MATERIAL SCIENCES CORP
DEF 14A, 2000-05-18
COATING, ENGRAVING & ALLIED SERVICES
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<PAGE>
                                UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                 SCHEDULE 14A

          Proxy Statement Pursuant to Section 14(a) of the Securities
                    Exchange Act of 1934 (Amendment No.  )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_]  Preliminary Proxy Statement

[_]  CONFIDENTIAL, FOR USE OF THE
     COMMISSION ONLY (AS PERMITTED BY
     RULE 14A-6(E)(2))

[X]  Definitive Proxy Statement

[_]  Definitive Additional Materials

[_]  Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 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]  No fee required.

[_]  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.


     (1) Title of each class of securities to which transaction applies:

     -------------------------------------------------------------------------


     (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:

     -------------------------------------------------------------------------

Notes:






Reg. (S) 240.14a-101.

SEC 1913 (3-99)



<PAGE>


                                                                   May 15, 2000

Dear Shareowner:

     The 2000 Annual Meeting of Shareowners will be held on Thursday, June 22,
2000, at 10:00 a.m. CDT in the Auditorium of the Company's offices located at
2200 East Pratt Boulevard, Elk Grove Village, Illinois. We hope you will
attend. We will be voting on the election of directors, the approval of a
proposal to amend the 1992 Omnibus Stock Awards Plan for Key Employees, the
approval of the proposed 2001 Compensation 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, we 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,

                               Gerald G. Nadig
                               Chairman, President and
                               Chief Executive Officer
<PAGE>

[MSC LOGO]

                               ----------------

                    NOTICE OF ANNUAL MEETING OF SHAREOWNERS

                               ----------------

   The Annual Meeting of Shareowners of Material Sciences Corporation will be
held on Thursday, June 22, 2000, at 10:00 a.m. CDT in the Auditorium of the
Company's offices located at 2200 East Pratt Boulevard, Elk Grove Village,
Illinois, for the following purposes:

  1. To elect a Board of eight directors;

  2. To consider and vote upon the proposal to amend the 1992 Omnibus Stock
     Awards Plan for Key Employees to increase the number of shares of Common
     Stock issuable thereunder by 425,000 shares;

  3. To consider and vote upon a proposed 2001 Compensation Plan for Non-
     Employee Directors to replace the existing 1996 Option Plan for Non-
     Employee Directors which expires February 28, 2001; and

  4. 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 24, 2000, 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,

                                          James J. Waclawik, Sr.
                                          Vice President,
                                          Chief Financial Officer and
                                           Secretary
Elk Grove Village, Illinois
May 15, 2000
<PAGE>

[LOGO OF MSC]

                          ---------------------------

                                PROXY STATEMENT

                          ---------------------------

   This proxy statement is furnished to shareowners of Material Sciences
Corporation ("MSC" or "Company") in connection with the solicitation, by order
of the Board of Directors of the Company ("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 22, 2000, 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
("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;

  --in favor of the proposal to amend the 1992 Omnibus Stock Awards Plan for
    Key Employees;

  --in favor of the proposed 2001 Compensation Plan for Non-Employee
    Directors; and

  --for the approval to authorize proxies to vote upon such other business as
    may properly come before the meeting.

   The close of business on April 24, 2000, 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 15,243,039 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, 2000.

   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.
Discretionary authority to cumulate votes is being solicited. If the vote with
respect to the election of directors 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. Non-voted
shares on the election of directors and shares of Common Stock 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 if cumulative voting
occurs or will not be counted in determining whether a majority vote with
respect to any director has been obtained if cumulative voting is not
utilized.

                                       1
<PAGE>

                             ELECTION OF DIRECTORS

   The eight persons listed below are proposed to be elected for a period to
end at the 2001 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 the earlier of 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 approval of 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. All of the
nominees are presently directors of the Company and all but Michael J.
Callahan, Dr. Ronald A. Mitsch and Dr. Mary P. Quin were elected at the 1999
Annual Meeting of Shareowners.

   Certain information regarding the nominees, as of April 24, 2000, is set
forth below, including their ages, the period each has served on the Board and
the nominees' business experience.

                               ----------------


              Michael J. Callahan  Director since 1999

              Age 61

              Mr. Callahan is a business consultant. Mr. Callahan served as
              Executive Vice President and Chief Financial Officer of FMC
              Corporation from 1994 to 1999. Prior to joining FMC, Mr.
              Callahan was Executive Vice President and Chief Financial
              Officer at Whirlpool Corporation from 1992 to 1994. Mr. Callahan
              is a member of the Board of Directors of Brunswick Corporation
              and Metropolitan Family Services in Chicago.
[Photo]


              Dr. Eugene W. Emmerich
                                   Director since 1979

              Age 69

              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.

[Photo]

              G. Robert Evans      Director since 1991

              Age 68

              Mr. Evans is Vice Chairman and CEO of Consolidated Freightways
              Corporation. He retired as Chairman of the Board of the Company
              in December 1997 and, prior to that time, served as Chairman of
              the Board from January 1997, and as Chairman and CEO of the
              Company from June 1991. Mr. Evans also serves as a director of
              Consolidated Freightways Corporation and Swift Energy Company.
[Photo]

                                       2
<PAGE>


              E. F. Heizer, Jr.    Director since 1976

              Age 70

              Mr. Heizer is a venture capitalist and has been involved in
              developing early stage companies since 1962. Since 1985, he has
              served as Chairman of Heizer International, and from 1969 until
              1985, he served as CEO of Heizer Corporation. Since 1995, he has
              served as Chairman of LBL, a Lloyds of London Bermuda-based
              insurance company. Mr. Heizer also serves as a director of
              Chesapeake Energy Corporation, Needham & Company, Inc., as well
              as several other early stage companies.
[Photo]



              Dr. Ronald A. Mitsch Director since 1999

              Age 65

              Dr. Mitsch retired as Vice Chairman and Executive Vice
              President, Industrial and Consumer Markets and Corporate
              Services of 3M Company in 1998. Dr. Mitsch had served in these
              capacities since 1995. Since joining the 3M Company in 1960, Dr.
              Mitsch has held several key management positions including
              Senior Vice President, Research and Development. Dr. Mitsch is a
              member of the Board of Directors of NCR, Lubrizol, WTC
              Industries, and sits on the technology advisory board of BF
              Goodrich-Performance Materials.



              Gerald G. Nadig      Director since 1996

[Photo]       Age 54

              Mr. Nadig has been Chairman, President and CEO of the Company
              since January 1998, President and CEO of the Company since
              January 1997, and was President and Chief Operating Officer from
              1991 to January 1997.
[Photo]



              Dr. Mary P. Quin     Director since 1999

              Age 46

              Dr. Quin has been Vice President and General Manager, Color
              Solutions Business Unit, Office Document Products Group at Xerox
              Corporation since 1999. Since joining Xerox in 1995 as Director,
              Corporate Business Strategy, she has served as Vice President
              and General Manager, External Business Unit, Office Document
              Products Group and Vice President, Strategy, Production Systems
              Group. Prior to joining Xerox, she served as Vice President,
              Operations and Customer Service at Avid Technology, Inc. From
              1988 to 1993, she held various sales and planning positions in
              the Copy Products Division of Eastman Kodak Company. Dr. Quin is
              a member of the Board of CEDPA, an international aid
              organization, and founder and Chairman of the One Hundred
              Heroines project in Rochester, New York.
[Photo]

                                       3
<PAGE>


              Howard B. Witt       Director since 1997

              Age 59

              Mr. Witt has been Chairman, President and CEO of Littelfuse,
              Inc. (an international and publicly-held company with
              approximately $350 million in sales) since 1993. Prior to that
              time, he was President and CEO of Littelfuse from 1990, and
              prior to 1990 served in several key management positions with
              Littelfuse since joining the company in 1979. Mr. Witt is
              currently a member of the Electronic Industries Alliance Board
              of Governors, the Artisan Mutual Fund Board of Directors, and
              the Board of Directors of Franklin Electric Co.
[Photo]

Committees and Meetings of the Board

   The Board held seven meetings during fiscal 2000. Included among the
committees of the Board are standing Audit, Compensation and Organization, and
Technology Committees. During fiscal 2000, directors in total attended
approximately 94% of the aggregate number of meetings of the Board and the
committees on which they served.

   The Audit Committee, currently consisting of Mr. Heizer (Chairperson), Mr.
Callahan and Dr. Mitsch, met four times during fiscal 2000. The functions of
this committee include the following: 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 annual report to shareowners 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
Messrs. Witt (Chairperson), Callahan and Heizer, met four times during fiscal
2000. The functions of this committee include the following: determining, in
consultation with the Company's Chairman, President and CEO, the compensation,
including long-term performance incentives, of the Company's officers;
reviewing and approving cash incentive 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; reviewing corporate
practices relating to diversity and succession planning; and overseeing
director affairs, including serving as the nominating committee.

   The Technology Committee, currently consisting of Dr. Emmerich
(Chairperson), Mr. Evans, Dr. Mitsch and Dr. Quin, met three times during
fiscal 2000. 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.

   From March 1, 1999 through August 31, 1999, directors who were not
executive officers of the Company received an annual retainer of $20,000, 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, $500 per meeting for special telephonic meetings, and
reimbursement for normal travel expenses. $10,000 of the annual retainer was
paid in cash, with the remainder paid in the form of stock options under the
1996 Stock Option Plan for Non-Employee Directors ("1996 Plan"). Each eligible
non-employee director also received an additional incentive stock option under
the 1996 Plan. From September 1, 1999 through February 29, 2000, the annual
retainer was increased by $10,000 (one-half in cash and one-half in the form
of stock options as discussed above).

                                       4
<PAGE>

Security Ownership of Management of the Company

   The following table provides certain information, as of April 24, 2000
(except as otherwise noted), on the beneficial ownership of Common Stock as to
each director of the Company, the executive officers named on the Summary
Compensation Table below, and the directors and executive officers 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 described below is the address of the
Company.

<TABLE>
<CAPTION>
                                       Number of     Shares
                                         shares       under              Percent
                                      beneficially exercisable             of
Name                                    owned(1)   options(2)    Total    Class
- ----                                  ------------ ----------- --------- -------
<S>                                   <C>          <C>         <C>       <C>
Michael J. Callahan.................      6,000        4,683      10,683   (3)
Dr. Eugene W. Emmerich..............      6,525       41,507      48,032   (3)
G. Robert Evans.....................    127,156      124,492     251,648   1.7
E. F. Heizer, Jr....................    146,638       37,907     184,545   1.2
Dr. Ronald A. Mitsch................      1,000        4,683       5,683   (3)
Gerald G. Nadig.....................    168,343      163,999     332,342   2.2
Dr. Mary P. Quin....................        --         4,683       4,683   (3)
Howard B. Witt......................      8,174       17,432      25,606   (3)
David A. Fletcher...................     40,152       64,949     105,101   (3)
Frank J. Lazowski, Jr...............     29,599       44,400      73,999   (3)
Thomas E. Moore.....................     71,353       56,750     128,103   (3)
James J. Waclawik, Sr...............     41,048       50,400      91,448   (3)
All executive officers and directors
 as a group (20 persons)............    925,117      809,726   1,734,843  11.4
</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. This does not include shares
    under exercisable options (which information is set forth separately).
(2) Includes shares subject to options that are exercisable on April 24, 2000
    and options which become exercisable within 60 days thereafter.
(3) Less than 1%.

                                       5
<PAGE>

                INFORMATION WITH RESPECT TO CERTAIN SHAREOWNERS

   The following table sets forth certain information on the beneficial
ownership of Common Stock by each person known by the Company as of April 24,
2000, 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 (1)   class
       ------------------------------------   ---------------------- ----------
      <S>                                     <C>                    <C>
      T. Rowe Price Associates, Inc..........       1,873,700           12.3
       100 E. Pratt Street
       Baltimore, MD 21202

      Dimensional Fund Advisors, Inc. (2)....       1,262,400            8.3
       1299 Ocean Ave.
       11th Floor
       Santa Monica, CA 90401

      Frank L. Hohmann III (3)...............       1,113,850            7.3
       277 Park Avenue
       New York, NY 10172

      Woodland Partners LLC..................         989,650            6.5
       60 South Sixth Street
       Suite 3750
       Minneapolis, MN 55402
</TABLE>
- --------
(1) As reported in Schedules 13G and 13D filed with the Securities and
    Exchange Commission ("SEC").
(2) According to Dimensional Fund Advisors, Inc., all such securities are
    owned by advisory clients of Dimensional Fund Advisors Inc. Dimensional
    Fund Advisors, Inc. disclaims beneficial ownership of all such securities.
(3) According to Mr. Hohmann, includes 12,000 shares held in trust for
    children of Mr. Hohmann, for which Mr. Hohmann states that he is not the
    trustee, and for which he disclaims beneficial ownership, and 30,000
    shares held in a private charitable foundation, for which Mr. Hohmann
    serves as trustee and for which he disclaims beneficial ownership.

                                       6
<PAGE>

                      COMPENSATION OF EXECUTIVE OFFICERS

I. Summary Compensation Table

   The following table discloses compensation received by the Company's
Chairman, President and CEO and four other executive officers (all of whom
except Mr. Fletcher comprise the Company's Policy Committee).

<TABLE>
<CAPTION>
                                                        Long-Term
                                                   Compensation Awards
                                                  -----------------------
                                     Annual
                                  Compensation
                                -----------------
                                                   Above
                                                   Market     Securities
                                           EVA     Stock      Underlying      All Other
Names and Principal      Fiscal Salary  Incentive Award(s)   Options/SARs    Compensation
Position                  Year    ($)      ($)     (#)(8)        (#)            ($)(1)
- -------------------      ------ ------- --------- --------   ------------    ------------
<S>                      <C>    <C>     <C>       <C>        <C>             <C>
G. G. Nadig.............  2000  389,000  280,559   73,500(2)    11,100(3)       23,896
 Chairman, President and  1999  365,000  178,286   33,000(4)       --           23,576
 Chief Executive Officer
  (CEO)                   1998  365,000   81,468      --        40,000(5)       23,526

T. E. Moore.............  2000  231,000  131,726   39,800(2)       --           38,609
 Executive Vice
  President and           1999  210,000   85,480   17,600(4)       --           20,505
 Chief Operating Officer
  (COO)                   1998  171,000   39,864      --        28,400(6)(7)    45,330

J. J. Waclawik, Sr......  2000  173,070   92,379   15,700(2)     3,900(3)       36,695
 Vice President, Chief
  Financial               1999  154,000   50,148    8,100(4)       --           18,053
 Officer and Secretary
  (CFO)                   1998  154,000   23,654      --        12,600(5)       44,088

F. J. Lazowski, Jr......  2000  155,000   79,549    8,900(2)       --           22,143
 Senior Vice President,   1999  131,000   42,658    4,000(4)       --           23,809
 Human Resources          1998  131,000   20,541      --         8,400(5)       35,172

D. A. Fletcher..........  2000  173,000  112,686    8,900(2)     4,200(3)       62,208
 President and Chief
  Operating Officer,      1999  173,000   85,421    4,000(4)       --           24,180
 MSC Specialty Films,
  Inc.                    1998  173,000   41,292      --         8,400(5)       29,006
</TABLE>
- --------
(1) Company matching contribution to the employee's Savings and Investment
    Plan contribution, payments for the Defined Contribution Plan, Deferred
    Compensation Plan distribution and other incentive or personal benefits.
(2) Granted under the 1999 Long-Term Incentive/Leveraged Stock Award Programs
    at market value ($7.1875). The executive paid $0.71875 per share for the
    award. The performance threshold was achieved during the year. The
    restrictions will be removed on February 28, 2002, assuming the individual
    is still employed with the Company.
(3) Granted options under the Company's Merit/Stock Exchange Program at market
    value ($7.1875) in lieu of all or a portion of the executives merit
    increase for fiscal 2000. The options vested immediately.
(4) Granted under the 1998 Long-Term Incentive/Leveraged Stock Awards Program
    at market value ($12.0625). The executive paid $1.00 per share for the
    award. The performance threshold was achieved during the fiscal year. The
    restrictions will be removed on February 28, 2001, assuming the individual
    is still employed with the Company.
(5) Granted under the 1995 Stock Option Program at an option price of $16.375
    (market price on the date of grant). One-third of the options vested on
    March 1, 1998, one-third vested on March 1, 1999, and the final third
    vested on March 1, 2000.

                                       7
<PAGE>

(6) 8,400 shares were granted under the 1995 Stock Option Program on March 1,
    1997, at an option price of $16.375 (market price on the date of grant).
    One-third of the options vested on March 1, 1998, one-third vested on
    March 1, 1999, and the final third vested on March 1, 2000.
(7) 20,000 shares were granted under the 1992 Omnibus Stock Awards Plan on May
    1, 1997, at an option price of $15.00 (market price on the date of grant).
    One-third of the options vested on May 1, 1998, one-third vested on May 1,
    1999, and the final third vested on May 1, 2000.
(8) During fiscal 2000, the market price of common stock reached the plan
    target level ($14.25) for a one-time restricted stock award granted in
    fiscal 1994 and the shares vested. The vested shares totaled 19,200,
    3,000, 3,600, 4,800 and 8,400 for Messrs. Nadig, Moore, Waclawik, Lazowski
    and Fletcher, respectively.

II. Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
                           Individual Grants
- -----------------------------------------------------------------------
                                                                        Potential Realizable Value
                                                                          at Assumed Annual Rates
                          Number of    % of Total                       of Stock Price Appreciation
                          Securities  Options/SARs Exercise                   for Option Term
                          Underlying   Granted to   or Base             -----------------------------
                         Options/SARs Employees in   Price   Expiration            5%        10%
Name                      Granted(1)  Fiscal Year  ($/Share)    Date     0%     ($23.52)   ($37.45)
- ----                     ------------ ------------ --------- ---------- ------ ----------------------
<S>                      <C>          <C>          <C>       <C>        <C>    <C>        <C>
G. G. Nadig.............    11,100        35.2      7.1875    3/01/09        0     50,174    127,151
J. J. Waclawik, Sr......     3,900        12.4      7.1875    3/01/09        0     17,629     44,675
D. A. Fletcher..........     4,200        13.3      7.1875    3/01/09        0     18,985     48,111
</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 $138,401,706 and $350,737,095, respectively.
     The dollar amount of named optionees and gain after ten years at the 5%
     and 10% price appreciation rates would be $86,788 and $219,937,
     respectively. The percentage of named optionees gain to shareowner gain
     would be 0.06%.
(1) Options for the named individuals were granted at the fair market value of
    a share of Common Stock on the date of grant (February 25, 1999) pursuant
    to the Company's Merit/Stock Exchange Program. This grant was elected by
    the named executives in lieu of all or a portion of their merit increase
    for fiscal 2000. The options vested immediately.

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
                            Shares                  Options/SARs at      In-the-Money Options/SARs
                           Acquired    Value      Fiscal Year End (#)    at Fiscal Year End ($)(2)
                              On      Realized ------------------------- -------------------------
Name                     Exercise (#)  ($)(1)  Exercisable Unexercisable Exercisable Unexercisable
- ----                     ------------ -------- ----------- ------------- ----------- -------------
<S>                      <C>          <C>      <C>         <C>           <C>         <C>
G. G. Nadig.............     None       N/A      68,799       19,201       313,474       3,600
T. E. Moore.............     None       N/A      14,250        3,000        59,372         563
J. J. Waclawik, Sr......     None       N/A      16,800        3,600        81,094         675
F. J. Lazowski, Jr......     None       N/A      19,200        4,800        79,200         900
D. A. Fletcher..........     None       N/A      44,549        8,401        94,715       1,575
</TABLE>
- --------
Note--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.

                                       8
<PAGE>

(1) The reported value realized on the exercised options is the market price
    on the exercise date less the exercise price.
(2) The value of unexercised options is based on a market price of $14.4375
    (the market price on February 29, 2000), less the exercise price.

IV. Long-Term Incentive Plan Awards in Last Fiscal Year

<TABLE>
<CAPTION>
                                         Number of Shares,  Performance or Other
                                             Units or           Period Until
Name                                    Other Rights (#)(1) Maturation or Payout
- ----                                    ------------------- --------------------
<S>                                     <C>                 <C>
G. G. Nadig............................       73,500              3 Years
T. E. Moore............................       39,800              3 Years
J. J. Waclawik, Sr.....................       15,700              3 Years
F. J. Lazowski, Jr.....................        8,900              3 Years
D. A. Fletcher.........................        8,900              3 Years
</TABLE>
- --------
(1) Granted under the 1999 Long-Term Incentive/Leveraged Stock Awards Program
    at market value ($7.1875). The executive paid $0.71875 per share for the
    award. The performance threshold was achieved during fiscal 2000. The
    restrictions will be removed on February 28, 2002, assuming the individual
    is still employed with the Company.

                                       9
<PAGE>

                COMPENSATION AND ORGANIZATION COMMITTEE REPORT

   The functions of the Compensation and Organization Committee include
establishing and administering compensation plans for Material Sciences
Corporation executive officers, reviewing executive officer compensation
levels and evaluating 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 2000.

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 based on 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.

Executive Compensation Components

   MSC's compensation program includes three components including: a base
salary, a cash incentive opportunity and a long-term equity award.

  . Base salaries are targeted at median competitive levels for similar-size
    companies in general industry:

   --Salaries are reviewed annually.

   --Annual adjustments are based on individual performance, changes in
    duties and responsibilities and general movement of salary levels in
    similar-size companies in general industry.

   --In fiscal 2000, the Company introduced a program to promote greater
    stock ownership in the Company by officers. The Merit/Stock Exchange
    Program allows an officer to elect to receive a merit increase in stock
    or stock options based on fair market value.

  . Cash incentive opportunity for management employees is targeted at
    competitive levels between the median and the 60th percentile, based upon
    similar-size companies in general industry, determined on an annual
    basis.

   --The Company currently uses Economic Value Added (EVA(R)) to set
    performance targets for its business units. EVA is a performance
    measurement tool that is intended to drive increased economic value
    within the Company and should increase shareowner value. This EVA-based
    plan includes a provision that requires key employees to bank a portion
    of any overachievement (in excess of 100% of target). This banking
    provision is intended to promote sustained economic performance. A
    portion of the ending bank balance is distributed on an annual basis.
    The EVA bank may also be utilized by key employees to fund long-term
    equity award programs which require an employee contribution.

  . Long-term equity awards of either stock options or restricted stock to
    management employees at the 75th percentile competitive levels for
    similar-size companies in general industry. Such awards are made on an
    annual basis.

   --In fiscal 1993, stock options were granted to key management employees
    for fiscal years 1993, 1994 and 1995 at the 60th percentile competitive
    level. In fiscal 1994, a one-time stock and Incentive Stock Option
    ("ISO") award was granted to key management employees that was intended
    to encourage and facilitate increased stock ownership and executive
    retention. This award vested in fiscal year 2000

                                      10
<PAGE>

    because the market price of common stock reached the plan target level
    and the time vesting requirements were met. Furthermore, a matching ISO
    award was granted--which will vest if the underlying restricted stock is
    held for two (2) years after the restricted stock vested (June 18,
    2001)--otherwise the ISO shares do not vest for nine (9) years and
    eleven (11) months from the date of grant. This one-time stock award and
    ISO grant put the total long-term equity award for key management
    employees at the 75th percentile for similar-size companies in general
    industry for the three-year fiscal period, 1993 to 1995.

   --Non-qualified stock options were granted at the 75th percentile
    competitive levels for similar-size companies in general industry for
    fiscal years 1996, 1997 and 1998.

   --A restricted stock and cash award were issued in fiscal 1999 and 2000
    to key management employees at the 75th percentile competitive level.
    Those who chose to participate were required to invest their own funds
    in the award which vests upon achieving premium stock price levels over
    the next three (3) to five (5) years.

Fiscal 2000 Committee Actions and Executive Performance

   Base salaries were increased 6.6% for the CEO and an average of 9.6% for
the other four named executives. In general, salary increases reflected
individual performance, company performance and changes in the external
compensation market. The above increases exclude a portion of the increase
elected by executives under the Company's Merit/Stock Exchange Program.
Messrs. Nadig, Waclawik and Fletcher also received 11,100, 3,900, and 4,200
options, respectively, at fair market value at the date of grant under the
Merit/Stock Exchange Program.

   Under the Company's EVA cash incentive plan, the Compensation and
Organization Committee approved an incentive payout for Mr. Nadig, based upon
the Company's performance relative to an EVA target level. The other executive
officers and all management employees were also measured under similar EVA
target levels. Achievement of target levels were reviewed and approved by the
Compensation and Organization Committee. Mr. Nadig earned a cash incentive
payout of $280,559 in fiscal 2000. The incentive award reflects an achievement
of 142% of the EVA target level. The other named executives received annual
incentive awards in fiscal 2000 that reflect an achievement of 142% of the EVA
target level, except for Mr. Fletcher which reflected an achievement of 189%.
After the fiscal 2000 distribution, Mr. Nadig had an ending EVA bank balance
of $69,119 and the other named executives had ending EVA bank balances of
$126,421 in the aggregate.

   Under MSC's equity plan, Mr. Nadig was awarded a restricted stock (73,500
shares) and cash award ($284,200) that vested upon achieving a target stock
price level. The other four named executives received restricted stock awards
for a total of 73,300 shares, and an aggregate cash award of $282,900, which
also vested upon achieving the target stock price level. The target stock
price level was based on the market price at the time of grant, plus a
premium. The restriction will be removed on February 28, 2002, assuming the
individuals are still employed with the Company.

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 Board and
executive compensation matters. The Committee also has access to competitive
data on compensation levels for executive positions.

     Material Sciences Corporation Compensation and Organization Committee

                        Mr. Howard B. Witt, Chairperson
                            Mr. Michael J. Callahan
                             Mr. E. F. Heizer, Jr.

                                      11
<PAGE>

                                      MSC
                               PERFORMANCE GRAPH

   The following chart shows total shareowner returns, assuming $100 was
invested on February 28, 1995, in Material Sciences Corporation, the S&P
SmallCap 600 Index and the Comparator Group (as described below) with
dividends, if any, reinvested through February 29, 2000.

                   MSC 5-YEAR CUMULATIVE TOTAL RETURN VERSUS
                   THE S&P SmallCap 600 AND COMPARATOR GROUP


<TABLE>
<CAPTION>
                                                      February 28 or 29,
                                              ----------------------------------
                                               1996   1997   1998   1999   2000
                                              ------ ------ ------ ------ ------
<S>                                           <C>    <C>    <C>    <C>    <C>
MSC..........................................  90.55 103.15  76.77  45.28  90.95
S&P SmallCap 600............................. 131.03 152.90 206.31 171.01 234.91
COMPARATOR GROUP............................. 106.99 114.56 105.62  74.27  77.23
</TABLE>

COMPARATOR GROUP: COLD METAL PRODUCTS, INC. (CLQ)
                    GIBRALTOR STEEL CORPORATION (ROCK)
                    HUNTCO INC. (HCO)
                    OLYMPIC STEEL (ZEUS)
                    SHILOH INDUSTRIES, INC. (SHLO)
                    SOUTHWALL TECHNOLOGIES (SWTX)
                    STEEL TECHNOLOGIES, INC. (STTX)
                    WORTHINGTON INDUSTRIES, INC. (WTHG)

                                      12
<PAGE>

                        EMPLOYMENT AND OTHER AGREEMENTS

   In connection with Mr. Evans' retirement from his position from Chairman of
the Board of the Company, Mr. Evans receives a supplemental pension consistent
with an Employment Agreement (dated February 27, 1991) between the Company and
Mr. Evans.

   Change in control arrangements are currently in effect for approximately 73
employees, including Change in Control Agreements for all of the Company's
executive officers. In general, the Change in Control Agreements with the
executive officers provide that in the event a Change in Control occurs (as
defined therein) and employment is terminated by the Company without "Cause"
(as defined therein) or by such executive for "Good Reason" (as defined
therein) or, within 30 days after the first anniversary of a Change in
Control, without Good Reason, the Company will pay to such executive officer a
lump sum payment of one and a half to three times such executive officer's
annual base salary plus bonus plus required defined contribution plan
contributions, and will provide other compensation and benefits. Such Change
in Control Agreements also provide for gross-up payments for certain income
tax payments and for, in some cases, covenants not to compete. In addition,
the Company is contingently liable for $1,857,092 of banked balances from the
Company's EVA incentive program including $69,119, $32,452, $22,759, $19,598,
$51,612 for Messrs. Nadig, Moore, Waclawik, Lazowski and Fletcher,
respectively.

   The Company has a severance agreement ("Severance Agreement") with Mr.
Waclawik which provides for, among other things, severance benefits in certain
circumstances. The Severance Agreement provides for eighteen months of both
health benefits and severance payments equal to Mr. Waclawik's then current
monthly base salary should his employment be terminated by the Company for
reasons other than Good Cause (as defined in the Severance Agreement) or by
Mr. Waclawik for certain specified reasons.

                                      13
<PAGE>

                           EMPLOYEE AND OTHER PLANS

Supplemental Pension Plan Agreements

   The Company has entered into Supplemental Pension Plan Agreements
("Supplemental Pension Plan Agreements") with fifteen current employees,
including all executive officers as of April 24, 2000, 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 Common Stock or (2) the participant's employment
is terminated other than for cause, disability, death or voluntarily by the
employee. For these purposes, termination of employment is deemed to occur
after an individual's 65th birthday.

   The first Supplemental Pension Plan Agreements were entered into in June
1983. As of February 29, 2000, $2,869,563 had been accrued under the plans for
current employees, of which $2,562,149 had been accrued to be paid to
executive officers which includes $1,498,178 for persons named in the Summary
Compensation Table (such accruals being $673,529, $334,436, $125,655, $287,208
and $77,350 for Messrs. Nadig, Moore, Waclawik, Lazowski and Fletcher,
respectively).

                                      14
<PAGE>

             PROPOSAL TO AMEND AND RESTATE THE 1992 OMNIBUS STOCK
                         AWARDS PLAN FOR KEY EMPLOYEES

   The 1992 Omnibus Stock Awards Plan for Key Employees ("1992 Awards Plan")
was originally adopted by the Board and approved by the shareowners of the
Company in 1992. Under the 1992 Awards Plan, as amended to date, the aggregate
number of shares of common stock with respect to which awards may be granted
is 2,837,500. After reviewing the Company's current compensation programs and
incentives for key employees and consideration of, among other things,
incentive programs established by comparable companies, the Board adopted an
amendment and restatement of the 1992 Awards Plan ("2000 Plan Proposal") on
April 20, 2000. The 2000 Plan Proposal will increase the aggregate number of
shares of common stock with respect to which awards may be granted under the
1992 Awards Plan from 2,837,500 to 3,262,500 shares of common stock and will
incorporate certain amendments to the 1992 Awards Plan which were previously
adopted by the Board, which amendments were not subject to shareowner
approval. These prior amendments include the addition of a provision (i)
permitting the Compensation and Organization Committee to include as part of
an award agreement the right of a participant who surrenders shares held by
such participant upon exercise of an option to receive further options equal
to the number of shares so surrendered; (ii) providing that awards granted
under the plan (other than incentive stock options) may be transferred to
certain family members of the participant by gift or domestic relations order;
and (iii) requiring a shareowner approval for amendments which reprice
options. The Board adopted the 2000 Plan Proposal subject to approval and
adoption by the shareowners of the Company and provided that if not so
approved, such amendment will terminate and be of no force or effect. Unless
authority to vote for approval of the amendment is withheld in the proxy,
signed proxies that are returned will be voted in favor of the amendment.

   The Board believes that the 2000 Plan Proposal is necessary for the Company
to be able to continue to provide appropriate incentives to key employees and
to encourage greater teamwork through rewards linked to increases in the price
of common stock. Further, the Board considers such amendment to be an integral
part of its market-competitive compensation program that enhances the
Company's ability to retain a superior management team. As of April 24, 2000,
of the 2,837,500 shares of common stock available for issuance upon the
exercise or payment of awards granted under such plan, 123,774 shares of
common stock remained available to be granted as awards. The increase of
425,000 shares will be used primarily for future awards related to long-term
compensation.

   For purposes of the following discussion, the 1992 Awards Plan, as it
exists prior to the effectiveness of the 2000 Plan Proposal, is referred to as
the "Existing Plan" and as proposed to be amended is referred to as the
"Amended Awards Plan."

   In the event that the 2000 Plan Proposal is not approved by the Company's
shareowners, the Existing Plan will continue in effect but the Company's
ability to grant new awards under the Existing Plan will be constrained due to
the limited number of shares of common stock that currently remain available
for awards.

   The complete text of the Amended Awards Plan reflecting all amendments to
date and the 2000 Plan Proposal is set forth in Exhibit A attached hereto and
should be read in its entirety by shareowners. The following description of
the Amended Awards Plan is qualified in its entirety by Exhibit A.

   Administration Eligibility. The Compensation and Organization Committee
administers the Amended Awards Plan, including the determination of employees
eligible for participation and the form and amounts of awards. The
Compensation and Organization Committee may, to the extent that any such
action will not prevent the Amended Awards Plan from complying with Rule 16b-3
("Rule 16b-3") of the Securities Exchange Act of 1934 (as amended, the
"Exchange Act"), delegate any of its authority thereunder to such persons as
it deems appropriate. Under the Amended Awards Plan, awards may be made to
those employees of the Company and its subsidiaries (including the Company's
executive officers) who are deemed to be key employees.

                                      15
<PAGE>

   Limitations on Shares to be Issued. After giving effect to the 2000 Plan
Proposal, a maximum of 3,262,500 shares of common stock will be authorized to
be issued under awards granted under the Amended Awards Plan. Shares covered
by any award granted under the Amended Awards Plan which subsequently expire
unexercised or unpaid or are canceled, terminated or forfeited in any manner
without the issuance of shares of common stock will again be available under
the Amended Awards Plan. Based on the closing price of common stock on April
24, 2000, the aggregate market value of the total of 3,262,500 shares of
common stock issuable under the Amended Awards Plan (which includes 123,774
shares currently available for issuance under the Existing Plan and the
additional 425,000 shares covered by the 2000 Plan Proposal) is approximately
$37,926,563. The calculation of the aggregate market value with respect to
shares of common stock underlying options granted under the Amended Awards
Plan is not reduced for prices paid or payable to the Company for such common
stock by each optionee upon exercise.

   Awards. Awards may be in the form of stock options, stock appreciation
rights ("SARs"), restricted stock or other awards.

   Options. Options granted under the Amended Awards Plan may be either
incentive stock options ("ISOs") or non-qualified options or such other form
of option as the Compensation and Organization Committee may determine. Each
option will be exercisable immediately in full or will become exercisable in
installments (based on the passage of time, achievement of performance targets
or both as determined by the Compensation and Organization Committee) over the
option period as determined by the Compensation and Organization Committee.
The expiration dates and the per share option price shall be determined by the
Compensation and Organization Committee and specified in the option agreement,
provided that the per share option price with respect to any option shall not
be less than 100% of the fair market value of a share of common stock on the
date the option is granted. Options may be exercised in whole or in part.
Shares acquired by exercise of an option may be paid for, at the discretion of
the Compensation and Organization Committee, either in cash, in common stock
(valued at the fair market value thereof on the date of exercise), by a
combination thereof or with any other consideration. In the event a
participant exercises an option, payable in whole or in part with common
stock, the Amended Awards Plan permits the Compensation and Organization
Committee to include as part of an award agreement the right of such
participant to receive further options equal to the number of shares of common
stock surrendered as part of the exercise price plus a number of shares of
common stock having a fair market value equal to the amount of taxes withheld
as a result of the exercise of the option.

   SARs. The Amended Awards Plan allows the Compensation and Organization
Committee to grant awards in the form of SARs. An SAR entitles the holder to
receive from the Company upon exercise an amount equal to the excess of the
fair market value (at the date of exercise) of a share of common stock over a
specified price multiplied by the number of shares of common stock as to which
the holder is exercising the SAR. SARs may be awarded in tandem with any
previously or contemporaneously granted option or independent of any option.
To the extent a tandem SAR is exercised, the related option will be canceled
and, to the extent the related option is exercised, the tandem SAR will be
canceled. The amount payable upon exercise of an SAR may be paid by the
Company in common stock (valued at its fair market value on the date of
exercise), cash or a combination thereof, as the Compensation and Organization
Committee may determine.

   Incentive Awards of Restricted Stock. The Amended Awards Plan allows the
Compensation and Organization Committee to award shares of common stock to
participants ("restricted stock"). The Compensation and Organization Committee
will establish a restriction period ("restriction period") for each restricted
stock award. During this restriction period, shares of restricted stock may
not be sold, assigned, transferred, pledged or otherwise encumbered. Except
for such restrictions, the participant will have all the rights

                                      16
<PAGE>

of a holder of common stock as to such restricted stock. The Compensation and
Organization Committee may permit or require the payment of cash dividends to
be deferred and, if the Compensation and Organization Committee so determines,
reinvested in additional restricted stock or otherwise invested. Except as
provided by the Compensation and Organization Committee, the participant will
forfeit all shares of common stock still subject to restriction upon
termination of such participant's employment for any reason during the
restriction period.

   Other Awards. The Amended Awards Plan allows the Compensation and
Organization Committee to grant other awards, including, without limitation,
performance shares, convertible debentures, other convertible securities and
other forms of awards measured in whole or in part by the value of common
stock, the performance of the participant or the performance of the Company.
Such awards may be payable in common stock, cash or both. At the time of any
such award, the Compensation and Organization Committee will, if applicable,
determine a performance period and performance goals to be achieved during the
performance period, subject to such later revisions as the Compensation and
Organization Committee may deem appropriate to reflect significant unforeseen
events such as changes in laws, regulations or accounting practices, unusual
or non-recurring items or occurrences. Following the conclusion of each
performance period, the Compensation and Organization Committee may determine
the extent to which performance goals have been attained or a degree of
achievement between maximum and minimum levels during the performance period
in order to evaluate the level of payment to be made, if any.

   Transferability. The Amended Awards Plan permits awards granted thereunder,
other than ISOs, to be transferred by the participant to certain family
members of the participant, by gift or domestic relations order.

   Amendment. The Board or the Compensation and Organization Committee may
suspend or terminate the Amended Awards Plan or any portion thereof or any
agreement evidencing an award thereunder at any time and may amend it from
time to time in such respects as the Board or the Compensation and
Organization Committee may deem advisable; provided, however, that no such
amendment shall be made without shareowner approval to the extent (i) such
approval is required by law, agreement or the rules of any exchange upon which
the common stock is listed or (ii) such amendment reprices, replaces, regrants
through cancelation or lowers the exercise price of a previously granted
option. No such amendment, suspension or termination shall impair the rights
of participants under outstanding awards without the consent of the
participants affected thereby. The Compensation and Organization Committee may
amend or modify any award in any manner to the extent that the Compensation
and Organization Committee would have had the authority under the Amended
Awards Plan to initially grant such award. No such amendment or modification
shall impair the rights of any participant under any award without the consent
of such participant.

   Adjustments; Sale of the Company. Appropriate adjustments will be made by
the Compensation and Organization Committee in the maximum number and kind of
shares of common stock to be issued under the Amended Awards Plan and awards
granted thereunder to give effect to any stock splits, stock dividends and
other relevant changes in the Company's capitalization. If the Company shall
effect a merger, consolidation or other reorganization pursuant to which the
outstanding shares of common stock shall be exchanged for shares or other
securities of the Company or any other corporation, the Company shall use its
best efforts to provide in any related agreement or plan that any holder of an
award under the Amended Awards Plan will receive in such transaction, as
further described in the Amended Awards Plan, such kind and number of shares
or other securities of the Company or such other corporation as the
Compensation and Organization Committee deems equitable and appropriate. For
example, an optionee would have the right to purchase, at the aggregate option
price provided for in his option agreement and on the same terms and
conditions, the kind and number of shares or

                                      17
<PAGE>

other securities of the Company or other such corporation which would have
been issuable to him in respect of the number of shares of common stock which
were subject to such option immediately prior to the effective date of such
transaction if such shares had been then owned by him. Any such adjustment
would be effected so that the difference between the aggregate fair market
value of the shares or other securities subject to the options immediately
after given effect to such adjustment and the aggregate option price of such
shares or other securities will be substantially equal to (but will 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. If the adjustments described above have
not been made with respect to any options, SARs or restricted stock issued
pursuant to the Amended Awards Plan by the date ten days prior to the
scheduled effective date of any such merger, consolidation or other
reorganization, then such options and SARs will become exercisable in full and
the restrictions on the transfer, assignment, pledge or other encumbrance of
such restricted stock will lapse as of such date.

   Upon the approval of the Company's shareowners of a merger, consolidation
or other reorganization pursuant to which the outstanding shares of the
Company's common stock are to be exchanged for cash, or upon the adoption by
shareowners of a plan of complete liquidation, the restrictions on the
transfer, assignment, pledge or other encumbrance of restricted stock issued
pursuant to the Amended Awards Plan will lapse and all options outstanding
under the Amended Awards Plan will become exercisable in full.

   Federal Income Tax Consequences. The following discussion is a brief
summary of the current federal income tax rules (including proposed
regulations) relevant to stock options and SARs granted to individuals who are
U.S. citizens or residents. The rules governing the tax aspects of these items
are highly technical and subject to change.

   Non-Qualified Options and SARs. The grant of a non-qualified option or SAR
with an exercise price per share not less than the fair market value of a
share of common stock on the date of grant does not result in any taxable
income to the recipient or deduction for the Company. However, when any such
option is exercised (assuming the common stock acquired is not restricted
stock for purposes of Section 83 of the Tax Code) the excess of the fair
market value on the exercise date of the shares acquired over the aggregate
exercise price ("spread") will be taxable to the holder as ordinary
compensation income. Similarly, when an SAR is exercised, the amount paid to
the holder will be taxable as ordinary compensation income. In both cases, the
Company will generally be entitled to a tax deduction in an amount equal to
the income taxable to the holder.

   The optionee's tax basis in shares acquired upon exercise of a non-
qualified option will equal the optionee's fair market value on the exercise
date and the optionee's holding period for such shares will begin on the day
after the exercise date.

   ISO's. An optionee will not be required to report taxable income on the
grant or exercise of an ISO. The spread at exercise will, however, constitute
an item includible in alternative minimum taxable income and may thereby
subject the optionee to the alternative minimum tax.

   Upon the disposition of shares acquired pursuant to the exercise of an ISO
("ISO Shares") after the later of (a) two years from the date of the grant of
such ISO and (b) one year from the date such ISO was exercised ("ISO Holding
Period"), the optionee will have a long-term capital gain or loss, as the case
may be, measured by the difference between the selling price and the exercise
price. In such case, the Company is not entitled to any tax deduction.

   In general, if an optionee disposes of ISO Shares before the expiration of
the ISO Holding Period (i.e., makes a "disqualifying disposition"), an amount
equal to the spread at exercise will be taxable as ordinary

                                      18
<PAGE>

income to the optionee at the time of the disposition. If the selling price is
greater than the fair market value of the shares on the date of exercise, the
excess will be taxable to the optionee as capital gain (long-term or short-
term, depending upon whether the optionee held the ISO Shares for more than 12
months). Except in certain limited circumstances (such as disposition by gift
or by sale to a related person), if the selling price is less than the fair
market value of the shares on the date of exercise, the difference will
ordinarily reduce the amount of ordinary income taxable to the optionee.

   In the case of a disqualifying disposition, the Company generally is
entitled a tax deduction in the same amount as the optionee's ordinary income.
The Company is not entitled to any deduction with respect to an optionee's
capital gain.

   Use of Stock to Pay Exercise Price. If an optionee delivers shares of
previously-acquired common stock ("old shares"), however acquired, in payment
of all or part of the exercise price of a non-qualified option, any
appreciation or depreciation in the value of the old shares after their
acquisition dates is not taxable as a result of such delivery. The optionee's
tax basis in, and holding period for, the old shares will carry over to the
same number of shares received at exercise on a share-for-share basis.
Assuming any additional shares received ("new shares") are not subject to
restrictions, their fair market value at the exercise date will be taxable to
the optionee as ordinary compensation income. The tax basis for the new shares
will equal their fair market value on the exercise date and the holding period
for such shares will begin on the day after the exercise date. The Company
will generally be entitled to a tax deduction equal to the optionee's ordinary
income.

   If an optionee delivers old shares (other than old shares acquired upon
exercise of an ISO and not held for the ISO Holding Period) in payment of all
or part of the exercise price of an ISO, any appreciation or depreciation in
the value of the old shares after their acquisition dates is not taxable as a
result of such delivery. The optionee's tax basis in, and holding period for,
the old shares will carry over to the same number of shares received
("replacement shares") on a share-for-share basis. However, under proposed
regulations, if there is a later disposition of the replacement shares,
satisfaction of the ISO Holding Period will be measured from the date those
shares were actually received (and not their holding period for other
purposes), and, if the result is a disqualifying disposition of the
replacement shares, the consequences will be computed as if the optionee had
paid fair value for the replacement shares at the time they were actually
received (even though that may be different than their tax basis for other
purposes). With respect to any new shares received, the optionee will have a
tax basis equal to the amount of the exercise price paid in cash (if any), and
the holding period will begin on the day after the exercise date. If there is
a later disposition of the new shares, satisfaction of the holding period will
begin on the day after the exercise date. If there is a later disposition of
the new shares, satisfaction of the ISO Holding Period will be measured from
the date those shares were actually received, and the federal tax consequences
will be based on the amount actually paid for the new shares (which should be
the same as their tax basis for other purposes). Proposed regulations provide
that when an ISO is exercised using old shares, a later disqualifying
disposition of the shares received will be deemed to be a disposition of the
shares having the lowest tax basis first.

   If an optionee pays the exercise price of an ISO in whole or in part with
old shares that were acquired upon exercise of an ISO and that have not been
held for the ISO Holding Period, the optionee incurs ordinary compensation
income (but not capital gain) under the rules applicable to disqualifying
dispositions, and the Company will generally be entitled to a corresponding
compensation expense deduction. An optionee's basis in the replacement shares
received is increased by the amount of the ordinary income recognized. Other
than this recognition of ordinary income and the corresponding increase in
basis, the rules described in the previous paragraph apply.


                                      19
<PAGE>

   Tax Withholding. The Company will withhold applicable federal and state
income taxes and will require, when applicable, that participants pay to the
Company, in addition to any exercise price, amounts required for any such
withholding. The Compensation and Organization Committee has other rights and
powers which it may exercise to satisfy any withholding or tax due with
respect to any amount payable or shares issuable under the Amended Awards
Plan. If the Compensation and Organization Committee consent and other
required conditions are met, participants may satisfy all or part of such tax
obligation by having the Company withhold shares of common stock otherwise
issuable under awards or by delivering previously owned shares to the Company.

   Section 16(b) Consequences. If a participant acquires shares on exercising
an option and an immediate sale of such shares could subject such participant
to liability under Section 16(b) of the Exchange Act (which might occur if the
specific option grant is not approved by a requisite vote of the Board or
Compensation and Organization Committee), such risk of liability may cause the
date for determining the fair value and the acquisition date of the shares to
be delayed for six months from the date of acquisition. This issue may be
avoided (so that the actual acquisition date and fair market value on that
date are used) by filing an election under Section 83(b) of the Tax Code.

Vote Required

   The 2000 Plan Proposal requires approval by the affirmative vote of the
holders of a majority of the shares of common stock represented at the
meeting, in person or by proxy. If vote is made by proxy and if no contrary
specification is indicated on the proxy card, the shares represented thereby
will be voted for approval of the 2000 Plan Proposal. Abstentions and non-
voted shares with respect to the 2000 Plan Proposal will not be counted in
determining whether the 2000 Plan Proposal receives the affirmative vote of a
majority of the shares present and entitled to vote at the meeting. If the
2000 Plan Proposal is not approved and adopted by the shareowners of the
Company at the upcoming 2000 Annual Meeting, the 2000 Plan Proposal will
terminate and be of no force or effect. In this event, the Existing Plan will
continue in effect but the Company's ability to grant new awards under the
Existing Plan will be constrained due to the limited number of shares of
common stock that currently remain available for awards under the Existing
Plan.

         THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE PLAN PROPOSAL
            TO THE 1992 OMNIBUS STOCK AWARDS PLAN FOR KEY EMPLOYEES

                                      20
<PAGE>

                   PROPOSAL TO ADOPT 2001 COMPENSATION PLAN
                          FOR NON-EMPLOYEE DIRECTORS

   The Board has approved, and recommends that the shareowners approve, the
Material Sciences Corporation 2001 Compensation Plan for Non-Employee
Directors ("2001 Director 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 1996 Stock Option Plan for Non-
Employee Directors ("1996 Plan") provides for an Annual Retainer Option
consisting of options to purchase shares of common stock having a fair market
value on the date of grant equal to $30,000 and an Incentive Option consisting
of options to purchase shares of common stock having a fair market value on
the date of grant equal to $40,000. The Board believes that it is in the
Company's best interests for Non-Employee Directors to have greater
flexibility in the type of award granted under the Annual Retainer, while
maintaining the Incentive Option to 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 with the assistance of outside consultants. The Board
believes that the 2001 Director Plan will assist the Company in attracting and
retaining highly-qualified Non-Employee Directors, thereby enhancing the long-
term financial success of the Company. On the effective date of the 2001
Director Plan, no additional options will be issued under the 1996 Plan.

   In furtherance of these objectives, the 2001 Director Plan provides, as
described below, for an annual grant ("Annual Retainer") to each Non-Employee
Director on the first day of each fiscal year of the Company of, at such Non-
Employee Director's option, $30,000 in cash, shares of common stock or
deferred stock units entitling such Non-Employee Director to receive shares of
common stock on a future date, or any combination thereof. The amount of this
grant may be increased or decreased, but no more frequently than annually, by
the Board. The 2001 Director Plan also provides, as further described below,
for an automatic grant of an option ("Incentive Option") to purchase shares of
common stock having a fair market value on the date of grant equal to $40,000
to each person who is a Non-Employee Director on the date on which such
person's option granted under the 1996 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 the Incentive
Option upon election and annually thereafter (so long as such person remains a
Non-Employee Director). Such Incentive Options generally will not be
exercisable for one year.

   At the date of this proxy statement, there are seven directors who are
eligible for participation in the 2001 Director Plan. The following
description of the 2001 Director Plan is qualified in its entirety by the copy
of the 2001 Director Plan which is included as Exhibit B 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
2001 Director Plan and which may be issued upon the exercise thereof may not
exceed, in the aggregate, 150,000 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 2001 Director Plan.

   Annual Retainer. The 2001 Director Plan provides for an automatic grant of
an Annual Retainer on March 1 of each year, commencing March 1, 2001, to each
person who is a Non-Employee Director on such date of one or a combination of
the following: (i) cash, (ii) shares of common stock or (iii) deferred stock
units entitling such Non-Employee Director to receive shares of common stock
at a later date; with an initial value, collectively, of $30,000, which amount
may be increased or decreased, but no more frequently than annually, by the
Board

                                      21
<PAGE>

("Annual Amount"). If the Non-Employee Director elects to receive common stock
or deferred stock units, such value shall be determined by dividing the Annual
Amount by 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 grant date (or, if such date is not a trading day on
such exchange, the last trading day immediately succeeding such date). Any
person who first becomes a Non-Employee Director after March 1, 2001, 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 the Annual Retainer 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 a pro rata portion of the Annual Retainer based on the number of
fiscal quarters (rounded up to the nearest whole number of fiscal quarters)
remaining in the fiscal year. The Annual Retainer vests in four equal
installments on the date of grant and the 3-month, 6-month and 9-month
anniversaries of the date of grant if the holder is a Non-Employee Director on
such date. Any portion which has not vested prior to the date that the Non-
Employee Director to which it was granted ceases to be a Non-Employee Director
shall expire and be forfeited.

   Incentive Options. The 2001 Director Plan provides that each Non-Employee
Director shall automatically receive 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 (as such amount may be increased or
decreased, but no more frequently than annually, by the Board) divided by (b)
the last reported sale price of the Company's common stock on 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 trading day immediately succeeding 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 2001
Director Plan, such option shall be granted automatically to such director
upon the date on which the option granted to such director under the 1996 Plan
becomes fully vested if such director is a Non-Employee Director on such
vesting 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 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 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,
(i) 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, 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 the product of (i)
the total number of shares of common stock subject to such Incentive Option
multiplied by (ii) 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 and (ii) if a person is not

                                      22
<PAGE>

elected as a Non-Employee Director at the first annual meeting following such
date of grant, but was nominated for election by the Board as a Non-Employee
Director, such director's Incentive Options will vest in full and become
exercisable as of the day before such annual meeting. 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 award granted
pursuant to the 2001 Director Plan will be evidenced by a written agreement
between the Company and the Non-Employee Director. An Incentive Option issued
pursuant to the 2001 Director Plan shall expire and not be exercisable after
the first to occur of (i) the tenth anniversary of the date of grant of such
Incentive Option and (ii) the lesser of (a) three years or (b) the remainder
of the ten-year term, if the holder ceases to be a director of the Company due
to death, total and permanent disability (as determined by the Board in good
faith) or Retirement and (ii) 90 days after the holder ceases to be a director
of the Company for any other reason. "Retirement" means retirement following
service on the Board as a director for a period of ten years (or five years of
service on the Board as a director if age 65 or older at the time of
retirement). Incentive Options granted pursuant to the Director Plan may be
transferred to certain family members of the Non-Employee Director by gift or
domestic relations order.

   Consideration for Exercise of Options. Shares acquired by exercise of an
Incentive 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. In the event a Non-Employee Director
exercises an Incentive Option by delivering shares of common stock, the Board
has the authority to grant the Non-Employee Director the right to receive
further options equal to the number of shares of common stock surrendered plus
a number of shares of common stock having a fair market value equal to the
amount of taxes withheld as a result of exercise of the option.

   Administration; Amendment; Termination. The Board will administer the 2001
Director Plan. The Board may suspend or terminate the 2001 Director 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 2001
Director 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 (i) such approval is
required by law, agreement or the rules of any exchange upon which the common
stock of the Company is listed or (ii) such amendment reprices, replaces,
regrants through cancelation, or lowers the exercise price of a previously
granted incentive option. The 2001 Director Plan shall terminate on February
29, 2004, unless terminated prior thereto by action of the Board.

   Federal Income Tax Consequences.

   Annual Retainer. A Non-Employee Director will recognize ordinary income on
the date of payment of any portion of the Annual Retainer to be paid in cash.
A Non-Employee Director will recognize ordinary income on the date shares of
common stock granted under the Annual Retainer become unrestricted. If a Non-
Employee Director elects to receive a portion of the Annual Retainer in
Deferred Stock Units, such Non-Employee Director will recognize ordinary
income on the date such director receives the shares of common stock issuable
in connection with such Deferred Stock Units, valued at the fair market value
of the shares of common stock on the date of receipt (provided that the shares
of common stock are otherwise unrestricted).

   Incentive Options. Incentive Options granted under the 2001 Director Plan
will constitute non-qualified stock options for federal income tax purposes.
With respect to Incentive Options exercised after six months has elapsed from
the grant date, an optionee generally will recognize ordinary income on the
exercise date (provided

                                      23
<PAGE>

that the shares of common stock are otherwise unrestricted). The directors of
the Company are subject to Section 16 of the Securities Exchange Act of 1934,
as amended. Accordingly, if an optionee under the 2001 Director 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 (provided that the shares of common stock are otherwise
unrestricted). 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.

   Generally, the Company 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 2001 Director Plan requires approval by the affirmative vote of the
holders of a majority of the shares of common stock represented at the 2000
Annual Meeting of Shareowners, in person or by proxy. If approval is not
received, the 2001 Director 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 2001 COMPENSATION PLAN FOR
                            NON-EMPLOYEE DIRECTORS

            SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

   Section 16(a) of the Exchange Act requires the Company's directors and
officers to file reports of ownership and changes in ownership of shares of
the Company's common stock with the SEC. Directors and officers are required
by SEC regulations to furnish the Company with copies of all Section 16(a)
reports they file. Based on its review of the copies of such reports received
by it, or written representations from certain reporting persons that no Forms
5 were required for those persons, the Company believes that, from March 1,
1999 through February 29, 2000, its directors and officers complied with all
applicable filing requirements.

                                 MISCELLANEOUS

Shareowner Proposals for 2001 Annual Meeting of Shareowners

   Proposals of shareowners intended to be presented at the 2001 Annual
Meeting of Shareowners must be received by the Company no earlier than March
21, 2001, nor later than April 23, 2001, 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,
2200 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 2000 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.

                                      24
<PAGE>

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
$4,000 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.

Additional Information

   The Company will provide without charge to each shareowner upon written
request a copy of the Company's Annual Report on Form 10-K, including the
financial statement schedules, for its most recent fiscal year. Individuals
interested in receiving such Form 10-K should by written request contact:

                        Shareowner Relations Department
                         Material Sciences Corporation
                           2200 East Pratt Boulevard
                          Elk Grove Village, IL 60007


                                      25
<PAGE>

                         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,

                                          James J. Waclawik, Sr.
                                          Vice President,
                                          Chief Financial Officer and
                                           Secretary

Elk Grove Village, Illinois
May 15, 2000

                                       26
<PAGE>

                                                                      EXHIBIT A

                         MATERIAL SCIENCES CORPORATION

              AMENDED AND RESTATED 1992 OMNIBUS STOCK AWARDS PLAN
                               FOR KEY EMPLOYEES

   1. Purpose. The purpose of this Amended and Restated 1992 Omnibus Stock
Awards Plan for Key Employees ("Plan") is to provide incentives to management
and other key employees of Material Sciences Corporation ("Company") and its
subsidiaries (as determined by the committee) through rewards based upon the
ownership and performance of the common stock of the Company, $.02 par value
per share ("common stock").

   2. Limitations on Shares To Be Issued. The number of shares of common stock
with respect to which awards may be granted under this Plan and which may be
issued upon the exercise or payment thereof shall not exceed, in the
aggregate, 3,262,500 shares, provided, however, 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, as the Compensation
and Organization Committee ("Compensation Committee") of the Board of
Directors of the Company ("Board") shall determine.

   3. Awards. The Compensation Committee may grant to those persons who it
deems to be key employees of the Company or any subsidiary of the Company
(collectively, the "participants"), in accordance with this Section and the
other provisions of this Plan, stock options, stock appreciation rights
("SARs"), restricted stock and other awards. For the purposes hereof, joint
ventures in which the Company owns an equity interest shall be considered a
subsidiary of the Company.

 (a) Options.

   (i) Options granted under this Plan may be either incentive stock options
("ISOs") which qualify under Section 422 of the Internal Revenue Code of 1986,
as amended, or options which do not qualify under such Section ("non-qualified
options"), or in such other form, consistent with this Plan, as the
Compensation Committee may determine. Each option granted under this Plan
shall be evidenced by a written agreement between the Company and the
optionee, and such written agreement shall specify whether such option is
intended to be an ISO or a non-qualified option. Each option shall be
exercisable immediately in full or shall become exercisable in installments
(based on the passage of time, achievement of performance targets or both as
determined by the Compensation Committee) over the option period in such
percentages of the total number of shares covered by the option as shall be
determined by the Compensation Committee and stated in the agreement
evidencing such option.

   (ii) The per share option price shall be a price determined by the
Compensation Committee and specified in the option agreement, provided that
the per share option price with respect to any options granted under this Plan
(including, without limitation, any ISO's) shall not be less than 100% of the
fair market value (determined in accordance with procedures established by the
Compensation Committee, the "fair market value") of a share of common stock on
the date the option is granted.

   (iii) Options shall be exercised in whole or in part by written notice to
the Company (to the attention of the Secretary of the Company) and payment in
full of the option price. Payment of the option price may be made, at

                                      A-1
<PAGE>

the discretion of the optionee, and to the extent permitted by the
Compensation Committee, (A) in cash (including check, bank draft or money
order), (B) in common stock (valued at the fair market value thereof on the
date of exercise), (C) by a combination of cash and common stock or (D) with
any other consideration.

   (iv) Without in any way limiting the authority of the Compensation
Committee to make or not to make grants of options hereunder, the Compensation
Committee shall have the authority (but not an obligation) to include as part
of any option agreement a provision entitling the participant to a further
option ("Re-Load Option") in the event the participant exercises the option
evidenced by the option agreement, in whole or in part, by surrendering other
shares of common stock in accordance with this Plan and the terms and
conditions of the option agreement. Any such Re-Load Option shall (A) provide
for a number of shares equal to the sum of (y) the number of shares
surrendered as part or all of the exercise price of such option and (z) the
number of shares having a fair market value equal to the amount of taxes
withheld as a result of the exercise of such option; (B) have an expiration
date which is the same as the expiration date of the option the exercise of
which gave rise to such Re-Load Option; (C) have an exercise price which is
equal to one hundred percent of the fair market value of the common stock
subject to the Re-Load Option on the date of exercise of the original option;
and (D) have such other terms and conditions as the Compensation Committee may
in its discretion determine. Notwithstanding the foregoing, a Re-Load Option
shall be subject to the same exercise price and term provisions heretofore
described for options under this Plan.

   Any such Re-Load Option may be an ISO or a non-qualified option, as the
Compensation Committee may designate at the time of the grant of the original
option; provided, however, that the designation of any Re-Load Option as an
ISO shall be subject to the one hundred thousand dollars ($100,000) annual
limitation on exercisability of ISOs described in Section 422(d) of the
Internal Revenue Code of 1986, as amended ("Code"). Any such Re-Load Option
shall be subject to the availability of sufficient shares under Section 2 and
to any limitations imposed by Section 162(m) of the Code and shall be subject
to such other terms and conditions as the Compensation Committee may determine
which are not inconsistent with the express provisions of this Plan regarding
the terms of options.

 (b) SAR

   (i) An SAR shall entitle its holder to receive from the Company, at the
time of exercise of such right, an amount equal to the excess of the fair
market value (at the date of exercise) of a share of common stock over a
specified price fixed by the Compensation Committee multiplied by the number
of shares of common stock as to which the holder is exercising the SAR. SARs
may be in tandem with any previously or contemporaneously granted option or
independent of any option. The specified price of a tandem SAR shall be the
option price of the related option. The amount payable may be paid by the
Company in common stock (valued at its fair market value on the date of
exercise), cash or a combination thereof, as the Compensation Committee may
determine, which determination shall be made after considering any preference
expressed by the holder.

   (ii) An SAR shall be exercised by written notice to the Company (to the
attention of the Secretary of the Company) at any time prior to its stated
expiration. To the extent a tandem SAR is exercised, the related option will
be canceled and, to the extent the related option is exercised, the tandem SAR
will be canceled.

 (c) Incentive Awards of Restricted Stock.

   (i) Shares of common stock may be awarded to participants, subject to this
paragraph 3(c) and such other terms and conditions as the Compensation
Committee may prescribe (such shares being called "restricted stock"). Each
certificate for restricted stock shall be registered in the name of the
participant and deposited, together with a stock power endorsed in blank, with
the Company.

                                      A-2
<PAGE>

   (ii) There shall be established for each restricted stock award a
restriction period ("restriction period") of such length as shall be determined
by the Compensation Committee. Shares of restricted stock may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as hereinafter
provided, during the restriction period. Except for such restrictions on
transfer and such other restrictions as the Compensation Committee may impose,
the participant shall have all the rights of a holder of common stock as to
such restricted stock. The Compensation Committee, in its sole discretion, may
permit or require the payment of cash dividends to be deferred and, if the
Compensation Committee so determines, reinvested in additional restricted stock
or otherwise invested. At the expiration of the restriction period, the
Corporation shall redeliver to the participant (or the participant's legal
representative or designated beneficiary) the certificates deposited pursuant
to paragraph 3(c)(ii).

   (iii) Except as provided by the Compensation Committee at the time of grant
or otherwise, upon a termination of employment for any reason during the
restriction period all shares of common stock still subject to restriction
shall be forfeited by the participant.

 (d) Other Awards.

   (i) Other awards, including, without limitation, performance shares,
convertible debentures, other convertible securities and other forms of awards
measured in whole or in part by the value of common stock, the performance of
the participant or the performance of the Company, may be granted under this
Plan. Such awards may be payable in common stock, cash or both, and shall be
subject to such restrictions and conditions, as the Compensation Committee
shall determine. At the time of any such award, the Compensation Committee
shall, if applicable, determine a performance period and performance goals to
be achieved during the performance period, subject to such later revisions as
the Compensation Committee shall deem appropriate to reflect significant
unforeseen events such as changes in laws, regulations or accounting practices,
unusual or non-recurring items or occurrences. Following the conclusion of each
performance period, the Compensation Committee shall determine the extent to
which performance goals have been attained or a degree of achievement between
maximum and minimum levels during the performance period in order to evaluate
the level of payment to be made, if any.

   (ii) A participant may elect to defer all or a portion of any such award in
accordance with procedures established by the Compensation Committee. Deferred
amounts will be subject to such terms and conditions and shall accrue such
yield thereon (which may be measured by the fair market value of the common
stock and dividends thereon) as the Compensation Committee may determine.
Payment of deferred amounts may be in cash, common stock or a combination
thereof, as the Compensation Committee may determine. Deferred amounts shall be
considered an award under this Plan. The Compensation Committee may establish a
trust to hold deferred amounts or any portion thereof for the benefit of
participants.

   4. Adjustments for Changes in Capitalization or Corporate Reorganizations.
Appropriate adjustments shall be made by the Compensation Committee in 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, SAR, restricted stock or other award under this Plan, to give
effect to any stock splits, stock dividends and other relevant changes in
capitalization occurring after the effective date of this Plan. 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: (1) any
holder of restricted stock issued pursuant to this Plan shall receive in such
transaction, subject to

                                      A-3
<PAGE>

substantially the same restrictions in transferability as apply to such
restricted stock, the kind and number of shares or other securities of the
Company or such other corporation which is issuable to the owner of a like
number of unrestricted shares of common stock; (2) any optionee under this Plan
shall have the right (a) to purchase, at the aggregate option price provided
for in his 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 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 such
shares had been then owned by him, and (b) to exercise SARs with respect to
such shares in lieu of such purchase to the extent such optionee had such
rights with respect to the options outstanding immediately prior to the
effective date of such merger, consolidation or other reorganization; and (3)
any holder of any other award under this Plan shall receive in such transaction
such kind and number of shares or other securities of the Company or such other
corporation as the Compensation Committee deems equitable and appropriate. Any
adjustment with respect to options required by this Section 4 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 Section 4 shall be
determined by the Compensation Committee.

   If the provision in the first paragraph above, insofar as it related to
options or SARs, has not been made with respect to any of the options or SARs
issued pursuant to this Plan by the date ten days prior to the scheduled
effective date of such merger, consolidation or other reorganization, then the
options and SARs outstanding under this Plan shall thereupon become exercisable
in full. If the provision for restricted stock described in the first paragraph
above has not been made with respect to any of the restricted stock issued
pursuant to this Plan by the date ten days prior to the scheduled effective
date of such merger, consolidation or other reorganization, then the
restrictions on the transfer, assignment, pledge or other encumbrance of such
restricted stock as to which such provision has not been made shall thereupon
lapse as of such date.

   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, the restrictions
on the transfer, assignment, pledge or other encumbrance of restricted stock
issued pursuant to this Plan shall thereupon lapse, and all options outstanding
under this Plan shall thereupon become exercisable in full.

   5. Miscellaneous Provisions.

   (a) Administration. This Plan shall be administered by the Compensation
Committee. Subject to the limitations of this Plan, the Compensation Committee
shall have the sole and complete authority: (i) to select participants in this
Plan, (ii) to make awards in such forms and amounts as it shall determine,
(iii) to impose such limitations, restrictions and conditions upon such awards
as it shall deem appropriate, (iv) to interpret this Plan and to adopt, amend
and rescind administrative guidelines and other rules and regulations relating
to this Plan, (v) to correct any defect or omission or to reconcile any
inconsistency in this Plan or in any award granted hereunder and (vi) to make
all other determinations and to take all other actions necessary or advisable
for the implementation and administration of this Plan. The Compensation
Committee's determinations on matters within its authority shall be conclusive
and binding upon the Company and all other persons. All expenses associated
with this Plan shall be borne by the Company, subject to such allocation to its
subsidiaries and operating units as it deems appropriate. The Compensation
Committee may, to the extent that any such action will not prevent this Plan
from complying with Rule 16b-3 of the Securities and Exchange Act of 1934, as

                                      A-4
<PAGE>

amended ("Rule 16b-3"), delegate any of its authority hereunder to such person
as it deems appropriate. The Compensation Committee may also establish a
"cashless exercise" program with a third party brokerage firm pursuant to
which, at the discretion of the Compensation Committee, options hereunder may
be exercised, subject to any restrictions imposed by the Compensation
Committee.

   (b) Non-Transferability. Subject to the provisions of paragraph 5(e), no
award under this Plan, and no interest therein, shall be transferable by the
participant otherwise than by will or the laws of descent and distribution. All
awards shall be exercisable or received during the participant's lifetime only
by the participant or the participant's legal representative. Any purported
transfer contrary to this provision will nullify the award. 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, attachment or
other process. Notwithstanding the first two sentences of this paragraph 5(b)
or any other provision of this Plan, awards (other than ISOs) may be
transferred by the participant to a "family member" of such participant by gift
or by domestic relations order. For purposes of this paragraph 5(b), "family
member" means any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
including adoptive relationships, any person sharing the participant's
household (other than as a tenant or employee), a trust in which these persons
have more than fifty percent of the beneficial interest, a foundation in which
these persons (or the participant) control the management of assets, and any
other entity in which these persons (or the participant) own more than fifty
percent of the voting interests.

   (c) Tax Withholding. The Compensation Committee 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
Compensation Committee may defer such payment or issuance unless indemnified to
its satisfaction. Subject to the consent of the Compensation Committee, a
participant may make an irrevocable election to have shares of common stock
otherwise issuable under an award withheld, tender back to the Company shares
of common stock received pursuant to an award 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
Compensation Committee may disapprove of any election and may limit, suspend or
terminate the right to make such elections.

   (d) Listing and Legal Compliance. The Compensation Committee may suspend the
exercise or payment of any award so long as it determines that securities
exchange listing or registration or qualification under any securities laws is
required in connection therewith and has not been completed on terms acceptable
to the Compensation Committee.

   (e) Beneficiary Designation. Subject to paragraph 5(b), participants may
name, from time to time, beneficiaries (who may be named contingently or
successively) to whom benefits under this Plan are to be paid in the event of
their death before they receive any or all of such benefit. Each designation
will revoke all prior designations by the same participant, shall be in a form
prescribed by the Compensation Committee, and will be effective only when filed
by the participant in writing with the Compensation Committee during the
participant's lifetime. In the absence of any such designation, benefits
remaining unpaid or unexercised at the participant's death shall be paid to or
exercised by the participant's estate.

   (f) Rights of Participants. Nothing in this Plan shall interfere with or
limit in any way the right of the Company to participant's employment at any
time, nor confer upon any participant any right to continue in the

                                      A-5
<PAGE>

employ of the Company for any period of time or to continue his or her present
or any other rate of compensation. No employee shall have a right to be
selected as a participant, or, having been so selected, to be selected again as
a participant.

   (g) Effective Date and Term of Plan. This Plan as amended and restated shall
be effective as of March 1, 2000, provided, however, that this Plan as amended
shall cease to be effective and any awards granted hereunder and permitted only
as a consequence of the amendments hereto shall become null and void if this
Plan as amended is not approved by the Company's shareowners before February
28, 2001.

   (h) Amendment, Suspension and Termination of Plan. The Board or the
Compensation Committee may suspend or terminate this Plan or any portion
hereof, or any agreement evidencing an award made under this Plan, at any time
and may amend it from time to time in such respects as the Board or the
Compensation Committee may deem advisable; provided, however, that no such
amendment shall be made without shareowner approval to the extent (i) such
approval is required by law, agreement or the rules of any exchange upon which
the common stock is listed or (ii) such amendment reprices, replaces, regrants
through cancelation, or lowers the exercise price of a previously granted
option. No such amendment, suspension or termination shall 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. The Compensation Committee may amend or modify any
award in any manner to the extent that the Compensation Committee would have
had the authority under this Plan to initially grant such award. No such
amendment or modification shall impair the rights of any participant under any
award without the consent of such participant.

   (i) Compliance with 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 the 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.


                                      A-6
<PAGE>

                                                                      EXHIBIT B

                         MATERIAL SCIENCES CORPORATION

                            2001 COMPENSATION PLAN
                          FOR NON-EMPLOYEE DIRECTORS

   1. Purpose. The purpose of this 2001 Compensation Plan for Non-Employee
Directors ("Plan") is to provide incentives to members of the Board of
Directors ("Board") of Material Sciences Corporation ("Company") who are not
officers or employees of the Company or its subsidiaries ("Non-Employee
Directors"), through compensation and awards, including those paid in cash or
based upon the ownership and performance of the common stock, par value $.02
per share ("common stock") of the Company.

   2. Limitations on Shares To Be Issued. The number of shares of common stock
(i) which may be issued under Section 3(b) of this Plan and (ii) with respect
to which options may be granted or awarded under Section 4 of this Plan and
which may be issued upon the exercise thereof, shall not exceed an aggregate
of 150,000 shares, as adjusted pursuant to the first paragraph of Section 5 of
this Plan; provided, however, 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. On March 1 of each year, commencing March 1, 2001
(each, a "Payment Date"), each person who is a Non-Employee Director on such
date shall automatically be granted one or a combination of the following
(collectively, the "Annual Retainer"): (i) cash, (ii) shares of common stock
or (iii) deferred stock units ("Deferred Stock Units") entitling such Non-
Employee Director to receive shares of common stock upon the earlier of the
date selected by the Non-Employee Director, which date may be no earlier than
the first anniversary of the date of grant ("Withdrawal Date"), and the
termination of the Non-Employee Director's board service. Each such Non-
Employee Director shall execute an election form in the form attached to the
agreement evidencing the grant of such Annual Retainer ("Award Agreement")
indicating the percentage (which may be none) of the Annual Retainer which
such Non-Employee Director elects to receive in the forms described in each of
(i), (ii) and (iii) above and, in the case of an election to receive Deferred
Stock Units, the Withdrawal Date. The "Annual Retainer Amount" shall initially
be equal to $30,000, as such amount may be increased or decreased by the Board
from time to time but no more frequently than annually, with any such
adjustment to be effective as of the date specified by the Board.

     (a) In the event that a Non-Employee Director has elected to receive a
  portion of his or her Annual Retainer in cash, such portion shall be paid
  to the Non-Employee Director as provided in paragraph (e) below.

     (b) In the event that a Non-Employee Director has elected to receive a
  portion of his or her Annual Retainer in shares of common stock, the Non-
  Employee Director shall be entitled to receive a number of shares of the
  common stock (rounded up to the nearest whole number of shares) equal in
  value to the quotient of (i) the Annual Retainer Amount multiplied by the
  percentage of such Annual Retainer which such Non-Employee Director has
  elected to receive in common stock, divided by (ii) the last reported sale
  price of common stock on the principal securities exchange on which shares
  of common stock are then listed ("Fair Market Value Per Share") on such
  Payment Date (or if such a date is not a trading day on such exchange, the
  trading day immediately succeeding such date). The shares of common stock
  shall be issued to the Non-Employee Director as provided in paragraph (e)
  below.

                                      B-1
<PAGE>

     (c) In the event that a Non-Employee Director has elected to receive a
  portion of his or her Annual Retainer in Deferred Stock Units:

       (i) The Company shall establish a deferred stock account ("Account")
    for such Non-Employee Director. The Company shall credit the Account
    with the number of Deferred Stock Units equal to the number of shares
    of common stock that would have been issued to the Non-Employee
    Director as determined under subsection (b) above.

       (ii) At any time a balance is maintained in a Non-Employee
    Director's Account, there shall be credited to the Account of such Non-
    Employee Director additional Deferred Stock Units on each date on which
    cash dividend payments are made on the common stock ("Dividend Date").
    The number of such additional Deferred Stock Units shall be determined
    by (i) multiplying the total number of Deferred Stock Units credited to
    the Account immediately prior to the Dividend Date by the amount of the
    dividend per share and (ii) dividing the product by the Fair Market
    Value Per Share as of the Dividend Date (or if such a date is not a
    trading day, the last trading day immediately succeeding such date).

       (iii) In the event of any change in the outstanding shares of common
    stock upon which the Deferred Stock Unit is based hereunder, by reason
    of a merger, consolidation, reorganization, recapitalization, stock
    dividend, stock split, combination or exchange of shares, or any other
    change in corporate structure or in the event any dividend is made in
    shares of common stock or other property, the number of Deferred Stock
    Units credited to the Account shall be adjusted as set forth in Section
    5.

       (iv) Except as otherwise provided herein, distributions from a Non-
    Employee Director's Account shall be made in shares of common stock
    equal to the number of Deferred Stock Units then credited to the
    Account upon the first to occur of (A) the Withdrawal Date, (B) the
    Non-Employer Director's resignation from the Board, (C) the Non-
    Employer Director's failure to be re-elected to the Board, or (D) the
    Non-Employer Director's retirement, death or total and permanent
    disability (as determined by the Board in good faith). "Retirement"
    shall mean retirement following service on the Board as a director for
    a period of ten years (or five years of service on the Board as a
    director if age 65 or older at the time of retirement).

       (v) The Company shall be entitled to deduct from all distributions
    hereunder any taxes required to be withheld by federal, state or local
    law. Such deductions may be made by withholding shares of common stock
    with a Fair Market Value Per Share on the date of distribution (or if
    such a date is not a trading day, the trading day immediately
    succeeding such date) equal to the amount of such taxes.

       (vi) Neither a Non-Employee Director nor any other person shall have
    any interest in any fund or in any specific asset of the Company by
    reason of amounts credited to the Account of such Non-Employee
    Director, nor the right to exercise any of the rights or privileges of
    a shareowner with respect to any Deferred Stock Unit credited to such
    Account, nor the right to receive any distribution under this Plan
    except as expressly provided herein. The rights of the Non-Employee
    Director shall be those of an unsecured general creditor of the
    Company.

     (d) Any person who first becomes a Non-Employee Director after the
  Effective Date (as defined in Section 11 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 the Annual Retainer pursuant to the first
  sentence of this paragraph 3 on the respective Payment Date), shall, on the
  date such person first becomes a Non-Employee Director,

                                      B-2
<PAGE>

  automatically be entitled to a pro rata portion of the Annual Retainer
  based on 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, payable in
  accordance with paragraph (e) below. Each such Non-Employee Director shall
  execute an election form in the form attached to the Award Agreement
  indicating the percentage (which may be none) of the pro rated Annual
  Retainer which such Non-Employee Director elects to receive in the forms
  described in each of (i), (ii) and (iii) in the first paragraph of this
  Section 3 and, in the case Deferred Stock Units are elected, the Non-
  Employee Director shall be required to specify a Withdrawal Date. In the
  event that such a Non-Employee Director has elected to receive a portion of
  his or her pro rated Annual Retainer in shares of common stock or Deferred
  Stock Units, the number of shares of common stock and/or Deferred Stock
  Units shall be determined as set forth in Section 3(b) or Section 3(c), as
  applicable (however the Fair Market Value Per Share shall be determined on
  the date of grant (or the date immediately succeeding the date of grant, if
  such date is not a trading day)).

     (e) The Annual Retainer shall be paid (in the case of cash), only to the
  extent it has vested. The Annual Retainer shall become unrestricted (in the
  case of shares of common stock) or credited to the Account (in the case of
  Deferred Stock Units) only to the extent it has vested. Each component of
  the Annual Retainer shall vest in four equal installments on the date of
  grant and the 3-month, 6-month and 9-month anniversaries of the date of
  grant if the holder thereof is a Non-Employee Director on such date. Any
  portion of any Annual Retainer that has not vested prior to the date the
  Non-Employee Director to whom it was granted ceases to be a Non-Employee
  Director shall expire and be forfeited as of such date. Shares of common
  stock which are restricted shall bear a legend to such effect until such
  shares of common stock become vested.

   4. Incentive Option.

     (a) On the terms and conditions set forth below, each Non-Employee
  Director shall automatically receive an option ("Incentive Option") to
  purchase the number of shares (rounded up to the nearest whole number of
  shares) of common stock equal in value to the quotient of (i) the Incentive
  Option Amount (as defined below) divided by (ii) the Fair Market Value Per
  Share of the common stock on the date of grant (or, if such date is not a
  trading day, the trading day immediately succeeding such date). The per
  share option price for each such Incentive Option shall be the Fair Market
  Value Per Share described in clause (ii) of the immediately preceding
  sentence. The "Incentive Option Amount" shall initially be equal to
  $40,000, as such amount may be increased or decreased by the Board from
  time to time but no more frequently than annually, with any such adjustment
  to be effective as of the date specified by the Board.

     (b) 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
  Incentive Option shall be granted automatically to such director on the
  later to occur of (A) the Effective Date and (B) the date on which the
  incentive option granted to such director under the Company's 1996 Stock
  Option Plan for Non-Employee Directors becomes fully vested, if such
  director is a Non-Employee Director on such vesting date, provided, that
  such Incentive Option shall become null and void if this Plan is not
  approved by the Company's shareowners at the 2000 annual meeting of
  shareowners of the Company, (ii) in the case of any person first elected to
  the Board after the Effective Date who is a Non-Employee Director at the
  time of his or her election, such Incentive 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

                                      B-3
<PAGE>

  director and who subsequently ceases to be an officer and employee of the
  Company and its subsidiaries, such Incentive 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.

     (c) Vesting. 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, however, 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, 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 the product of (i) the total
  number of shares of common stock subject to such Incentive Option
  multiplied by (ii) 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; provided further, that if such a person was recommended for
  election by the Board as a Non-Employee Director, such Incentive Option
  shall vest in full. 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.

     (d) General Option Terms.

       (i) Award Agreement. Each Incentive Option granted under this Plan
    shall be evidenced by an Award Agreement. The option price per share of
    common stock for all Incentive Options granted under this Plan shall be
    specified in the Award Agreement and shall be determined as set forth
    above.

       (ii) Expiration. An Incentive Option issued pursuant to this Plan
    shall expire and not be exercisable after the first to occur of (i) the
    tenth anniversary of the date of grant of such Incentive Option ("Ten-
    Year Term"), (ii) the lesser of (A) three years or (B) the remainder of
    the Ten-Year Term, if the optionee ceases to be a director of the
    Company due to death, total and permanent disability (as determined by
    the Board in good faith) or Retirement, and (ii) ninety days after the
    optionee ceases to be a director of the Company for any other reason.

       (iii) Non-Transferability. Incentive 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. All Incentive Options shall be exercisable during the
    participant's lifetime only by the participant or the participant's
    legal representative. Any purported transfer contrary to this provision
    will nullify such award. 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.
    Notwithstanding the first two sentences of this paragraph 4(b),
    Incentive Options may be transferred to a "family member" of the Non-
    Employee Director by gift or by domestic relations order. For purposes
    of this paragraph (iii), "family member" means any child, stepchild,
    grandchild, parent, stepparent, grandparent, spouse, former spouse,
    sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
    daughter-in-law, brother-in-law or sister-in-law, including adoptive
    relationships, any person sharing the Non-Employee Director's household
    (other than as a tenant or employee), a trust in which these persons
    have more than fifty percent of the beneficial interest, a foundation
    in which these persons (or the Non-Employee Director) control the
    management of assets, and any other entity in which these persons (or
    the Non-Employee Director) own more than fifty percent of the voting
    interests.

                                      B-4
<PAGE>

       (iv) Exercise of Incentive Options. Subject to the terms of the
    Award Agreement and this Plan, Incentive Options granted pursuant to
    this Plan may be exercised from time to time in whole or in part. Each
    exercise of an Incentive 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
    Incentive 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 which (A) in the
    case of shares of common stock acquired pursuant to the exercise of an
    Incentive Option, have been owned by the optionee for more than six (6)
    months prior to the date of surrender, and (B) valued as of the date of
    the notice of exercise, have 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 Incentive Options exercised
    for cash shall be delivered with the notice of exercise. Payment for
    shares with respect to Incentive 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.

       (v) Re-Load Options. The Board shall have the authority (but not an
    obligation) to include as part of any Award Agreement a provision
    entitling the Non-Employee Director to a further option ("Re-Load
    Option") in the event the Non-Employee Director exercises the Incentive
    Option evidenced by the Award Agreement, in whole or in part, by
    surrendering other shares of common stock in accordance with this Plan
    and the terms and conditions of the Award Agreement. Any such Re-Load
    Option shall (i) provide for a number of shares equal to the sum of (y)
    the number of shares surrendered as part or all of the exercise price
    of such Incentive Option and (z) the number of shares having a fair
    market value equal to the amount of taxes withheld as a result of the
    exercise of such Incentive Option; (ii) have an expiration date which
    is the same as the expiration date of the Incentive Option the exercise
    of which gave rise to such Re-Load Option; (iii) have an exercise price
    which is equal to one hundred percent of the fair market value of the
    common stock subject to the Re-Load Option on the date of exercise of
    the original Incentive Option; and (iv) have such other terms and
    conditions as the Board may in its discretion determine.
    Notwithstanding the foregoing, a Re-Load Option shall be subject to the
    same exercise price and term provisions heretofore described for
    Incentive Options under this Plan. Any such Re-Load Option shall be
    subject to the availability of sufficient shares under Section 2 and
    shall be subject to such other terms and conditions as the Board may
    determine which are not inconsistent with the express provisions of
    this Plan regarding the terms of Incentive Options.

   5. 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
Incentive 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 changed 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 reasonable best efforts to provide
in any agreement or plan which it enters into or adopts to

                                      B-5
<PAGE>

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 Award 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
Incentive Option immediately prior to the effective date of such merger,
consolidation or other reorganization if 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 Incentive 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 Incentive 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 Incentive 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.

   6. 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 hereunder or under an Incentive Option
withheld, tender back to the Company shares of common stock received pursuant
to exercise of an Incentive Option or deliver to the Company previously
acquired shares of common stock having a fair market value determined as of
the date of issuance and/or payment (or if such date is not a trading day, the
trading day immediately succeeding such date) 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.

   7. Beneficiary Designation. Subject to the restrictions on transfer and the
Incentive Option terms set forth in this Plan, participants shall name, upon
the initial grant of the Annual Retainer hereunder and from time to time
thereafter, beneficiaries (who may be named contingently or successively) who
may exercise awards and rights granted under this Plan in the event of the
death of a participant before he or she exercises such awards or rights. 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, awards and rights remaining
unexercised at the participant's death may be exercised by the participant's
estate.

   8. 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 Incentive
Options, the grants of common stock and Deferred Stock Units and the rules and
procedures established by the Board and (ii) to determine the meaning of or

                                      B-6
<PAGE>

requirements imposed by or the rights of any person under this Plan, any
Incentive 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.

   9. Necessary Approvals. In accordance with the provisions of this Plan, the
grant of (a) shares of common stock, (b) Deferred Stock Units and the
obligation of the Company to deliver shares of common stock pursuant thereto,
and (c) Incentive Options and the obligation of the Company to deliver shares
of common stock upon exercise thereof shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
governmental or regulatory agency or national securities exchange as may be
required. The Company shall not be required to issue or deliver any
certificates for shares of common stock prior to the completion of any
registration or qualification of such shares of common stock under any federal
or state law or any ruling or regulation of any governmental body or national
securities exchange, or the listing of such shares upon any securities
exchange, which the Company shall, in its sole discretion, determine to be
necessary or advisable.

   10. Amendment, Suspension and Termination of Plan. The Board may suspend or
terminate this Plan or any portion hereof, or any agreement evidencing an
award made under this Plan, at any time and may amend it from time to time in
such respects as the Board may deem advisable; provided, however, that no such
amendment shall be made without shareowner approval to the extent (i) such
approval is required by law, agreement or the rules of any exchange upon which
the common stock is listed or (ii) such amendment reprices, replaces, regrants
through cancelation, or lowers the exercise of a previously granted Incentive
Option; 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 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, 2001 ("Effective Date"); provided, that this Plan shall cease to be
effective and any Incentive Options granted here under shall become null and
void if this Plan is not approved by the Company's shareowners at the 2000
annual meeting of shareowners of the Company. This Plan shall terminate on
February 29, 2004, unless terminated prior thereto by action of the Board;
provided, however, the termination of the Plan on such date shall not affect
any Deferred Stock Units, Incentive Options or Re-Load Options which are
outstanding on such date. 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.

                                      B-7
<PAGE>

[MATERIAL SCIENCES CORPORATION LOGO]

Notice of Annual Meeting
of Shareowners
and Proxy Statement

Meeting Date
June 22, 2000


YOUR VOTE IS IMPORTANT!

Please sign and promptly
return your
proxy in the enclosed envelope.








[LOGO OF RECYCLED PAPER]        Printed on recycled paper
<PAGE>

                                                               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 nominee's name in the space
below):

- -------------------------------------------------------------------------------

2. Approval and adoption of the amendment to the 1992 Omnibus Stock Awards Plan
   for Key Employees to increase the number of shares of Common Stock issuable
   thereunder by 425,000 shares as proposed by the Company.

               FOR    AGAINST    ABSTAIN
               [_]      [_]        [_]

3. Approval and adoption of the proposed 2001 Compensation Plan for Non-Employee
   Directors.

               FOR    AGAINST    ABSTAIN
               [_]      [_]        [_]

4. Approval to authorize proxies to vote upon such other business as may
   properly come before the meeting.

               FOR    AGAINST    ABSTAIN
               [_]      [_]        [_]

5. BY checking the box to the right, I consent to future access of the       [_]
   Annual Report, Proxy Statements, prospectuses and other communications
   electronically via the Internet. I understand that the Company may no
   longer distribute printed materials to me for any future shareowner meeting
   until such consent is revoked. I understand that I may revoke my consent at
   any time by contacting the Company's transfer agent, ChaseMellon Shareholder
   Services, Ridgefield Park, NJ and that costs normally associated with
   electronic access, such as usage and telephone charges, will be my
   responsibility.

Dated: _________________________, 2000

______________________________________
            (Signatures)

______________________________________
            (Signatures)


Please sign exactly as name appears. Joint owners should each 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.


         PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY
                         USING THE ENCLOSED ENVELOPE.


                          -- FOLD AND DETACH HERE --

<PAGE>

                        MATERIAL SCIENCES CORPORATION
                          2200 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 22, 2000
Please mark, date and sign on reverse side and return in the enclosed envelope.

     The undersigned hereby appoints Gerald G. Nadig and E.F Heizer, Jr. as
proxies, each with full power of substitution to represent and to vote, as
designated on the reverse side, all the shares of Common Stock of Material
Sciences Corporation held of record by the undersigned, at the Annual Meeting of
Shareowners of Material Sciences Corporation to be held on June 22, 2000, at
10:00 a.m., CDT in the Auditorium of the Company's offices located at 2200 East
Pratt Boulevard, Elk Grove Village, Illinois, or at any adjournment thereof.

     Your vote for eight directors may be indicated on the reverse side. Michael
J. Callahan, Dr. Eugene W. Emmerich, G. Robert Evans, E.F Heizer, Jr., Dr.
Ronald A. Mitsch, Gerald G. Nadig, Dr. Mary P. Quin and Howard B. Witt have been
nominated for election of directors.

This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareowner. If no contrary specification is indicated, the
shares represented by this proxy will be voted (1) for the election of all
nominees for director; (2) in favor of the amendment to the 1992 Omnibus Stock
Awards Plan for Key Employees; (3) in favor of the proposed 2001 Compensation
Plan for Non-Employee Directors; and (4) in favor of authorizing proxies to vote
upon such other business as may properly come before this meeting. Discretionary
authority to cumulate votes is being solicited.

      (Continued and to be marked, dated and signed on the reverse side)

                          -- FOLD AND DETACH HERE --


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