EXHIBIT 10.36
USG CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
          WHEREAS, the “Optionee” is an employee of USG Corporation (the
“Company”) or a Subsidiary;
          WHEREAS, the Board of Directors of the Company (the “Board”) has
granted to the Optionee, as set forth in the Grant Summary on the Smith Barney
website the “Date of Grant”, an Option Right (the “Option”) pursuant to the
Company’s Long-Term Incentive Plan, as amended (the “Plan”) to purchase Common
Shares of the Company at a price per share, which represents the Market Value
per Share on the Date of Grant (the “Option Price”), subject to the terms and
conditions of the Plan and the terms and conditions hereinafter set forth;
          WHEREAS, the execution of a Nonqualified Stock Option Agreement
substantially in the form hereof to evidence the Option has been authorized by a
resolution of the Board; and
          WHEREAS, the Option is intended as a nonqualified stock option and
shall not be treated as an “incentive stock option” within the meaning of that
term under Section 422 of the Internal Revenue Code of 1986, as amended.
          NOW, THEREFORE, the Company and the Optionee agree as follows:

1.   Right to Exercise.

  (a)   Subject to Sections 1(b) and (c), Section 3 and Section 5 below, the
Option will become exercisable as set forth in the Grant Summary if the Optionee
remains continuously employed until such time. To the extent the Option is
exercisable, it may be exercised in whole or in part.     (b)   Notwithstanding
Section 1(a) above, the Option shall become immediately exercisable in full, if
at any time prior to the termination of the Option, a Change in Control shall
occur.     (c)   Notwithstanding Section 1(a) above, if the Optionee should die
or become permanently and totally disabled while in the employ of the Company or
any Subsidiary, or the Optionee should Retire (as hereinafter defined)
(“Retirement”), this Option shall immediately become exercisable in full and
shall remain exercisable until terminated in accordance with Section 3 below.
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. “Retire” shall mean
the Optionee’s retirement under a retirement plan (including, without
limitation, any

 

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      supplemental retirement plan) of the Company or any Subsidiary, or the
Optionee’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.

2.   Payment. The Option Price shall be payable (a) in cash or by check
acceptable to the Company, (b) by actual or constructive transfer to the Company
of nonforfeitable, unrestricted Common Shares that have been owned by the
Optionee for more than six (6) months prior to the date of exercise, or (c) by a
combination of such methods of payment; provided however, that clauses (b) and
(c) shall not apply if the Optionee is residing in Canada. The requirement of
payment in cash shall be deemed satisfied if the Optionee shall have made
arrangements satisfactory to the Company with a bank or a broker who is a member
of the National Association of Securities Dealers, Inc. to sell on the exercise
date a sufficient number of the shares being purchased so that the net proceeds
of the sale transaction will at least equal the Option Price plus payment of any
applicable withholding taxes and pursuant to which the bank or broker undertakes
to deliver the full Option Price plus payment of any applicable withholding
taxes to the Company on a date satisfactory to the Company, but not later than
the date on which the sale transaction will settle in the ordinary course of
business.   3.   Termination. This Option shall terminate on the earliest of the
following dates:

  (a)   The date on which the Optionee ceases to be an employee of the Company
or any Subsidiary, if the Optionee’s employment with the Company or a Subsidiary
is terminated for Cause (for purposes of this Agreement and regardless of the
meaning of such term under labor laws of the place where the Optionee resides,
“Cause” being defined as (i) failure by the Optionee to substantially perform
the Optionee’s duties, or (ii) misconduct by the Optionee in violation of the
Company’s or any Subsidiary’s established business rules and procedures, or
(iii) breach of any confidentiality, non-competition or non-solicitation
agreement entered into between the Optionee and the Company);     (b)   Six
(6) months after the Optionee ceases to be an employee of the Company or a
Subsidiary, unless the Optionee ceases to be such employee by reason of death,
permanent and total disability, Retirement or termination for Cause;     (c)  
One (1) year after the death of the Optionee if the Optionee dies while an
employee of the Company or a Subsidiary (in which case the Option becomes
immediately exercisable in full pursuant to Section 1(c) herein);     (d)  
Three (3) years after the permanent and total disability of the Optionee if the
Optionee becomes permanently and totally disabled (as described in Section 1(c)
above) while an employee of the Company or a Subsidiary (in which case the
Option becomes immediately exercisable in full pursuant to Section 1(c) herein);
    (e)   Five (5) years after the date that the Optionee shall Retire;     (f)
  Ten (10) years from the Date of Grant; and

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  (g)   Immediately upon a finding by the Board (or a committee of the Board)
that the Optionee has engaged in any fraud or intentional misconduct as
described in Section 17 hereof.

4.   Option Nontransferable. This Option is not transferable by the Optionee
otherwise than by will or the laws of descent and distribution.   5.  
Compliance with Law. This Option shall not be exercisable if such exercise would
involve a violation of any applicable federal, state or other securities law.  
6.   Adjustments. The Board (or a committee of the Board) shall make such
adjustments in the Option Price and in the number or kind of Common Shares or
other securities covered by this Option as the Board (or a committee of the
Board) in its sole discretion, exercised in good faith, may determine is
equitably required to prevent dilution or enlargement of the rights of the
Optionee that otherwise would result from (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. 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
Option Rights provided for herein such alternative consideration as it may
determine to be equitable in the circumstances.   7.   Taxes and Withholding. If
the Company shall be required to withhold any federal, state, local or foreign
tax in connection with exercise of this Option, it shall be a condition to such
exercise that the Optionee pay or make provision satisfactory to the Company for
payment of all such taxes. The Optionee may elect that all or any part of such
withholding requirement be satisfied by retention by the Company of a portion of
the shares purchased upon exercise of this Option. If such election is made, the
shares so retained shall be credited against such withholding requirement at the
Market Value per Share on the date of exercise. In no event, however, shall the
Company accept Common Shares for payment of taxes in excess of required tax
withholding rates.   8.   Continuous Employment. For purposes of this Agreement,
the continuous employment of the Optionee with the Company or a Subsidiary shall
not be deemed to have been interrupted, and the Optionee shall not be deemed to
have ceased to be an employee of the Company or Subsidiary, by reason of the
(a) transfer of the Optionee’s employment among the Company and its Subsidiaries
or (b) an approved leave of absence.   9.   No Right to Future Grants; No Right
of Employment; Extraordinary Item: In accepting the grant, Grantee acknowledges
that: (a) the Plan is established voluntarily by the Company, it is
discretionary in nature and it may be modified, suspended or terminated by the
Company at any time, as provided in the Plan and this Award Agreement; (b) the
grant of the Stock Options is voluntary and occasional and does not create any
contractual or other right to receive future grants of Stock Options , or

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    benefits in lieu of Stock Options , even if Stock Options have been granted
repeatedly in the past; (c) all decisions with respect to future grants, if any,
will be at the sole discretion of the Company; (d) your participation in the
Plan is voluntary; (e) the Stock Options are an extraordinary item that does not
constitute compensation of any kind for services of any kind rendered to the
Company, its Affiliates and/or Subsidiaries, and which is outside the scope of
Grantee’s employment contract, if any; (f) the Stock Options are not part of
normal or expected compensation or salary for any purposes, including, but not
limited to, calculating any severance, resignation, termination, redundancy, end
of service payments, bonuses, long-service awards, pension or retirement
benefits or similar payments; (g) in the event that Grantee is an employee of an
Affiliate or Subsidiary of the Company, the grant will not be interpreted to
form an employment contract or relationship with the Company; and furthermore,
the grant will not be interpreted to form an employment contract with the
Affiliate or Subsidiary that is Grantee’s employer; (h) the future value of the
underlying Shares is unknown and cannot be predicted with certainty; (i) no
claim or entitlement to compensation or damages arises from forfeiture or
termination of the Stock Options or diminution in value of the Stock Options or
the Shares and Grantee irrevocably releases the Company, its Affiliates and/or
its Subsidiaries from any such claim that may arise; and (j) notwithstanding any
terms or conditions of the Plan to the contrary, in the event of involuntary
termination of Grantee’s employment, Grantee’s right to receive Stock Options
and vest in Stock Options under the Plan, if any, will terminate effective as of
the date that Grantee is no longer actively employed and will not be extended by
any notice period mandated under local law (e.g., active employment would not
include a period of “garden leave” or similar period pursuant to local law);
furthermore, in the event of involuntary termination of employment, Grantee’s
right to vest in the Stock Options after termination of employment, if any, will
be measured by the date of termination of Grantee’s active employment and will
not be extended by any notice period mandated under local law.   10.   Employee
Data Privacy: Grantee hereby explicitly and unambiguously consents to the
collection, use and transfer, in electronic or other form, of Grantee’s personal
data as described in this document by and among, as applicable, the Company, its
Affiliates and its Subsidiaries (“the Company Group”) for the exclusive purpose
of implementing, administering and managing your participation in the Plan.
Grantee’s understands that the Company Group holds certain personal information
about Grantee, including, but not limited to, Grantee’s name, home address and
telephone number, date of birth, social insurance number or other identification
number, salary, nationality, job title, any Shares of stock or directorships
held in the Company, details of all Restricted Stock Units or any other
entitlement to Shares of stock awarded, canceled, exercised, vested, unvested or
outstanding in Grantee’s favor, for the purpose of implementing, administering
and managing the Plan (“Data”). Grantee understands that Data may be transferred
to any third parties assisting in the implementation, administration and
management of the Plan, that these recipients may be located in your country or
elsewhere, and that the recipient’s country may have different data privacy laws
and protections than your country. You understand that you may request a list
with the names and addresses of any potential recipients of the Data by
contacting Grantee’s local human resources representative. Grantee authorizes
the recipients to receive, possess, use, retain and transfer the Data, in
electronic or other form, for the purposes of implementing, administering and
managing

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    Grantee’s participation in the Plan, including any requisite transfer of
such Data as may be required to a broker or other third party with whom Grantee
may elect to deposit any Shares acquired. Grantee understands that Data will be
held only as long as is necessary to implement, administer and manage Grantee’s
participation in the Plan. Grantee understands that Grantee may, at any time,
view Data, request additional information about the storage and processing of
Data, require any necessary amendments to Data or refuse or withdraw the
consents herein, in any case without cost, by contacting in writing Grantee’s
local human resources representative. Grantee understands, however, that
refusing or withdrawing Grantee’s consent may affect Grantee’s ability to
participate in the Plan. For more information on the consequences of Grantee’s
refusal to consent or withdrawal of consent, Grantee understand that Grantee may
contact Grantee’s local human resources representative.   11.   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 (or a committee of 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 Option hereunder.   12.  
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 Optionee
under this Agreement without the Optionee’s consent.   13.   Severability.
Subject to Section 17, 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, unenforceable or otherwise
illegal shall be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid and legal.   14.   Successors and Assigns. Without
limiting Section 4 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 Optionee, and the successors and assigns of
the Company.

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15.   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.   16.   The Optionee acknowledges that by
clicking on the “Accept” button on the Smith Barney web page titled “Step 3:
Confirm the Review/Acceptance of your Award,” the Optionee agrees to be bound by
the electronic execution of this Award Agreement.   17.   In accordance with
Section 20(d) of the Plan, if the Board (or a committee of the Board) has
determined that any fraud or intentional misconduct by the Optionee was a
significant contributing factor to the Company having to restate all or a
portion of its financial statement(s), to the extent permitted by applicable law
the Optionee shall: (a) return to the Company, in exchange for payment by the
Company of the Option Price paid therefor, all Common Shares that the Optionee
has not disposed of that were purchased pursuant to this Agreement; and (b) with
respect to any Common Shares that the Optionee has disposed of that were
purchased pursuant to this Agreement, pay to the Company in cash the difference
between (i) the Option Price paid therefor by the Optionee pursuant to this
Agreement, and (ii) the closing price of the Common Shares on the New York Stock
Exchange on the date of such purchase (or on the last trading day prior to such
purchase, if there was no trading on the purchase date). The remedy specified
herein shall not be exclusive, and shall be in addition to every other right or
remedy at law or in equity that may be available to the Company. Notwithstanding
any other provision of this Agreement or the Plan to the contrary, if this
Section 17 is held invalid, unenforceable or otherwise illegal, the remainder of
this Agreement shall be deemed to be unenforceable due to a failure of
consideration, and the Optionee’s rights to the Option that would otherwise be
granted under this Agreement shall be forfeited.

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     Executed in the name and on behalf of the Company at Chicago, Illinois as
of the       day of                     , 20     .

            USG CORPORATION

Name: Brian J. Cook
Title:   Senior Vice President,
            Human Resources
                       

     The undersigned Optionee hereby accepts the Option Rights evidenced by this
Nonqualified Stock Option Agreement on the terms and conditions set forth herein
and in the Plan.
PLEASE PRINT AND KEEP A COPY FOR YOUR RECORDS.

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