Exhibit 10(c)

 

SEVERANCE AND CHANGE IN CONTROL AGREEMENT

 

SEVERANCE AND CHANGE IN CONTROL AGREEMENT (the “Agreement”), effective as of
June 30, 2005 (the “Effective Date”), by and between Material Sciences
Corporation, a Delaware corporation (the “Company”), and John M. Klepper (the
“Executive”).

 

WITNESSETH:

 

WHEREAS, the Company wishes to provide severance and change in control benefits
to the Executive; and

 

WHEREAS, the Company and Executive are parties to that certain Retention
Agreement dated February 29, 2004 (the “Retention Agreement”) that will expire
pursuant to its terms on June 30, 2005; and

 

WHEREAS, the Board determined that it is in the best interest of the Company and
its shareholders to enter into a new severance agreement with the Executive.

 

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. Definitions.

 

“Affiliate” means any corporation, partnership, limited liability company,
association, trust, unincorporated association or other entity (other than the
Company) that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Company,
including the subsidiaries of the Company and other entities controlled by such
subsidiaries.

 

“Board of Directors” or “Board” means the Board of Directors of the Company.

 

“Cause” means, with respect to the Executive, one or more of the following: (i)
the commission of a felony or other crime involving moral turpitude or the
commission of any other act or omission involving dishonesty, disloyalty or
fraud with respect to the Company or any of its Affiliates or any of their
customers or suppliers, (ii) reporting to work under the influence of alcohol or
illegal drugs, the use of illegal drugs (whether or not at the workplace) or
other repeated conduct causing the Company or any of its Affiliates substantial
public disgrace or disrepute or substantial economic harm, (iii) substantial and
repeated failure to perform duties as reasonably directed by the Company’s Chief
Executive Officer, (iv) any act or omission aiding or abetting a competitor,
supplier or customer of the Company or any of its subsidiaries to the material
disadvantage or detriment of the Company and its Affiliates, (v) breach of
fiduciary duty, gross negligence or willful misconduct with respect to the
Company or any of its Affiliates

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or (vi) any other material breach of this Agreement which is not cured to the
reasonable satisfaction of the Company’s Chief Executive Officer within fifteen
(15) days after written notice thereof to the Executive.

 

“Change in Control” means:

 

(i) the acquisition by any Person or Persons acting in concert, of beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of more than fifty percent (50%) of the outstanding stock of the
Company (calculated as provided in paragraph (d) of Rule 13d-3 under the
Exchange Act in the case of rights to acquire stock); or

 

(ii) the consummation of (a) any consolidation or merger of the Company, other
than a consolidation or merger of the Company in which holders of its stock
immediately prior to the consolidation or merger hold proportionately at least a
majority of the outstanding common stock of the continuing or surviving
corporation; or (b) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all the
assets of the Company (“Transfer Transaction”), except where (1) the Company
owns all of the outstanding stock of the transferee entity or (2) the holders of
the Company’s common stock immediately prior to the Transfer Transaction own
proportionately at least a majority of the outstanding stock of the transferee
entity, immediately after the Transfer Transaction; or (c) any consolidation or
merger of the Company where, after the consolidation or merger, one Person owns
one hundred percent (100%) of the shares of stock of the Company (except where
the holders of the Company’s common stock immediately prior to such merger or
consolidation own proportionately at least a majority of the outstanding stock
of such Person immediately after such consolidation or merger).

 

“Code” means the Internal Revenue Code of 1986, as amended, or any successor
thereto.

 

“Company” means the Material Sciences Corporation, a Delaware corporation, and
includes any successor or assignee corporation, corporations or other entity
into which the Company may be merged, changed or consolidated, any corporation
for whose securities the securities of the Company shall be exchanged; and any
assignee of or successor to substantially all of the assets of the Company.

 

“Compensation” means the sum of (i) the Executive’s annual rate of salary as of
the date or event upon which the amount of Compensation is being determined plus
(ii) the amount awarded to the Executive under the MIP for the most recently
completed fiscal year preceding the date or event upon which the amount of
Compensation is being determined.

 

“Compensation Committee” means the Compensation Committee of the Board.

 

“Constructive Discharge” means the occurrence, without the express written
consent of the Executive, of any one of the following events:

 

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

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(ii) the relocation of the Executive’s office or job location to a location not
within seventy-five miles (75) of the Executive’s present office or job
location, except for required travel on the Company’s business to an extent
substantially consistent with the Executive’s present business travel
obligations;

 

(iii) the liquidation, dissolution, consolidation or merger of the Company, or
transfer of all or substantially all of its assets, other than a transaction or
series of transactions in which the resulting or surviving transferee entity
assumes this Agreement and all obligations and undertakings hereunder by
operation of law or otherwise, or

 

(iv) a substantial reduction in the Executive’s Compensation, other than a
reduction that is part of an overall reduction in the Compensation of all
officers of the Company. For purposes of this Agreement, a substantial reduction
in the Executive’s Compensation shall be deemed to have occurred if, at any time
during the term hereof, the Executive’s Compensation is reduced below
eighty-five percent (85%) of his Compensation as of the Effective Date.

 

An event shall not be considered a Constructive Discharge unless the Executive
provides written notice to the Company specifying the event relied upon for
Constructive Discharge within sixty (60) days after the occurrence of such
event. Within thirty (30) days of receiving such written notice from the
Executive, the Company may cure or cause to be cured the event upon which the
Executive claims a Constructive Discharge and no Constructive Discharge shall
have been considered to have occurred with respect to such event. The Company
and the Executive, upon mutual written agreement, may waive any of the foregoing
provisions which would otherwise constitute a Constructive Discharge.

 

“Disability” means a mental or physical illness that entitles the Executive to
receive benefits under the long-term disability plan of the Company, or, if
there is no such plan or the Executive is not covered by such a plan or the
Executive is not an employee of the Company, a mental or physical illness that
renders the Executive totally and permanently incapable of performing the
Executive’s duties for the Company, as determined by the Committee.
Notwithstanding the foregoing, a Disability shall not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully
self-induced sickness; or (ii) an injury or disease contracted, suffered or
incurred while participating in a criminal offence. The determination of
Disability for purposes of this Plan shall not be construed to be an admission
of disability for any other purpose.

 

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

 

“Independent Tax Counsel” means a lawyer, a certified public accountant with a
nationally recognized accounting firm, or a compensation consultant with a
nationally recognized consulting firm, with expertise in the area of executive
compensation tax law, who shall be selected by the Company and shall be
reasonably acceptable to the Executive, and whose fees and disbursements shall
be paid by the Company.

 

“MIP” means the Management Incentive Plan adopted by the Compensation Committee,
as the same may be amended, modified, supplemented or restated from time to time
(including any successor thereto or replacement therefore).

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“Person” has the meaning provided in Section 3(a)(9) of the Exchange Act, as
modified and used in Sections 13(d) and 14(d) thereof, including a “group” as
defined in Section 13(d) except that such term shall not include: (i) the
Company or any of its subsidiaries; (ii) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any of its
Affiliates; (iii) an underwriter temporarily holding securities pursuant to an
offering of such securities; or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.

 

2. Term; At-Will Employment.

 

(a) This Agreement shall be effective as of the Effective Date and shall
terminate on June 30, 2006; provided, however, that this Agreement automatically
shall renew for successive one year terms unless either party delivers written
notice to the other party at least sixty (60) days in advance of June 30, 2006,
or the expiration of the applicable renewal term, as the case may be, that such
party desires to terminate this Agreement as of June 30, 2006, or the last day
of the applicable renewal term, as the case may be. Notwithstanding the
foregoing, if a Change in Control occurs on or prior to June 30, 2006, or the
last day of the applicable renewal term, as the case may be, this Agreement
shall continue in effect for fifteen (15) full calendar months following the
date of a Change in Control.

 

(b) The Company and the Executive acknowledge that the Executive’s employment is
and shall continue to be at-will, as defined under applicable law. If the
Executive’s employment terminates for any reason during the term of this
Agreement, the Executive shall not be entitled to any payments, benefits,
damages, awards or compensation other than as specifically provided by this
Agreement, or as may otherwise be established under the Company’s then existing
employee benefit plans or policies at the time of termination.

 

3. Severance Benefit Following a Change in Control.

 

(a) If, during the period commencing on the date of a Change in Control and
ending on the last day of the fifteenth (15th) full calendar month following the
date of a Change in Control, the Executive’s employment with the Company is
terminated by the Company for any reason, other than Cause, Disability or death,
or is terminated by the Executive in the event of a Constructive Discharge,
then, within ten (10) business days after such termination (unless and to the
extent that a later date may be required by Section 409A of the Code), the
Company shall pay to the Executive (or, if the Executive has died before
receiving all payments to which he has become entitled hereunder, to the
beneficiary or estate of the Executive as described in paragraph 14) the sum of:
(i) all accrued but unpaid salary and accrued but unused paid time off as of the
date Executive’s employment with the Company is terminated, and (ii) severance
pay in a lump sum cash amount equal to the Executive’s Compensation as of the
date Executive’s employment with the Company is terminated multiplied by 1.5.
The Executive’s termination of employment with the Company to become an employee
of an Affiliate shall not be considered a termination of employment for purposes
of this Agreement, provided that such termination and subsequent employment is
not a Constructive Discharge. The subsequent termination of the Executive’s
employment from such Affiliate for any reason other than Cause, Disability or
death, without employment at another Affiliate, shall be considered a
termination of employment for purposes of this Agreement. In the event of any
termination of the Executive’s employment as described in this paragraph 3(a),
the Executive shall be under no obligation to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement.

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(b) During the eighteen (18) months (the “CIC Coverage Period”) following the
date Executive’s employment is terminated under paragraph 3(a), the Executive
shall be entitled to the continuation of medical, dental, prescription drug, and
vision benefits for the Executive and the Executive’s family (if dependent
coverage had been provided) at least equal to those provided as of the date the
Executive’s employment was terminated. The Executive’s coverage during such
eighteen (18) month period shall not be included in the calculation of the
period of coverage to be provided pursuant to any statutory continuation of
benefits obligation (such as COBRA). The Executive’s right to statutory
continuation coverage shall commence on the first day following the end of such
eighteen (18) month period. If such welfare benefit plans and programs do not
allow the Executive’s continued participation, a cash payment shall be made to
the Executive equal to the value of the additional benefits the Executive would
have received under such benefit programs in which the Executive was
participating immediately prior to the date Executive’s employment was
terminated. With respect to any payment under the immediately preceding
sentence, the value of any insurance-provided benefits shall be based on the
premium cost to the Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit rating.
Notwithstanding the foregoing provisions of this paragraph 3(b), each of the
Company’s obligations under this paragraph 3(b) shall cease upon the date that
the Executive becomes eligible to receive substantially comparable benefits
provided by an employer of the Executive other than the Company.

 

(c) All stock options and shares of restricted stock granted by the Company to
the Executive which are unvested immediately prior to a Change in Control shall,
as a consequence of such Change in Control, become fully vested, and shall
thereafter remain fully exercisable by the Executive for the period set forth in
the plans or arrangements under which such awards or grants were made, or, if no
such period exists in the plans or arrangements under which such awards or
grants were made, the ninety (90) day period following such Change in Control.

 

4. Termination Apart from a Change in Control.

 

(a) If (but without duplication with the provisions set forth above in paragraph
3) the Executive’s employment with the Company is terminated by the Company for
any reason, other than Cause, Disability or death, or is terminated by the
Executive in the event of a Constructive Discharge, in each case prior to a
Change in Control, the Executive shall be entitled to severance benefits in an
amount equal to the Executive’s Compensation as of the date Executive’s
employment with the Company is terminated multiplied by 1.0, and payable in
regular installments in accordance with the Company’s general payroll practices
in effect from time to time (unless and to the extent that (i) a delay in
payments is required by Code Section 409A or (ii) the Company elects to
accelerate such payments to avoid application of Code Section 409A).

 

(b) During the twelve (12) months (the “Non-CIC Coverage Period”) following the
date that the Executive’s employment is terminated under paragraph 4(a), the
Executive shall be entitled to the continuation of medical, dental, prescription
drug, and vision benefits for the Executive and the Executive’s family (if
dependent coverage had been provided)

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at least equal to those provided as of the date the Executive’s employment was
terminated. The Executive’s coverage during such twelve (12) month period shall
not be included in the calculation of the period of coverage to be provided
pursuant to any statutory continuation of benefits obligation (such as COBRA).
The Executive’s right to statutory continuation coverage shall commence on the
first day following the end of such twelve (12) month period. If such welfare
benefit plans and programs do not allow the Executive’s continued participation,
a cash payment shall be made to the Executive equal to the value of the
additional benefits the Executive would have received under such benefit
programs in which the Executive was participating immediately prior to the date
the Executive’s employment was terminated. With respect to any payment under the
immediately preceding sentence, the value of any insurance-provided benefits
shall be based on the premium cost to the Executive, which shall not exceed the
highest risk premium charged by a carrier having an investment grade or better
credit rating. Notwithstanding the foregoing provisions of this paragraph 4(b),
each of the Company’s obligations under this paragraph 4(b) shall cease upon the
date that the Executive becomes eligible to receive substantially comparable
benefits provided by an employer of the Executive other than the Company.

 

(c) All stock options and shares of restricted equity granted by the Company to
the Executive which have vested prior to the date that the Executive’s
employment is terminated shall remain exercisable by the Executive for the
period set forth in the plans or arrangements under which such awards or grants
were made, or, if no such period exists in the plans or arrangements under which
such awards or grants were made, the ninety (90) day period following
termination.

 

5. Excise Tax Gross-Up.

 

(a) In the event that the Executive becomes entitled to the payments and
benefits provided under this Agreement and/or any other payments or benefits in
connection with a change in control or termination of the Executive’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 (i) 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 the Executive, at least thirty (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 the Executive, 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 (ii) 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 the Executive 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).

 

(b) For purposes of determining whether any of the Payments will be subject to
the Excise Tax and the amount of such Excise Tax, (i) the Payments shall be
treated as

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“parachute payments” within the meaning of Section 280G(b)(2) of the Code, 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, if, in the opinion of
Independent Tax Counsel, 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, (ii) the amount of the Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the total amount
of the Payments or (B) the amount of excess parachute payments within the
meaning of Section 280G(b)(l) (after applying clause (i) above), and (iii) 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.

 

(c) For purposes of determining the amount of the Gross-Up Payment, the
Executive 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 the Executive’s residence on the
date of termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.

 

(d) 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 the
Executive’s employment, Executive 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 the Executive 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 the Executive’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.

 

6. Additional Understandings.

 

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

 

(b) Outplacement Services. In the event the Executive’s employment is terminated
by the Company for any reason other than Cause, Disability or death, or is
terminated by Executive in the event of a Constructive Discharge, the Company
shall provide the Executive with, as selected by the Executive, either (i) a
cash payment of $10,000 or (ii) 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) twelve (12) months following the termination of the
Executive’s employment hereunder or (y) the date that the Executive secures full
time employment. The Executive understands that any payments or benefits
received under this paragraph 6(b) are subject to income taxes.

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(c) Directors’ and Officers’ Insurance. Prior to a Change in Control, the
Company shall maintain a directors’ and officers’ liability insurance policy
(with coverage for the Executive) consistent with past practice. The Executive
shall be entitled to tail coverage under such policy (to apply following a
Change in Control) on the same terms as provided by any written Company policy
in effect on the Effective Date.

 

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

 

7. Source of Payments.

 

All payments provided for in paragraphs 3, 4, 5 and 6 shall be paid in cash from
the general funds of the Company; provided, however, that such payments shall be
reduced by the amount of any payments made to the Executive or his dependents,
beneficiaries or estate from any trust or special or separate fund established
or utilized by the Company or any Affiliate to assure such payments. The Company
shall not be required to establish a special or separate fund or other
segregation of assets to assure such payments, and, if the Company shall make
any investments to aid it in meeting its obligations hereunder, the Executive
shall have no right, title or interest whatever in or to any such investments
except as may otherwise be expressly provided in a separate written instrument
relating to such investments. Nothing contained in this Agreement, and no action
taken pursuant to its provisions, shall create or be construed to create a trust
of any kind, or a fiduciary relationship between the Company and the Executive
or any other person. To the extent that any person acquires a right to receive
payments from the Company such right shall be no greater than the right of an
unsecured creditor of the Company.

 

8. Tax Withholding.

 

The Company may withhold from any payments made under this Agreement all
federal, state or other taxes, including excise taxes, as shall be required
pursuant to any law or governmental regulation or ruling.

 

9. Waiver and Releases.

 

In consideration of the covenants under this Agreement, including, but not
limited to, paragraphs 3, 4, 5 and 6, and as a condition precedent to receiving
any payments under this Agreement, the Executive agrees to execute on or after
the date his employment is terminated as described in paragraphs 3 and 4, a
Release of Claims and Covenant Not To Sue and Confidentiality, Non-Solicitation
and Non-Competition Agreement substantially in the form of Exhibit A and Exhibit
B, respectively, attached hereto and by this reference made a part hereof.

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10. Entire Understanding.

 

This Agreement contains the entire understanding between the Company and the
Executive with respect to the subject matter hereof and supersedes any prior
severance or retention agreement or plan, including, without limitation, the
Retention Agreement, between the Company and the Executive.

 

11. Severability.

 

If, for any reason, any one or more of the provisions or part of a provision
contained in this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement
not held so invalid, illegal or unenforceable, and each other provision or part
of a provision shall to the full extent consistent with law continue in full
force and effect.

 

12. Consolidation, Merger, or Sale of Assets.

 

If the Company consolidates or merges into or with, or transfers all or
substantially all of its assets to, another corporation, limited liability
company, limited partnership, or other entity, this Agreement shall continue in
full force and effect.

 

13. Notices.

 

All notices, requests, demands and other communications required or permitted
hereunder shall be given in writing and shall be deemed to have been duly given
if delivered or mailed, postage prepaid, first class with return receipt as
follows:

 

  (a) to Material Sciences Corporation:

 

Material Sciences Corporation

2200 East Pratt Blvd.

Elk Grove Village, IL 60007

Attention: Chair, Compensation Committee

 

  (b) to the Executive:

 

the Executive’s most recent home address on file with the Company or to such
other address as either party shall have previously specified in writing to the
other.

 

14. No Attachment.

 

Except as required by law and as expressly provided in this paragraph 14, no
right to receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge or
hypothecation or to execution, attachment, levy or similar process or assignment
by operation of law, and any attempt, voluntary or involuntary, to effect any
such action shall be null, void and of no effect. Notwithstanding the preceding
sentence, the Executive may, by giving notice to the Company during the
Executive’s lifetime, designate a beneficiary or beneficiaries to whom the
severance benefits described in paragraphs 3 and 4 shall be transferred in the
event of the Executive’s death. Any such designation may be revoked or changed
by the Executive at any time and from time to time by

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similar notice. If there is no such designated beneficiary living upon the death
of the Executive or if all such designated beneficiaries die prior to the
receipt by the Executive of the referenced severance benefits, such severance
benefits shall be transferred to the Executive’s surviving spouse or, if none,
then such severance benefits will be transferred to the estate or personal
representative of the Executive. If the Company, after reasonable inquiry, is
unable to determine within twelve (12) months after the Executive’s death
whether any designated beneficiary of the Executive did in fact survive the
Executive, such beneficiary shall be conclusively presumed to have died prior to
the Executive’s death.

 

15. 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.

 

16. Executive Representations.

 

THE EXECUTIVE 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.

 

17. Binding Agreement.

 

This Agreement shall be binding upon, and shall inure to the benefit of, the
Executive and the Company and their respective permitted successors and assigns.

 

18. Modification and Waiver.

 

This Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement except by written instrument
signed by the party charged with such waiver or estoppel. No such written waiver
shall be deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived and
shall not constitute a waiver of such term or condition for the future or as to
any act other than that specifically waived.

 

19. Termination of Prior Agreement.

 

Any agreement previously entered into between the Company and the Executive with
respect to change in control matters is hereby terminated and no longer in
effect as of the Effective Date.

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20. Headings of No Effect.

 

The paragraph headings contained in this Agreement are included solely for
convenience of reference and shall not in any way affect the meaning or
interpretation of any of the provisions of this Agreement.

 

21. Governing Law.

 

This Agreement and its validity, interpretation, performance, and enforcement
shall be governed by the laws of the State of Delaware without giving effect to
the choice of law provisions in effect in such State.

 

22. Compliance with Code Section 409A.

 

It is the intention of the Company and the Executive that the terms of this
Agreement comply with the terms and conditions of Code Section 409A, if and to
the extent that such provision shall be applicable with respect to the
Agreement, and the provisions of this Agreement shall be construed and
interpreted in accordance with that intention As authorized in paragraph 18
hereof, this Agreement may be amended by the Company and the Executive at any
time to the extent determined by the Company to be necessary or advisable to
comply with Code Section 409A or to avoid application of Code Section 409A.

 

23. Forum Selection and Consent to Jurisdiction.

 

EACH OF THE COMPANY AND THE EXECUTIVE, 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 A COURT 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
THE EXECUTIVE 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 FOR THE NORTHERN DISTRICT OF ILLINOIS. EACH OF THE
COMPANY AND THE EXECUTIVE 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.

 

 

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed, and
the Executive has executed this Agreement, as of the Effective Date.

 

MATERIAL SCIENCES CORPORATION By:   

/s/ Ronald L. Stewart

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     RONALD L. STEWART      President and Chief Executive Officer By:   

/s/ John M. Klepper

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     JOHN M. KLEPPER

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EXHIBIT A

 

RELEASE OF CLAIMS

AND

COVENANT NOT TO SUE

 

THIS RELEASE OF CLAIMS AND COVENANT NOT TO SUE (the “Release”) is executed and
delivered by                              (the “Executive”), to Material
Sciences Corporation, its subsidiaries, affiliates and related entities
(collectively referred to as the “Company”).

 

1. Separation from the Company.

 

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

 

2. Severance Payment.

 

The Executive acknowledges and agrees that the severance payments and benefits
provided to him pursuant to that certain Severance and Change in Control
Agreement, effective July 1, 2005, by and between the Executive and the Company
(“Severance Agreement”), represents consideration for signing this Release and
is not salary, wages or benefits to which the Executive was 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.

 

3. Release and Covenant.

 

(a) The Executive (for himself, his heirs, assigns or executors) releases and
forever discharges 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
Release becomes effective and enforceable (“Claims”), of any kind, which relate
in any way to the Executive’s employment with the Company or the termination of
that employment. 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, the Federal Equal Pay Act, 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,
(iv) Title VII (or any other title) of the Civil Rights Act of 1964, as amended
(including all claims of sex, race, national origin and religious
discrimination), the Civil Rights Act of 1991, the Americans with Disabilities
Act of 1990, the Age Discrimination in Employment Act of 1967, as amended, the
Illinois Human Rights Act or the Cook County Human Rights Ordinance and (v)

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any other federal, state, or local statute, law, regulation, ordinance or
doctrine of common law or public policy, contract or tort law having any bearing
whatsoever in the terms and conditions of employment or termination of
employment. This Release shall not, however, constitute a waiver of any of the
Executive’s rights under the Severance Agreement. The Executive acknowledges
that, in his decision to enter into this Release, he has not relied on any
representations, promises or agreements of any kind, including oral statements
by representatives of the Company, except as set forth in this Release.

 

(b) In signing this Release, the Executive acknowledges that he intends that it
shall be effective as a bar to each and every one of the Claims hereinabove
mentioned or implied. The Executive expressly consents that this Release 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. The
Executive acknowledges and agrees that this waiver is an essential and material
term of this Release and without such waiver the Company would not have provided
the severance payments and benefits described in paragraph 2. The Executive
further agrees that in the event the Executive brings his own Claim in which he
seeks damages against the Company, or in the event he seeks to recover against
the Company in any Claim brought by a governmental agency on his behalf, this
Release shall serve as a complete defense to such Claims.

 

  (c) By signing this Release, the Executive acknowledges that he:

 

(i) has been given at least twenty-one days after receipt of this Release within
which to consider it;

 

(ii) has carefully read and fully understands all of the provisions of this
Release;

 

(iii) knowingly and voluntarily agrees to all of the terms set forth in this
Release;

 

(iv) knowingly and voluntarily agrees to be legally bound by this Release;

 

(v) has been advised and encouraged in writing (via this Release) to consult
with an attorney or other advisor prior to signing this Release; and

 

(vi) understands that this Release shall not become effective and enforceable
until the eighth day following execution of this Release, and that at any time
prior to the effective day that the Executive can revoke this Release.

 

4. Additional Agreement.

 

The Executive also agrees 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 Confidentiality,
Non-Solicitation and Non-Competition Agreement executed by the Executive
pursuant to the Severance Agreement.

 

 

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5. No Admissions.

 

This Release 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. No Assignment of Claims.

 

The Executive represents and warrants that there has been no assignment or other
transfer of any interest in any claim which the Executive may have against the
Company. The Executive agrees to indemnify and hold the Company harmless from
any liability, claims, demands, damages, cost, expenses and attorney’s fees
incurred as a result of any person asserting such assignment or transfer of any
rights or claims under any such assignment or transfer. It is the intention of
the Executive and the Company that this indemnity does not require payment as a
condition precedent to recovery by the Company from the Executive under this
indemnity.

 

7. Modification and Waiver.

 

This Release may not be modified or amended except by an instrument in writing
signed by the Executive and the Company. No term or condition of this Release
shall be deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Release except by written instrument signed
by the party charged with such waiver or estoppel. No such written waiver shall
be deemed a continuing waiver unless specifically stated therein, and each such
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future or as to any
act other than that specifically waived.

 

8. Governing Law.

 

To the extent not governed by federal law, this Release and its validity,
interpretation, performance, and enforcement shall be governed by the laws of
the State of Illinois without giving effect to the choice of law provisions in
effect in such State. Whenever possible, each provision of this Release 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 Release.

 

IN WITNESS WHEREOF, the Executive has executed this Release and delivered it to
the Company on                             .

 

By:    

 

 

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EXHIBIT B

 

CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETITION

AGREEMENT

 

THIS CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETITION AGREEMENT (the
“Agreement”), effective as of                             , by and between
Material Sciences Corporation, including any of its subsidiaries, affiliates and
related entities (collectively referred to as the “Company”), and
                             (the “Executive”).

 

WITNESSETH:

 

WHEREAS, the Company and the Executive have entered into a Severance and Change
in Control Agreement effective as of July 1, 2005 (the “Severance Agreement”)
under which the Company has covenanted to provide the Executive with certain
payments and benefits in the event that the Executive’s employment with the
Company is terminated under the circumstances described therein; and

 

WHEREAS, in consideration of the Company’s covenants under the Severance
Agreement, and as a condition precedent to the Executive receiving any payments
or benefits under the Severance Agreement, the Executive has agreed to execute
on or after the date of his termination of employment as described in paragraphs
3 or 4 of the Severance Agreement, a confidentiality, non-solicitation and
non-competition agreement.

 

NOW, THEREFORE, as a condition precedent, and in consideration of the covenants
by the Company to provide the Executive with the payments and benefits under the
Severance Agreement, the Executive hereby agrees as follows:

 

1. Confidential Information; Acknowledgement of Legitimate Business Interest of
the Company.

 

The Executive expressly recognizes and acknowledges that during his employment
with the Company, he became entrusted with, had access to, or gained possession
of confidential and proprietary information, data, documents, records,
materials, and other trade secrets and/or other proprietary business information
of the Company that is not readily available to competitors, outside third
parties and/or the public, including without limitation, information about (i)
current or prospective customers and/or suppliers, (ii) employees, research,
goodwill, production, and prices, (iii) business methods, processes, know-how,
ideas, techniques, theories, discoveries, formulas, plans, charts, designs,
drawings, practices and procedures; (iv) computer software and technology
development, (v) current or prospective business opportunities, plans, proposals
and strategies, including acquisition, merger and/or divestiture strategies and
(vi) other proprietary information created or obtained by Executive during the
course of his employment with the Company (collectively or with respect to any
of the foregoing, the “Confidential Information”). The Executive further
recognizes and acknowledges that the Confidential Information is the sole and
exclusive property of the Company and that the Company has a legitimate interest
in protecting its Confidential Information.

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2. Non-Disclosure of Confidential Information.

 

The Executive agrees that following his termination of employment, he shall keep
and retain in confidence all Confidential Information and will not, without the
consent of the Company, disclose or divulge any Confidential Information
obtained during his employment with the Company to any third party for so long
as the Confidential Information is valuable and unique, or until either the
Company has either itself released the Confidential Information into the public
domain or the Confidential Information has clearly become publicly available by
means other than the Company or the Executive. No individual piece of
Confidential Information shall be deemed to have become publicly available
merely because other pieces of Confidential Information shall have become
publicly available, and no individual piece of Confidential Information shall be
deemed to have become publicly available unless all of its substantive
provisions shall have become publicly available. This paragraph 2 shall not
prevent the Executive from using general skills and experience developed in
positions with the Company or other employers, or from accepting a position of
employment with another company, firm, or other organization, provided that such
position does not require divulgence or use of the Confidential Information.

 

3. Cooperation with the Company.

 

If the Executive receives a subpoena or other judicial or administrative process
demanding that he disclose Confidential Information (“Subpoena”), the Executive
agrees that he will promptly notify the Company and cooperate fully with the
Company if the Company elects to challenge or otherwise resist disclosure of the
Confidential Information sought by the Subpoena. Any such challenge or
resistance by the Company shall be at the Company’s own expense. Should the
Executive promptly notify the Company of the receipt of a Subpoena and the
Company declines or fails to challenge or resist the Subpoena, or if after
intervention by the Company in the judicial or administrative process, the
Company is unsuccessful in quashing or opposing the disclosure, the Executive
may produce the Confidential Information or respond to the Subpoena as he deems
appropriate.

 

4. Return of Property.

 

The Executive understands and agrees that all business information, files,
research, records, memoranda, books, lists and other documents and tangible
materials, including computer disks, and other hardware and software that he
receives during employment (including, without limitation, his Company-issued
cellular telephone), whether confidential or not, are the property of the
Company and that, immediately upon the termination of the Executive’s
employment, he will promptly deliver to the Company all such materials,
including copies thereof, in his possession or under his control.

 

 

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5. Non-Solicitation.

 

The Executive covenants and agrees that during the term of his employment with
the Company and for a period commencing on the date of the Executive’s
termination of employment with the Company and ending on the date that is two
(2) years from such employment termination date, the Executive shall not,
directly or indirectly, solicit, induce, influence, or attempt to induce any
employee of the Company to terminate his employment with, or compete against the
Company or any present or future affiliates of the Company. In particular, and
without limiting the foregoing, the Executive agrees that during the term of his
employment with the Company and during the two (2) year period commencing on the
Executive’s employment termination date with the Company, the Executive shall
not directly or indirectly attempt to hire any other employee of the Company or
otherwise encourage any other employee to leave the employ of the Company, or
(ii) advise or recommend to any other person that they employ or solicit for
employment, any employee of the Company.

 

6. Non-Competition.

 

Executive covenants and agrees that Executive shall not anywhere in North
America (including, without limitation, the United States, Canada and Mexico),
during the term of his employment with the Company and during either the “CIC
Coverage Period” or the “Non-CIC Coverage Period” (as such terms are defined in
the Severance Agreement), as the case may be, directly or indirectly (i) assist,
provide services to or work for, whether as an officer, employee, consultant or
advisor, any entity or Person engaged in the coil coating and laminating
industry, or (ii) otherwise participate in the coil coating and laminating
industry. 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 the Executive is not otherwise in violation of this Agreement.

 

7. Remedies.

 

(a) Executive Acknowledgements. The Executive acknowledges (i) that the
covenants contained in this Agreement, including, without limitation, the time
and geographic limits (collectively, the “Restrictive Covenants”), are
reasonable and appropriate and that the Executive will not claim to the contrary
in any action brought by the Company to enforce any of such provisions and (ii)
that should the Executive violate any of the Restrictive Covenants, it will be
difficult to determine the resulting damages to the Company and, in addition to
any other remedies the Company may have, (A) the Company 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 the Executive under the Severance Agreement or otherwise to the
extent of any money damages incurred or suffered by the Company. 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.

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(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 the Executive 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 the Executive’s compliance with each of the Restrictive
Covenants.

 

(d) Independent Enforcement. Executive agrees that the Restrictive Covenants
shall be enforced independently of any other obligations between the Company, on
the one hand, and the Executive, 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
the Executive may currently have (or hereafter enter into) with the Company.

 

8. Assignment.

 

This Agreement is not assignable, in whole or in part, and shall not be
assigned, by the Executive; and any purported assignment by the Executive shall
be considered null and void. This Agreement is assignable and may be so assigned
by the Company; and this Agreement shall inure to the benefit of, and shall be
binding upon, any and all successors and assigns of the Company.

 

9. Entire Understanding.

 

This Agreement contains the entire understanding between the Company and the
Executive with respect to the subject matter hereof.

 

10. Severability.

 

If, for any reason, any one or more of the provisions or part of a provision
contained in this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement
not held so invalid, illegal or unenforceable, and each other provision or part
of a provision shall to the full extent consistent with law continue in full
force and effect.

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11. Consolidation, Merger, or Sale of Assets.

 

If the Company consolidates or merges into or with, or transfers all or
substantially all of its assets to, another corporation, limited liability
company, limited partnership or other entity, this Agreement shall continue in
full force and effect.

 

12. Notices.

 

All notices, requests, demands and other communications required or permitted
hereunder shall be given in writing and shall be deemed to have been duly given
if delivered or mailed, postage prepaid, first class with return receipt as
follows:

 

(a) to the Company:

 

Material Sciences Corporation

220 E. Pratt Blvd.

Elk Grove Village, IL 60007

Attention: Chief Financial Officer

 

(b) to the Executive:

 

the Executive’s most recent home address on file with the Company or to such
other address as either party shall have previously specified in writing to the
other.

 

13. Binding Agreement.

 

This Agreement shall be binding upon, and shall inure to the benefit of, the
Executive and the Company and their respective permitted successors and assigns.

 

14. Modification and Waiver.

 

This Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement except by written instrument
signed by the party charged with such waiver or estoppel. No such written waiver
shall be deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived and
shall not constitute a waiver of such term or condition for the future or as to
any act other than that specifically waived.

 

15. Headings of No Effect.

 

The paragraph headings contained in this Agreement are included solely for
convenience of reference and shall not in any way affect the meaning or
interpretation of any of the provisions of this Agreement.

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16. Governing Law.

 

This Agreement and its validity, interpretation, performance, and enforcement
shall be governed by the laws of the State of Delaware without giving effect to
the choice of law provisions in effect in such State.

 

IN WITNESS WHEREOF, The Company, on behalf of itself and its subsidiaries,
affiliates and related entities, has caused this Agreement to be executed, and
the Executive has executed this Agreement, as of the effective date written
above.

 

By:  

 

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MATERIAL SCIENCES CORPORATION

By:  

 

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EXECUTIVE