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Exhibit 4.1
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MATERIAL SCIENCES CORPORATION
2001 COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Purpose. The purpose of this 2001 Compensation Plan for Non-Employee
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Directors (this "Plan") is to provide incentives to members of the Board of
Directors (the "Board") of Material Sciences Corporation (the "Company")
who are not officers or employees of the Company or its subsidiaries ("Non-
Employee Directors"), through compensation and awards, including those paid
in cash or based upon the ownership and performance of the common stock,
par value $.02 per share (the "Common Stock") of the Company.
2. Limitations on Shares. To Be Issued. The number of shares of the Common
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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
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hereunder expire unexercised or unpaid or are cancelled, 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,
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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 (the "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 (the
"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.
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(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
(the "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.
(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 (an
"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 (a "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
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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 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, 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)).
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(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.
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(a) On the terms and conditions set forth below, each Non-Employee
Director shall automatically receive an option (an "Incentive Option")
to purchase the number of shares (rounded up to the nearest whole
number of shares) of Common Stock 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 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-
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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
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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
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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
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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.
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(i) Award Agreement. Each Incentive Option granted under this
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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
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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 (the "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
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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
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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.
(iv) Exercise of Incentive Options. Subject to the terms of the
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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
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not an obligation) to include as part of any Award Agreement a
provision entitling the Non-Employee Director to a further option
(a "Re-Load Option") in the event the Non-Employee Director
exercises the Incentive
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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.
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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 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
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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
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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
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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
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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 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
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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
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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
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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
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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 cancellation, 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
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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
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1, 2001 (the "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
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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
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termination shall not affect the right of any participant under any grants
made prior to termination.
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