Exhibit 10.4
USG CORPORATION
PERFORMANCE SHARES AGREEMENT
DATE OF GRANT: MARCH 23, 2007
     WHEREAS, _________  (the “Grantee”) is an employee of USG Corporation, a
Delaware corporation (the “Company”) or a Subsidiary;
     WHEREAS, the Board of Directors of the Company (the “Board”) has granted to
the Grantee, effective as of March 23, 2007 (the “Date of Grant”), the number of
Performance Shares (as defined in the Plan) set forth below pursuant to the
Company’s Long-Term Incentive Plan, as amended (the “Plan”), subject to the
terms and conditions of the Plan and the terms and conditions hereinafter set
forth; and
     WHEREAS, the execution of a Performance Shares Agreement substantially in
the form hereof to evidence such grant has been authorized by a resolution of
the Board.
     NOW, THEREFORE, the Company and the Grantee agree as follows:

1.   Grant of Performance Share Right. Subject to the terms of the Plan, the
Company hereby grants to the Grantee a targeted number of performance shares
equal to _________ (the “Target Performance Shares”), payment of which depends
on the Company’s performance as set forth in this Agreement and in the Statement
of Performance Goals (the “Statement of Performance Goals”) approved by the
Board.

2.   Earning of Award.

     (a) Performance Measure. The Grantee’s right to receive all, any portion
of, or more than, the Target Performance Shares will be contingent upon the
achievement of specified levels of performance of the Company’s total
stockholder return (including reinvestment of dividends) relative to the
performance of the Dow Jones U.S. Construction and Materials Index (“Total
Stockholder Return”), as set forth in the Statement of Performance Goals and
will be measured over the period from December 1, 2006 through December 31, 2009
(the “Performance Period”).
     (b) Below Threshold. If, upon the conclusion of the Performance Period,
Total Stockholder Return for the Performance Period falls below the threshold
level, as set forth in the Performance Matrix contained in the Statement of
Performance Goals, no performance             shares for the Performance Period
shall become earned.
     (c) Threshold. If, upon the conclusion of the Performance Period, Total
Stockholder Return for the Performance Period equals the threshold level, as set
forth in

 

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the Performance Matrix contained in the Statement of Performance Goals, 35% of
the Target Performance Shares for the Performance Period shall become earned.
     (d) Between Threshold and Target. If, upon the conclusion of the
Performance Period, Total Stockholder Return exceeds the threshold level, but is
less than the target level, as set forth in the Performance Matrix contained in
the Statement of Performance Goals, the Target Performance Shares shall become
earned based on performance during the Performance Period, as determined by
mathematical straight-line interpolation between 35% of the Target Performance
Shares and 100% of the Target Performance Shares.
     (e) Target. If, upon the conclusion of the Performance Period, Total
Stockholder Return for the Performance Period equals the target level, as set
forth in the Performance Matrix contained in the Statement of Performance Goals,
100% of the Target Performance Shares for the Performance Period shall become
earned.
     (f) Between Target and Intermediate. If, upon the conclusion of the
Performance Period, Total Stockholder Return exceeds the target level, but is
less than the intermediate level, as set forth in the Performance Matrix
contained in the Statement of Performance Goals the Target Performance Shares
shall become earned based on performance during the Performance Period, as
determined by mathematical straight-line interpolation between 100% of the
Target Performance Shares and 150% of the Target Performance Shares.
     (g) Intermediate. If, upon the conclusion of the Performance Period, Total
Stockholder Return for the Performance Period equals the intermediate level, as
set forth in the Performance Matrix contained in the Statement of Performance
Goals, 150% of the Target Performance Shares for the Performance Period shall
become earned.
     (h) Between Intermediate and Maximum. If, upon the conclusion of the
Performance Period, Total Stockholder Return exceeds the intermediate level, but
is less than the maximum level, as set forth in the Performance Matrix contained
in the Statement of Performance Goals the Target Performance Shares shall become
earned based on performance during the Performance Period, as determined by
mathematical straight-line interpolation between 150% of the Target Performance
Shares and 200% of the Target Performance Shares.
     (i) Equals or Exceeds Maximum. If, upon the conclusion of the Performance
Period, Total Stockholder Return for the Performance Period equals or exceeds
the maximum level, as set forth in the Performance Matrix contained in the
Statement of Performance Goals, 200% of the Target Performance Shares shall
become earned.
     (j) Conditions; Determination of Earned Award. Except as otherwise provided
herein, the Grantee’s right to receive any performance shares is contingent upon
his or her remaining in the continuous employ of the Company or a Subsidiary
through the end of the Performance Period. Following the Performance Period, the
Board shall
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determine whether and to what extent the goals relating to Total Stockholder
Return have been satisfied for the Performance Period and shall determine the
number of performance shares that shall have become earned hereunder.

3.   Effect of Change in Control. In the event a Change of Control occurs during
the Performance Period, but before the payment of any performance shares as set
forth in Section 6 below, the Company shall pay to the Grantee, as soon as
practicable following the Change of Control, a pro rata number of the Target
Performance Shares based on the number of full months that have elapsed during
the Performance Period prior to the Change of Control, and the remaining
performance shares will be forfeited.

4.   Termination Due to Death, Disability, Retirement. If the Grantee’s
employment with the Company or a Subsidiary terminates during the Performance
Period, but before the payment of any performance shares as set forth in
Section 6 below due to (a) the Grantee’s death or (b) the Grantee becoming
permanently and totally disabled while in the employ of the Company or any
Subsidiary or (c) the Grantee’s Retirement, the Company shall pay to the Grantee
or his or her executor or administrator, as the case may be, as soon as
practicable following the Performance Period and based on the level of
achievement of Total Stockholder Return during the Performance Period, a pro
rata number of the Target Performance Shares based on the number of full months
during the Performance Period during which the Grantee was employed by the
Company, and the remaining performance shares will be forfeited. The Grantee
shall be considered to have become permanently and totally disabled if the
Grantee has suffered a total disability within the meaning of the Company’s Long
Term Disability Plan for Salaried Employees. “Retirement” shall mean the
Optionee’s retirement under a retirement plan (including, without limitation,
any supplemental retirement plan) of the Company or any Subsidiary, or the
Grantee’s retirement from employment with the Company or any Subsidiary after
completing at least three years of continuous service with the Company or any
Subsidiary and attaining the age of 62.

5.   Other Employment Terminations. If the Grantee’s employment with the Company
or a Subsidiary terminates before the end of the Performance Period, and before
the occurrence of a Change of Control, for any reason other than as set forth in
Section 4 above, the performance shares will be forfeited.

6.   Form and Time of Payment of Performance Shares. Payment of any performance
shares that become earned as set forth herein will be made in the form of Common
Shares. Except as otherwise provided in Sections 3 and 4, payment will be made
as soon as practicable after the end of the Performance Period and the
determination by the Board of the level of attainment of Total Stockholder
Return, but in no event shall such payment occur later than two and one-half
months after the end of the Performance Period. Performance shares will be
forfeited if they are not earned at the end of the Performance Period and,
except as otherwise provided in this Agreement, if the Grantee ceases to be
employed by the Company or a Subsidiary at any time prior to such performance
shares becoming earned at the end of the Performance Period. To the extent that
the Company or any Subsidiary is required to withhold any federal, state, local
or foreign tax in connection with the payment of earned performance shares
pursuant to this Agreement, it

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    shall be a condition to the receipt of such performance shares that the
Grantee make arrangements satisfactory to the Company or such Subsidiary for
payment of such taxes required to be withheld, which may include by having the
Company withhold Common Shares otherwise payable pursuant to this award.

7.   Payment of Dividends. No dividends shall be accrued or earned with respect
to the performance shares until such performance shares are earned by the
Grantee as provided in this Agreement.

8.   Performance Shares Nontransferable. Until payment is made to the Grantee as
provided herein, neither the Performance Shares granted hereby nor any interest
therein or in the Common Shares related thereto shall be transferable other than
by will or the laws of descent and distribution prior to payment.

9.   Adjustments. In the event of any change in the aggregate number of
outstanding Common Shares by reason of (a) any stock dividend, extraordinary
dividend, stock split, combination of shares, recapitalization or other change
in the capital structure of the Company, or (b) any Change in Control, merger,
consolidation, spin-off, split-off, spin-out, split-up, reorganization or
partial or complete liquidation, or other distribution of assets, issuance of
rights or warrants to purchase securities, or (c) any other corporate
transaction or event having an effect similar to any of the foregoing, then the
Board shall adjust the number of Performance Shares then held by the Grantee in
such manner as to prevent dilution or enlargement of the rights of the Grantee
that otherwise would result from such event. Moreover, in the event of any such
transaction or event, the Board (or a committee of the Board), in its
discretion, may provide in substitution for any or all of the Grantee’s rights
under this Agreement such alternative consideration as it may determine to be
equitable in the circumstances.

10.   Compliance with Section 409A of the Code. To the extent applicable, it is
intended that this Agreement and the Plan comply with the provisions of
Section 409A of the Code, so that the income inclusion provisions of
Section 409A(a)(1) do not apply to the Grantee. This Agreement and the Plan
shall be administered in a manner consistent with this intent, and any provision
that would cause the Agreement or the Plan to fail to satisfy Section 409A of
the Code shall have no force and effect until amended to comply with
Section 409A of the Code (which amendment may be retroactive to the extent
permitted by Section 409A of the Code and may be made by the Company without the
consent of the Grantee). In particular, to the extent that the Performance
Shares become nonforfeitable pursuant to Section 3 or Section 4 and the event
causing the Performance Shares to become nonforfeitable is the Grantee’s
Retirement or an event that does not constitute a permitted distribution event
under Section 409A(a)(2) of the Code, then notwithstanding anything to the
contrary in Section 6 above, issuance of the Common Shares underlying the
Performance Shares will be made, to the extent necessary to comply with the
provisions of Section 409A of the Code, to the Grantee on the earlier of (a) the
Grantee’s “separation from service” with the Company (determined in accordance
with Section 409A); provided, however, that if the Grantee is a “specified
employee” (within the meaning of Section 409A), the Grantee’s date of issuance
of the Common Shares underlying the Performance Shares shall be the date that is
six months after the

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    date of the Grantee’s separation of service with the Company or (b) the
Grantee’s death. Reference to Section 409A of the Code is to Section 409A of the
Internal Revenue Code of 1986, as amended, and will also include any proposed,
temporary or final regulations, or any other guidance, promulgated with respect
to such Section by the U.S. Department of the Treasury or the Internal Revenue
Service.

11.   Continuous Employment. For purposes of this Agreement, the continuous
employment of the Grantee with the Company or a Subsidiary shall not be deemed
to have been interrupted, and the Grantee shall not be deemed to have ceased to
be an employee of the Company or Subsidiary, by reason of (a) the transfer of
the Grantee’s employment among the Company and its Subsidiaries or (b) an
approved leave of absence.

12.   No Employment Contract. The grant of the Performance Shares to the Grantee
is a voluntary, discretionary award being made on a one-time basis and it does
not constitute a commitment to make any future awards. The grant of the
Performance Shares and any payments made hereunder will not be considered salary
or other compensation for purposes of any severance pay or similar allowance,
except as otherwise required by law. Nothing in this Agreement will give the
Grantee any right to continue employment with the Company or any Subsidiary, as
the case may be, or interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of the Grantee.

13.   Information. Information about the Grantee and the Grantee’s participation
in the Plan may be collected, recorded and held, used and disclosed for any
purpose related to the administration of the Plan. The Grantee understands that
such processing of this information may need to be carried out by the Company
and its Subsidiaries and by third party administrators whether such persons are
located within the Grantee’s country or elsewhere, including the United States
of America. The Grantee consents to the processing of information relating to
the Grantee and the Grantee’s participation in the Plan in any one or more of
the ways referred to above.

14.   Relation to Plan. This Agreement is subject to the terms and conditions of
the Plan. In the event of any inconsistency between the provisions of this
Agreement and the Plan, the Plan shall govern. All terms used herein with
initial capital letters and not otherwise defined herein that are defined in the
Plan shall have the meanings assigned to them in the Plan. The Board acting
pursuant to the Plan, as constituted from time to time, shall, except as
expressly provided otherwise herein, have the right to determine any questions
which arise in connection with the grant of the Performance Shares.

15.   Amendments. Any amendment to the Plan shall be deemed to be an amendment
to this Agreement to the extent that the amendment is applicable hereto;
provided, however, that no amendment shall adversely affect the rights of the
Grantee under this Agreement without the Grantee’s consent.

16.   Severability. If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable
or otherwise illegal, the remainder of this Agreement and the application of
such provision to any other person or circumstances shall not be affected, and
the provisions so held to be invalid,

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    unenforceable or otherwise illegal shall be reformed to the extent (and only
to the extent) necessary to make it enforceable, valid and legal.

17.   Successors and Assigns. Without limiting Section 8 hereof, the provisions
of this Agreement shall inure to the benefit of, and be binding upon, the
successors, administrators, heirs, legal representatives and assigns of the
Grantee, and the successors and assigns of the Company.

18.   Governing Law. This Agreement shall be governed by and construed in
accordance with the internal substantive laws of the State of Delaware, without
giving effect to any principle of law that would result in the application of
the law of any other jurisdiction.

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     Executed in the name and on behalf of the Company at Chicago, Illinois as
of the 23rd day of March, 2007.

     
 
  USG CORPORATION
 
   
 
   

     The undersigned Grantee hereby accepts the award of Performance Shares
evidenced by this Performance Shares Agreement on the terms and conditions set
forth herein and in the Plan.

               
Dated:
             
 
             
 
          [GRANTEE NAME]