the independent
public accountants as shown below.
The Northern Trust Company, as trustee (the "Trustee") of the USG
Corporation Investment Plan (the "Plan"), held of record 469,307 shares of
Common Stock on the Record Date, or approximately 1.09% of all common shares
outstanding. The Trustee, as of the Record Date, intends to vote Plan shares in
accordance with instructions given by Plan participants. Plan shares not
allocated, and Plan shares for which no instructions are received, will be voted
by the Trustee proportionately to reflect the results indicated by participant
directions in the same proportion as those shares for which instructions are
received. The Trustee shall act as provided above, unless it is required to act
otherwise by law. Plan participants may revoke previously submitted voting
instructions by filing with the Plan proxy tabulator (Computershare Investor
Services, Attn: Proxy Unit, 7600 South Grant Street, Burr Ridge, IL 60527)
either a written notice of revocation or a properly completed and signed Trustee
issued proxy form 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 is based on the respective person's Schedule 13D or 13G as filed with the
Securities and Exchange Commission.
NAME AND ADDRESS AMOUNT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------- -------------------- ----------------
Berkshire Hathaway Inc.(a).............. 6,500,000 15.11%
1440 Kiewit Plaza
Omaha, NE 68131
Gebr. Knauf Verwaltungsgellschaft
KG(b)................................... 4,300,878 10.00%
Am Bahnhof 7
97346 Iphofen
Germany
Fidelity Management and Research(c)..... 2,167,600 5.04%
One Federal Street
Boston, MA 02110
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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.
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Under the Corporation's stockholder rights plan, if an acquiring stockholder
acquires 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 generally are activated. In this situation, however,
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) Fidelity Management and Research, a Delaware corporation, and a wholly-owned
subsidiary of FMR Corp., with Edward C. Johnson 3d each has sole dispositive
power while the Fidelity Funds Board of Trustees has sole voting power with
respect to all such shares.
ELECTION OF DIRECTORS
The Board currently is composed of 11 directors, divided into three
classes, two having four members each, the other having three members. Each
class is elected for a three-year term. One class of three directors will be
elected at the annual meeting of stockholders on May 12, 2004. The remaining
classes will be elected in 2005 and 2006, respectively.
The three candidates nominated by the Board for election as directors at
the annual meeting of stockholders on May 12, 2004, are identified below. If any
of these director nominees should for any reason become unavailable prior to the
meeting 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 such person and vote in favor of the new
candidate all shares represented by stockholder 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.
Based upon the information submitted by each of its directors, and
following the recommendation of the Governance Committee, the Board has made a
determination that all of its directors except Mr. Foote are independent as that
term is defined by the New York Stock Exchange listing standards. The standards
for determining independence are those set forth in the Corporation's Corporate
Governance Guidelines as well as those in the New York Stock Exchange listing
standards.
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Information presented below for director nominees and directors continuing
in office has been furnished to the Corporation by the director nominees and
directors.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
IN 2004 FOR A THREE-YEAR TERM TO EXPIRE IN 2007
LAWRENCE M. CRUTCHER, 61, 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 Audit,
Finance, Governance, and Corporate Affairs Committees.
WILLIAM C. FOOTE, 53, Chairman, President and Chief Executive Officer. He
joined the Corporation in January 1984. Mr. Foote is a director of Walgreen Co.
and Kohler Co. He also serves as a director of Northwestern Memorial Hospital
and as a trustee of the Museum of Science and Industry. He has been a director
of the Corporation since March 1994, and chairs the Board's Executive Committee.
JUDITH A. SPRIESER, 50, Chief Executive Officer of Transora, Inc., a 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 also is a director of Transora, Inc., Kohl's
Corporation, Allstate Insurance Company, and Reckitt-Benckiser plc, a British
concern, 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.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES LISTED
ABOVE.
DIRECTOR TERMS OF OFFICE EXPIRING IN 2005
ROBERT L. BARNETT, 63, Executive Vice President, Motorola Corporation;
previously President, Commercial Governmental and Industrial Solutions Sector,
Motorola Corporation; President, Land Mobile Products Sector, Motorola
Corporation and 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, 72, retired Chairman and Chief Executive Officer 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
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Northwestern Memorial Hospital, and a life 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, 47, is a Managing Director and the Executive Vice
President of The Habitat Company. Ms. Jarrett is 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 and the Chicagoland Chamber of Commerce.
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 and Corporate Affairs Committees and chairs its
Governance Committee.
MARVIN E. LESSER, 62, 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.
DIRECTOR TERMS OF OFFICE EXPIRING IN 2006
KEITH A. BROWN, 52, 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, Governance, and Corporate Affairs Committees.
JAMES C. COTTING, 70, 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, and is a member of the Board's Executive, Corporate Affairs, and
Governance Committees and chairs its Finance Committee.
W. DOUGLAS FORD, 60, 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 Air
Products, Inc. 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, Governance, and Corporate
Affairs Committees.
JOHN B. SCHWEMM, 69, 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, Compensation
and Organization, and Governance Committees.
5
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
Meetings of the Board of Directors
The Board held six meetings during 2003, and the standing committees of the
Board held an aggregate of 27 meetings during the year. Each director attended
at least 75% of the aggregate number of meetings in 2003 of the Board and the
Board committees on which he or she served.
There are two executive sessions of the Board mandated by its Corporate
Governance Guidelines, one in February (conducted by the Chair of the
Compensation and Organization Committee) to consider the compensation of the
Chief Executive Officer and a second in November (conducted by the Chair of the
Governance Committee) to review the results of the Board's self-evaluation
process. Other unscheduled sessions may be held from time to time at the request
of one or more directors, and the presiding director at any such session is
selected by the directors attending such session.
Committees of the Board of Directors
The Board has 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 held no meetings in 2003.
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. 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
has been revised to comply with the Sarbanes-Oxley Act of 2002 and the Corporate
Governance Listing Standards of the New York Stock Exchange. A copy of the
revised Audit Committee charter is included as Annex A to this proxy statement.
The committee members are Judith A. Sprieser, Chair, Robert L. Barnett, Keith A.
Brown, Lawrence M. Crutcher, Marvin E. Lesser, and John B. Schwemm. Each of the
members meets the independence requirements under the Sarbanes-Oxley Act and the
listing standards of the New York Stock Exchange. The committee held seven
meetings during 2003. The Board has determined that all members of the committee
are "audit committee financial experts" as defined in the Sarbanes-Oxley Act of
2002 and related SEC regulations.
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
6
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
periodically be referred to it 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 seven meetings during 2003.
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, including environmental compliance, employee safety and occupational
health, equal employment opportunity, product safety, corporate contributions
and the relationship of the Corporation to the communities in which it operates.
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 three meetings during 2003.
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 or recommends for approval 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 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 five meetings during
2003.
The Governance Committee makes recommendations to the Board concerning the
size and composition of the Board and standing 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 committee also is responsible for evaluating Board
performance and assessing the adequacy of, and the Board's compliance with, the
Corporate Governance Guidelines and the Corporate Code of Business Conduct. The
committee's charter has been amended recently as described elsewhere in this
Proxy Statement. The Charter is available at the Corporation's website
www.usg.com. The members of the committee are Valerie B. Jarrett, Chair, Robert
L. Barnett, Keith A. Brown, James C. Cotting, Lawrence M. Crutcher, W. Douglas
Ford, David W. Fox, Marvin E. Lesser, John B. Schwemm, and Judith A. Sprieser,
each of whom meets the independence requirements under the Sarbanes-Oxley Act of
2002 and the listing standards of the New York Stock Exchange. The committee's
charter recently established a Nominating Subcommittee which is responsible for
performing the nominating functions of the committee. The Subcommittee presently
includes all of the
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committee members except Ms. Sprieser and Mr. Crutcher. The Chair of the
Subcommittee currently is Ms. Jarrett. The committee held five meetings during
2003.
Stockholder Nominee Recommendations
In the past, the Board committee responsible for director nominations was
the Governance Committee, which is composed of all of the independent directors
of the Corporation. Upon amendment of the Governance Committee charter earlier
this year, director nominations became the responsibility of the Governance
Committee's Nominating Subcommittee, which is comprised of members whose terms
continue beyond the next annual meeting. Director nominees standing for election
in 2004 were determined by the Governance Committee prior to its charter
amendment and creation of the Nominating Subcommittee.
The Nominating Subcommittee will consider director nominee recommendations
from Corporation stockholders. Director nominee recommendations must be in
writing and 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. Director nominee
recommendations should be sent to the Nominating Subcommittee, c/o the Corporate
Secretary, USG Corporation, 125 South Franklin Street, Chicago, Illinois,
60606-4678. Recommendations may be submitted at any time, but will not be
considered by the Nominating Subcommittee in connection with the annual meeting
of a given year, unless received on or before a date in early December of the
prior year. That date for the 2005 annual meeting of stockholders is described
in Deadline for Stockholder Proposals later in this proxy statement.
Although the Corporation has added no new directors since 1998, the process
for reviewing and selecting a new nominee would involve seeking out candidates
who would satisfy the standards set forth in the Corporate Governance Guidelines
and in the Governance Committee Charter. Typically, the Corporation employs an
executive search firm to assist it in identifying and recruiting new directors
and the Nominating Subcommittee would expect to do so in the future to fill
vacancies or add additional directors as the Board may determine. Any candidate
would be expected to meet with a number of directors, including the Nominating
Subcommittee Chair and subcommittee members, prior to any decision to nominate
an individual for election to the Board.
Stockholders may send communications to the Corporation's directors as a
group or individually, c/o the Corporate Secretary at the address shown above.
Stockholder communications will be reviewed by the Corporate Secretary for
relevance to the business of the Corporation and then forwarded to the intended
director(s). Stockholders may meet directors before or after the annual meeting
which is held in conjunction with the second quarter Board meeting since all of
the directors normally attend the annual meeting, as was the case in 2003. The
Corporation's method for permitting communications by stockholders to directors
may also be found at the Corporation's website www.usg.com.
General Corporate Governance Developments
In its 2003 proxy statement the Corporation reported that it was in the
process of preparing new governance documents to comply with the Sarbanes-Oxley
Act of 2002 and the new corporate
8
governance listing standards of the New York Stock Exchange. This project was
completed during 2003, and the resulting documents -- a set of Corporate
Governance Guidelines, new or revised charters for each of the standing
committees of the Board, and a revised Code of Business Conduct -- are located
at the Corporation's website www.usg.com. A printed copy of all these documents
also is available upon written request from the Corporate Secretary, USG
Corporation, 125 South Franklin Street, Chicago, IL 60606-4678. To conform to
the requirements of the Sarbanes-Oxley Act of 2002, the Corporation has also
adopted internal policies covering the use of its independent public accountants
to perform audit and non-audit services and procedures for handling complaints
concerning accounting and auditing matters. Copies of each of these policies are
attached to this Proxy Statement as Annexes B and C.
Since first adopting the charter for the Governance Committee, in response
to suggestions made in the Board's self-evaluation process in 2003, the Board
has amended this committee's charter (and the Corporation's by-laws) to expand
the committee's membership to include all independent members of the Board
regardless of the expiration dates of their terms as directors. The amendment
further provides for a nominating subcommittee to be composed, at any point, of
all those members whose terms as directors continue beyond the next annual
meeting. The Nominating Subcommittee will perform the nomination functions of
the Governance Committee and recommend to the Board individuals to be nominated
for election by the stockholders at the annual meeting. The Nominating
Subcommittee did not come into existence until after the nominations for the
2004 annual meeting had been effected, but the subcommittee will have such
responsibilities for future annual meetings.
As permitted by the listing standards of the New York Stock Exchange, the
Board also adopted an amendment to the charter of the Compensation and
Organization Committee to provide that the committee would be responsible for
reviewing the compensation of the Chief Executive Officer and making
recommendations on this matter to all of the independent members of the Board
for their approval.
The Corporation has received ratings from two third party corporate
governance ratings services during 2003. Institutional Shareholder Service's
(ISS) Corporate Governance Quotient has given the Corporation an index rating of
96.6 and an industry rating of 94.9, and the Corporate Library has issued a
Board Effectiveness Rating of "A." These ratings continued in effect to the date
of this proxy statement.
9
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 (25 persons). Information in the table is derived from
Securities and Exchange Commission 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 the 25 persons 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................ 6,626 0 6,626 *
Edward M. Bosowski............... 16,694 80,000 96,694 *
Keith A. Brown(c)................ 139,823 0 139,823 *
James C. Cotting................. 6,044 0 6,044 *
Lawrence M. Crutcher(d).......... 13,332 0 13,332 *
Stanley L. Ferguson.............. 12,620 52,000 64,620 *
Richard H. Fleming............... 35,364 119,000 154,364 *
William C. Foote(e).............. 52,278 250,000 302,278 *
W. Douglas Ford.................. 4,161 0 4,161 *
David W. Fox..................... 8,278 0 8,278 *
Valerie B. Jarrett............... 5,056 0 5,056 *
Marvin E. Lesser................. 7,165 0 7,165 *
James S. Matcalf................. 12,665 62,000 74,665 *
John B. Schwemm.................. 6,663 0 6,663 *
Judith A. Sprieser............... 5,225 0 5,225 *
All directors and executive
officers as a group (25
persons), including those named
above:......................... 372,410 860,500 1,232,891 2.87%
---------------
* Less than one-percent.
(a) No restricted stock was held by the Named Executives. As a group, all other
executive officers held 6,000 shares of restricted stock.
(b) Includes deferred stock units under the Stock Compensation Program for
Non-Employee Directors, as follows: Mr. Cotting, 3,040 units; Ms. Jarrett,
3,605 units; and Mr. Lesser, 4,334 units. See the section titled "Director
Compensation" below for more information.
(c) Includes 135,715 shares held by trusts of which Mr. Brown is a trustee.
10
(d) Includes 5,990 shares held by Mr. Crutcher as trustee for the benefit of his
adult children, in which shares Mr. Crutcher 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 Mr. Foote
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
Securities and Exchange Commission and the New York Stock Exchange. Based on a
review of the Securities and Exchange Commission filed ownership reports during
2003, the Corporation believes that all filing requirements were met during the
year.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
On June 25, 2001, the Corporation and 10 of its U.S. subsidiaries filed for
reorganization under chapter 11 of the U.S. Bankruptcy Code. As a result, all of
the executive officers have been associated with a corporation that filed a
petition under the general bankruptcy laws within the last five years.
COMPENSATION OF EXECUTIVE OFFICERS
The following discussion 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 2003. This data is not necessarily indicative of the
compensation and benefits that may be provided to the Named Executives in the
future.
11
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.
LONG-TERM
COMPENSATION AWARDS
-----------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(A) ($)(B) ($)(C) SARS(#) ($)(D)
------------------ ---- ------- --------- ------------ ---------- ---------- ------------
William C. Foote, 2003 895,000 1,756,351 57,480 0 0 8,389
Chairman, President and 2002 895,000 2,297,752 71,478 0 0 10,400
Chief Executive Officer 2001 880,417 648,875 94,625 0 80,000 1,333
Richard H. Fleming, 2003 455,000 735,283 0 0 0 8,389
Executive Vice President 2002 455,000 961,190 0 0 0 10,116
and Chief Financial Officer 2001 431,250 284,375 0 0 40,000 1,333
Edward M. Bosowski, 2003 380,000 614,083 0 0 0 8,152
Executive Vice President, 2002 380,000 802,753 51,357 0 0 10,163
Corporate Strategy and 2001 370,626 237,500 99,250 0 40,000 1,333
Marketing; President, USG
International
James S. Metcalf, 2003 376,670 601,583 74,626 0 0 8,164
Executive Vice President; 2002 352,500 732,375 0 0 0 10,203
President, Building Systems 2001 297,293 196,875 61,771 0 40,000 1,333
Stanley L. Ferguson, 2003 351,667 561,183 82,238 0 0 8,389
Executive Vice President 2002 335,000 707,690 0 0 0 10,191
and General Counsel 2001 311,250 209,375 0 0 25,000 1,333
---------------
(a) Reflects payments arising from cash award opportunities under the
Corporation's Annual Management Incentive Program in 2002 and 2003 and
payments under the Key Employee Retention Plan (as discussed below) in 2001,
2002, and 2003. The Named Executives received no payments under the Annual
Management Incentive Program 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 a $40,000 initiation fee in 2003 and $33,300
for club fees and dues in 2001; and Mr. Ferguson's included $39,883 of
imputed income due to a trip award in 2003. No other Named Executive had
perquisites and other personal benefits aggregating the lower of $50,000 or
10% of salary and bonus for 2003, 2002 or 2001.
(c) There were no performance-based or time-vested restricted stock awards to
any Named Executives during 2003. The aggregate restricted stock holdings of
each of the Named Executives as of the close of business on December 31,
2003, and the value of such holdings on such 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
12
filing of its chapter 11 cases in 2001, and there is no expectation that any
will be paid while the cases are pending.
SHARES OF SHARES OF
RESTRICTED STOCK RESTRICTED
HELD ON RESTRICTED STOCK VALUE ON VALUE ON STOCK HELD ON
NAME DECEMBER 31, 2003 GRANT DATE GRANT DATE DECEMBER 31, 2003 MARCH 16, 2004
---- ----------------- ---------------- ---------- ----------------- --------------
William C. Foote 0 0 0 0 0
Richard H. Fleming 5,000 02/11/98 $272,800 $82,850 0
Edward M. Bosowski 5,000 02/10/99 $274,400 $82,850 0
James S. Metcalf 5,000 02/10/99 $274,400 $82,850 0
Stanley L. Ferguson 0 0 0 0 0
Restricted shares granted to Mr. Fleming in 1998 became free of
restrictions on February 10, 2004, and restricted shares granted to Messrs.
Bosowski and Metcalf in 1999 became free of restrictions on February 9,
2004.
---------------
(d) All other Compensation for the Named Executives for each year consisted
solely of matching contributions from the Corporation to defined
contribution plans.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No SARs or stock options were granted in 2003.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES (A) (B)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT FISCAL
UNDERLYING FISCAL YEAR-END YEAR-END
OPTIONS VALUE ---------------------------- ----------------------------
EXERCISED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
---- ---------- -------- ----------- ------------- ----------- -------------
William C. Foote........ 0 0 275,000 0 0 0
Richard H. Fleming...... 0 0 139,000 0 0 0
Edward M. Bosowski...... 0 0 103,500 0 0 0
James S. Metcalf........ 0 0 67,000 0 0 0
Stanley L. Ferguson..... 0 0 52,000 0 0 0
---------------
(a) No SARs were outstanding and no stock options were exercised.
(b) No unexercised stock options/SARs were in-the-money at fiscal year-end.
13
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
No awards were made in 2003.
Employment Agreements
The Employment Agreements and Termination Compensation Agreements described
below 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.
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 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.
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
it. 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
14
confidential information except as required by the performance of duties under
an Employment Agreement.
Termination Compensation Agreements
The Corporation is a party to termination compensation agreements (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
15
termination in a manner which would give rise to benefits under the agreements,
provided that if such participation is barred, the Corporation will be obligated
to provide substantially similar benefits. In the event of any termination
giving rise to benefits under the agreements, the Corporation is required to
credit the applicable Named Executive with three years of benefit and credited
service in addition to the total number of years of benefit and credited service
the Named Executive accrued under the USG Corporation Retirement Plan. See the
section titled "Retirement Plans" below. A Named Executive with a total of less
than five years of credited service following such crediting will nonetheless be
treated as if fully vested under that Plan, but with benefits calculated solely
on the basis of 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.
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 "Senior Executive Severance Plan").
These two plans 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").
16
The Court has granted authority to implement the plan for a period of up to
three years from the date of filing of the chapter 11 cases through and
including the earlier of (a) emergence from bankruptcy, or (b) the Termination
Date. The Key Employee Retention Plan covers approximately 210 employees,
including the Named Executives.
Senior Executive Severance Plan.
The Senior Executive Severance Plan establishes severance benefits for
participants in the event of involuntary termination, without cause, on or prior
to December 31, 2004.
The Senior Executive Severance Plan, which establishes severance benefits
for approximately 16 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 Senior Executive
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
17
compensation in the 15 years of employment immediately preceding retirement.
Participants become fully vested after five years of continuous credited
service.
COVERED
COMPENSATION 20 25 30 35
------------ -------- -------- ---------- ----------
$ 600,000................... $192,000 $240,000 $ 288,000 $ 336,000
900,000................... 288,000 360,000 432,000 504,000
1,200,000................... 384,000 480,000 576,000 672,000
1,500,000................... 480,000 600,000 720,000 840,000
1,800,000................... 576,000 720,000 864,000 1,008,000
2,100,000................... 672,000 840,000 1,008,000 1,176,000
2,400,000................... 768,000 960,000 1,152,000 1,344,000
The Named Executives participate in the Retirement Plan. The full years of
continuous credited service of the Named Executives at December 31, 2003, were
as follows: Mr. Foote, 20; Mr. Fleming, 30; Mr. Bosowski, 27; Mr. Metcalf, 23
and Mr. Ferguson 16. Covered 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 authorized establishment by certain
individuals, including three of 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 attending 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 increase or
decrease in value in direct relation to the market value of shares of Common
Stock are paid in cash upon termination of Board service ("Deferred Stock
Units"). Additional compensation to individual directors for assisting
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 into
Deferred Stock Units. No director of the Corporation has received compensation
for serving as a director while also serving as an officer or other employee of
the Corporation or any of its subsidiaries.
18
COMPENSATION AND ORGANIZATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Compensation and Organization Committee of the Board, 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 charter of the Compensation and
Organization Committee may be found at www.usg.com.
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 those 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. Upon expiration of the Key Employee Retention Plan, the
committee expects to propose a new long-term compensation plan.
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.
The Corporation uses market rates as a guide in determining the
compensation levels for its officer positions. Key elements in this approach
include:
- a market pricing analysis for each officer position is prepared by Hewitt
Associates. This process utilizes a custom peer group of 27 companies
that are similar in size and/or industry to the
19
Corporation. The Corporation positions are compared to the average compensation
levels of similar positions in this peer group to determine external
competitiveness.
- A market rate for salary, incentive target opportunity and long term
incentive opportunity is established by the Corporation for each
assignment which is at, below, or slightly above the market comparison
based upon relevant USG considerations (i.e., each officer position's
impact, size, scope, or dimensions). Most of the Corporation's market
rates fall within the range of 95% to 105% of the market comparison.
- Consideration of individual pay factors, such as experience, performance
and time in position may warrant paying above or below the Corporation's
market rate.
- Total compensation opportunity for salary, annual incentive and long-term
value is targeted at the 50th percentile of the average of the custom
peer group of companies.
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 280 officers and managers with position values above a specified
threshold were eligible to participate in the program in 2003. Fifty percent of
the participant's award is based on strategic focus targets and 50% of the award
is based on corporate net earnings. A percentage of earnings fund a pool from
which awards are paid. As earnings increase, the percent of earnings allocated
to the pool decreases. Participants receive a share of earnings proportionate to
their par award. The Committee reviews strategic focus targets and corporate
earnings attainments and awards are approved by the committee following
certification of goal attainment.
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 restricted stock 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 2003.
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 bankruptcy 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 210
employees, including the Named Executives.
20
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 deductibility of compensation
in excess of $1 million that is not deemed performance-based paid in any year to
its Chief Executive Officer and four other most highly compensated executive
officers for such year. Regular salaries, Key Employee Retention Plan payments,
time-vested 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 or shares earned under any award of
performance-based stock would meet the requirements for deductibility under the
Internal Revenue Code.
THE CHIEF EXECUTIVE OFFICER'S 2003 COMPENSATION
In 2003, compensation for William C. Foote consisted principally of salary
of $895,000; an annual incentive plan payment of $458,599 and a Key Employee
Retention Plan payment of $1,297,752.
Base Salary
Mr. Foote's 2003 annual base salary of $895,000 was established by the
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 and Mr. Foote's tenure and individual
performance as Chief Executive Officer, including execution of the Corporation's
principal executive assignments and leadership in development of strategic and
financial plans and legal affairs.
Annual Management Incentive Plan
Mr. Foote's 2003 Annual Management Incentive Program award was determined
on the basis of the Corporation's overall achievement versus previously
determined factors described earlier in this report. Mr. Foote's 2003 annual
incentive opportunity was expressed as 70%, or $626,500 of the annualized salary
for his position as discussed above. The corporate goal achievement for 2003
resulted in an award of $458,599 to Mr. Foote.
Long-Term Compensation
Mr. Foote did not receive any long-term compensation in 2003 other than the
payments under the Key Employee Retention Plan described below.
Key Employee Retention Plan
An objective of the Corporation's compensation strategy is to maintain and
enhance enterprise value by keeping employees focused on their jobs and
minimizing the loss of key managers. In line with
21
this objective, 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
2003 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
22
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, 2003.
This report is submitted by the members of the Audit Committee:
Judith A. Sprieser, Chair
Robert L. Barnett
Keith A. Brown
Lawrence M. Crutcher
Marvin E. Lesser
John B. Schwemm
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following is a summary of the fees billed to USG Corporation by
Deloitte & Touche LLP for professional services rendered for the years ended
December 31, 2003 and 2002:
FEE CATEGORY (THOUSANDS) 2003 2002(A)
---------------------------------------------------------------------------------
Audit Fees $1,064 $ 904
Audit-Related Fees 89 381
Tax Fees 1,020 276
All Other Fees 52 250
------ ------
Total Fees 2,225 1,811
=================================================================================
---------------
(a) Fees for 2002 represent the period of May 7, 2002, through December 31,
2002, the period during which Deloitte & Touche LLP was engaged to serve as
USG Corporation's independent public accountants. Deloitte & Touche LLP did
not provide services to USG Corporation in 2002 prior to May 7, 2002.
Audit Fees: Consists of fees billed for professional services rendered for
the audit of USG Corporation's consolidated financial statements and review of
the interim consolidated financial
23
statements included in quarterly reports and services that are normally provided
by Deloitte & Touche LLP in connection with statutory and regulatory filings or
engagements.
Audit-Related Fees: Consists of fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of USG Corporation's consolidated financial statements and are not reported
under "Audit Fees." In 2003, these services include consultations concerning
financial accounting and reporting standards, bankruptcy-related services and
Sarbanes-Oxley Act, Section 404 advisory services. In 2002, these services
include consultations concerning financial accounting and reporting standards,
bankruptcy-related services and due diligence.
Tax Fees: Consists of fees billed for professional services related to tax
compliance and other tax services. Fees for tax compliance services, which
included assistance regarding federal, state, international and real estate tax
compliance, amounted to $279,000 in 2003. Fees for other tax services, which
included tax audit support, international tax planning, preparation of
expatriate tax returns for employees on international job assignments and real
estate tax appeals, amounted to $741,000 in 2003.
All Other Fees: Consists of fees for services other than those reported
above. These services include consultations in connection with employee benefit
plan design and other miscellaneous services.
Note: The Audit Committee's policy for approval of audit and non-audit
services to be performed by the Corporation's independent public accountants is
attached to this Proxy Statement as Annex B.
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.
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 disclaimer 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 Securities and Exchange Commission 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 report on Form 8-K, filed with
the Securities and Exchange Commission on May 17, 2002.
24
PERFORMANCE GRAPH
The following graph and table compare the cumulative total stockholder
return on the Corporation's Common Stock with the Standard and Poor's 500 Index
(the "S&P 500") and a peer group of companies in the building materials industry
selected by the Corporation for purposes of comparison and described more fully
below (the "Building Materials Group"), in each case assuming an initial
investment of $100 and full dividend investment, for the five-year period ended
December 31, 2003.
[PERFORMANCE GRAPH]
USG CORPORATION S&P 500 BUILDING MATERIALS GROUP
--------------- ------- ------------------------
1998 100 100 100
1999 93 121 94
2000 46 110 82
2001 12 97 89
2002 17 76 78
2003 134 97 106
------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2002 Dec. 31, 2003
------------------------------------------------------------------------------------------------------------------------
USG Corporation $100 $ 93 $ 46 $12 $17 $134
S&P 500 100 121 110 97 76 97
Building Materials
Group 100 94 82 89 78 106
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: Ameron International, Inc., Apogee Enterprises, Inc.,
Armstrong Holdings, Inc., Butler Manufacturing Co., Crane Co., Elkcorp, Fluor
Corp., International Aluminum Corp., Jannock, Ltd., Johns-Manville Corporation
(a subsidiary of Berkshire Hathaway since 2001), Justin Industries, Masco Corp.,
Morgan Products, Ltd., Owens Corning, Perini Corp., PPG Industries, Inc., Thomas
Industries, Inc., and TJ International, Inc. (merged into Weyerhaeuser Company
in 2000).
Morrison Knudsen Corporation and Bird Corporation, previously included in
the Corporation's peer group of companies, have been omitted because at least
five years has lapsed since their acquisition by a third party.
25
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, 2004, 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, 2004, 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, a subsidiary of Computershare Ltd., 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 intended for inclusion in the Corporation's proxy
statement relating to the next annual meeting in May 2005 must be received by
the Corporation no later than December 2, 2004. Any such proposal must comply
with Rule 14a-8 of Regulation 14A of 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 in 2005, including
nominations for election as directors of persons other than nominees of the
Board of Directors, must be received no earlier than February 11, 2005, nor
later than
26
March 14, 2005, and must comply with the procedures outlined in the
Corporation's by-laws, which may be found on the Corporation's website
www.usg.com, or a copy of which is available upon request from the Corporate
Secretary, 125 South Franklin Street, Chicago, Illinois 60606-4678. As described
elsewhere in this proxy statement, stockholder recommendations of candidates for
nominations as directors for the 2005 stockholders meeting must be received by
the Corporation no later than December 2, 2004, must be accompanied by
information concerning 2004, and must be accompanied by information concerning,
among other things, the individual's business experience and organizations for
which the individual serves as a director.
By order of the Board of Directors
/s/ J. E. Schaal
J. E. SCHAAL
Corporate Secretary
Dated: April 1, 2004
27
ANNEX A
USG CORPORATION
CHARTER OF THE
AUDIT COMMITTEE
CORPORATE AUTHORIZATION AND PURPOSE
The Audit Committee is one of the six standing committees of the Board of
Directors specified under Article IV, Section 1 of the Corporation's by-laws.
The by-laws provide that such Committee shall have ongoing responsibilities to
assist the Board of Directors in monitoring the integrity of the financial
statements of the Corporation, the Corporation's compliance with financial
reporting and related legal and statutory requirements and the independence and
performance of the Corporation's internal and external auditors. The Audit
Committee additionally shall select and employ on behalf of the Corporation,
subject to ratification by the stockholders, and approve the fees of, a firm of
certified public accountants whose duty shall be to audit the books and accounts
of the Corporation and its subsidiaries and affiliates for the fiscal year for
which it is appointed, and which firm shall ultimately be accountable to the
Committee and the Board of Directors. Such Committee shall also retain special
legal, accounting or other consultants to advise it as it shall determine, and
may request any officer or employee of the Corporation or its outside counsel or
independent auditor to meet with it, individually or jointly, or any of its
consultants. The Committee periodically shall report and make appropriate
recommendations to the Board of Directors.
ORGANIZATION
The Audit Committee of the Corporation shall have at least three members
comprised solely of independent directors (as defined in the applicable rules of
the Securities and Exchange Commission (SEC) and the New York Stock Exchange
(NYSE).) The members of the Audit Committee shall also satisfy any financial
literacy requirements of the NYSE, as such qualification is interpreted by the
Board of Directors in its business judgment, and at least one member (who may
also serve as an "audit committee financial expert") must have accounting or
related financial management expertise, as such qualification is interpreted by
the Board of Directors in its business judgment. The members of the Audit
Committee shall be appointed, and all vacancies in the Committee shall be
filled, by the Board upon the recommendation of the Chairman of the Board and
the Governance Committee. A Chair shall be designated by the Board from among
the members of the Committee. Members shall serve at the pleasure of the Board
for such term or terms as the Board shall determine. It shall be the goal of the
Corporation that at least one member of the Audit Committee shall in the
judgment of the Board of Directors be an "audit committee financial expert" in
accordance with the rules and regulations of the SEC.
The Audit Committee shall meet at least four times each year, or more
frequently as circumstances dictate. To foster open communication, the Audit
Committee shall meet regularly with management and the internal audit staff and
the independent auditors in separate sessions. Meetings may be held in
A-1
person or by telephone. Each Committee member shall participate in the annual
evaluation of the Committee's performance.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to the
independent auditors as well as anyone in the organization. The Audit Committee
may, in its sole discretion and at the Corporation's expense, retain independent
legal, accounting or other consultants or experts it deems necessary in the
performance of its duties and without having to seek the approval of the Board.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Corporation's financial statements are complete
and accurate and are in accordance with generally accepted accounting
principles. This is the responsibility of management and the independent
auditors. Nor is it the duty of the Audit Committee to conduct general
investigations, or to assure compliance with laws and regulations and the
Corporation's compliance policies.
RESPONSIBILITIES AND DUTIES
As its responsibilities and duties, the Audit Committee shall:
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually.
Submit this Charter to the Board for approval and have the document
published in accordance with regulations promulgated by the SEC and
NYSE.
2. Review the Corporation's annual audited financial statements and
quarterly financial statements prior to filing with the SEC or
distribution to stockholders and the public. Review should include
discussion with management and independent auditors of significant
issues regarding accounting principles, practices and judgments,
including the Corporation's disclosures under "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Based on
review and discussions, make a recommendation to the Board whether the
Corporation's annual financial statements should be filed with the SEC.
Discuss any significant changes to the Corporation's accounting
principles and any items required to be communicated by the independent
auditors in accordance with Statement on Auditing Standards (SAS) 61.
3. Discuss earnings press releases generally, including the use of "pro
forma" or "adjusted" non-GAAP presentations, as well as financial
information and earnings guidance provided to analysts and ratings
agencies. (Note: the responsibility to review the Corporation's
relationships with ratings agencies falls within the purview of the
Corporation's Finance Committee.)
Independent Auditors
1. Directly appoint and retain the independent auditors subject to
stockholder ratification, and approve all audit plans, engagement fees
and terms and pre-approve all permissible non-audit engagements with the
independent auditors (including providing comfort letters in connection
A-2
with securities underwritings). Evaluate the performance of the
independent auditors and, if so determined by the Committee, replace the
independent auditors. Assure the rotation of members of the audit team
as required by law. The Audit Committee may consult with management but
shall not delegate these responsibilities.
2. On an annual basis, require the independent auditors to summarize audit
and non-audit services fees and submit a formal written statement
disclosing all relationships between the independent auditors and the
Corporation in accordance with then current independence rules. Review
and discuss with the independent auditors all significant relationships
they have with the Corporation that could impair the auditors'
independence.
3. Review the independent auditors' audit plan. Discuss scope, staffing,
locations, reliance upon management and general audit approach. Review
with the independent auditors any problems or difficulties the auditors
may have encountered in the conduct of the audit and resolve any
disagreements between the auditors and management regarding financial
reporting.
4. Establish objective policies for the Corporation's hiring of employees
or former employees of the Corporation's independent auditors with due
regard for the continuing independence of such auditors.
5. Obtain and review a report by the independent auditors describing the
auditors' internal quality-control procedures and all material issues
raised by the most recent internal quality-control review or peer review
or by any inquiry or investigation by governmental or professional
authorities, within the preceding five years, respecting one or more
independent audits carried out by the firm, and all steps to deal with
such issues.
Financial Reporting Process
1. Prior to filing the annual 10-K, discuss the results of the audit with
the independent auditors. Discuss matters required to be communicated to
Audit Committees in accordance with SAS No. 61, including such things as
management judgments and accounting estimates, significant audit
adjustments, disagreements with management and difficulties encountered
in performing the audit.
2. Review analyses prepared by management and/or the independent auditor
setting forth significant financial reporting issues and judgments made
in connection with the preparation of the Corporation's financial
statements. Inquire as to the independent auditors' views about whether
management's choices of accounting principles are appropriate from the
perspective of income, asset and liability recognition, and whether
those principles are common practices or minority practices.
3. In consultation with management and the independent auditors, consider
the integrity of the Corporation's financial reporting processes and
controls, both external and internal. Discuss significant financial
reporting risk exposures and the steps management has taken to monitor,
control and report such exposures, including the Corporation's risk
assessment and risk
A-3
management policies. Review significant findings prepared by the
independent auditors together with management's responses, including the
status of previous recommendations.
4. Review (a) major issues regarding accounting principles and financial
statement presentations, including any significant changes in the
Corporation's selection or application of accounting principles; (b) the
accounting treatment accorded significant transactions; (c) any
significant accounting issues, including any second opinions sought by
management on accounting issues; (d) the development, selection and
disclosure of critical accounting estimates and analyses of the effects
of alternative GAAP methods, regulatory and accounting initiatives, and
off-balance sheet structures on the financial statements of the
Corporation; and (e) the Corporation's use of reserves and accruals, as
reported by management and the independent auditors.
Internal Controls and Legal Compliance
1. Review the internal audit plan, changes in plan, activities,
organizational structure, budget, staffing and qualifications of the
internal audit group, as needed. Review significant matters reported by
the internal audit department, together with management's response and
follow-up to these reports.
2. Evaluate whether management has established the appropriate culture by
communicating the importance of internal controls and is ensuring that
all individuals possess an understanding of their roles and
responsibilities.
3. Consider and review with management, the internal audit department and
the independent auditors the effectiveness or weakness of the
Corporation's internal controls. Develop in consultation with management
a timetable for implementing recommendations to correct identified
weaknesses.
4. Review the coordination between the independent auditors and internal
auditors; the risk assessment processes, scopes and procedures of the
Corporation's internal audit plan; whether such risk assessment
processes, scopes and procedures are adequate to attain the objectives
determined by the Corporation's management and approved by the
Committee; and the composition of the Corporation's internal audit
staff.
5. Establish and maintain procedures for (a) the receipt, retention and
treatment of complaints received by the Corporation regarding
accounting, internal controls and auditing matters and (b) the
confidential, anonymous submission by Corporation employees of concerns
with questionable accounting or auditing matters.
6. Obtain from the independent auditors assurance that there have been no
audit discoveries requiring responses under Section 10A Audit
Requirements of the Securities Exchange Act of 1934.
7. Request and receive reports on the design and implementation of internal
controls. Discuss significant changes in internal controls and address
any known weaknesses.
A-4
Miscellaneous
1. Annually prepare and cause to be filed in the Corporation's annual proxy
statement a report to stockholders as required by the SEC.
2. The Audit Committee may perform any other activities consistent with
this Charter, the Corporation's Bylaws and governing law, as the Audit
Committee deems appropriate or necessary.
3. The Audit Committee may, in its discretion, delegate specific
responsibilities and duties to any subcommittee it shall name or to its
Chair.
A-5
ANNEX B
USG CORPORATION
AUDIT COMMITTEE PRE-APPROVAL POLICY
The Audit Committee has adopted the following guidelines regarding the
engagement of an independent registered public accounting firm to perform audit
and non-audit services for USG Corporation (the "Corporation").
STATEMENT OF PRINCIPLES
In accordance with Sections 201(a) and 202 of the Sarbanes-Oxley Act of
2002, the Audit Committee pre-approves all audit and non-audit services
performed by the independent auditors. The Audit Committee will periodically
review and authorize policies and procedures, including pre-approval policies
and procedures, for the Corporation to follow in engaging the independent
auditors to provide services to the Corporation.
When the Corporation seeks to engage the independent auditors to provide
services not pre-approved in the annual authorization, specific pre-approval of
such services must be made by the Audit Committee, or its Chair. Any
pre-approval by the Chair must be presented to the Audit Committee at its next
regularly scheduled meeting. The independent auditors are not authorized to
provide any services that are prohibited by United States Securities and
Exchange Commission (the "SEC") regulation, or any other applicable law or
regulation.
AUDIT SERVICES
At its March meeting, the Audit Committee will review and approve the
independent auditors' plan for the year outlining the scope of audit services
(including statutory audit engagements as required under local country laws) to
be performed for the year, the proposed fees and the related engagement letter.
During the remainder of the year, the Audit Committee will approve, if
necessary, any changes in terms, conditions and fees resulting from changes in
audit scope, the Corporation's structure or other matters.
Audit services include the annual audits of the Corporation's internal
controls and consolidated financial statements and quarterly reviews of the
Corporation's consolidated financial statements, all in accordance with
generally accepted auditing standards. Audit services also include statutory
audits of the Corporation's subsidiaries as required by local country laws.
Audit services also may include services related to the issuance of comfort
letters, consents, the review of registration statements filed with the SEC, and
the review of, or consultation related to, non-ordinary transactions that may
arise during the year. These other audit services may be approved from-
time-to-time by the Audit Committee in the same manner as the pre-approval of
non-audit services described below.
B-1
NON-AUDIT SERVICES
The Audit Committee supports the Corporation's efforts to transition to
service providers other than the Corporation's independent auditors except where
that is not reasonably advisable. In cases where management believes that the
Corporation's independent auditors should be used for non-audit services,
management will submit to the Audit Committee for approval annually at its
November meeting, a detailed list of particular non-audit services that it
recommends the Audit Committee engage the independent auditors to provide during
the following calendar year, as well as detailed backup documentation to the
extent necessary to inform the Audit Committee of each of the specific services
proposed to be provided. Management and the independent auditors will each
confirm to the Audit Committee that each non-audit service on the list is
permissible under applicable legal requirements, including the SEC's rules
regarding auditor independence. In addition to the list of planned non-audit
services, a related budget for expenditures for each non-audit service for the
following calendar year will be provided. The budget for non-audit services will
reflect the Corporation's policy that fees for non-audit work related to tax
planning and other services generally should not exceed the fees for audit,
audit-related and tax compliance services.
The Audit Committee will evaluate the non-audit services recommended by
management and assess whether the provision of such services is consistent with
appropriate principles of auditor independence and such other factors that the
Audit Committee considers relevant, including the principles that (1) the
auditor cannot function in the role of management, (2) the auditor cannot audit
his or her own work and (3) the auditor cannot serve in an advocacy role for the
Corporation. Based on such evaluation, the Audit Committee will determine
whether to approve each non-audit service and the budget for each approved
service.
Management is responsible for monitoring the non-audit services provided
and the level of related fees against the pre-approval authorization, and will
report each actual service provided and a comparison of actual versus
pre-approved fees for such service to the Audit Committee on a periodic basis
and no less frequently than annually. The independent auditor also will monitor
its actual services and fees against the pre-approval authorization and advise
management if it is reasonably likely that the level of pre-approved fees for
any particular service may need to be exceeded or if it believes that a
requested service is not consistent with the pre-approval authorization of the
Audit Committee. Any reasonably likely budget overrun, as well as any unresolved
question regarding whether a requested service has been pre-approved, shall be
reported to the Audit Committee, or its Chair, as promptly as is appropriate
under the circumstances, and in any event, no later than the next regularly
scheduled Audit Committee meeting.
To ensure prompt handling of unexpected matters, the Audit Committee
delegates to the Chair the authority to amend or modify the list of approved
non-audit services and related fees. The Chair will report to the Audit
Committee at its next meeting any approval so given.
Non-audit services include the following:
Audit-Related Services -- These include assurance and related services that
are reasonably related to the performance of the audit or review of the
Corporation's financial statements and that are traditionally performed by the
independent auditors. Audit-related services may include, among other
B-2
things, assistance related to the internal control reporting requirements
prescribed under Section 404 of the Sarbanes-Oxley Act of 2002, due diligence
related to acquisitions, joint ventures and dispositions, attest services that
are not required by statute, and consultations concerning financial accounting
and reporting matters not related to the current-year audit.
Tax Services -- Tax services may include, but are not limited to, services
such as international tax compliance services, property tax services, expatriate
tax services, domestic and international tax planning and tax advice related to
acquisitions, joint ventures and dispositions. The Audit Committee will normally
not permit the retention of the independent auditors in connection with a
transaction initially recommended by the independent auditors, the sole business
purpose of which may be tax avoidance and the tax treatment of which may not be
supported in the Internal Revenue Code and related regulations.
Other Services -- The Audit Committee also may grant pre-approval to other
permissible non-audit services in situations that it considers appropriate.
PROHIBITED NON-AUDIT SERVICES
Non-audit service categories that are prohibited under Section 201 of the
Sarbanes-Oxley Act of 2002 and Rule 2-01(c)(4) of Regulation S-X are identified
below and further defined in the regulations:
1. Bookkeeping or Other Services Related to the Corporation's Accounting
Records or Financial Statements
2. Financial Information Systems Design and Implementation
3. Appraisal or Valuation Services, Fairness Opinion or
Contribution-in-Kind Reports
4. Actuarial Services
5. Internal Audit Outsourcing Services
6. Managerial Functions
7. Human Resources
8. Broker-Dealer, Investment Advisor or Investment Banking Services
9. Legal Services
10. Expert Services
The foregoing list is subject to the SEC's rules and relevant interpretive
guidance concerning the precise definitions of these services and the potential
applicability of exceptions to certain of the prohibitions.
B-3
ANNEX C
EMPLOYEE COMPLAINT PROCEDURES
FOR ACCOUNTING AND AUDITING MATTERS
Any employee of the Company may submit a good faith complaint regarding
accounting or auditing matters to the management of the Company without fear of
dismissal or retaliation of any kind. The Company is committed to achieving
compliance with all applicable securities laws and regulations, accounting
standards, accounting controls and audit practices. The Company's Audit
Committee will oversee treatment of employee concerns in this area.
In order to facilitate the reporting of employee complaints, the Company's
Audit Committee has established the following procedures for (1) the receipt,
retention and treatment of complaints regarding accounting, internal accounting
controls, or auditing matters ("Accounting Matters") and (2) the confidential,
anonymous submission by employees of concerns regarding questionable accounting
or auditing matters.
RECEIPT OF EMPLOYEE COMPLAINTS
- Employees with concerns regarding Accounting Matters may report their
concerns to the Questionable Practices Committee (Director, Internal
Audit as Chair) of the Company.
- Employees may forward complaints on a "confidential" or "anonymous" basis
to the Questionable Practices Committee (Director, Internal Audit as
Chair) through a telephone hotline, internet website or regular mail:
www.MySafeWorkplace.com
U.S./Canada: Dial (800) 461-9330
International: Call Collect (720) 514-4400
Mailing address: USG Corporation Complaints
c/o Business Controls Inc.
15000 W. 6th Avenue
Suite 150
Golden, Colorado 80401
C-1
SCOPE OF MATTERS COVERED BY THESE PROCEDURES
- These procedures relate to employee complaints relating to any
questionable accounting or auditing matters, including, without
limitation, the following:
C fraud or deliberate error in the preparation, evaluation, review or
audit of any financial statement of the Company;
C fraud or deliberate error in the recording and maintaining of
financial records of the Company;
C deficiencies in or noncompliance with the Company's internal
accounting controls;
C misrepresentation or false statement to or by a senior officer or
accountant regarding a matter contained in the financial records,
financial reports or audit reports of the Company; or
C deviation from full and fair reporting of the Company's financial
condition.
TREATMENT OF COMPLAINTS
- Upon receipt of a complaint, the Questionable Practices Committee
(Director, Internal Audit as Chair) will (i) determine whether the
complaint actually pertains to Accounting Matters and (ii) when possible,
acknowledge receipt of the complaint to the sender. The Audit Committee
Chair will be immediately notified of any significant investigation
(i.e., where an estimated loss of more than $1 million is involved) or if
senior executive management or any member of the Questionable Practices
Committee or any direct supervisor of a member of such Committee is the
subject of a complaint.
- Complaints relating to Accounting Matters will be reviewed under Audit
Committee direction and oversight by the Questionable Practices Committee
(Director, Internal Audit as Chair) or such other persons as the Audit
Committee determines to be appropriate. The Audit Committee will handle
directly any complaints against senior executive management and members
of the Questionable Practices Committee or their direct supervisors.
Confidentiality will be maintained to the fullest extent possible,
consistent with the need to conduct an adequate review.
- Prompt and appropriate corrective action will be taken when and as
warranted in the judgment of the Audit Committee.
- The Company will not discharge, demote, suspend, threaten, harass or in
any manner discriminate against any employee in the terms and conditions
of employment based upon any lawful actions of such employee with respect
to good faith reporting of complaints regarding Accounting Matters or
otherwise as specified in Section 806 of the Sarbanes-Oxley Act of 2002.
C-2
REPORTING AND RETENTION OF COMPLAINTS AND INVESTIGATIONS
- The Director, Internal Audit will maintain, or cause to be maintained, a
log of all complaints, tracking their receipt, investigation and
resolution and shall prepare a periodic summary report thereof for the
Audit Committee. Copies of complaints and such log will be maintained in
accordance with the Company's document retention policy.
C-3
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[] Mark this box with an X if you have
made changes to your name or address
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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 12, 2004
The undersigned hereby appoints William C. Foote and J. Eric Schaal and each or
any of them, attorneys, with power of substitution and with powers the
undersigned would possess, if personally present, to vote all stock of the
undersigned in USG CORPORATION at the annual meeting of stockholders of USG
Corporation, third floor Business Library, 125 South Franklin Street, Chicago,
Illinois on May 12, 2004, 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 003290 +
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INTERNET AND TELEPHONE VOTING INSTRUCTIONS
YOU CAN VOTE BY TELEPHONE OR INTERNET! AVAILABLE 24 HOURS A DAY 7 DAYS A WEEK!
Instead of mailing your proxy, you may choose one of the two voting methods
outlined below to vote your proxy.
[GRAPHIC] TO VOTE USING THE TELEPHONE (within U.S. and Canada) [GRAPHIC] TO VOTE USING THE INTERNET
- Call toll free 1-877-233-3084 in the United States or - Go to the following web site:
Canada any time on a touch tone telephone. There is NO WWW.COMPUTERSHARE.COM/US/PROXY
CHARGE to you for the call.
- Follow the simple instructions provided by the recorded message. - Enter the information requested on your
computer screen and follow the
simple instructions.
C0123456789 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
1:00 A.M., CENTRAL TIME, ON MAY 12, 2004. THANK YOU FOR VOTING.
C 1234567890 J N T [BAR CODE] +
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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 A VOTE FOR THE LISTED NOMINEES.
FOR WITHHOLD
01 - Lawrence M. Crutcher / / / /
02 - William C. Foote / / / /
03 - Judith A. Sprieser / / / /
B. RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE 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, 2004.
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)
__________________________________________________ __________________________________________________ _________________
/ /
__________________________________________________ __________________________________________________ _________________
[] 6 U P X H H H P P P P 003290 +
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[USG LOGO] MEETING OF STOCKHOLDERS
OF USG CORPORATION
MAY 12, 2004, 9:00 A.M.
THIRD FLOOR BUSINESS LIBRARY
125 SOUTH FRANKLIN STREET
CHICAGO, ILLINOIS
ADMISSION TICKET
YOU MUST PRESENT THIS TICKET (BOTTOM PORTION ONLY) TO A USG REPRESENTATIVE
TO BE ADMITTED TO THE USG CORPORATION ANNUAL MEETING.
MR A SAMPLE
DESIGNATION (IF ANY)
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