<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Material Sciences Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
MATERIAL SCIENCES CORPORATION
2300 EAST PRATT BOULEVARD
LOGO ELK GROVE VILLAGE, ILLINOIS 60007
May 15, 1996
Dear Shareowner:
The 1996 Annual Meeting of Shareowners will be held on Thursday, June 20,
1996, at 10:00 a.m. CDT in the Shareholders Room on the 21st floor of Bank of
America building located at 231 South LaSalle Street, Chicago, Illinois. I
hope you will attend. We will be voting on the election of directors, the
approval of a proposed 1996 Stock Option Plan for Non-Employee Directors, and
such other matters as may properly come before the meeting. We also will hear
management's report regarding the past fiscal year's operations.
The attached notice of meeting and proxy statement describe the matters upon
which the shareowners will vote. It is important that your shares be
represented, regardless of the number you own. Accordingly, I urge you to
complete the enclosed proxy and promptly return it to us so that your shares
can be voted at the meeting in accordance with your instructions.
Sincerely,
G. Robert Evans
Chairman and Chief Executive Officer
<PAGE>
MATERIAL SCIENCES CORPORATION
2300 EAST PRATT BOULEVARD
ELK GROVE VILLAGE, ILLINOIS 60007
LOGO
----------------
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
----------------
The Annual Meeting of Shareowners of Material Sciences Corporation will be
held on Thursday, June 20, 1996, at 10:00 a.m. CDT, at the Bank of America
building located at 231 South LaSalle Street, Chicago, Illinois, in the
Shareholders Room (21st floor), for the following purposes:
1. To elect a Board of eight directors;
2. To consider and vote upon the approval of the proposed 1996 Stock
Option Plan for Non-Employee Directors; and
3. To act upon such other matters as may properly come before the meeting
or any adjournment thereof.
Shareowners of record at the close of business on April 26, 1996, are
entitled to notice of and to vote at this meeting and any adjournment thereof.
Shareowners are requested to sign and date the enclosed proxy and promptly
return it in the envelope enclosed for that purpose, whether or not they
expect to be present at the meeting. Any person giving a proxy has the power
to revoke it at any time prior to its exercise at the meeting.
By Order of the Board of Directors,
William H. Vrba
Senior Vice President,
Chief Financial Officer, and Secretary
Elk Grove Village, Illinois
May 15, 1996
<PAGE>
LOGO
MATERIAL SCIENCES CORPORATION
2300 EAST PRATT BOULEVARD
ELK GROVE VILLAGE, ILLINOIS 60007
---------------------------
PROXY STATEMENT
---------------------------
This proxy statement is furnished to shareowners of Material Sciences
Corporation ("MSC" or the "Company") in connection with the solicitation, by
order of the Board of Directors of the Company (the "Board"), of proxies for
use at the Annual Meeting of Shareowners of the Company to be held at 10:00
a.m. CDT, on Thursday, June 20, 1996, at the place and for the purposes set
forth in the accompanying notice of the meeting.
The accompanying proxy is solicited on behalf of the Board and is revocable
at any time before the voting thereof by filing with the Secretary of the
Company, prior to the shareowner vote, a written revocation or duly executed
form of proxy bearing a later date, or by voting in person at the meeting. All
outstanding shares of the Company's common stock, par value $.02 per share
(the "common stock"), represented by properly executed and unrevoked proxies
received in time for the meeting will be voted. Shares will be voted as
instructed in the accompanying proxy on each matter to be submitted to
shareowners. If no instructions are given, the shares will be voted for the
election to the Board of the nominees indicated in the proxy, and for approval
of the proposed 1996 Stock Option Plan for Non-Employee Directors.
The close of business on April 26, 1996, has been fixed as the record date
for the determination of shareowners entitled to notice of and vote at the
meeting. On that date, there were outstanding 15,396,750 shares of common
stock. The Company first sent this proxy statement and the accompanying form
of proxy to shareowners entitled thereto on or about May 15, 1996.
A majority of the outstanding shares of common stock, represented in person
or by proxy, shall constitute a quorum for the transaction of business at the
meeting. Each holder of common stock is entitled to one vote per share. If one
or more shareowners give notice at the meeting before the voting of their
intention to cumulate their votes in the election of directors, all
shareowners entitled to vote shall have the right to so cumulate their votes.
With cumulative voting, holders of common stock are entitled, for each share
held by them, to one vote for each director being elected and may cast all
such votes for a single nominee (who has been nominated prior to voting) or
distribute them among two or more nominees. Under cumulative voting, the eight
persons receiving the greatest number of votes shall be elected as directors.
Broker non-votes (where a broker submits a proxy but does not have authority
to vote a customer's shares on one or more matters) on the election of
directors and shares as to which authority to vote for the election of one or
more director nominees is withheld on the enclosed proxy will not be counted
in determining which director nominees receive the greatest number of votes.
Broker non-votes on the proposal to approve the 1996 Stock Option Plan for
Non-Employee Directors and shares as to which authority to vote for such
proposal is withheld on the enclosed proxy will not be counted. Discretionary
authority to cumulate votes is being solicited. If the vote is not conducted
by cumulative voting, the holders of a majority of shares of common stock
represented at the meeting in person or by proxy will be able to elect all the
directors. The affirmative vote of the holders of a majority of the shares of
common stock represented at the meeting in person or by proxy is required to
approve the proposed 1996 Stock Option Plan for Non-Employee Directors.
<PAGE>
ELECTION OF DIRECTORS
The eight persons listed below are proposed to be elected for a period to
end at the 1997 Annual Meeting of Shareowners, when they may be proposed to be
re-elected or a successor is elected and qualified at that meeting or, as
provided in the Company by-laws, upon earlier death, resignation or removal.
Unless authority to vote for one or more nominees is withheld in the proxy,
signed proxies that are returned will be voted for the election of the eight
nominees listed below. All nominees have indicated a willingness to serve as
directors, but if any of them should decline or be unable to act as a
director, the persons named in the proxy will vote for the election of another
person or persons as the Board recommends as set forth in the proxy. All of
the nominees presently are directors of the Company and all were elected at
the 1995 Annual Meeting with the exception of Mr. Nadig, who was elected by
the Board on April 18, 1996.
Certain information regarding the nominees, as of April 26, 1996, is set
forth below, including their ages, the period each has served as a director,
and the business experience of each during the past five years.
----------------
JEROME B. COHEN DIRECTOR SINCE 1988
- ------------
AGE 63
- ------------
Dr. Cohen has served as Dean of the Robert R. McCormick School
of Engineering and Applied Science (formerly the Technological
Institute) at Northwestern University since 1986. Dr. Cohen has
been a professor of Materials Science at the Robert R. McCormick
School of Engineering and Applied Science at Northwestern
University since 1959, and was awarded the Engelhart Chair in
Materials Science in 1974. In February 1993, Dr. Cohen was
elected to the National Academy of Engineering.
ROXANNE J. DECYK DIRECTOR SINCE 1988
- ------------
AGE 43
- ------------
Ms. Decyk is Vice President, Planning of Amoco, since June 1994,
and was previously Vice President--Sales & Marketing-Polymers,
Amoco Chemical Company, from March 1993 and before that was Vice
President-Commercial and Industrial Sales for Amoco, from May
1991. Previously, Ms. Decyk was Senior Vice President--
Distribution of Navistar International Transportation
Corporation ("Navistar"), a manufacturer of medium and heavy
duty trucks, from June 1989 until April 1991 and before that was
Senior Vice President--Administration for Navistar, from 1986
until 1989. Prior to 1986, Ms. Decyk was Senior Vice President--
Corporate Relations for Navistar. Ms. Decyk also serves as a
director of Snap-On Tools, Inc., and Harris Bankcorp.
EUGENE W. EMMERICH DIRECTOR SINCE 1979
- ------------
AGE 65
- ------------
Dr. Emmerich has served as President and Chief Executive Officer
(CEO) of Cadtrak Corporation, a licensor of patented technology
to the computer industry with emphasis on graphics related
patents, for more than the past five years.
2
<PAGE>
G. ROBERT EVANS DIRECTOR SINCE 1991
- ------------
- ------------ AGE 64
Mr. Evans served as Chairman, President, and CEO of the Company
from February 1991 until June 1991, and has since June 1991
served as Chairman and CEO. From July 1990 until joining the
Company, Mr. Evans served as President, CEO, and a director of
Corporate Finance Associates Illinois, Inc., a financial
intermediary and consulting firm. From February 1987 until
January 1990, Mr. Evans served as President, CEO, and a director
of Bemrose Group USA, a British-owned holding company engaged in
value-added manufacturing and sale of products to the
advertising specialty industry. Prior to this, from August 1984
until January 1987, Mr. Evans served as President, CEO, and a
director of Allsteel, Inc., a manufacturer of office furniture
systems. Mr. Evans also serves as a director of Consolidated
Freightways, Inc., Fiberboard Corporation, and Swift Energy
Company.
E. F. HEIZER, JR. DIRECTOR SINCE 1976
- ------------
- ------------ AGE 66
Mr. Heizer is a venture capitalist involved in developing early
stage companies for more than the past five years. Since 1994,
he has served as Chairman of Ashland Insurance Ltd., an
insurance company, and since 1995, as Chairman of Heizer
International, a venture capital company. He was formerly CEO of
Heizer Corporation, a publicly-held business development
company, from its founding in 1969 until 1985. Mr. Heizer also
serves as a director of Amdahl Corporation, Chesapeake Energy
Corporation, and Needham & Company, Inc.
J. FRANK LEACH DIRECTOR SINCE 1993
- ------------
- ------------ AGE 75
Mr. Leach retired in 1993 as Vice Chairman of the Board of
Consolidated Freightways Inc., a California based diversified
trucking and transportation company. He had been a director of
Consolidated Freightways since 1973 and President during 1990-
1991. Since 1982 he has been a special partner of Sequoia
Associates, a private investment firm. He is also Chairman of
Acme Fixture & Casework, Inc. From 1972 to 1985, Mr. Leach was
President, Chairman and CEO of Arcata Corporation, a printing
and forest products company. Prior to that, Mr. Leach served as
Executive Vice President and Chief Operating Officer (COO) of
Bunker Ramo Corporation and President of Amphenol Electronics
Corporation. Mr. Leach also serves as a director of Basic
American Foods, Inc., Champion Road Machinery Company, Ltd.,
Deanco, Inc., and Newell Industries, Inc.
- ------------ GERALD G. NADIG DIRECTOR SINCE APRIL 1996
- ------------
AGE 51
Mr. Nadig has been President and COO of the Company since 1991.
From 1989 to 1991, Mr. Nadig was President and COO of Pre Finish
Metals, Inc., a subsidiary of the Company. Mr. Nadig was Vice
President and General Manager of the Littel Division of Allied
Products Corporation prior to 1989.
3
<PAGE>
IRWIN P. POCHTER DIRECTOR SINCE 1982
- ------------
- ------------ AGE 72
Mr. Pochter retired as Chairman of the Illinois operations of
Frank B. Hall & Co., an international insurance brokerage firm,
in November 1987. Mr. Pochter had served in this capacity since
June 1984.
COMMITTEES AND MEETINGS OF THE BOARD
The Board held eight meetings during fiscal 1996. Included among the
committees of the Board are standing Audit, Compensation and Organization, and
Technology Committees. During fiscal 1996, directors in total attended
approximately 96% of the aggregate number of meetings of the Board and the
committees on which they served.
The Audit Committee, currently consisting of Messrs. Heizer (Chairperson),
Leach and Pochter, met two times during fiscal 1996. The functions of this
committee include recommending the selection of independent public accountants
to the Board; reviewing the scope of the audits performed by the independent
public accountants, the audit reports, and any recommendations made by them;
reviewing in April of each year the results of the audit for the prior fiscal
year with the independent public accountants before the shareowners' report
for that fiscal year is released publicly; and reviewing any non-audit
services provided by the independent public accountants.
The Compensation and Organization Committee, currently consisting of Ms.
Decyk (Chairperson) and Messrs. Heizer and Leach, met five times during fiscal
1996. The functions of this committee include determining, in consultation
with the Company's Chairman and CEO, the compensation of the Company's
officers; reviewing and approving bonus compensation paid to the Company's key
employees; reviewing and making recommendations to the Board with respect to
the Company's compensation and benefit plans and policies; and overseeing
director affairs.
The Technology Committee, currently consisting of Drs. Cohen (Chairperson)
and Emmerich, met four times during fiscal 1996. The functions of this
committee include analyzing current technology and its use and application in
the Company's processes; and evaluating technological developments and the
suitability of new technology for the Company's operations.
During fiscal 1996, directors who are not executive officers of the Company
received an annual retainer of $15,000, plus $1,000 per meeting for attendance
at Board meetings, $3,000 per year for chairing a Board committee, $1,000 per
meeting for attendance at Board committee meetings, and reimbursement for
normal travel expenses.
Effective March 1, 1996, the annual retainer was increased from $15,000 to
$20,000 as recommended by management and in consultation with compensation
consultants. $10,000 of this annual retainer is to be paid in the form of
cash, with the remainder to be paid in the form of stock options as
contemplated by the proposed 1996 Stock Option Plan for Non-Employee
Directors, if such plan is approved at the 1996 Annual Meeting of Shareowners.
Each non-employee director will also receive an additional stock option
annually as an incentive if such plan is approved at this Annual Meeting of
Shareowners. See "1996 Stock Option Plan for Non-Employee Directors."
4
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT OF THE COMPANY
The following table provides certain information, as of April 26, 1996
(except as otherwise noted), on the beneficial ownership of the common stock
as to each director of the Company, the four most highly paid executive
officers of the Company other than the Chairman and CEO, and all officers and
directors of the Company as a group. To the knowledge of the Company, each
person has sole voting and investment power for the shares shown unless
otherwise noted. The address of all officers and directors is the address of
the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES SHARES UNDER PERCENT
NAME BENEFICIALLY OWNED (1) EXERCISABLE OPTIONS (2) TOTAL OF CLASS
- ---- ---------------------- ----------------------- --------- --------
<S> <C> <C> <C> <C>
Jerome B. Cohen......... 1,500 7,200 8,700 (3)
Roxanne J. Decyk........ 4,115 7,200 11,315 (3)
Eugene W. Emmerich...... 6,525 18,000 24,525 (3)
G. Robert Evans......... 106,072 172,100 278,172 1.8%
E.F. Heizer, Jr......... 152,251 14,400 166,651 1.1%
J. Frank Leach.......... 7,500 10,800 18,300 (3)
Irwin P. Pochter........ 69,376 18,000 87,376 (3)
Gerald G. Nadig......... 63,486 62,100 125,586 (3)
William H. Vrba......... 27,962 54,850 82,812 (3)
Frank D. Graziano....... 78,077 25,300 103,377 (3)
A.F. Vitzthum........... 120,276 21,925 142,201 (3)
All officers and direc-
tors as a group
(15 persons)........... 740,539 483,775 1,224,314 8.0%
</TABLE>
- --------
(1) For purposes of the table, a person generally is deemed to be a beneficial
owner of a security (including restricted stock) if such person has or
shares voting power or investment power (including the power to dispose of
the security) with respect to such security or has the right to acquire
beneficial ownership thereof within 60 days. Does not include shares under
exercisable options (which information is set forth separately).
(2) Includes shares subject to options that are exercisable on April 26, 1996
and options which become exercisable within 60 days thereafter.
(3) Less than 1%.
During fiscal 1996, Frank J. Lazowski, Jr., an officer of the Company, was
late in filing with the Securities and Exchange Commission one report (Form 4)
relating to one transaction involving common stock.
5
<PAGE>
INFORMATION WITH RESPECT TO CERTAIN SHAREOWNERS
The following table sets forth certain information on the beneficial
ownership of common stock as of April 26, 1996, by each person known by the
Company to own beneficially more than five percent of the Company's
outstanding common stock. To the knowledge of the Company, each shareowner has
sole or shared voting and/or investment power as to the shares shown.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS (1)
------------------------------------ ------------------ ----------
<S> <C> <C>
The State of Wisconsin Investment Board 1,211,300 7.9%
(2).......................................
121 East Wilson Street
Madison, Wisconsin 53707
Neuberger & Berman (2) .................... 847,000 5.5%
605 Third Avenue
New York, New York 10158
ICM Asset Management (2)................... 838,950 5.4%
West 601 Maine Avenue, Suite 917
Spokane, Washington 99201
</TABLE>
- --------
(1)Based upon shares outstanding as of April 26, 1996.
(2)As reported in Schedule 13G filed with the Securities and Exchange
Commission for December 1995.
6
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
I. SUMMARY COMPENSATION TABLE
The following table disclosed compensation received by the Company's chief
executive officer and the four other most highly paid executive officers
during fiscal 1996.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
--------------- -------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS AWARD(S) OPTIONS/SARS COMPENSATION
POSITION YEAR ($) ($) ($) (#) ($)(3)
- ------------------ ------ ------- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
G. R. Evans............. 1996 365,000 73,000 0 33,000(6) 16,120
Chief Executive Officer
(CEO) 1995 316,000 200,610 440,000(1) 30,000(2) 10,281
1994 282,200 200,000 513,000(4) 36,000(5) 8,718
G. G. Nadig............. 1996 270,000 48,060 0 27,600(6) 10,105
Chief Operating Officer
(COO) 1995 240,000 140,191 0 0 14,502
1994 213,700 93,914 342,000(7) 24,000(5) 4,442
W. H. Vrba.............. 1996 185,000 27,639 0 12,000(6) 9,735
Chief Financial Officer
(CFO) 1995 174,400 92,627 0 0 15,151
1994 164,500 73,181 149,625(7) 10,500(5) 0
F. D. Graziano.......... 1996 137,000 19,947 0 8,400(6) 14,410
Senior Vice President, 1995 128,600 61,124 0 0 14,217
Technology 1994 121,300 47,384 85,500(7) 6,000(5) 3,639
A. F. Vitzthum.......... 1996 126,100 18,158 0 8,400(6) 14,237
Senior Vice President, 1995 119,000 55,800 0 0 13,247
Manufacturing 1994 113,600 53,268 53,438(7) 3,750(5) 3,429
</TABLE>
- --------
(1) Restricted shares awarded April 21, 1994 (market price on date of grant
was approximately $14.67) equal in number to 30,000 matching options
granted on the same date. Subject to restrictions on transfer until April
21, 2002 (subject to acceleration if the market price of a share of common
stock achieves certain levels, which may occur within three years). Total
restricted stock holdings as of February 29, 1996 for Mr. Evans were
52,800 shares (the total of the restricted stock awarded on April 21, 1994
and September 22, 1993 less 13,200 shares which became vested on June 2,
1995 when the market price of common stock reached a first target level).
Market value as of February 29, 1996 for such restricted stock holdings
was $759,000. Dividends, if any, are paid on restricted common stock in
the same manner as they are paid on unrestricted common stock.
(2) 30,000 options were granted under the 1993 Restricted Stock/Stock Option
Awards Program at an option price of approximately $14.67 (market price on
the date of grant). Options fully vest on March 21, 2004 (subject to
acceleration under certain conditions).
(3) Company matching contribution to the employee's Savings and Investment
Plan contribution and, starting in fiscal 1995, payments for the Defined
Contribution Plan.
(4) Restricted shares awarded September 22, 1993 (market price on date of
grant was $14.25) equal in number to matching options granted on the same
date. Subject to restrictions on transfer until September 22, 2001
(subject to acceleration if the market price of a share of common stock
achieves certain levels, which may occur in three years). Dividends, if
any, are paid on restricted common stock in the same manner as they are
paid on unrestricted common stock.
7
<PAGE>
(5) Granted under the 1993 Restricted Stock/Stock Option Awards Program at an
option price of $14.25 (market price on the date of grant). Options fully
vest on August 22, 2003 (subject to acceleration under certain
conditions).
(6) Granted pursuant to the 1995 Stock Option Program under the 1992 Omnibus
Stock Awards Plan for Key Employees at an option price of $16.25 (market
price on the date of grant). One-third of the options vested on March 1,
1996, one-third will vest on March 1, 1997, and the final third will vest
on March 1, 1998.
(7) Restricted shares awarded September 22, 1993 (market price on date of
grant was $14.25) equal in number to matching options granted on the same
date. Subject to restrictions on transfer until September 22, 2001
(subject to acceleration if the market price of a share of common stock
achieves certain levels, which may occur within three years). Total
restricted stock holdings as of February 29, 1996 for each of Messrs.
Nadig, Vrba, Graziano and Vitzthum were equal to the number of shares of
restricted stock awarded on September 22, 1993 less one-fifth of the
shares which vested on June 2, 1995 when the market price of common stock
reached a first target level. Market values as of February 29, 1996 for
such restricted stock holdings were $276,000, $120,750, $69,000 and
$43,125, respectively. Dividends, if any, are paid on restricted common
stock in the same manner as they are paid on unrestricted common stock.
II. OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ------------------------------------------------------------------------------------------ ---------------------
NUMBER OF % OF TOTAL
SECURITIES UNDERLYING OPTIONS/SARS EXERCISE OR
OPTIONS/SARS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION 5% 10%
NAME GRANTED(1) IN FISCAL YEAR ($/SH) DATE 0% ($26.47) ($42.15)
- ---- --------------------- -------------------- ----------- ---------- --- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
G. R. Evans............. 33,000 9.3 16.25 3/1/05 $ 0 $337,260 $854,700
G. G. Nadig............. 27,600 7.8 16.25 3/1/05 0 282,072 714,840
W. H. Vrba.............. 12,000 3.4 16.25 3/1/05 0 122,640 310,800
F. D. Graziano.......... 8,400 2.4 16.25 3/1/05 0 85,848 217,560
A. F. Vitzthum.......... 8,400 2.4 16.25 3/1/05 0 85,848 217,560
</TABLE>
- --------
Note--The dollar amount of total shareowner gain during the respective option
period at the expiration date of such options at the 5% and 10% price
appreciation rates would be $154,837,000 and $392,396,000, respectively.
The dollar amount of named optionees gain after ten years at the 5% and
10% price appreciation rates would be $913,668 and $2,315,460,
respectively. The percentage of named optionees gain to shareowner gain
would be 0.6%
(1) Options for the named individuals were granted at the fair market value of
a share of common stock on the date of grant (March 1, 1995) pursuant to
the 1995 Stock Option Program under the 1992 Omnibus Stock Awards Plan for
Key Employees. One-third of the options vested on March 1, 1996, one-third
will vest on March 1, 1997 and the final third will vest on March 1, 1998.
8
<PAGE>
III. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table provides information on option exercises and unexercised
option values for the named executive officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES AT FISCAL YEAR END(#) AT FISCAL YEAR END(2)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
G. R. Evans............. None N/A 161,100 99,000 $1,465,205 $4,500
G. G. Nadig............. 20,000 194,000 52,900 51,600 228,793 3,000
W. H. Vrba.............. None N/A 50,850 22,500 219,926 1,313
F. D. Graziano.......... None N/A 22,500 14,400 97,313 750
A. F. Vitzthum.......... None N/A 19,125 12,150 82,716 469
</TABLE>
- --------
(1) The reported value realized on exercised options is the market price on
the exercise date less the exercise price.
(2) The value of unexercised options is based on the fiscal year end market
price of approximately $14.38 less the exercise price.
The exercise price of all options granted to the above-named individuals was
the fair market value of a share of common stock on the date of grant.
COMPENSATION AND ORGANIZATION COMMITTEE REPORT
One of the functions of the Compensation and Organization Committee is to
establish and administer compensation plans for Material Sciences Corporation
executive officers, review executive officer compensation levels and evaluate
management performance. The Committee is composed of three independent, non-
employee directors. Set forth below is a report submitted by the Compensation
and Organization Committee regarding the Company's compensation policies and
programs for executive officers for fiscal year 1996.
COMPENSATION PHILOSOPHY
The MSC management compensation program is designed to reward outstanding
performance and results. Compensation plans are designed to attract and retain
top quality and experienced managers by providing the opportunity to earn
above median cash compensation for superior corporate, business unit, and
individual performance plus the opportunity to accumulate stock-based wealth
commensurate with the long-term growth and value created for MSC's
shareowners.
9
<PAGE>
EXECUTIVE COMPENSATION COMPONENTS
MSC's compensation program has the following components:
. Base salaries at median competitive levels for similar-size companies
in general industry:
--Salaries reviewed annually.
--Annual adjustments based on individual performance, changes in
duties and responsibilities, and general movement in external
salary levels.
. Significant incentive opportunity for management employees:
--Total (salary plus bonus) earnings opportunity between median and
60th percentile competitive levels for superior performance.
--Significant variability based on individual performance.
--Performance defined by a combination of corporate, business unit,
and individual goals that are critical to the Company's success.
Principal corporate and business unit goals are net income,
operating profit, working capital management, cost reduction, and
quality. Each individual also has several specific financial,
operational or strategic goals based on the individual's
contribution to the achievement of the Company's business
strategy.
. Stock options to management employees at median to 75th percentile
competitive levels for similar-size companies in general industry:
--Options were granted in fiscal 1996 to all management employees at
the 60th percentile competitive level, under a new option plan
adopted in fiscal 1995 and effective March 1, 1995. Additional
options were granted under this plan on March 1, 1996 and the
final grant will be March 1, 1997.
. Special stock ownership long-term incentive to management employees:
--One-time grant to management employees in fiscal 1994 to encourage
and facilitate increased stock ownership and executive retention.
The CEO received two grants, one in fiscal 1994, and one in fiscal
1995.
--Restricted Stock Award that vests after five (5) years--sooner if
aggressive share price targets are achieved--later if the stock
price does not increase.
--A matching Incentive Stock Option (ISO) Grant--which vests if the
underlying restricted stock is held for two (2) years--otherwise
the ISO shares do not vest for nine (9) years and eleven (11)
months. Together with the "regular" stock options, this one-time
grant puts the total long-term incentive package for key
management employees at the 75th percentile for similar-size
companies in general industry.
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<PAGE>
FISCAL 1996 PERFORMANCE
At the beginning of fiscal 1996, the Compensation and Organization Committee
approved performance objectives for the Chairman and CEO. His performance
relative to these objectives was the basis for determining his 1996 annual
incentive award. Sixty percent of his potential award was based on the
achievement of a corporate profitability objective. Corporate net income for
1996 was $11,979,000, a 28.4% decrease from the prior year's earnings. The
remaining forty percent of the CEO's annual incentive award was based on
achievement of a combination of specific objectives, including expense
control, company growth, investor relations and other objectives.
Performance goals for the other executive officers were approved by the CEO
at the beginning of the year. Performance measures and goals were similar to
those of the CEO. Their performance for the year was evaluated by the CEO, who
recommended annual incentive awards for each individual. These awards were
reviewed and approved by the Compensation and Organization Committee.
FISCAL 1996 ACTIONS
In fiscal 1996, the CEO was granted options for 33,000 shares. The other
four named executives received options for 56,400 shares in total. All options
were granted at the market price at the time of grant. Salaries were increased
15.5% for the CEO and an average of 8.5% for the other four named executives.
In general, salary increases reflected individual performance, company
performance, and changes in the external compensation market.
The CEO earned an annual incentive award of $73,000 for performance in
fiscal 1996, based on the factors discussed above. This represents 20% of the
CEO's annual base compensation. The other four named executives received
annual incentive awards which averaged 16% of their annual base compensation.
The Compensation and Organization Committee elected to take no action in
fiscal 1996 with respect to Section 162(m) of the Internal Revenue Code of
1986, as amended. No MSC executive had compensation exceeding one million
dollars.
COMPENSATION CONSULTANTS AND COMPETITIVE DATA
The Compensation and Organization Committee has access to compensation
consultants who work with the Committee from time-to-time on executive
compensation matters. The Committee also has access to competitive data on
compensation levels for officer positions.
MATERIAL SCIENCES CORPORATION COMPENSATION AND ORGANIZATION COMMITTEE
Ms. Roxanne J. Decyk, Chairperson
Mr. E. F. Heizer, Jr.
Mr. J. Frank Leach
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MSC
PERFORMANCE GRAPH
The following chart shows total shareowner returns, assuming $100 was
invested on February 28, 1991 in Material Sciences Corporation, the S&P 500
Index, and the Comparator Group (as described below), with dividends, if any,
reinvested through February 29, 1996.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURNS
VERSUS THE S&P 500 AND COMPARATOR GROUP
LOGO
<TABLE>
<CAPTION>
FEBRUARY 28 OR 29,
-----------------------------------------------
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
MSC............................. $100.00 $194.70 $208.30 $334.50 $321.80 $291.60
S&P 500......................... 100.00 112.40 124.10 134.30 151.60 203.40
COMPARATOR GROUP................ 100.00 143.90 163.20 143.60 161.10 205.80
</TABLE>
COMPARATOR GROUP: BRUSH WELLMAN
OPTICAL COATING LABORATORY
CHEMFAB
LOCTITE
SOUTHWALL TECHNOLOGIES
WORTHINGTON INDUSTRIES
STEEL TECHNOLOGIES
12
<PAGE>
EMPLOYMENT AND OTHER AGREEMENTS
The Company and Mr. Evans are parties to an Employment Agreement, effective
February 27, 1991 (the "Employment Agreement"), under which Mr. Evans is
serving as Chairman and CEO of the Company. The Employment Agreement was for
an initial term through February 28, 1994 (with successive one-year renewals
thereafter), and initially provided for a minimum base salary of $250,000.
Under the Employment Agreement, Mr. Evans was granted 45,000 shares of
common stock that vested on February 27, 1993.
The Employment Agreement also confirmed the grant to Mr. Evans of options to
purchase 180,000 shares of common stock at an exercise price of $5.28 per
share (the fair market value on the date of the grant). The options granted to
Mr. Evans expire approximately 10 years after grant and become exercisable in
installments of 25% after 2, 3, 4, and 5 years of employment with the Company
(subject to acceleration if the market price of a share of common stock
achieves certain levels). All of such options were either vested or exercised
on July 13, 1995.
In lieu of Mr. Evans' entering into a Supplemental Pension Plan Agreement
(as described below), under the Employment Agreement, the Company has agreed
to provide Mr. Evans with a supplemental pension that, when stated as a single
life annuity commencing at age 65, will provide an annual benefit equal to 6%
of his average base salary over the last 12 consecutive months of his
employment with the Company, multiplied by the number of years (up to a
maximum of five years) that Mr. Evans was employed by the Company, reduced by
certain other benefits payable to Mr. Evans. A partial accrual of 1 1/2% per
fiscal quarter is credited for any partial year of employment after February
27, 1994.
Under the Employment Agreement, if Mr. Evans' employment is terminated by
the Company without cause, he will continue to receive his salary and health
benefits for 24 months after the date of termination. Under the Employment
Agreement, if Mr. Evans' employment is terminated (a) after a change in
control of the Company, (b) by the Company without cause or (c) by Mr. Evans
for good reason, he will receive a lump sum payment equal to 200% of his base
salary at the date of termination (except to the extent that these payments
would constitute "parachute payments" under Section 280G(b)(2) of the Internal
Revenue Code of 1986, as amended) and health benefits for a period of 24
months following termination. As defined in the Employment Agreement, a
"change in control" occurs (a) when any person or group becomes the owner of
more than 35% of the outstanding common stock, (b) when the non-management
directors of the Company as of February 26, 1991 (or their approved
successors), cease to constitute a majority of the Board, or (c) when the
Company undergoes a combination after which the shareowners of the Company
before the combination hold less than 50% of the voting shares of the entity
resulting from the combination, unless Mr. Evans (i) receives disproportionate
payments (other than payments from employment arrangements or stock and option
plans in place before the change in control) from, (ii) owns equity securities
(not including ownership of less than one percent of a publicly traded
company) in, or (iii) acquires ownership (on different terms than other
shareowners) of equity securities of the entity owning such shares, sponsoring
the change in directors or combining with the Company, or an affiliate
thereof.
In lieu of Mr. Vrba's entering into a Supplemental Pension Plan Agreement
(as described below), the Company has agreed to provide Mr. Vrba with a
supplemental pension that, when stated as a single life annuity commencing at
age 65, will provide an annual benefit equal to 4% of his average base
compensation of the two best consecutive calendar years preceding his
retirement multiplied by the number of years (not to exceed five years) that
Mr. Vrba was employed by the Company, payable for a period not to exceed 10
years, reduced by certain other benefits payable to Mr. Vrba.
13
<PAGE>
The Company has certain agreements with other executive officers (including
the named executive officers) which provide for, among other things, severance
benefits in certain circumstances.
EMPLOYEE AND OTHER PLANS
DEFINED BENEFIT PENSION PLAN
On December 31, 1992, the Company froze its defined benefit pension plan and
substituted a defined contribution plan for the benefit of all salaried
employees of the Company, including executive officers, and certain salaried
and hourly employees of its participating subsidiaries. All of the individuals
named in the Summary Compensation Table were participants in the pension plan
on December 31, 1992. The Company has since terminated the defined benefit
pension plan and in December 1995 made distributions to all participants of
their accrued pension amounts in full satisfaction of all obligations of the
Company under such plan, and participants will not be entitled to any further
payments thereunder.
SUPPLEMENTAL PENSION PLAN AGREEMENTS
The Company has entered into Supplemental Pension Plan Agreements (the
"Supplemental Pension Plan Agreements") with 15 current employees, including
all executive officers as of April 26, 1996 (except for Messrs. Evans and
Vrba), which provide benefits in the event of termination of employment,
disability, or death before retirement. The disability benefit consists of a
monthly payment until death equal to 50% of an individual's average monthly
compensation for the last 12 consecutive months prior to disability, less the
sum of benefits otherwise receivable by an individual (collectively referred
to as the "Other Benefits") from Social Security and any other pension or
retirement programs (whether maintained by the Company or not). The benefit
upon termination of employment consists of a monthly payment, beginning in the
month after termination (but not before the individual's 60th birthday) and
continuing for 120 months or, if earlier, the death of the individual, equal
to a specified percentage of the individual's average monthly compensation for
the last 12 consecutive months prior to retirement, less the sum of the Other
Benefits. The percentage varies depending on the participant's age at
employment termination, ranging from 50% at the age of 60 to 66 2/3% at age
65. The payments will be made to a surviving spouse in the event of such
individual's death, but in no event will more than 120 payments be made. A
participant becomes eligible to receive the termination benefit upon reaching
age 60 or the completion of 10 years of consecutive employment, whichever
comes first. The death benefit consists of a monthly payment to the surviving
spouse, if any, beginning after a participant's death while employed by the
Company and continuing for 120 months or, if earlier, until the death of the
spouse, equal to 50% of the participant's average monthly compensation for the
12 consecutive months prior to the participant's death, less the sum of the
Other Benefits.
The Supplemental Pension Plan Agreements also provide that the payments
described above in the event of employment termination will commence to a
participant in the event that (1) any person acquires 25% or more of the
voting power of the Company's capital stock and (2) the participant's
employment is terminated other than for cause, disability, death, or
voluntarily by the employee. For these purposes, termination of employment
shall be deemed to occur after an individual's 65th birthday.
The first Supplemental Pension Plan Agreements were entered into in June
1983. As of February 26, 1996, $1,797,354 had been accrued under the plan for
current employees, of which $1,061,287 had been accrued to be paid to
executive officers as of April 26, 1996 and $739,030 for persons named in the
Summary Compensation Table (such accruals being $0, $219,088, $0, $310,496,
and $209,446 for Messrs. Evans, Nadig, Vrba, Dr. Graziano, and Mr. Vitzthum,
respectively).
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<PAGE>
1996 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
The Board has approved, and recommends that the shareowners approve, the
Material Sciences Corporation 1996 Stock Option Plan for Non-Employee
Directors (the "1996 Director Option Plan").
The Board and its Compensation and Organization Committee have reviewed the
Company's current arrangements for compensation of directors who are not
officers or employees of the Company or its subsidiaries ("Non-Employee
Directors"). The Material Sciences Corporation 1991 Stock Option Plan for
Directors (the "1991 Plan") provides for a single option grant to directors,
and the options granted thereunder are scheduled to fully vest in May 1996 in
the case of Messrs. Heizer and Pochter and Dr. Emmerich and in 1998 in the
case of Dr. Cohen, Ms. Decyk and Mr. Leach. The Board believes that it is in
the Company's best interests for Non-Employee Directors to have greater
proprietary interests in the Company, since the Board believes such interests
strengthen the incentives to increase stock value and promote greater interest
in the success of the Company and its subsidiaries. The Board and its
Compensation and Organization Committee also considered information on
compensation for non-employee directors at comparable companies. The Board
believes that the 1996 Director Option Plan will assist the Company in
attracting and retaining highly-qualified Non-Employee Directors, thereby
enhancing the long-term financial success of the Company.
In furtherance of these objectives, the 1996 Director Option Plan provides,
as described below, for an annual grant of an immediately exercisable option
to each Non-Employee Director on the first day of each fiscal year of the
Company. In connection with the approval of such grant under the 1996 Director
Option Plan, the Board decreased the annual cash retainer to be paid to Non-
Employee Directors by $10,000. The Board and the Compensation and Organization
Committee believe that, given the nature of stock options and at the
suggestion of the Company's independent compensation consultant, the
opportunity afforded to optionees to participate in future stock price
appreciation only as compared to an outright award of cash or stock, it is
appropriate to multiply this increment by three in order to determine the
number of shares to be subject to such grant. Thus, such grant will be based
on $30,000 per year for each Non-Employee Director. The 1996 Director Option
Plan also provides, as further described below, for an automatic grant of an
option to each person who is a Non-Employee Director on the date on which such
person's option granted under the 1991 Plan becomes fully vested and annually
thereafter (so long as such person remains a Non-Employee Director). A person
subsequently elected as a Non-Employee Director will receive an option upon
election and annually thereafter (so long as such person remains a Non-
Employee Director). Such options generally will not be exercisable for one
year.
At the date of this proxy statement, there are six directors who are
eligible for participation in the 1996 Director Option Plan. The following
description of the 1996 Director Option Plan is qualified in its entirety by
the copy of the 1996 Director Option Plan which is included as Exhibit A to
this proxy statement.
Limitations on Shares To Be Issued. The number of shares of the Company's
common stock with respect to which options may be granted or awarded under the
1996 Director Option Plan and which may be issued upon the exercise thereof
may not exceed, in the aggregate, 250,000 shares. However, to the extent any
awards expire unexercised or unpaid or are canceled, terminated or forfeited
in any manner without the issuance of shares of common stock thereunder, such
shares shall again be available under the 1996 Director Option Plan. Based on
the closing price of the common stock of the Company on March 1, 1996, the
total market value of the aggregate shares issuable under the 1996 Director
Option Plan is $3,625,000.
15
<PAGE>
Annual Retainer Options. The 1996 Director Option Plan provides for an
automatic grant of an option on March 1 of each year, commencing March 1,
1996, to each person who is a Non-Employee Director on such date. Each such
option entitles a director to purchase a number of shares of the Company's
common stock (rounded up to the nearest whole number of shares) equal to (a)
$30,000 divided by (b) the last reported sale price of the Company's common
stock on the principal securities exchange on which shares of the Company's
common stock are then listed on the date immediately preceding such grant date
(or, if such date is not a trading day on such exchange, the last trading day
immediately preceding such date). The per share option price for each such
option shall be the price described in clause (b) of the immediately preceding
sentence. Any person who first becomes a Non-Employee Director after March 1,
1996, either because such person is first elected to the Board after such
effective date or because such person was first elected to the Board while
such person was an officer or employee of the Company or its subsidiaries and
subsequently ceases to be an officer and employee of the Company and its
subsidiaries (and consequently did not receive an option as described in the
first sentence of this paragraph), shall, on the date such person first
becomes a Non-Employee Director, automatically be granted an option entitling
such person to purchase a number of shares of the Company's common stock
(rounded up to the nearest whole number of shares) equal to (a) $7,500
multiplied by the number of fiscal quarters (rounded up to the nearest whole
number of fiscal quarters) remaining in the fiscal year from and including the
fiscal quarter in which such date of grant occurs divided by (b) the price
described in clause (b) of the second sentence of this paragraph for options
granted on the March 1 immediately preceding such date of grant. The per share
option price for each such option described in the immediately preceding
sentence shall be the price described in clause (b) of such sentence. If any
Non-Employee Director who receives an option as described above during the
period commencing on March 1 of any year and ending on the day of the annual
meeting of the Company's shareowners next following such March 1 is not
elected as a Non-Employee Director at such annual meeting, the number of
shares subject to such option shall be reduced to the lesser of (a) 25% of the
number of shares originally subject to such option (rounded up to the nearest
whole number of shares) and (b) the number of shares then subject to such
option after giving effect to all exercises thereof. Each such option will be
exercisable at any time after the date of grant thereof.
In accordance with the provisions of the 1996 Director Option Plan and
subject to shareowner approval of such Plan, an option was granted on March 1,
1996 (the effective date of the 1996 Director Option Plan) to each of Messrs.
Heizer, Leach and Pochter, Drs. Cohen and Emmerich and Ms. Decyk for 2,087
shares at an exercise price of approximately $14.38 per share.
Incentive Options. The 1996 Director Option Plan provides that each Non-
Employee Director shall automatically receive an option (an "Incentive
Option") to purchase the number of shares (rounded up to the nearest whole
number of shares) of common stock of the Company equal to (a) $40,000 divided
by (b) the last reported sale price of the Company's common stock on the date
immediately preceding the date of grant on the principal securities exchange
on which shares of the Company's common stock are listed on such date (or, if
such date is not a trading day on such exchange, the last trading day
immediately preceding such date). The per share option price for each
Incentive Option shall be the price described in clause (b) of the immediately
preceding sentence. An initial Incentive Option shall be granted to each Non-
Employee Director as follows: (i) in the case of any director who is a Non-
Employee Director on the effective date of the 1996 Director Option Plan, such
option shall be granted automatically to such director upon the date on which
the option granted to such director under the 1991 Plan becomes fully vested
if such director is a Non-Employee Director on such date, (ii) in the case of
any person first elected to the Board after the effective date who is not an
officer or employee of the Company or its subsidiaries at the time of such
election, such option shall be granted automatically to such person upon the
date that such person is first elected to the Board (either by the shareowners
of the Company or, in the case of the filling of a vacancy, by the Board) and
(iii) in the case of a director who has not received an initial Incentive
Option as provided in the preceding clauses because such director was also an
officer or employee of the Company or its subsidiaries at the time such
director was first
16
<PAGE>
elected as a director and who subsequently ceases to be an officer and
employee of the Company and its subsidiaries, such option shall be granted
automatically to such director upon the date such person becomes a Non-
Employee Director. Each director who has received an initial Incentive Option
shall automatically be granted an Incentive Option on each anniversary of the
date of grant of the initial Incentive Option to such director if such
director is a Non-Employee Director on such anniversary date.
In accordance with the provisions of the 1996 Director Option Plan and
subject to shareowner approval of such plan, an initial Incentive Option was
granted on May 1, 1996 to Messrs. Heizer and Pochter and Dr. Emmerich for
2,500 shares at an exercise price of $16.00. An initial Incentive Option will
be granted (subject to such person being a Non-Employee Director on such date)
on March 4, 1998 in the case of Mr. Leach, on July 2, 1998 in the case of Dr.
Cohen and on August 27, 1998 in the case of Ms. Decyk.
An Incentive Option may be exercised only to the extent it has vested. Each
Incentive Option will vest in full on the first anniversary of the date of
grant if the holder thereof is a Non-Employee Director on such date. However,
if a person is not elected as a Non-Employee Director at the first annual
meeting of the Company's shareowners following the date of grant of any such
Incentive Option and such option has not already vested as described in the
preceding sentence, such Incentive Option shall vest and become exercisable as
of the day before such annual meeting with respect to the number of shares
(rounded up to the nearest whole number of shares) equal to (a) the total
number of shares subject to such Incentive Option multiplied by (b) a fraction
equal to the number of whole months that such director has served on the Board
since the grant of such Incentive Option divided by 12. An Incentive Option or
any portion of an Incentive Option that has not vested prior to the date the
holder thereof ceases to be a Non-Employee Director shall expire and be
forfeited as of such date.
Written Agreement; Expiration; Non-Transferability. Each option granted
pursuant to the 1996 Director Option Plan will be evidenced by a written
agreement between the Company and the optionee. An option issued pursuant to
the 1996 Director Option Plan shall expire and not be exercisable after the
first to occur of (i) the fifth anniversary of the date of grant of such
option and (ii) three months after the optionee ceases to be a director of the
Company (12 months if the optionee ceases to be a director of the Company due
to death or to total and permanent disability as determined by the Board in
good faith). Options granted pursuant to the 1996 Director Option Plan may not
be sold, assigned, pledged, transferred or otherwise disposed of, except by
will or the laws of descent and distribution.
Consideration for Exercise of Options. Shares acquired by exercise of an
option may be paid for either (i) with cash or (ii) in whole or in part by
delivering to the Company shares of common stock of the Company valued at
their then fair market value.
Administration; Amendment; Termination. The Board will administer the 1996
Director Option Plan. The Board may suspend or terminate the 1996 Director
Option Plan or any portion thereof at any time and may amend it from time to
time in such respects as the Board may deem advisable. However, the provisions
of the 1996 Director Option Plan that relate to the amount, price and timing
of awards shall not be amended more than once every six months, except in
accordance with Rule 16b-3 under the Securities Exchange Act of 1934, as
amended. No amendment shall be made without shareowner approval to the extent
such approval is required by law, agreement or the rules of any exchange upon
which the common stock of the Company is listed. The 1996 Director Option Plan
shall terminate on February 28, 2001, unless terminated prior thereto by
action of the Board.
Federal Income Tax Consequences. Options granted under the 1996 Director
Option Plan will constitute non-qualified stock options for federal income tax
purposes. With respect to options exercised after six months has elapsed from
the grant date, an optionee generally will recognize ordinary income on the
exercise date. The
17
<PAGE>
directors of the Company are subject to Section 16 of the Securities Exchange
Act of 1934, as amended. Accordingly, if an optionee under the 1996 Director
Option Plan exercises an option earlier than six months from the date of grant
of such option, such optionee generally will recognize ordinary income on the
date six months after such grant date. However, if an optionee files an
election under Section 83(b) of the Internal Revenue Code with the Internal
Revenue Service within 30 days of exercise, ordinary income will be recognized
on the exercise date.
The Company generally will be entitled to a federal income tax deduction in
an amount equal to the ordinary income required to be recognized by a
participant, as described above.
VOTE REQUIRED
The 1996 Director Option Plan requires approval by the affirmative vote of
the holders of a majority of the shares of common stock represented at the
1996 Annual Meeting of Shareowners, in person or by proxy. If approval is not
received, the 1996 Director Option Plan will cease to be effective and options
previously granted under such Plan will become null and void.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE 1996 STOCK
OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
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<PAGE>
MISCELLANEOUS
SHAREOWNER PROPOSALS FOR 1997 ANNUAL MEETING
Proposals of shareowners intended to be presented at the 1997 Annual Meeting
of Shareowners must be received by the Company by January 15, 1997, to be
considered for inclusion in the Company's proxy statement and form of proxy
relating to that meeting. Such proposals should be addressed to Secretary,
Material Sciences Corporation, 2300 East Pratt Boulevard, Elk Grove Village,
Illinois 60007.
DISCRETIONARY VOTING OF PROXIES ON OTHER MATTERS
The Board and management do not now intend to present, nor do they know of
any others who intend to present, any matters at the 1996 Annual Meeting of
Shareowners other than those disclosed in the notice of the meeting. Should
any other matter requiring a vote of the shareowners arise, however, the
proxies in the enclosed form confer upon the person or persons entitled to
vote the shares represented by such proxies discretionary authority to vote
such shares on any such other matter in accordance with their best judgment.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation. In addition to
solicitation by mail, the Company will request banks, brokers, and other
custodian nominees and fiduciaries to supply proxy material to the beneficial
owners of the common stock of whom they have knowledge, and will reimburse
them for their expenses in so doing. In addition, the Company expects to pay
$3,500, plus expenses, for assistance by Corporate Investor Communications,
Inc. ("CIC") in the solicitation of proxies. Some of the officers and other
employees of the Company and CIC may solicit proxies personally, by telephone,
telegraph, or mail. The officers and employees of the Company will not receive
any additional compensation for such activities.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Arthur Andersen LLP, the Company's independent public
accountants, are expected to be present at the annual meeting and will be
available to respond to questions and may make a statement if they so desire.
By Order of the Board of Directors,
William H. Vrba
Senior Vice President,
Chief Financial Officer, and
Secretary
Material Sciences Corporation
Elk Grove Village, Illinois
May 15, 1996
19
<PAGE>
EXHIBIT A
MATERIAL SCIENCES CORPORATION
1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose. The purpose of this 1996 Stock Option Plan for Non-Employee
Directors (this "Plan") is to provide incentives to members of the Board of
Directors (the "Board") of Material Sciences Corporation (the "Company") who
are not officers or employees of the Company or its subsidiaries ("Non-
Employee Directors"), through compensation and rewards paid in or based upon
the ownership and performance of the common stock of the Company.
2. Limitations on Shares To Be Issued. The number of shares of the Company's
common stock, par value $.02 per share, with respect to which options may be
granted or awarded under this Plan and which may be issued upon the exercise
thereof shall not exceed, in the aggregate, 250,000 shares; provided, that to
the extent any awards hereunder expire unexercised or unpaid or are canceled,
terminated or forfeited in any manner without the issuance of shares of common
stock thereunder, such shares shall again be available under this Plan. Shares
of common stock issued under this Plan may be authorized and unissued shares
of common stock, treasury stock or a combination thereof.
3. Annual Retainer Option. On March 1 of each year, commencing March 1,
1996, each person who is a Non-Employee Director on such date shall
automatically be granted an option entitling such director to purchase a
number of shares of the Company's common stock (rounded up to the nearest
whole number of shares) equal in value to (a) $30,000 divided by (b) the last
reported sale price of the Company's common stock on the principal securities
exchange on which shares of the Company's common stock are then listed on the
date immediately preceding such March 1 (or, if such date is not a trading day
on such exchange, the last trading day immediately preceding such date). The
per share option price for each such option described in the immediately
preceding sentence shall be the price described in clause (b) of the
immediately preceding sentence. Any person who first becomes a Non-Employee
Director after the Effective Date (as defined below), either because such
person is first elected to the Board after the Effective Date or because such
person was first elected to the Board while such person was an officer or
employee of the Company or its subsidiaries and subsequently ceases to be an
officer and employee of the Company and its subsidiaries (and consequently did
not receive an option pursuant to the first sentence of this paragraph 3 on
the respective March 1), shall, on the date such person first becomes a Non-
Employee Director, automatically be granted an option entitling such person to
purchase a number of shares of the Company's common stock (rounded up to the
nearest whole number of shares) equal to (a) $7,500 multiplied by the number
of fiscal quarters (rounded up to the nearest whole number of fiscal quarters)
remaining in the fiscal year from and including the fiscal quarter in which
such date of grant occurs divided by (b) the price described in clause (b) of
the first sentence of this paragraph 3 for options granted on the March 1
immediately preceding such date of grant. The per share option price for each
such option described in the immediately preceding sentence shall be the price
described in clause (b) of the immediately preceding sentence. If any Non-
Employee Director who receives an option pursuant to this paragraph 3 during
the period commencing on March 1 of any year and ending on the day of the
annual meeting of the Company's shareowners next following such March 1 is not
elected as a Non-Employee Director at such annual meeting, the number of
shares subject to such option shall be reduced to the lesser of (a) 25% of the
number of shares originally subject to such option (rounded up to the nearest
whole number of shares) and (b) the number of shares then subject to such
option after giving effect to all exercises thereof. Each option granted under
this paragraph 3 shall be exercisable at any time after the date of grant
thereof.
A-1
<PAGE>
4. Incentive Option. Each Non-Employee Director shall automatically receive
as set forth below an option (an "Incentive Option") to purchase the number of
shares (rounded up to the nearest whole number of shares) of common stock of
the Company equal in value to (a) $40,000 divided by (b) the last reported
sale price of the Company's common stock on the date immediately preceding the
date of grant on the principal securities exchange on which shares of the
Company's common stock are listed on such date (or, if such date is not a
trading day on such exchange, the last trading day immediately preceding such
date). The per share option price for each such Incentive Option shall be the
price described in clause (b) of the immediately preceding sentence. With
respect to each Non-Employee Director, the initial Incentive Option shall be
granted to such director as follows: (i) in the case of any director who is a
Non-Employee Director on the Effective Date, such option shall be granted
automatically to such director upon the date on which the option granted to
such director under the Company's 1991 Stock Option Plan for Directors becomes
fully vested if such director is a Non-Employee Director on such date, (ii) in
the case of any person first elected to the Board after the Effective Date who
is not an officer or employee of the Company or its subsidiaries at the time
of such election, such option shall be granted automatically to such person
upon the date that such person is first elected to the Board (either by the
shareowners of the Company or, in the case of the filling of a vacancy, by the
Board) and (iii) in the case of a director who has not received an initial
Incentive Option as provided in the preceding clauses because such director
was also an officer or employee of the Company or its subsidiaries at the time
such director was first elected as a director and who subsequently ceases to
be an officer and employee of the Company and its subsidiaries, such option
shall be granted automatically to such director upon the date such person
becomes a Non-Employee Director. Each director who has received an initial
Incentive Option pursuant to the preceding sentence shall automatically be
granted an Incentive Option on each anniversary of the date of grant of the
initial Incentive Option to such director if such director is a Non-Employee
Director on such anniversary date.
An Incentive Option shall be exercisable only to the extent it has vested.
Each Incentive Option shall vest in full on the first anniversary of the date
of grant if the holder thereof is a Non-Employee Director on such date;
provided, that, if a person is not elected as a Non-Employee Director at the
first annual meeting of the Company's shareowners following the date of grant
of such Incentive Option and such option has not already vested pursuant to
the first clause of this sentence, such Incentive Option shall vest and become
exercisable as of the day before such annual meeting with respect to the
number of shares (rounded up to the nearest whole number of shares) equal to
(a) the total number of shares subject to such Incentive Option multiplied by
(b) a fraction equal to the number of whole months that such director has
served on the Board since the grant of such Incentive Option divided by 12. An
Incentive Option or any portion of an Incentive Option that has not vested
prior to the date the holder thereof ceases to be a Non-Employee Director
shall expire and be forfeited as of such date.
5. General Option Terms.
A. Option Agreement. Each option granted under this Plan shall be evidenced
by a written agreement between the Company and the optionee in such form as
the Board shall prescribe in accordance with this Plan. The option price per
share of common stock for all options granted under this Plan shall be
specified in the option agreement and shall be determined as set forth above.
B. Expiration. An option issued pursuant to this Plan shall expire and not
be exercisable after the first to occur of (i) the fifth anniversary of the
date of grant of such option and (ii) three months after the optionee ceases
to be a director of the Company (12 months if the optionee ceases to be a
director of the Company due to death or to total and permanent disability as
determined by the Board in good faith).
A-2
<PAGE>
C. Non-Transferability. Options granted pursuant to this Plan shall not be
sold, assigned, pledged, transferred or otherwise disposed of, except by will
or the laws of descent and distribution. Any purported transfer contrary to
this provision will nullify such award. All options shall be exercisable
during the participant's lifetime only by the participant or the participant's
legal representative. If the holder of an option dies and such option has
vested and is exercisable at the date of death, then, as described in
paragraph 8 below, the holder's estate, or the beneficiary or beneficiaries to
whom the holder's rights under the option shall pass by reason of the holder's
death, shall have the right to exercise the option as provided in and subject
to this Plan and the respective option agreement. Awards under this Plan shall
not be subject to execution, attachment or other process, and no person shall
be entitled to exercise any rights of a participant or possess any rights of a
participant by virtue of any attempted execution or other process.
D. Exercise of Options. Subject to the terms of the option agreement and
this Plan, options granted pursuant to this Plan may be exercised from time to
time in whole or in part. Each exercise of an option shall be accomplished by
delivering written notice of such exercise to the Secretary of the Company,
specifying the number of shares to be purchased and accompanied by payment in
full of the purchase price therefor. Payment for the options exercised shall
be either in (i) cash or check, money order or bank draft to the order of
Material Sciences Corporation (collectively, "cash") or (ii) shares of common
stock of the Company (valued as of the date of the notice of exercise) with a
value equal to or less than the aggregate option price, plus cash in the
amount, if any, by which the aggregate option price exceeds the value of such
shares of common stock. Payment for shares with respect to options exercised
for cash shall be delivered with the notice of exercise. Payment for shares
with respect to options exercised for common stock and cash, if any, shall be
delivered to the Secretary of the Company not later than the end of the third
business day after delivery of the notice of exercise. If payment is made in
common stock, such payment shall be made by delivery of the necessary share
certificates, with executed stock powers attached, to the Secretary of the
Company or, if such certificates have not yet been delivered to the optionee,
by written notice to the Secretary of the Company requesting that the shares
represented by such certificates applied toward payment as hereinabove
provided.
E. Necessary Approvals. Each option granted under this Plan shall be subject
to the requirement that if at any time the Board shall determine, in its
discretion, that either the consent or approval of any governmental authority
or the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law is
necessary or desirable as a condition of, or in connection with, the issuance
or purchase of shares under such option, such option may not be exercised in
whole or in part and shares thereunder may not be delivered, as the case may
be, unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Board. Any option may be exercised only in accordance with the provisions
of all applicable law.
6. Adjustments for Changes in Capitalization or Corporate Reorganizations.
Appropriate adjustments shall be made in the number, including the maximum
number, and kind of shares of common stock to be issued under this Plan, and
in the number and kind of shares of common stock that are the subject of any
option awarded under this Plan, to give effect to any stock splits, stock
dividends and other relevant changes in capitalization occurring after the
Effective Date. If the Company shall effect a merger, consolidation or other
reorganization, pursuant to which the outstanding shares of common stock shall
be exchanged for other shares or securities of the Company or of another
corporation which is a party to such merger, consolidation or other
reorganization, the Company shall use its best efforts to provide in any
agreement or plan which it enters into or adopts to effect any such merger,
consolidation or other reorganization, that any optionee under this Plan shall
have the right to purchase, at the aggregate option price provided for in his
or her option agreement and on the same terms and conditions, the kind and
number of shares or other securities of the Company or such other corporation
which would have been issuable to him or her in respect of the number of
shares of common stock which were subject to such option immediately prior to
the effective date of such merger, consolidation or other reorganization if
A-3
<PAGE>
such shares had been then owned by him or her. If by the date ten days prior
to the scheduled effective date of any such merger, consolidation or other
reorganization, the provision described in the preceding sentence has not been
made with respect to any Incentive Option that is not then fully vested, such
Incentive Option shall become vested and exercisable in full upon such date.
Any adjustment with respect to options required by this paragraph shall be
effected in such manner that the difference between the aggregate fair market
value of the shares or other securities subject to the options immediately
after giving effect to such adjustment and the aggregate option price of such
shares or other securities shall be substantially equal to (but shall not be
more than) the difference between the aggregate fair market value of the
shares subject to such options immediately prior to such adjustment and the
aggregate option price of such shares. Any adjustments made under this
paragraph shall be determined by the Board.
Upon the approval by the shareowners of the Company of a merger,
consolidation or other reorganization pursuant to which the outstanding shares
of common stock are to be exchanged for cash, or upon the adoption by the
shareowners of the Company of a plan of complete liquidation, all Incentive
Options that are not then fully vested shall become vested and exercisable in
full upon such date.
7. Tax Withholding. The Board shall have the power to withhold, or require a
participant to remit to the Company, an amount sufficient to satisfy any
withholding or other tax due with respect to any amount payable and/or shares
of common stock issuable under this Plan, and the Board may defer such payment
or issuance unless indemnified to its satisfaction. Subject to the consent of
the Board, a participant may make an irrevocable election to have shares of
common stock otherwise issuable under an option withheld, tender back to the
Company shares of common stock received pursuant to exercise of an option or
deliver to the Company previously-acquired shares of common stock having a
fair market value sufficient to satisfy all or part of the participant's
estimated tax obligations associated with the transaction. Such election must
be made by a participant prior to the date on which the relevant tax
obligation arises. The Board may disapprove of any election and may limit,
suspend or terminate the right to make such elections.
8. Beneficiary Designation. Subject to the restrictions on transfer and the
option terms set forth in this Plan, participants may name, from time to time,
beneficiaries (who may be named contingently or successively) who may exercise
options granted under this Plan in the event of the death of a participant
before he or she exercises such option. Each designation will revoke all prior
designations by the same participant, shall be in a form approved by the Board
and will be effective only when filed by the participant in writing with the
Board during the participant's lifetime. In the absence of any such
designation, options remaining unexercised at the participant's death may be
exercised by the participant's estate.
9. Administration of the Plan. This Plan shall be administered by the Board
in accordance with the provisions of this paragraph. The Board shall have full
power and authority to prescribe, amend and rescind rules and procedures
governing administration of this Plan. The Board shall have full power and
authority (i) to interpret the terms of this Plan, the terms of the options
and the rules and procedures established by the Board and (ii) to determine
the meaning of or requirements imposed by or the rights of any person under
this Plan, any option or any rule or procedure established by the Board. All
such rules, procedures and interpretations relating to this Plan adopted by
the Board shall be conclusive and binding on all parties.
A-4
<PAGE>
10. Amendment, Suspension and Termination of Plan. The Board may suspend or
terminate this Plan or any portion hereof at any time and may amend it from
time to time in such respects as the Board may deem advisable; provided, that
no such amendment shall be made without shareowner approval to the extent such
approval is required by law, agreement or the rules of any exchange upon which
the common stock is listed; provided further, that the provisions of this Plan
that relate to the amount, price and timing of awards shall not be amended
more than once every six months, except as set forth in Rule 16b-
3(c)(2)(ii)(B) under the Securities Exchange Act of 1934, as amended ("Rule
16b-3"). No such amendment, suspension or termination shall materially impair
the rights of participants under outstanding awards without the consent of the
participants affected thereby or make any change that would disqualify this
Plan, or any other plan of the Company intended to be so qualified, from the
exemption provided by Rule 16b-3.
11. Compliance with Rule 16b-3. It is the intent of the Company that this
Plan comply in all respects with Rule 16b-3, that any ambiguities or
inconsistencies in the construction of this Plan be interpreted to give effect
to such intention and that if any provision of this Plan is found not to be in
compliance with Rule 16b-3, that such provision shall be deemed null and void
to the extent required to permit this Plan to comply with Rule 16b-3.
12. Effective Date and Term of Plan. This Plan shall become effective on
March 1, 1996 (the "Effective Date"); provided, that this Plan shall cease to
be effective and any options granted hereunder shall become null and void if
this Plan is not approved by the Company's shareowners at the 1996 Annual
Meeting of Shareowners of the Company. This Plan shall terminate on February
28, 2001, unless terminated prior thereto by action of the Board. No further
grants shall be made under this Plan after termination, but termination shall
not affect the right of any participant under any grants made prior to
termination.
A-5
<PAGE>
LOGO
MATERIAL SCIENCES CORPORATION
2300 EAST PRATT BOULEVARD
ELK GROVE VILLAGE, ILLINOIS 60007
NOTICE OF ANNUAL MEETING
OF SHAREOWNERS
AND PROXY STATEMENT
MEETING DATE
JUNE 20, 1996
YOUR VOTE IS IMPORTANT!
Please sign and promptly return your
proxy in the enclosed envelope.
LOGO
Printed on recycled paper
<PAGE>
MATERIAL SCIENCES CORPORATION
2300 EAST PRATT BOULEVARD
ELK GROVE VILLAGE, ILLINOIS 60007
PROXY-SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS-PROXY
ANNUAL MEETING OF SHAREOWNERS
TO BE HELD ON JUNE 20, 1996
PLEASE MARK, SIGN ON REVERSE SIDE, DATE
AND RETURN IN THE ENCLOSED ENVELOPE.
The undersigned hereby appoints G. Robert Evans and E.F. Heizer, Jr., as
proxies, each with full power of substitution, to represent and to vote, as
designated hereon, all the shares of common stock of Material Sciences
Corporation held of record by the undersigned, at the Annual Meeting of
Shareowners to be held on June 20, 1996, at 10:00 a.m., CDT in the Shareholders
Room on the 21st floor of the Bank of America building located at 231 South
LaSalle Street, Chicago, Illinois, or at any adjournment thereof as follows:
Your vote for eight directors may be indicated on the reverse side, Jerome B.
Cohen, Roxanne J. Decyk, Eugene W. Emmerich, G. Robert Evans, E.F. Heizer, Jr.,
J. Frank Leach, Gerald G. Nadig and Irwin P. Pochter have been nominated for
election as directors.
(Continued and to be signed on the reverse side)
<PAGE>
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no contrary specification is indicated, the
shares represented by this proxy will be voted for the election of all nominees
for director and "FOR" Item 2 below. Please mark box [X] or [_]. Discretionary
authority to cumulative votes is being solicited.
Please mark your votes as indicated in this example [X]
1. Election of directors: (duly nominated and named on the reverse side of this
proxy)
FOR all nominees AUTHORITY
(except as listed WITHHELD
to the contrary) for all
[_] [_]
AUTHORITY WITHHELD FOR THE FOLLOWING ONLY (write each nominee's name in the
space below).
________________________________________________________________________________
Name(s)
2. Approval of the proposed Material Sciences Corporation 1996 Stock Option Plan
for Non-Employee Directors.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting, including discretionary
authority to vote with respect to the election of any person as director for
which a bona fide nominee is named in the proxy statement and such nominee is
unable to serve or for good cause will not serve.
Please sign exactly as name appears.
For joint accounts, all tenants should
sign. Executors, administrators,
trustees, etc. should so indicate when
signing. If a corporation, please sign in
full corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated: ____________________________, 1996
_________________________________________
Signature
_________________________________________
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
