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<SEC-DOCUMENT>0000950137-02-001008.txt : 20020415
<SEC-HEADER>0000950137-02-001008.hdr.sgml : 20020415
ACCESSION NUMBER: 0000950137-02-001008
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 15
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020301
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: USG CORP
CENTRAL INDEX KEY: 0000757011
STANDARD INDUSTRIAL CLASSIFICATION: CONCRETE GYPSUM PLASTER PRODUCTS [3270]
IRS NUMBER: 363329400
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-08864
FILM NUMBER: 02565113
BUSINESS ADDRESS:
STREET 1: 125 S FRANKLIN ST
STREET 2: DEPT. 188
CITY: CHICAGO
STATE: IL
ZIP: 60606
BUSINESS PHONE: 3126064000
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>c67704e10-k405.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-K
----------
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --------- EXCHANGE ACT OF 1934 (FEE REQUIRED)
For fiscal year ended December 31, 2001
-----------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----------- EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to _______________.
Commission File Number 1-8864
USG CORPORATION
(Exact name of Registrant as Specified in its Charter)
DELAWARE 36-3329400
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
125 S. FRANKLIN STREET, CHICAGO, ILLINOIS 60606-4678
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (312) 606-4000
----------
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Exchange on
Title of Each Class Which Registered
New York Stock Exchange
Common Stock, $0.10 par value Chicago Stock Exchange
------------------------------ -----------------------
New York Stock Exchange
Preferred Share Purchase Rights Chicago Stock Exchange
------------------------------- ------------------------
8.5% Senior Notes, Due 2005 New York Stock Exchange
------------------------------ -----------------------
Securities Registered Pursuant to Section 12(g) of the Act:
None
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
As of January 31, 2002, the aggregate market value of USG Corporation
common stock held by nonaffiliates (based upon the New York Stock Exchange
closing prices) was approximately $320,668,000.
As of January 31, 2002, 43,457,312 shares of common stock were outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
1. The Corporation's definitive Proxy Statement for use in connection with the
annual meeting of stockholders to be held on May 8, 2002, is incorporated
by reference in Part III of this Form 10-K Report.
2. A list of exhibits incorporated by reference is presented in this Form 10-K
Report beginning on page 56.
TABLE OF CONTENTS
<Table>
<Caption>
PART I Page
- ------ ----
<S> <C> <C>
Item 1. Business................................................................................ 3
Item 2. Properties.............................................................................. 7
Item 3. Legal Proceedings....................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders..................................... 9
PART II
- -------
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters................ 9
Item 6. Selected Financial Data................................................................. 10
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition... 10
Item 8. Financial Statements and Supplementary Data............................................. 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.... 54
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant...................................... 54
Item 11. Executive Compensation.................................................................. 56
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 56
Item 13. Certain Relationships and Related Transactions.......................................... 56
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 56
Signatures........................................................................................ 62
</Table>
2
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
United States Gypsum Company ("U.S. Gypsum") was incorporated in 1901. USG
Corporation (together with its subsidiaries, called the "Corporation") was
incorporated in Delaware on October 22, 1984. By a vote of stockholders on
December 19, 1984, U.S. Gypsum became a wholly owned subsidiary of the
Corporation, and the stockholders of U.S. Gypsum became the stockholders of the
Corporation, all effective January 1, 1985.
Through its subsidiaries, the Corporation is a leading manufacturer and
distributor of building materials producing a wide range of products for use in
new residential, new nonresidential, and repair and remodel construction, as
well as products used in certain industrial processes.
On June 25, 2001, the parent company of the Corporation and 10 of its
United States subsidiaries (collectively, the "Debtors") filed voluntary
petitions for reorganization (the "Filing") under chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware. The chapter 11 cases of the Debtors have been consolidated for
purposes of joint administration as In re: USG Corporation et al. (case no.
01-2094). This action was taken to resolve asbestos-related claims in a fair and
equitable manner, to protect the long-term value of the Debtors' businesses and
to maintain the Debtors' leadership positions in their markets. The Debtors are
operating their businesses as debtors-in-possession subject to the provisions of
the United States Bankruptcy Code. These cases do not include any of the
Corporation's non-U.S. subsidiaries. See Part II, Item 7. Management's
Discussion and Analysis of Results of Operations and Financial Condition and
Part II, Item 8. Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements, Note 2. Voluntary Reorganization Under
Chapter 11 and Note 17. Litigation for additional information on the bankruptcy
proceedings and asbestos litigation.
The Corporation's operations are organized into three operating segments:
North American Gypsum, Worldwide Ceilings and Building Products Distribution.
NORTH AMERICAN GYPSUM
Business
North American Gypsum, which manufactures and markets gypsum and related
products in the United States, Canada and Mexico, includes U.S. Gypsum in the
United States, the gypsum business of CGC Inc. ("CGC") in Canada, and USG
Mexico, S.A. de C.V. ("USG Mexico") in Mexico. U.S. Gypsum is the largest
producer of gypsum wallboard in the United States and accounted for
approximately one-third of total domestic gypsum wallboard sales in 2001. CGC is
the largest producer of gypsum wallboard in eastern Canada. USG Mexico is the
largest producer of gypsum wallboard in Mexico.
Products
North American Gypsum's products are used in a variety of building and
industrial applications. Gypsum panel products are used to finish the interior
walls and ceilings in residential, commercial and institutional construction.
These products provide aesthetic as well as sound-dampening and fire-retarding
value. The majority of these products are sold under the SHEETROCK brand name.
Also sold under the SHEETROCK brand name is a line of joint compounds used for
finishing wallboard joints. The DUROCK line of cement board and accessories
provides fire-resistant and water-damage-resistant assemblies for both interior
and exterior construction. FIBEROCK brand gypsum fiber panels include
3
<PAGE>
abuse-resistant wall panels and floor underlayment. The Corporation produces a
variety of plaster products used to provide a custom finish for residential and
commercial interiors. Like SHEETROCK brand gypsum wallboard, these products
provide aesthetic, sound-dampening and fire-retarding value. Plaster products
are sold under the trade names RED TOP, IMPERIAL and DIAMOND. The Corporation
also produces gypsum-based products for agricultural and industrial customers to
use in a number of applications, including soil conditioning, road repair,
fireproofing and ceramics.
Manufacturing
North American Gypsum's products are manufactured at 47 plants located
throughout the United States, Canada and Mexico.
Gypsum rock is mined or quarried at 15 company-owned locations in North
America. In 2001, these locations provided approximately 75% of the gypsum used
by the Corporation's plants in North America. Certain plants purchase synthetic
gypsum or natural gypsum rock from various outside sources. Outside purchases
accounted for 25% of the gypsum used in the Corporation's plants. The
Corporation's geologists estimate that its recoverable rock reserves are
sufficient for more than 28 years of operation based on the Corporation's
average annual production of crude gypsum during the past five years. Proven
reserves contain approximately 273 million tons. Additional reserves of
approximately 148 million tons are found on four properties not in operation.
The Corporation's total average annual production of crude gypsum during the
past five years was 10 million tons.
The Corporation owns and operates seven paper mills located across the
United States. Vertical integration in paper ensures a continuous supply of
high-quality paper that is tailored to the specific needs of the Corporation's
wallboard production processes.
The Corporation performs research and development at the USG Research and
Technology Center in Libertyville, Ill. The staff at this center provides
specialized technical services to the operating units and does product and
process research and development. The center is especially well-equipped for
carrying out fire, acoustical, structural and environmental testing of products
and building assemblies. The center also has an analytical laboratory for
chemical analysis and characterization of materials. Development activities can
be taken to an on-site pilot plant level before being transferred to a full-size
plant.
Marketing and Distribution
Distribution is carried out through L&W Supply Corporation ("L&W Supply"),
a wholly owned subsidiary of the Corporation, building materials dealers, home
improvement centers and other retailers, contractors and specialty wallboard
distributors. Sales of gypsum products are seasonal in the sense that sales are
generally greater from spring through the middle of autumn than during the
remaining part of the year. Based on the Corporation's estimates using publicly
available data, internal surveys and gypsum wallboard shipment data from the
Gypsum Association, management estimates that during 2001, about 43% of total
industry volume demand for gypsum wallboard was generated by new residential
construction activity, 39% of volume demand was generated by residential and
nonresidential repair and remodel activity, 12% of volume demand was generated
by new nonresidential construction activity and the remaining 6% of volume
demand was generated by other activities such as exports and temporary
construction.
Competition
The Corporation competes in North America as the largest of 10 producers of
gypsum wallboard products and in 2001 accounted for approximately one-third of
total gypsum wallboard sales in the United States. In 2001, U.S. Gypsum shipped
9.9 billion square feet of wallboard, the highest level in the Corporation's
history, out of total U.S. industry shipments (including imports) estimated at
30.2 billion square feet, the second highest level on record. Principal
4
<PAGE>
competitors in the United States are: National Gypsum Company, Georgia-Pacific
Corporation, James Hardie Gypsum, American Gypsum, Temple-Inland Forest Products
Corporation, BPB Celotex, Lafarge North America, Inc. and other smaller,
regional competitors. Major competitors in Canada include BPB Westroc,
Georgia-Pacific Corporation and Lafarge North America, Inc. In Mexico, the
Corporation's major competitor is Panel Rey.
WORLDWIDE CEILINGS
Business
Worldwide Ceilings, which manufactures and markets interior systems
products worldwide, includes USG Interiors, Inc. ("USG Interiors"), the
international interior systems business managed as USG International, and the
ceilings business of CGC. Worldwide Ceilings is a leading supplier of interior
ceilings products used primarily in commercial applications. In 2001, Worldwide
Ceilings was estimated to be the largest manufacturer of ceiling grid and the
second-largest manufacturer of ceiling tile in the world.
Products
Worldwide Ceilings manufactures and markets ceiling grid, ceiling tile,
relocatable wall systems and, in Europe and the Asia-Pacific region, access
floor systems. Its integrated line of ceilings products provides qualities such
as sound absorption, fire retardation, and convenient access to the space above
the ceiling for electrical and mechanical systems, air distribution and
maintenance. USG Interiors' significant trade names include the AURATONE and
ACOUSTONE brands of ceiling tile and the DX, FINELINE, CENTRICITEE, CURVATURA
and DONN brands of ceiling grid.
Manufacturing
Worldwide Ceilings' products are manufactured at 18 plants located in North
America, Europe and the Asia-Pacific region. These include 10 ceiling grid
plants, 4 ceiling tile plants, 2 plants that produce other interior products and
2 plants that produce or prepare raw materials for ceiling tile and grid.
Principal raw materials used in the production of Worldwide Ceilings' products
include mineral fiber, steel, perlite, starch and high-pressure laminates.
Certain of these raw materials are produced internally, while others are
obtained from various outside suppliers. Shortages of raw materials used in this
segment are not expected.
USG Interiors' primary research and development is carried out at the USG
Research and Technology Center in Libertyville, Ill., and at its Solutions
Center(SM) in Chicago, Ill. An additional metal-forming research and development
facility in Avon, Ohio, provides product design, engineering and testing
services in addition to manufacturing development.
Marketing and Distribution
Worldwide Ceilings' products are sold primarily in markets related to the
new construction and renovation of commercial buildings. Marketing and
distribution are conducted through a network of distributors, installation
contractors, L&W Supply and home improvement centers.
Competition
The Corporation estimates that it is the world's largest manufacturer of
ceiling grid. Principal competitors in ceiling grid include WAVE (a joint
venture between Armstrong World Industries, Inc. and Worthington Industries) and
Chicago Metallic Corporation. The Corporation estimates that it is the
second-largest manufacturer/marketer of acoustical ceiling tile in the world.
Principal global competitors include Armstrong World Industries, Inc., OWA
Faserplattenwerk GmbH
5
<PAGE>
(Odenwald), BPB Celotex and AMF Mineralplatten GmbH Betriebs KG. Armstrong World
Industries, Inc., the world's largest manufacturer of acoustical ceiling tile,
filed chapter 11 bankruptcy in the fourth quarter of 2000 in response to pending
and potential asbestos litigation filings.
BUILDING PRODUCTS DISTRIBUTION
Business
Building Products Distribution consists of L&W Supply, the leading
distributor of wallboard and complementary building products in the United
States. In 2001, L&W Supply distributed approximately 10% of all gypsum
wallboard in the United States, including approximately 28% of U.S. Gypsum's
wallboard production.
Marketing and Distribution
L&W Supply was organized in 1971 by U.S. Gypsum. As of December 31, 2001,
L&W operated 180 distribution locations in 37 states. It is a service-oriented
organization that stocks a wide range of construction materials and delivers
less-than-truckload quantities of construction materials to job sites and places
them in areas where work is being done, thereby reducing or eliminating the need
for handling by contractors. L&W Supply specializes in the distribution of
gypsum wallboard (which accounts for approximately 46% of its total net sales),
joint compound and other products manufactured primarily by U.S. Gypsum. It also
distributes products manufactured by USG Interiors such as acoustical ceiling
tile and grid, as well as products of other manufacturers including drywall
metal, insulation, roofing products and accessories. L&W Supply leases
approximately 87% of its facilities from third parties. Usually, initial leases
run from three to five years with a five-year renewal option.
Competition
L&W Supply's largest competitor, Gypsum Management Supply, is an
independent distributor with locations in the southern, central and western
United States. There are several regional competitors such as CSR Rinker in the
Southeast (primarily in Florida) and Strober Building Supply in the Northeast.
L&W Supply's many local competitors include lumber dealers, hardware stores,
home improvement centers and acoustical ceiling tile distributors.
OTHER INFORMATION
Primary supplies of energy have been adequate, and no significant
curtailment of plant operations has resulted from insufficient supplies,
although pricing increased dramatically in early 2001. Supplies are likely
to remain sufficient for projected requirements. Energy price swap agreements
are used by the Corporation to hedge the cost of certain purchased fuel.
None of the operating segments has any special working capital requirements
or is materially dependent on a single customer or a few customers on a regular
basis. No single customer of the Corporation accounted for 10% or more of the
Corporation's 2001, 2000 or 1999 consolidated net sales. Because orders are
filled upon receipt, no operating segment has any significant backlog.
Loss of one or more of the patents or licenses held by the Corporation
would not have a major impact on the Corporation's business or its ability to
continue operations. No material part of any of the Corporation's business is
subject to renegotiation of profits or termination of contracts or subcontracts
at the election of the government.
6
<PAGE>
All of the Corporation's products regularly require improvement to remain
competitive. The Corporation also develops and produces comprehensive systems
employing several of its products. In order to maintain its high standards and
remain a leader in the building materials industry, the Corporation performs
ongoing extensive research and development activities and makes the necessary
capital expenditures to maintain production facilities in good operating
condition.
U.S. Gypsum is a defendant in asbestos lawsuits alleging both property
damage and personal injury. As a result of the Filing , all pending asbestos
lawsuits against U.S. Gypsum are stayed, and no party may take any action to
pursue or collect on such asbestos claims absent specific authorization of the
Bankruptcy Court. Since the Filing, U.S. Gypsum has ceased making payments with
respect to asbestos lawsuits, including payments pursuant to settlements of
asbestos lawsuits. See Part II, Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition and Part II, Item 8. Financial
Statements and Supplementary Data - Notes to Consolidated Financial Statements,
Note 2. Voluntary Reorganization Under Chapter 11 and Note 17. Litigation for
additional information on the bankruptcy proceedings and asbestos litigation.
See Part II, Item 8. Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements, Note 16. Segments for financial information
pertaining to operating segments, foreign and domestic operations and export
sales.
ITEM 2. PROPERTIES
The Corporation's plants, mines, quarries, transport ships and other
facilities are located in North America, Europe and the Asia-Pacific region. In
2001, most of these facilities operated above 80% of capacity. The locations of
the production properties of the Corporation's subsidiaries, grouped by
operating segment, are as follows (plants are owned unless otherwise indicated):
NORTH AMERICAN GYPSUM
Gypsum Wallboard and Other Gypsum Products
<Table>
<S> <C> <C>
Aliquippa, Pa. Jacksonville, Fla. Sperry, Iowa
Baltimore, Md. New Orleans, La. Stony Point, N.Y.
Bridgeport, Ala. Norfolk, Va. Sweetwater, Texas
Boston (Charlestown), Mass. Plaster City, Calif. Hagersville, Ontario, Canada
Detroit (River Rouge), Mich. Rainier, Ore. Montreal, Quebec, Canada
East Chicago, Ind. Santa Fe Springs, Calif. Monterrey, Nuevo Leon, Mexico
Empire, Nev. Shoals, Ind. Puebla, Puebla, Mexico
Fort Dodge, Iowa Sigurd, Utah Saltillo, Coahuila, Mexico
Galena Park, Texas Southard, Okla.
</Table>
As part of the Corporation's restructuring plan announced in the fourth quarter
of 2001, the gypsum wallboard plant in Fremont, Calif., will be closed in 2002.
7
<PAGE>
Joint Compound (surface preparation and joint treatment products)
<Table>
<S> <C> <C>
Auburn, Wash. Gypsum, Ohio Edmonton, Alberta, Canada
Bridgeport, Ala. Jacksonville, Fla. Hagersville, Ontario, Canada
Chamblee, Ga. Port Reading, N.J. Montreal, Quebec, Canada
Dallas, Texas Sigurd, Utah Surrey, British Columbia, Canada
East Chicago, Ind. Tacoma, Wash. Puebla, Puebla, Mexico
Fort Dodge, Iowa Torrance, Calif. Port Klang, Malaysia (leased)
Galena Park, Texas Calgary, Alberta, Canada
</Table>
Gypsum Rock (mines and quarries)
<Table>
<S> <C> <C>
Alabaster (Tawas City), Mich. Sigurd, Utah Little Narrows, Nova Scotia, Canada
Empire, Nev. Southard, Okla. Windsor, Nova Scotia, Canada
Fort Dodge, Iowa Sperry, Iowa Manzanillo, Colima, Mexico
Plaster City, Calif. Sweetwater, Texas Monterrey, Nuevo Leon, Mexico
Shoals, Ind. Hagersville, Ontario, Canada Saltillo, Coahuila, Mexico
</Table>
Synthetic gypsum is processed at Belledune, New Brunswick, Canada.
Paper for Gypsum Wallboard
<Table>
<S> <C> <C>
Clark, N.J. Jacksonville, Fla. South Gate, Calif.
Galena Park, Texas North Kansas City, Mo.
Gypsum, Ohio Oakfield, N.Y.
</Table>
Other Products
A mica-processing plant is located at Spruce Pine, N.C. Drywall metal
products are manufactured at Medina, Ohio (leased). Metal lath, plaster and
drywall accessories and light gauge steel framing products are manufactured at
Puebla, Puebla, Mexico. Gypsum fiber panel products are produced at Gypsum,
Ohio, and Port Hawkesbury, Nova Scotia, Canada. Paper-faced metal corner bead is
manufactured at Auburn, Wash., and Weirton, W.Va. Various other products are
manufactured at La Mirada, Calif. (adhesives and finishes), and New Orleans, La.
(lime products).
Ocean Vessels
Gypsum Transportation Limited, a wholly owned subsidiary of the Corporation
and headquartered in Bermuda, owns and operates a fleet of four self-unloading
ocean vessels. Under a contract of affreightment, these vessels transport gypsum
rock from Nova Scotia to the East Coast plants of U.S. Gypsum. Excess ship time,
when available, is offered for charter on the open market.
8
<PAGE>
WORLDWIDE CEILINGS
Ceiling Grid
<Table>
<S> <C> <C>
Cartersville, Ga. Auckland, New Zealand (leased) Peterlee, England (leased)
Stockton, Calif. Dreux, France Port Klang, Malaysia (leased)
Westlake, Ohio Oakville, Ontario, Canada Shenzhen, China
Viersen, Germany
</Table>
A coil coater and slitter plant used in the production of ceiling grid also is
located in Westlake, Ohio, and a slitter plant is located in Stockton, Calif.
(leased).
Ceiling Tile
Ceiling tile products are manufactured at Cloquet, Minn., Greenville,
Miss., Walworth, Wis., and Aubange, Belgium.
Other Products
Access floor systems products are manufactured at Peterlee, England
(leased), and Port Klang, Malaysia (leased). Wall system products are
manufactured at Medina, Ohio (leased). Mineral fiber products are manufactured
at Red Wing, Minn., and Walworth, Wis.
As part of the Corporation's restructuring plan announced in the fourth
quarter of 2001, the ceiling tile plant in San Juan Ixhuatepec, Mexico, the
ceiling grid plant in Taipei, Taiwan, the drywall steel plant in Prestice, Czech
Republic, and one of three ceiling tile manufacturing lines at the Greenville,
Miss., plant will be closed in 2002.
ITEM 3. LEGAL PROCEEDINGS
See Part II, Item 8. Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements, Note 2. Voluntary Reorganization Under
Chapter 11 and Note 17. Litigation for information on legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of 2001.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
See Part II, Item 8. Financial Statements and Supplementary Data - Selected
Quarterly Financial Data for information with respect to the principal market on
which the Corporation's common stock is traded, the range of high and low market
prices, the number of stockholders of record and the amount of quarterly cash
dividends.
9
<PAGE>
On November 22, 1996, the Corporation entered into a retention agreement
with an employee, formerly the principal stockholder of a corporation certain of
whose assets were purchased by the Corporation, whereby the Corporation agreed
to grant shares of unregistered common stock, $0.10 par value, having an
aggregate value equal to $250,000, in five separate annual installments each
having a value equal to $50,000, in reliance on the private offering exemption
afforded by Section 4(2) of the Securities Act of 1933, as amended. The fifth
and final annual grant of 3,493 common shares was made on November 22, 2000. The
unregistered common stock was freed from restriction on transfer, resale or
other disposition on November 22, 2001.
ITEM 6. SELECTED FINANCIAL DATA
See Part II, Item 8. Financial Statements and Supplementary Data -
Five-Year Summary for selected financial data.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
VOLUNTARY REORGANIZATION UNDER CHAPTER 11
On June 25, 2001 (the "Petition Date"), the parent company (the "Parent
Company") of the Corporation and the 10 United States subsidiaries listed below
(collectively, the "Debtors") filed voluntary petitions for reorganization (the
"Filing") under chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"). The chapter 11 cases of the Debtors (collectively, the
"Chapter 11 Cases") have been consolidated for purposes of joint administration
as In re: USG Corporation et al. (case no. 01-2094). The Chapter 11 Cases do not
include any of the Corporation's non-U.S. subsidiaries. The following
subsidiaries filed chapter 11 petitions:
United States Gypsum Company
USG Interiors, Inc.
USG Interiors International, Inc.
L&W Supply Corporation
Beadex Manufacturing, LLC
B-R Pipeline Company
La Mirada Products Co., Inc.
Stocking Specialists, Inc.
USG Industries, Inc.
USG Pipeline Company
This action was taken to resolve asbestos-related claims in a fair and
equitable manner, to protect the long-term value of the Debtors' businesses and
to maintain the Debtors' leadership positions in their markets.
BACKGROUND OF THE FILING
U.S. Gypsum is a defendant in asbestos lawsuits alleging both property
damage and personal injury. Chapter 11 filings during 2000 and early 2001 by
other companies subject to asbestos litigation dramatically increased U.S.
Gypsum's asbestos costs beyond its legitimate liability. The Corporation has
been and continues to be committed to finding a legislative solution to the
increase in asbestos costs. However, in 2001 it became apparent that a timely
resolution to the problem through legislation was not feasible. The Corporation
determined that voluntary protection under chapter 11 would be the best
alternative for obtaining a fair and final resolution of U.S. Gypsum's asbestos
liability and the best way to preserve value for stakeholders. See Part II, Item
8. Note 17. Litigation for additional information on asbestos litigation.
10
<PAGE>
USG was the eighth major company with a large number of asbestos claims
that filed a chapter 11 petition in the 18 months prior to the Petition Date.
Since 1994, U.S. Gypsum has been named in more than 250,000 asbestos-related
personal injury claims and made cash payments of approximately $575 million
(before insurance recoveries) to manage and resolve asbestos-related litigation.
Based on an independent study conducted in 2000 and on U.S. Gypsum's historical
experience of litigating asbestos claims in the tort system, the Corporation
estimated that U.S. Gypsum's probable liability for costs associated with
asbestos cases pending as of December 31, 2000, and expected to be filed through
2003 to be between $889 million and $1,281 million. In the fourth quarter of
2000, U.S. Gypsum recorded a noncash, pretax provision of $850 million,
increasing its total accrued reserve for asbestos claims to $1,185 million as of
December 31, 2000. Substantially all of this reserve related to personal injury
claims and reflected management's expectation that U.S. Gypsum's average cost
per case would increase, at least in the short term, due to distortions in the
tort system resulting from the bankruptcies of other defendants that led to
increased settlement demands from asbestos plaintiffs. Less than 10% of the
reserve related to defense and administrative costs. Between January 1, 2001,
and the Petition Date, U.S. Gypsum received more than 26,000 new claims. On a
cash basis, U.S. Gypsum's asbestos-related personal injury costs (before
insurance) rose from $30 million in 1997 to $162 million in 2000 and, absent the
Filing, were expected to exceed $275 million in 2001. Because of the Filing,
there is greater uncertainty concerning the liability associated with asbestos
cases, as discussed below.
CONSEQUENCES OF THE FILING
The Debtors are operating their businesses as debtors-in-possession subject
to the provisions of the Bankruptcy Code. All vendors are being paid for all
goods furnished and services provided after the Filing. However, as a
consequence of the Filing, all pending litigation against the Debtors as of the
Petition Date is stayed, and no party may take any action to pursue or collect
pre-petition claims except pursuant to order of the Bankruptcy Court. It is the
Debtors' intention to address all pending and future asbestos-related claims and
all other pre-petition claims in a plan of reorganization. However, it is
impossible to predict currently how the plan will treat asbestos and other
pre-petition claims and what impact any reorganization plan may have on the
shares of the Corporation's common stock and other outstanding securities. The
formulation and implementation of the plan of reorganization could take a
significant period of time.
Three creditors' committees, one representing asbestos personal injury
claimants, another representing asbestos property damage claimants and a third
representing general unsecured creditors, have been appointed as official
committees in the Chapter 11 Cases and, in accordance with the provisions of the
Bankruptcy Code, will have the right to be heard on all matters that come before
the Bankruptcy Court. The Corporation expects that the appointed committees,
together with a legal representative for the interests of future asbestos
claimants to be appointed by the Bankruptcy Court, will play important roles in
the Chapter 11 Cases and the negotiation of the terms of any plan of
reorganization. Recent developments in the Corporation's bankruptcy proceeding
are discussed in Part II, Item 8. Note 17. Litigation.
CHAPTER 11 FINANCING
A $350 million debtor-in-possession financing facility from JP Morgan Chase
(the "DIP Facility") was approved by the Bankruptcy Court on July 31, 2001. The
DIP Facility is available to supplement liquidity and fund operations during the
reorganization process. The Corporation believes that cash available from
operations and the DIP Facility will provide sufficient liquidity to allow its
businesses to operate in the normal course without interruption. See "Available
Liquidity" below for more information on the DIP Facility.
ACCOUNTING IMPACT
The Corporation is required to follow AICPA Statement of Position 90-7
("SOP 90-7"), "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code." Pursuant to SOP 90-7, the Corporation's pre-petition
liabilities that are subject to compromise are reported separately on the
consolidated balance sheet. Virtually all of the Corporation's pre-petition debt
is currently in default and was recorded at face value and classified within
liabilities
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subject to compromise. U.S. Gypsum's asbestos liability also is classified
within liabilities subject to compromise. See Part II, Item 8. Note 2. Voluntary
Reorganization Under Chapter 11, which includes information related to financial
statement presentation, the debtor-in-possession statements and detail of the
liabilities subject to compromise and chapter 11 reorganization expenses.
CONSOLIDATED RESULTS
NET SALES
Net sales in 2001 were $3,296 million, down 13% from 2000. This decline was
primarily due to lower average selling prices for SHEETROCK brand gypsum
wallboard. By midyear 2001, selling prices had dropped to their lowest level in
nearly a decade. However, there was some improvement in market conditions during
the second half of 2001 as demand for gypsum wallboard grew and some excess
industry capacity closed, allowing U.S. Gypsum and other wallboard manufacturers
to raise prices for the first time since the end of 1999.
Net sales in 2000 totaled $3,781 million, a slight decrease from 1999's
record level of $3,810 million. Increased shipments were achieved for all major
product lines in 2000 as compared with 1999. However, the impact of increased
demand was offset by lower selling prices for SHEETROCK brand gypsum wallboard.
COST OF PRODUCTS SOLD
Cost of products sold in 2001 totaled $2,882 million, down 2% versus 2000,
primarily due to the absence in 2001 of $77 million of asbestos-related noncash
charges recorded by U.S. Gypsum in 2000.
Cost of products sold in 2000 was $2,941 million, up 7% from 1999
reflecting the combination of increased volume and higher energy and raw
material costs.
In addition to the fourth quarter 2000 provision for asbestos claims, U.S.
Gypsum recorded asbestos-related charges to cost of products sold through
September 30, 2000. These charges totaled $77 million during the first nine
months of 2000 and $80.5 million in 1999.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses totaled $279 million in 2001, $309
million in 2000 and $338 million in 1999. As a percentage of net sales, these
expenses were 8.5%, 8.2% and 8.9% in 2001, 2000 and 1999, respectively.
Expenses were down 10% in 2001 versus 2000 because of cost-reduction
initiatives undertaken during the year that resulted in lower charges for
compensation and benefits, marketing programs and travel. These reductions were
partially offset by expenses associated with a Bankruptcy-Court-approved key
employee retention program. Comparing 2000 with 1999, expenses declined 9%
primarily due to lower charges for incentive compensation programs and a
companywide emphasis on reducing expenses which resulted in lower expenditures
for marketing programs and travel.
CHAPTER 11 REORGANIZATION EXPENSES
In connection with the Filing, the Corporation recorded pretax chapter 11
reorganization expenses of $12 million in 2001. These expenses consisted of
legal and financial advisory fees of $14 million and accelerated amortization of
debt issuance costs of $2 million, partially offset by bankruptcy-related
interest income of $4 million.
2001 PROVISIONS FOR IMPAIRMENT AND RESTRUCTURING
In the fourth quarter of 2001, the Corporation recorded impairment charges
totaling $30 million pretax ($25 million after-tax). Included in this total was
$16 million pretax related to the Aubange, Belgium, ceiling tile plant. This
impairment resulted from a decline in demand, which had been significantly
affected by a worldwide slowdown in the nonresidential construction market, and
from the plant's high cost structure. The remaining $14 million pretax related
to the Port Hawkesbury, Nova Scotia, gypsum fiber panel plant. This impairment
resulted from high delivered costs of products manufactured at Port Hawkesbury
combined with the consolidation of production of FIBEROCK products at the
Gypsum, Ohio, plant. Estimated future cash flows related to these facilities
indicated that impairment charges were necessary to write down the assets to
their third-party appraised fair values.
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Also, in the fourth quarter of 2001, the Corporation recorded a charge of
$12 million pretax ($10 million after-tax) related to a restructuring plan that
included the shutdown of a gypsum wallboard plant in Fremont, Calif., a drywall
steel plant in Prestice, Czech Republic, a ceiling tile plant in San Juan
Ixhuatepec, Mexico, a ceiling tile manufacturing line in Greenville, Miss., and
other restructuring activities. The restructuring plan, which is expected to be
completed in 2002, is intended to allow the Corporation to optimize its
manufacturing operations at a time when a weak economy threatens to cause demand
for the Corporation's products to decline. The closing of the Fremont plant will
eliminate approximately 250 million square feet of old, high-cost gypsum
wallboard capacity.
Included in the $12 million pretax charge was $8 million for severance
related to a workforce reduction of more than 350 positions (primarily hourly
positions), $2 million for the write-off of property, plant and equipment, and
$2 million for line shutdown and removal and contract cancellations.
The reserve for this plan was included in accrued expenses as of December
31, 2001, on the consolidated balance sheet, and payments totaling $2 million
were charged against this reserve in 2001. All payments for the 2001
restructuring plan are being funded with cash from normal operations. As of
December 31, 2001, 127 employees have been terminated, and 26 open positions
have been eliminated. Annual savings from the full implementation of the 2001
restructuring initiatives are estimated at $11 million.
2000 PROVISION FOR RESTRUCTURING
In the fourth quarter of 2000, the Corporation recorded a charge of $50
million pretax ($31 million after-tax) related to a restructuring plan that
included a salaried workforce reduction and the shutdown of gypsum wallboard
manufacturing lines at U.S. Gypsum's plants located at Gypsum, Ohio, Oakfield,
N.Y., and Fort Dodge, Iowa. Together, these closings eliminated approximately
700 million square feet of old, high-cost capacity. The plan also included the
shutdown of a mill and ship-loading system at Alabaster, Mich. This
restructuring was designed to streamline operations and improve business
efficiency.
Included in the $50 million pretax charge was $16 million for severance
related to the salaried workforce reduction of more than 500 positions, $15
million for the write-off of property, plant and equipment, $12 million for
razing buildings and equipment, $5 million for line shutdown and removal, and $2
million for contract cancellations and severance for more than 100 hourly
positions. An additional restructuring-related charge of $4 million pretax ($2
million after-tax) was included in cost of products sold for the writedown of
certain inventory.
During the third quarter of 2001, the Corporation reversed $9 million
pretax ($5 million after-tax) of the restructuring reserve recorded in the
fourth quarter of 2000 due to changes from previous estimates and to reflect a
change in the scope of restructuring activities undertaken. The primary change
involved a decision made in September to eliminate a portion of the closure
activities originally planned at the Alabaster, Mich., facility. Also, during
the third quarter of 2001, the Corporation reversed restructuring-related
inventory reserves totaling $3 million pretax ($2 million after-tax) to cost of
products sold because the sale or use of certain affected inventory exceeded
expectations.
Payments totaling $21 million in 2001 and $1 million in 2000 were charged
against the 2000 restructuring reserve. All payments are being funded with cash
from normal operations. The remaining restructuring reserves are considered
adequate to cover committed restructuring actions.
The salaried workforce reduction program was completed as of June 30, 2001,
with the termination of 394 salaried employees and the elimination of 179 open
salaried positions. In addition, 73 hourly employees were terminated, and 44
open hourly positions were eliminated. Closure of the three gypsum wallboard
manufacturing lines and other operations was completed by December 31, 2001.
Final payments for expenses related to these closures will be made in the first
half of 2002. Annual savings from the 2000 restructuring initiatives are
estimated at $40 million.
The reserve for the 2000 restructuring was included in accrued expenses as
of December 31, 2000, and in liabilities subject to compromise as of December
31, 2001, on the consolidated balance sheets.
See Part II, Item 8. Note 3. Provisions for Impairment and Restructuring
for additional information related to restructuring payments and reserve
balances.
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<PAGE>
2000 PROVISION FOR ASBESTOS CLAIMS
In the fourth quarter of 2000, based on an independent study, USG estimated
its probable liability for costs associated with asbestos cases currently
pending and expected to be filed through 2003 and recorded a noncash provision
of $850 million pretax ($524 million after-tax). This provision, combined with
the existing asbestos-related reserve of $335 million, resulted in a total
reserve of $1,185 million as of December 31, 2000. Substantially all of this
reserve related to personal injury claims and reflected management's expectation
that U.S. Gypsum's average cost-per-case would increase, at least in the short
term, due to distortions in the tort system resulting from the bankruptcies of
other defendants that led to increased settlement demands from asbestos
plaintiffs. Less than 10% of the reserve related to defense and administrative
costs. See Legal Contingencies below and Part II, Item 8. Note 17. Litigation
for additional information on asbestos-related matters.
OPERATING PROFIT (LOSS)
Operating profit totaled $90 million in 2001, compared with a loss of $369
million in 2000 and profit of $730 million in 1999. Operating profit in 2001
included pretax impairment charges of $30 million, pretax restructuring charges
of $12 million and pretax chapter 11 reorganization expenses of $12 million as
described above. These charges were partially offset by pretax reversals of
restructuring reserves of $9 million and restructuring-related inventory
reserves of $3 million. The operating loss in 2000 included pretax charges for
asbestos claims and restructuring of $850 million and $50 million, respectively,
and a pretax restructuring-related inventory writedown of $4 million. Excluding
the net impact of these charges and reversals, pro forma operating profit was
$132 million in 2001 and $535 million in 2000. These amounts, which represent
declines of 75% and 27% from respective prior years, primarily reflect lower
gross profit margins on SHEETROCK brand gypsum wallboard.
INTEREST EXPENSE
Interest expense was $33 million, $52 million and $53 million in 2001, 2000
and 1999, respectively. Under SOP 90-7, virtually all of the Corporation's
outstanding debt is classified as liabilities subject to compromise, and
interest expense on this debt has not been accrued and recorded since the
Petition Date. Consequently, comparisons of interest expense for 2001 and 2000
are not meaningful. From the Petition Date through December 31, 2001,
contractual interest expense not accrued or recorded on pre-petition debt
totaled $41 million.
OTHER EXPENSE, NET
Other expense, net was $10 million, $4 million and $3 million in 2001, 2000
and 1999, respectively. For 2001, other expense, net included $7 million of net
realized currency losses related to the repayment of intercompany loans by a
Belgian subsidiary that is being liquidated.
INCOME TAXES (BENEFIT)
Income taxes amounted to $36 million in 2001, while an income tax benefit
of $161 million was recorded in 2000 due to the loss before taxes resulting from
the provisions relating to asbestos claims and restructuring. Income tax expense
was $263 million in 1999. The Corporation's effective tax rates were 70.0% in
2001 and 38.4% in 2000 and 1999. Excluding the net impact of the various charges
and reversals listed above for the determination of 2001 and 2000 pro forma
operating profit, the pro-forma effective tax rates were 43.5% in 2001 and 39.4%
in 2000.
NET EARNINGS (LOSS)
Net earnings of $16 million, or $0.36 per share, were recorded in 2001.
These earnings included after-tax impairment charges of $25 million, or $0.56
per share; after-tax restructuring charges of $10 million, or $0.24 per share;
and after-tax chapter 11 reorganization expenses of $10 million, or $0.24 per
share. These charges were partially offset by after-tax reversals of
restructuring reserves of $5 million, or $0.12 per share, and
restructuring-related inventory reserves of $2 million, or $0.04 per share.
Excluding the net impact of these charges and reversals, pro forma net earnings
in 2001 were $54 million, and pro forma diluted earnings per share were $1.24.
As compared with prior years, net earnings for 2001 were favorably affected by
the absence of asbestos-related charges and the absence of interest expense on
pre-petition debt subsequent to the Petition Date.
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A net loss of $259 million, or $5.62 per share, was recorded in 2000. This
loss included after-tax charges for asbestos claims of $524 million, or $11.39
per share; and restructuring of $31 million, or $0.66 per share; and an
after-tax restructuring-related inventory writedown of $2 million, or $0.06 per
share. Excluding these charges, pro forma net earnings in 2000 were $298
million, and pro forma diluted earnings per share were $6.49.
Net earnings totaled $421 million in 1999, or $8.39 per diluted share.
CORE BUSINESS RESULTS
<Table>
<Caption>
(millions) Net Sales Operating Profit (Loss)
-------------------------------------- --------------------------------------
2001 2000 1999 2001 2000 1999
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NORTH AMERICAN GYPSUM:
United States Gypsum Company $ 1,781 $ 2,119 $ 2,255 $ 32 $ 336 $ 597
CGC Inc. (gypsum) 204 206 183 24 34 27
Other subsidiaries 118 112 108 24 22 27
Eliminations (153) (139) (130) -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total 1,950 2,298 2,416 80 392 651
---------- ---------- ---------- ---------- ---------- ----------
WORLDWIDE CEILINGS:
USG Interiors, Inc. 475 513 487 34 64 60
USG International 210 232 226 (6) 3 --
CGC Inc. (ceilings) 40 43 39 5 3 3
Eliminations (65) (83) (63) -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total 660 705 689 33 70 63
---------- ---------- ---------- ---------- ---------- ----------
BUILDING PRODUCTS DISTRIBUTION:
L&W Supply Corporation 1,152 1,373 1,345 64 110 87
---------- ---------- ---------- ---------- ---------- ----------
Corporate -- -- -- (43) (44) (64)
Eliminations (466) (595) (640) 1 3 (7)
Chapter 11 reorganization expenses -- -- -- (12) -- --
Provisions for impairment and restructuring -- -- -- (33) (50) --
Provision for asbestos claims* -- -- -- -- (850) --
---------- ---------- ---------- ---------- ---------- ----------
TOTAL USG CORPORATION 3,296 3,781 3,810 90 (369) 730
========== ========== ========== ========== ========== ==========
</Table>
* Excludes asbestos-related charges totaling $77 million for the first nine
months of 2000 recorded by U.S. Gypsum to cost of products sold. Comparable
full-year charges in 1999 were $80.5 million.
NORTH AMERICAN GYPSUM
Net sales in 2001 were $1,950 million, down 15% from 2000. Operating profit
of $80 million declined 80% from 2000. Net sales and operating profit in 2000
decreased 5% and 40%, respectively, versus 1999.
Despite record shipments of SHEETROCK brand gypsum wallboard, net sales for
U.S. Gypsum declined in 2001 due to lower selling prices. Selling prices for
SHEETROCK brand gypsum wallboard declined steadily during the first half of 2001
to a low of $67.67 per thousand square feet in June, followed by a modest
recovery in the second half of the year. By December, prices averaged $94.06 per
thousand square feet, up slightly from $93.59 in December 2000. For the year,
the average selling price was $85.67 per thousand square feet, down 34% from
$130.61 in 2000. The average price in 1999 was a record $153.40. The drop in
wallboard prices in 2001 and 2000 reflects the transition from
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short supply, as experienced in 1999, to the excess supply conditions that
currently exist. This transition was caused by the addition of new industry
capacity by U.S. Gypsum and other gypsum wallboard manufacturers during the past
three years. U.S. Gypsum's plants operated at 90% of capacity in 2001, compared
with 92% in 2000. The Corporation estimates that the U.S. wallboard industry as
a whole operated at an average rate of 82% in 2001.
Shipments of SHEETROCK brand gypsum wallboard totaled 9.92 billion square
feet in 2001, a 7% increase from the previous record of 9.29 billion square feet
in 2000. Shipments in 1999 totaled 9.24 billion square feet. Shipments of
SHEETROCK brand joint compounds and DUROCK brand cement board also set records
in 2001 and were up 3% and 7%, respectively, from prior-year levels.
Operating profit for U.S. Gypsum declined significantly in 2001 and 2000
due to the lower wallboard selling prices, combined with higher manufacturing
costs. Manufacturing costs for SHEETROCK brand gypsum wallboard increased versus
2000 primarily due to higher energy costs during the first half of 2001.
However, energy costs stabilized and began to decrease during the second half of
the year. Wallboard costs in 2001 also benefited from lower prices for
wastepaper, the primary raw material of wallboard paper, and from improved
operating efficiencies following the closure of several old facilities and
optimization of new plants. As part of the Corporation's 2001 restructuring
initiative, U.S. Gypsum will close its Fremont, Calif., wallboard plant in 2002.
Manufacturing costs increased in 2000 as compared with 1999 primarily due to
rising energy costs and higher prices for wastepaper. While there were no
asbestos-related charges in 2001, asbestos-related charges to U.S. Gypsum's cost
of products sold totaled $77 million and $80.5 million in 2000 and 1999,
respectively.
Net sales and operating profit in 2001 for the gypsum business of
Canada-based CGC Inc. were down 1% and 29%, respectively, versus 2000. The
decline in net sales primarily reflects a 7% decrease in selling prices for
CGC's SHEETROCK brand gypsum wallboard, partially offset by a 10% increase in
shipments. Operating profit fell due to the lower prices and higher
manufacturing costs. Comparing 2000 with 1999, net sales and operating profit
increased 13% and 26%, respectively, primarily due to higher gypsum wallboard
selling prices.
WORLDWIDE CEILINGS
Net sales in 2001 were $660 million, down 6% versus 2000, while operating
profit of $33 million fell 53%. These results reflect a worldwide slowdown in
the nonresidential construction market. The Corporation's domestic ceilings
business, USG Interiors, Inc., reported net sales of $475 million, down 7%,
while operating profit of $34 million dropped 47% from 2000. Domestic shipments
of ceiling grid and AURATONE brand ceiling tile declined 7% and 6%,
respectively, from their record levels of 2000 due to a significant slowdown in
the commercial construction market in the United States. Operating profit for
USG Interiors also was adversely affected by higher manufacturing costs. USG
International reported a 9% decrease in net sales and an operating loss of $6
million in 2001 versus operating profit of $3 million in 2000. These unfavorable
results were largely attributable to lower demand for ceiling tile and drywall
steel in Europe. Lower sales also were experienced in the Asia/Pacific region
and Latin America. As explained above, in response to the decline in demand in
Europe, the Corporation determined that the carrying value of the long-lived
assets at the Aubange, Belgium, ceiling tile plant was impaired. Accordingly,
the Corporation recorded a pretax impairment charge of $16 million and began
implementing certain restructuring initiatives in Europe and elsewhere in the
fourth quarter of 2001.
Comparing 2000 with 1999, net sales in 2000 were $705 million, up 2%, while
operating profit of $70 million increased 11%. USG Interiors had record net
sales of $513 million in 2000, while operating profit of $64 million rose 7%.
Domestic shipments of ceiling grid and AURATONE brand ceiling tile also reached
record levels in 2000. USG International reported a 3% increase in net sales,
primarily due to increased sales in Europe, and recorded an operating profit of
$3 million in 2000 versus break-even results in 1999.
BUILDING PRODUCTS DISTRIBUTION
L&W Supply Corporation, the leading specialty building products
distribution business in the United States, reported net sales of $1,152 million
in 2001, a 16% decrease from 2000. Operating profit of $64 million declined 42%.
Average selling prices for L&W Supply's gypsum wallboard in 2001 were down 27%
from 2000. This decline was partially offset by a 33% decrease in unit costs,
which primarily reflects manufacturers' selling prices to distributors.
Shipments of L&W
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Supply's gypsum wallboard in 2001 were virtually unchanged from the record level
of 2000. Sales and profit for L&W Supply's complementary building products,
primarily drywall metal, joint treatment and ceiling products, also declined
from 2000 as a result of competitive market conditions. However, results for L&W
Supply's insulation and roofing products improved versus 2000.
Comparing 2000 with 1999, L&W Supply reported record net sales of $1,373
million in 2000, an increase of 2%. Operating profit of $110 million, also a
record, represented a 26% increase. These results were driven by record
shipments of gypsum wallboard and strong sales of complementary building
products. Average selling prices for L&W Supply's gypsum wallboard in 2000 were
down 4% versus 1999. However, this decline was more than offset by a 7% increase
in shipments and a 10% decrease in unit costs.
L&W remains focused on opportunities to grow in the most profitable market
locations, as well as opportunities to reduce costs and optimize asset
utilization. As part of this plan, L&W Supply opened four locations and closed
or consolidated 16 locations during 2001, leaving a total of 180 locations in
the United States as of December 31, 2001, down from 192 locations and 193
locations as of December 31, 2000 and 1999, respectively.
MARKET CONDITIONS AND OUTLOOK
Industry shipments of wallboard in the United States were an estimated 30.2
billion square feet in 2001, a 3% increase from 29.3 billion square feet in
2000. This increase reflected a rebound in repair and remodel activity,
partially offset by softening in new nonresidential construction.
Based on preliminary data issued by the U.S. Bureau of the Census, U.S.
housing starts in 2001 were an estimated 1.602 million units, compared with
actual housing starts of 1.569 million units in 2000 and 1.641 million units in
1999.
The repair and remodel market accounts for the second-largest portion of
the Corporation's sales. Because many buyers remodel an existing home within two
years of purchase, opportunity from this market in 2001 has been fairly solid as
sales of existing homes in 2000 and 2001 remained at historically high levels.
Future demand for the Corporation's products from new nonresidential
construction is determined by floor space for which contracts are signed.
Installation of gypsum and ceilings products follows signing of construction
contracts by about a year. Current information indicates that floor space for
which contracts were signed was down significantly in 2001 as compared with
2000.
Excess industry capacity led to significant declines in market prices for
gypsum wallboard over the past two years. Market conditions for gypsum wallboard
improved somewhat during the second half of 2001 due to growth in demand and the
closure of some excess capacity in the past year by the Corporation and other
wallboard manufacturers, but it is unclear how long this trend will last.
The Corporation is cautious in its outlook for 2002. The economy remains in
recession, with the unemployment rate expected to rise further, eroding consumer
confidence and spending. The housing market, which was strong in 2001 due to
falling mortgage rates, is expected to weaken in 2002 as the recession continues
and interest rates stabilize. Commercial construction has been affected by
white-collar-job layoffs and reduced corporate spending, which have caused
office vacancy rates to increase to double-digit levels in many markets.
Commercial construction is expected to decline again in 2002. Further slowdowns
in these markets would translate into lower levels of demand for the
Corporation's products and cause renewed pressure on gypsum wallboard pricing
and on margins for the Corporation's other businesses. During this period of
uncertainty, the Corporation will remain focused on managing the fundamentals of
its business such as customer satisfaction, costs and profitability and will
continue its attempt to resolve the chapter 11 proceedings as quickly as
possible, consistent with the goal of achieving a fair, comprehensive and final
resolution to its asbestos liability.
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LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Working capital (current assets less current liabilities) as of December
31, 2001, amounted to $876 million, and the ratio of current assets to current
liabilities was 3.73-to-1. As of December 31, 2000, current liabilities exceeded
current assets by $20 million, and the ratio of current assets to current
liabilities was 0.98-to-1.
Cash and cash equivalents as of December 31, 2001, amounted to $493
million, compared with $70 million as of December 31, 2000. During 2001, net
cash flows from operating activities totaled $237 million. Net cash flows to
investing activities (primarily capital spending) were $108 million. Net cash
flows from financing activities (primarily increased borrowings) were $294
million.
Receivables decreased to $274 million as of December 31, 2001, from $305
million as of December 31, 2000, primarily reflecting a 5% decrease in net sales
for the month of December 2001 as compared with December 2000. Inventories and
payables also were down from a year ago primarily due to the lower level of
business. Inventories decreased to $254 million from $271 million, and accounts
payable decreased to $140 million from $200 million.
DEBT
As of December 31, 2001, total debt amounted to $1,007 million, of which
$1,005 million was included in liabilities subject to compromise. As of December
31, 2000, total debt was $711 million. The higher level of debt as of year-end
2001 reflects a $390 million net increase in credit facility borrowings,
partially offset by a $60 million repayment of debt outstanding in connection
with an accounts receivable facility, a $15 million repayment of a Mexican term
loan, a $10 million repurchase of 9.25% senior notes due 2001 and a $9 million
repayment of other debt (primarily international short- and long-term notes).
All of these transactions occurred prior to the Filing, except for the repayment
of debt associated with the accounts receivable facility.
AVAILABLE LIQUIDITY
A $350 million DIP Facility is available to supplement liquidity and fund
operations during the reorganization process. Borrowing availability under the
DIP Facility is based primarily on accounts receivable and inventory levels and,
to a lesser extent, property, plant and equipment. As of December 31, 2001, the
Corporation had the capacity to borrow up to $291 million. There were no
outstanding borrowings under the facility at year end. However, $11 million of
standby letters of credit were issued, leaving $280 million of unused borrowing
capacity available as December 31, 2001. The Corporation believes that cash
available from operations and the DIP Facility will provide sufficient liquidity
to allow its businesses to operate in the normal course without interruption. As
of December 31, 2001, the Corporation had $493 million of cash and cash
equivalents on a consolidated basis. Of this amount, $147 million was in the
possession of non-Debtor subsidiaries.
CAPITAL EXPENDITURES
Capital spending amounted to $109 million in 2001, compared with $380
million in 2000. As of December 31, 2001, remaining capital expenditure
commitments for the replacement, modernization and expansion of operations
amounted to $63 million, compared with $58 million as of December 31, 2000.
During the bankruptcy proceeding, the Corporation expects to have limited
sources of capital and liquidity to fund potential future growth opportunities
such as new products, acquisitions and joint ventures. In addition, one of the
terms of the DIP Facility limits capital spending.
DIVIDENDS
The Corporation discontinued payment of quarterly cash dividends in the
second quarter of 2001. In the first quarter of 2001, the Corporation paid a
cash dividend of $0.025 per share. In 2000, the Corporation paid four quarterly
cash dividends of $0.15 per share.
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<PAGE>
OTHER MATTERS
MARKET RISK
In the normal course of business, the Corporation uses financial
instruments, including fixed and variable rate debt, to finance its operations.
In addition, the Corporation uses derivative instruments to manage well-defined
commodity price, foreign currency and interest rate exposures. The Corporation
does not use derivative instruments for trading purposes.
Commodity Price Risk: The Corporation uses swap and option agreements to
manage price exposure on anticipated purchases of natural gas, wastepaper and
fuel. A sensitivity analysis has been prepared to estimate the potential loss in
fair value of such instruments assuming a hypothetical 10% increase in market
prices. The sensitivity analysis includes the underlying exposures that are
being hedged. Based on results of the sensitivity analysis, which may differ
from actual results, the Corporation's potential loss in fair value is $11
million.
The Corporation has swap agreements in place with Enron Corp. to hedge the
cost of wastepaper. As a result of Enron's bankruptcy filing in December 2001,
the Corporation has discontinued hedge accounting from that point forward.
Consequently, future changes in the fair value of these hedges will be
recognized in earnings in the period in which the change occurs.
Foreign Currency Exchange Risk: The Corporation has operations in a number
of countries and hedges the risk of changes in cash flows resulting from
forecasted intercompany and third-party sales or purchases in foreign
currencies. As of December 31, 2001, the Corporation had forward contracts in
place to purchase the Canadian dollar equivalent of $6 million (U.S.) at a rate
of $1.54 Canadian/$1.00 U.S.
Interest Rate Risk: As a result of the Filing, virtually all of the
Corporation's debt obligations are classified as liabilities subject to
compromise. See Part II, Item 8. Note 1. Significant Accounting Policies and
Note 12. Financial Instruments and Risk Management for additional information on
the Corporation's financial exposures.
EURO CURRENCY CONVERSION
Effective January 1, 1999, 11 of the 15 countries that are members of the
European Union introduced a new, single currency unit, the euro. Prior to full
implementation of the new currency for the participating countries on January 1,
2002, there was a three-year transition period during which parties could have
used either their local currencies or the euro. However, during the transition
period, all exchanges between currencies of the participating countries were
required to be first converted through the euro.
The Corporation prepared for the conversion to the euro in two phases. The
first phase addressed the Corporation's European operations during the
transition period. The second phase covered full conversion of these operations
to the euro. The Corporation has not experienced any significant problems to
date and does not expect the introduction of the euro currency to have a
material adverse impact on its business, results of operations or financial
position.
LEGAL CONTINGENCIES
As a result of the Filing, all pending asbestos lawsuits against U.S.
Gypsum are stayed, and no party may take any action to pursue or collect on such
asbestos claims absent specific authorization of the Bankruptcy Court. Since the
Filing, U.S. Gypsum has ceased making both cash payments and accruals with
respect to asbestos lawsuits, including cash payments and accruals pursuant to
settlements of asbestos lawsuits. Creditors' committees have been appointed
representing asbestos personal injury and property damage claimants with pending
claims against U.S. Gypsum, and the Bankruptcy Court is expected to appoint a
legal representative for the interests of potential future asbestos claimants.
As part of the bankruptcy proceeding, it will be determined which present and
future asbestos claims should be allowed, or compensated, and the aggregate
value of such claims. The Corporation is unable to predict the value that the
court will assign to such claims.
19
<PAGE>
The Corporation and certain of its subsidiaries have been notified by state
and federal environmental protection agencies of possible involvement as one of
numerous "potentially responsible parties" in a number of so-called "Superfund"
sites in the United States. The Corporation believes that neither these matters
nor any other known governmental proceeding regarding environmental matters will
have a material adverse effect upon its results of operations or financial
position. See Part II, Item 8. Note 17. Litigation for additional information on
asbestos and environmental litigation.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued four new accounting
standards in 2001. Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations," requires all business combinations initiated after June
30, 2001, to be accounted for using the purchase method. This standard, which
becomes effective January 1, 2002, will have no impact on the Corporation's
financial statements upon adoption.
SFAS No. 142, "Goodwill and Other Intangible Assets," eliminates the
amortization of goodwill over its estimated useful life. Instead, goodwill will
be subject to at least an annual assessment for impairment by applying a
fair-value-based test. In addition, acquired intangible assets will be
separately recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the intangible asset can be sold,
transferred, licensed, rented or exchanged. This standard, which becomes
effective January 1, 2002, will have an impact on the Corporation's financial
statements because goodwill is no longer subject to amortization. The
Corporation's current annual rate of goodwill amortization is approximately $4
million. All of the Corporation's goodwill, which does not include any acquired
intangible assets, will be assessed for impairment. As of the date of this
report, the Corporation has not completed its test for impairment and therefore
has not determined the full impact that the adoption of this standard will have
on its financial statements.
SFAS No. 143, "Accounting for Asset Retirement Obligations," requires
entities to record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. This standard, which becomes
effective January 1, 2003, is likely to have an impact on the Corporation's
financial statements. However, as of the date of this report, the Corporation
has not determined what impact the adoption of this standard may have on its
financial statements.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," supersedes SFAS No. 121 and a portion of APB Opinion No. 30. This
statement establishes a single accounting model for the disposal of long-lived
assets and resolves significant implementation issues related to SFAS No. 121.
This standard, which becomes effective January 1, 2002, will have no impact on
the Corporation's financial statements upon adoption.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements related to management's
expectations about future conditions. The effects of the Filing and the conduct,
outcome and costs of the Chapter 11 Cases, as well as the ultimate costs
associated with the Corporation's asbestos litigation, may differ from
management's expectations. Actual business or other conditions may also differ
significantly from management's expectations and accordingly affect the
Corporation's sales and profitability or other results. Actual results may
differ due to various other factors, including economic conditions such as the
levels of construction activity, interest rates and consumer confidence;
competitive conditions such as price and product competition; increases in raw
material and energy costs; and the unpredictable effects of the global war on
terrorism upon domestic and international economies and financial markets.
The Corporation assumes no obligation to update any forward-looking information
contained in this report.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<Table>
<Caption>
Page
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Statements of Earnings 22
Balance Sheets 23
Statements of Cash Flows 24
Statements of Stockholders' Equity 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
1. Significant Accounting Policies 26
2. Voluntary Reorganization Under Chapter 11 28
3. Provisions for Impairment and Restructuring 34
4. Shutdown of Plasterco 36
5. Acquisition of Sybex, Inc. 36
6. Earnings Per Share 36
7. Common Stock 36
8. Inventories 37
9. Property, Plant and Equipment 37
10. Leases 37
11. Debt 37
12. Financial Instruments and Risk Management 38
13. Employee Retirement Plans 39
14. Stock-Based Compensation 40
15. Income Taxes 41
16. Segments 42
17. Litigation 43
Report of Management 49
Report of Independent Public Accountants 50
Selected Quarterly Financial Data 51
Five-Year Summary 52
Schedule II - Valuation and Qualifying Accounts 53
</Table>
All other schedules have been omitted because they are not required, are not
applicable, or the information is included in the consolidated financial
statements or notes thereto.
21
<PAGE>
USG CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
<Table>
<Caption>
(millions, except per-share data) Years Ended December 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 3,296 $ 3,781 $ 3,810
Cost of products sold 2,882 2,941 2,742
Selling and administrative expenses 279 309 338
Chapter 11 reorganization expenses 12 -- --
Provisions for impairment and restructuring 33 50 --
Provision for asbestos claims -- 850 --
---------- ---------- ----------
Operating profit (loss) 90 (369) 730
Interest expense 33 52 53
Interest income (5) (5) (10)
Other expense, net 10 4 3
---------- ---------- ----------
Earnings (loss) before income taxes 52 (420) 684
Income taxes (benefit) 36 (161) 263
---------- ---------- ----------
Net earnings (loss) 16 (259) 421
========== ========== ==========
Net Earnings (Loss) Per Common Share:
Basic 0.36 (5.62) 8.48
========== ========== ==========
Diluted 0.36 (5.62) 8.39
========== ========== ==========
</Table>
The notes to consolidated financial statements are an integral part of these
statements.
22
<PAGE>
USG CORPORATION
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
As of December 31,
(millions, except share data) 2001 2000
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 493 $ 70
Receivables (net of reserves of $17 and $18) 274 305
Inventories 254 271
Income taxes receivable 76 --
Deferred income taxes 66 194
Other current assets 34 36
---------- ----------
Total current assets 1,197 876
---------- ----------
Property, plant and equipment, net 1,800 1,830
Deferred income taxes 243 257
Other assets 224 251
---------- ----------
Total assets 3,464 3,214
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 140 200
Accrued expenses 181 280
Taxes on income -- 19
Notes payable -- 6
Current portion of long-term debt -- 141
Current portion of asbestos reserve -- 250
---------- ----------
Total current liabilities 321 896
---------- ----------
Long-term debt 2 564
Long-term asbestos reserve -- 935
Other liabilities 339 355
Liabilities subject to compromise 2,311 --
Stockholders' Equity:
Preferred stock - $1 par value; authorized 36,000,000 shares; $1.80
convertible preferred stock (initial series);
outstanding - none -- --
Common stock - $0.10 par value; authorized 200,000,000 shares;
outstanding - 43,457,312 and 43,401,045 shares (after
deducting 6,527,910 and 6,584,177 shares held in treasury) 5 5
Treasury stock (255) (256)
Capital received in excess of par value 408 411
Accumulated other comprehensive loss (31) (45)
Retained earnings 364 349
---------- ----------
Total stockholders' equity 491 464
---------- ----------
Total liabilities and stockholders' equity 3,464 3,214
========== ==========
</Table>
The notes to consolidated financial statements are an integral part of these
statements.
23
<PAGE>
USG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
Years Ended December 31,
--------------------------------------
(millions) 2001 2000 1999
- ---------- ---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 16 $ (259) $ 421
Adjustments to Reconcile Net Earnings (Loss) to Net Cash:
Provisions for impairment and restructuring 33 50 --
Provision for asbestos claims -- 850 --
Depreciation, depletion and amortization 107 96 91
Deferred income taxes 134 (365) (42)
(Increase) Decrease in Working Capital:
Receivables 32 55 (4)
Income taxes receivable (76) -- --
Inventories 17 (15) (15)
Payables 82 15 24
Accrued expenses 2 (58) 58
Increase in other assets (11) (2) (20)
Increase in other liabilities 16 -- 20
Asbestos reserve, net of receivables (90) 2 101
Liabilities subject to compromise (58) -- --
Other, net 33 (5) (3)
---------- ---------- ----------
Net cash from operating activities 237 364 631
---------- ---------- ----------
INVESTING ACTIVITIES
Capital expenditures (109) (380) (426)
Net proceeds from asset dispositions 1 3 2
Acquisition of business, net of acquired cash -- -- (74)
---------- ---------- ----------
Net cash to investing activities (108) (377) (498)
---------- ---------- ----------
FINANCING ACTIVITIES
Issuance of debt 262 197 65
Repayment of debt (131) (114) (50)
Short-term borrowings (repayments), net 164 37 (21)
Cash dividends paid (1) (27) (22)
Purchases of common stock -- (207) (72)
Issuances of common stock -- -- 12
---------- ---------- ----------
Net cash from (to) financing activities 294 (114) (88)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 423 (127) 45
Cash and cash equivalents at beginning of period 70 197 152
---------- ---------- ----------
Cash and cash equivalents at end of period 493 70 197
========== ========== ==========
Supplemental Cash Flow Disclosures:
Interest paid 31 52 56
Income taxes (refunded) paid, net (17) 211 281
</Table>
The notes to consolidated financial statements are an integral part of these
statements.
24
<PAGE>
USG CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
Capital
Received Accumulated
Common Treasury in Excess Other
Shares Shares Common Treasury of Par Retained Comprehensive
(millions, except share data) (000) (000) Stock Stock Value Earnings Loss Total
- ----------------------------- -------- -------- ------ -------- --------- --------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 49,525 (296) $ 5 $ (10) $ 317 $ 236 $ (30) $ 518
-------- -------- ------ -------- --------- --------- ------------- -----
Comprehensive Income:
Net earnings -- -- -- -- -- 421 -- 421
Foreign currency translation -- -- -- -- -- -- (3) (3)
-----
Total comprehensive income -- -- -- -- -- -- -- 418
Cash dividends paid -- -- -- -- -- (22) -- (22)
Stock issuances 164 661 -- 29 (18) -- -- 11
Purchases of common stock -- (1,425) -- (72) -- -- -- (72)
Other 1 (66) -- (3) 17 -- -- 14
Net change in treasury stock (830) -- -- -- -- -- -- --
-------- -------- ------ -------- --------- --------- ------------- -----
BALANCE AT DECEMBER 31, 1999 48,860 (1,126) 5 (56) 316 635 (33) 867
-------- -------- ------ -------- --------- --------- ------------- -----
Comprehensive Loss:
Net loss -- -- -- -- -- (259) -- (259)
Foreign currency translation -- -- -- -- -- -- (12) (12)
-----
Total comprehensive loss -- -- -- -- -- -- -- (271)
Cash dividends paid -- -- -- -- -- (27) -- (27)
Stock issuances -- 262 -- 9 (11) -- -- (2)
Purchases of common stock -- (5,656) -- (207) -- -- -- (207)
Reduction of tax reserves -- -- -- -- 103 -- -- 103
Other (1) (64) -- (2) 3 -- -- 1
Net change in treasury stock (5,458) -- -- -- -- -- -- --
-------- -------- ------ -------- --------- --------- ------------- -----
BALANCE AT DECEMBER 31, 2000 43,401 (6,584) 5 (256) 411 349 (45) 464
======== ======== ====== ======== ========= ========= ============= =====
Comprehensive Income:
Net earnings -- -- -- -- -- 16 -- 16
Foreign currency translation -- -- -- -- -- -- (2) (2)
After-tax gain on derivatives -- -- -- -- -- -- 16 16
-----
Total comprehensive income -- -- -- -- -- -- -- 30
Cash dividends paid -- -- -- -- -- (1) -- (1)
Stock issuances -- 156 -- 4 (3) -- -- 1
Other -- (100) -- (3) -- -- -- (3)
Net change in treasury stock 56 -- -- -- -- -- -- --
-------- -------- ------ -------- --------- --------- ------------- -----
BALANCE AT DECEMBER 31, 2001 43,457 (6,528) 5 (255) 408 364 (31) 491
======== ======== ====== ======== ========= ========= ============= =====
</Table>
The notes to consolidated financial statements are an integral part of these
statements.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Through its subsidiaries, USG Corporation (the "Corporation") is a leading
manufacturer and distributor of building materials, producing a wide range of
products for use in new residential, new nonresidential, and repair and remodel
construction, as well as products used in certain industrial processes. The
Corporation's operations are organized into three operating segments: North
American Gypsum, which manufactures and markets SHEETROCK brand gypsum wallboard
and related products in the United States, Canada and Mexico; Worldwide
Ceilings, which manufactures and markets ceiling tile, ceiling grid and other
interior systems products worldwide; and Building Products Distribution, which
distributes gypsum wallboard, drywall metal, ceiling products, joint compound
and other building products throughout the United States. The Corporation's
products also are distributed through building materials dealers, home
improvement centers and other retailers, specialty wallboard distributors and
contractors.
CONSOLIDATION
The consolidated financial statements include the accounts of the Corporation
and its subsidiaries. All significant intercompany balances and transactions are
eliminated in consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from these estimates.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements and notes
thereto have been reclassified to conform with the 2001 presentation.
REVENUE RECOGNITION
Revenue is recognized upon the shipment of products to customers. The
Corporation's products are shipped FOB shipping point.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are included in cost of products sold.
ADVERTISING
Advertising expenses consist of media advertising and related production costs.
Advertising expenses are charged to earnings as incurred and amounted to $14
million, $20 million and $22 million in the years ended December 31, 2001, 2000
and 1999, respectively.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to earnings as incurred and
amounted to $15 million in the year ended December 31, 2001, and $21 million in
each of the years ended December 31, 2000 and 1999.
EARNINGS PER SHARE
Basic earnings per share are based on the weighted average number of common
shares outstanding. Diluted earnings per share are based on the weighted average
number of common shares outstanding and the dilutive effect of the potential
exercise of outstanding stock options. Potential common shares such as those
issuable upon exercise of outstanding stock options are not included in the
computation of a diluted per-share amount for a period in which a loss has
occurred because they have an anti-dilutive effect.
COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) include net earnings (loss) and
accumulated other comprehensive income (loss). Accumulated other comprehensive
income (loss) includes foreign currency translation. For 2001, the Corporation's
accumulated other comprehensive loss also includes the after-tax gain on
derivatives in accordance with Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS Nos. 137 and 138, which the Corporation adopted
on January 1, 2001. The tax impact on the gain on derivatives was $10 million in
2001. There was no tax impact on the foreign currency translation adjustments.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments with original
maturities of three months or less.
26
<PAGE>
FOREIGN CURRENCY TRANSLATION
Foreign-currency-denominated assets and liabilities are translated into U.S.
dollars at the exchange rates existing as of the respective balance sheet dates.
Translation adjustments resulting from fluctuations in exchange rates are
recorded as a separate component of accumulated other comprehensive income
(loss) within stockholders' equity. Income and expense items are translated at
the average exchange rates during the respective periods.
INVENTORY VALUATION
All of the Corporation's inventories are stated at the lower of cost or market.
Most of the Corporation's domestic inventories are valued under the last-in,
first-out ("LIFO") method. The remaining inventories are valued under the
first-in, first-out ("FIFO") or average production cost methods. Inventories
include material, labor and applicable factory overhead costs.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, except for those assets that
were revalued under fresh start accounting in May 1993. Provisions for
depreciation of property, plant and equipment are determined principally on a
straight-line basis over the expected average useful lives of composite asset
groups. Estimated useful lives are determined to be 50 years for buildings and
improvements and a range of 10 years to 25 years for machinery and equipment.
Depletion is computed on a basis calculated to spread the cost of gypsum and
other applicable resources over the estimated quantities of material
recoverable.
LONG-LIVED ASSETS
Long-lived assets primarily include property, plant and equipment and goodwill
(the excess of cost over the fair value of net assets acquired). The Corporation
periodically reviews its long-lived assets for impairment by comparing the
carrying value of the assets with their estimated future undiscounted cash
flows. If impairment is determined, the asset is written down to estimated net
realizable value. Goodwill was amortized on a straight-line basis over a period
of 15 years to 40 years. Goodwill, net of accumulated amortization, amounted to
$112 million and $120 million as of December 31, 2001 and 2000, respectively.
Accumulated amortization of goodwill as of those dates totaled $14 million and
$9 million, respectively. Goodwill is included in other assets on the
consolidated balance sheets. Effective January 1, 2002, the Corporation adopted
the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," which
eliminates the amortization of goodwill. See Recent Accounting Pronouncements
below.
FINANCIAL INSTRUMENTS
The Corporation uses derivative instruments to manage well-defined commodity
price and foreign currency exposures. The Corporation does not use derivative
instruments for trading purposes. Under SFAS No. 133, as amended, all derivative
instruments must be recorded on the balance sheet at fair value. For derivatives
designated as fair value hedges, the changes in the fair values of both the
derivative instrument and the hedged item are recognized in earnings in the
current period. For derivatives designated as cash flow hedges, the effective
portion of changes in the fair value of the derivative is recorded to
accumulated other comprehensive income (loss) and is reclassified to earnings
when the underlying transaction has an impact on earnings.
Commodity Derivative Instruments: The Corporation uses swap contracts to hedge
anticipated purchases of natural gas, wastepaper and fuel to be used in its
manufacturing and shipping operations. These contracts, all of which mature by
December 31, 2003, are designated as cash flow hedges, and changes in fair value
are recorded in accumulated other comprehensive income (loss) until the hedged
transaction occurs, at which time it is reclassified to earnings.
Foreign Exchange Derivative Instruments: The Corporation has operations in a
number of countries and uses forward contracts to hedge the risk of changes in
cash flows resulting from forecasted intercompany and third-party sales or
purchases in foreign currencies. These contracts are designated as cash flow
hedges, and changes in fair value are recorded in accumulated other
comprehensive income (loss) until the underlying transaction has an impact on
earnings. All foreign currency forward contracts expire within 12 months.
Interest Rate Derivative Instruments: The Corporation is exposed to interest
rate changes and uses swap agreements from time to time to manage this exposure.
As of December 31, 2001, the Corporation had no outstanding interest rate swap
agreements.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued four new accounting standards in
2001.
27
<PAGE>
SFAS No. 141, "Business Combinations," requires all business combinations
initiated after June 30, 2001, to be accounted for using the purchase method.
This standard, which becomes effective January 1, 2002, will have no impact on
the Corporation's financial statements upon adoption.
SFAS No. 142, "Goodwill and Other Intangible Assets," eliminates the
amortization of goodwill over its estimated useful life. Instead, goodwill will
be subject to at least an annual assessment for impairment by applying a
fair-value-based test. In addition, acquired intangible assets will be
separately recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the intangible asset can be sold,
transferred, licensed, rented or exchanged. This standard, which becomes
effective January 1, 2002, will have an impact on the Corporation's financial
statements because goodwill is no longer subject to amortization. The
Corporation's current annual rate of goodwill amortization is approximately $4
million. All of the Corporation's goodwill, which does not include any acquired
intangible assets, will be assessed for impairment. As of the date of this
report, the Corporation has not completed its test for impairment and therefore
has not determined the full impact that the adoption of this standard will have
on its financial statements.
SFAS No. 143, "Accounting for Asset Retirement Obligations," requires
entities to record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. This standard, which becomes
effective January 1, 2003, is likely to have an impact on the Corporation's
financial statements. However, as of the date of this report, the Corporation
has not determined what impact the adoption of this standard may have on its
financial statements.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," supersedes SFAS No. 121 and a portion of APB Opinion No. 30. This
statement establishes a single accounting model for the disposal of long-lived
assets and resolves significant implementation issues related to SFAS No. 121.
This standard, which becomes effective January 1, 2002, will have no impact on
the Corporation's financial statements upon adoption.
2. VOLUNTARY REORGANIZATION UNDER CHAPTER 11
On June 25, 2001 (the "Petition Date"), the parent company (the "Parent
Company") of the Corporation and the 10 United States subsidiaries listed below
(collectively, the "Debtors") filed voluntary petitions for reorganization (the
"Filing") under chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"). The chapter 11 cases of the Debtors (collectively, the
"Chapter 11 Cases") have been consolidated for purposes of joint administration
as In re: USG Corporation et al. (case no. 01-2094). The Chapter 11 Cases do not
include any of the Corporation's non-U.S. subsidiaries. The following
subsidiaries filed chapter 11 petitions:
United States Gypsum Company
USG Interiors, Inc.
USG Interiors International, Inc.
L&W Supply Corporation
Beadex Manufacturing, LLC
B-R Pipeline Company
La Mirada Products Co., Inc.
Stocking Specialists, Inc.
USG Industries, Inc.
USG Pipeline Company
This action was taken to resolve asbestos-related claims in a fair and
equitable manner, to protect the long-term value of the Debtors' businesses and
to maintain the Debtors' leadership positions in their markets.
CONSEQUENCES OF THE FILING
The Debtors are operating their businesses without interruption as
debtors-in-possession subject to the provisions of the Bankruptcy Code. All
vendors are being paid for all goods furnished and services provided after the
Filing. However, as a consequence of the Filing, all pending litigation against
the Debtors as of the Petition Date is stayed, and no party may take any action
to pursue or collect pre-petition claims except pursuant to an order of the
Bankruptcy Court. It is the Debtors' intention to address all pending and future
asbestos-related claims and all other pre-petition claims in a plan of
reorganization. However, it is impossible to predict currently how the plan will
treat asbestos and other pre-petition claims and what impact any reorganization
plan may have on the shares of the Corporation's common stock and other
outstanding securities. The formulation and implementation of the plan of
reorganization could take a significant period of time.
28
<PAGE>
Three creditors' committees, one representing asbestos personal injury
claimants, another representing asbestos property damage claimants and a third
representing general unsecured creditors, have been appointed as official
committees in the Chapter 11 Cases and, in accordance with the provisions of the
Bankruptcy Code, will have the right to be heard on all matters that come before
the Bankruptcy Court. The Corporation expects that the appointed committees,
together with a legal representative for the interests of future asbestos
claimants to be appointed by the Bankruptcy Court, will play important roles in
the Chapter 11 Cases and the negotiation of the terms of any plan of
reorganization.
Pursuant to the Bankruptcy Code, the Debtors initially had the exclusive
right to propose a plan of reorganization for 120 days following the Petition
Date, until October 23, 2001, unless extended. The Bankruptcy Court granted the
Debtors' request to extend the period of exclusivity until May 1, 2002. The
Debtors are likely to seek one or more additional extensions of the exclusivity
period depending on developments in the Chapter 11 Cases. If the Debtors fail to
file a plan of reorganization during such extension period, or if such plan is
not accepted by the requisite numbers of creditors and equity holders entitled
to vote on the plan, other parties in interest in the Chapter 11 Cases may be
permitted to propose their own plan(s) of reorganization for the Debtors.
The Corporation is unable to predict at this time what the treatment of
creditors and equity security holders of the respective Debtors will be under
any proposed plan or plans of reorganization. Such plan or plans may provide,
among other things, that all present and future asbestos-related liabilities of
the Debtors will be discharged and assumed and resolved by one or more
independently administered trusts established in compliance with Section 524(g)
of the Bankruptcy Code. Section 524(g) of the Bankruptcy Code provides that, if
certain specified conditions are satisfied, a court may issue a supplemental
permanent injunction barring the assertion of asbestos-related claims against
the reorganized company and channeling those claims to an independent trust for
payment in whole or in part. Similar plans of reorganization have been confirmed
in chapter 11 cases of other companies involved in asbestos-related litigation.
However, there is no assurance that such creation of a trust for the Debtors
under Section 524(g), or the issuance of such a permanent injunction, will be
approved by the Bankruptcy Court.
The Corporation is unable to predict at this time what treatment will be
accorded under any such reorganization plan or plans to intercompany
indebtedness, licenses, transfers of goods and services, and other intercompany
arrangements, transactions and relationships that were entered into prior to the
Petition Date. These arrangements, transactions and relationships may be
challenged by various parties in the Chapter 11 Cases, and the outcome of those
challenges, if any, may have an impact on the treatment of various claims under
such plan or plans.
The Bankruptcy Court may confirm a plan of reorganization only upon making
certain findings required by the Bankruptcy Code, and a plan may be confirmed
over the dissent of nonaccepting creditors and equity security holders if
certain requirements of the Bankruptcy Code are met. The payment rights and
other entitlements of pre-petition creditors and USG shareholders may be
substantially altered by any plan or plans of reorganization confirmed in the
Chapter 11 Cases. There is no assurance that there will be sufficient assets to
satisfy the Debtors' pre-petition liabilities in whole or in part, and the
pre-petition creditors of some Debtors may be treated differently than those of
other Debtors. Pre-petition creditors may receive under a plan or plans less
than 100% of the face value of their claims, and the interests of the
Corporation's equity security holders may be substantially diluted or canceled
in whole or in part. As noted above, it is not possible at this time to predict
the outcome of the Chapter 11 Cases, the terms and provisions of any plan or
plans of reorganization, or the effect of the chapter 11 reorganization process
on the claims of the pre-petition creditors of the Debtors or the interests of
the Corporation's equity security holders. Recent developments in the
Corporation's bankruptcy proceeding are discussed in Note 17. Litigation.
In connection with the Filing, the Corporation implemented a
Bankruptcy-Court-approved key employee retention plan that commenced on July 1,
2001, and continues until the date the Corporation emerges from bankruptcy, or
June 30, 2004, whichever occurs first. Under the plan, participants receive
semiannual payments beginning in January 2002. Costs associated with the plan
are being accrued pro rata over the term of the plan.
CHAPTER 11 FINANCING
A $350 million debtor-in-possession financing facility from JP Morgan Chase (the
"DIP Facility") was approved by the Bankruptcy Court on July 31, 2001. The DIP
Facility is available to supplement liquidity and fund operations during the
reorganization process. Borrowing availability under the DIP Facility is based
29
<PAGE>
primarily on accounts receivable and inventory levels and, to a lesser extent,
property, plant and equipment. As of December 31, 2001, borrowing availability
under the DIP Facility was $280 million.
FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with AICPA Statement of Position 90-7 ("SOP 90-7"), "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code," and on a
going-concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business.
However, as a result of the Filing, such realization of assets and liquidation
of liabilities, without substantial adjustments and/or changes of ownership, are
subject to uncertainty. Given this uncertainty, there is doubt about continuing
the going-concern basis of presentation. While operating as
debtors-in-possession under the protection of chapter 11 of the Bankruptcy Code
and subject to Bankruptcy Court approval or otherwise as permitted in the
ordinary course of business, the Debtors, or some of them, may sell or otherwise
dispose of assets and liquidate or settle liabilities for some amounts other
than those reflected in the consolidated financial statements. Further, a plan
of reorganization could materially change the amounts and classifications in the
historical consolidated financial statements.
As of the date of this report, virtually all of the Corporation's
pre-petition debt is in default due to the Filing. As described below, the
accompanying consolidated financial statements present the Debtors' pre-petition
debt under the caption "Liabilities Subject to Compromise." This includes debt
outstanding of $469 million under the pre-petition bank credit facilities and
$536 million of other outstanding debt. The Corporation accelerated the
amortization of its debt-related costs attributable to the Debtors and recorded
a pretax expense of $2 million during the second quarter of 2001, which was
included under the caption "Chapter 11 Reorganization Expenses."
As reflected in the consolidated financial statements, liabilities subject
to compromise refers to Debtors' liabilities incurred prior to the commencement
of the Chapter 11 Cases. The amounts of the various liabilities that are subject
to compromise are set forth below. These amounts represent the Corporation's
estimate of known or potential pre-petition claims to be resolved in connection
with the Chapter 11 Cases. Such claims remain subject to future adjustments.
Adjustments may result from (i) negotiations (ii) actions of the Bankruptcy
Court (iii) further developments with respect to disputed claims (iv) rejection
of executory contracts and unexpired leases (v) the determination as to the
value of any collateral securing claims (vi) proofs of claim or (vii) other
events. Payment terms for these amounts will be established in connection with
the Chapter 11 Cases.
Pursuant to the Bankruptcy Code, schedules were filed by the Debtors with
the Bankruptcy Court on October 23, 2001, setting forth the assets and
liabilities of the Debtors as of the date of the Filing. Differences between
amounts recorded by the Debtors and claims filed by creditors will be
investigated and resolved as part of the proof-of-claim process in the Chapter
11 Cases. No bar dates have been set for the filing of proofs of claim against
the Debtors. Accordingly, the ultimate number and allowed amount of such claims
are not presently known.
The Debtors have received approval from the Bankruptcy Court to pay or
otherwise honor certain of their pre-petition obligations, including employee
wages, salaries, benefits and other employee obligations, and from limited
available funds, pre-petition claims of certain critical vendors, real estate
taxes, certain customer programs and warranty claims, and certain other
pre-petition claims.
From the Petition Date through December 31, 2001, contractual interest
expense not accrued or recorded on pre-petition debt totaled $41 million.
The Corporation believes that cash available from operations and the DIP
Facility will provide sufficient liquidity to allow its businesses to operate in
the normal course without interruption. This includes its ability to meet
post-petition obligations of the Debtors and to meet obligations of the
nondebtor subsidiaries. The appropriateness of using the going-concern basis for
the Corporation's financial statements is dependent upon, among other things,
(i) the Corporation's ability to comply with the terms of the DIP Facility and
the cash management order entered by the Bankruptcy Court in connection with the
Chapter 11 Cases (ii) the ability of the Corporation to maintain adequate cash
on hand (iii) the ability of the Corporation to generate cash from operations
(iv) confirmation of a plan or plans of reorganization under the Bankruptcy Code
and (v) the Corporation's ability to achieve profitability following such
confirmation.
30
<PAGE>
Liabilities subject to compromise in the consolidated and
debtor-in-possession balance sheets consist of the following items as of
December 31, 2001 (dollars in millions):
<Table>
<S> <C>
Accounts payable $ 162
Accrued expenses 86
Debt 1,005
Asbestos reserve 1,061
Other long-term liabilities 38
-------
Subtotal 2,352
Elimination of intercompany accounts payable (41)
-------
Total liabilities subject to compromise 2,311
=======
</Table>
Chapter 11 reorganization expenses in the consolidated and
debtor-in-possession statements of earnings for the year ended December 31,
2001, consist of the following (dollars in millions):
<Table>
<S> <C>
Legal and financial advisory fees $14
Accelerated amortization of debt issuance costs 2
Interest income (4)
-------
Total chapter 11 reorganization expenses 12
=======
</Table>
DIP FINANCIAL STATEMENTS (unaudited)
Under the Bankruptcy Code, the Corporation is required to file periodically with
the Bankruptcy Court various documents including financial statements of the
Debtors (the "Debtor-In-Possession" or "DIP" financial statements). The
Corporation cautions that these financial statements are prepared according to
requirements under the Bankruptcy Code. While these financial statements
accurately provide information required under the Bankruptcy Code, they are
nonetheless unconsolidated, unaudited and prepared in a format different from
that used in the Corporation's consolidated financial statements filed under the
securities laws. Accordingly, the Corporation believes the substance and format
do not allow meaningful comparison with the Corporation's regular publicly
disclosed consolidated financial statements. The Debtors consist of the Parent
Company and the following wholly owned subsidiaries: United States Gypsum
Company; USG Interiors, Inc.; USG Interiors International, Inc.; L&W Supply
Corporation; Beadex Manufacturing, LLC; B-R Pipeline Company; La Mirada Products
Co., Inc.; Stocking Specialists, Inc.; USG Industries, Inc.; and USG Pipeline
Company. The condensed financial statements of the Debtors are presented as
follows:
DEBTOR-IN-POSSESSION STATEMENT OF EARNINGS (UNAUDITED)
<Table>
<Caption>
(millions) Year Ended December 31, 2001
- ---------- ----------------------------
<S> <C>
Net sales $ 2,947
Cost of products sold 2,628
Selling and administrative expenses 232
Chapter 11 reorganization expenses 12
Provisions for impairment and restructuring (5)
Interest expense 29
Interest income (2)
Other expense, net 10
----------
Earnings before income taxes 43
Income taxes 25
----------
Net earnings 18
==========
</Table>
31
<PAGE>
DEBTOR-IN-POSSESSION BALANCE SHEET (UNAUDITED)
<Table>
<Caption>
(millions) As of December 31, 2001
- ---------- -----------------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 346
Receivables (net of reserves - $13) 234
Inventories 215
Income taxes receivable 77
Deferred income taxes 66
Other current assets 33
----------
Total current assets 971
----------
Property, plant and equipment (net of
reserves for depreciation and depletion - $481) 1,581
Deferred income taxes 258
Other assets 494
----------
Total assets 3,304
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 112
Accrued expenses 153
----------
Total current liabilities 265
----------
Other liabilities 333
Liabilities subject to compromise 2,311
Stockholders' Equity:
Preferred stock --
Common stock 5
Treasury stock (255)
Capital received in excess of par value 95
Accumulated other comprehensive income 12
Retained earnings 538
----------
Total stockholders' equity 395
----------
Total liabilities and stockholders' equity 3,304
==========
</Table>
32
<PAGE>
DEBTOR-IN-POSSESSION STATEMENT OF CASH FLOWS (UNAUDITED)
<Table>
<Caption>
(millions) Year Ended December 31, 2001
- ---------- ----------------------------
<S> <C>
OPERATING ACTIVITIES
Net earnings $ 18
Adjustments to Reconcile Net Earnings to Net Cash:
Provisions for impairment and restructuring (5)
Corporate service charge 4
Depreciation, depletion and amortization 90
Deferred income taxes 140
Gain on asset dispositions (1)
(Increase) Decrease in Working Capital:
Receivables (69)
Income taxes receivable (77)
Inventories 6
Payables 71
Accrued expense 6
Pre-petition intercompany receivable 7
Post-petition intercompany receivable (84)
Increase in other assets (61)
Increase in other liabilities 16
Asbestos reserve, net of receivables (90)
Liabilities subject to compromise (58)
Other, net 56
----------
Net cash to operating activities (31)
----------
INVESTING ACTIVITIES
Capital expenditures (66)
Net proceeds from asset dispositions 1
----------
Net cash to investing activities (65)
----------
FINANCING ACTIVITIES
Issuance of debt 262
Repayment of debt (56)
Short-term borrowings, net 200
Cash dividends paid (1)
----------
Net cash from financing activities 405
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 309
Cash and cash equivalents at beginning of period 37
----------
Cash and cash equivalents at end of period 346
==========
Supplemental Cash Flow Disclosures:
Interest paid 26
Income taxes refunded, net (32)
</Table>
33
<PAGE>
INTERCOMPANY TRANSACTIONS
In the normal course of business, the operating subsidiaries and the Parent
Company engage in intercompany transactions. To document the relations created
by these transactions, the Parent Company and the operating subsidiaries, from
the formation of USG Corporation in 1985, have been parties to intercompany loan
agreements that evidence their obligations as borrowers or rights as lenders
arising out of intercompany cash transfers and various allocated intercompany
charges (the "Intercompany Corporate Transactions").
The Corporation operates a consolidated cash management system under which
the cash receipts of the domestic operating subsidiaries are ultimately
concentrated in Parent Company accounts. Cash disbursements for those operating
subsidiaries originate from those Parent Company concentration accounts.
Allocated intercompany charges from the Parent Company to the operating
subsidiaries primarily include expenses related to rent, property taxes,
information technology, and research and development, while allocated
intercompany charges between certain operating subsidiaries primarily include
expenses for shared marketing, sales, customer service, engineering and
accounting services. Detailed accounting records are maintained of all cash
flows and intercompany charges through the system in either direction. Net
balances, receivables or payables of such cash transactions are tracked on a
regular basis, with interest earned or paid on the balances. During the first
six months of 2001, the Corporation took steps to secure the obligations from
each of the principal domestic operating subsidiaries under the intercompany
loan agreements when it became clear that the asbestos liability claims of
United States Gypsum Company ("U.S. Gypsum") were becoming an increasingly
greater burden on the Corporation's cash resources. As of December 31, 2001,
U.S. Gypsum's net pre-petition payable balance to the Parent Company for
Intercompany Corporate Transactions was $332 million. USG Interiors, Inc.'s net
pre-petition payable balance to the Parent Company was $111 million. L&W Supply
Corporation had a net pre-petition receivable balance from the Parent Company of
$42 million.
In addition to the above transactions, the operating subsidiaries engage in
ordinary course purchase and sale of products with other operating subsidiaries
(the "Intercompany Trade Transactions"). Detailed accounting records also are
maintained of all such transactions, and settlements are made on a monthly
basis.
Certain Intercompany Trade Transactions between U.S. and non-U.S. operating
subsidiaries are settled via wire transfer payments utilizing several payment
systems.
3. PROVISIONS FOR IMPAIRMENT AND RESTRUCTURING
2001 IMPAIRMENTS
In the fourth quarter of 2001, the Corporation recorded a pretax impairment
charge of $16 million related to the Aubange, Belgium, ceiling tile plant. This
impairment resulted from a decline in demand, which had been significantly
affected by a worldwide slowdown in the nonresidential construction market, and
from the plant's high cost structure. In addition, the Corporation recorded a
pretax impairment charge of $14 million related to the Port Hawkesbury, Nova
Scotia, gypsum fiber panel plant. This impairment resulted from high delivered
costs of products manufactured at Port Hawkesbury combined with the
consolidation of production of FIBEROCK products at the Gypsum, Ohio, plant.
Estimated future cash flows related to these facilities indicated that
impairment charges were necessary to write down the assets to their third-party
appraised fair values.
2001 RESTRUCTURING PLAN
Also, in the fourth quarter of 2001, the Corporation recorded a pretax charge of
$12 million related to a restructuring plan that included the shutdown of a
gypsum wallboard plant in Fremont, Calif., a drywall steel plant in Prestice,
Czech Republic, a ceiling tile plant in San Juan Ixhuatepec, Mexico, a ceiling
tile manufacturing line in Greenville, Miss., and other restructuring
activities. The restructuring plan, which is expected to be completed in 2002,
is intended to allow the Corporation to optimize its manufacturing operations at
a time when a weak economy threatens to cause demand for the Corporation's
products to decline.
Included in the $12 million charge was $8 million for severance related to
a workforce reduction of more than 350 positions (primarily hourly positions),
$2 million for the write-off of property, plant and equipment, and $2 million
for line shutdown and removal and contract cancellations.
The reserve for this plan was included in accrued expenses as of December
31, 2001, on the consolidated balance sheet, and payments totaling $2 million
were charged against this reserve in 2001. All payments for the 2001
restructuring plan are being funded with cash
34
<PAGE>
from normal operations. As of December 31, 2001, 127 employees have been
terminated, and 26 open positions have been eliminated.
2000 RESTRUCTURING PLAN
In the fourth quarter of 2000, the Corporation recorded a pretax charge of $50
million related to a restructuring plan that included a salaried workforce
reduction and the shutdown of three gypsum wallboard manufacturing lines and
other operations. This restructuring was designed to streamline operations and
improve business efficiency.
Included in the $50 million charge was $16 million for severance related to
the salaried workforce reduction of more than 500 positions, $15 million for the
write-off of property, plant and equipment, $12 million for razing buildings and
equipment, $5 million for line shutdown and removal, and $2 million for contract
cancellations and severance for more than 100 hourly positions. An additional
restructuring-related charge of $4 million was included in cost of products sold
for the writedown of certain inventory.
During the third quarter of 2001, the Corporation reversed $9 million
pretax of the restructuring reserve recorded in the fourth quarter of 2000 due
to changes from previous estimates and to reflect a change in the scope of
restructuring activities undertaken. The primary change involved a decision made
in September to eliminate a portion of the closure activities originally planned
at the Alabaster, Mich., facility. Also, during the third quarter of 2001, the
Corporation reversed restructuring-related inventory reserves totaling $3
million to cost of products sold because the sale or use of certain affected
inventory exceeded expectations.
Payments totaling $21 million in 2001 and $1 million in 2000 were charged
against the 2000 restructuring reserve. All payments are being funded with cash
from normal operations. The remaining restructuring reserves are considered
adequate to cover committed restructuring actions.
The salaried workforce reduction program was completed as of June 30, 2001,
with the termination of 394 salaried employees and the elimination of 179 open
salaried positions. In addition, 73 hourly employees were terminated, and 44
open hourly positions were eliminated. Closure of the three gypsum wallboard
manufacturing lines and other operations was completed by December 31, 2001.
Final payments for expenses related to these closures will be made in the first
half of 2002.
The reserve for the 2000 restructuring was included in accrued expenses as
of December 31, 2000, and in liabilities subject to compromise as of December
31, 2001, on the consolidated balance sheets.
RESTRUCTURING RESERVES
The following table details the reserves and activity for the 2001 and 2000
restructuring plans (dollars in millions):
<Table>
<Caption>
Writedown of Reversal Reserve
Provisions for Assets to Net Cash of Balance
Restructuring Realizable Value Payments Reserve 12/31/01
---------------- ---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
2001 Restructuring:
Severance (primarily hourly) $ 8 $ -- $ (2) $-- $ 6
Property, plant and equipment write-off 2 (2) -- -- --
Line shutdown/removal and contract cancellations 2 -- -- -- 2
---------------- ---------------- ---------- ---------- ----------
Subtotal 12 (2) (2) -- 8
---------------- ---------------- ---------- ---------- ----------
2000 Restructuring:
Severance (salaried) 16 -- (16) -- --
Property, plant and equipment write-off 15 (15) -- -- --
Razing buildings and equipment 12 -- (3) (6) 3
Line shutdown/removal 5 -- (2) (2) 1
Contract cancellations and severance (hourly) 2 -- (1) (1) --
---------------- ---------------- ---------- ---------- ----------
Subtotal 50 (15) (22) (9) 4
---------------- ---------------- ---------- ---------- ----------
Total 62 (17) (24) (9) 12
================ ================ ========== ========== ==========
</Table>
35
<PAGE>
4. SHUTDOWN OF PLASTERCO
In the third quarter of 1999, U.S. Gypsum announced the planned shutdown of its
Plasterco, Va., plant. In conjunction with the announcement, U.S. Gypsum
recorded a $22 million charge to cost of products sold for expenses related to
the closing of the plant and adjacent gypsum mine. The Plasterco facility was
closed on December 23, 1999, following the start-up of U.S. Gypsum's new plant
in Bridgeport, Ala., earlier in the year.
5. ACQUISITION OF SYBEX, INC.
In the fourth quarter of 1999, the Corporation acquired Sybex, Inc., the holding
company of Beadex Manufacturing Company, Inc. and The Synkoloid Company of
Canada. Sybex operated joint compound and paper-faced metal corner bead plants
in the United States and Canada.
6. EARNINGS PER SHARE
The reconciliation of basic earnings per share to diluted earnings per share is
shown in the following table:
<Table>
<Caption>
Net Average
(millions, except Earnings Shares Per-Share
share data) (Loss) (000) Amount
----------- ---------- ---------- ----------
<S> <C> <C> <C>
2001:
Basic earnings $ 16 43,430 $ 0.36
Dilutive effect of stock options 5
---------- ---------- ----------
Diluted earnings 16 43,435 0.36
========== ========== ==========
2000:
Basic loss (259) 45,972 (5.62)
---------- ---------- ----------
Diluted loss (259) 45,972 (5.62)
========== ========== ==========
1999:
Basic earnings 421 49,697 8.48
Dilutive effect of stock options 519
---------- ---------- ----------
Diluted earnings 421 50,216 8.39
========== ========== ==========
</Table>
For 2000, the diluted loss per share was based on the weighted average
number of common shares outstanding during the year. Common stock equivalents
were not included in the diluted loss per share calculation because they had an
anti-dilutive effect. Including the common stock equivalents, the weighted
average number of shares outstanding in 2000 would have been 46,067,121.
7. COMMON STOCK
DIVIDENDS
The Corporation discontinued payment of quarterly cash dividends in the second
quarter of 2001. In the first quarter of 2001, the Corporation paid a cash
dividend of $0.025 per share. In 2000, the Corporation paid four quarterly cash
dividends of $0.15 per share.
SHARE REPURCHASES
The Corporation concluded a share repurchase program in the third quarter of
2000. Under the program, which began in 1998, the Corporation purchased a total
of 7.3 million shares. Share repurchases by year amounted to 5.7 million shares
in 2000, 1.4 million shares in 1999 and 0.2 million shares in 1998.
STOCKHOLDER RIGHTS PLAN
The Corporation's stockholder rights plan, which will expire on March 27, 2008,
has four basic provisions. First, if an acquirer buys 15% or more of the
Corporation's outstanding common stock, the plan allows other stockholders to
buy, with each right, additional shares of the Corporation at a 50% discount.
Second, if the Corporation is acquired in a merger or other business combination
transaction, rights holders will be entitled to buy shares of the acquiring
company at a 50% discount. Third, if an acquirer buys between 15% and 50% of the
Corporation's outstanding common stock, the Corporation can exchange part or all
of the rights of the other holders for shares of the Corporation's stock on a
one-for-one basis or shares of a new junior preferred stock on a
one-for-one-hundredth basis. Fourth, before an acquirer buys 15% or more of the
Corporation's outstanding common stock, the rights are redeemable for $0.01 per
right at the option of the Corporation's board of directors (the "Board"). This
provision permits the Board to enter into an acquisition transaction that is
determined to be in the best interests of stockholders. The Board is authorized
to reduce the 15% threshold to not less than 10%.
In November 2001, the independent members of the Board reviewed the
Corporation's stockholder rights plan in accordance with its policy, adopted in
2000, to review the rights plan every three years. The independent members of
the Board considered a variety of relevant factors, including the effect of the
Filing, and concluded that the rights plan continued to be in the best interests
of the Corporation and should be retained in its present form.
36
<PAGE>
8. INVENTORIES
As of December 31, 2001 and 2000, the LIFO values of domestic inventories were
$198 million and $197 million, respectively, and would have been $5 million
higher for 2001 and $2 million higher for 2000 if they were valued under the
FIFO and average production cost methods. All nondomestic inventory is valued
under the FIFO and average production cost methods. All nondomestic inventory is
valued under FIFO or average production cost methods. The LIFO value of U.S.
domestic inventories exceeded that computed for U.S. federal income tax purposes
by $30 million as of December 31, 2001 and 2000. Inventory classifications as of
December 31 were as follows:
<Table>
<Caption>
(millions) 2001 2000
- ---------- ------ ------
<S> <C> <C>
Finished goods and work in progress $ 164 $ 175
Raw materials 75 80
Supplies 15 16
------ ------
Total 254 271
====== ======
</Table>
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment classifications as of December 31 were as follows:
<Table>
<Caption>
(millions) 2001 2000
---------- ----------
<S> <C> <C>
Land and mineral deposits $ 90 $ 89
Buildings and improvements 600 575
Machinery and equipment 1,702 1,636
---------- ----------
2,392 2,300
Reserves for depreciation and depletion (592) (470)
---------- ----------
Total 1,800 1,830
========== ==========
</Table>
10. LEASES
The Corporation leases certain of its offices, buildings, machinery and
equipment, and autos under noncancelable operating leases. These leases have
various terms and renewal options. Lease expense amounted to $74 million, $70
million and $62 million in the years ended December 31, 2001, 2000 and 1999,
respectively. Future minimum lease payments required under operating leases with
initial or remaining noncancelable terms in excess of one year as of December
31, 2001, were $56 million in 2002, $42 million in 2003, $34 million in 2004,
$26 million in 2005 and $18 million in 2006. The aggregate obligation subsequent
to 2006 was $28 million.
11. DEBT
As of December 31, 2001, virtually all of the Corporation's pre-petition debt is
in default due to the Filing. Pre-petition debt, which is included in
liabilities subject to compromise as of December 31, consisted of the following:
<Table>
<S> <C>
(millions) 2001
- ---------- --------
Revolving credit facilities $ 469
9.25% senior notes due 2001 131
8.5% senior notes due 2005 150
Industrial revenue bonds 255
--------
Total 1,005
========
</Table>
Long-term debt, the current portion of long-term debt and notes payable as
reported on the consolidated balance sheets as of December 31 consisted of the
following:
<Table>
<Caption>
(millions) 2001 2000
- ---------- -------- --------
<S> <C> <C>
DIP Facility $ -- $ --
Revolving credit facilities -- 79
9.25% senior notes due 2001 -- 141
Receivables facility -- 60
8.5% senior notes due 2005 -- 150
Industrial revenue bonds -- 255
Other 2 26
-------- --------
Total 2 711
======== ========
</Table>
DIP FACILITY
In connection with the Filing, a $350 million DIP Facility was provided by JP
Morgan Chase to supplement liquidity and fund operations during the
reorganization process. Any borrowings under the facility represent a super
priority claim in the bankruptcy proceeding. The facility matures on June 25,
2004. Borrowing availability is based primarily on accounts receivable and
inventory levels and, to a lesser extent, property, plant and equipment. As of
December 31, 2001, the Corporation had the capacity to borrow up to $291
million. There were no outstanding borrowings under the facility at year end.
However, $11 million of standby letters of credit were issued, leaving $280
million of unused borrowing capacity available as of December 31, 2001.
The interest rate for the facility is based on LIBOR plus 200 to 250 basis
points depending on the level of borrowings. The terms of the facility include,
among other requirements, limits on asset sales and capital expenditures and
minimum EBITDA levels. As of
37
<PAGE>
December 31, 2001, the Corporation was in compliance with the terms and
conditions of the agreement.
OTHER INFORMATION
Prior to the Filing, the Corporation utilized revolving credit facilities with
borrowing capacity of up to $600 million.
The Corporation has $131 million of 9.25% senior notes that were due
September 30, 2001. However, as a result of the Filing, these notes became
subject to compromise and therefore were not repaid.
The Corporation had an accounts receivable facility under which certain
trade receivables were transferred to Chase Manhattan Bank as trustee to be held
for the benefit of certificate holders in such trust. However, as a result of
the Filing, on July 12, 2001, all outstanding obligations under the accounts
receivable facility were repaid and the facility was terminated. As of December
31, 2000, the outstanding balance of receivables held under the trust was $156
million, and debt outstanding under the facility was $60 million.
The fair market value of total debt outstanding (including debt classified
under liabilities subject to compromise) was $729 million and $537 million as of
December 31, 2001 and 2000, respectively. The fair market values were based on
quoted market prices or, where quoted market prices were not available, on
instruments with similar terms and maturities. However, because virtually all of
the Corporation's debt is subject to compromise, the fair market value of total
debt as of December 31, 2001, is not necessarily indicative of the ultimate
settlement value that will be determined by the Bankruptcy Court.
As of December 31, 2001, debt not subject to compromise of $2 million is
scheduled to mature in varying amounts through 2005.
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
As of January 1, 2001, and December 31, 2001, the net after-tax derivative gain
in accumulated other comprehensive loss was $64 million and $16 million,
respectively. During 2001, $15 million of accumulated after-tax gains ($24
million pretax) were reclassified from accumulated other comprehensive loss to
earnings. As of December 31, 2001, the estimated after-tax gain expected to be
reclassified within the next 12 months from accumulated other comprehensive loss
into earnings is $5 million. The amounts reported below as fair values represent
the market value as obtained from broker quotations. Any negative fair values
are estimates of the amounts USG would need to pay to cancel the contracts or
transfer them to other parties.
COMMODITY RISK MANAGEMENT
The Corporation uses swap contracts to hedge anticipated purchases of natural
gas, wastepaper and fuel to be used in its manufacturing and shipping
operations. During the second quarter of 2001, the Corporation received
after-tax proceeds of $21 million ($35 million pretax) from the termination of
certain natural gas swap contracts that were scheduled to mature through 2005.
In accordance with SFAS No. 133, the net after-tax gain resulting from the
termination of these contracts remains in accumulated other comprehensive income
(loss) and is reclassified into earnings in the same periods during which the
hedged forecasted transactions are scheduled to occur.
The Corporation has swap agreements in place with Enron Corp. to hedge the
cost of wastepaper. As a result of Enron's bankruptcy filing in December 2001,
the Corporation has discontinued hedge accounting with respect to wastepaper
swaps from that point forward. Consequently, future changes in the fair value of
these hedges will be recognized in earnings in the period in which the change
occurs.
As of December 31, 2001 and 2000, the Corporation had swap agreements to
exchange monthly payments on notional amounts of commodities amounting to $48
million and $205 million, respectively. These agreements mature within two
years. The fair values of these swap agreements as of December 31, 2001 and
2000, were $(4) million and $105 million, respectively.
FOREIGN EXCHANGE RISK MANAGEMENT
As of December 31, 2001 and 2000, the Corporation had foreign currency contracts
in place, primarily Canadian dollars, to hedge its exposure to exchange rate
fluctuations on transactions denominated in foreign currencies. These foreign
exchange contracts mature on the anticipated date of the underlying transaction,
and all contracts mature by March 31, 2002. The notional amounts of foreign
currency contracts as of December 31, 2001 and 2000, were $6 million and $52
million, respectively. The fair value of these contracts as of December 31, 2001
and 2000, was zero.
INTEREST RATE RISK MANAGEMENT
The Corporation uses interest rate swap agreements from time to time to manage
the impact of interest rate changes on the underlying floating-rate debt. The
38
<PAGE>
Corporation had no swap agreements in place as of December 31, 2001. As of
December 31, 2000, the Corporation had swap agreements in place to convert $27
million of notional principal from floating-rate to fixed-rate instruments. The
fair value of these contracts as of December 31, 2000, was zero.
COUNTERPARTY RISK
The Corporation is exposed to credit losses in the event of nonperformance by
the counterparties on its financial instruments. Except for Enron Corp., as
explained above, all other counterparties have investment grade credit standing;
accordingly, the Corporation anticipates that these counterparties will be able
to satisfy fully their obligations under the contracts. The Corporation does not
generally obtain collateral or other security to support financial instruments
subject to credit risk but monitors the credit standing of all counterparties.
13. EMPLOYEE RETIREMENT PLANS
The Corporation and most of its subsidiaries have defined benefit pension plans
for all eligible employees. Benefits of the plans are generally based on
employees' years of service and compensation during the final years of
employment. The Corporation also maintains plans that provide retiree health
care and life insurance benefits for all eligible employees. Employees generally
become eligible for the retiree benefit plans when they meet minimum retirement
age and service requirements. The cost of providing most retiree health care
benefits is shared with retirees. The components of net pension and
postretirement benefit costs are summarized in the following tables:
<Table>
<Caption>
Pension Benefits
--------------------------------
(millions) 2001 2000 1999
- ---------- -------- -------- --------
<S> <C> <C> <C>
Service cost of benefits
earned $ 19 $ 16 $ 19
Interest cost on projected
benefit obligation 48 47 43
Expected return on plan assets (56) (54) (49)
Net amortization 4 3 2
-------- -------- --------
Net pension cost 15 12 15
======== ======== ========
</Table>
<Table>
<Caption>
Postretirement Benefits
--------------------------------
(millions) 2001 2000 1999
- ---------- -------- -------- --------
<S> <C> <C> <C>
Service cost of benefits
earned $ 6 $ 6 $ 7
Interest cost on projected
benefit obligation 16 16 15
Net amortization (1) (2) --
-------- -------- --------
Net postretirement cost 21 20 22
======== ======== ========
</Table>
The following tables summarize pension and postretirement benefit
obligations, plan assets and funded status as of December 31:
<Table>
<Caption>
Pension Postretirement
-------------------- --------------------
(millions) 2001 2000 2001 2000
- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in Benefit Obligation:
Benefit obligation
as of January 1 $ 670 $ 632 $ 222 $ 195
Service cost 19 16 6 6
Interest cost 48 47 16 16
Employee contributions 11 12 3 2
Benefits paid (80) (55) (12) (12)
Plan amendment 10 3 -- (1)
Actuarial loss 27 17 1 16
Foreign currency rate change (3) (2) -- --
-------- -------- -------- --------
Benefit obligation
as of December 31 702 670 236 222
======== ======== ======== ========
</Table>
<Table>
<Caption>
Pension Postretirement
--------------------- ---------------------
(millions) 2001 2000 2001 2000
- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in Plan Assets:
Fair value as of January 1 $ 652 $ 667 $ -- $ --
Actual return on plan assets (17) 14 -- --
Employer contributions 13 17 -- --
Employee contributions 11 12 -- --
Benefits paid (80) (55) -- --
Foreign currency rate change (4) (3) -- --
-------- -------- -------- --------
Fair value as of December 31 575 652 -- --
======== ======== ======== ========
Funded Status:
As of December 31 (127) (18) (236) (222)
Unrecognized prior service cost 18 6 (6) (6)
Unrecognized net (gain) loss 86 (7) (30) (32)
-------- -------- -------- --------
Net balance sheet liability (23) (19) (272) (260)
======== ======== ======== ========
Assumptions as of December 31:
Discount rate 7.25% 7.50% 7.25% 7.50%
Pension plans expected return 9% 9% -- --
Compensation increase rate 5% 5% 5% 5%
-------- -------- -------- --------
</Table>
39
<PAGE>
The assumed health-care-cost trend rate used to measure the accumulated
postretirement benefit obligation will be 7.0% in 2002, with a rate gradually
declining to 4.75% in 2007 and remaining at that level thereafter. A
one-percentage-point change in the assumed health-care-cost trend rate would
have the following effects:
<Table>
<Caption>
One Percentage One Percentage
(millions) Point Increase Point Decrease
- ---------- -------------- --------------
<S> <C> <C>
Effect on total service and
interest cost components $ 4 $ (3)
Effect on postretirement
benefit obligation 33 (27)
----- -----
</Table>
14. STOCK-BASED COMPENSATION
The Corporation has issued stock options from three successive plans under its
long-term equity program. Under each of the plans, options were granted at an
exercise price equal to the market value on the date of grant. All options
granted under the plans have 10-year terms and vesting schedules of two or three
years. The options expire on the 10th anniversary of the date of grant, except
in the case of retirement, death or disability, in which case they expire on the
earlier of the fifth anniversary of such event or the expiration of the original
option term.
The Corporation accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 and discloses such compensation under
the provisions of SFAS 123, "Accounting for Stock-Based Compensation."
The fair value of each option grant was estimated as of the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions for options granted:
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
<S> <C> <C> <C>
Expected life (years) 7.4 7.4 7.4
Risk-free interest rate 6.8% 6.2% 6.5%
Expected volatility 46.2% 31.3% 31.4%
Dividend yield 0.12% 1.29% 0.88%
-------- -------- --------
</Table>
The weighted average fair values of options granted on January 2, 2001, and
May 1, 2001, were $12.31 and $6.73, respectively. The weighted average fair
values of options granted on January 3, 2000, and January 2, 1999, were $18.84
and $22.05, respectively.
If the Corporation had elected to recognize compensation cost for
stock-based compensation grants consistent with the method prescribed by SFAS
No. 123, net earnings (loss) and net earnings (loss) per common share would have
changed to the following pro forma amounts:
<Table>
<Caption>
(millions, except per-share data) 2001 2000 1999
- --------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Net Earnings(Loss): As reported $ 16 $ (259) $ 421
Pro forma 13 (262) 416
Basic EPS: As reported 0.36 (5.62) 8.48
Pro forma 0.31 (5.70) 8.38
Diluted EPS: As reported 0.36 (5.62) 8.39
Pro forma 0.31 (5.70) 8.29
---------- ---------- ----------
</Table>
Stock option activity was as follows:
<Table>
<Caption>
(options in thousands) 2001 2000 1999
- ---------------------- -------- -------- --------
<S> <C> <C> <C>
Options:
Outstanding, January 1 2,051 1,790 2,034
Granted 800 330 316
Exercised (72) (22) (553)
Canceled (41) (47) (7)
-------- -------- --------
Outstanding, December 31 2,738 2,051 1,790
Exercisable, December 31 1,640 1,437 1,087
Available for grant, December 31 1,737 2,488 566
-------- -------- --------
Weighted Average Exercise Price:
Outstanding, January 1 $ 38.12 $ 36.49 $ 30.43
Granted 22.44 46.14 50.87
Exercised 10.31 10.31 22.29
Canceled 36.94 44.79 48.99
Outstanding, December 31 34.29 38.12 36.49
Exercisable, December 31 37.89 33.70 28.05
-------- -------- --------
</Table>
The following table summarizes information about stock options outstanding
as of December 31, 2001:
<Table>
<Caption>
Options Outstanding Options Exercisable
-------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Options Contractual Exercise Options Exercise
Prices (000) Life (yrs.) Price (000) Price
- -------- -------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 5 - 15 67 1.9 $ 10 63 $ 10
15 - 25 916 8.2 22 121 22
25 - 35 776 3.8 32 776 32
35 - 55 979 6.9 48 680 50
-------- -------- -------- -------- --------
Total 2,738 6.3 34 1,640 38
======== ======== ======== ======== ========
</Table>
As of December 31, 2001, common shares totaling 2,737,600 were reserved for
future issuance in conjunction with existing stock option grants. In
40
<PAGE>
addition, 1,737,311 common shares were reserved for future grants. Shares issued
in option exercises may be from original issue or available treasury shares.
15. INCOME TAXES
Earnings (loss) before income taxes consisted of the following:
<Table>
<Caption>
(millions) 2001 2000 1999
-------- -------- --------
<S> <C> <C> <C>
U.S. $ 52 $ (471) $ 633
Foreign -- 51 51
-------- -------- --------
Total 52 (420) 684
======== ======== ========
</Table>
Income taxes (benefit) consisted of the following:
<Table>
<Caption>
(millions) 2001 2000 1999
- ---------- -------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ (67) $ 154 $ 246
Foreign 15 18 10
State (13) 27 47
-------- -------- --------
(65) 199 303
-------- -------- --------
Deferred:
Federal 90 (306) (38)
Foreign (5) -- 5
State 16 (54) (7)
-------- -------- --------
101 (360) (40)
-------- -------- --------
Total 36 (161) 263
======== ======== ========
</Table>
Differences between actual provisions (benefits) for income taxes and
provisions (benefits) for income taxes at the U.S. federal statutory rate (35%)
were as follows:
<Table>
<Caption>
(millions) 2001 2000 1999
- ---------- -------- -------- --------
<S> <C> <C> <C>
Taxes on income (loss)
at federal statutory rate $ 18 $ (147) $ 240
Chapter 11 reorganization
expenses 2 -- --
Foreign sales corporation (1) (1) (1)
Foreign earnings subject
to different tax rates 16 4 --
State income tax, net of
federal benefit 1 (17) 26
Percentage depletion (2) (4) (4)
Other, net 2 4 2
-------- -------- --------
Provision (benefit) for
income taxes 36 (161) 263
======== ======== ========
Effective income tax rate 70.0% 38.4% 38.4%
======== ======== ========
</Table>
Significant components of deferred tax assets and liabilities as of
December 31 were as follows:
<Table>
<Caption>
(millions) 2001 2000
- ---------- -------- --------
<S> <C> <C>
Deferred Tax Assets:
Pension and postretirement benefits $ 115 $ 104
Reserves not deductible until paid 448 550
Other 14 34
-------- --------
577 688
-------- --------
Deferred Tax Liabilities:
Property, plant and equipment 268 237
-------- --------
Net deferred tax assets 309 451
======== ========
</Table>
The Corporation recognized an income tax receivable of $76 million in 2001
for federal and state income taxes that it expects to be refunded as a result of
the carryback of a net operating loss incurred by the Corporation in the current
year.
The Corporation's income tax reserves were reduced by $103 million in the
third quarter of 2000 to reflect the settlement of various tax audits. The
benefit realized from the reduction of these reserves was credited to equity in
accordance with SOP 90-7. The reduction of these reserves had no impact on the
results of operations or cash flows of the Corporation.
The Corporation does not provide for U.S. income taxes on the portion of
undistributed earnings of foreign subsidiaries that are intended to be
permanently reinvested. The cumulative amount of such undistributed earnings
totaled approximately $211 million as of December 31, 2001. These earnings would
become taxable in the United States upon the sale or liquidation of these
foreign subsidiaries or upon the remittance of dividends. It is not practicable
to estimate the amount of the deferred tax liability on such earnings.
41
<PAGE>
16. SEGMENTS
OPERATING SEGMENTS
<Table>
<Caption>
(millions) 2001 2000 1999
- ---------- ---------- ---------- ----------
<S> <C> <C> <C>
Net Sales:
North American Gypsum $ 1,950 $ 2,298 $ 2,416
Worldwide Ceilings 660 705 689
Building Products Distribution 1,152 1,373 1,345
Eliminations (466) (595) (640)
---------- ---------- ----------
Total 3,296 3,781 3,810
========== ========== ==========
Operating Profit (Loss):
North American Gypsum 80 392 651
Worldwide Ceilings 33 70 63
Building Products Distribution 64 110 87
Corporate (43) (44) (64)
Eliminations 1 3 (7)
Chapter 11 reorganization
expenses (12) -- --
Provisions for impairment
and restructuring (33) (50) --
Provision for asbestos claims -- (850) --
---------- ---------- ----------
Total 90 (369) 730
========== ========== ==========
Depreciation, Depletion
and Amortization:
North American Gypsum 81 70 57
Worldwide Ceilings 19 18 19
Building Products Distribution 7 7 6
Corporate -- 1 9
---------- ---------- ----------
Total 107 96 91
========== ========== ==========
Capital Expenditures:
North American Gypsum 96 354 397
Worldwide Ceilings 11 16 20
Building Products Distribution 2 9 8
Corporate -- 1 1
---------- ---------- ----------
Total 109 380 426
========== ========== ==========
Assets:
North American Gypsum 1,985 1,924 1,721
Worldwide Ceilings 408 433 425
Building Products Distribution 268 278 309
Corporate 908 639 431
Eliminations (105) (60) (92)
---------- ---------- ----------
Total 3,464 3,214 2,794
========== ========== ==========
</Table>
GEOGRAPHIC SEGMENTS
<Table>
<Caption>
(millions) 2001 2000 1999
- ---------- -------- -------- --------
<S> <C> <C> <C>
Net Sales:
United States $ 2,947 $ 3,428 $ 3,449
Canada 279 284 262
Other Foreign 254 259 260
Geographic transfers (184) (190) (161)
-------- -------- --------
Total 3,296 3,781 3,810
======== ======== ========
Long-Lived Assets:
United States 1,787 1,750 1,514
Canada 157 188 198
Other Foreign 61 93 61
-------- -------- --------
Total 2,005 2,031 1,773
======== ======== ========
</Table>
Transactions between operating and geographic segments are accounted for at
transfer prices that are approximately equal to market value. Intercompany
transfers between operating segments (shown above as eliminations) largely
reflect intercompany sales from U.S. Gypsum to L&W Supply.
No single customer accounted for 10% or more of consolidated net sales.
Revenues are attributed to geographic areas based on the location of the assets
producing the revenues. Export sales to foreign unaffiliated customers represent
less than 10% of consolidated net sales.
Segment operating profit (loss) includes all costs and expenses directly
related to the segment involved and an allocation of expenses that benefit more
than one segment.
Corporate assets for 2000 and 1999 include the assets of USG Funding, which
represent the outstanding balances of receivables purchased from U.S. Gypsum and
USG Interiors, net of reserves. As of December 31, 2000 and 1999, such
receivables, net of reserves, amounted to $93 million and $125 million,
respectively, including $59 million and $97 million purchased from U.S. Gypsum
and $34 million and $28 million purchased from USG Interiors as of the
respective dates.
Long-lived assets include property, plant and equipment, prepaid expenses,
investments in other companies, goodwill and other long-term assets. As of
December 31, 2001, goodwill, net of accumulated amortization, for the
Corporation's businesses in the United States, Canada and Other Foreign segments
was $63 million, $49 million and zero, respectively. As of December 31, 2000,
goodwill, net of accumulated
42
<PAGE>
amortization, for the United States, Canada and Other Foreign segments was $66
million, $53 million and $1 million, respectively. As of December 31, 1999,
goodwill, net of accumulated amortization, for the United States, Canada and
Other Foreign segments was $58 million, $57 million and $1 million,
respectively. The Corporation believes that including goodwill in long-lived
assets provides meaningful disclosure to financial statement users in terms of
geographic resource allocation, investment decisions and related risk.
17. LITIGATION
ASBESTOS AND RELATED INSURANCE LITIGATION
One of the Corporation's subsidiaries, U.S. Gypsum, is among many defendants in
lawsuits arising out of the manufacture and sale of asbestos-containing
materials. On June 25, 2001 (the "Petition Date"), U.S. Gypsum, the Parent
Company, and other domestic subsidiaries (the "Debtors") filed voluntary
petitions for relief under chapter 11 of the U.S. Bankruptcy Code (the "Filing")
to manage the growing costs of resolving asbestos claims and to achieve a fair
and final resolution of liability for both pending and future asbestos claims.
The Chapter 11 Cases are being jointly administered under Case No. 01-2094 in
the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court").
U.S. Gypsum's asbestos liability derives from its sale of certain
asbestos-containing products beginning in the 1930s; in most cases, the products
were discontinued or asbestos was removed from the formula by 1972, and no
asbestos-containing products were produced after 1977. Certain of the asbestos
lawsuits against U.S. Gypsum seek to recover compensatory and, in many cases,
punitive damages for costs associated with the maintenance or removal and
replacement of asbestos-containing products in buildings (the "Property Damage
Cases"). Other asbestos lawsuits seek compensatory and, in many cases, punitive
damages for personal injury allegedly resulting from exposure to
asbestos-containing products (the "Personal Injury Cases"). A more detailed
description of the Property Damage and Personal Injury Cases is set forth below.
As a result of the Filing, all pending Personal Injury and Property Damage
Cases against U.S. Gypsum are stayed, and no party may take any action to pursue
or collect on such asbestos lawsuits absent specific authorization of the
Bankruptcy Court. Since the Filing, U.S. Gypsum has ceased making both cash
payments and accruals with respect to asbestos lawsuits, including cash payments
and accruals pursuant to settlements of asbestos lawsuits. The Bankruptcy Court
has approved creditors' committees that represent claimants in Personal Injury
and Property Damage Cases. The Bankruptcy Court is expected to appoint a legal
representative for the interests of potential future asbestos claimants. As part
of the bankruptcy proceeding, it will be determined which asbestos claims should
be allowed, or compensated, and the aggregate value of such claims.
U.S. Gypsum anticipates that its liability for pending and future asbestos
claims will be addressed in a plan of reorganization developed and approved in
the bankruptcy proceeding. The Debtors' exclusive right to propose such a plan
of reorganization has been extended by the Bankruptcy Court to May 1, 2002. The
Debtors are likely to seek one or more additional extensions of the exclusivity
period depending on developments in the bankruptcy case. It is the Debtors'
intention that the plan of reorganization will include the creation of a trust
under Section 524(g) of the Bankruptcy Code which will be funded to allow
payment of present and future asbestos claims, and, as a result of creation of
the trust, the Bankruptcy Court will issue a permanent injunction channeling all
asbestos-related claims to the trust and barring the assertion of pending or
future asbestos-related claims against the reorganized companies. However, there
is no assurance that such creation of a trust under Section 524(g), or the
issuance of such a permanent injunction, will be approved by the Bankruptcy
Court. It is anticipated that the plan or plans of reorganization ultimately
approved will include all Debtors in the final resolution of asbestos-related
claims that are or might be asserted against U.S. Gypsum, the Corporation and
all other Debtor affiliates.
Recent Developments in the Reorganization Proceeding: During the fourth quarter
of 2001, the Corporation's bankruptcy proceeding, along with four other
asbestos-related bankruptcy proceedings pending in the federal courts in the
District of Delaware, were assigned to the Honorable Alfred M. Wolin of the
United States District Court for the District of New Jersey. This assignment was
accomplished through orders of the United States Court of Appeals for the Third
Circuit and the United States District Court for the District of Delaware dated
November 27 and November 29, 2001, respectively.
43
<PAGE>
In orders subsequent to the reassignment, Judge Wolin has indicated that
issues relating to asbestos personal injury claims in the foregoing bankruptcy
proceedings will be assigned to him and that other bankruptcy claims and issues
will remain assigned to the bankruptcy judges in the United States Bankruptcy
Court for the District of Delaware. The Corporation has requested Judge Wolin,
with the possible assistance of a Special Master appointed by Judge Wolin, to
conduct hearings to address key issues relevant to the liability of U.S. Gypsum
for asbestos personal injury claims, and the Corporation expects that if Judge
Wolin agrees to this proposal, these hearings will begin in 2002.
If the hearings on liability issues do not go forward or a consensual
resolution is not reached as a result of the hearings or otherwise, the
Corporation will employ other means to resolve its asbestos personal injury
liability. These other means may include, but are not limited to, setting a bar
date for filing asbestos personal injury claims and determining which of the
subsequently filed claims are entitled to vote on and participate in an asbestos
trust under 11 U.S.C. ss.524(g) of the Bankruptcy Code. A bar date proceeding
likely would lengthen the bankruptcy case significantly.
The Corporation expects that U.S. Gypsum's liability for asbestos property
damage claims will also be included in a ss.524(g) trust, but resolution of this
liability likely will be resolved through different and less time-consuming
means than the procedures for resolving the asbestos personal injury liability.
Given the recent assignment of Judge Wolin to these bankruptcy proceedings
and the current status of the cases, the Corporation is unable to forecast with
any reasonable degree of certainty the timing or substance of the resolution of
the Debtors' asbestos-related liability or the reorganization proceeding.
The following is a summary of the Property Damage and Personal Injury Cases
pending against U.S. Gypsum as of the Petition Date.
Property Damage Cases: As of the Petition Date, U.S. Gypsum was a defendant in
eleven Property Damage Cases, most of which involved multiple buildings. One of
the cases is a conditionally certified class action comprising all colleges and
universities in the United States, which certification is presently limited to
the resolution of certain allegedly "common" liability issues. (Central Wesleyan
College v. W.R. Grace & Co., et al., U.S.D.C. S.C.). On June 15, 2001, a
Property Damage Case was filed by The County of Orange, Texas, in the district
court of Orange County, Texas, naming as defendants U.S. Gypsum and other
manufacturers of asbestos-containing materials. This was the first Property
Damage case filed against U.S. Gypsum since June 1998. The Orange County case is
a putative class action brought by The County of Orange on behalf of an alleged
class comprising the State of Texas, its public colleges and universities, and
all political subdivisions of the State of Texas. As to U.S. Gypsum, the
putative class also includes all private and/or non-public colleges,
universities, junior colleges, community colleges, and elementary and secondary
schools in the State of Texas. The Orange County action seeks recovery of the
costs of removing and replacing asbestos-containing materials in buildings at
issue, as well as punitive damages. The complaint does not specify how many
buildings are at issue. As a result of the Filing, all Property Damage Cases,
including the Central Wesleyan and Orange County cases, are stayed against U.S.
Gypsum. U.S. Gypsum's estimated cost of resolving the Property Damage Cases is
discussed below (see "Estimated Cost").
Personal Injury Cases: U.S. Gypsum is also a defendant in approximately 106,000
Personal Injury Cases pending as of the Petition Date (the date of the Filing),
as well as an additional approximately 52,000 Personal Injury Cases that are the
subject of settlement agreements. Filings of new Personal Injury Cases totaled
approximately 53,000 claims in 2000, 48,000 claims in 1999, and 80,000 claims in
1998. As a result of the Filing, all Personal Injury Cases are stayed against
U.S. Gypsum, and new cases may not be filed due to the automatic stay. In the
first half of 2001, up to the Petition Date, approximately 26,200 new Personal
Injury Cases were filed against U.S. Gypsum, as compared to 27,800 new filings
in the first half of 2000.
Prior to the Filing, U.S. Gypsum managed the handling and settlement of
Personal Injury Cases through its membership in the Center for Claims Resolution
(the "Center"). From 1988 up to February 1, 2001, costs of defense and
settlement of Personal Injury Cases were shared among the members of the Center
pursuant to predetermined sharing formulae. Effective February 1, 2001, the
Center members, including U.S. Gypsum, ended their prior settlement sharing
arrangement, and each Center member, including U.S. Gypsum, was responsible for
negotiating and paying its own settlements separately. As of the Petition Date
and as a result of the stay of asbestos lawsuits against U.S. Gypsum, U.S.
Gypsum no longer
44
<PAGE>
negotiates or pays settlements of Personal Injury Cases and no longer requires
the services of the Center in negotiating or defending Personal Injury Cases.
In 2000 and years prior, U.S. Gypsum and other Center members negotiated a
number of settlements with plaintiffs' firms that included agreements to resolve
over time the firms' pending Personal Injury Cases as well as certain future
claims (the "Long-Term Settlements"). With regard to future claims, these
Long-Term Settlements typically provide that the plaintiffs' firms will
recommend to their future clients that they defer filing, or accept nominal
payments on, personal injury claims that do not meet established disease
criteria, and, with regard to those claims meeting established disease criteria,
that the future clients accept specified amounts to settle those claims. These
Long-Term Settlements typically resolve claims for amounts consistent with
historical per-claim settlement costs paid to the plaintiffs' firms involved. As
a result of the Filing, cash payments by U.S. Gypsum under these Long-Term
Settlements have ceased, and U.S. Gypsum expects that its obligations under
these settlements will be determined in the bankruptcy proceeding and plan of
reorganization.
In 2000, U.S. Gypsum closed approximately 57,000 Personal Injury Cases.
U.S. Gypsum's cash payments in 2000 to defend and resolve Personal Injury Cases
totaled $162 million, of which $90 million was paid or reimbursed by insurance.
In 2000, the average settlement per case was approximately $2,600, exclusive of
defense costs. U.S. Gypsum made cash payments of $100 million in 1999 and $61
million in 1998 to resolve Personal Injury Cases, of which $85 million and $45.5
million, respectively, were paid or reimbursed by insurance.
In the first and second quarters of 2001, cash payments to resolve Personal
Injury Cases increased dramatically, primarily as a result of the bankruptcy
filings of other defendants in asbestos personal injury lawsuits. As a result of
these bankruptcy filings, plaintiffs substantially increased their settlement
demands to the remaining defendants, including U.S. Gypsum, to replace the
expected payments of the bankrupt defendants. In response to these increased
settlement demands, U.S. Gypsum attempted to manage its asbestos liability by
contesting, rather than settling, a greater number of cases that it believed to
be non-meritorious. As a result, in the first and second quarters of 2001, U.S.
Gypsum agreed to settle fewer Personal Injury Cases, but at a significantly
higher cost per case.
In the first half of 2001 (up to the Petition Date), U.S. Gypsum closed
approximately 18,900 Personal Injury Cases. In the first half of 2001 (up to the
Petition Date), U.S. Gypsum's total asbestos-related cash payments, including
defense costs, were approximately $124 million, of which approximately $10
million was paid or reimbursed by insurance. A portion of these payments were
for settlements agreed to in prior periods. As of March 31, 2001, U.S. Gypsum
had estimated that cash expenditures for Personal Injury Cases in 2001 would
total approximately $275 million before insurance recoveries of approximately
$37 million.
As a result of these increasing settlement demands and the concern that
federal legislation addressing the asbestos litigation problem likely would not
be enacted within the necessary timeframe, U.S. Gypsum concluded that it would
not be able to manage and resolve its asbestos liability in the tort system,
and, on June 25, 2001, the Debtors filed a voluntary petition under chapter 11
of the Bankruptcy Code.
In addition to the asbestos Personal Injury Cases pending against U.S.
Gypsum, one of the Corporation's subsidiaries and a Debtor in the bankruptcy
proceeding, L&W Supply Corporation, was named as a defendant in approximately 21
pending Personal Injury Cases as of the Petition Date. L&W, a distributor of
building products manufactured by U.S. Gypsum and other building products
manufacturers, has not made any payments in the past to resolve Personal Injury
Cases. It is believed that L&W has been named as a defendant in Personal Injury
Cases based on its role as a distributor of U.S. Gypsum products. Therefore, the
Corporation expects that any asbestos-related liability of L&W would be
derivative of the liability of U.S. Gypsum, and that any plan or plans of
reorganization should reflect that L&W's liability, if any, rests with U.S.
Gypsum as the manufacturer. However, because of the small number of Personal
Injury Cases against L&W to date and the lack of development of the cases
against L&W, the Corporation does not have sufficient information at this time
to predict as to how any plan or plans of reorganization will address any
asbestos-related liability of L&W and whether any such liability will be limited
to L&W's role as a distributor of U.S. Gypsum products.
Insurance Coverage: As of the Petition Date, after deducting insurance used to
date, U.S. Gypsum had approximately $76.3 million of insurance remaining to
cover asbestos-related costs. After insurance payments to U.S. Gypsum during the
third and fourth quarters of
45
<PAGE>
2001, approximately $52 million remained as of December 31, 2001. This insurance
is scheduled to be paid over a period of approximately three years.
Estimated Cost: In evaluating U.S. Gypsum's estimated asbestos liability prior
to the Filing, the Corporation considered numerous uncertainties that made it
difficult to estimate reliably U.S. Gypsum's asbestos liability in the tort
system for both pending and future asbestos claims.
In the Property Damage Cases, such uncertainties included, but were not
limited to, the identification and volume of asbestos-containing products in the
buildings at issue in each case, which is often disputed; the claimed damages
associated therewith; the viability of statute of limitations, product
identification and other defenses, which varies depending upon the facts and
jurisdiction of each case; the amount for which such cases can be resolved,
which normally (but not uniformly) has been substantially lower than the claimed
damages; and the viability of claims for punitive and other forms of multiple
damages.
Uncertainties in the Personal Injury Cases included, but were not limited
to, the number, disease and occupational characteristics, and venue of Personal
Injury Cases that are filed against U.S. Gypsum; the age and level of physical
impairment of claimants; the viability of claims for conspiracy or punitive
damages; the elimination of indemnity sharing among Center members for future
settlements and its negative impact on U.S. Gypsum's ability to continue to
resolve claims at historical or acceptable levels; the adverse impact on U.S.
Gypsum's settlement costs of recent bankruptcies of co-defendants; the continued
solvency of other defendants and the possibility of additional bankruptcies; the
possibility of significant adverse verdicts due to recent changes in settlement
strategies and related effects on liquidity; the inability or refusal of former
Center members to fund their share of existing settlements and its effect on
such settlement agreements; the continued ability to negotiate settlements or
develop other mechanisms that defer or reduce claims from unimpaired claimants;
and the possibility that federal legislation addressing asbestos litigation will
be enacted. The Corporation reported that adverse developments with respect to
any of these uncertainties could have a material impact on U.S. Gypsum's
settlement costs and could materially increase the cost above the estimated
range discussed below.
Prior to the fourth quarter of 2000, the Corporation, in the opinion of
management, was unable to reasonably estimate the probable cost of resolving
future asbestos claims in the tort system, although the Corporation had
estimated and reserved for costs associated with then-pending claims. However,
in 1999 and increasingly in 2000, as U.S. Gypsum entered into Long-Term
Settlements of Personal Injury Cases (discussed above), the Corporation
undertook a detailed, independent study of U.S. Gypsum's current and potential
future asbestos liability. This analysis was based on the assumption that U.S.
Gypsum's asbestos liability would continue to be resolved in the tort system.
The analysis was completed in the fourth quarter of 2000.
As part of this analysis, the Corporation reviewed, among other things,
historical case filings and increasing settlement costs; the type of products
sold by U.S. Gypsum and the occupations of claimants expected to bring future
asbestos-related claims; epidemiological data concerning the incidence of past
and projected future asbestos-related diseases; trends in the propensity of
persons alleging asbestos-related disease to sue U.S. Gypsum; the adverse effect
on settlement costs of historical reductions in the number of solvent defendants
available to pay claims, including reductions in membership of the Center; the
pre-agreed settlement recommendations in, and the continued viability of, the
Long-Term Settlements described above; and anticipated trends in recruitment by
plaintiffs' firms of non-malignant or unimpaired claimants. The study attempted
to weigh relevant variables and assess the impact of likely outcomes on future
case filings and settlement costs. In addition, the Corporation considered
future defense costs, as well as allegations that U.S. Gypsum and the other
Center members bear joint liability for the share of certain settlement
agreements that was to be paid by former members that now have refused or are
unable to pay.
In the fourth quarter of 2000, the Corporation concluded that it was
possible to provide a reasonable estimate of U.S. Gypsum's liability in the tort
system for asbestos cases to be filed through 2003, as well as those currently
pending. Based on an independent study, the Corporation determined that,
although substantial uncertainty remained, it was probable that asbestos claims
currently pending against U.S. Gypsum and future asbestos claims to be filed
against it through 2003 (both property damage and personal injury) could be
resolved in the tort system for an amount between $889 million and $1,281
million, including defense costs, and that within this range the most likely
estimate
46
<PAGE>
was $1,185 million. Consistent with this analysis, in the fourth quarter of
2000, the Corporation recorded a pretax noncash charge of $850 million to
results of operations, which, combined with the previously existing reserve,
increased U.S. Gypsum's reserve for asbestos claims to $1,185 million.
Substantially all of this reserve relates to the estimated costs of resolving
then-pending asbestos personal injury claims and those expected to be filed
through 2003, and the reserve reflected management's expectation that U.S.
Gypsum's average payment per asbestos personal injury claim would increase at
least in the short term due to distortions caused by the bankruptcy filings of
other asbestos personal injury defendants discussed above. Less than 10 percent
of the reserve is attributable to defense and administrative costs.
At the time of recording this reserve, it was expected that the reserve
amounts would be expended over a period extending several years beyond 2003,
because asbestos cases have historically been resolved an average of three years
after filing. The Corporation concluded that it did not have adequate
information to allow it to reasonably estimate the number of claims to be filed
after 2003, or the liability associated with such claims.
During 2001 up to the Filing, U.S. Gypsum's cash payments for asbestos
claims and related legal fees totaled approximately $124 million, reducing its
reserve for asbestos claims to $1,061 million as of December 31, 2001. Insurance
recoveries during 2001 totaled approximately $34 million, leaving U.S. Gypsum
with a receivable from insurance carriers (the estimated portion of the reserved
amount that is expected to be paid or reimbursed by insurance) of approximately
$52 million as of December 31, 2001. The above amounts are stated before tax
benefit and are not discounted to present value.
It is the Corporation's view that, as a result of the Filing, there is even
greater uncertainty in estimating the reasonably possible range of asbestos
liability for pending and future claims as well as the most likely estimate of
liability within this range. There are significant differences in the treatment
of asbestos claims in a bankruptcy proceeding as compared to the tort litigation
system. Among other things, these uncertainties include how the Long-Term
Settlements will be treated in the bankruptcy proceeding and plan of
reorganization, and whether those settlements will be set aside; the number of
asbestos-related claims that will be filed in the proceeding; the number of
future claims that will be estimated in connection with preparing a plan of
reorganization; how claims for punitive damages and claims by persons with no
asbestos-related physical impairment will be treated and whether such claims
will be allowed; the impact historical settlement values for asbestos claims may
have on the estimation of asbestos liability in the bankruptcy proceeding; and
the impact any relevant potential federal legislation may have on the
proceeding. These factors, as well as the uncertainties discussed above in
connection with the resolution of asbestos cases in the tort system, increase
the uncertainty of any estimate of asbestos liability.
As a result of the increased uncertainty of estimating asbestos liability
due to the Filing, it is the Corporation's view that no change should be made to
the previously recorded reserve for asbestos claims (except to reflect
obligations incurred prior to the Filing). However, it is possible that the cost
of resolving asbestos claims will be greater than that set forth in the high end
of the estimated reserve range. As the bankruptcy proceeding continues, it is
expected that the Corporation will obtain additional information that may
provide greater certainty to the expected range of liability.
When a reasonable estimate can be made of the Debtors' probable liability
for asbestos claims and such estimate differs from the existing reserve, the
reserve will be adjusted to reflect the estimate, and it is possible that a
charge to results of operations will be necessary at that time.
Bond to Secure Certain CCR Obligations: In January 2001, U.S. Gypsum obtained a
performance bond from Safeco Insurance Company of America ("Safeco") in the
amount of $60.3 million to secure certain obligations of U.S. Gypsum for
extended payout settlements of Personal Injury Cases and other obligations owed
by U.S. Gypsum to the Center. The bond is secured by an irrevocable letter of
credit obtained by the Corporation in the amount of $60.3 million and issued by
Chase Manhattan Bank to Safeco. After the Filing, by letter dated July 6, 2001,
the Center stated that certain amounts allegedly covered by the bond, totaling
approximately $15.7 million, were overdue from U.S. Gypsum to the Center. In
subsequent letters dated November 19, 2001, and December 11, 2001, the Center
stated that additional amounts allegedly covered by the bond totaling
approximately $14 million and $113 million, respectively, were also overdue from
U.S. Gypsum. The amounts for which the Center made demand were for
47
<PAGE>
the payment of, among other things, settlements of Personal Injury Cases that
were entered into pre-petition. By letter dated November 16, 2001, the Center
made a demand to Safeco for payment of $15.7 million under the bond, and by
letter dated December 28, 2001, the Center made a demand to Safeco for payment
of approximately $127 million under the bond. The total amount demanded by the
Center under the bond, approximately $143 million, exceeds the original penal
sum of the bond, which is $60.3 million. Safeco has not made any payment under
the bond, but, to the extent that Safeco were to pay any portion of the bond, it
is likely that Safeco would draw down the Chase letter of credit to cover the
bond payment and Chase would assert a pre-petition claim in a corresponding
amount against the Corporation in the bankruptcy proceeding.
On November 30, 2001, the Corporation and U.S. Gypsum filed an Adversary
Complaint in the bankruptcy proceeding to, among other things, enjoin the Center
from drawing on the bond and enjoin Safeco from paying on the bond during the
pendency of these bankruptcy proceedings. This Adversary Proceeding is pending
in the United States Bankruptcy Court for the District of Delaware and is
captioned USG Corporation and United States Gypsum Company v. Center for Claims
Resolution, Inc. and Safeco Insurance Company of America, No. 01-08932. The
Corporation cannot predict whether or when any portion of the bond proceeds will
be paid, what amount, if any, will be paid, and whether the letter of credit
will be drawn.
Conclusion: There are many uncertainties associated with the resolution of
asbestos liability in the bankruptcy proceeding. These uncertainties include,
among others, the number of asbestos-related claims that will be filed against
the Debtors in the proceeding; the number of future claims that will be
estimated in connection with preparing a plan of reorganization; how the
Long-Term Settlements will be treated in the bankruptcy proceeding and plan of
reorganization, and whether those settlements will be set aside; how claims for
punitive damages and claims by persons with no asbestos-related physical
impairment will be treated and whether such claims will be allowed; the impact
historical settlement values for asbestos claims may have on the estimation of
asbestos liability in the bankruptcy proceeding; and the impact any relevant
potential federal legislation may have on the proceeding. The Corporation has
not revised its previously recorded reserve for asbestos liability, except by
reducing the reserve in accordance with obligations incurred prior to the
Filing. The Corporation will continue to review its asbestos liability as the
bankruptcy proceeding progresses. When a reasonable estimate can be made of the
Debtors' probable liability for asbestos claims and such estimate differs from
the existing reserve, the reserve will be adjusted to reflect the estimate, and
it is possible that a charge to results of operations will be necessary at that
time. It is possible that the Corporation's asbestos liability may vary
significantly from the recorded estimate of liability and that this difference
could be material to the results of operations in the period recorded.
ENVIRONMENTAL LITIGATION
The Corporation and certain of its subsidiaries have been notified by state and
federal environmental protection agencies of possible involvement as one of
numerous "potentially responsible parties" in a number of so-called "Superfund"
sites in the United States. In most of these sites, the involvement of the
Corporation or its subsidiaries is expected to be minimal. The Corporation
believes that appropriate reserves have been established for its potential
liability in connection with all Superfund sites but is continuing to review its
accruals as additional information becomes available. Such reserves take into
account all known or estimated costs associated with these sites, including site
investigations and feasibility costs, site cleanup and remediation, legal costs,
and fines and penalties, if any. In addition, environmental costs connected with
site cleanups on Corporation-owned property also are covered by reserves
established in accordance with the foregoing. The Corporation believes that
neither these matters nor any other known governmental proceeding regarding
environmental matters will have a material adverse effect upon its results of
operations or financial position.
48
<PAGE>
REPORT OF MANAGEMENT
Management of USG Corporation is responsible for the preparation, integrity
and fair presentation of the financial information included in this report. The
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States and necessarily include certain amounts
that are based on management's estimates and judgment.
Management is responsible for maintaining a system of internal accounting
controls to provide reasonable assurance as to the integrity and reliability of
the financial statements, the proper safeguarding and use of assets, and the
accurate execution and recording of transactions. Such controls are based on
established policies and procedures and are implemented by trained personnel.
The system of internal accounting controls is monitored by the Corporation's
internal auditors to confirm that the system is proper and operating
effectively. The Corporation's policies and procedures prescribe that the
Corporation and its subsidiaries are to maintain ethical standards and that its
business practices are to be consistent with those standards.
The Corporation's financial statements have been audited by Arthur Andersen
LLP, independent public accountants. Their audit was conducted in accordance
with auditing standards generally accepted in the United States and included
consideration of the Corporation's internal control system. Management has made
available to Arthur Andersen LLP all the Corporation's financial records and
related data, as well as minutes of the meetings of the Board of Directors.
Management believes that all representations made to Arthur Andersen LLP were
valid and appropriate.
The Board of Directors, operating through its Audit Committee composed
entirely of nonemployee directors, provides oversight to the financial reporting
process. The Audit Committee meets periodically with management, the internal
auditors and Arthur Andersen LLP, jointly and separately, to review accounting,
auditing, internal control and financial reporting matters. Both Arthur Andersen
LLP and the internal auditors have unrestricted access to the Audit Committee.
William C. Foote
Chairman, President and Chief Executive Officer
Richard H. Fleming
Executive Vice President and Chief Financial Officer
Raymond T. Belz
Senior Vice President and Controller
49
<PAGE>
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
To the Stockholders and Board of Directors of USG Corporation:
We have audited the accompanying consolidated balance sheets of USG
Corporation (a Delaware corporation) and subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of earnings, cash flows and
stockholders' equity for the years ended December 31, 2001, 2000 and 1999. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of USG
Corporation and subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for the years ended December 31, 2001,
2000 and 1999, in conformity with accounting principles generally accepted in
the United States.
The accompanying consolidated financial statements have been prepared
assuming that the Corporation will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, the Corporation voluntarily
filed for Chapter 11 bankruptcy protection on June 25, 2001. Management's plans
in regard to these matters are also described in Note 2. This action, which was
taken primarily as a result of asbestos litigation as discussed in Note 17 to
the consolidated financial statements, raises substantial doubt about the
Corporation's ability to continue as a going concern. Such doubt includes, but
is not limited to, a possible change in control of the Corporation as well as a
potential change in the composition of the Corporation's business portfolio. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Our audit was made for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. Schedule II is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the
consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 30, 2002
50
<PAGE>
USG CORPORATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<Table>
<Caption>
First Second Third Fourth Total
(millions, except per-share data) Quarter Quarter Quarter Quarter Year
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
2001
Net sales $ 826 $ 806 $ 842 $ 822 $ 3,296
Operating profit (loss) 32 (5) 49(a) 14(b) 90
Net earnings (loss) 11 (13) 27(a) (9)(b) 16
Per Common Share:
Net earnings (loss)(c) - basic 0.25 (0.29) 0.61 (0.21) 0.36
- diluted 0.25 (0.29) 0.61 (0.21) 0.36
Price range (d) - high 24.75 15.28 6.40 6.31 24.75
- low 14.51 2.80 3.66 3.60 2.80
Cash dividends paid 0.025 -- -- -- 0.025
- -------------------------------------------------------------------------------------------------------------------
2000
Net sales 989 995 956 841 3,781
Operating profit (loss) 184 165 122 (840)(e) (369)
Net earnings (loss) 106 93 65 (523)(e) (259)
Per Common Share:
Net earnings (loss)(c) - basic 2.19 2.06 1.48 (12.05) (5.62)
- diluted 2.18 2.04 1.48 (12.05) (5.62)
Price range(d) - high 48.00 45.56 33.56 25.50 48.00
- low 30.75 30.36 24.63 13.13 13.13
Cash dividends paid 0.15 0.15 0.15 0.15 0.60
- -------------------------------------------------------------------------------------------------------------------
</Table>
(a) Includes reversals of restructuring reserves of $9 million pretax ($5
million after-tax) and restructuring-related inventory reserves of $3
million pretax ($2 million after-tax).
(b) Includes charges for impairment of $30 million pretax ($25 million
after-tax) and restructuring of $12 million pretax ($10 million after-tax).
(c) The sum of the four quarters is not necessarily the same as the total for
the year.
(d) Stock price ranges are for transactions on the New York Stock Exchange
(trading symbol USG), which is the principal market for these securities.
Stockholders of record as of January 31, 2002: Common - 4,443; Preferred -
none.
(e) Includes charges for asbestos claims of $850 million pretax ($524 million
after-tax), restructuring of $50 million pretax ($31 million after-tax) and
a restructuring-related inventory writedown of $4 million pretax ($2
million after-tax).
51
<PAGE>
USG CORPORATION
FIVE-YEAR SUMMARY
<Table>
<Caption>
Years Ended December 31,
------------------------------------------------------------------
(dollars in millions, except per-share data) 2001 2000 1999 1998 1997
- -------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales $ 3,296 $ 3,781 $ 3,810 $ 3,342 $ 3,066
Cost of products sold 2,882 2,941 2,742 2,458 2,279
Selling and administrative expenses 279 309 338 299 281
Chapter 11 reorganization expenses 12 -- -- -- --
Provisions for impairment and restructuring 33 50 -- -- --
Provision for asbestos claims -- 850 -- -- --
Amortization of excess reorganization value (a) -- -- -- -- 127
Operating profit (loss) 90 (369) 730 585 379
Interest expense 33 52 53 53 60
Interest income (5) (5) (10) (5) (3)
Other expense, net 10 4 3 3 2
Income taxes (benefit) 36 (161) 263 202 172
Net earnings (loss) 16 (259) 421 332 148
Net Earnings (Loss) Per Common Share:
Basic 0.36 (5.62) 8.48 6.81 3.19
Diluted 0.36 (5.62) 8.39 6.61 3.03
- ------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (as of the end of the year):
Working capital 876 (20) 319 410 199
Current ratio 3.73 0.98 1.50 1.79 1.43
Property, plant and equipment, net 1,800 1,830 1,568 1,214 982
Total assets 3,464 3,214 2,794 2,366 1,926
Total debt(b) 1,007 711 593 596 620
Liabilities subject to compromise 2,311 -- -- -- --
Total stockholders' equity 491 464 867 518 147
- ------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION:
Capital expenditures 109 380 426 309 172
Stock price (per common share)(c) 5.72 22.50 47.13 50.94 49.00
Cash dividends paid (per common share) 0.025 0.60 0.45 0.10 --
Average number of employees 14,300 14,900 14,300 13,700 13,000
- ------------------------------------------------------------------------------------------------------------------------
</Table>
(a) Excess reorganization value was established in connection with a financial
restructuring in May 1993 and was subsequently amortized through September
30, 1997.
(b) Total debt as of December 31, 2001, includes $1,005 million of debt
classified as liabilities subject to compromise.
(c) Stock price per common share reflects the final closing price of the year.
52
<PAGE>
USG CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN MILLIONS)
<Table>
<Caption>
BEGINNING ENDING
BALANCE ADDITIONS(A) DEDUCTIONS(B) BALANCE
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 2001:
Doubtful accounts $ 14 $ 3 $ (4) $ 13
Cash discounts 4 51 (51) 4
Provisions for restructuring 34 10 (32) 12
YEAR ENDED DECEMBER 31, 2000:
Doubtful accounts 14 4 (4) 14
Cash discounts 4 57 (57) 4
Provision for restructuring -- 35 (1) 34
YEAR ENDED DECEMBER 31, 1999:
Doubtful accounts 14 4 (4) 14
Cash discounts 4 59 (59) 4
</Table>
(a) Reflects provisions charged to earnings.
(b) Reflects receivables written off as related to doubtful accounts,
discounts allowed as related to cash discounts, and payments and
reversals made against the restructuring reserve.
53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is included in the Corporation's definitive
Proxy Statement, which is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF MARCH 1, 2002)
<Table>
<Caption>
NAME, AGE AND PRESENT POSITION
PRESENT POSITION BUSINESS EXPERIENCE DURING THE LAST FIVE YEARS HELD SINCE
---------------- ---------------------------------------------- ----------------
<S> <C> <C>
William C. Foote, 50 Chairman, President and Chief Executive Officer from April 1996 August 1999
Chairman, President and Chief to June 1997; Chairman and Chief Executive Officer from June 1997
Executive Officer to August 1999.
Richard H. Fleming, 54 Senior Vice President and Chief Financial Officer to February February 1999
Executive Vice President and 1999.
Chief Financial Officer
Raymond T. Belz, 61 Vice President and Controller, USG Corporation, from January 1994 February 1999
Senior Vice President and to February 1999; Vice President Financial Operations, North
Controller American Gypsum and Worldwide Ceilings, from September 1996 to
February 1999.
Edward M. Bosowski, 47 Executive Vice President - Marketing, United States Gypsum February 2001
Senior Vice President, Corporate Company, to February 1999; President and Chief Executive Officer,
Strategy and Marketing; President, United States Gypsum Company, to November 2000; President, Growth
USG International Initiatives and International, to February 2001.
Stanley L. Ferguson, 49 Associate General Counsel to May 2000; Vice President and General May 2001
Senior Vice President and General Counsel to May 2001.
Counsel
James S. Metcalf, 44 Vice President, Sales, USG Interiors, Inc., to June 1998; Senior March 2002
Senior Vice President; President, Vice President, Sales and Marketing, USG Interiors, Inc., to
Building Systems March 1999; Executive Vice President and Chief Operating Officer,
L&W Supply Corporation, to March 2000; President and Chief Executive
Officer, L&W Supply Corporation, to March 2002.
</Table>
54
<PAGE>
<Table>
<Caption>
NAME, AGE AND PRESENT POSITION
PRESENT POSITION BUSINESS EXPERIENCE DURING THE LAST FIVE YEARS HELD SINCE
---------------- ---------------------------------------------- ----------------
<S> <C> <C>
Brian W. Burrows, 62 Same position March 1987
Vice President, Research and
Technology
Brian J. Cook, 44 Director, Human Resources Planning and Development and Corporate December 1998
Vice President, Human Resources Employee Counsel, to December 1997; Director, Human Resources -
Operations, to December 1998.
Jean K. Holley, 42 Senior Director, Information Technology, Waste Management August 1998
Vice President and Chief Corporation, to August 1998.
Information Officer
Marcia S. Kaminsky, 43 Vice President, U.S. Communications, Bank of Montreal/Harris October 1998
Vice President, Communications Bank, to January 1997; Senior Vice President, Public Affairs,
Bank of Montreal/Harris Bank, to October 1998.
Michael C. Lorimer, 62 Vice President Operations, L&W Supply Corporation, to March 2002. March 2002
Vice President; President
and Chief Operating Officer,
L&W Supply Corporation
D. Rick Lowes, 47 Vice President and Chief Financial Officer, CGC Inc., January 1999
Vice President and Treasurer to January 1999.
Peter K. Maitland, 60 Director, Employee Benefits and Office Facilities, to June 1997; February 1999
Vice President, Compensation, Director, Employee Benefits and Office Management, to February
Benefits and Administration 1999.
Clarence B. Owen, 53 Vice President Operations, USG Interiors, Inc., to June 1997; May 2001
Vice President, International and Senior Vice President, Technical Services, North American Gypsum
Technology and Worldwide Ceilings, to April 1998; President and Managing
Director, Europe, USG Interiors, Inc., to March 1999; Senior Vice
President, International, USG Interiors, Inc., to May 2001; Vice
President to May 2001.
Robert B. Sirgant, 61 Vice President, Corporate Accounts, to August 1999. August 1999
Vice President, Corporate
Customer Relations
John Eric Schaal, 58 Assistant General Counsel to August 2000; Associate February 2002
Associate General Counsel General Counsel to February 2002.
and Corporate Secretary
</Table>
55
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 11 is included in the Corporation's definitive
Proxy Statement, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 12 is included in the Corporation's definitive
Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 13 is included in the Corporation's definitive
Proxy Statement, which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. and 2. The consolidated financial statements and supplemental financial
statement schedule
See Part II, Item 8. Financial Statements and Supplementary Data for an
index of the Corporation's consolidated financial statements and supplementary
data schedule.
3. Exhibits (Reg. S-K, Item 601):
EXHIBIT
NO. PAGE
------- ----
3 Articles of incorporation and by-laws:
(a) Restated Certificate of Incorporation of USG
Corporation (incorporated by reference to Exhibit
3.1 of USG Corporation's Form 8-K, dated May 7,
1993).
(b) Certificate of Designation of Junior Participating
Preferred Stock, series D, of USG Corporation
(incorporated by reference to Exhibit A of Exhibit
4 to USG Corporation's Form 8-K dated March 27,
1998).
(c) Amended and Restated By-Laws of USG Corporation,
dated as of November 14, 2001. 63
56
<PAGE>
Instruments defining the rights of security holders,
including indentures:
(a) Indenture dated as of October 1, 1986, between USG
Corporation and National City Bank of Indiana,
successor Trustee to Bank One, which was successor
Trustee to Harris Trust and Savings Bank
(incorporated by reference to Exhibit 4(a) of USG
Corporation's Registration Statement No. 33-9294
on Form S-3, dated October 7, 1986).
(b) Rights Agreement dated March 27, 1998, between USG
Corporation and Harris Trust and Savings Bank, as
Rights Agent (incorporated by reference to Exhibit
4 of USG Corporation's Form 8-K, dated March 27,
1998).
(c) Form of Common Stock certificate (incorporated by
reference to Exhibit 4.4 to USG Corporation's Form
8-K, dated May 7, 1993).
The Corporation and certain of its consolidated
subsidiaries are parties to long-term debt
instruments under which the total amount of
securities authorized does not exceed 10% of the
total assets of the Corporation and its
subsidiaries on a consolidated basis. Pursuant to
paragraph (b)(4)(iii)(A) of Item 601 of Regulation
S-K, the Corporation agrees to furnish a copy of
such instruments to the Securities and Exchange
Commission upon request.
10 Material contracts:
(a) Management Performance Plan of USG Corporation
(incorporated by reference to Annex C of Amendment
No. 8 to USG Corporation's Registration Statement
No. 33-40136 on Form S-4, dated February 3, 1993).
(b) First Amendment to Management Performance Plan,
effective November 15, 1993, and dated February 1,
1994 (incorporated by reference to Exhibit 10(aq)
of Amendment No. 1 of USG Corporation's
Registration Statement No. 33-51845 on Form S-1).
(c) Second Amendment to Management Performance Plan,
dated June 27, 2000 (incorporated by reference to
Exhibit 10(a) of USG Corporation's Form 10-Q,
dated November 6, 2000).
(d) Amendment and Restatement of USG Corporation
Supplemental Retirement Plan, effective July 1,
1997, and dated August 25, 1997 (incorporated by
reference to Exhibit 10(c) of USG Corporation's
Annual Report on Form 10-K, dated February 20,
1998).
(e) First Amendment to Supplemental Retirement Plan,
effective July 1, 1997 (incorporated by reference
to Exhibit 10(d) of USG Corporation's Annual
Report on Form 10-K, dated February 26, 1999).
57
<PAGE>
(f) Second Amendment to Supplemental Retirement Plan,
effective November 8, 2000 (incorporated by
reference to Exhibit 10(e) of USG Corporation's
Annual Report on Form 10-K, dated March 5, 2001).
(g) Third Amendment to Supplemental Retirement Plan,
effective November 8, 2000 (incorporated by
reference to Exhibit 10(e) of USG Corporation's
Annual Report on Form 10-K, dated March 5, 2001).
(h) Fourth Amendment to Supplemental Retirement Plan
of USG Corporation, effective April 11, 2001
(incorporated by reference to Exhibit 10(a) of USG
Corporation's Form 10-Q, dated March 31, 2001).
(i) Fifth Amendment of USG Corporation Supplemental 80
Retirement Plan, effective December 21, 2001.
(j) Form of Termination Compensation Agreement dated
January 1, 2000 (incorporated by reference to
Exhibit 10(e) of USG Corporation's Annual Report
on Form 10-K, dated February 29, 2000).
(k) Form of Indemnification Agreement (incorporated by
reference to Exhibit 10(g) of Amendment No. 1 to
USG Corporation's Registration No. 33-51845 on
Form S-1).
(l) Form of Employment Agreement dated January 1, 2000
(incorporated by reference to Exhibit 10(g) of USG
Corporation's Annual Report on Form 10-K, dated
February 29, 2000).
(m) Five Year Credit Agreement dated as of June 30,
2000, among USG Corporation and the banks listed
on the signature pages thereto and The Chase
Manhattan Bank as Administrative Agent
(incorporated by reference to Exhibit 10(a) of USG
Corporation's Form 10-Q, dated August 7, 2000).
(n) 364-Day Credit Agreement dated as of June 30,
2000, among USG Corporation and the banks listed
on the signature pages thereto and The Chase
Manhattan Bank as Administrative Agent
(incorporated by reference to Exhibit 10(b) of USG
Corporation's Form 10-Q, dated August 7, 2000).
(o) 1995 Long-Term Equity Plan of USG Corporation
(incorporated by reference to Annex A to USG
Corporation's Proxy Statement and Proxy, dated
March 31, 1995).
58
<PAGE>
(p) First Amendment to 1995 Long-Term Equity Plan of
USG Corporation, dated June 27, 2000 (incorporated
by reference to Exhibit 10(b) of USG Corporation's
Form 10-Q, dated November 6, 2000).
(q) 2001 Annual Management Incentive Program - USG
Corporation. 81
(r) Omnibus Management Incentive Plan (incorporated by
reference to Annex A to USG Corporation's Proxy
Statement and Proxy, dated March 28, 1997).
(s) First Amendment to Omnibus Management Incentive
Plan, dated November 11, 1997 (incorporated by
reference to Exhibit 10(p) of USG Corporation's
Annual Report on Form 10-K, dated February 20,
1998).
(t) Second Amendment to Omnibus Management Incentive
Plan of USG Corporation, dated as of June 27, 2000
(incorporated by reference to Exhibit 10(c) of USG
Corporation's Form 10-Q, dated November 6, 2000).
(u) Amended and Restated Stock Compensation Program
for Non-Employee Directors of USG Corporation,
dated July 1, 1997 (incorporated by reference to
Exhibit 10(q) of USG Corporation's Annual Report
on Form 10-K, dated February 20, 1998).
(v) Key Employee Retention Plan, dated May 16,
2001, as amended September 20, 2001. 90
(w) Senior Executive Severance Plan, dated May 16,
2001, as amended September 20, 2001. 93
(x) Revolving Credit and Guaranty Agreement, dated as
of June 25, 2001, among USG Corporation and
certain of its subsidiaries, as debtors, USG
Foreign Investments, Ltd., as guarantor, and The
Chase Manhattan Bank, as agent and lender, and the
other lenders named therein. 98
(y) First Amendment to Revolving Credit and Guaranty
Agreement, dated August 2, 2001. 185
(z) Second Amendment to Revolving Credit and Guaranty
Agreement, dated August 24, 2001. 212
(aa) Third Amendment to Revolving Credit and Guaranty
Agreement, dated December 10, 2001. 221
59
<PAGE>
(ab) Security and Pledge Agreement, dated June 25,
2001, among USG Corporation and each of its direct
and indirect subsidiaries party to the Credit
Agreement, other than USG Foreign Investments,
Ltd., and The Chase Manhattan Bank. 229
(ac) Second Amendment of USG Corporation Retirement
Plan, dated December 21, 2001. 254
21 Subsidiaries 255
23 Consents of Experts and Counsel 256
24 Power of Attorney 257
(b) Reports on Form 8-K:
None.
60
<PAGE>
INDEX TO EXHIBITS FILED
WITH THE ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
EXHIBIT PAGE
- ------- ----
<S> <C> <C>
3(c) Amended and Restated By-Laws of USG Corporation 63
10(i) Fifth Amendment of USG Corporation Supplemental Retirement Plan 80
10(q) 2001 Annual Management Incentive Program - USG Corporation 81
10(v) Key Employee Retention Plan 90
10(w) Senior Executive Severance Plan 93
10(x) Revolving Credit and Guaranty Agreement 98
10(y) First Amendment to Revolving Credit and Guaranty Agreement 185
10(z) Second Amendment to Revolving Credit and Guaranty Agreement 212
10(aa) Third Amendment to Revolving Credit and Guaranty Agreement 221
10(ab) Security and Pledge Agreement 229
10(ac) Second Amendment of USG Corporation Retirement Plan 254
21 Subsidiaries 255
23 Consent of Experts and Counsel 256
24 Power of Attorney 257
</Table>
If you wish to receive a copy of any exhibit, it may be obtained, upon payment
of reasonable expenses, by writing to:
J. Eric Schaal
Associate General Counsel and Corporate Secretary
USG Corporation
P.O. Box 6721
Chicago, IL 60680-6721
61
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
USG CORPORATION
March 1, 2002
By: /s/ Richard H. Fleming
----------------------------
Richard H. Fleming
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ William C. Foote March 1, 2002
- -----------------------------------------------
WILLIAM C. FOOTE
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Richard H. Fleming March 1, 2002
- -----------------------------------------------
RICHARD H. FLEMING
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Raymond T. Belz March 1, 2002
- -----------------------------------------------
RAYMOND T. BELZ
Senior Vice President and Controller
(Principal Accounting Officer)
ROBERT L. BARNETT, KEITH A. BROWN, ) By: /s/ Richard H. Fleming
JAMES C. COTTING, LAWRENCE M. CRUTCHER, ) -----------------------------
W. DOUGLAS FORD, DAVID W. FOX, ) Richard H. Fleming
VALERIE B. JARRETT, MARVIN E. LESSER, ) Attorney-in-fact
JOHN B. SCHWEMM, JUDITH A. SPRIESER ) Pursuant to Power of Attorney
Directors ) (Exhibit 24 hereto)
) March 1, 2002
62
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.(C)
<SEQUENCE>3
<FILENAME>c67704ex3-c.txt
<DESCRIPTION>AMENDED & RESTATED BY-LAWS
<TEXT>
<PAGE>
EXHIBIT 3(c)
AMENDED AND RESTATED BY-LAWS OF USG CORPORATION
BY-LAWS
OF
USG CORPORATION
(DELAWARE)
AS OF NOVEMBER 14, 2001
63
<PAGE>
BY-LAWS
OF
USG CORPORATION
ARTICLE I
OFFICES
The principal office of the corporation in the State of Delaware shall
be in the City of Wilmington, County of New Castle. The corporation may have
such other offices, either within or without the State of Delaware, as the
business of the corporation may require from time to time.
ARTICLE II
STOCKHOLDERS
ANNUAL MEETING
Section 1. The date and time of the annual meetings of stockholders
shall be determined by or under the authority of the board of directors as
permitted by law for the purpose of electing directors and the transaction of
such other business as may properly come before the meeting. If the election of
directors shall not be held on the date designated for any such annual meeting
or at any adjournment thereof, the board of directors shall cause the election
to be held at a special meeting of the stockholders as soon thereafter as
conveniently may be.
SPECIAL MEETINGS
Section 2. Special meetings of the stockholders may be called at any
time by the chief executive officer of the corporation or by the corporate
secretary upon a request in writing of a majority of the board of directors.
Such request shall state the purpose or purposes of the proposed meeting.
PLACE OF MEETINGS
Section 3. All meetings of the stockholders for the election of
directors shall be held in the City of Chicago, State of Illinois, or at such
other place as may be fixed from time to time by the board of directors.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
64
<PAGE>
NOTICE OF MEETINGS
Section 4. Written notice stating the place, day and hour of the
meeting, and in the case of a special meeting the purpose or purposes for which
the meeting is called, shall be given by mail to each stockholder entitled to
vote thereat not less than ten (10) days, nor more than sixty (60) days before
the date of the meeting. Such notice, when mailed, shall be deemed to be
delivered when deposited in the United States mail in a sealed envelope
addressed to the stockholder at his address as it appears on the records of the
corporation, with postage prepaid.
QUORUM, VOTE AND PROCEDURES
Section 5. (a) The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
scheduled.
(b) When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
(c) The conduct of all meetings of the stockholders
generally shall be in accordance with customary rules of parliamentary
procedure. Subject to the requirements of Sections 11 and 12 of this Article II,
any matter to be presented for consideration and with a view to obtaining a vote
thereon at any such meeting shall be introduced by a motion, and any such motion
shall be seconded before such consideration may begin or before any such vote
may be obtained.
ORGANIZATION OF MEETING
Section 6. The chairman of the board of directors, or in his absence
the president of the corporation, or in his absence the vice chairmen of the
corporation in the chronological order of their election to that office, or in
their absence the executive vice presidents, senior vice presidents, or vice
presidents in that order and in order of their election, shall preside as
chairman of all meetings of the stockholders. In the absence of all such
persons, the meeting shall select, by majority vote, a stockholder present at
the meeting to act as chairman. The corporate secretary of the corporation, or
in his absence an assistant secretary, shall act as secretary of all meetings of
the stockholders, and in the absence of the corporate secretary or an assistant
secretary, the chairman shall appoint some other person to act as secretary of
the meeting.
65
<PAGE>
VOTING OF STOCK
Section 7. On each matter submitted to a vote at a meeting of the
stockholders, each holder of common stock shall be entitled to one vote in
person or by proxy for each share of common stock held by the stockholder. No
proxy shall be voted after three years from its date unless otherwise provided
in the proxy, and, except where the transfer books of the corporation have been
closed or a date has been fixed as a record date for the determination of its
stockholders entitled to vote, no share of stock shall be voted at any election
for directors which has been transferred on the books of the corporation within
twenty (20) days next preceding such election of directors. In all elections for
directors each stockholder shall have the right to vote, in person or by proxy,
the number of shares owned by him for as many persons as there are directors to
be elected.
VOTING OF SHARES BY CERTAIN HOLDERS
Section 8. (a) Each share standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or proxy as the by-laws
of such corporation may prescribe or, in the absence of such by-law provisions,
as the board of directors of such corporation may determine.
(b) Shares standing in the name of a deceased person may be
voted by his administrator or executor either in person or by proxy. Persons
holding stock in a fiduciary capacity may vote the shares so held in person or
by proxy. Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
be contained in an appropriate order of the court by which such receiver was
appointed. A stockholder whose shares are pledged shall be entitled to vote such
shares in person or by proxy, unless in the transfer by the pledgor on the books
of the corporation he has expressly empowered the pledgee to vote thereon, in
which case only the pledgee or his proxy may represent the stock and vote
thereon.
(c) Shares of stock of this corporation belonging to the
corporation shall not be voted, directly or indirectly, at any meeting and shall
not be counted in determining the total number of outstanding shares at any
given time, but such shares held by the corporation in a fiduciary capacity may
be voted and shall be counted in determining the total number of outstanding
shares at any given time.
VOTING LISTS
Section 9. The officer or agent having charge of the stock ledger for
the shares of the corporation shall prepare and make, at least ten (10) days
before each meeting of the stockholders at which directors are to be elected, a
complete list of the stockholders entitled to vote at such meeting, arranged in
alphabetical order with the address of and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder during ordinary business hours for a period of at least ten (10)
days prior to such meeting at the place where the meeting is to be held or at
the office of the corporation in Chicago, Illinois. Such list shall be produced
and kept at the time and place of the meeting
66
<PAGE>
during the whole time thereof and shall be subject to the inspection of any
stockholder who may be present. The original stock ledger shall be prima facie
evidence as to who are the stockholders entitled to examine such stock ledger
and to vote at any meeting of the stockholders.
CLOSING OF TRANSFER BOOKS
Section 10. The board of directors may close the stock transfer books
of the corporation for a period not exceeding sixty (60) days preceding the date
of any meeting of stockholders or the date of payment of any dividend, or the
date for the allotment of rights or the date when any change or conversion or
exchange of capital stock shall go into effect, or for a period not exceeding
sixty (60) days in connection with obtaining the consent of stockholders for any
purpose. In lieu of closing the stock transfer books as aforesaid, the board of
directors may fix in advance a date, not exceeding sixty (60) days preceding the
date of any meeting of stockholders, or the date of the payment of any dividend,
or the date for the allotment of rights, or the date when any change or
conversion or exchange of capital stock shall go into effect, or a date in
connection with obtaining such consent, as a record date for the determination
of the stockholders entitled to notice of, and to vote at, any such meeting, and
any adjournment thereof, or entitled to receive payment of any such dividend, or
to any such allotment of rights, or to exercise the rights in respect of any
such change, conversion or exchange of capital stock, or to give such consent,
and in such case such stockholders and only such stockholders as shall be
stockholders of record on the date so fixed shall be entitled to such notice of,
and to vote at, such meeting and any adjournment thereof, or to receive payment
of such dividend, or to receive such allotment of rights, or to exercise such
rights, or to give such consent, as the case may be, notwithstanding any
transfer of any stock on the books of the corporation after any such record date
fixed as aforesaid.
ADVANCE NOTICE OF NOMINATIONS
Section 11. Subject to such rights of the holders of any class or
series of preferred stock as shall be prescribed in the Restated Certificate of
Incorporation or in the resolutions of the Board of Directors providing for the
issuance of any such class or series, only persons who are nominated in
accordance with the procedures set forth in this Section 11 shall be eligible
for election as, and to serve as, directors. Nominations of persons for election
to the Board of Directors may be made at a meeting of the stockholders at which
directors are to be elected (a) by or at the direction of the Board of Directors
or (b) by any stockholder of the Corporation entitled to vote at such meeting in
the election of directors who complies with the requirements of this Section 11.
Such nominations, other than those made by or at the direction of the Board of
Directors, shall be preceded by timely advance notice in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the 60th day nor earlier than the close
of business on the 90th day prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is more than 30 days before or more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the 90th day prior to such annual
meeting and not later than the close of business on the later of the 60th day
prior to such annual meeting or the 10th day following the day on which public
67
<PAGE>
announcement of the date of such meeting is first made by the Corporation. In no
event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. A stockholder's notice to the Secretary shall set forth (x) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
number of shares of each class of capital stock of the Corporation beneficially
owned by such person, and (iv) the written consent of such person to having such
person's name placed in nomination at the meeting and to serve as a director if
elected, and (y) as to the stockholder giving the notice, (i) the name and
address, as they appear on the Corporation's books, of such stockholder, and
(ii) the number of shares of each class of voting stock of the Corporation which
are then beneficially owned by the stockholder. The presiding officer of the
meeting of stockholders shall determine whether the requirements of this Section
11 have been met with respect to any nomination or intended nomination. If the
presiding officer determines that any nomination was not made in accordance with
the requirements of this Section 11, he or she shall so declare at the meeting
and the defective nomination shall be disregarded.
ADVANCE NOTICE OF STOCKHOLDER PROPOSALS
Section 12. At an annual meeting of stockholders, only such business
shall be conducted, and only such proposals shall be acted upon, as shall have
been brought before the annual meeting (a) by or at the direction of the Board
of Directors or (b) by any stockholder of the Corporation who complies with the
requirements of this Section 12 and as shall otherwise be proper subjects for
stockholder action and shall be properly introduced at the meeting. For a
proposal to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely advance notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the 60th day nor earlier than the close
of business on the 90th day prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is more than 30 days before or more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the 90th day prior to such annual
meeting and not later than the close of business on the later of the 60th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made by the Corporation. In no
event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting (w) a description of
the proposal desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (x) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business and any other stockholders known by such stockholder to be supporting
such proposal, (y) the class and number of shares of the Corporation's stock
which are beneficially owned by the stockholder on the date of such notice and
(z) any financial interest of the stockholder in such proposal. The presiding
officer of the annual meeting shall determine whether the requirements of this
Section 12 have been met with respect to any stockholder proposal. If the
presiding officer determines that a stockholder proposal was not made in
accordance with the terms of this Section 12, he or she shall so declare at the
meeting and any such proposal shall not be acted upon at the meeting.
68
<PAGE>
At a special meeting of stockholders, only such business shall be acted
upon as shall have been set forth in the notice relating to the meeting or as
shall constitute matters incident to the conduct of the meeting as the presiding
officer of the meeting shall determine to be appropriate.
ARTICLE III
DIRECTORS
GENERAL POWERS
Section 1. The business and affairs of the corporation shall be managed
by a board of directors which may exercise all the powers of the corporation and
do all such lawful acts and things as are not by statute or by the certificate
of incorporation or by these by-laws directed and required to be exercised or
done by the stockholders.
NUMBER, CLASSES, AND QUALIFICATIONS
Section 2. The number of directors which shall constitute the whole
board shall be not less than three (3) nor more than seventeen (17) and shall be
divided into three classes, as nearly equal in number as may be. Subject to the
above limits, the number and classes of directors shall be determined from time
to time by resolution of the board of directors. At each annual meeting after
the initial classification and election of directors, directors shall be elected
to fill all seats in the class whose term expires at such annual meeting and
each director so elected shall hold office for a term expiring at the third
annual meeting of stockholders after election as director and until a successor
shall be duly elected and qualified. No non-employee director shall serve as
such beyond the first annual meeting of stockholders following that director's
70th birthday nor while such person is an owner, member, or employee of or
affiliated or associated with a professional firm or enterprise providing legal,
accounting, or auditing services or advice to the corporation or any of its
subsidiaries. A non-employee director shall report to the board or any
appropriate committee thereof any significant change in such director's
principal business, occupation, or position and shall consult with the board or
any such committee concerning the possible effect of such change on continued
service as a director. No officer-director shall serve as a director beyond the
date such person ceases to be an officer. Directors need not be stockholders.
VACANCIES
Section 3. Newly created directorships resulting from any increase in
the authorized number of directors and vacancies in the board of directors from
death, resignation, retirement, disqualification, removal from office or other
cause, shall be filled by a majority vote of the directors then in office, and
each director so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of the class to which he or she shall
have been elected expires, and until his or her successor shall be duly elected
and qualified.
69
<PAGE>
REGULAR MEETINGS
Section 4. Regular meetings of the board of directors shall be held
each year immediately after the annual meeting of stockholders and on the second
Wednesday in the months of February and November, the third Wednesday in the
month of July, and also on the fourth Friday in the months of March and
September. If the day fixed for any such regular meeting shall be a legal
holiday, the meeting scheduled for that day shall be held on the next succeeding
business day which is not a legal holiday. The date and time of any such regular
meeting may be changed as the Board of Directors may from time to time determine
by resolution.
SPECIAL MEETINGS
Section 5. Special meetings of the board of directors may be called at
any time by the chief executive officer of the corporation, or by the corporate
secretary upon the request of not less than one-third (1/3rd) of the directors
then in office.
PLACE OF MEETINGS
Section 6. All meetings of the board of directors, whether regular or
special, shall be held at the office of the corporation in Chicago, Illinois;
provided, however, that any meeting, whether regular or special, may be held at
such other place as the board of directors may from time to time determine by
resolution or as may be fixed in a notice of the meeting or as may be fixed in
any waiver of notice signed by all of the directors.
NOTICE OF MEETINGS
Section 7. No notice of the holding of any regular meeting of the board
of directors is required. Written notice of any special meeting shall be given
by mail to each director not less than five (5) days before the date of the
meeting, or by telegram, cable, telephone facsimile or electronic mail not less
than two (2) days before the date of the meeting, or by telephone not less than
twenty-four (24) hours before the time of the meeting, with confirmation of
notice by telegram, cable, telephone facsimile or electronic mail, to be sent
promptly. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, in a sealed envelope addressed to the director at his
address as it appears on the records of the corporation, with postage prepaid.
If such notice is given by telegram, cable, telephone facsimile, or electronic
mail, the same shall be deemed to be delivered when delivered to any telegraph
company with charges prepaid and addressed to the director at his address as it
appears on the records of the corporation or when placed on telephone lines for
facsimile transmittal or electronic mail to the director. Attendance of any
director at any special meeting shall constitute a waiver of notice of such
meeting except where a director attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened. Neither the business to be transacted at, nor
the purpose of any special meeting of the board of directors need be stated in
the notice or waiver of notice of such meeting.
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<PAGE>
QUORUM
Section 8. A majority of the board of directors shall constitute a
quorum for the transaction of business, but if at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time. The affirmative vote of a majority of all directors
shall be necessary for the passage of any resolution unless a greater vote is
required in these by-laws or the certificate of incorporation.
ORGANIZATION OF MEETING
Section 9. At meetings of the board of directors, the chairman of the
board, or in his absence the president, or in his absence the vice chairmen of
the corporation in the chronological order of their election to that office,
shall preside as chairman of the meeting. In the absence of all of them, the
meeting shall elect a director, present at the meeting, to act as chairman. The
corporate secretary of the corporation, or in his absence an assistant
secretary, shall act as secretary of all meetings of the board of directors and,
in the absence of all such persons, the chairman of the meeting shall appoint
some other person to act as secretary of the meeting.
COMPENSATION OF DIRECTORS
Section 10. Each director not otherwise employed by the corporation or
an affiliated corporation shall be entitled to be paid expenses, if any, of
attendance at such meetings and such remuneration as the board of directors may
from time to time determine.
ARTICLE IV
COMMITTEES OF DIRECTORS
DESIGNATION OF STANDING COMMITTEES
Section 1. The corporation shall have the following standing
committees:
(a) An Executive Committee which shall have and may exercise
all the authority of the board of directors during the intervals between
meetings of the board of directors in the management of the business and affairs
of the corporation and may authorize the seal of the corporation to be affixed
to all papers which may require it. The committee shall consist of not less than
four members of the board of directors and shall include the chairman of the
board of directors and the president and/or a vice chairman as members.
(b) A Compensation and Organization Committee which shall
have the duty to review and to make recommendations to the board of directors
with respect to management organization, succession and development programs,
the election of corporate officers and their salaries and incentive compensation
or bonus awards; to make the decisions required by a committee of the board of
directors under all stock option and restricted stock and deferred stock plans;
and to approve and report to the board of directors changes in salary ranges for
all other major position categories and changes in retirement plans, group
insurance plans, investment plans or other benefit plans and management
incentive compensation or bonus plans. The
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committee shall consist of not less than four members of the board of directors
who are not officers or employees of the corporation.
(c) An Audit Committee which shall have ongoing
responsibilities to assist the Board of Directors in monitoring the integrity of
the financial statements of the Corporation, the Corporation's compliance with
financial reporting, legal and statutory requirements, and the independence and
performance of the Corporation's internal and external auditors. The Audit
Committee additionally shall select and employ on behalf of the Corporation,
subject to ratification by the stockholders, and approve the fees of, a firm of
certified public accountants whose duty shall be to audit the books and accounts
of the Corporation and its subsidiaries and affiliates for the fiscal year for
which it is appointed, and which firm shall ultimately be accountable to the
Committee and the Board of Directors. Such Committee shall also retain special
legal, accounting or other consultants to advise it as it shall determine, and
may request any officer or employee of the Corporation or its outside counsel or
independent auditor to meet with it, individually or jointly, or any of its
consultants. The Committee periodically shall report and make appropriate
recommendations to the Board of Directors. It shall consist of not less than
three members of the Board of Directors who are not officers or employees of the
Corporation and who meet the independence, financial literacy and experience
requirements of the New York Stock Exchange and Securities and Exchange
Commission. Such members shall be appointed by the Board of Directors on the
recommendation of the Committee on Directors.
(d) A Committee on Directors which shall study and make
recommendations to the board of directors concerning the size and composition of
the board and committees of the board, recommend nominees for election or
reelection as directors, and consider other matters pertaining to board
membership such as retirement policy and compensation of non-employee directors.
The Committee shall be responsible for evaluating board performance and
reporting its findings to the board of directors and for reviewing and
recommending changes to the corporation's corporate governance guidelines.
Directors who are not officers or employees of the corporation and whose terms
continue after the next annual meeting will be designated to serve on this
committee.
(e) A Finance Committee which shall provide review and
oversight of and make recommendations to the board of directors on the
corporation's financing requirements and programs to obtain funds; relations
with banks, bondholders and other creditors, and equity holders; operating and
capital expenditure budgets; dividend policy; and acquisitions, divestitures and
significant transactions affecting the corporation's capital structure or
ownership. The Committee shall confer with the Pension and Investment Committee
established under the corporation's retirement plan and report periodically to
the board of directors on the funding of qualified pension plans of the
corporation and its subsidiaries and the investment performance of plan funds
and, on behalf of the board of directors, authorize necessary or desirable
changes in actuarial assumptions for funding the plans. The Committee shall
consider such other matters as may be referred to it from time to time by the
board of directors.
(f) A Corporate Affairs Committee which shall review and
recommend policies and programs which are important in maintaining a sound
position with those various publics whose understanding and goodwill are
necessary to the corporation's success. The committee shall report periodically
to the board of directors on the corporation's activities in fulfilling its
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<PAGE>
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
committee shall consist of not fewer than three members of the board of
directors who are not officers or employees of the corporation.
OTHER COMMITTEES OF DIRECTORS
Section 2. The board of directors may, by resolution passed by a
majority of the whole board, designate from time to time other committees of the
board of directors of such number of directors and with such powers as the board
of directors may by resolution determine.
APPOINTMENT OF COMMITTEE MEMBERS
Section 3. The board of directors at its meeting following the annual
meeting of stockholders shall designate the directors to constitute the
membership of each standing committee and the chairman thereof, and such
directors shall serve until the directors' meeting following the next annual
meeting of stockholders; provided, however, that vacancies during the year on
any standing committee shall be filled by the board of directors so that the
membership of each committee shall be filled at all times; and provided further
that in the absence or disqualification of any member of a committee, the
members of that committee present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the board of directors to act at the meeting in the place of the
absent or disqualified member.
MEETINGS QUORUM
Section 4. Meetings of each committee may be called by its chairman or
by any two members of the committee or by the chief executive officer of the
corporation or by resolution of the board of directors. Each such committee
shall fix its own rules of procedure. The presence of a majority of the members
of a committee shall be necessary to constitute a quorum for the transaction of
business, and the affirmative vote of a majority of all the members of the
committee shall be necessary for the adoption of any resolution or the taking of
any action. Each committee shall report to the board of directors all actions of
the committee at the next directors meeting following any meeting of any such
committee. Regular minutes of the proceedings of each committee shall be kept in
a book provided for that purpose.
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REMUNERATION OF COMMITTEE MEMBERS
Section 5. Members of each committee not regularly employed by the
corporation or an affiliated corporation shall be entitled to expenses, if any,
of attendance at such meetings and such remuneration as may be determined by
resolution of the board of directors.
ARTICLE V
OFFICERS
GENERAL PROVISIONS
Section 1. The officers of the corporation shall be a chairman of the
board of directors, a president, a treasurer, and a corporate secretary, and
such vice chairmen, executive vice presidents, senior vice presidents, vice
presidents, assistant treasurers, assistant secretaries or other officers as may
be elected or appointed by the board of directors. Either the chairman of the
board of directors or the president shall be the chief executive officer. Either
the president or an executive vice president shall be the chief operating
officer. The chairman of the board of directors, the president, and the vice
chairmen all shall be members of the board of directors. The officers shall have
authority and perform duties as set forth in these by-laws or as prescribed by
resolution adopted by the board of directors. The salaries and other
compensation of officers shall be fixed by the board of directors.
ELECTION
Section 2. The officers of the corporation shall be elected annually by
the board of directors at the first meeting of the board of directors held after
each annual meeting of the stockholders. If the election of officers shall not
be held at such meeting, such election shall be held as soon thereafter as
conveniently may be. Vacancies may be filled or new officers created and filled
at any meeting of the board of directors. Each officer shall hold office until
his successor shall have been elected and shall have qualified or until his
death, resignation or removal in the manner hereinafter provided, or until the
board of directors shall by resolution determine that the office shall be left
unfilled. The chairman of the board and the president shall be chosen from the
members of the board of directors.
REMOVAL
Section 3. Any officer elected by the board of directors may be removed
by the board of directors whenever in its judgment the best interests of the
corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
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<PAGE>
THE CHAIRMAN OF THE BOARD OF DIRECTORS
Section 4. The chairman of the board of directors shall have general
responsibility for the business and affairs of the corporation, subject to the
control of the board of directors. Such officer shall preside at all meetings of
the stockholders and of the board of directors of the corporation, shall have
all other responsibilities incident to the office of chairman of the board of
directors, and shall, by virtue of the office, be a member of the Executive
Committee of the board of directors. Such officer additionally may, with the
corporate secretary or an assistant secretary, sign certificates of capital
stock and other securities of the corporation.
THE PRESIDENT
Section 5. The president shall have direct and active charge of the
business and affairs of the corporation under the direction of the chairman of
the board of directors and subject to the control of the board of directors.
Such officer shall perform such other duties as may be delegated from time to
time by the board of directors or the chairman thereof and shall have all other
responsibilities incident to the office of president. Such officer additionally
may, with the corporate secretary or an assistant secretary, sign certificates
of capital stock and other securities of the corporation. In the event of the
death or disability of the chairman of the board of directors, the president
shall assume the responsibilities of chairman of the board of directors.
THE VICE CHAIRMEN
Section 6. If elected, the vice chairmen shall have the respective
responsibilities incident to any other office or title conferred on them by the
board of directors and such other responsibilities as may be assigned from time
to time by the chairman of the board of directors. In the event of the death or
disability of the chairman of the board of directors and the president, the vice
chairmen in the chronological order of their election to that office shall
assume the responsibilities of chairman of the board of directors.
THE CHIEF EXECUTIVE OFFICER AND THE CHIEF OPERATING OFFICER
Section 7. The chief executive officer shall have authority to approve
basic policies, operating plans, and annual performance goals, subject to
approval of the board of directors as required. Such officer shall assure
uniform interpretation and administration of basic policies by all members of
management and shall have responsibility for such financial, legal, and other
administrative functions directly bearing on general corporate governance as are
determined from time to time by the chairman of the board of directors, subject
to approval of the board of directors as required. The chief operating officer
shall assist the chief executive officer in formulating and implementing overall
plans. Such officer shall have such responsibilities for management of general
manufacturing, sales, product distribution, and directly related staff functions
as are determined from time to time by the chairman of the board of directors.
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<PAGE>
THE EXECUTIVE VICE PRESIDENTS, THE SENIOR VICE PRESIDENTS,
AND THE VICE PRESIDENTS
Section 8. If an executive vice president is elected and designated
chief operating officer, such executive vice president shall, in the event of
the death or disability of the president, assume the responsibilities of
president. If no executive vice president is designated chief operating officer,
then in the event of the death or disability of the president, first the
executive vice presidents, then the senior vice presidents, then the vice
presidents, each in chronological order of election, shall assume the
responsibilities of president. The executive vice presidents, the senior vice
presidents, and the vice presidents shall have such responsibilities and such
other powers as the board of directors, the chairman of the board of directors,
or the president from time to time shall prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 9. The treasurer shall have charge and custody of all funds and
securities of the corporation, shall keep full and accurate accounts of the
receipts and disbursements in books belonging to the corporation, and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be authorized from time to time by
the board of directors. Such officer shall disburse the funds of the corporation
as may be required in the conduct of the business and shall render to the chief
executive officer and the board of directors, at the regular meetings of said
board or whenever said board may require it, an account of all transactions as
treasurer and of the financial condition of the corporation. If required by the
board of directors, such officer shall give the corporation a bond in such form
and with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of the office. In general,
such officer shall have the authority to perform all acts incident to the office
of treasurer, subject to the control of the board of directors. The assistant
treasurers, in the order of their election, shall, in the event of death or
disability of the treasurer, assume the responsibilities of the treasurer and
shall perform such other duties as the board of directors or the treasurer may
from time to time prescribe or delegate.
THE CORPORATE SECRETARY AND ASSISTANT SECRETARIES
Section 10. The corporate secretary shall attend all meetings of the
board of directors and all meetings of the stockholders, record all proceedings
of the meetings of the board of directors and the stockholders in books to be
kept for those purposes and shall perform like duties for any committee of the
board of directors when requested. Such officer shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
board of directors and shall be the custodian of corporate records and the seal
of the corporation. Such officer additionally shall have authority to affix the
seal to any instrument requiring it and when so affixed, it may be attested by
signature. The assistant secretaries, in the order of their election, shall, in
the event of death or disability of the corporate secretary, assume the
responsibilities of the corporate secretary and shall perform such other duties
as the corporate secretary or the board of directors may from time to time
prescribe.
VOTING SHARES OF OTHER CORPORATIONS
Section 11. Unless otherwise ordered by the board of directors, the
chairman of the board of directors or such person as he may appoint shall have
full power and authority, on behalf of
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<PAGE>
the corporation, to attend any meetings of stockholders of any corporation in
which this corporation may hold stock and to vote the shares held by this
corporation at any such meeting, and at any such meeting to possess and exercise
any and all rights and powers incident to the ownership of such shares.
ARTICLE VI
CERTIFICATES OF STOCK - DIVIDENDS
Section 1. (a) Every holder of stock in the corporation shall be
entitled to have a certificate signed in the name of the corporation by the
chairman of the board of directors or the president and the corporate secretary
or an assistant secretary, certifying the number of shares owned by him in the
corporation. If such certificate is countersigned (1) by a transfer agent other
than the corporation or its employee, or (2) by a registrar other than the
corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, the certificate may be issued by the corporation with the same effect as
if he were such officer, transfer agent or registrar at the date of issue.
(b) All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares of the same class has been
surrendered and canceled or properly accounted for in the case of a lost
certificate.
TRANSFER OF SHARES
Section 2. Upon surrender to the corporation or transfer agent of the
corporation of a certificate of shares duly endorsed and accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
The board of directors may appoint one or more transfer agents and registrars of
transfer, and may require all stock certificates to bear the signature of a
transfer agent and of a registrar of transfers.
REGISTERED STOCKHOLDERS
Section 3. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware or elsewhere in these by-laws.
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<PAGE>
DIVIDENDS
Section 4. Dividends upon the capital stock of the corporation, subject
to the provisions, if any, of the certificate of incorporation, may be declared
by the board of directors at any regular or special meeting pursuant to law.
Dividends may be paid in cash, in property, or in shares of capital stock,
subject to the provisions of the certificate of incorporation.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation (i) shall indemnify every person who is or was a
director or officer of the corporation or is or was serving at the corporation's
request as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise; and (ii) shall, if the board of directors so
directs, indemnify any person who is or was an employee or agent of the
corporation or is or was serving at the corporation's request as an employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise to the extent, in the manner, and subject to compliance with the
applicable standards of conduct, provided by Section 145 of the General
Corporation Law of the State of Delaware as the same (or any substitute
provision therefor) may be in effect from time to time. Without limiting the
foregoing, the corporation shall indemnify, and (subject to the receipt of any
required undertaking to repay expenses) advance expenses to, every person who is
a director of the corporation to the fullest extent permitted by law.
Such indemnification (i) shall not be deemed exclusive of any other
rights to which any person seeking indemnification under or apart from this
Article VII may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and (ii) shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
ARTICLE VIII
GENERAL PROVISIONS
CHECKS
Section 1. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers, or such other person or persons, as
the board of directors may from time to time designate.
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FISCAL YEAR
Section 2. The fiscal year of the corporation shall begin on the first
day of January of each year and end at the close of the last day of December in
the same year.
SEAL
Section 3. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
WAIVER OF NOTICE
Section 4. Whenever any notice whatever is required to be given under
the provisions of the statutes or of the certificate of incorporation or of
these by-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE IX
AMENDMENTS
These by-laws may be amended or repealed (i) subject to Article TWELFTH
of the corporation's Restated Certificate of Incorporation, by the affirmative
vote of a majority of the total number of directors or (ii) by the affirmative
vote of the holders of 80% of the voting power of the corporation's stock
outstanding and entitled to vote thereon.
79
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(I)
<SEQUENCE>4
<FILENAME>c67704ex10-i.txt
<DESCRIPTION>FIFTH AMENDMENT SUPPLEMENTAL RETIREMENT PLAN
<TEXT>
<PAGE>
EXHIBIT 10(i)
FIFTH AMENDMENT
OF
USG CORPORATION SUPPLEMENTAL RETIREMENT PLAN
(As Amended and Restated Effective as of July 1, 1997)
WHEREAS, USG Corporation Supplemental Retirement Plan (the
"Plan"), established effective January 1, 1976 and amended from time to time,
was last amended and restated in its entirety effective as of July 1, 1997; and
WHEREAS, amendment of the Plan now is considered desirable;
NOW, THEREFORE, pursuant to the amending power reserved to USG
Corporation as the "Company" under Section 7 of the Plan, as amended, the Plan
be and is further amended, effective September 20, 2001, by adding the following
at the end of subsection 3.2 of the Plan:
"For purposes of determining a Participant's Part A Supplemental
Benefits and the Part A Supplemental Death Benefits payable on his
behalf, payments made under the USG Corporation Key Employee Retention
Plan shall be considered earnings at the time such payments are made
(if the Participant is then an active participant in the Retirement
Plan), not at the time the Services are performed for which payment is
received."
IN WITNESS WHEREOF, the Company has caused these presents to
be signed on its behalf by an officer thereunto duly authorized this 21st day of
December, 2001.
USG CORPORATION
By:
Its: Vice President, Compensation,
Benefits And Administration
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(Q)
<SEQUENCE>5
<FILENAME>c67704ex10-q.txt
<DESCRIPTION>2001 ANNUAL MANAGEMENT INCENTIVE PROGRAM
<TEXT>
<PAGE>
EXHIBIT 10(q)
YEAR 2001
ANNUAL
MANAGEMENT INCENTIVE
PROGRAM
USG CORPORATION
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<PAGE>
PURPOSE
To enhance USG Corporation's ability to attract, motivate, reward and retain key
employees of the Corporation and its operating subsidiaries and to align
management's interests with those of the Corporation's stockholders by providing
incentive award opportunities to managers who make a measurable contribution to
the Corporation's business objectives.
INTRODUCTION
This Annual Management Incentive Program is in effect from January 1, 2001
through December 31, 2001.
ELIGIBILITY
Individuals eligible for participation in this Program are those officers and
other key employees occupying management positions in Broadband 11 or higher.
Employees who participate in any other annual incentive program of the
Corporation or any of its subsidiaries are not eligible to participate in this
Program but could be considered for special awards.
GOALS
For the 2001 Annual Management Incentive Program, Net Earnings ,Operating Profit
and Net Debt goals for USG Corporation, Subsidiaries and Profit Centers will be
determined by the Grants and Awards Subcommittee of the Compensation and
Organization Committee of the USG Board of Directors (the "Subcommittee") after
considering recommendations submitted from USG Corporation and Operating
Subsidiaries. Goals identified in this program as "Corporate" are defined as USG
consolidated goals. Except in the case of a Named Executive Officer (as defined
in the Administrative Guidelines below), Profit Center goals may be adjusted by
the Chairman of USG Corporation if business conditions or other significant
unforeseen circumstances beyond the control of the Profit Center have a major
impact on opportunity.
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AWARD VALUES
For the Annual Management Incentive Program, position target incentive values
are based on level of accountability and are expressed as a percent of approved
annualized salary. Resulting award opportunities represent a fully competitive
incentive opportunity for 100% (target) achievement of Corporate and/or Profit
Center goals:
- --------------------------------------------------------------------------------
POSITION TARGET
INCENTIVE
Chairman, President & CEO, USG Corporation 70%
Senior Vice President, USG Corporation 50%
President North American Building Systems
Senior Vice President, USG Corporation
President, Growth Initiatives and International
Executive Vice President & Chief Financial Officer, USG Corporation
Vice President, USG Corporation;
President & CEO, L & W Supply Corporation
- --------------------------------------------------------------------------------
USG CORPORATION & OPERATING SUBSIDIARIES
OFFICERS AND MANAGERS
Senior Vice President & Chief Technology Officer 45%
Senior Vice President & Controller, USG Corporation;
And Executive Vice President Financial Operations, North
American Gypsum and Worldwide Ceilings
Vice President & General Counsel, USG Corporation
- --------------------------------------------------------------------------------
Vice President Human Resources, USG Corporation 40%
Vice President Research & Technology, USG Corporation
Vice President & Chief Information Officer, USG Corporation
Vice President Communications, USG Corporation
Vice President Corporate Customer Relations
Senior Vice President International, USG Interiors, Inc
Vice President and Treasurer, USG Corporation
- --------------------------------------------------------------------------------
USG CORPORATION, OPERATING SUBSIDIARIES & PROFIT CENTERS
OFFICERS AND MANAGERS
Position Reference Point: $164,220 and over 35%
Position Reference Point: $150,840 - $164,219 30%
Position Reference Point: $137,520 - $150,839 25%
Position Reference Point: $123,480 - $137,519 20%
Position Reference Point: $110,040 - $123,479 15%
Position Reference Point: $ 96,900 - $110,039 10%
- --------------------------------------------------------------------------------
AWARDS
Incentive awards for all participants in the 2001 Annual Management Incentive
Program will be reviewed and approved by the Subcommittee.
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For all participants, the annual incentive award opportunity is the annualized
salary in effect at the beginning of the calendar year (March 1 of the calendar
year for the seventeen most senior executives) multiplied by the applicable
position target incentive value percent.
Incentive awards for 2001 will be based on a combination of three elements
listed below:
I. CORPORATE NET EARNINGS: 80% OF INCENTIVE
Based on the Corporation's year-end financial statements. For the top
seventeen senior executives, this portion of the award is based 100% on
Corporate Net Earnings. All participants will have at least half of the
80% weighting on financial goals based on Corporate Net Earnings.
(OR)
OPERATING PROFIT:
Profit Center specific goals (net sales less cost of sales and selling
and administrative expenses) based on the Corporation's year-end
financial statements at no more than 40% of the total weighting on
financial goals, with the other 40% on Corporate Net Earnings.
NET EARNINGS and OPERATING PROFIT segment award amounts will be
determined according to the following schedule:
<Table>
<Caption>
Net Earnings/ Adjustment Factor for Corporate
Operating Profit Achievement or Profit Center Performance
<S> <C>
Below 75% 0%
75% 50%
80% 60%
90% 80%
100% 100%
110% 120%
120% 140%
140% 180%
150% 200%
</Table>
Earnings or Operating Profit Achievement results and adjustment factors
between the thresholds listed above are prorated.
Except in the case of a Named Executive Officer, other appropriate
performance measures may be assigned as approved by the Subcommittee.
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<PAGE>
II. PERSONAL PERFORMANCE: 20% OF INCENTIVE
Except with respect to the seventeen (17) most senior executives
(including the Named Executive Officers) whose awards are based solely
on achievement of Corporate Net Earnings, participants will have a
second segment comprising 20% of their incentive award based upon their
individual Personal Performance Rating according to the following
schedule:
<Table>
<Caption>
Personal Personal Performance
Performance Rating Adjustment Range
-----------------------------------------------------------------------------------------
<S> <C>
Far Exceeded Expectations 1.70 - 2.00
-----------------------------------------------------------------------------------------
Exceeded Expectations 1.20 - 1.50
-----------------------------------------------------------------------------------------
Achieved Expectations 1.00 - 1.10
-----------------------------------------------------------------------------------------
Partially Achieved Expectations 0.80 - 0.90
-----------------------------------------------------------------------------------------
Did Not Meet Expectations No Award will be paid under any
segment of this plan, including
Part B.
-----------------------------------------------------------------------------------------
</Table>
o An award must be earned in the Corporate Net Earnings segment or the
cash generation (Corporate Net Debt) segment, or both, to qualify
for an award in the Personal Performance Segment. If a participant
has financial goals split evenly between Corporate Net Earnings and
Profit Center Operating Profit, and Corporate Net Earnings does not
generate an award, and Corporate Net Debt does not generate an
award, the participant will not receive an award under the Personal
Performance segment, regardless of any award earned under the Profit
Center Operating Profit portion.
o A Personal Performance Rating of DNM (Did Not Meet Expectations)
disqualifies the participant from any portion of the award,
including Cash Generation (Corporate Net Debt).
o Each Annual Management Incentive Program participant is required to
have a personal objective on diversity. Operating unit managers
should have objectives on market share, customer satisfaction, cost
reduction, and/or volume increase, etc.
III. CASH GENERATION IS DEFINED AS CORPORATE NET DEBT: FOR EACH $1 MILLION
REDUCTION OF NET DEBT AS OF DECEMBER 31, 2001 VERSUS GOAL NET DEBT AS
OF DECEMBER 31, 2001, PARTICIPANTS WILL EARN AN ADDITIONAL .5 PERCENT
OF THEIR PAR AWARD.
Corporate Net Debt is measured as Total Debt minus cash. The Cash
Generation (Corporate Net Debt) portion of the award is in addition to
the award amount generated in Parts I and II.
For each $1 Million in reduction of actual Net Debt as of December 31,
2001 versus goal Net Debt as of December 31, 2001, participants will
earn an additional 0.5% of par. The 0.5% of par will be computed
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<PAGE>
against the actual Corporate Net Debt results rounded to the nearest
thousand dollars. The Cash Generation (Corporate Net Debt) award is not
dependent on achieving the Earnings/Operating Profit Goal. Primary
areas where participants can impact net debt include inventory
reduction, receivables collection, extension of payables and expense
reduction. The Corporate Net Debt results shall be adjusted to exclude
the difference between the goal amount and the actual amount for
capital spending and asbestos, the impact of any restructuring
activity, equity transactions, capital structure transactions, changes
in the common stock dividend and net material losses from catastrophes
or acts of God aggregating in excess of $10 million.
TOTAL PROGRAM:
o The individual maximum incentive award for all segments of this
Program is 200% of the target incentive opportunity.
o The total of all incentive awards paid under this program will not
exceed 8.0% of USG Corporation's 2001 consolidated operating profit.
In the even that awards otherwise payable pursuant to the Annual
Management Incentive Program exceed such amount, all awards will be
reduced prorata to an aggregate amount equal to 8.0%
o Target incentive award opportunities and calculations of awards for
participants will be based on the achievement of specific Corporate
Net Earnings, Group, Profit Center Operating Profit and Personal
Performance as displayed below, or as otherwise may be established
subject to approval of the Chairman:
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<PAGE>
<Table>
<Caption>
BASIS FOR FINANCIAL MEASURES BASIS FOR
INCENTIVE AWARD PERSONAL PERFORMANCE
PARTICIPANTS (80% TO 100% OF TARGET INCENTIVE) INCENTIVE AWARD
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
USG CORPORATION
- - Senior Executive Management 100% Net Earnings, USG Corporation 0%
- - USG Corporation Staff 80% Net Earnings, USG Corporation 20%
BUILDING SYSTEMS
- - Operating Companies Staff; 80% Net Earnings, USG Corporation 20%
- - General Mgr - IGD 40% Net Earnings, USG Corporation 20%
- - General Mgr - Materials Division 40% Operating profit, Profit Center
- - Profit Center Staff
- - President & General Mgr, CGC, Inc 40% Net Earnings, USG Corporation 20%
40% Operating profit, CGC, Inc
- - President & General Mgr, YPSA 40% Net Earnings, USG Corporation 20%
40% Operating profit, YPSA
- - CGC, Inc Staff 40% Net Earnings, USG Corporation 20%
40% Operating profit, CGC, Inc
- - Customer Service Staff 80% Net Earnings, USG Corporation 20%
- - Sr VP International, USG Interiors, Inc. 50% Net Earnings, USG Corporation 0%
50% Operating Profit, USG International
- - International Operations 40% Net Earnings, USG Corporation
40% Operating Profit, USG International 20%
L&W SUPPLY CORPORATION
- - Pres & CEO, L&W Supply 100% Net Earnings, USG Corporation 0%
- - L&W Supply Corporation Staff 40% Net Earnings, USG Corporation 20%
40% Operating profit, L&W Supply
</Table>
6. SPECIAL AWARDS
In addition to the incentive opportunity provided by this Program, a
special award may be recommended for any participant or
non-participant, other than a Named Executive Officer, who has made an
extraordinary contribution to the Corporation's welfare or earnings.
GENERAL PROVISIONS
1. The Subcommittee shall review and approve the awards recommended for
officers and other employees who are eligible participants in the 2001
Annual Management Incentive Program. The Subcommittee shall submit to
the Board of Directors, for their ratification, a report of the awards
for all eligible participants including corporate officers approved by
the Subcommittee in accordance with the provisions of the Program.
2. The Subcommittee shall have full power to make the rules and
regulations with respect to the determination of achievement of goals
and the distribution of awards. No awards will be made until the
Subcommittee has certified financial achievements and applicable awards
in writing.
87
<PAGE>
3. The judgement of the Subcommittee in construing this Program or any
provisions thereof, or in making any decision hereunder, shall be final
and conclusive and binding upon all employees of the Corporation and
its subsidiaries whether or not selected as beneficiaries hereunder,
and their heirs, executors, personal representatives and assigns.
4. Nothing herein contained shall limit or affect in any manner or degree
the normal and usual powers of management, exercised by the officers
and the Board of Directors or committees thereof, to change the duties
or the character of employment of any employee of the Corporation or to
remove the individual from the employment of the Corporation at any
time, all of which rights and powers are expressly reserved.
5. No award will be paid to a Program participant who is not a regular
full-time employee in good standing at the end of the calendar year to
which the award applies. Part time employees may be eligible for the
program upon approval by the Vice President Human Resources, provided
that employee is at a salary band level that qualifies and is in good
standing at the end of the calendar year to which the award applies. An
award which would otherwise be payable based on goal achievement may be
recommended in the event of retirement, disability, death or approved
unpaid leave, prorated for the number of months paid during the year.
An award may also be recommended in the event a participant is
discharged without cause from the employment of the company during the
year.
6. The awards made to employees shall become a liability of the
Corporation or the appropriate subsidiary as of December 31, 2001 and
all payments to be made hereunder will be made as soon as practicable
after said awards have been approved.
ADMINISTRATIVE GUIDELINES
1. Award values will be based on annualized salary in effect for each
qualifying participant at the beginning of the year (March 1 for the
seventeen most senior executives). Any change in duties, dimensions or
responsibilities of a current position resulting in an increase or
decrease in salary range reference point or market rate will result in
pro-rata incentive award. Respective reference points, target incentive
values or goals will be applied based on the actual number of full
months of service at each position. This does not apply to a Named
Executive Officer, in which case any change in reference points, target
incentive values or goals, for any reason, shall not become effective
until January 1 of the following year.
88
<PAGE>
2. As provided by the Program, no award is to be paid any participant who
is not a regular full-time employee, (or an approved part time
employee) in good standing at the end of the calendar year to which the
award applies. However, in the event an eligible participant with three
(3) or more months of active service in the Program year subsequently
retires, becomes disabled or dies, or is discharged from the employment
of the Company without cause, the participant (or beneficiary) may
receive an award which would otherwise be payable based on goal
achievement, prorated for the actual months of active service during
the year.
3. Employees participating in any other incentive or bonus program of the
parent Corporation or a Subsidiary who are transferred during the year
to a position covered by the Annual Management Incentive Program (other
than a Named Executive Officer) will be eligible to receive a potential
award prorated for actual full months of service in the two positions
with the respective incentive program and target incentive values to
apply. For example, a Marketing Manager promoted to Director, Marketing
on August 1, will be eligible to receive a prorata award for seven
months based on the Marketing Manager Plan provisions and values, and
for five months under the Annual Management Incentive Program
provisions and target incentive values.
4. In the event of transfer of an employee (other than a Named Executive
Officer) from an assignment which does not qualify for participation in
any incentive or bonus plan to a position covered by the Annual
Management Incentive Program, the employee is eligible to participate
in the Annual Management Incentive Program with any potential award
prorated for the actual months of service in the position covered by
the Program during the year. A minimum of three months of service in
the eligible position is required.
5. Participation during the current Program year for individuals employed
from outside the Corporation is possible with any award to be prorated
for actual full months of service
in the eligible position. A minimum of three full months of eligible
service is required for award consideration.
6. Exceptions to established administrative guidelines can only be made by
the Subcommittee and only with respect to participants other than Named
Executive Officers.
7. For purposes of this Program, a "NAMED EXECUTIVE OFFICER" will include
any executive officer who is deemed a "named executive officer" for
2001 under Item 402 (a)(3) of Regulation S-K under the Securities
Exchange Act of 1934 and was employed by the Corporation or a
Subsidiary on the last day of the year.
89
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(V)
<SEQUENCE>6
<FILENAME>c67704ex10-v.txt
<DESCRIPTION>KEY EMPLOYEE RETENTION PLAN
<TEXT>
<PAGE>
EXHIBIT 10(v)
USG CORPORATION
KEY EMPLOYEE RETENTION PLAN
(JULY 1, 2001 - JUNE 30, 2004)
GENERAL PROGRAM DESCRIPTION
The USG Corporation Key Employee Retention Program (KERP) provides eligible
participants with a cash payment equal to a specified percentage of their annual
Base Salary payable in semi-annual installments in return for continued
employment with USG Corporation or one of its participating subsidiaries. To be
eligible for payment of an award for any semi-annual period, the participant
must continue to be an employee in good standing (as defined below) on the last
day of the semi-annual period. The initial Plan was implemented May 16, 2001 and
will continue in effect through June 30, 2004 subject to annual approval by the
Compensation and Organization Committee of the USG Corporation Board of
Directors, or until the bankruptcy court confirms plans of reorganization for
USG Corporation and its subsidiaries, whichever comes first. USG Corporation
retains the right to propose a subsequent retention plan to begin following the
conclusion of the current KERP.
ELIGIBILITY
To be eligible for the Key Employee Retention Program, you must be employed by
USG Corporation or a participating subsidiary, and be eligible to participate in
the USG Corporation Long Term Equity Program.
AWARD AMOUNTS
Awards under the Key Employee Retention Program are computed as a percentage of
annual Base Salary in effect on the first day of the semi-annual award period.
Individual KERP award percentages and projected dollar awards are provided to
each participant in the form of a Statement of Acceptance. Salary increases or
position changes during a semi-annual period will not affect the award during
that period. Such changes will be factored into the award amount effective with
the next semi-annual award period.
90
<PAGE>
AWARD QUALIFICATION
The participant must be an "employee in good standing" of USG Corporation or one
of its participating subsidiaries throughout and including the last day of any
semi-annual period to receive that installment of the KERP award. The first
semi-annual period of the KERP ends on December 31, 2001 and the last ends on
June 30, 2004.
An "employee in good standing" means that the participant is employed by USG or
a participating subsidiary throughout and including the last day of the
semi-annual period in an eligible regular full-time or part-time position that
is not temporary and is actively fulfilling the duties of that position, is on
an approved paid leave from that position, or is on an unpaid leave protected by
statute. This does not include employees on continuing payrolls, unpaid leave
(not protected by statute), or suspension.
AWARD PAYMENT
Awards earned under the plan shall become a liability of USG Corporation or the
appropriate subsidiary as of the last day of any semi-annual period and will be
paid in the next month or as soon as practical. Awards are taxable to the
eligible participant when paid and are considered benefit eligible for the USG
Corporation Retirement Plan, the USG Corporation Investment Plan, and any
supplemental plans that complement these plans, in accordance with the
provisions of those plans.
TERMINATION BY DISABILITY, DEATH, RETIREMENT OR DISCHARGE WITHOUT CAUSE
In the event that an eligible participant in the KERP dies, becomes disabled,
retires or is discharged without cause, that participant may be recommended for
a pro rated award for the current semi-annual period based on the number of full
months worked.
ALL OTHER TERMINATIONS AND VOLUNTARY RESIGNATIONS
Participants whose employment is terminated for any reason other than those
listed above, including voluntary resignation, will not be eligible for a KERP
pro rated award payment for the semi-annual period in which they terminate
employment.
NEWLY ELIGIBLE PARTICIPANTS
Participants who become eligible for the KERP during a semi-annual period
through promotion or who are hired into a position that is eligible to
participate in the USG Corporation Long Term Equity Program may be recommended
for a pro rated award payment for that semi-annual period provided they remain
an "employee in good standing" through the last day of the period. The pro rated
award payment would be based on the number of full months
91
<PAGE>
worked. A participant must be in an eligible position for two full months to
earn a pro rated award.
SPECIAL AWARDS
In addition to the KERP award provided by this program, special awards may be
recommended for any participant (other than Officers of the Corporation) or
non-participant who has made an extraordinary contribution to USG Corporation or
its subsidiaries' welfare or earnings.
GENERAL PROVISIONS
The KERP and its provisions have been approved by the Compensation and
Organization Committee of the USG Corporation Board of Directors, subject to
annual approval by that Committee. Program eligibility, award amounts, award
payments and administrative rules are interpreted, determined and approved by
the Vice President Human Resources, USG Corporation. In the event that the
bankruptcy court confirms plans of reorganization for USG Corporation and its
subsidiaries prior to the end of the plan on June 30, 2004, a pro rata award
will be determined for the current semi-annual period and paid to participants.
In addition, for Corporation officers, a pro-rata portion of the June 30, 2004
award would be paid. For all other participants excluding those with a 30%
annual KERP award, a pro rata portion of the December 31,2002 award would be
paid if the reorganization occurs before that date. Otherwise, a pro rata
portion of the June 30, 2004 KERP award would be paid.
Nothing herein contained shall limit or affect in any manner or degree the
normal and usual powers of management, exercised by the officers and the Board
of Directors or committees thereof, to change the duties or the character of
employment of any employee or to remove the individual from the employment of
the Corporation at any time, all of which rights and powers are expressly
reserved.
92
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(W)
<SEQUENCE>7
<FILENAME>c67704ex10-w.txt
<DESCRIPTION>SENIOR EXECUTIVE SEVERANCE PLAN
<TEXT>
<PAGE>
EXHIBIT 10(w)
USG CORPORATION
SENIOR EXECUTIVE SEVERANCE PLAN
You are a key member of senior executive team of USG Corporation (hereinafter,
together with its participating subsidiaries, including in particular the
business entity which pays your salary and benefits and which will be primarily
responsible for the performance of the Corporation's obligations under this
Plan, collectively referred to as the "Corporation") The Corporation,
accordingly has an interest in creating and preserving an environment that will
permit you to give undivided attention to your duties and responsibilities. That
interest would be especially strong during the potentially distracting
circumstances created by the current business environment and asbestos
litigation.
The USG Corporation Senior Executive Severance Plan (the "Plan") addresses the
above needs. It is intended to provide you with ongoing compensation and
benefits or a lump sum payment in the event you are involuntarily terminated
between May 16, 2001 and December 31, 2004. The Plan, of course, asks something
of you as well, since in any agreement each party has to promise to do or to
give up something.
Please read the provisions of the Plan that follow. If you find them acceptable
and agree to be bound by them, please so indicate by signing the enclosed
Statement of Acceptance and returning it to the office indicated. You will not
be covered by the Plan until you have taken these steps.
You are under no obligation to participate in the Plan and should feel no
pressure to do so. The Corporation believes the Plan is in both its and your
best interests. Whether you participate, however, is ultimately your decision.
If you do elect to receive severance benefits under this Plan, you will not be
eligible to also receive severance benefits under any other USG severance plan,
employment agreement or termination compensation agreement.
93
<PAGE>
1. IMPORTANT DEFINITIONS
Under this Plan, "employment loss" means:
A. any actual termination by the Corporation of the Senior Executive's
employment between May 16, 2001 and December 31, 2004 which is not due
to voluntary resignation (except as in subsection B below), voluntary
retirement, death or disability and does not constitute termination for
"cause" (as defined below); or
B. a resignation of employment by you due to 1) any reduction in Base
Salary as in effect on May 16, 2001 or as increased thereafter; or 2)
any material reduction in title, responsibilities, or authority as in
effect on May 16, 2001.
"Employment loss" shall not include 1) termination based on "cause," which for
this Plan shall mean continued failure by the Senior Executive to substantially
perform his or her duties after a demand for substantial performance has been
delivered by the Senior Executive's manager specifically identifying the manner
in which it is believed the Senior Executive has not substantially performed his
or her duties; or 2) willful misconduct by the Senior Executive which is
materially injurious to the Corporation or any related or affiliated company.
"Base Salary - Option A" means the sum of the Senior Executive's annual salary
and the par award opportunity for the applicable fiscal year under the annual
incentive portion of the Corporation's Management Incentive Compensation Program
(or any similar annual program in which the Senior Executive then participates)
at the value in effect at the time of termination or May 16, 2001, whichever is
higher. Such sum shall be divided by fifty-two if a weekly figure is desired and
by twelve if a monthly figure is desired.
"Base Salary - Option B" means the Senior Executive's annual salary in effect at
the time of termination. It does not include the par award opportunity for the
applicable fiscal year under the annual incentive portion of the Corporation's
Management Incentive Compensation Program (or any similar annual program in
which the Senior Executive then participates). Such sum shall be divided by
fifty-two if a weekly figure is desired and by twelve if a monthly figure is
desired.
2. INITIAL ELIGIBILITY AND COMMITMENTS
All Senior Executives (as defined herein) are eligible to participate in this
Plan. A "Senior Executive" is an employee who between May 16, 2001 and December
31, 2004 has an in-force two year Employment Agreement with the Corporation or
one of its domestic subsidiaries.
Under this Plan, the Senior Executive agrees to remain in the employ of the
Corporation through the close of business on December 31, 2004, except as may be
permitted by other provisions of this Plan or any employment agreement. It is
understood that nothing in this document shall be construed as limiting the
Corporation's right to terminate employment at any time, subject only to
providing the compensation and benefits to which the Senior Executive would be
entitled under this Plan or under any employment agreement in effect at the time
of termination. Payment of compensation and benefits to which the Senior
Executive is entitled under this Plan or under any employment agreement shall
constitute the Senior
94
<PAGE>
Executive's sole remedy in the event of employment loss regardless of whether
compensation and benefits are payable under this Plan or under the provisions of
any employment agreement.
3. COMMITMENTS OF THE CORPORATION
Compensation and benefits shall become due and payable under this Plan if the
Senior Executive suffers an employment loss as defined under this plan between
May 16, 2001 and December 31, 2004 in which case the Senior Executive may elect
to receive either Option A or Option B but not both.
Option A
The Corporation shall be obligated to pay and provide the Senior Executive for
twenty-four full months the following:
- Base Salary - Option A as defined above in this Plan, plus
- Participation in all benefits to which the Senior Executive
would normally be entitled including, but not limited to, all
retirement and investment plans, all life, health and
disability insurance, and all salary continuation plans,
together with bonuses and such other grants of additional
compensation or supplemental benefits as may be granted from
time to time (subject to periodic changes in such benefits as
are applicable generally to all Senior Executives in the
plans). This participation would not include continued
participation in the Key Employee Retention Plan, the
retention of a company vehicle, computer and office equipment,
or company paid club memberships.
The Corporation also shall be obligated to pay to the Senior Executive an amount
equal to all legal fees and expenses incurred by the Senior Executive to enforce
any right or benefit under this Plan. The Corporation shall not have an
obligation to pay such amount, however, if a court has decided that there has
been no "employment loss" as defined under this plan.
Any stock option granted to the Senior Executive under any long-term equity plan
of the Corporation ("Equity Plan") but not yet exercisable, any restricted stock
granted to the Senior Executive under any Equity Plan and not yet freed of
restrictions, and any other equity awards or incentives shall be dealt with, for
time and performance vesting and all other purposes as if the Senior Executive
continued as an employee of the Corporation during the period of payments under
this Option A.
The compensation and benefits paid under this Option A shall be subject to
deductions required by law or authorized by the Senior Executive.
During the twenty four full months of payments under Option A of this Plan the
Senior Executive will not engage or participate, directly or indirectly, as a
partner, officer, director, employee, advisor, or otherwise, in any corporation,
business, or activity which competes with
95
<PAGE>
the Corporation or any of its subsidiary companies in the manufacture or sale of
any line of products in any state of the United States, any province of Canada
and any state of Mexico where the Corporation manufactures or sells its
products. Further the Senior Executive will not directly or indirectly through
another entity; induce or attempt to induce any employee of the Corporation to
leave the employ of the Corporation, or in any way interfere with the
relationship between the Corporation and any employee thereof; hire any person
who was an employee of the Corporation at any time during the Senior Executive's
period of employment with the Corporation, or induce or attempt to induce any
customer, supplier, licensee, licensor, franchisee or other business relation of
the Corporation to cease doing business with the Corporation or in any way
interfere with the relationship between any such customer, supplier, licensee,
licensor, franchisee or business relation and the Corporation, including,
without limitation, by making any negative statements or communications about
the Corporation or its products, services or business opportunities. The Senior
Executive acknowledges that the Corporation's agreement to pay the compensation
and benefits set forth in this Plan is conditioned upon the Senior Executive's
faithful performance of obligations under this paragraph. If the Senior
Executive fails to do so, the Senior Executive agrees that the Corporation will
be relieved of any obligation to make any further payments under the Plan.
Option B
The Corporation shall, within thirty days of receipt of a signed and unaltered
Agreement and General Release, be obligated to pay the Senior Executive a lump
sum equal to:
- one and one half (1.5) weeks of Base Salary - Option B as
defined above in this Plan for each full year of continuous
service with the Corporation or any of its subsidiaries at the
rate in effect immediately prior to such termination subject
to a minimum of two months Base Salary - Option B, plus
- two weeks of Base Salary - Option B at the rate in effect
immediately prior to such termination date, for each full
$15,000 of annualized Base Salary - Option B at the same rate,
plus
- a lump sum cash payment equal to the cost of continuation of
the Senior Executive's current level of medical, vision and
dental benefits for a period equal to the total number of
whole weeks provided under the preceding service and
compensation components, plus
- career counseling and job search assistance selected by and
fully paid for by the Corporation.
The benefit under Option B shall not exceed twenty-four months of Base Salary -
Option B at the rate in effect at the date of termination and of course shall be
subject to deductions required by law or authorized by the Senior Executive. The
benefit under Option B shall not include the benefits under the Key Employee
Retention Plan. No such payment under Option B of this Plan shall be considered
as pay for purposes of the USG Corporation Retirement Plan or the USG
Corporation Investment Plan.
96
<PAGE>
4. NO MITIGATION
The Senior Executive will not be required to mitigate the amount of the above
pay-out by seeking other employment or otherwise, nor shall such amount be
reduced by any compensation received from other employment. The Corporation, of
course, shall also be obligated to pay full salary through the date of
termination plus accrued unused vacation.
5. BINDING ON SUCCESSORS
The Corporation shall be obligated to require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Corporation or the
appropriate subsidiary, by a written agreement which is part of such
transaction, to assume and perform in their entirety all provisions of this
Plan.
6. CERTAIN TERMINATION PROCEDURES
Any claims of employment loss under this plan must be communicated in writing to
the Vice President Human Resources, USG Corporation within one hundred-eighty
(180) days of the employment loss and shall indicate the specific provisions of
this Plan relied on and shall set forth in reasonable detail all relevant facts
and circumstances to support a claim of employment loss under this plan.
The Senior Executive's failure to assert a claim of employment loss under this
Plan within one hundred eighty (180) days of the employment loss shall be deemed
a waiver of such claim.
7. EFFECTIVE PERIOD OF THE PLAN
This plan will be in effect from May 16, 2001 through the close of business on
December 31, 2004, at which time it shall terminate.
This Plan shall not be terminated earlier or otherwise amended without the prior
written consent of both the Senior Executive and the Corporation.
8. ADMINISTRATIVE RULES AND DETERMINATIONS
Administrative guidelines for the Senior Executive Severance Plan are developed
and administered by the Vice President - Human Resources, USG Corporation, who
shall have full power to interpret the rules and regulations and to determine
and distribute awards.
Nothing herein contained shall limit or affect in any manner or degree the
normal and usual powers of management, exercised by the officers and the Boards
of Directors or committees thereof, to change the duties or the character of
employment of any employee of the Corporation or to remove the individual from
the employment of the Corporation at any time, all of which rights and powers
are expressly reserved.
97
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(X)
<SEQUENCE>8
<FILENAME>c67704ex10-x.txt
<DESCRIPTION>REVOLVING CREDIT AND GUARANTY AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10(x)
- --------------------------------------------------------------------------------
REVOLVING CREDIT AND GUARANTY AGREEMENT
Among
USG CORPORATION AND CERTAIN OF ITS
SUBSIDIARIES, Debtors and Debtors-in-Possession under
Chapter 11 of the Bankruptcy Code
as Borrowers
and
USG FOREIGN INVESTMENTS, LTD.,
as Guarantor
and
THE LENDERS PARTY HERETO,
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
Dated as of June 25, 2001
98
<PAGE>
REVOLVING CREDIT AND GUARANTY AGREEMENT
TABLE OF CONTENTS
<Table>
<Caption>
Page No.
<S> <C>
SECTION 1. DEFINITIONS.........................................................................................104
SECTION 1.1 Defined Terms...................................................................................104
SECTION 1.2 Terms Generally.................................................................................118
SECTION 2. AMOUNT AND TERMS OF CREDIT..........................................................................118
SECTION 2.1 Commitment of the Lenders.......................................................................118
SECTION 2.2 Availability of Commitment; Borrowing Base......................................................119
SECTION 2.3 Letters of Credit...............................................................................119
SECTION 2.4 Issuance........................................................................................121
SECTION 2.5 Nature of Letter of Credit Obligations Absolute.................................................121
SECTION 2.6 Making of Loans.................................................................................122
SECTION 2.7 Repayment of Loans; Evidence of Debt............................................................123
SECTION 2.8 Interest on Loans...............................................................................123
SECTION 2.9 Default Interest................................................................................124
SECTION 2.10 Optional Termination or Reduction of Commitment................................................124
SECTION 2.11 Alternate Rate of Interest.....................................................................124
SECTION 2.12 Refinancing of Loans...........................................................................124
SECTION 2.13 Mandatory Prepayment; Commitment Termination...................................................125
SECTION 2.14 Optional Prepayment of Loans; Reimbursement of Lenders.........................................126
SECTION 2.15 Reserve Requirements; Change in Circumstances..................................................128
SECTION 2.16 Change in Legality.............................................................................129
SECTION 2.17 Pro Rata Treatment, etc........................................................................129
SECTION 2.18 Taxes..........................................................................................130
SECTION 2.19 Certain Fees...................................................................................132
SECTION 2.20 Commitment Fee.................................................................................132
SECTION 2.21 Letter of Credit Fees..........................................................................132
SECTION 2.22 Nature of Fees.................................................................................133
SECTION 2.23 Priority and Liens.............................................................................133
SECTION 2.24 Right of Set-Off...............................................................................134
SECTION 2.25 Security Interest in Letter of Credit Account..................................................135
SECTION 2.26 Payment of Obligations.........................................................................135
SECTION 2.27 No Discharge; Survival of Claims...............................................................135
SECTION 2.28 Replacement of Certain Lenders.................................................................135
SECTION 3. REPRESENTATIONS AND WARRANTIES.....................................................................136
SECTION 3.1 Organization and Authority......................................................................136
SECTION 3.2 Due Execution...................................................................................136
SECTION 3.3 Statements Made.................................................................................137
SECTION 3.4 Financial Statements............................................................................137
SECTION 3.5 Ownership.......................................................................................138
</Table>
99
<PAGE>
<Table>
<S> <C>
SECTION 3.6 Liens...........................................................................................138
SECTION 3.7 Compliance with Law.............................................................................138
SECTION 3.8 Insurance.......................................................................................138
SECTION 3.9 The Orders......................................................................................139
SECTION 3.10 Use of Proceeds................................................................................139
SECTION 3.11 Litigation.....................................................................................139
SECTION 3.12 Intellectual Property..........................................................................139
SECTION 4. CONDITIONS OF LENDING...............................................................................139
SECTION 4.1 Conditions Precedent to Initial Loan and Initial Letter of Credit...............................139
SECTION 4.2 Conditions Precedent to Each Loan and Each Letter of Credit.....................................142
SECTION 5. AFFIRMATIVE COVENANTS...............................................................................143
SECTION 5.1 Financial Statements, Reports, etc..............................................................143
SECTION 5.2 Existence.......................................................................................145
SECTION 5.3 Insurance.......................................................................................146
SECTION 5.4 Obligations and Taxes...........................................................................146
SECTION 5.5 Notice of Event of Default, etc.................................................................146
SECTION 5.6 Access to Books and Records.....................................................................146
SECTION 5.7 Maintenance of Concentration Account............................................................147
SECTION 5.8 Borrowing Base Certificate......................................................................147
SECTION 5.9 Budget..........................................................................................148
SECTION 6. NEGATIVE COVENANTS..................................................................................148
SECTION 6.1 Liens...........................................................................................148
SECTION 6.2 Merger, etc.....................................................................................148
SECTION 6.3 Indebtedness....................................................................................148
SECTION 6.4 Capital Expenditures............................................................................149
SECTION 6.5 EBITDA..........................................................................................149
SECTION 6.6 Guarantees and Other Liabilities................................................................149
SECTION 6.7 Chapter 11 Claims...............................................................................149
SECTION 6.8 Dividends; Capital Stock........................................................................149
SECTION 6.9 Transactions with Affiliates....................................................................149
SECTION 6.10 Investments, Loans and Advances................................................................150
SECTION 6.11 Disposition of Assets..........................................................................150
SECTION 6.12 Nature of Business.............................................................................150
SECTION 6.13 Transactions among Borrowers...................................................................150
SECTION 6.14 Right of Subrogation among Borrowers...........................................................150
SECTION 7. EVENTS OF DEFAULT...................................................................................150
SECTION 7.1 Events of Default...............................................................................150
</Table>
100
<PAGE>
<Table>
<S> <C>
SECTION 8. THE ADMINISTRATIVE AGENT............................................................................154
SECTION 8.1 Administration by Administrative Agent..........................................................154
SECTION 8.2 Advances and Payments...........................................................................155
SECTION 8.3 Sharing of Setoffs..............................................................................155
SECTION 8.4 Agreement of Required Lenders...................................................................155
SECTION 8.5 Liability of Administrative Agent...............................................................156
SECTION 8.6 Reimbursement and Indemnification...............................................................156
SECTION 8.7 Rights of Administrative Agent..................................................................157
SECTION 8.8 Independent Lenders.............................................................................157
SECTION 8.9 Notice of Transfer..............................................................................157
SECTION 8.10 Successor Administrative Agent.................................................................157
SECTION 9. GUARANTY............................................................................................158
SECTION 9.1 Guaranty........................................................................................158
SECTION 9.2 No Impairment of Guaranty.......................................................................159
SECTION 9.3 Subrogation.....................................................................................159
SECTION 10. MISCELLANEOUS......................................................................................159
SECTION 10.1 Notices........................................................................................159
SECTION 10.2 Survival of Agreement, Representations and Warranties, etc.....................................159
SECTION 10.3 Successors and Assigns.........................................................................160
SECTION 10.4 Confidentiality................................................................................162
SECTION 10.5 Expenses.......................................................................................162
SECTION 10.6 Indemnity......................................................................................163
SECTION 10.7 Choice of Law..................................................................................163
SECTION 10.8 No Waiver......................................................................................163
SECTION 10.9 Extension of Maturity..........................................................................163
SECTION 10.10 Amendments, etc...............................................................................164
SECTION 10.11 Severability..................................................................................165
SECTION 10.12 Headings......................................................................................165
SECTION 10.13 Execution in Counterparts.....................................................................165
SECTION 10.14 Prior Agreements..............................................................................165
SECTION 10.15 Further Assurances............................................................................165
SECTION 10.16 Waiver of Jury Trial..........................................................................165
SECTION 10.17 Foreign Subsidiaries..........................................................................165
SECTION 10.18 Subordination of Intercompany Indebtedness....................................................166
SECTION 10.19 Certain Post Closing Matters..................................................................167
</Table>
Annex A - Commitment Amounts
Exhibit A-1 - Form of Interim Order
Exhibit A-2 - Form of Final Order
Exhibit B - Form of Security and Pledge Agreement
Exhibit C - Form of Opinion of Counsel
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Exhibit D - Form of Assignment and Acceptance
Schedule 3.5 - Subsidiaries
Schedule 3.6 - Liens
Schedule 3.12 - Intellectual Property
Schedule 6.10 - Intercompany Indebtedness
Schedule 6.13 - Borrower Transaction Restrictions
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REVOLVING CREDIT AND GUARANTY AGREEMENT
Dated as of June 25, 2001
REVOLVING CREDIT AND GUARANTY AGREEMENT, dated as of June 25, 2001,
among USG CORPORATION a Delaware corporation ("PARENT") and each of the direct
and indirect subsidiaries of the Parent party to this Agreement (each
individually a "BORROWER" and collectively the "BORROWERS"), each of which is a
debtor and debtor-in-possession in a case pending under Chapter 11 of the
Bankruptcy Code (the cases of the Borrowers, each a "CASE" and collectively, the
"CASES"), USG FOREIGN INVESTMENTS, LTD., a Delaware corporation (the
"GUARANTOR"), THE CHASE MANHATTAN BANK, a New York banking corporation
("CHASE"), and each of the other commercial banks, finance companies, insurance
companies or other financial institutions or funds from time to time party
hereto (together with Chase, the "LENDERS") and THE CHASE MANHATTAN BANK, as
agent (in such capacity, the "ADMINISTRATIVE AGENT") for the Lenders.
INTRODUCTORY STATEMENT
WHEREAS, on June 25, 2001, the Borrowers filed voluntary
petitions with the Bankruptcy Court initiating the Cases and have continued in
the possession of their assets and in the management of their businesses
pursuant to Sections 1107 and 1108 of the Bankruptcy Code; and
WHEREAS, the Borrowers have applied to the Lenders for a
revolving credit and letter of credit facility in an aggregate principal amount
not to exceed $350,000,000, all of the Borrowers' obligations under which are to
be guaranteed by the Guarantor; and
WHEREAS, the proceeds of the Loans will be used for working
capital and other general corporate purposes of the Borrowers; and
WHEREAS, to provide for the repayment of the Loans, the
reimbursement of any draft drawn under a Letter of Credit and the payment of the
other obligations of the Borrowers and the Guarantor hereunder and under the
other Loan Documents (including, without limitation, the Obligations of the
Borrowers under Section 6.3(v)), the Borrowers and the Guarantor will provide to
the Administrative Agent and the Lenders the following (each as more fully
described herein):
(a) a guaranty from the Guarantor of the due and punctual
payment and performance of the obligations of the Borrowers hereunder;
(b) an allowed Superpriority Claim;
(c) a perfected first priority Lien, pursuant to Section
364(c)(2) of the Bankruptcy Code, upon all unencumbered property of the
Borrowers and on all cash and cash equivalents in the Letter of Credit Account,
provided that following the Termination Date, amounts in the Letter of Credit
Account shall not be subject to the Carve-Out hereinafter referred to;
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(d) a perfected Lien, pursuant to Section 364(c)(3) of the
Bankruptcy Code, upon all property of the Borrowers that is subject to valid and
perfected Permitted Liens in existence on the Filing Date or that is subject to
valid Permitted Liens in existence on the Filing Date that are perfected
subsequent to the Filing Date as permitted by Section 546(b) of the Bankruptcy
Code;
(e) a perfected first priority priming Lien, pursuant to
Section 364(d)(1) of the Bankruptcy Code, upon all property of the Borrower
(including, without limitation, inventory, accounts receivable, rights under
license agreements, property, plant and equipment, interests in leaseholds, and
the capital stock of the direct and indirect Subsidiaries of the Borrowers,
limited, in the case of an entity that is a controlled foreign corporation under
Section 957 of the Code, to 66% of the voting stock of such entity) that is
subject to any existing Liens (except Permitted Liens), which first priority
priming Liens in favor of the Administrative Agent and the Lenders shall be
senior in all respects to all of such existing Liens (except Permitted Liens);
(f) in the case of the Guarantor, a perfected first priority
Lien upon all property of the Guarantor (including, without limitation,
inventory, accounts receivable, rights under license agreements, property, plant
and equipment, interests in leaseholds, and the capital stock of the direct and
indirect Subsidiaries of the Borrowers, limited, in the case of an entity that
is a controlled foreign corporation under Section 957 of the Code, to 66% of the
voting stock of such entity); and
WHEREAS, all of the claims granted hereunder in the Cases to
the Administrative Agent and the Lenders shall be subject to the Carve-Out to
the extent provided in Section 2.23.
Accordingly, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
SECTION 1.1 Defined Terms.
As used in this Agreement, the following terms shall have the
meanings specified below:
"ABR BORROWING" shall mean a Borrowing comprised of ABR Loans.
"ABR LOAN" shall mean any Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Section 2.
"ACCOUNT" shall mean any right to payment for goods sold,
regardless of how such right is evidenced and whether or not it has been earned
by performance.
"ADDITIONAL CREDIT" shall have the meaning given such term in
Section 4.2(d).
"ADJUSTED LIBOR RATE" shall mean, with respect to any
Eurodollar Borrowing for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the quotient of
(a) the LIBOR Rate in effect for such Interest Period divided
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by (b) a percentage (expressed as a decimal) equal to 100% minus Statutory
Reserves. For purposes hereof, the term "LIBOR RATE" shall mean the rate
(rounded upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits
approximately equal in principal amount to such Eurodollar Borrowing and for a
maturity comparable to such Interest Period are offered to the principal London
office of the Administrative Agent in immediately available funds in the London
interbank market at approximately 11:00 a.m., London time, two (2) Business Days
prior to the commencement of such Interest Period.
"ADMINISTRATIVE AGENT" shall have the meaning set forth in the
Introduction.
"AFFECTED LENDER" shall have the meaning given such term in
Section 2.28.
"AFFILIATE" shall mean, as to any Person, any other Person
which, directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. For purposes of this definition, a Person (a
"CONTROLLED PERSON") shall be deemed to be "controlled by" another Person (a
"CONTROLLING PERSON") if the Controlling Person possesses, directly or
indirectly, power to direct or cause the direction of the management and
policies of the Controlled Person whether by contract or otherwise.
"AGREEMENT" shall mean this Revolving Credit Agreement, as the
same may from time to time be further amended, modified or supplemented.
"ALTERNATE BASE RATE" shall mean, for any day, a rate per
annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. For purposes hereof, "PRIME RATE" shall mean the rate
of interest per annum publicly announced from time to time by the Administrative
Agent as its prime rate in effect at its principal office in New York City; each
change in the Prime Rate shall be effective on the date such change is publicly
announced. "BASE CD RATE" shall mean the sum of (a) the quotient of (i) the
Three-Month Secondary CD Rate divided by (ii) a percentage expressed as a
decimal equal to 100% minus Statutory Reserves and (b) the Assessment Rate.
"THREE-MONTH SECONDARY CD RATE" shall mean, for any day, the secondary market
rate for three-month certificates of deposit reported as being in effect on such
day (or, if such day shall not be a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on such day
or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Administrative Agent from three New York City negotiable
certificate of deposit dealers of recognized standing selected by it. "FEDERAL
FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Administrative Agent
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from three Federal funds brokers of recognized standing selected by it. If for
any reason the Administrative Agent shall have determined (which determination
shall be conclusive absent manifest error) that it is unable to ascertain the
Base CD Rate or the Federal Funds Effective Rate or both for any reason,
including the inability or failure of the Administrative Agent to obtain
sufficient quotations in accordance with the terms hereof, the Alternate Base
Rate shall be determined without regard to clause (b) or (c), or both, of the
first sentence of this definition, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate shall be effective on the effective date of such
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
"AMOUNTS" shall have the meaning given such term in Section
2.18(a).
"APPLICABLE COMMITMENT FEE PERCENTAGE" shall mean a
percentage, per annum, determined by reference to the Total Usage from time to
time as set forth below:
<Table>
<Caption>
APPLICABLE COMMITMENT FEE
TOTAL USAGE PERCENTAGE
----------- -------------------------
<S> <C>
less than $200,000,000 0.50%
greater than or equal to $200,000,000 0.375%
</Table>
The Applicable Commitment Fee Percentage shall change, as applicable, effective
on the date the Total Usage changes.
"APPLICABLE MARGIN" shall mean a percentage, per annum,
determined by reference to the Total Usage from time to time as set forth below:
<Table>
<Caption>
APPLICABLE MARGIN FOR ABR APPLICABLE MARGIN FOR EURODOLLAR
TOTAL USAGE BORROWINGS BORROWINGS
----------- ------------------------- --------------------------------
<S> <C> <C>
less than $200,000,000 0.50% 2.00%
greater than or equal to $200,000,000 1.00% 2.50%
</Table>
The Applicable Margin shall change, as applicable, including as to all
outstanding Loans and Letters of Credit, effective on the date the Total Usage
changes.
"ASSESSMENT RATE" shall mean for any date the annual rate
(rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated
by the Administrative Agent as the then current net annual assessment rate that
will be employed in determining amounts payable by the Administrative Agent to
the Federal Deposit Insurance Corporation (or any successor) for
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insurance by such Corporation (or any successor) of time deposits made in
dollars at the Administrative Agent's domestic offices.
"ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and
acceptance entered into by a Lender and an Eligible Assignee, and accepted by
the Administrative Agent, substantially in the form of Exhibit C.
"AVAILABLE COMMITMENT" shall have the meaning given such term
in Section 2.2.
"BANKRUPTCY CODE" shall mean The Bankruptcy Reform Act of
1978, as heretofore and hereafter amended, and codified as 11 U.S.C. Section 101
et seq.
"BANKRUPTCY COURT" shall mean the United States Bankruptcy
Court for the District of Delaware or any other court having jurisdiction over
the Cases from time to time.
"BOARD" shall mean the Board of Governors of the Federal
Reserve System of the United States.
"BORROWER" and "BORROWERS" shall have the respective meanings
set forth in the Introduction.
"BORROWING" shall mean the incurrence of Loans of a single
Type made from all the Lenders on a single date and having, in the case of
Eurodollar Loans, a single Interest Period (with any ABR Loan made pursuant to
Section 2.16 being considered a part of the related Borrowing of Eurodollar
Loans).
"BORROWING BASE" shall mean, on any date from and after the
expiration of the Initial Period, the amount (which may include certain
inventory and accounts receivable of the Borrowers meeting certain eligibility
standards determined by the Administrative Agent and a component (the "PP&E
COMPONENT") determined by the Administrative Agent with reference to certain
property, plant and equipment of the Borrowers) determined by the Administrative
Agent. Borrowing Base standards may be fixed and revised from time to time
solely by the Administrative Agent in the Administrative Agent's exclusive
judgment. The PP&E Component shall at no time exceed 20% of the Borrowing Base.
"BORROWING BASE CERTIFICATE" shall mean a certificate in a
form satisfactory to the Administrative Agent (with such changes therein as may
be required by the Administrative Agent from time to time to reflect the
components of and reserves against the Borrowing Base as provided for hereunder
from time to time), executed and certified by a Financial Officer of the Parent,
which shall include appropriate exhibits and schedules as referred to therein
and as provided for in Section 5.8.
"BUDGET" shall have the meaning set forth in Section 5.9.
"BUSINESS DAY" shall mean any day other than a Saturday,
Sunday or other day on which banks in the State of New York are required or
permitted to close (and, for a Letter of Credit, other than a day on which the
Fronting Bank issuing such Letter of Credit is closed); provided, however, that
when used in connection with a Eurodollar Loan, the term "Business
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Day" shall also exclude any day on which banks are not open for dealings in
dollar deposits on the London interbank market.
"CAPITAL EXPENDITURES" shall mean, for any period, the
aggregate of all expenditures (whether paid in cash and not theretofore accrued
subsequent to the date of this Agreement or accrued as liabilities during such
period and including that portion of Capitalized Leases which is capitalized on
the consolidated balance sheet of the Borrowers and their Subsidiaries) by the
Borrowers and their Subsidiaries during such period that, in conformity with
GAAP, are required to be included in or reflected by the property, plant,
equipment or intangibles or similar fixed asset accounts reflected in the
consolidated balance sheet of the Borrowers and their Subsidiaries (including
equipment which is purchased simultaneously with the trade-in of existing
equipment owned by any of the Borrowers or their Subsidiaries to the extent of
the gross amount of such purchase price less the book value of the equipment
being traded in at such time), but excluding expenditures made in connection
with the replacement or restoration of assets, to the extent reimbursed or
financed from insurance proceeds paid on account of the loss of or the damage to
the assets being replaced or restored, or from awards of compensation arising
from the taking by condemnation or eminent domain of such assets being replaced.
"CAPITALIZED LEASE" shall mean, as applied to any Person, any
lease of property by such Person as lessee which would be capitalized on a
balance sheet of such Person prepared in accordance with GAAP.
"CARVE-OUT" shall have the meaning set forth in Section 2.23.
"CASES" shall mean the Chapter 11 Cases of each of the
Borrowers pending in the Bankruptcy Court.
"CHANGE OF CONTROL" shall mean: (i) the acquisition of
ownership, directly or indirectly, beneficially or of record, by any Person or
group (within the meaning of the Securities Exchange Act of 1934 and the rules
of the Securities and Exchange Commission thereunder as in effect on the date
hereof), of shares representing more than 35% of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of Parent; or (ii)
the occupation of a majority of the seats (other than vacant seats) on the board
of directors of Parent, after the Filing Date, by Persons who were neither (A)
nominated by the board of directors of Parent nor (B) appointed by the directors
so nominated.
"CHASE" shall have the meaning set forth in the Introduction.
"CLOSING DATE" shall mean the date on which this Agreement has
been executed and the conditions precedent to the making of the initial Loans
set forth in Section 4.1 have been satisfied or waived, which date shall occur
as promptly as is practicable after the date of this Agreement, but in no event
later than ten (10) days following the entry of the Interim Order. The
Administrative Agent's execution and delivery of this Agreement shall constitute
notice to the Borrowers and the Guarantor of the satisfaction of the conditions
precedent set forth in Section 4.1 and the occurrence of the Closing Date.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
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"COLLATERAL" shall mean the Collateral described in the
Security and Pledge Agreement.
"COMMITMENT" shall mean, with respect to each Lender, the
commitment of each Lender hereunder in the amount set forth opposite its name on
Annex A hereto or as may subsequently be set forth in the Register from time to
time, as the same may be reduced from time to time pursuant to this Agreement.
"COMMITMENT FEE" shall have the meaning set forth in Section
2.20.
"COMMITMENT LETTER" shall mean that certain Commitment Letter
dated June 19, 2001 among the Administrative Agent, J. P. Morgan Securities,
Inc. and the Borrowers.
"COMMITMENT PERCENTAGE" shall mean at any time, with respect
to each Lender, the percentage obtained by dividing its Commitment at such time
by the Total Commitment at such time.
"CONSUMMATION DATE" shall mean the date of the substantial
consummation (as defined in Section 1101 of the Bankruptcy Code and which for
purposes of this Agreement shall be no later than the effective date) of a
Reorganization Plan of the Borrowers that is confirmed pursuant to an order of
the Bankruptcy Court in the Cases.
"CRITICAL VENDORS" shall mean those vendors and service
providers that provide materials, goods or services that are either actually or
practically available only from such vendor or service provider, as described in
more detail in the Motion of Debtors and Debtors in Possession for an Order
Authorizing Them to Pay Prepetition Claims of Certain Critical Vendors and
Service Providers, to be filed with the Bankruptcy Court soon after the Filing
Date.
"DOLLARS" and "$" shall mean lawful money of the United States
of America.
"DOMESTIC SUBSIDIARY" shall mean any Subsidiary incorporated,
organized or formed under the laws of any jurisdiction of the United States.
"EBITDA" shall mean, for any period, all as determined in
accordance with GAAP on a consolidated basis, the consolidated net income (or
net loss) of the Borrowers and their Subsidiaries for such period, plus (a) the
sum of (i) depreciation expense, (ii) amortization expense, (iii) net total
Federal, state, local and foreign income tax expense, (iv) gross interest
expense for such period less gross interest income for such period, (v)
extraordinary losses, (vi) any non-recurring or restructuring charges, (vii) the
cumulative effect of any change in accounting principles, (viii) "Chapter 11
expenses" (or "administrative costs reflecting Chapter 11 expenses"), including
employee retention costs as reflected on the Borrowers' and their Subsidiaries'
consolidated statement of income for such period and (ix) prepetition charges
incurred in connection with the quantification of claims with respect to
asbestos personal injury cases less (b) extraordinary gains plus or minus (c)
for any postpetition period, the amount of cash received or expended in such
period in respect of any amount which, under clause (vi) above, was taken into
account in determining EBITDA for such or any prior period, but as to net cash
expended, only to the extent such cash amount exceeds $5,000,000 per annum.
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"ELIGIBLE ASSIGNEE" shall mean (i) a commercial bank having
total assets in excess of $1,000,000,000; (ii) a finance company, insurance
company or other financial institution or fund, in each case acceptable to the
Administrative Agent, which in the ordinary course of business extends credit of
the type contemplated herein and has total assets in excess of $200,000,000 and
whose becoming an assignee would not constitute a prohibited transaction under
Section 4975 of ERISA; and (iii) any other financial institution satisfactory to
the Borrowers and the Administrative Agent.
"ENVIRONMENTAL LIEN" shall mean a Lien in favor of any
Governmental Authority for (i) any liability under federal or state
environmental laws or regulations, or (ii) damages arising from or costs
incurred by such Governmental Authority in response to a release or threatened
release of a hazardous or toxic waste, substance or constituent, or other
substance into the environment.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"ERISA AFFILIATE" shall mean any trade or business (whether or
not incorporated) which is a member of a group of which any of the Borrowers is
a member and which is under common control within the meaning of Section 414(b)
or (c) of the Code and the regulations promulgated and rulings issued
thereunder.
"EUROCURRENCY LIABILITIES" shall have the meaning assigned
thereto in Regulation D issued by the Board, as in effect from time to time.
"EURODOLLAR BORROWING" shall mean a Borrowing comprised of
Eurodollar Loans.
"EURODOLLAR LOAN" shall mean any Loan bearing interest at a
rate determined by reference to the Adjusted LIBOR Rate in accordance with the
provisions of Section 2.
"EVENT OF DEFAULT" shall have the meaning given such term in
Section 7.
"FCC" means the Federal Communications Commission or any
successor commission or agency of the United States of America having
jurisdiction over any Borrower.
"FEES" shall collectively mean the Commitment Fees, Letter of
Credit Fees and other fees referred to in Sections 2.19, 2.20 and 2.21.
"FILING DATE" shall mean June 25, 2001.
"FINAL ORDER" shall have the meaning given such term in
Section 4.2(d).
"FINANCIAL OFFICER" shall mean the Chief Financial Officer,
Vice President Finance, Vice President/Operations Controller, Corporate
Controller, Treasurer or Assistant Treasurer of a Borrower.
"FOREIGN SUBSIDIARY" shall have the meaning given such term in
Section 10.17.
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"FRONTING BANK" shall mean Chase or such other commercial bank
(which other commercial bank shall be reasonably satisfactory to the Borrowers)
as may agree with Chase to act in such capacity.
"GAAP" shall mean generally accepted accounting principles
applied in accordance with Section 1.2.
"GOVERNMENTAL AUTHORITY" shall mean any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality or any court, in each case whether of the United States or
foreign.
"GUARANTOR" shall have the meaning set forth in the
Introduction.
"INDEBTEDNESS" shall mean, at any time and with respect to any
Person, (i) all indebtedness of such Person for borrowed money, (ii) all
indebtedness of such Person for the deferred purchase price of property or
services (other than property, including inventory, and services purchased, and
expense accruals and deferred compensation items arising, in the ordinary course
of business), (iii) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments (other than performance, surety and
appeal bonds arising in the ordinary course of business), (iv) all indebtedness
of such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (v)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, to the extent required to be
so recorded, (vi) all reimbursement, payment or similar obligations of such
Person, contingent or otherwise, under acceptance, letter of credit or similar
facilities and all obligations of such Person in respect of (x) currency swap
agreements, currency future or option contracts and other similar agreements
designed to hedge against fluctuations in foreign interest rates and (y)
interest rate swap, cap or collar agreements and interest rate future or option
contracts; (vii) all Indebtedness referred to in clauses (i) through (vi) above
guaranteed directly or indirectly by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (A) to pay or
purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (B) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the holder
of such Indebtedness against loss in respect of such Indebtedness, (C) to supply
funds to or in any other manner invest in the debtor (including any agreement to
pay for property or services irrespective of whether such property is received
or such services are rendered) or (D) otherwise to assure a creditor against
loss in respect of such Indebtedness, and (viii) all Indebtedness referred to in
clauses (i) through (vii) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness.
"INDEMNIFIED PARTY" shall have the meaning given such term in
Section 10.6.
"INITIAL PERIOD" shall have the meaning given such term in
Section 2.2.
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"INSUFFICIENCY" shall mean, with respect to any Plan, the
amount, if any, of its unfunded benefit liabilities within the meaning of
Section 4001(a)(18) of ERISA.
"INTERCOMPANY INDEBTEDNESS" shall mean any claim of an
Affiliate of Parent against any other Affiliate of Parent, any claim of Parent
against any of its Affiliates, and any claim of any Affiliate of Parent against
Parent.
"INTERIM ORDER" shall have the meaning given such term in
Section 4.1(b).
"INTEREST PAYMENT DATE" shall mean (i) as to any Eurodollar
Loan, the last day of the applicable Interest Period, provided that with respect
to Interest Periods exceeding three months, interest shall be payable on the
three-month anniversary of the first day of the Interest Period and on the last
day of the Interest Period, and (ii) as to all ABR Loans, the last calendar day
of each month and the date on which any ABR Loans are refinanced with Eurodollar
Loans pursuant to Section 2.12.
"INTEREST PERIOD" shall mean, as to any Borrowing of
Eurodollar Loans, the period commencing on the date of such Borrowing (including
as a result of a refinancing of ABR Loans) or on the last day of the preceding
Interest Period applicable to such Borrowing and ending on the numerically
corresponding day (or if there is no corresponding day, the last day) in the
calendar month that is one, two, three or six months thereafter, as the
Borrowers may elect in the related notice delivered pursuant to Sections 2.6(b)
or 2.12; provided, however, that (i) if any Interest Period would end on a day
which shall not be a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless such next succeeding Business Day would fall
in the next calendar month, in which case such Interest Period shall end on the
next preceding Business Day, and (ii) no Interest Period shall end later than
the Termination Date.
"INVESTMENTS" shall have the meaning given such term in
Section 6.10.
"LENDERS" shall have the meaning set forth in the
Introduction.
"LETTER OF CREDIT" shall mean any irrevocable letter of credit
issued pursuant to Section 2.3, which letter of credit shall be (i) a standby or
import documentary letter of credit, (ii) issued for purposes that are
consistent with the ordinary course of business of the Borrowers or for such
other purposes as are reasonably acceptable to the Administrative Agent, (iii)
denominated in Dollars and (iv) otherwise in such form as may be reasonably
approved from time to time by the Administrative Agent and the applicable
Fronting Bank.
"LETTER OF CREDIT ACCOUNT" shall mean the account established
by the Borrowers under the sole and exclusive control of the Administrative
Agent maintained at the office of the Administrative Agent at 270 Park Avenue,
New York, New York 10017 designated as the "USG Corporation Letter of Credit
Account" that shall be used solely for the purposes set forth in Sections 2.3(b)
and 2.13.
"LETTER OF CREDIT FEES" shall mean the fees payable in respect
of Letters of Credit pursuant to Section 2.21.
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"LETTER OF CREDIT OUTSTANDINGS" shall mean, at any time, the
sum of (i) the aggregate undrawn stated amount of all Letters of Credit then
outstanding plus (ii) all amounts theretofore drawn under Letters of Credit and
not then reimbursed.
"LIEN" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind whatsoever (including any conditional
sale or other title retention agreement or any lease in the nature thereof).
"LOAN" and "LOANS" shall have the respective meanings given
such terms in Section 2.1.
"LOAN DOCUMENTS" shall mean this Agreement, the Letters of
Credit, the Security and Pledge Agreement and any other instrument or agreement
executed and delivered in connection herewith.
"MATURITY DATE" shall initially mean the date 36 months after
the commencement of the Cases.
"MINORITY LENDERS" shall have the meaning given such term in
Section 10.10(b).
"MULTIEMPLOYER PLAN" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA to which any Borrower or any ERISA
Affiliate is making or accruing an obligation to make contributions, or has
within any of the preceding five plan years made or accrued an obligation to
make contributions.
"MULTIPLE EMPLOYER PLAN" shall mean a Single Employer Plan,
which (i) is maintained for employees of a Borrower or an ERISA Affiliate and at
least one Person other than such Borrower and its ERISA Affiliates or (ii) was
so maintained and in respect of which a Borrower or an ERISA Affiliate could
have liability under Section 4064 or 4069 of ERISA in the event such Plan has
been or were to be terminated.
"NET PROCEEDS" shall mean, in respect of any sale of assets,
the proceeds of such sale after the payment of or reservation for expenses that
are directly related to (or the need for which arises as a result of) the
transaction of sale, including, but not limited to, related severance costs,
taxes payable, brokerage commissions, professional expenses, other similar costs
that are directly related to the sale and the amount secured by valid and
perfected Liens, if any, that are senior to the Liens on such assets held by the
Administrative Agent on behalf of the Lenders.
"OBLIGATIONS" shall mean (a) the due and punctual payment of
principal of and interest on the Loans and the reimbursement of all amounts
drawn under Letters of Credit, and (b) the due and punctual payment of the Fees
and all other present and future, fixed or contingent, monetary obligations of
the Borrowers to the Lenders and the Administrative Agent under the Loan
Documents.
"ORDERS" shall mean the Interim Order and the Final Order of
the Bankruptcy Court referred to in Sections 4.1(b) and 4.2(d).
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"ORGANIZATIONAL DOCUMENTS" shall mean (i) with respect to any
corporation, its certificate or articles of incorporation, as amended, and its
by-laws, as amended, (ii) with respect to any limited partnership, its
certificate of limited partnership or formation, as amended, and its partnership
agreement, as amended, (iii) with respect to any general partnership, its
partnership agreement, as amended, (iv) with respect to any limited liability
company, its certificate of formation or articles of organization, as amended,
and its operating agreement, as amended, and (v) with respect to any unlimited
liability company, its certificate of formation, as amended, and its memorandum
and articles of association, as amended. In the event any term or condition of
this Agreement or any other Loan Document requires any Organizational Document
to be certified by a secretary of state of similar governmental official, the
reference to any such "Organizational Document" shall only be to a document of a
type customarily certified by such governmental official.
"OTHER TAXES" shall have the meaning given such term in
Section 2.18.
"PARENT" shall mean have the meaning set forth in the
Introduction.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or
any successor agency or entity performing substantially the same functions.
"PENSION PLAN" shall mean a defined benefit pension or
retirement plan which meets and is subject to the requirements of Section 401(a)
of the Code.
"PERMITTED INVESTMENTS" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed by
the full faith and credit of the United States of America), in each case
maturing within twelve months from the date of acquisition thereof;
(b) without limiting the provisions of paragraph (d) below,
investments in commercial paper maturing within six months from the date of
acquisition thereof and having, at such date of acquisition, a rating of at
least "A-2" or the equivalent thereof from Standard & Poor's Ratings Group or of
at least "P-2" or the equivalent thereof from Moody's Investors Service, Inc.;
(c) investments in certificates of deposit, banker's
acceptances and time deposits (including Eurodollar time deposits) maturing
within six months from the date of acquisition thereof issued or guaranteed by
or placed with (i) any domestic office of the Administrative Agent or the bank
with whom the Borrowers maintain their cash management system, provided, that if
such bank is not a Lender hereunder, such bank shall have entered into an
agreement with the Administrative Agent pursuant to which such bank shall have
waived all rights of setoff and confirmed that such bank does not have, nor
shall it claim, a security interest therein or (ii) any domestic office of any
other commercial bank of recognized standing organized under the laws of the
United States of America or any State thereof that has a combined capital and
surplus and undivided profits of not less than $250,000,000 and is the principal
banking Subsidiary of a bank holding company having a long-term unsecured debt
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rating of at least "A-2" or the equivalent thereof from Standard & Poor's
Ratings Group or at least "P-2" or the equivalent thereof from Moody's Investors
Service, Inc.;
(d) investments in commercial paper maturing within six months
from the date of acquisition thereof and issued by (i) the holding company of
the Administrative Agent or (ii) the holding company of any other commercial
bank of recognized standing organized under the laws of the United States of
America or any State thereof that has (A) a combined capital and surplus in
excess of $250,000,000 and (B) commercial paper rated at least "A-2" or the
equivalent thereof from Standard & Poor's Ratings Group or of at least "P-2" or
the equivalent thereof from Moody's Investors Service, Inc.;
(e) investments in repurchase obligations with a term of not
more than seven (7) days for underlying securities of the types described in
clause (a) above entered into with any office of a bank or trust company meeting
the qualifications specified in clause (c) above;
(f) investments in money market funds substantially all the
assets of which are comprised of securities of the types described in clauses
(a) through (e) above;
(g) to the extent such stock is owned on the Filing Date,
investments in the capital stock of any direct or indirect Subsidiary of the
Borrowers; and
(h) such other investments as are permitted by the U.S.
Trustee's guidelines and approved by the Administrative Agent.
"PERMITTED LIENS" shall mean (i) Liens imposed by law (other
than Environmental Liens and any Lien imposed under ERISA) for taxes,
assessments or charges of any Governmental Authority for claims not yet due or
which are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves or other appropriate provisions are being
maintained in accordance with GAAP; (ii) Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and other Liens (other than
Environmental Liens and any Lien imposed under ERISA) in existence on the Filing
Date or thereafter imposed by law and created in the ordinary course of
business; (iii) Liens (other than any Lien imposed under ERISA) incurred or
deposits made (including, without limitation, surety bonds and appeal bonds) in
connection with workers' compensation, unemployment insurance and other types of
social security benefits or to secure the performance of tenders, bids, leases,
contracts (other than for the repayment of Indebtedness), statutory obligations
and other similar obligations incurred in the ordinary course of business or
arising as a result of progress payments under government contracts; (iv)
easements (including, without limitation, reciprocal easement agreements and
utility agreements), rights-of-way, covenants, consents, reservations,
encroachments, variations and zoning and other restrictions, charges or
encumbrances (whether or not recorded) and interest of ground lessors, which do
not interfere with the ordinary conduct of the business of any Borrower, and
which do not detract from the value of the property to which they attach or
materially impair the use thereof to any Borrower; (v) purchase money Liens
(including Capitalized Leases) upon or in any property acquired or held in the
ordinary course of business to secure the purchase price of such property or to
secure Indebtedness permitted by Section 6.3(iii) solely for the purpose of
financing the acquisition of such property; (vi) Liens consisting of letters of
credit and/or deposits with or for the benefit of energy suppliers, pipeline
companies
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and utilities made in the ordinary course of business; (vii) Liens set forth on
Schedule 3.6; and (viii) extensions, renewals or replacements, including
replacement Liens granted by the Bankruptcy Court, of any Lien referred to in
paragraphs (i) through (vi) above, provided that the principal amount of the
obligation secured thereby is not increased and that any such extension, renewal
or replacement is limited to the property originally encumbered thereby,
provided, however, that the principal amount of the obligations secured by the
Liens described in clauses (ii), (v), (vi) and (vii) above shall not exceed
$10,000,000, and all amounts in excess of $10,000,000 shall not constitute
Permitted Liens.
"PERSON" shall mean any natural person, corporation, division
of a corporation, partnership, trust, joint venture, association, company,
estate, unincorporated organization or government or any agency or political
subdivision thereof.
"PLAN" shall mean a Single Employer Plan or a Multiemployer
Plan.
"PREPAYMENT DATE" shall mean forty five (45) days after the
entry of the Interim Order by the Bankruptcy Court if the Final Order has not
been entered by the Bankruptcy Court prior to the expiration of such forty five
(45) day period.
"PRE-PETITION PAYMENT" shall mean a payment (by way of
adequate protection or otherwise) of principal or interest or otherwise on
account of any pre-petition Indebtedness or trade payables or other pre-petition
claims against the Borrowers, including, without limitation, reclamation claims,
materialmen's liens and pre-petition claims of Critical Vendors.
"REGISTER" shall have the meaning set forth in Section
10.3(d).
"REORGANIZATION PLAN" shall mean a plan of reorganization in
any of the Cases.
"REPLACEMENT LENDER" shall have the meaning given such term in
Section 2.28.
"REQUIRED LENDERS" shall mean, at any time, Lenders holding
Loans representing in excess of 50% of the aggregate principal amount of such
Loans outstanding or, if no such Loans are outstanding, Lenders having
Commitments representing in excess of 50% of the Total Commitment.
"SECURITY AND PLEDGE AGREEMENT" shall have the meaning given
such term in Section 4.1(c).
"SINGLE EMPLOYER PLAN" shall mean a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (i) is maintained for employees of
a Borrower or an ERISA Affiliate or (ii) was so maintained and in respect of
which a Borrower could have liability under Section 4069 of ERISA in the event
such Plan has been or were to be terminated.
"STATUTORY RESERVES" shall mean on any date the percentage
(expressed as a decimal) established by the Board and any other banking
authority which is (i) for purposes of the definition of Base CD Rate, the then
stated maximum rate of all reserves (including, but not limited to, any
emergency, supplemental or other marginal reserve requirement) for a member bank
of the Federal Reserve System in New York City, for new three month negotiable
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nonpersonal time deposits in dollars of $100,000 or more or (ii) for purposes of
the definition of Adjusted LIBOR Rate, the then stated maximum rate for all
reserves (including but not limited to any emergency, supplemental or other
marginal reserve requirements) applicable to any member bank of the Federal
Reserve System in respect of Eurocurrency Liabilities (or any successor category
of liabilities under Regulation D issued by the Board, as in effect from time to
time). Such reserve percentages shall include, without limitation, those imposed
pursuant to said Regulation. The Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in such percentage.
"SUBSIDIARY" shall mean, with respect to any Person (herein
referred to as the "parent"), any corporation, association or other business
entity (whether now existing or hereafter organized) of which at least a
majority of the securities or other ownership interests having ordinary voting
power for the election of directors is, at the time as of which any
determination is being made, owned or controlled by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"SUPER-MAJORITY LENDERS" shall have the meaning given such
term in Section 10.10(b).
"SUPERPRIORITY CLAIM" shall mean a claim against any Borrower
in any of the Cases which is a superpriority administrative expense claim having
priority over any or all administrative expenses of the kind specified in
Sections 503(b) or 507(b) of the Bankruptcy Code.
"TAXES" shall have the meaning given such term in Section
2.18.
"TERMINATION DATE" shall mean the earliest to occur of (i) the
Prepayment Date, (ii) the Maturity Date, (iii) the Consummation Date and (iv)
the acceleration of the Loans and the termination of the Total Commitment in
accordance with the terms hereof.
"TERMINATION EVENT" shall mean (i) a "reportable event", as
such term is described in Section 4043 of ERISA and the regulations issued
thereunder (other than a "reportable event" not subject to the provision for
30-day notice to the PBGC under Section 4043 of ERISA or such regulations) or an
event described in Section 4068 of ERISA excluding events described in Section
4043(c)(9) of ERISA or 29 CFR Sections 2615.21 or 2615.23, or (ii) the
withdrawal of any Borrower or any ERISA Affiliate from a Multiple Employer Plan
during a plan year in which it was a "substantial employer", as such term is
defined in Section 4001(c) of ERISA, or the incurrence of liability by any
Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the termination
of a Multiple Employer Plan, or (iii) providing notice of intent to terminate a
Plan pursuant to Section 4041(c) of ERISA or the treatment of a Plan amendment
as a termination under Section 4041 of ERISA, or (iv) the institution of
proceedings to terminate a Plan by the PBGC under Section 4042 of ERISA, or (v)
any other event or condition (other than the commencement of the Cases and the
failure to have made any contribution accrued as of the Filing Date but not
paid) which would reasonably be expected to constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the imposition of any liability under Title IV of ERISA
(other than for the payment of premiums to the PBGC).
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"TOTAL COMMITMENT" shall mean, at any time, the sum of the
Commitments at such time.
"TOTAL USAGE" shall mean, at any time, the sum of the
outstanding aggregate principal amount of the Loans plus the aggregate Letter of
Credit Outstandings.
"TRANSFEREE" shall have the meaning given such term in Section
2.18.
"TYPE" when used in respect of any Loan or Borrowing shall
refer to the Rate of interest by reference to which interest on such Loan or on
the Loans comprising such Borrowing is determined. For purposes hereof, "RATE"
shall mean the Adjusted LIBOR Rate and the Alternate Base Rate.
"UNUSED TOTAL COMMITMENT" shall mean, at any time, (i) the
Total Commitment less (ii) the sum of (x) the aggregate outstanding principal
amount of all Loans and (y) the aggregate Letter of Credit Outstandings.
"WITHDRAWAL LIABILITY" shall have the meaning given such term
under Part I of Subtitle E of Title IV of ERISA.
SECTION 1.2 Terms Generally. The definitions in Section 1.1 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. All references herein to Sections, Exhibits and
Schedules shall be deemed references to Sections of, and Exhibits and Schedules
to, this Agreement unless the context shall otherwise require. Except as
otherwise expressly provided herein, all terms of an accounting or financial
nature shall be construed in accordance with GAAP, as in effect from time to
time; provided, however, that for purposes of determining compliance with any
covenant set forth in Section 6, such terms shall be construed in accordance
with GAAP as in effect on the date of this Agreement applied on a basis
consistent with the application used in the Borrowers' audited financial
statements referred to in Section 3.4.
SECTION 2. AMOUNT AND TERMS OF CREDIT.
SECTION 2.1 Commitment of the Lenders.
(a) Each Lender severally and not jointly with the other
Lenders agrees, upon the terms and subject to the conditions herein set forth
(including, without limitation, the provisions of Section 2.28), to make
revolving credit loans (each a "LOAN" and collectively, the "LOANS") in U.S.
Dollars to the Borrowers at any time and from time to time during the period
commencing on the date hereof and ending on the Termination Date (or the earlier
date of termination of the Total Commitment) in an aggregate principal amount
not to exceed, when added to such Lender's Commitment Percentage of the then
aggregate Letter of Credit Outstandings (in excess of the amount of cash then
held in the Letter of Credit Account pursuant to Section 2.3(b)), the Commitment
of such Lender, which Loans may be repaid and reborrowed in accordance with the
provisions of this Agreement. At no time shall the Total Usage exceed (i) prior
to the expiration of the Initial Period, the Available Commitment, and (ii) from
and after
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the expiration of the Initial Period, the lesser of (x) the Total Commitment and
(y) the Borrowing Base.
(b) Each Borrowing shall be made by the Lenders pro rata in
accordance with their respective Commitments; provided, however, that the
failure of any Lender to make any Loan shall not in itself relieve the other
Lenders of their obligations to lend.
SECTION 2.2 Availability of Commitment; Borrowing Base.
(a) Subject to the terms and conditions hereof, from the
Filing Date until the later of: (i) the date which is 30 days after the Filing
Date, and (ii) the date of the entry of the Final Order (the "INITIAL PERIOD"),
$150,000,000 of the Total Commitment (the "AVAILABLE COMMITMENT") shall be
available to the Borrowers, for (i) working capital, (ii) other general
corporate purposes of the Borrowers, and (iii) payment of any related
transaction costs, fees and expenses.
(b) After the Initial Period, the Borrowing Base shall become
operative with respect to the availability of Loans or Letters of Credit under
the Total Commitment, provided, however, that if at the end of any final quarter
of the Borrowers EBITDA for the immediately preceding four fiscal quarters is
less than $50,000,000, availability under the Total Commitment shall thereafter
be limited to $200,000,000 until such time as EBITDA for the immediately
preceding four fiscal quarters, as tested at the end of a subsequent fiscal
quarter, is greater than or equal to $50,000,000.
(c) Notwithstanding any other provision of this Agreement to
the contrary, the Total Usage shall not at any time exceed (i) prior to the
expiration of the Initial Period, the Available Commitment, and (ii) from and
after the expiration of the Initial Period, the lesser of (x) the Total
Commitment and (y) the Borrowing Base, and no Loan shall be made or Letter of
Credit issued in violation of the foregoing.
SECTION 2.3 Letters of Credit.
(a) Upon the terms and subject to the conditions herein set
forth, the Borrowers may request a Fronting Bank, at any time and from time to
time after the date hereof and prior to the Termination Date, to issue, and,
subject to the terms and conditions contained herein, such Fronting Bank shall
issue, for the account of the Borrowers one or more Letters of Credit in support
of obligations of the Borrowers that are acceptable to the Administrative Agent,
provided that no Letter of Credit shall be issued if after giving effect to such
issuance (i) the aggregate Letter of Credit Outstandings would exceed
$100,000,000, and (ii) the Total Usage would exceed (x) prior to the expiration
of the Initial Period, the Available Commitment, and (y) from and after the
expiration of the Initial Period, the lesser of (aa) the Total Commitment and
(bb) the Borrowing Base, and, provided further that no Letter of Credit shall be
issued if the Fronting Bank shall have received notice from the Administrative
Agent or the Required Lenders that the conditions to such issuance have not been
met.
(b) No Letter of Credit shall expire later than the earlier of
(i) one year from the issuance thereof, and (ii) five (5) days before the
Maturity Date, provided that if the Termination Date shall occur prior to the
expiration of any Letter of Credit, the Borrowers shall,
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at or prior to the Termination Date, except as the Administrative Agent may
otherwise agree in writing, (i) cause all Letters of Credit which expire after
the Termination Date to be returned to the Fronting Bank undrawn and marked
"canceled" or (ii) if the Borrowers are unable to do so in whole or in part,
either (x) provide a "back-to-back" letter of credit to one or more Fronting
Banks in a form satisfactory to such Fronting Bank and the Administrative Agent
(in their sole discretion), issued by a bank satisfactory to such Fronting Bank
and the Administrative Agent (in their sole discretion), in an amount equal to
the greater of (A) an amount, as determined by the Fronting Bank and the
Administrative Agent, equal to the face amount of all outstanding Letters of
Credit plus the sum of all projected contractual obligations to the
Administrative Agent, the Fronting Bank and the Lenders of the Borrowers
thereunder through the expiration date(s) of such Letters of Credit, and (B)
105% of the then undrawn stated amount of all outstanding Letters of Credit
issued by such Fronting Banks and/or (y) deposit cash in the Letter of Credit
Account in an amount which, together with any amounts then held in the Letter of
Credit Account, is equal to the greater of (A) an amount, as determined by the
Fronting Bank and the Administrative Agent, equal to the face amount of all
outstanding Letters of Credit plus the sum of all projected contractual
obligations to the Administrative Agent, the Fronting Bank and the Lenders of
the Borrowers thereunder and (B) 105% of the then undrawn stated amount of all
Letter of Credit Outstandings as collateral security for the Borrowers'
reimbursement obligations in connection therewith, such cash to be remitted to
the Borrowers upon the expiration, cancellation or other termination or
satisfaction of such reimbursement obligations.
(c) The Borrowers shall pay to each Fronting Bank, in addition
to such other fees and charges as are specifically provided for in Section 2.21
hereof, such fees and charges in connection with the issuance and processing of
the Letters of Credit issued by such Fronting Bank as are customarily imposed by
such Fronting Bank from time to time in connection with letter of credit
transactions.
(d) Drafts drawn under each Letter of Credit shall be
reimbursed by the Borrowers in Dollars not later than the first Business Day
following the date of draw and shall bear interest from the date of draw until
the first Business Day following the date of draw at a rate per annum equal to
the Alternate Base Rate plus the Applicable Margin and thereafter until
reimbursed in full at a rate per annum equal to the Alternate Base Rate plus the
Applicable Margin plus 2% (computed on the basis of the actual number of days
elapsed over a year of 360 days). The Borrowers shall effect such reimbursement
(x) if such draw occurs prior to the Termination Date (or the earlier date of
termination of the Total Commitment), in cash or through a Borrowing without the
satisfaction of the conditions precedent set forth in Section 4.2 or (y) if such
draw occurs on or after the Termination Date (or the earlier date of termination
of the Total Commitment), in cash. Each Lender agrees to make the Loans
described in clause (x) of the preceding sentence notwithstanding a failure to
satisfy the applicable lending conditions thereto or the provisions of Sections
2.2 or 2.28.
(e) Immediately upon the issuance of any Letter of Credit by
any Fronting Bank, such Fronting Bank shall be deemed to have sold to each
Lender other than such Fronting Bank and each such other Lender shall be deemed
unconditionally and irrevocably to have purchased from such Fronting Bank,
without recourse or warranty, an undivided interest and participation, to the
extent of such Lender's Commitment Percentage, in such Letter of Credit, each
drawing thereunder and the obligations of the Borrowers under this Agreement
with respect
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thereto. Upon any change in the Commitments pursuant to Section 10.3, it is
hereby agreed that with respect to all Letter of Credit Outstandings, there
shall be an automatic adjustment to the participations hereby created to reflect
the new Commitment Percentages of the assigning and assignee Lenders. Any action
taken or omitted by a Fronting Bank under or in connection with a Letter of
Credit, if taken or omitted in the absence of gross negligence or willful
misconduct, shall not create for such Fronting Bank any resulting liability to
any other Lender.
(f) In the event that a Fronting Bank makes any payment under
any Letter of Credit and the Borrowers shall not have reimbursed such amount in
full to such Fronting Bank pursuant to this Section, the Fronting Bank shall
promptly notify the Administrative Agent, which shall promptly notify each
Lender of such failure, and each Lender shall promptly and unconditionally pay
to the Administrative Agent for the account of the Fronting Bank the amount of
such Lender's Commitment Percentage of such unreimbursed payment in Dollars and
in same day funds. If the Fronting Bank so notifies the Administrative Agent,
and the Administrative Agent so notifies the Lenders prior to 11:00 a.m. (New
York City time) on any Business Day, such Lenders shall make available to the
Fronting Bank such Lender's Commitment Percentage of the amount of such payment
on such Business Day in same day funds. If and to the extent such Lender shall
not have so made its Commitment Percentage of the amount of such payment
available to the Fronting Bank, such Lender agrees to pay to such Fronting Bank,
forthwith on demand such amount, together with interest thereon, for each day
from such date until the date such amount is paid to the Administrative Agent
for the account of such Fronting Bank at the Federal Funds Effective Rate. The
failure of any Lender to make available to the Fronting Bank its Commitment
Percentage of any payment under any Letter of Credit shall not relieve any other
Lender of its obligation hereunder to make available to the Fronting Bank its
Commitment Percentage of any payment under any Letter of Credit on the date
required, as specified above, but no Lender shall be responsible for the failure
of any other Lender to make available to such Fronting Bank such other Lender's
Commitment Percentage of any such payment. Whenever a Fronting Bank receives a
payment of a reimbursement obligation as to which it has received any payments
from the Lenders pursuant to this paragraph, such Fronting Bank shall pay to
each Lender which has paid its Commitment Percentage thereof, in Dollars and in
same day funds, an amount equal to such Lender's Commitment Percentage thereof.
SECTION 2.4 Issuance. Whenever the Borrowers desire a Fronting Bank to
issue a Letter of Credit, they shall give to such Fronting Bank and the
Administrative Agent at least two (2) Business Days' prior written (including
telegraphic, telex, facsimile or cable communication) notice (or such shorter
period as may be agreed upon by the Administrative Agent, the Borrowers and the
Fronting Bank) specifying the date on which the proposed Letter of Credit is to
be issued (which shall be a Business Day), the stated amount of the Letter of
Credit so requested, the expiration date of such Letter of Credit and the name
and address of the beneficiary thereof.
SECTION 2.5 Nature of Letter of Credit Obligations Absolute. The
obligations of the Borrowers to reimburse the Lenders for drawings made under
any Letter of Credit shall be joint and several, unconditional and irrevocable
and shall be paid strictly in accordance with the terms of this Agreement under
all circumstances, including, without limitation: (i) any lack of validity or
enforceability of any Letter of Credit; (ii) the existence of any claim, setoff,
defense or other right which any Borrower may have at any time against a
beneficiary of any Letter of Credit or
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against any of the Lenders, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction; (iii) any draft,
demand, certificate or other document presented under any Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; (iv) payment by a
Fronting Bank of any Letter of Credit against presentation of a demand, draft or
certificate or other document which does not comply with the terms of such
Letter of Credit; (v) any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or (vi) the fact that any Event of Default
shall have occurred and be continuing.
SECTION 2.6 Making of Loans.
(a) Except as contemplated by Section 2.11, Loans shall be
either ABR Loans or Eurodollar Loans as the Borrowers may request subject to and
in accordance with this Section, provided that all Loans made pursuant to the
same Borrowing shall, unless otherwise specifically provided herein, be Loans of
the same Type. Each Lender may fulfill its Commitment with respect to any
Eurodollar Loan or ABR Loan by causing any lending office of such Lender to make
such Loan; provided that any such use of a lending office shall not affect the
obligation of the Borrowers to repay such Loan in accordance with the terms of
this Agreement. Each Lender shall, subject to its overall policy considerations,
use reasonable efforts (but shall not be obligated) to select a lending office
which will not result in the payment of increased costs by the Borrowers
pursuant to Sections 2.15 or 2.18. Subject to the other provisions of this
Section and the provisions of Section 2.12, Borrowings of Loans of more than one
Type may be incurred at the same time, provided that no more than ten (10)
Borrowings of Eurodollar Loans may be outstanding at any time.
(b) The Borrowers shall give the Administrative Agent prior
written, telex, facsimile or telephonic (confirmed promptly in writing) notice
of each Borrowing hereunder of at least three (3) Business Days for Eurodollar
Loans and one (1) Business Day for ABR Loans; such notice shall be irrevocable
and shall specify the amount of the proposed Borrowing (which shall not be less
than $5,000,000 or any integral multiple of $5,000,000 in excess thereof) and
the date thereof (which shall be a Business Day) and shall contain disbursement
instructions. Such notice, to be effective, must be received by the
Administrative Agent not later than 12:00 noon, New York City time, on the third
Business Day in the case of Eurodollar Loans and the first Business Day in the
case of ABR Loans, preceding the date on which such Borrowing is to be made.
Such notice shall specify whether the Borrowing then being requested is to be a
Borrowing of ABR Loans or Eurodollar Loans. If no election is made as to the
Type of Loan, such notice shall be deemed a request for Borrowing of ABR Loans.
The Administrative Agent shall promptly notify each Lender of its proportionate
share of such Borrowing, the date of such Borrowing, the Type of Borrowing or
Loans being requested and the Interest Period or Interest Periods applicable
thereto, as appropriate. Notwithstanding the foregoing, the Borrowers may give
telephonic notice (confirmed promptly in writing) for ABR Loans in a principal
amount not to exceed $40,000,000 on the Business Day of the proposed Borrowing.
Such telephonic notice, to be effective, must be received by the Administrative
Agent not later than 11:00 a.m. on such Business Day. On the borrowing date
specified in such notice, each Lender shall make its share of the Borrowing
available at the office of the Administrative Agent at 270 Park Avenue, New
York, New York 10017, no later than 12:00 noon, New York City time, in
immediately available funds. Upon receipt of the funds made available by the
Lenders to fund any borrowing
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hereunder, the Administrative Agent shall disburse such funds in the manner
specified in the notice of borrowing delivered by the Borrowers.
SECTION 2.7 Repayment of Loans; Evidence of Debt.
(a) The Borrowers hereby jointly and severally unconditionally
promise to pay to the Administrative Agent for the account of each Lender the
then unpaid principal amount of each Loan on the Termination Date.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrowers to
such Lender resulting from each Loan made by such Lender, including the amounts
of principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which
it shall record (i) the amount of each Loan made hereunder, the Type thereof and
the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrowers to each
Lender hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrowers
to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced
by a promissory note. In such event, the Borrowers shall execute and deliver to
such Lender a promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered assigns) in a form
furnished by the Administrative Agent and reasonably acceptable to the
Borrowers. Thereafter, the Loans evidenced by such promissory note and interest
thereon shall at all times (including after assignment pursuant to Section 10.3)
be represented by one or more promissory notes in such form payable to the order
of the payee named therein (or, if such promissory note is a registered note, to
such payee and its registered assigns).
SECTION 2.8 Interest on Loans.
(a) Subject to the provisions of Section 2.9, each ABR Loan
shall bear interest (computed, for ABR Loans wherein the Alternate Base Rate is
determined by reference to the Base CD Rate or the Federal Funds Effective Rate,
on the basis of the actual number of days elapsed over a year of 360 days, and
otherwise computed on the basis of the actual number of days elapsed over a year
of 365(6) days) at a rate per annum equal to the Alternate Base Rate plus the
Applicable Margin, as adjusted from time to time.
(b) Subject to the provisions of Section 2.9, each Eurodollar
Loan shall bear interest (computed on the basis of the actual number of days
elapsed over a year of 360 days) at a
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rate per annum equal, during each Interest Period applicable thereto, to the
Adjusted LIBOR Rate for such Interest Period in effect for such Borrowing plus
the Applicable Margin, as adjusted from time to time.
(c) Accrued interest on all Loans shall be payable in arrears
on each Interest Payment Date applicable thereto, at maturity (whether by
acceleration or otherwise), after such maturity on demand and (with respect to
Eurodollar Loans) upon any repayment or prepayment thereof (on the amount
prepaid).
SECTION 2.9 Default Interest. If any Borrower shall default in the
payment of the principal of or interest on any Loan or in the payment of any
other amount becoming due hereunder (including, without limitation, the
reimbursement pursuant to Section 2.3(d) of any draft drawn under a Letter of
Credit), whether at stated maturity, by acceleration or otherwise, such Borrower
shall on demand from time to time pay interest, to the extent permitted by law,
on such defaulted amount up to (but not including) the date of actual payment
(after as well as before judgment) at a rate per annum (computed on the basis of
the actual number of days elapsed over a year of 360 or 365/6 days, as the case
may be) equal to 2% above the then applicable rate.
SECTION 2.10 Optional Termination or Reduction of Commitment. Upon at
least two (2) Business Days' prior written notice to the Administrative Agent,
the Borrowers may at any time in whole permanently terminate, or from time to
time in part permanently reduce, the Unused Total Commitment. Each such
reduction or termination, as applicable, of the Unused Total Commitment shall be
in the principal amount of $5,000,000 or any integral multiple of $5,000,000 in
excess thereof. Any reduction or termination, as applicable, of the Unused Total
Commitment pursuant to this Section shall be deemed to be a reduction or
termination, as applicable, in the amount of such reduction or termination of
the Total Commitment and shall be applied pro rata to reduce the Commitment of
each Lender. Simultaneously with each reduction or termination, as applicable,
of the Unused Total Commitment, the Borrowers shall pay to the Administrative
Agent for the account of each Lender the Commitment Fee accrued on the amount of
the Commitment of such Lender so terminated or reduced through the date thereof.
SECTION 2.11 Alternate Rate of Interest. In the event, and on each
occasion, that on the day two (2) Business Days prior to the commencement of any
Interest Period for a Eurodollar Loan, the Administrative Agent shall have
determined (which determination shall be conclusive and binding upon the
Borrowers absent manifest error) that reasonable means do not exist for
ascertaining the applicable Adjusted LIBOR Rate, the Administrative Agent shall,
as soon as practicable thereafter, give written or telegraphic notice of such
determination to the Borrowers and the Lenders, and any request by the Borrowers
for a Borrowing of Eurodollar Loans (including pursuant to a refinancing with
Eurodollar Loans) pursuant to Section 2.6 or 2.12 shall be deemed a request for
a Borrowing of ABR Loans. After such notice shall have been given and until the
circumstances giving rise to such notice no longer exist, each request for a
Borrowing of Eurodollar Loans shall be deemed to be a request for a Borrowing of
ABR Loans.
SECTION 2.12 Refinancing of Loans. The Borrowers shall have the right,
at any time, on three (3) Business Days' prior irrevocable notice to the
Administrative Agent (which notice, to be effective, must be received by the
Administrative Agent not later than 1:00 p.m., New York
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City time, on the third Business Day preceding the date of any refinancing), (x)
to refinance (without the satisfaction of the conditions set forth in Section 4
as a condition to such refinancing) any outstanding Borrowing or Borrowings of
Loans of one Type (or a portion thereof) with a Borrowing of Loans of the other
Type or (y) to continue an outstanding Borrowing of Eurodollar Loans for an
additional Interest Period, subject to the following:
(a) as a condition to the refinancing of ABR Loans with
Eurodollar Loans and to the continuation of Eurodollar Loans for an additional
Interest Period, no Event of Default shall have occurred and be continuing at
the time of such refinancing;
(b) if less than a full Borrowing of Loans shall be
refinanced, such refinancing shall be made pro rata among the Lenders in
accordance with the respective principal amounts of the Loans comprising such
Borrowing held by the Lenders immediately prior to such refinancing;
(c) the aggregate principal amount of Loans being refinanced
shall be at least $5,000,000 or any integral multiple of $1,000,000 in excess
thereof, provided that no partial refinancing of a Borrowing of Eurodollar Loans
shall result in the Eurodollar Loans remaining outstanding pursuant to such
Borrowing being less than $5,000,000 in aggregate principal amount;
(d) each Lender shall effect each refinancing by applying the
proceeds of its new Eurodollar Loan or ABR Loan, as the case may be, to its Loan
being refinanced;
(e) the Interest Period with respect to a Borrowing of
Eurodollar Loans effected by a refinancing or in respect to the Borrowing of
Eurodollar Loans being continued as Eurodollar Loans shall commence on the date
of refinancing or the expiration of the current Interest Period applicable to
such continuing Borrowing, as the case may be;
(f) a Borrowing of Eurodollar Loans may be refinanced only on
the last day of an Interest Period applicable thereto; and
(g) each request for a refinancing with a Borrowing of
Eurodollar Loans which fails to state an applicable Interest Period shall be
deemed to be a request for an Interest Period of one month.
In the event that the Borrowers shall not give notice to refinance any Borrowing
of Eurodollar Loans, or to continue such Borrowing as Eurodollar Loans, or shall
not be entitled to refinance or continue such Borrowing as Eurodollar Loans, in
each case as provided above, such Borrowing shall automatically be refinanced
with a Borrowing of ABR Loans at the expiration of the then-current Interest
Period. The Administrative Agent shall, after it receives notice from the
Borrowers, promptly give each Lender notice of any refinancing, in whole or
part, of any Loan made by such Lender.
SECTION 2.13 Mandatory Prepayment; Commitment Termination
(a) If at any time the aggregate principal amount of the
outstanding Loans plus the aggregate Letter of Credit Outstandings exceeds (A)
prior to the expiration of the Initial
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Period, the Available Commitment, and (B) from and after the expiration of the
Initial Period, the lesser of (x) the Total Commitment or (y) the Borrowing
Base, the Borrowers will within three (3) Business Days (i) prepay the Loans in
an amount necessary to cause the aggregate principal amount of the outstanding
Loans plus the aggregate Letter of Credit Outstandings to be equal to or less
than (A) prior to the expiration of the Initial Period, the Available
Commitment, and (B) from and after the expiration of the Initial Period, the
lesser of (x) the Total Commitment and (y) the Borrowing Base, and (ii) if,
after giving effect to the prepayment in full of the Loans, the aggregate Letter
of Credit Outstandings in excess of the amount of cash held in the Letter of
Credit Account exceeds (A) prior to the expiration of the Initial Period, the
Available Commitment, and (B) from and after the expiration of the Initial
Period, the lesser of (x) the Total Commitment or (y) the Borrowing Base,
deposit into the Letter of Credit Account an amount equal to 105% of the amount
by which the aggregate Letter of Credit Outstandings in excess of the amount of
cash held in the Letter of Credit Account so exceeds (A) prior to the expiration
of the Initial Period, the Available Commitment, and (B) from and after the
expiration of the Initial Period, the lesser of (x) the Total Commitment or (y)
the Borrowing Base.
(b) The Borrowers shall, within two (2) Business Days of the
date of receipt of the Net Proceeds by any Borrower or any of their Subsidiaries
from the sale, lease, transfer or other disposition of any assets of any
Borrower or any of its Subsidiaries other than sales, leases, transfers or other
dispositions of assets permitted by Section 6.11, jointly and severally, apply
such Net Proceeds as follows: first, to prepay the then outstanding Loans;
second, if an Event of Default shall have occurred and be continuing, deposit an
amount in the Letter of Credit Account (up to 105% of the aggregate Letter of
Credit Outstandings); and thereafter, such Net Proceeds may be retained by the
Borrowers and invested in Permitted Investments or used for expenditures in the
ordinary course of business (subject to compliance with the terms and conditions
of this Agreement).
(c) Upon the Termination Date, the Total Commitment shall be
terminated in full and the Borrowers shall pay the Loans in full and, if any
Letter of Credit remains outstanding, comply with Section 2.3(b).
SECTION 2.14 Optional Prepayment of Loans; Reimbursement of Lenders.
(a) The Borrowers shall have the right at any time and from
time to time to prepay any Loans, in whole or in part, (x) with respect to
Eurodollar Loans, upon at least three (3) Business Days' prior written, telex,
facsimile or telephonic (confirmed promptly in writing) notice to the
Administrative Agent and (y) with respect to ABR Loans on the same Business Day
if written, telex, facsimile or telephonic (confirmed promptly in writing)
notice is received by the Administrative Agent prior to 1:00 p.m., New York City
time, and thereafter upon at least one Business Day's prior written, telex,
facsimile or telephonic (confirmed promptly in writing) notice to the
Administrative Agent; provided, however, that (i) each such partial prepayment
shall be in a minimum amount of $5,000,000 or integral multiples of $5,000,000
in excess thereof, (ii) no prepayment of Eurodollar Loans shall be permitted
pursuant to this Section 2.14(a) other than on the last day of an Interest
Period applicable thereto unless such prepayment is accompanied by the payment
of the amounts described in clause (i) of the first sentence of Section 2.14(b),
and (iii) no partial prepayment of a Borrowing of Eurodollar Loans shall result
in the aggregate principal amount of the Eurodollar Loans remaining outstanding
pursuant to
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such Borrowing being less than $5,000,000. Each notice of prepayment shall
specify the prepayment date, the principal amount of the Loans to be prepaid and
in the case of Eurodollar Loans, the Borrowing or Borrowings pursuant to which
made, shall be irrevocable and shall commit the Borrowers to prepay such Loan by
the amount and on the date stated therein. The Administrative Agent shall,
promptly after receiving notice from the Borrowers hereunder, notify each Lender
of the principal amount of the Loans held by such Lender which are to be
prepaid, the prepayment date and the manner of application of the prepayment.
(b) The Borrowers shall reimburse each Lender on demand for
any loss incurred or to be incurred by it in the reemployment of the funds
released (i) resulting from any prepayment (for any reason whatsoever,
including, without limitation, refinancing with ABR Loans) of any Eurodollar
Loan required or permitted under this Agreement, if such Loan is prepaid other
than on the last day of the Interest Period for such Loan (including, without
limitation, any such prepayment in connection with the syndication of the credit
facility evidenced by this Agreement) or (ii) in the event that after the
Borrowers deliver a notice of borrowing under Section 2.6 in respect of
Eurodollar Loans, such Loans are not made on the first day of the Interest
Period specified in such notice of borrowing for any reason other than a breach
by such Lender of its obligations hereunder. Such loss shall be the amount as
reasonably determined by such Lender as the excess, if any, of (A) the amount of
interest which would have accrued to such Lender on the amount so paid or not
borrowed at a rate of interest equal to the Adjusted LIBOR Rate for such Loan,
for the period from the date of such payment or failure to borrow to the last
day (x) in the case of a payment or refinancing with ABR Loans other than on the
last day of the Interest Period for such Loan, of the then current Interest
Period for such Loan, or (y) in the case of such failure to borrow, of the
Interest Period for such Loan which would have commenced on the date of such
failure to borrow, over (B) the amount of interest which would have accrued to
such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the London interbank market. Each Lender shall
deliver to the Borrowers from time to time one or more certificates setting
forth the amount of such loss as determined by such Lender.
(c) In the event the Borrowers fail to prepay any Loan on the
date specified in any prepayment notice delivered pursuant to Section 2.14(a),
the Borrowers on demand by any Lender shall pay to the Administrative Agent for
the account of such Lender any amounts required to compensate such Lender for
any loss incurred by such Lender as a result of such failure to prepay,
including, without limitation, any loss, cost or expenses incurred by reason of
the acquisition of deposits or other funds by such Lender to fulfill deposit
obligations incurred in anticipation of such prepayment, but without duplication
of any amounts paid under Section 2.14(b). Each Lender shall deliver to the
Borrowers from time to time one or more certificates setting forth the amount of
such loss as determined by such Lender.
(d) Any partial prepayment of the Loans by the Borrowers
pursuant to Sections 2.13 or 2.14 shall be applied as specified by the Borrowers
or, in the absence of such specification, as determined by the Administrative
Agent, provided that in the latter case no Eurodollar Loans shall be prepaid
pursuant to Section 2.13 to the extent that such Loan has an Interest Period
ending after the required date of prepayment unless and until all outstanding
ABR Loans and Eurodollar Loans with Interest Periods ending on such date have
been repaid in full.
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SECTION 2.15 Reserve Requirements; Change in Circumstances.
(a) Notwithstanding any other provision herein, if after the
date of this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to any Lender of
the principal of or interest on any Eurodollar Loan made by such Lender or any
fees or other amounts payable hereunder (other than changes in respect of Taxes,
Other Taxes and taxes imposed on, or measured by, the net income or overall
gross receipts or franchise taxes of such Lender by the jurisdiction in which
such Lender has its principal office or in which the applicable lending office
for such Eurodollar Loan is located or by any political subdivision or taxing
authority therein, or by any other jurisdiction or by any political subdivision
or taxing authority therein other than a jurisdiction in which such Lender would
not be subject to tax but for the execution and performance of this Agreement),
or shall impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of or
credit extended by such Lender (except any such reserve requirement which is
reflected in the Adjusted LIBOR Rate) or shall impose on such Lender or the
London interbank market any other condition affecting this Agreement or the
Eurodollar Loans made by such Lender, and the result of any of the foregoing
shall be to increase the cost to such Lender of making or maintaining any
Eurodollar Loan or to reduce the amount of any sum received or receivable by
such Lender hereunder (whether of principal, interest or otherwise) by an amount
deemed by such Lender to be material, then the Borrowers will pay to such Lender
in accordance with paragraph (c) below such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.
(b) If any Lender shall have determined that the adoption or
effectiveness after the date hereof of any law, rule, regulation or guideline
regarding capital adequacy, or any change in any of the foregoing or in the
interpretation or administration of any of the foregoing by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or any lending office of
such Lender) or any Lender's holding company with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on such Lender's capital or on the capital of such
Lender's holding company, if any, as a consequence of this Agreement, the Loans
made by such Lender pursuant hereto, such Lender's Commitment hereunder or the
issuance of, or participation in, any Letter of Credit by such Lender to a level
below that which such Lender or such Lender's holding company could have
achieved but for such adoption, change or compliance (taking into account
Lender's policies and the policies of such Lender's holding company with respect
to capital adequacy) by an amount deemed by such Lender to be material, then
from time to time the Borrowers shall pay to such Lender such additional amount
or amounts as will compensate such Lender or such Lender's holding company for
any such reduction suffered.
(c) A certificate of each Lender setting forth such amount or
amounts as shall be necessary to compensate such Lender or its holding company
as specified in paragraph (a) or (b) above, as the case may be, shall be
delivered to the Borrowers and shall be conclusive absent manifest error. The
Borrowers shall pay each Lender the amount shown as due on any such
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certificate delivered to it within thirty (30) days after its receipt of the
same. Any Lender receiving any such payment shall promptly make a refund thereof
to the Borrowers if the law, regulation, guideline or change in circumstances
giving rise to such payment is subsequently deemed or held to be invalid or
inapplicable.
(d) Failure on the part of any Lender to demand compensation
for any increased costs or reduction in amounts received or receivable or
reduction in return on capital with respect to any period within one hundred
eighty (180) days after such Lender obtains knowledge of its entitlement to such
compensation shall not constitute a waiver of such Lender's right to demand
compensation with respect to such period or any other period. The protection of
this Section shall be available to each Lender regardless of any possible
contention of the invalidity or inapplicability of the law, rule, regulation,
guideline or other change or condition which shall have occurred or been
imposed.
SECTION 2.16 Change in Legality.
(a) Notwithstanding anything to the contrary contained
elsewhere in this Agreement, if (x) any change after the date of this Agreement
in any law or regulation or in the interpretation thereof by any Governmental
Authority charged with the administration thereof shall make it unlawful for a
Lender to make or maintain a Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to a Eurodollar Loan or (y) at
any time any Lender determines that the making or continuance of any of its
Eurodollar Loans has become impracticable as a result of a contingency occurring
after the date hereof which adversely affects the London interbank market or the
position of such Lender in such market, then, by written notice to the
Borrowers, such Lender may (i) declare that Eurodollar Loans will not thereafter
be made by such Lender hereunder, whereupon any request by the Borrowers for a
Eurodollar Borrowing shall, as to such Lender only, be deemed a request for an
ABR Loan unless such declaration shall be subsequently withdrawn; and (ii)
require that all outstanding Eurodollar Loans made by it be converted to ABR
Loans, in which event all such Eurodollar Loans shall be automatically converted
to ABR Loans as of the effective date of such notice as provided in paragraph
(b) below. In the event any Lender shall exercise its rights under clause (i) or
(ii) of this paragraph (a), all payments and prepayments of principal which
would otherwise have been applied to repay the Eurodollar Loans that would have
been made by such Lender or the converted Eurodollar Loans of such Lender shall
instead be applied to repay the ABR Loans made by such Lender in lieu of, or
resulting from the conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.16, a notice to the
Borrowers by any Lender pursuant to paragraph (a) above shall be effective, if
lawful, and if any Eurodollar Loans shall then be outstanding, on the last day
of the then-current Interest Period, otherwise, such notice shall be effective
on the date of receipt by the Borrowers.
SECTION 2.17 Pro Rata Treatment, etc. All payments and repayments of
principal and interest in respect of the Loans (except as provided in Sections
2.15 and 2.16) shall be made pro rata among the Lenders in accordance with the
then outstanding principal amount of the Loans and/or participations in Letter
of Credit Outstandings and all outstanding undrawn Letters of Credit (and the
unreimbursed amount of drawn Letters of Credit) hereunder and all payments of
Commitment Fees and Letter of Credit Fees (other than those payable to a
Fronting Bank) shall
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be made pro rata among the Lenders in accordance with their Commitments. All
payments by the Borrowers hereunder shall be (i) except as otherwise provided in
Section 2.18, net of any tax applicable to the Borrowers and (ii) made in
Dollars in immediately available funds at the office of the Administrative Agent
by 12:00 noon, New York City time, on the date on which such payment shall be
due. Interest in respect of any Loan hereunder shall accrue from and including
the date of such Loan to but excluding the date on which such Loan is paid in
full or converted to a Loan of a different Type.
SECTION 2.18 Taxes.
(a) Except as otherwise provided in this Section 2.18, any and
all payments by the Borrowers hereunder shall be made free and clear of and
without deduction for any and all current or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding (i) taxes imposed on or measured by the net income, net profit or
overall gross receipts of the Administrative Agent or any Lender (or any
transferee or assignee thereof, including a participation holder (any such
entity being called a "TRANSFEREE")) and franchise taxes imposed on the
Administrative Agent or any Lender (or Transferee) by the United States or any
jurisdiction under the laws of which the Administrative Agent or any such Lender
(or Transferee) is organized or in which the applicable lending office of any
such Lender (or Transferee) or applicable office of the Administrative Agent, is
located or any political subdivision thereof or by any other jurisdiction or by
any political subdivision or taxing authority therein other than a jurisdiction
in which the Administrative Agent or such Lender (or Transferee) would not be
subject to tax but for the execution and performance of this Agreement and (ii)
taxes, levies, imposts, deductions, charges or withholdings ("AMOUNTS") with
respect to payments hereunder to a Lender (or Transferee) or the Administrative
Agent in accordance with laws in effect on the later of the date of this
Agreement and the date such Lender (or Transferee) or the Administrative Agent
becomes a Lender (or Transferee or Administrative Agent, as the case may be) but
not excluding, with respect to such Lender (or Transferee) or the Administrative
Agent, any increase in such Amounts solely as a result of any change in such
laws occurring after such later date or any Amounts that would not have been
imposed but for actions (other than actions contemplated by this Agreement)
taken by the Borrowers after such later date (all such nonexcluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "TAXES"). If the Borrowers shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder to the
Lenders (or any Transferee) or the Administrative Agent, (i) the sum payable
shall be increased by the amount necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section) such Lender (or Transferee) or the Administrative Agent (as the
case may be) shall receive an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrowers shall make such deductions and
(iii) the Borrowers shall pay the full amount deducted to the relevant taxing
authority or other Governmental Authority in accordance with applicable law.
(b) In addition, the Borrowers agree to pay any current or
future stamp or documentary taxes or any other excise or property taxes,
charges, assessments or similar levies that arise from any payment made
hereunder or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or any other Loan Document (hereinafter referred to
as "OTHER TAXES").
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(c) The Borrowers will indemnify each Lender (or Transferee)
and the Administrative Agent for the full amount of Taxes and Other Taxes paid
by such Lender (or Transferee) or the Administrative Agent, as the case may be,
and any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted by the relevant taxing authority or other Governmental
Authority. Such indemnification shall be made within thirty (30) days after the
date any Lender (or Transferee) or the Administrative Agent, as the case may be,
makes written demand therefor. If a Lender (or Transferee) or the Administrative
Agent shall become aware that it is entitled to receive a refund in respect of
Taxes or Other Taxes as to which it has been indemnified by the Borrowers
pursuant to this Section, it shall promptly notify the Borrowers of the
availability of such refund and shall, within thirty (30) days after receipt of
a request by the Borrowers, apply for such refund at the Borrowers' expense. If
any Lender (or Transferee) or the Administrative Agent receives a refund in
respect of any Taxes or Other Taxes as to which it has been indemnified by the
Borrowers pursuant to this Section, it shall promptly notify the Borrowers of
such refund and shall, within thirty (30) days after receipt of a request by the
Borrowers (or promptly upon receipt, if the Borrowers have requested application
for such refund pursuant hereto), repay such refund to the Borrowers (to the
extent of amounts that have been paid by the Borrowers under this Section with
respect to such refund plus interest that is received by the Lender (or
Transferee) or the Administrative Agent as part of the refund), net of all
out-of-pocket expenses of such Lender (or Transferee) or the Administrative
Agent and without additional interest thereon; provided that the Borrowers, upon
the request of such Lender (or Transferee) or the Administrative Agent, agree to
return such refund (plus penalties, interest or other charges) to such Lender
(or Transferee) or the Administrative Agent in the event such Lender (or
Transferee) or the Administrative Agent is required to repay such refund.
Nothing contained in this subsection (c) shall require any Lender (or
Transferee) or the Administrative Agent to make available any of its tax returns
(or any other information relating to its taxes that it deems to be
confidential).
(d) Within thirty (30) days after the date of any payment of
Taxes or Other Taxes withheld by the Borrowers in respect of any payment to any
Lender (or Transferee) or the Administrative Agent, the Borrowers will furnish
to the Administrative Agent, at its address referred to on the signature pages
hereof, the original or a certified copy of a receipt evidencing payment
thereof.
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section shall
survive the payment in full of the principal of and interest on all Loans made
hereunder.
(f) Each Lender (and Transferee) and the Administrative Agent
shall, if not a United States Person (as such term is defined in Section
7701(a)(30) of the Code), on or prior to the Closing Date (in the case of each
Lender listed on the signature pages hereof on the Closing Date) or on or prior
to the date of the Assignment and Acceptance pursuant to which it becomes a
Lender (in the case of each other Lender), deliver to the Borrowers and the
Administrative Agent such certificates, documents and other evidence, as
required by the Code or Treasury Regulations issued pursuant thereto or by
Canadian law, including two original copies of (A) Internal Revenue Service Form
W-9 (unless such Lender (or Transferee) or the Administrative Agent is an
"exempt recipient" as defined in Treasury Regulations Section 1.6049-4(c) for
which
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no withholding is required) and two original copies of (B) Internal Revenue
Service Forms 1001, 4224, W-8BEN or W-8ECI and any other certificate or
statement of exemption required by Treasury Regulation Section 1.1441-1,
1.1441-4 or 1.1441-6(c) or any subsequent version thereof or successors thereto,
properly completed and duly executed by such Lender (or Transferee) or the
Administrative Agent to establish that such payment is (i) not subject to United
States Federal withholding tax under the Code because such payment is
effectively connected with the conduct by such Lender (or Transferee) or the
Administrative Agent of a trade or business in the United States or (ii) totally
exempt from United States Federal withholding tax or subject to a reduced rate
of such tax under a provision of an applicable tax treaty. Unless the Borrowers
and the Administrative Agent have received forms or other documents satisfactory
to them indicating that such payments hereunder are not subject to United States
Federal withholding tax or are subject to such tax at a rate reduced by an
applicable tax treaty, the Borrowers or the Administrative Agent shall withhold
taxes from such payments at the applicable statutory rate.
(g) The Borrowers shall not be required to pay any additional
amounts to any Lender (or Transferee) or the Administrative Agent in respect of
United States Federal withholding tax pursuant to subsection (a) above if the
obligation to pay such additional amounts would not have arisen but for a
failure by such Lender (or Transferee) or the Administrative Agent to comply
with the provisions of subsection (f) above.
(h) Any Lender (or Transferee) or the Administrative Agent
claiming any additional amounts payable pursuant to this Section 2.18 shall use
reasonable efforts (consistent with legal and regulatory restrictions) to file
any certificate or document requested by the Borrowers or to change the
jurisdiction of its applicable lending office if the making of such a filing or
change would avoid the need for or reduce the amount of any such additional
amounts that may thereafter accrue and would not, in the sole determination of
such Lender (or Transferee) or the Administrative Agent, be otherwise materially
disadvantageous to such Lender (or Transferee) or the Administrative Agent.
SECTION 2.19 Certain Fees. The Borrowers shall pay to the
Administrative Agent, for the respective accounts of the Administrative Agent
and the Lenders, the fees set forth in that certain letter dated June 19, 2001
among the Administrative Agent, J.P. Morgan Securities Inc. and the Borrowers at
the times set forth therein.
SECTION 2.20 Commitment Fee. The Borrowers shall pay to the Lenders a
commitment fee (the "COMMITMENT FEE") for the period commencing on the date the
Commitment Letter is executed to the Termination Date or the earlier date of
termination of the Commitment calculated (on the basis of the actual number of
days elapsed over a year of 360 days) at a rate equal to the Applicable
Commitment Fee Percentage on the average daily Unused Total Commitment during
the preceding quarter. Such Commitment Fee, to the extent then accrued, shall be
payable (x) monthly, in arrears, on the last calendar day of each month, (y) on
the Termination Date and (z) as provided in Section 2.10 hereof, upon any
reduction or termination in whole or in part of the Total Commitment.
SECTION 2.21 Letter of Credit Fees. The Borrowers shall pay with
respect to each Letter of Credit (i) to the Administrative Agent on behalf of
the Lenders a fee calculated (on the
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basis of the actual number of days elapsed over a year of 360 days) at a rate
equal to the Applicable Margin for Eurodollar Borrowings per annum on the
undrawn stated amount thereof, and (ii) to the Fronting Bank such Fronting
Bank's customary fees for fronting (as set forth in the Fee Letter), issuance,
amendments and processing referred to in Section 2.3. In addition, the Borrowers
agree to pay each Fronting Bank for its account a fronting fee in respect of
each Letter of Credit issued by such Fronting Bank, for the period from and
including the date of issuance of such Letter of Credit to and including the
date of termination of such Letter of Credit, computed at a rate, and payable at
times, to be determined by such Fronting Bank, the Borrowers and the
Administrative Agent. Accrued fees described in clause (i) of the first sentence
of this paragraph in respect of each Letter of Credit shall be due and payable
monthly in arrears on the last calendar day of each month and on the Termination
Date, or such earlier date as the Total Commitment is terminated. Accrued fees
described in clause (ii) of the first sentence of this paragraph in respect of
each Letter of Credit shall be payable at times to be determined by the Fronting
Bank, the Borrowers and the Administrative Agent.
SECTION 2.22 Nature of Fees. All Fees shall be paid on the dates due,
in immediately available funds, to the Administrative Agent for the respective
accounts of the Administrative Agent and the Lenders, as provided herein and in
the letter described in Section 2.19. Once paid, none of the Fees shall be
refundable under any circumstances.
SECTION 2.23 Priority and Liens.
(a) The Borrowers hereby covenant, represent and warrant that,
upon entry of the Interim Order, the Obligations of the Borrowers hereunder and
under the Loan Documents and in respect of Indebtedness permitted by Section
6.3(v): (i) pursuant to Section 364(c)(1) of the Bankruptcy Code, shall at all
times constitute an allowed Superpriority Claim; (ii) pursuant to Section
364(c)(2) of the Bankruptcy Code, shall at all times be secured by a perfected
first priority Lien on all unencumbered property of the Borrowers and on all
cash maintained in the Letter of Credit Account and any direct investments of
the funds contained therein, provided that following the Termination Date
amounts in the Letter of Credit Account shall not be subject to the Carve-Out;
(iii) pursuant to Section 364(c)(3) of the Bankruptcy Code, shall be secured by
a perfected Lien upon all property of the Borrowers that is subject to valid and
perfected Permitted Liens in existence on the Filing Date or that is subject to
valid Permitted Liens in existence on the Filing Date that are perfected
subsequent to the Filing Date as permitted by Section 546(b) of the Bankruptcy
Code; and (iv) pursuant to Section 364(d)(1) of the Bankruptcy Code, be secured
by a perfected first priority, senior priming Lien on all of the property of the
Borrowers (including, without limitation, inventory, accounts receivable, rights
under license agreements, property, plant and equipment, interests in leaseholds
and capital stock of Subsidiaries of the Parent, limited, in the case of an
entity that is a controlled foreign corporation under Section 957 of the Code,
to 66% of the voting stock of such entity) that is subject to any existing Liens
(except Permitted Liens), subject in each case only to (x) in the event of the
occurrence and during the continuance of an Event of Default or an event that
would constitute an Event of Default with the giving of notice or lapse of time
or both, the payment of allowed and unpaid professional fees and disbursements
incurred by the Borrowers and any statutory committees appointed in the Cases in
an aggregate amount not in excess of $5,000,000 and (y) the payment of fees
pursuant to 28 U.S.C. Section 1930 to the Clerk of the Bankruptcy Court
(collectively, the "CARVE-OUT"). By execution hereof, the Borrowers hereby
consent to the priming Lien
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referenced in clause (iv) above. Following the Termination Date, amounts in the
Letter of Credit Account shall not be subject to the Carve-Out. Notwithstanding
the foregoing, so long as no Event of Default or event which with the giving of
notice or lapse of time or both would constitute an Event of Default shall have
occurred and be continuing, the Borrowers shall be permitted to pay compensation
and reimbursement of expenses allowed and payable under 11 U.S.C. Section 330
and 11 U.S.C. Section 331, as the same may be due and payable, and any
compensation and expenses previously paid, or accrued but unpaid, prior to the
occurrence of such Event of Default shall not reduce the Carve-Out.
(b) The obligations of the Guarantor under the Loan Documents
shall be secured by a perfected first priority Lien on all of the property of
the Guarantor (including, without limitation, inventory, accounts receivable,
rights under license agreements, property, plant and equipment, interests in
leaseholds and capital stock of Subsidiaries of the Parent, limited, in the case
of an entity that is a controlled foreign corporation under Section 957 of the
Code, to 66% of the voting stock of such entity).
(c) As to all real property the title to which is held by a
Borrower or the Guarantor, or the possession of which is held by a Borrower or
the Guarantor pursuant to leasehold interest, the Borrowers and the Guarantor
hereby assign and convey as security, grant a security interest in, hypothecate,
mortgage, pledge and set over unto the Administrative Agent on behalf of the
Lenders all of the right, title and interest of the Borrowers or the Guarantor,
as applicable, in all of such owned real property and in all such leasehold
interests, together in each case with all of the right, title and interest of
the Borrowers and the Guarantor in and to all buildings, improvements, and
fixtures related thereto, any lease or sublease thereof, all general intangibles
relating thereto and all proceeds thereof. The Borrowers acknowledge that,
pursuant to the Interim Order (or the Final Order, as applicable), the Liens in
favor of the Administrative Agent on behalf of the Lenders in all of such real
property and leasehold instruments of the Borrowers shall be perfected without
the recordation of any instruments of mortgage or assignment. The Borrowers and
the Guarantor further agree that, upon the request of the Administrative Agent,
in the exercise of its business judgment, the Borrowers and the Guarantor shall
enter into separate fee and leasehold mortgages in recordable form with respect
to such properties on terms satisfactory to the Administrative Agent.
SECTION 2.24 Right of Set-Off. Subject to the provisions of Section
7.1, upon the occurrence and during the continuance of any Event of Default, the
Administrative Agent and each Lender is hereby authorized at any time and from
time to time, to the fullest extent permitted by law and without further order
of or application to the Bankruptcy Court, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by the Administrative Agent and
each such Lender to or for the credit or the account of any Borrower against any
and all of the obligations of such Borrower now or hereafter existing under the
Loan Documents, irrespective of whether or not such Lender shall have made any
demand under any Loan Document and although such obligations may not have been
accelerated. Each Lender and the Administrative Agent agrees promptly to notify
the Borrowers after any such set-off and application made by such Lender or by
the Administrative Agent, as the case may be, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of each Lender and the Administrative Agent under this Section are in
addition to other rights and remedies which such
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Lender and the Administrative Agent may have upon the occurrence and during the
continuance of any Event of Default.
SECTION 2.25 Security Interest in Letter of Credit Account. Pursuant to
Section 364(c)(2) of the Bankruptcy Code, the Borrowers hereby assign and pledge
to the Administrative Agent, for its benefit and for the ratable benefit of the
Lenders, and hereby grant to the Administrative Agent, for its benefit and for
the ratable benefit of the Lenders, a first priority security interest, senior
to all other Liens, if any, in all of the Borrowers' right, title and interest
in and to the Letter of Credit Account and any direct investment of the funds
contained therein. Cash held in the Letter of Credit Account shall not be
available for use by the Borrowers, whether pursuant to Section 363 of the
Bankruptcy Code or otherwise.
SECTION 2.26 Payment of Obligations. Subject to the provisions of
Section 7.1, upon the maturity (whether by acceleration or otherwise) of any of
the Obligations under this Agreement or any of the other Loan Documents of the
Borrowers, the Lenders shall be entitled to immediate payment of such
Obligations without further application to or order of the Bankruptcy Court.
SECTION 2.27 No Discharge; Survival of Claims. Each of the Borrowers
agrees that (i) its obligations hereunder shall not be discharged by the entry
of an order confirming a Reorganization Plan (and each of the Borrowers,
pursuant to Section 1141(d)(4) of the Bankruptcy Code, hereby waives any such
discharge) and (ii) the Superpriority Claim granted to the Administrative Agent
and the Lenders pursuant to the Order and described in Section 2.23 shall not be
affected in any manner by the entry of an order confirming a Plan of
Reorganization.
SECTION 2.28 Replacement of Certain Lenders. In the event a Lender
("AFFECTED LENDER") shall have: (i) failed to fund its Commitment Percentage of
any Loan requested by the Borrowers or to fund its Commitment Percentage of any
unreimbursed payment made by the Fronting Bank, which such Lender is obligated
to fund under the terms of this Agreement and which failure has not been cured,
(ii) requested compensation from the Borrowers under Section 2.15 with respect
to increased costs or capital or under Section 2.18 to recover Taxes, Other
Taxes or other additional costs incurred by such Lender which, in any case, are
not being incurred generally by the other Lenders, or (iii) delivered a notice
pursuant to Section 2.16 claiming that such Lender is unable to extend
Eurodollar Loans to the Borrowers for reasons not generally applicable to the
other Lenders, then, in any case, the Borrowers or the Administrative Agent may
make written demand on such Affected Lender (with a copy to the Administrative
Agent in the case of a demand by the Borrowers and a copy to the Borrowers in
the case of a demand by the Administrative Agent) for the Affected Lender to
assign, and such Affected Lender shall use commercially reasonable efforts to
assign pursuant to one or more duly executed Assignments and Acceptances five
(5) Business Days after the date of such demand, to one or more financial
institutions that comply with the provisions of Section 10.3 which the Borrowers
or the Administrative Agent, as the case may be, shall have engaged for such
purpose ("REPLACEMENT LENDER"), all of such Affected Lender's rights and
obligations under this Agreement and the other Loan Documents (including,
without limitation, its Commitment, all Loans owing to it, all of its
participation interests in existing Letters of Credit, and its obligation to
participate in additional Letters of Credit hereunder) in accordance with
Section 10.3. The Administrative Agent agrees, upon the occurrence of such
events with respect to an Affected
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Lender and upon the written request of the Borrowers, to use its reasonable
efforts to obtain the commitments from one or more financial institutions to act
as a Replacement Lender. The Administrative Agent is authorized to execute one
or more of such Assignments and Acceptances as attorney-in-fact for any Affected
Lender failing to execute and deliver the same within five (5) Business Days
after the date of such demand. Further, with respect to such assignment the
Affected Lender shall have concurrently received, in cash, all amounts due and
owing to the Affected Lender hereunder or under any other Loan Document,
including, without limitation, the aggregate outstanding principal amount of the
Loans owed to such Lender, together with accrued interest thereon through the
date of such assignment, amounts payable under Section 2.15 with respect to such
Affected Lender and compensation payable under Section 2.20 in the event of any
replacement of any Affected Lender under clause (ii) or clause (iii) of this
Section 2.28; provided that upon such Affected Lender's replacement, such
Affected Lender shall cease to be a party hereto but shall continue to be
entitled to the benefits of Sections 2.15, 10.5 and 10.6, as well as to any fees
accrued for its account hereunder and not yet paid, and shall continue to be
obligated under Section 8.6 with respect to losses, obligations, liabilities,
damages, penalties, actions, judgments, costs, expenses or disbursements for
matters which occurred prior to the date the Affected Lender is replaced.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to make Loans and issue and/or
participate in Letters of Credit hereunder, each of the Borrowers, jointly and
severally, and the Guarantor (as applicable) represent and warrant as follows:
SECTION 3.1 Organization and Authority. Each of the Borrowers and the
Guarantor (i) is duly organized, validly existing and in good standing under the
law of its jurisdiction of organization; (ii) is duly qualified to do business
and in good standing in each jurisdiction in which the failure to so qualify
would have a material adverse effect on the financial condition, operations,
business, properties or assets of the Borrowers and the Guarantor taken as a
whole; (iii) subject to the entry by the Bankruptcy Court of the Interim Order
(or the Final Order, as applicable), has the requisite power and authority to
effect the transactions contemplated hereby, and by the other Loan Documents to
which it is a party, and (iv) subject to the entry by the Bankruptcy Court of
the Interim Order (or the Final Order, as applicable), has all requisite power
and authority and the legal right to own and operate its properties, and to
conduct its business as now or currently proposed to be conducted.
SECTION 3.2 Due Execution. Upon the entry by the Bankruptcy Court of
the Interim Order (or the Final Order, as applicable), the execution, delivery
and performance by each of the Borrowers and the Guarantor of each of the Loan
Documents to which it is a party, including, without limitation, the grant and
pledge by the Borrowers of the security interests granted by the Security and
Pledge Agreement, (i) are within the respective powers of each of the Borrowers
and the Guarantor, have been duly authorized by all necessary action, including
the consent of shareholders, partners or members, where required, and do not (A)
contravene the Organizational Documents of any of the Borrowers, (B) violate any
law (including, without limitation, the Securities Exchange Act of 1934) or
regulation (including, without limitation, Regulations T, U or X of the Board),
or any order or decree of any court or Governmental Authority, (C) conflict with
or result in a breach of, or constitute a default under, any indenture, mortgage
or deed of
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trust entered into after the Filing Date or any lease, agreement or other
instrument entered into after the Filing Date binding on the Borrowers, the
Guarantor or any of their respective properties, or (D) result in or require the
creation or imposition of any Lien upon any of the property of any of the
Borrowers other than Liens granted pursuant to this Agreement; and (ii) do not
require the consent, authorization by or approval of or notice to or filing or
registration with any Governmental Authority other than the entry of the Interim
Order (or the Final Order, as applicable). Except for the entry of the Interim
Order (or the Final Order, as applicable), no authorization, approval or other
action by, and no notice to or filing with, any Governmental Authority or
regulatory body is required for the perfection of the security interests or the
exercise by the Administrative Agent or the Lenders of their respective rights
and remedies under the Loan Documents. Upon the entry by the Bankruptcy Court of
the Interim Order (or the Final Order, as applicable), this Agreement shall have
been duly executed and delivered by each of the Borrowers and the Guarantor.
Upon the entry by the Bankruptcy Court of the Interim Order (or the Final Order,
as applicable), this Agreement, and each of the other Loan Documents to which
the Borrowers and/or the Guarantor are or will be a party, when delivered
hereunder or thereunder, will be, a legal, valid and binding obligation of each
Borrower and the Guarantor, enforceable against the Borrowers and the Guarantor
in accordance with its terms and the Orders.
SECTION 3.3 Statements Made. The information that has been delivered in
writing by any of the Borrowers or the Guarantor to the Administrative Agent or
to the Bankruptcy Court in connection with any Loan Document, and any financial
statement delivered pursuant hereto or thereto (other than to the extent that
any such statements constitute projections), taken as a whole and in light of
the circumstances in which made, contains no untrue statement of a material fact
and does not omit to state a material fact necessary to make such statements not
misleading; and, to the extent that any such information constitutes
projections, such projections were prepared in good faith on the basis of
assumptions, methods, data, tests and information believed by such Borrower or
the Guarantor to be reasonable at the time such projections were furnished.
SECTION 3.4 Financial Statements. The Borrowers have furnished the
Lenders with copies of (i) the audited consolidated financial statement and
schedules of the Borrowers and their Subsidiaries for the fiscal year ended
December 31, 2000 and (ii) the unaudited consolidated financial statement and
schedules of the Borrowers and the Guarantor and their Subsidiaries for the
fiscal quarter ending after March 31, 2001. Such financial statements present
fairly the financial condition and results of operations of the Borrowers and
the Guarantor and their Subsidiaries on a consolidated basis as of such dates
and for such periods; such balance sheets and the notes thereto disclose all
liabilities, direct or contingent, of the Borrowers and the Guarantor and their
Subsidiaries as of the dates thereof required to be disclosed by GAAP and such
financial statements were prepared in a manner consistent with GAAP, subject (in
the case of such fiscal quarter statement) to normal year end adjustments. No
material adverse change in the operations, businesses, properties, assets,
prospects or condition (financial or otherwise) of the Borrowers and the
Guarantor and their Subsidiaries, taken as a whole, has occurred from that set
forth in the Borrowers' consolidated financial statements for the fiscal year
ended December 31, 2000 and the fiscal quarter ended March 31, 2001 (as
supplemented by the Borrowers' disclosure on Form 8-K as filed with the
Securities and Exchange Commission dated March 23, 2001) other than those which
customarily occur as a result of events leading up to and following the
commencement of a proceeding under Chapter
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11 of the Bankruptcy Code and the commencement of the Cases (including, without
limitation, those reflected in the financial projections heretofore made
available to the Administrative Agent).
SECTION 3.5 Ownership. Each of the Persons listed on Schedule 3.5 is a
direct or indirect Subsidiary of the Borrowers and the Guarantor and Schedule
3.5 correctly sets forth the ownership interest of each of the Borrowers and the
Guarantor in their respective Subsidiaries, in each case as of the Closing Date.
None of the Borrowers nor the Guarantor owns any other Subsidiaries, whether
directly or indirectly, other than as set forth on Schedule 3.5.
SECTION 3.6 Liens. There are no Liens of any nature whatsoever on any
assets of any of the Borrowers, the Guarantor or their Domestic Subsidiaries
other than (i) Permitted Liens, (ii) Liens securing Intercompany Indebtedness
reflected on Schedule 6.10, and (iii) Liens in favor of the Administrative Agent
and the Lenders, it being understood that Schedule 3.6 and Schedule 6.10 may be
supplemented prior to the entry of the Final Order. Neither the Borrowers, the
Guarantor nor their Domestic Subsidiaries are parties to any contract,
agreement, lease or instrument the performance of which, either unconditionally
or upon the happening of an event, will result in or require the creation of a
Lien on any assets of any Borrower or the Guarantor or any of their Domestic
Subsidiaries or otherwise result in a violation of this Agreement other than the
Liens granted to the Administrative Agent and the Lenders as provided for in
this Agreement.
SECTION 3.7 Compliance with Law
(a) (i) The operations of the Borrowers and the Guarantor and
their Subsidiaries comply with all applicable environmental, health and safety
statutes and regulations, including, without limitation, regulations promulgated
under the Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 et
seq.); (ii) none of the operations of the Borrowers or the Guarantor or their
Subsidiaries is the subject of any Federal or state investigation evaluating
whether any remedial action involving a material expenditure by the Borrowers is
needed to respond to a release of any Hazardous Waste or Hazardous Substance (as
such terms are defined in any applicable state or Federal environmental law or
regulations) into the environment; and (iii) the Borrowers and the Guarantor and
their Subsidiaries do not have any contingent liability in connection with any
release of any Hazardous Waste or Hazardous Substance into the environment,
except, in each case, for any non-compliance, investigation or liabilities that
could not reasonably be expected to have a Material Adverse Effect.
(b) None of the Borrowers or the Guarantor or their
Subsidiaries is in violation of any law, rule or regulation, or in default with
respect to any judgment, writ, injunction or decree of any Governmental
Authority the violation of which, or a default with respect to which, would have
a material adverse effect on the financial condition, operations, businesses,
properties or assets of the Borrowers and the Guarantor and their Subsidiaries
taken as a whole.
SECTION 3.8 Insurance. All policies of insurance of any kind or nature
owned by or issued to the Borrowers and the Guarantor and their Subsidiaries,
including, without limitation, policies of life, fire, theft, product liability,
public liability, property damage, other casualty,
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employee fidelity, workers' compensation, employee health and welfare, title,
property and liability insurance, are in full force and effect and are of a
nature and provide such coverage as is customarily carried by companies of the
size and character of the Borrowers and the Guarantor and their Subsidiaries.
SECTION 3.9 The Orders. On the date of the making of the initial Loans
or the issuance of the initial Letters of Credit hereunder, whichever first
occurs, the Interim Order will have been entered and will not have been stayed,
amended, vacated, reversed or rescinded. On the date of the making of any Loan
or the issuance of any Letter of Credit, the Interim Order or the Final Order,
as the case may be, shall have been entered and shall not have been amended,
stayed, vacated or rescinded. Upon the maturity (whether by the acceleration or
otherwise) of any of the obligations of the Borrower and the Guarantor hereunder
and under the other Loan Documents, the Lenders shall, subject to the provisions
of Section 7.1, be entitled to immediate payment of such obligations, and to
enforce the remedies provided for hereunder, without further application to or
order by the Bankruptcy Court.
SECTION 3.10 Use of Proceeds. The proceeds of the Loans shall be used
in accordance with Section 2.2 for (i) working capital; (ii) other general
corporate purposes of the Borrowers; (iii) payment of any related transaction
costs, fees and expenses; and (iv) refinancing of the Receivables Purchase
Agreement. The Letters of Credit shall be issued in support of obligations of
the Borrowers that are consistent with past practices of the Borrowers, as
disclosed to the Administrative Agent.
SECTION 3.11 Litigation. There are no unstayed actions, suits or
proceedings pending or, to the best knowledge of the Borrowers or the Guarantor,
threatened against or affecting the Borrowers or the Guarantor or their
Subsidiaries or any of their respective properties, before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, that are reasonably likely to have a material adverse
effect on the operations, businesses, properties, assets, prospects or financial
condition of the Borrowers and the Guarantor and their Subsidiaries taken as a
whole.
SECTION 3.12 Intellectual Property. Set forth on Schedule 3.12 hereto
is a complete and accurate list of all patents, trademarks, trade names, service
marks and copyrights, and all applications therefor and licenses thereof, of
each Borrower or any of its Domestic Subsidiaries, showing as of the date hereof
the jurisdiction in which registered, the registration number, the date of
registration and the expiration date.
SECTION 4. CONDITIONS OF LENDING
SECTION 4.1 Conditions Precedent to Initial Loan and Initial Letter of
Credit. The obligation of the Lenders to make the initial Loan or the Fronting
Bank to issue the initial Letter of Credit, whichever may occur first, is
subject to the following conditions precedent:
(a) Supporting Documents. The Administrative Agent shall have
received for each of the Borrowers and the Guarantor:
(i) a copy of each Organizational Document originally executed
and delivered by each Borrower and the Guarantor, as applicable, and,
to the extent
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applicable, certified as of a recent date by the applicable
Governmental Authority, each dated the Closing Date or a recent date
prior thereto; provided, that the Administrative Agent may, in its
discretion, accept Organizational Documents of the Borrowers and the
Guarantor certified by a Secretary or Assistant Secretary of the
Borrowers and the Guarantor in lieu of certification by Governmental
Authorities (subject to receipt of an undertaking from the Borrowers
and the Guarantor to effect delivery of such documents certified by a
Governmental Authorities on a post-Closing Date basis);
(ii) signature and incumbency certificates of the officers of
such Person executing the Loan Documents to which it is a party, dated
as of the Closing Date;
(iii) duly adopted resolutions of the board of directors or
similar governing body of each Borrower and the Guarantor approving and
authorizing the execution, delivery and performance of this Agreement
and the other Loan Documents to which it is a party or by which it or
its assets may be bound as of the Closing Date, certified as of the
Closing Date by its secretary or assistant secretary as being in full
force and effect without modification or amendment;
(iv) a good standing certificate from the applicable
Governmental Authority of each Borrower's and the Guarantor's
jurisdiction of incorporation, organization or formation and in each
jurisdiction in which it is qualified as a foreign corporation or other
entity to do business (except in the case of United States Gypsum
Company, L&W Supply Corporation and USG Interiors, Inc., as to which
good standing certificates shall be delivered in respect of their
respective jurisdictions of incorporation and the jurisdictions in
which their principal places of business are located) each dated a
recent date prior to the Closing Date; and
(v) such other documents as the Administrative Agent may
reasonably request.
(b) Interim Order. Not later than ten (10) days following the
Filing Date, the Administrative Agent and the Lenders shall have received a
certified copy of an order of the Bankruptcy Court in substantially the form of
Exhibit A-1 (the "INTERIM ORDER") approving the Loan Documents and granting the
Superpriority Claim status and senior priming and other Liens described in
Section 2.23 which Interim Order (i) shall have been entered upon an application
or motion of the Borrowers reasonably satisfactory in form and substance to the
Administrative Agent, which Interim Order shall have been entered on such prior
notice to such parties as may be satisfactory to the Administrative Agent, (ii)
shall authorize extensions of credit in amounts satisfactory to the
Administrative Agent, (iii) shall approve the payment by the Borrowers of all of
the Fees set forth in Sections 2.19, 2.20 and 2.21, (iv) shall be in full force
and effect and (v) shall not have been stayed, reversed, modified or amended in
any respect; and, if the Interim Order is the subject of a pending appeal in any
respect, neither the making of such Loan nor the issuance of such Letter of
Credit nor the performance by any of the Borrowers or the Guarantor of any of
their obligations hereunder or under the Loan Documents or under any other
instrument or agreement referred to herein shall be the subject of a presently
effective stay pending appeal.
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(c) Security and Pledge Agreement. The Borrowers and the
Guarantor shall have duly executed and delivered to the Administrative Agent a
Security and Pledge Agreement in substantially the form of Exhibit B (the
"SECURITY AND PLEDGE AGREEMENT").
(d) First Day Orders. All of the "first day orders" entered by
the Bankruptcy Court at the time of the commencement of the Cases shall be
reasonably satisfactory in form and substance to the Administrative Agent.
(e) Opinion of Counsel. The Administrative Agent and the
Lenders shall have received the favorable written opinion of counsel to the
Borrowers, reasonably acceptable to the Administrative Agent substantially in
the form of Exhibit C.
(f) Payment of Fees. The Borrowers shall have paid to the
Administrative Agent the then unpaid balance of all accrued and unpaid Fees due
under and pursuant to this Agreement and the letter referred to in Section 2.19.
(g) Corporate and Judicial Proceedings. All corporate and
judicial proceedings and all instruments and agreements in connection with the
transactions among the Borrowers, the Guarantor, the Administrative Agent and
the Lenders contemplated by this Agreement shall be satisfactory in form and
substance to the Administrative Agent, and the Administrative Agent shall have
received all information and copies of all documents and papers, including
records of corporate and judicial proceedings, which the Administrative Agent
may have requested in connection therewith, such documents and papers where
appropriate to be certified by proper corporate, governmental or judicial
authorities.
(h) Information. The Administrative Agent shall have received
such information (financial or otherwise) as may be reasonably requested by the
Administrative Agent and shall have discussed such information with the
Borrowers' management and shall be satisfied with the nature and substance of
such discussions.
(i) Forecast. The Administrative Agent and the Lenders shall
have received from the Borrowers a forecast of the Borrowers' cash flows for the
period through the Maturity Date on a quarterly basis and setting forth the
anticipated uses of the Loans under the Agreement and such forecast shall be
satisfactory in form and substance to them.
(j) Compliance with Laws. The Borrowers and the Guarantor
shall have granted the Administrative Agent access to and the right to inspect
all reports, audits and other internal information of the Borrowers and the
Guarantor relating to environmental matters and any third party verification of
certain matters relating to compliance with environmental laws and regulations
requested by the Administrative Agent, and the Administrative Agent shall be
reasonably satisfied that the Borrowers and the Guarantor are in compliance in
all material respects with all applicable environmental laws and regulations and
be satisfied with the costs of maintaining such compliance.
(k) Closing Documents. The Administrative Agent shall have
received all documents required by this Agreement satisfactory in form and
substance to the Administrative Agent.
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(l) UCC-11 Searches. The Administrative Agent shall have
received UCC-11 searches conducted in the jurisdictions in which the Borrowers
conduct business, satisfactory to the Administrative Agent (dated as of a date
reasonably satisfactory to the Agent), reflecting the absence of Liens and
encumbrances on the assets of the Borrowers other than Permitted Liens.
SECTION 4.2 Conditions Precedent to Each Loan and Each Letter of
Credit. The obligation of the Lenders to make each Loan and of the Fronting Bank
to issue each Letter of Credit, including the initial Loan and the initial
Letter of Credit, is subject to the following conditions precedent:
(a) Notice. The Administrative Agent shall have received a
notice with respect to each Borrowing or the issuance of each Letter of Credit,
as the case may be, as required by Section 2.
(b) Representations and Warranties. All representations and
warranties contained in this Agreement and the other Loan Documents shall be
true and correct in all material respects on and as of the date of each
Borrowing or the issuance of each Letter of Credit hereunder with the same
effect as if made on and as of such date except to the extent such
representations and warranties expressly relate to an earlier date.
(c) No Default. On the date of each Borrowing or the issuance
of each Letter of Credit hereunder, no Event of Default or event which upon
notice or lapse of time or both would constitute an Event of Default shall have
occurred and be continuing.
(d) Orders. The Interim Order shall be in full force and
effect and shall not have been stayed, reversed, modified or amended in any
respect without the prior written consent of the Administrative Agent and the
Required Lenders, provided that at the time of the making of any Loan or the
issuance of any Letter of Credit the aggregate amount of either of which, when
added to the sum of the principal amount of all Loans then outstanding and the
Letter of Credit Outstandings, would exceed the amount authorized by the Interim
Order (collectively, the "ADDITIONAL CREDIT"), the Administrative Agent and each
of the Lenders shall have received a certified copy of an order of the
Bankruptcy Court in substantially the form of Exhibit A-2 (the "FINAL ORDER"),
which, in any event, shall have been entered by the Bankruptcy Court no later
than forty five (45) days after the entry of the Interim Order, and at the time
of the extension of any Additional Credit the Final Order shall be in full force
and effect, and shall not have been stayed, reversed, modified or amended in any
respect without the prior written consent of the Administrative Agent and the
Required Lenders; and, if either the Interim Order or the Final Order is the
subject of a pending appeal in any respect, neither the making of the Loans nor
the issuance of any Letter of Credit nor the performance by any Borrower or the
Guarantor of any of their obligations under any of the Loan Documents or under
any other instrument or agreement referred to herein shall be the subject of a
presently effective stay pending appeal.
(e) Payment of Fees. The Borrowers shall have paid to the
Administrative Agent the then unpaid balance of all accrued and unpaid Fees then
due and payable under and pursuant to this Agreement and the letter referred to
in Section 2.19.
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(f) Borrowing Base Certificate. Commencing with the expiration
of the Initial Period, the Administrative Agent shall have received a Borrowing
Base Certificate dated no more than seven (7) days prior to each Borrowing or
the issuance of each Letter of Credit, which Borrowing Base Certificate shall
include supporting schedules as required by the Administrative Agent.
(g) Usage. The uses of such Borrowing or such Letter of Credit
shall be substantially consistent with the forecast described in Section 4.1(i)
(as updated from time to time), as applicable.
SECTION 5. AFFIRMATIVE COVENANTS
From the date hereof and for so long as any Commitment shall
be in effect or any Letter of Credit shall remain outstanding (in a face amount
in excess of the amount of cash then held in the Letter of Credit Account, or in
excess of the face amount of back-to-back letters of credit delivered, in each
case pursuant to Section 2.3(b)), or any amount shall remain outstanding or
unpaid under this Agreement, each of the Borrowers and the Guarantor agrees
that, unless the Required Lenders shall otherwise consent in writing, the
Borrowers and the Guarantor will:
SECTION 5.1 Financial Statements, Reports, etc. Deliver to the
Administrative Agent and each of the Lenders:
(a) within ninety (90) days after the end of each fiscal year,
the Borrowers' and the Guarantor's consolidated and consolidating balance sheets
and related statements of income, stockholders' equity and cash flows, showing
the financial condition of the Borrowers, the Guarantor and their respective
Subsidiaries on a consolidated basis as of the close of such fiscal year and the
results of their respective operations during such year, the consolidated
statements of the Borrowers and the Guarantor to be audited for the Borrowers,
the Guarantor and their respective Subsidiaries by Arthur Andersen LLP or other
independent public accountants of recognized national standing acceptable to the
Required Lenders and accompanied by an opinion of such accountants (which shall
not be qualified other than with respect to the Cases or a going concern
qualification) and to be certified by a Financial Officer of Parent to the
effect that such consolidated financial statements fairly present the financial
condition and results of operations of the Borrowers, the Guarantor and their
respective Subsidiaries on a consolidated basis in accordance with GAAP;
(b) within forty five (45) days after the end of each of the
first three fiscal quarters (but within sixty (60) days after the end of the
fiscal quarter ending June 30, 2001) and within ninety (90) days after the end
of the fourth fiscal quarter of each fiscal year, the Borrowers' and the
Guarantor's consolidated and consolidating balance sheets and related statements
of income, stockholders' equity and cash flows, showing the financial condition
of the Borrowers, the Guarantor and their respective Subsidiaries on a
consolidated basis as of the close of such fiscal quarter and the results of
their operations during such fiscal quarter and the then elapsed portion of the
fiscal year, each certified by a Financial Officer of Parent as fairly
presenting the financial condition and results of operations of the Borrowers,
the Guarantor and their respective Subsidiaries on a consolidated basis in
accordance with GAAP, subject to normal year-end audit adjustments;
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(c) concurrently with any delivery of financial statements
under (a) or (b) above as applicable, (i) a certificate of a Financial Officer
of each of the Borrowers and the Guarantor certifying such statements (A)
certifying that no Event of Default or event which upon notice or lapse of time
or both would constitute an Event of Default has occurred, or, if such an Event
of Default or event has occurred, specifying the nature and extent thereof and
any corrective action taken or proposed to be taken with respect thereto and (B)
setting forth computations in reasonable detail satisfactory to the
Administrative Agent demonstrating compliance with the provisions of Sections
6.3, 6.4, 6.5 and 6.10 and (ii) a certificate of such accountants accompanying
the audited consolidated financial statements delivered under (a) above
certifying that, in the course of the regular audit of the business of the
Borrowers, the Guarantor and their respective Subsidiaries, such accountants
have obtained no knowledge that an Event of Default has occurred and is
continuing, or if, in the opinion of such accountants, an Event of Default has
occurred and is continuing, specifying the nature thereof and all relevant facts
with respect thereto;
(d) as soon as available, but no more than forty five (45)
days after the end of each month, the unaudited monthly cash flow reports of the
Borrowers and the Guarantor on a consolidated basis and as of the close of such
fiscal month and the results of their operations during such fiscal period and
the then elapsed portion of the fiscal year;
(e) as soon as possible, and in any event within forty five
(45) days of the Closing Date, a consolidated pro forma balance sheet of the
Borrowers' financial condition as of June 30, 2001;
(f) concurrently with any delivery of financial statements
under (b) above, updates, if any, of the forecast delivered to the
Administrative Agent pursuant to Section 4.1(i), satisfactory in form and
substance to the Administrative Agent;
(g) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials filed by
it with the Securities and Exchange Commission, or any governmental authority
succeeding to any of or all the functions of said commission, or with any
national securities exchange, as the case may be;
(h) as soon as available and in any event (A) within thirty
(30) days after any Borrower or the Guarantor or any of their ERISA Affiliates
knows or has reason to know that any Termination Event described in clause (i)
of the definition of Termination Event with respect to any Single Employer Plan
of any of the Borrowers or the Guarantor or such ERISA Affiliate has occurred
and (B) within ten (10) days after any of the Borrowers or the Guarantor or any
of their ERISA Affiliates knows or has reason to know that any other Termination
Event with respect to any such Plan has occurred, a statement of a Financial
Officer of such Borrower or the Guarantor describing such Termination Event and
the action, if any, which such Borrower or the Guarantor or such ERISA Affiliate
proposes to take with respect thereto;
(i) promptly and in any event within ten (10) days after
receipt thereof by any of the Borrowers or the Guarantor or any of their ERISA
Affiliates from the PBGC copies of each notice received by such Borrower or the
Guarantor or any such ERISA Affiliate of the
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PBGC's intention to terminate any Single Employer Plan of such Borrower or the
Guarantor or such ERISA Affiliate or to have a trustee appointed to administer
any such Plan;
(j) if requested by the Administrative Agent, promptly and in
any event within thirty (30) days after the filing thereof with the Internal
Revenue Service, copies of each Schedule B (Actuarial Information) to the annual
report (Form 5500 Series) with respect to each Single Employer Plan of any of
the Borrowers, the Guarantor or any of their ERISA Affiliates;
(k) within ten (10) days after notice is given or required to
be given to the PBGC under Section 302(f)(4)(A) of ERISA of the failure of any
of the Borrowers or the Guarantor or any of their ERISA Affiliates to make
timely payments to a Plan, a copy of any such notice filed and a statement of a
Financial Officer of such Borrower or the Guarantor setting forth (A) sufficient
information necessary to determine the amount of the Lien under Section
302(f)(3), (B) the reason for the failure to make the required payments and (C)
the action, if any, which the Borrowers or the Guarantor or any of their ERISA
Affiliates proposed to take with respect thereto;
(l) promptly and in any event within ten (10) days after
receipt thereof by any of the Borrowers or the Guarantor or any ERISA Affiliate
from a Multiemployer Plan sponsor, a copy of each notice received by such
Borrower or the Guarantor or any ERISA Affiliate concerning (A) the imposition
of Withdrawal Liability by a Multiemployer Plan, (B) the determination that a
Multiemployer Plan is, or is expected to be, in reorganization within the
meaning of Title IV of ERISA, (C) the termination of a Multiemployer Plan within
the meaning of Title IV of ERISA, or (D) the amount of liability incurred, or
which may be incurred, by the Borrowers or the Guarantor or any ERISA Affiliate
in connection with any event described in clause (A), (B) or (C) above;
(m) promptly, from time to time, such other information
(including, without limitation, projections) regarding the operations, business
affairs and financial condition of any Borrower or the Guarantor, or compliance
with the terms of any material loan or financing agreements as the
Administrative Agent, at the request of any Lender, may reasonably request; and
(n) promptly after the same is available, copies of all
pleadings, motions, applications, judicial information, financial information
and other documents filed by or on behalf of any of the Borrowers with the
Bankruptcy Court in the Cases, or distributed by or on behalf of any of the
Borrowers to any official committee appointed in any of the Cases, providing
copies of same to counsel for the Administrative Agent.
SECTION 5.2 Existence. Preserve and maintain in full force and effect
all governmental rights, privileges, qualifications, permits, licenses and
franchises necessary or desirable in the normal conduct of its businesses except
(i) (A) if in the reasonable business judgment of such Borrower or the Guarantor
it is in its best economic interest not to preserve and maintain such rights,
privileges, qualifications, permits, licenses and franchises, and (B) such
failure to preserve the same could not, in the aggregate, reasonably be expected
to have a material adverse effect on the operations, business, properties,
assets, prospects or condition
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(financial or otherwise) of the Borrowers and the Guarantor, taken as a whole,
and (ii) as otherwise permitted in connection with sales of assets permitted by
Section 6.11.
SECTION 5.3 Insurance. (a) Keep its insurable properties insured at all
times