Exhibit 10(kk)

 

RETENTION AGREEMENT

 

RETENTION AGREEMENT (this “Agreement”) dated as of February 29, 2004 by and
between MATERIAL SCIENCES CORPORATION, a Delaware corporation, and its
subsidiaries (collectively, the “Company”), and John M. Klepper (“Employee”)
(capitalized terms used herein and not otherwise defined shall have the meanings
ascribed thereto in Section 9 hereof).

 

W I T N E S S E T H:

 

WHEREAS, Employee is employed by the Company or one of its subsidiaries;

 

WHEREAS, the Board of Directors of the Company has determined that appropriate
steps should be taken to reinforce and encourage the continued employment and
dedication of key personnel; and

 

WHEREAS, as an inducement for and in consideration of Employee remaining in its
employ and in partial consideration of Employee’s agreement to terminate his
supplemental employee retirement benefits and certain long term incentive awards
and stock options, the Company agrees that Employee shall receive the retention,
severance and other benefits set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants and
agreements herein contained and for other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties,
intending legally to be bound, hereby agree as follows:

 

1. Effective Date; Term. This Agreement, and all rights and obligations of the
parties hereunder, shall commence and become effective on the date hereof. The
rights and obligations of the parties under Section 3 of this Agreement shall
expire on June 30, 2005 unless Employee’s employment with the Company has
terminated before June 30, 2005 or the Sale Process Completion Date occurs
before June 30, 2005; provided that the Board of Directors may elect to extend
the expiration date in its sole and absolute discretion.

 

2. Retention of Employee.

 

(a) Retention Period Compensation. The Company hereby agrees to continue to
employ Employee, and Employee hereby agrees to remain employed by the Company,
as Vice President, Human Resources until the Sale Process Completion Date;
provided that the Company shall have the right to terminate Employee at any time
with or without Cause and Employee shall have the right to terminate his
employment at any time with or without Good Reason. During this period, Employee
shall be entitled to the following compensation and benefits:

 

(i) Employee shall receive a base salary of $155,900 per annum or as such amount
is increased by the Compensation Committee of the Board of Directors of the
Company in its sole and absolute discretion on or about March 1, 2004 (the “Base
Salary”), payable by the Company in regular installments in accordance with the

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Company’s general payroll practices (in effect from time to time), until either
(A) February 28, 2005, or (B) if the Sale Process Completion Date occurs prior
to February 28, 2005, the one year anniversary of the Sale Process Completion
Date, at which time Employee’s Base Salary may be adjusted, in the sole
discretion of the Compensation Committee of the Board of Directors of the
Company or Successor, to be competitive with comparable positions at companies
of similar size in the Company’s or Successor’s industry.

 

(ii) If Employee is employed by the Company or a Successor on November 30th of
any given year during this period, then Employee shall be eligible to receive a
cash bonus under the Company’s EVA Plan. If Employee’s employment terminates
after November 30th of a given year but prior to February 28th of the
immediately following year, then the bonus shall be pro-rated based on the
portion of the fiscal year in which Employee was employed by the Company or a
Successor.

 

(iii) Employee shall participate in all Company-sponsored employee benefit
programs and receive all fringe benefits for which employees of his level are
eligible, including, without limitation, incentive, savings, welfare benefit,
reimbursement and retirement plans; provided that (A) Employee shall not be
entitled to a car allowance and (B) Employee will forfeit the benefits described
in Sections 2(b) (other than his right to receive the payment described therein)
and 4(e)(ii) below.

 

(b) Termination of Supplemental Employee Retirement Plan. The Company shall pay
to Employee, in full and complete satisfaction of the Company’s obligations
under that certain Supplemental Pension Plan Agreement dated November 15, 2001
between the Company and Employee, an amount equal to $50,000 (less any
withholding taxes) on May 31, 2004 or, if earlier, the date of termination of
employment for any reason.

 

(c) Retention Bonus. The Company shall pay to Employee an amount equal to
$135,099 on the earlier of (i) May 31, 2005, if Employee is employed by the
Company or a Successor on such date, (ii) the second business day following the
Company’s (or a Successor’s) termination of Employee without Cause or the death
or Disability of Employee or (iii) the second business day following the
Employee’s termination of his employment with a Successor for Good Reason (but
Employee shall not be entitled to such amount in the event he terminates his
employment with the Company for Good Reason).

 

3. Compensation Upon Termination of Employment.

 

(a) Death. If Employee’s employment by the Company is terminated as a result of
the occurrence of Employee’s death, the Company shall pay to Employee’s estate
vacation pay (for earned but unused vacation) and the compensation and other
benefits expressly provided under Section 2 through the Termination Date, as
well as any death benefits available under any Company plan or policy.

 

(b) Disability and Termination with or without Good Reason. If Employee’s
employment by the Company is terminated by the Company as a result of the
occurrence of Employee’s Disability or Employee terminates his employment with
the Company with or

 

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without Good Reason, the Company shall pay to Employee vacation pay (for earned
but unused vacation) and the compensation and other benefits expressly provided
under Section 2 (other than under Section 2(c) if Employee terminates his
employment with the Company with or without Good Reason) through the Termination
Date, as well as any disability benefits available under any Company plan or
policy in the case of Disability.

 

(c) Termination without Cause or for Good Reason.

 

(i) If Employee’s employment with the Company is terminated by the Company
without Cause, the Company shall pay to Employee, in lieu of the Company’s then
current severance policy, (x) on the Termination Date, any vacation pay (for
earned but unused vacation) and the compensation and other benefits expressly
provided under Section 2 through the Termination Date and (y) a severance
payment (the “Severance Payment”) consisting of the following:

 

(A) a lump sum cash payment equal to the (x) sum of .750 multiplied by the
Employee’s Base Salary and (y) a bonus equal to $55,000; and

 

(B) a payment equal to six months of Employee’s Base Salary, payable
semi-monthly, commencing on the Termination Date; provided however that if
Employee’s termination occurs within 18 months after the Sale Process Completion
Date, Employee shall receive the amounts described in this Section 3(c)(i)(B) as
a lump sum cash payment on the Termination Date.

 

Notwithstanding the foregoing, if a Successor (with the approval of the Company)
offers Employee a Comparable Position and Employee declines such offer, then
Employee shall not be entitled to a Severance Payment pursuant to this Section
3(c).

 

(ii) If Employee’s employment with a Successor is terminated by the Successor
without Cause or Employee terminates his employment with the Successor for Good
Reason, in each case at anytime during the eighteen month period following the
Sale Process Completion Date, the Successor shall pay to Employee (x) on the
Termination Date, any vacation pay (for earned but unused vacation) and the
compensation and other benefits expressly provided under Section 2 through the
Termination Date and (y) the Severance Payment.

 

(iii) In addition to the compensation paid pursuant to Sections 3(c)(i) or (ii)
above, (x) the Company (or Successor), at its expense, shall continue to provide
Employee with all employee benefits (including welfare benefit programs) and
fringe benefits specified in Section 2(a)(iii) for 15 months following the
Termination Date (or substantially comparable benefits); provided that the
Company (or Successor) shall not be required to make DC pension contributions on
behalf of Employee, and (y) except as set forth in Section 4(e), all vested
stock options, shares of restricted stock and other stock or stock based awards
granted by the Company to Employee shall remain exercisable by Employee subject
to the terms and conditions of any plans which such grants or awards were made
under.

 

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(d) Notice of Termination. Any purported termination of Employee’s employment by
the Company or by Employee shall be communicated to the other party hereto by a
written notice which shall indicate the specific termination provision of this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Employee’s
employment under the provision so indicated.

 

(e) No Mitigation. Employee shall not be required to mitigate the amount of any
payment provided for in this Section 3 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in this Section 3 be
reduced by any compensation earned by Employee as the result of employment by
another employer or Successor, by retirement benefits, by offset against any
amount claimed to be owed by Employee to the Company or otherwise.

 

4. Additional Understandings.

 

(a) Employee’s Insurance Policy. If applicable and immediately after the
Termination Date, Employee agrees to be solely responsible for the payment of
the premiums under his long-term care/life insurance policy.

 

(b) Company Property. Employee shall return and relinquish all rights to all
Company owned or leased property (including without limitation his
Company-issued cellular telephone) on the Termination Date.

 

(c) Transition Services. In the event Employee is terminated by the Company
(other than for Cause, Disability or death), or Employee terminates his
employment for Good Reason, the Company shall provide (i) outplacement services
at an executive level through one or more outside firms up to an aggregate cost
of $20,000 and in accordance with the Company’s past practice, with such
services to extend until the earlier of (x) 15 months following the termination
of Employee’s employment or (y) the date Employee secures full time employment
and (ii) Employee access to the Company’s voicemail and electronic mail systems,
with such access continuing for sixty (60) days following the Termination Date.

 

(d) Directors’ and Officers’ Insurance. Prior to the Sale Process Completion
Date, the Company shall maintain a directors’ and officers’ liability insurance
policy (with coverage for the Employee) consistent with past practice. Employee
shall be entitled to tail coverage under such policy (to apply following the
Sale Process Completion Date) on the same terms applicable to members of the
Board of Directors of the Company.

 

(e) Long-Term Incentives.

 

(i) Upon the earlier of November 30, 2004 or the Sale Process Completion Date,
the unvested portion of the long-term incentive award and the related cash award
granted to Employee on December 18, 2001 shall automatically vest.

 

(ii) Employee expressly agrees and acknowledges, effective as of the date
hereof, that Employee forfeits all right, title and interest to (i) the
long-term incentive award granted to Employee on March 1, 2003 pursuant to the
2003 Long-Term Incentive Stock Award Program, and (ii) options to purchase 4,465
shares of Common Stock at $10 per share which were originally scheduled to vest
on February 28, 2005.

 

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(f) Indemnification Agreement. Employee expressly acknowledges and agrees that,
notwithstanding any provision or statement to the contrary contained in this
Agreement, the Indemnification Agreement between the Company and Employee dated
March 1, 2002 shall remain in full force and effect and continue to be binding
upon Employee and the Company in accordance with its terms.

 

(g) Change in Control and Technology Agreements. Employee and the Company
expressly acknowledge and agree that, effective as of the date hereof, the
Change of Control Agreement entered into between the Company and Employee dated
November 15, 2001 and the Technology Agreement between the Company and the
Employee dated February 14, 2000 shall become null and void and have no further
force or effect.

 

(h) Retirement Accounts. The Company shall take all necessary actions to cause
the Employee’s defined contribution plan account balance and 401(k) plan account
balance to be distributed or transferred in accordance with the Employee’s
instructions as expeditiously as possible following termination pursuant to the
Company’s then current practice and applicable law.

 

(i) Excise Tax Gross-Up.

 

(i) In the event that Employee becomes entitled to the payments and benefits
provided under Section 3 above and/or any other payments or benefits in
connection with a change in control or termination of Employee’s employment with
the Company (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose actions result in a
change in control or any person affiliated with the Company or such person)
(collectively, the “Payments”), and if any of the Payments will be subject to
the tax (the “Excise Tax”) imposed by Section 4999 of the Code, then (A) if the
aggregate amount of the Payments is equal to or greater than 330% of the “base
amount” as defined in Section 280G(b)(3) of the Code, then the Company shall pay
to Employee, at least 30 days prior to the time payment of any such Excise Tax
is due, an additional amount (the “Gross-Up Payment”) such that the net amount
retained by Employee, after deduction of any Excise Tax and any federal and
state and local income tax imposed on the Gross-Up Payment, shall be equal to
the Excise Tax imposed on the Payments; and (B) if the aggregate amount of the
Payments is less than 330% of the “base amount,” then the aggregate present
value of the payments made pursuant to the terms of this Agreement alone without
taking into account payments made pursuant to any other agreements between the
Company and Employee shall be reduced so that the Payment equals 299.99% of the
“base amount” (it being understood that in no event shall the amount of the
payment made pursuant to the terms of this Agreement be less than $0).

 

(ii) For purposes of determining whether any of the Payments will be subject to
the Excise Tax and the amount of such Excise Tax, (A) the Payments shall be
treated as “parachute payments” within the meaning of Section 280G(b)(2) of the
Code,

 

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and all “excess parachute payments” within the meaning of Section 280G(b)(l) of
the Code shall be treated as subject to the Excise Tax, unless, in the opinion
of tax counsel selected by the Company’s independent auditors and reasonably
acceptable to Employee, the Payments (in whole or in part) do not constitute
parachute payments or excess parachute payments or are otherwise not subject to
the Excise Tax, (B) the amount of the Payments which shall be treated as subject
to the Excise Tax shall be equal to the lesser of (y) the total amount of the
Payments or (z) the amount of excess parachute payments within the meaning of
Section 280G(b)(l) (after applying clause (A) above), and (C) the value of any
non-cash benefits or any deferred payment or benefit shall be determined by the
Company’s independent auditors in accordance with the principles of Section
280G(d)(3) and (4) of the Code.

 

(iii) For purposes of determining the amount of the Gross-Up Payment, Employee
shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment is to
be made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of Employee’s residence on the Termination
Date, net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes.

 

(iv) In the event that the Excise Tax is subsequently determined to be less than
the amount taken into account hereunder at the time of termination of Employee’s
employment, Employee shall repay to the Company at the time that the amount of
such reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus the portion of the Gross-Up Payment
attributable to the Excise Tax and federal and state and local income tax
imposed on the Gross-Up Payment being repaid by Employee if such repayment
results in a reduction in Excise Tax and/or a federal and state and local income
tax deduction) plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax
is determined to exceed the amount taken into account hereunder at the time of
the termination of Employee’s employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest payable with respect to such excess) at the time
that the amount of such excess is finally determined.

 

(j) Company Successors. The Company will require either (1) any acquiror of the
Company as a whole or (2) any acquiror of the coated metal business unit and/or
the laminates and composites business unit which directly or indirectly becomes
the employer of Employee (in each case through merger, consolidation, asset
purchase, stock purchase or otherwise) (a “Successor”) to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such assumption and agreement shall be a
breach of this Agreement and shall entitle Employee to compensation from the
Company in the same amount and on the same terms as Employee would be entitled
to hereunder if Employee terminated Employee’s employment by the Company for
Good Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes

 

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effective shall be deemed the Termination Date. As used in this Agreement,
“Company” shall mean the Company as hereinbefore defined and any successor which
assumes and agrees to perform this Agreement by operation of law, or otherwise.

 

5. Confidential Information and Ownership of Property.

 

(a) Confidential Information. Employee agrees to use all Confidential
Information solely in connection with the performance of services for or on
behalf of the Company. Employee shall not, during the term of this Agreement, or
at any time after the termination of this Agreement, in any manner, either
directly or indirectly, (i) disseminate, disclose, use or communicate any
Confidential Information to any person or entity, regardless of whether such
Confidential Information is considered to be confidential by third parties, or
(ii) otherwise directly or indirectly misuse any Confidential Information;
provided, however, that (y) none of the provisions of this Section shall apply
to disclosures made for valid business purposes of the Company or (z) that
Employee shall not be obligated to treat as confidential any Confidential
Information that (I) was publicly known at the time of disclosure to Employee;
(II) becomes publicly known or available thereafter other than by means in
violation of this Agreement or any other duty owed to the Company or any of its
Affiliates by any person or entity; or (III) is lawfully disclosed to Employee
by a third party. Notwithstanding the foregoing, Employee shall be permitted to
disclose Confidential Information to the extent required to enforce Employee’s
rights hereunder in any litigation arising under, or pertaining to, this
Agreement provided that Employee shall give prior written notice to the Company
of any such disclosure so that the Company may have an opportunity to protect
the confidentiality of such Confidential Information in such litigation.

 

(b) Ownership of Property. Employee agrees that all works of authorship
developed, authored, written, created or contributed to during the term of his
employment for the benefit of the Company, whether solely or jointly with
others, shall be considered works-made-for-hire. Employee agrees that such works
shall be the sole and exclusive property of the Company (or its appropriate
Affiliate) and that all right, title and interest therein or thereto, including
all intellectual property rights existing or obtained in connection therewith,
shall likewise be the sole and exclusive property of the Company (or its
appropriate Affiliate). Employee agrees further that, in the event that any work
is not considered to be work-made-for-hire by operation of law, Employee will
immediately, and without further compensation, assign all of Employee’s right,
title and interest therein to the Company (or its designated Affiliate), its
successors and assigns. At the request and expense of the Company, Employee
agrees to perform in a timely manner such further acts as may be necessary or
desirable to transfer, defend or perfect the Company’s ownership of such work
and all rights incident thereto.

 

6. Covenant Not to Compete. Employee covenants and agrees that Employee shall
not anywhere in North America (including, without limitation, the United States,
Canada and Mexico), during the term of Employee’s employment by the Company or
any Affiliate thereof and for the Non-Compete Period, directly or indirectly own
an interest in, operate, join, control, advise, work for, consult to, have a
financial interest which provides any control of, or participate in any
corporation, partnership, proprietorship, firm, association, person, or other
entity producing, designing, providing, soliciting orders for, selling,
distributing, consulting to, or marketing or re-marketing products, goods,
equipment, or services competitive with or in

 

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substantially the same line of business as the Company or any Affiliate thereof,
or any part thereof, as of the commencement of the Non-Compete Period. This
covenant does not prohibit the mere ownership of less than three percent (3%) of
the outstanding stock of any publicly-traded corporation as long as Employee is
not otherwise in violation of this Agreement.

 

7. Covenant Against Solicitation of Employees. During the term of Employee’s
employment by the Company and for the Non-Compete Period, Employee shall not
employ employees or agents or former employees or agents of the Company or its
Affiliates or, directly or indirectly, solicit or otherwise encourage the
employment of employees or agents or former employees or agents of the Company
or its Affiliates; provided, however, that this restriction shall not apply to
former employees or agents (y) who, as of the date of termination of Employee’s
employment by the Company, have not worked for any of the Company or its
Affiliates during the twelve preceding months or (z) whose employment by the
Company or any Affiliate thereof was terminated by the Company.

 

8. Remedies.

 

(a) Employee Acknowledgements. Employee acknowledges (i) that the covenants
contained in Sections 5, 6 and 7, including, without limitation, the time and
geographic limits (collectively, the “Restrictive Covenants”), are reasonable
and appropriate and that Employee will not any claim to the contrary in any
action brought by the Company or its Affiliates to enforce any of such
provisions and (ii) that should Employee violate any of the Restrictive
Covenants, it will be difficult to determine the resulting damages to the
Company and its Affiliates and, in addition to any other remedies the Company
and its Affiliates may have, (A) the Company and its Affiliates shall be
entitled to temporary injunctive relief without being required to post a bond
and permanent injunctive relief without the necessity of proving actual damage;
and (B) the Company shall have the right to offset against its obligation to
make any payments to Employee under this Agreement or otherwise to the extent of
any money damages incurred or suffered by the Company and its Affiliates. The
Company may elect to seek one or more of these remedies at its sole discretion
on a case by case basis. Failure to seek any or all remedies in one case shall
not restrict the Company from seeking any remedies in another situation. Such
action by the Company shall not constitute a waiver of any of its rights.

 

(b) Intent. It is the parties’ intent that each of the Restrictive Covenants be
read and interpreted with every reasonable inference given to its
enforceability. However, it is also the parties’ intent that if any term,
provision or condition of the Restrictive Covenants is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the provisions thereof shall remain in full force and effect and shall in no way
be affected, impaired or invalidated. Finally, it is also the parties’ intent
that if a court should determine any of the Restrictive Covenants are
unenforceable because of over-breadth, then the court shall modify said covenant
so as to make it reasonable and enforceable under the prevailing circumstances.

 

(c) Tolling. In the event of any breach by Employee of any Restrictive Covenant,
the running of the period of restriction shall be automatically tolled and
suspended for the duration of such breach, and shall automatically recommence
when such breach is remedied in order that the Company shall receive the full
benefit of Employee’s compliance with each of the Restrictive Covenants.

 

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(d) Independent Enforcement. Employee agrees that the Restrictive Covenants
shall be enforced independently of any other obligations between the Company, on
the one hand, and Employee, on the other, and that the existence of any other
claim or defense shall not affect the enforceability of the Restrictive
Covenants or the remedies provided herein. The Restrictive Covenants shall be in
addition to and shall not replace any other restrictive covenant agreement that
Employee may currently have (or hereafter enter into) with the Company or any of
its Affiliates.

 

(e) Survival. The provisions of this Section 8 shall survive the termination of
this Agreement.

 

9. Certain Defined Terms. For purposes of this Agreement the following terms and
phrases shall have the following meanings:

 

“Affiliate” means any person or entity who or which, directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is under
common control with, a specified person or entity (the term “control” for these
purposes meaning the ability, whether by ownership of shares or other equity
interests, by contract or otherwise, to elect a majority of the directors of a
corporation, to act as or select the managing or general partner of a
partnership, or otherwise to select, or have the power to remove and then
select, a majority of those persons exercising governing authority over an
entity).

 

“Cause”, with respect to the termination of Employee’s employment by the
Company, means (i) the willful and continued refusal by Employee to perform a
lawful and reasonable order, direction or instruction of the Board of Directors
within a reasonable period of time after a written demand for substantial
performance is delivered to Employee by the Board of Directors which demand
specifically identifies the manner in which the Board believes that Employee has
not substantially performed such an order, direction or instruction; or (ii) the
willful misconduct by Employee in the performance of Employee’s duties to the
Company or the willful engaging by Employee in conduct which, in either case, is
illegal or materially injurious to the Company. For purposes of this definition,
no act, or failure to act, on Employee’s part shall be deemed “willful” unless
done, or omitted to be done, by Employee not in good faith and without
reasonable belief that Employee’s action or omission was in the best interest of
the Company. In addition, notwithstanding the foregoing, Employee’s employment
by the Company shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to Employee a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board of Directors at a meeting of the Board of Directors
called and held for such purpose (after reasonable notice to Employee and an
opportunity for Employee, together with counsel, to be heard before the Board of
Directors), finding that in the good faith opinion of the Board of Directors,
Employee was guilty of conduct set forth above in clauses (i) or (ii) of the
first sentence of this definition and specifying the particulars thereof in
detail.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

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“Comparable Position” means a position with a Successor that is not more than
seventy-five miles from Employee’s present office location and has (i)
responsibilities substantially similar to those in existence for Employee with
the Company immediately prior to such Successor’s offer of employment and (ii)
for the first 12 months of employment with the Successor, salary at least equal
and bonus opportunity and benefits comparable to those in existence for Employee
with the Company immediately prior to such Successor’s offer of employment and
thereafter on terms competitive with comparable positions at companies of
similar size in the Successor’s industry.

 

“Confidential Information” means all software, trade secrets, work products
created by Employee for the Company or any of its Affiliates, know-how, ideas,
techniques, theories, discoveries, formulas, plans, charts, designs, drawings,
lists of current or prospective clients, business plans and proposals, current
or prospective business opportunities, financial records, research and
development, marketing strategies and programs and reports and other proprietary
information created or obtained by Employee for the benefit of the Company or
any of its Affiliates during the course of employment by the Company.

 

“Disability” means the inability of Employee to perform substantially all
Employee’s duties and responsibilities to the Company by reason of a physical or
mental illness or infirmity for either (i) a continuous period of six months or
(ii) 180 days during any consecutive twelve-month period.

 

“Employment Period” means the date commencing on the Effective Date and
terminating on the Termination Date.

 

“EVA Plan” means the annual variable compensation plan adopted by the Company’s
Compensation Committee of the Board of Directors, as the same may be amended,
modified, supplemented or restated from time to time (including any successor
thereto or replacement therefor).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Good Reason” means the occurrence, without the express written consent of
Employee, of any one of the following events, unless such circumstances are
fully corrected prior to the Termination Date specified in the applicable notice
of termination delivered pursuant to Section 2(b):

 

(i) the assignment to Employee of any duties significantly inconsistent with
Employee’s position and status with the Company or a substantial adverse
alteration in the nature or status of Employee’s employment responsibilities
from those in existence on the date hereof;

 

(ii) the relocation of Employee’s office or job location to a location not
within seventy-five miles of Employee’s present office or job location, except
for required travel on the Company’s business to an extent substantially
consistent with Employee’s present business travel obligations;

 

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(iii) the failure by the Company to pay to Employee any portion of the
compensation required hereunder, within ten business days of the date such
compensation is due;

 

(iv) the failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement, as contemplated in
Section 4(m) hereof; or

 

(v) any purported termination of Employee’s employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of Section 3(d).

 

“Non-Compete Period” means the period commencing on the date upon which Employee
ceases to be employed by the Company or any Affiliate thereof and terminating 18
months later.

 

“Sale Process Completion Date” means the closing of the sale of the following
business units, either individually or through a sale of the Company as a whole:
the coated metal business unit (including the Elk Grove Village, Middletown and
Morrisville facilities) and the laminates and composites business unit.

 

“Successor” has the meaning set forth in Section 4(j).

 

“Termination Date” means

 

(i) if Employee’s employment is terminated for Death, the date of Employee’s
death;

 

(ii) if Employee’s employment is terminated for Disability, 30 days after Notice
of Termination is given (provided that Employee shall not have returned to the
full-time performance of Employee’s duties during such 30 day period); and

 

(iii) if Employee’s employment is terminated for any other reason (other than
death or Disability), the date specified in the Notice of Termination (which, in
the case of a termination for Cause shall not be less than 30 days, and in the
case of a termination for Good Reason shall not be less than 15 nor more than 60
days, respectively, from the date such Notice of Termination is given);

 

provided; however, that if prior to the Termination Date (as determined without
regard to this provision), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination, the
Termination Date shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided;
further, however, that the Termination Date shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence. During
the pendency of any such dispute, the Company will continue to pay Employee’s
full compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, Base Salary) and continue Employee as a
participant in all compensation, benefit and insurance plans in which

 

11

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Employee was participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with this definition.
Amounts paid under this paragraph are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.

 

10. Miscellaneous.

 

(a) Amendment. This Agreement may be amended, modified or supplemented but only
in writing signed by each of the parties hereto.

 

(b) Waivers. The failure of a party hereto at any time or times to require
performance of any provision hereof shall in no manner affect its right at a
later time to enforce the same. No waiver by a party of any condition or of any
breach of any term, covenant, representation or warranty contained in this
Agreement shall be effective unless in writing, and no waiver in any one or more
instances shall be deemed to be a further or continuing waiver of any such
condition or breach in other instances or a waiver of any other condition or
breach of any other term, covenant, representation or warranty.

 

(c) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS.

 

(d) Forum Selection and Consent to Jurisdiction. EACH OF THE COMPANY AND
EMPLOYEE AGREE THAT ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH THIS AGREEMENT BETWEEN OR AMONG SUCH PARTIES, SHALL BE BROUGHT
AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS LOCATED IN
COOK COUNTY, ILLINOIS, OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS. EACH OF THE COMPANY AND EMPLOYEE HEREBY EXPRESSLY AND
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS
LOCATED IN COOK COUNTY, ILLINOIS, OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS. EACH OF THE COMPANY AND EMPLOYEE HEREBY EXPRESSLY
AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

(e) Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

 

(f) Interpretation. The headings preceding the text of Articles and Sections
included in this Agreement are for convenience only and shall not be deemed part
of this Agreement or be given any effect in interpreting this Agreement. The use
of the masculine,

 

12

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feminine or neuter gender herein shall not limit any provision of this
Agreement. The use of the terms “including” or “include” shall in all cases
herein mean “including, without limitation” or “include, without limitation,”
respectively. References to employment by the Company in this Agreement shall
also refer to employment by one of the Company’s subsidiaries if applicable.

 

(g) Assignment. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. No assignment of
any rights or obligations shall be made by any party without the written consent
of each other party.

 

(h) No Third Party Beneficiaries. This Agreement is solely for the benefit of
the parties hereto and, to the extent provided herein, their respective
affiliates, directors, officers, employees, agents, heirs, executors,
administrators and legal representatives, and no provision of this Agreement
shall be deemed to confer upon other third parties any remedy, claim, liability,
reimbursement, cause of action or other right.

 

(i) Severability. If any provision of this Agreement shall be held invalid,
illegal or unenforceable, the validity, legality or enforceability of the other
provisions hereof shall not be affected thereby, and there shall be deemed
substituted for the provision at issue a valid, legal and enforceable provision
as similar as possible to the provision at issue.

 

(j) Remedies Cumulative. The remedies provided in this Agreement shall be
cumulative and shall not preclude the assertion or exercise of any other rights
or remedies available by law, in equity or otherwise.

 

(k) Entire Understanding. Except as provided in Section 4(e), this Agreement,
together with attached exhibits, sets forth the entire agreement and
understanding of the parties hereto with respect to the matters set forth herein
and supersedes any and all prior agreements, arrangements and understandings
among the parties.

 

(l) Conflicts With Existing Agreements. In the event that any term or provision
of this Agreement conflicts with or differs from any term or provision of other
existing agreement, understanding or plan between the Company and Employee or to
which Employee is a participant, such term or provision of this Agreement shall
govern for all purposes and respects.

 

(m) Tax Withholding. Any payments provided for hereunder shall be paid net of
any applicable tax withholding required under federal, state or local law.

 

(n) General Release. As a condition of receipt of any payments under Section 3,
Employee shall be required to sign a general release proposed by and provided by
the Company in the form attached as Exhibit A hereto and to abide by the
provisions of such general release.

 

(o) Attorneys’ Fees and Other Costs. In the event a dispute arises between the
parties hereto and suit is instituted, the prevailing party or parties in such
litigation shall be entitled to recover reasonable attorneys’ fees and other
costs and expenses from the non-prevailing party or parties, whether incurred at
the trial level or in any appellate proceeding. Unless prohibited by Section
13(k) of the Exchange Act (or the rules or regulations promulgated

 

13

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thereunder) or Employee otherwise elects, expenses incurred by Employee in
connection with any dispute described in this Section will be paid by the
Company in advance of the final disposition of such dispute within 20 days after
presentation by Employee of written documentation therefor reasonably
satisfactory to the Company if Employee furnishes the Company a written
undertaking to repay any amounts advanced if it is ultimately determined that
Employee is not entitled to attorneys’ fees and other costs pursuant to this
Section (which written undertaking will provide that the Company shall be
entitled to collect its attorneys’ fees and other out-of-pocket costs incurred
in connection with the enforcement of such undertaking).

 

(p) Notices. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to (i) the
Company at 2200 East Pratt Boulevard, Elk Grove Village, Illinois 60007-5995 and
(ii) Employee at                     , provided that all notices to the Company
shall be directed to the attention of the Board of Directors, with a copy to the
Secretary of the Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change in address shall be effective only upon receipt.

 

(q) Employee Representations. EMPLOYEE REPRESENTS AND AGREES THAT: (A) HE HAS
READ THIS AGREEMENT CAREFULLY; (B) HE UNDERSTANDS ALL OF ITS TERMS AND KNOWS
THAT HE IS GIVING UP IMPORTANT RIGHTS; (C) HE VOLUNTARILY CONSENTS TO EVERYTHING
IN IT; (D) HE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT
AND HE HAS DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION HE HAS CHOSEN NOT
TO DO SO ON HIS OWN VOLITION; AND (E) HE HAS SIGNED THIS AGREEMENT KNOWINGLY AND
VOLUNTARILY AND WITH THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE HIM WITH
RESPECT TO IT.

 

14

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written.

 

THE COMPANY:

MATERIAL SCIENCES CORPORATION, a Delaware corporation

By:

 

/s/ Michael J. Callahan

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

Name:

 

Michael J. Callahan

Title:

 

President and Chief Executive Officer

EMPLOYEE:

    /s/ John M. Klepper

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

Name:

 

John M. Klepper

 

Acknowledged and Agreed:

Material Sciences Corporation, a Delaware corporation

By:

 

/s/ Ronald L. Stewart

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

Name:

 

Ronald L. Stewart

Title:

 

President and Chief Executive Officer

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

EXHIBIT A

 

FORM OF GENERAL RELEASE

 

Dear [employee]:

 

This letter will confirm the agreement between you and Material Sciences
Corporation (including its subsidiaries, the “Company”) as follows:

 

1. Separation from the Company.

 

By signing this letter agreement you acknowledge that the termination of your
employment with the Company will be effective on              (the “Termination
Date”). As of the Termination Date, you will cease to be an employee of the
Company, and you will no longer be required to fulfill any of the duties and
responsibilities associated with your position.

 

2. Severance Payment.

 

You acknowledge and agree that the severance payments paid or granted to you
pursuant to that certain Retention and Change in Control Agreement, dated
February 17, 2004, by and between you and the Company (“Retention Agreement”),
represents consideration for signing this Release and is not salary, wages or
benefits to which you were already entitled. Such payments shall not be
considered compensation for purposes of any employee benefit plan, program,
policy or arrangement maintained or hereafter established by the Company or any
of its affiliates.

 

3. Release by You.

 

  (a) You (for yourself, your heirs, assigns or executors) release and forever
discharge the Company, any of its affiliates, and its and their directors,
officers, agents and employees from any and all claims, suits, demands, causes
of action, contracts, covenants, obligations, debts, costs, expenses, attorneys’
fees, liabilities of whatever kind or nature in law or equity, by statute or
otherwise whether now known or unknown, vested or contingent, suspected or
unsuspected, and whether or not concealed or hidden, which have existed or may
have existed, or which do exist, through the date this letter agreement becomes
effective and enforceable, (“Claims”) of any kind, which relate in any way to
your employment with the Company or the termination of that employment, except
those arising out of the performance of this letter agreement and your rights
under the Retention Agreement. Such released claims include, without in any way
limiting the generality of the foregoing language, any and all claims arising
under (i) any exception to the employment-at-will doctrine, including any common
law theory sounding in tort, contract or public policy, (ii) the provisions of
the Fair Labor Standards Act, as amended, or any state or local wage and hour
law or ordinance, (iii) the National Labor Relations Act, as amended, or the
Employee Retirement Income Security Act of 1974, as amended, and (iv) Title VII
of the Civil Rights

 

16

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Act of 1964, as amended, the Civil Rights Act of 1991, the Americans with
Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, as
amended, or the Illinois Human Rights Act.

 

  (b) In signing this Release you acknowledge that you intend that it shall be
effective as a bar to each and every one of the Claims hereinabove mentioned or
implied. You expressly consent that this letter agreement shall be given full
force and effect according to each and all of its express terms and provisions,
including those relating to unknown and unsuspected Claims (notwithstanding any
state statute that expressly limits the effectiveness of a general release of
unknown, unsuspected and unanticipated Claims), if any, as well as those
relating to any other Claims hereinabove mentioned or implied. You acknowledge
and agree that this waiver is an essential and material term of this letter
agreement and without such waiver the Company would not have made the Severance
Payments described in paragraph 2. You further agree that in the event you bring
your own Claim in which you seek damages against the Company, or in the event
you seek to recover against the Company in any Claim brought by a governmental
agency on your behalf, this release shall serve as a complete defense to such
Claims.

 

  (c) By signing this letter agreement, you acknowledge that you:

 

  (1) have been given twenty-one days after receipt of this letter agreement
within which to consider it;

 

  (2) have carefully read and fully understand all of the provisions of this
letter agreement;

 

  (3) knowingly and voluntarily agree to all of the terms set forth in this
letter agreement;

 

  (4) knowingly and voluntarily agree to be legally bound by this letter
agreement;

 

  (5) have been advised and encouraged in writing (via this agreement) to
consult with an attorney prior to signing this letter agreement;

 

  (6) understand that this letter agreement, including the Release, shall not
become effective and enforceable until the eighth day following execution of
this letter agreement, and that at any time prior to the effective day you can
revoke this letter agreement.

 

4. Additional Agreement.

 

You also agree not to disparage the Company, or its past and present investors,
officers, directors or employees and to keep all confidential and proprietary
information about the past or present business affairs of the Company
confidential unless a prior written release from the Company is obtained or
disclosure is permitted under the terms of the Retention Agreement.

 

2

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5. No Admissions.

 

This letter agreement shall not be construed as an admission of any wrongdoing
either by the Company, its affiliates, or its and their directors, officers,
agents and employees.

 

6. Governing Law.

 

This letter agreement shall be interpreted in accordance with the laws of the
State of Illinois. Whenever possible, each provision of this letter agreement
shall be interpreted in a manner as to be effective and valid under applicable
law, but if any provision shall be held to be prohibited or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or affecting the remainder of
such provision or any of the remaining provisions of this letter agreement.

 

Please indicate your agreement by signing this letter and returning it to us on
or before             .

 

Very truly yours,

MATERIAL SCIENCES CORPORATION

By:

 

 

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Its:

 

 

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AGREED TO AND ACCEPTED BY:

 

 

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Dated:                     

 

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