Document:

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                                                                     Exhibit 4.1
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                         MATERIAL SCIENCES CORPORATION

                            2001 COMPENSATION PLAN

                          FOR NON-EMPLOYEE DIRECTORS

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

2.   Limitations on Shares. To Be Issued.  The number of shares of the Common
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     Stock (i) which may be issued under Section 3(b) of this Plan and (ii) with
     respect to which options may be granted or awarded under Section 4 of this
     Plan and which may be issued upon the exercise thereof, shall not exceed an
     aggregate of 150,000 shares, as adjusted pursuant to the first paragraph of
     Section 5 of this Plan; provided, however, that to the extent any awards
                             --------  -------
     hereunder expire unexercised or unpaid or are cancelled, terminated or
     forfeited in any manner without the issuance of shares of Common Stock
     thereunder, such shares shall again be available under this Plan.  Shares
     of Common Stock issued under this Plan may be authorized and unissued
     shares of Common Stock, treasury stock or a combination thereof.

3.   Annual Retainer.  On March 1 of each year, commencing March 1, 2001 (each,
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     a "Payment Date"), each person who is a Non-Employee Director on such date
     shall automatically be granted one or a combination of the following
     (collectively, the "Annual Retainer"): (i) cash, (ii) shares of Common
     Stock or (iii) deferred stock units ("Deferred Stock Units") entitling such
     Non-Employee Director to receive shares of Common Stock upon the earlier of
     the date selected by the Non-Employee Director, which date may be no
     earlier than the first anniversary of the date of grant (the "Withdrawal
     Date"), and the termination of the Non-Employee Director's board service.
     Each such Non-Employee Director shall execute an election form in the form
     attached to the agreement evidencing the grant of such Annual Retainer (the
     "Award Agreement") indicating the percentage (which may be none) of the
     Annual Retainer which such Non-Employee Director elects to receive in the
     forms described in each of (i), (ii) and (iii) above and, in the case of an
     election to receive Deferred Stock Units, the Withdrawal Date.  The "Annual
     Retainer Amount" shall initially be equal to $30,000, as such amount may be
     increased or decreased by the Board from time to time but no more
     frequently than annually, with any such adjustment to be effective as of
     the date specified by the Board.

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

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

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

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

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

               (iv)  Except as otherwise provided herein, distributions from a
               Non-Employee Director's Account shall be made in shares of Common
               Stock equal to the number of Deferred Stock Units then credited
               to the Account upon the first to occur of (A) the Withdrawal
               Date, (B) the Non-Employer Director's resignation from the Board,
               (C) the Non-Employer Director's failure to be re-elected to the
               Board, or (D) the Non-Employer Director's

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               Retirement, death or total and permanent disability (as
               determined by the Board in good faith). "Retirement" shall mean
               retirement following service on the Board as a director for a
               period of ten years (or five years of service on the Board as a
               director if age 65 or older at the time of retirement).

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

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

          (d)  Any person who first becomes a Non-Employee Director after the
          Effective Date (as defined in Section 11 below), either because such
          person is first elected to the Board after the Effective Date or
          because such person was first elected to the Board while such person
          was an officer or employee of the Company or its subsidiaries and
          subsequently ceases to be an officer and employee of the Company and
          its subsidiaries (and consequently did not receive the Annual Retainer
          pursuant to the first sentence of this paragraph 3 on the respective
          Payment Date), shall, on the date such person first becomes a Non-
          Employee Director, automatically be entitled to a pro rata portion of
          the Annual Retainer based on the number of fiscal quarters (rounded up
          to the nearest whole number of fiscal quarters) remaining in the
          fiscal year from and including the fiscal quarter in which such date
          of grant occurs, payable in accordance with paragraph (e) below.  Each
          such Non-Employee Director shall execute an election form in the form
          attached to the Award Agreement indicating the percentage (which may
          be none) of the pro rated Annual Retainer which such Non-Employee
          Director elects to receive in the forms described in each of (i), (ii)
          and (iii) in the first paragraph of this Section 3 and, in the case
          Deferred Stock Units are elected, the Non-Employee Director shall be
          required to specify a Withdrawal Date.  In the event that such a Non-
          Employee Director has elected to receive a portion of his or her pro
          rated Annual Retainer in shares of Common Stock or Deferred Stock
          Units, the number of shares of Common Stock and/or Deferred Stock
          Units shall be determined as set forth in Section 3(b) or Section
          3(c), as applicable (however the Fair Market Value Per Share shall be
          determined on the date of grant (or the date immediately succeeding
          the date of grant, if such date is not a trading day)).

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

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

          (b) With respect to each Non-Employee Director, the initial Incentive
          Option shall be granted to such director as follows: (i) in the case
          of any director who is a Non-Employee Director on the Effective Date
          such Incentive Option shall be granted automatically to such director
          on the later to occur of (A) the Effective Date and (B) the date on
          which the incentive option granted to such director under the
          Company's 1996 Stock Option Plan for Non-Employee Directors becomes
          fully vested, if such director is a Non-Employee Director on such
          vesting date, provided, that such Incentive Option shall become null
          and void if this Plan is not approved by the Company's shareowners at
          the 2000 annual meeting of shareowners of the Company, (ii) in the
          case of any person first elected to the Board after the Effective Date
          who is a Non-Employee Director at the time of his or her election,
          such Incentive Option shall be granted automatically to such person
          upon the date that such person is first elected to the Board (either
          by the shareowners of the Company or, in the case of the filling of a
          vacancy, by the Board) and (iii) in the case of a director who has not
          received an initial Incentive Option as provided in the preceding
          clauses because such director was also an officer or employee of the
          Company or its subsidiaries at the time such director was first
          elected as a director and who subsequently ceases to be an officer and
          employee of the Company and its subsidiaries, such Incentive Option
          shall be granted automatically to such director upon the date such
          person becomes a Non-

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          Employee Director. Each director who has received an initial Incentive
          Option pursuant to the preceding sentence shall automatically be
          granted an Incentive Option on each anniversary of the date of grant
          of the initial Incentive Option to such director if such director is a
          Non-Employee Director on such anniversary date.

          (c)  Vesting.  An Incentive Option shall be exercisable only to the
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          extent it has vested.  Each Incentive Option shall vest in full on the
          first anniversary of the date of grant if the holder thereof is a Non-
          Employee Director on such date; provided, however, that, if a person
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          is not elected as a Non-Employee Director at the first annual meeting
          of the Company's shareowners following the date of grant of such
          Incentive Option, such Incentive Option shall vest and become
          exercisable as of the day before such annual meeting with respect to
          the number of shares (rounded up to the nearest whole number of
          shares) equal to the product of (i) the total number of shares of
          Common Stock subject to such Incentive Option multiplied by (ii) a
          fraction equal to the number of whole months that such director has
          served on the Board since the grant of such Incentive Option divided
          by 12; provided further, that if such a person was recommended for
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          election by the Board as a Non-Employee Director, such Incentive
          Option shall vest in full.  An Incentive Option or any portion of an
          Incentive Option that has not vested prior to the date the holder
          thereof ceases to be a Non-Employee Director shall expire and be
          forfeited as of such date.

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

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

               (iii)  Non-Transferability.  Incentive Options granted pursuant
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               to this Plan shall not be sold, assigned, pledged, transferred or
               otherwise disposed of, except by will or the laws of descent and
               distribution. All Incentive Options shall be exercisable during
               the participant's lifetime only by the participant or the
               participant's legal representative. Any purported transfer
               contrary to this provision will nullify such award. Awards under
               this Plan shall not be subject to execution, attachment or other
               process, and no

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               person shall be entitled to exercise any rights of a participant
               or possess any rights of a participant by virtue of any attempted
               execution or other process. Notwithstanding the first two
               sentences of this paragraph 4(b), Incentive Options may be
               transferred to a "family member" of the Non-Employee Director by
               gift or by domestic relations order. For purposes of this
               paragraph (iii), "family member" means any child, stepchild,
               grandchild, parent, stepparent, grandparent, spouse, former
               spouse, sibling, niece, nephew, mother-in-law, father-in-law,
               son-in-law, daughter-in-law, brother-in-law or sister-in-law,
               including adoptive relationships, any person sharing the Non-
               Employee Director's household (other than as a tenant or
               employee), a trust in which these persons have more than fifty
               percent of the beneficial interest, a foundation in which these
               persons (or the Non-Employee Director) control the management of
               assets, and any other entity in which these persons (or the Non-
               Employee Director) own more than fifty percent of the voting
               interests.

               (iv) Exercise of Incentive Options.  Subject to the terms of the
                    -----------------------------
               Award Agreement and this Plan, Incentive Options granted pursuant
               to this Plan may be exercised from time to time in whole or in
               part.  Each exercise of an Incentive Option shall be accomplished
               by delivering written notice of such exercise to the Secretary of
               the Company, specifying the number of shares to be purchased and
               accompanied by payment in full of the purchase price therefor.
               Payment for the Incentive Options exercised shall be either in
               (i) cash or check, money order or bank draft to the order of
               Material Sciences Corporation (collectively, "cash") or (ii)
               shares of Common Stock which (A) in the case of shares of Common
               Stock acquired pursuant to the exercise of an Incentive Option,
               have been owned by the optionee for more than six (6) months
               prior to the date of surrender, and (B) valued as of the date of
               the notice of exercise, have a value equal to or less than the
               aggregate option price, plus cash in the amount, if any, by which
               the aggregate option price exceeds the value of such shares of
               Common Stock.  Payment for shares with respect to Incentive
               Options exercised for cash shall be delivered with the notice of
               exercise.  Payment for shares with respect to Incentive Options
               exercised for Common Stock and cash, if any, shall be delivered
               to the Secretary of the Company not later than the end of the
               third business day after delivery of the notice of exercise.  If
               payment is made in Common Stock, such payment shall be made by
               delivery of the necessary share certificates, with executed stock
               powers attached, to the Secretary of the Company or, if such
               certificates have not yet been delivered to the optionee, by
               written notice to the Secretary of the Company requesting that
               the shares represented by such certificates applied toward
               payment as hereinabove provided.

               (v)  Re-Load Options.  The Board shall have the authority (but
                    ---------------
               not an obligation) to include as part of any Award Agreement a
               provision entitling the Non-Employee Director to a further option
               (a "Re-Load Option") in the event the Non-Employee Director
               exercises the Incentive

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

5.   Adjustments for Changes in Capitalization or Corporate Reorganizations.
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     Appropriate adjustments shall be made in the number, including the maximum
     number, and kind of shares of Common Stock to be issued under this Plan,
     and in the number and kind of shares of Common Stock that are the subject
     of any Incentive Option awarded under this Plan, to give effect to any
     stock splits, stock dividends and other relevant changes in capitalization
     occurring after the Effective Date.

               If the Company shall effect a merger, consolidation or other
     reorganization, pursuant to which the outstanding shares of Common Stock
     shall be changed for other shares or securities of the Company or of
     another corporation which is a party to such merger, consolidation or other
     reorganization, the Company shall use its reasonable best efforts to
     provide in any agreement or plan which it enters into or adopts to effect
     any such merger, consolidation or other reorganization, that any optionee
     under this Plan shall have the right to purchase, at the aggregate option
     price provided for in his or her Award Agreement and on the same terms and
     conditions, the kind and number of shares or other securities of the
     Company or such other corporation which would have been issuable to him or
     her in respect of the number of shares of Common Stock which were subject
     to such Incentive Option immediately prior to the effective date of such
     merger, consolidation or other reorganization if such shares had been then
     owned by him or her.  If by the date ten days prior to the scheduled
     effective date of any such merger, consolidation or other reorganization,
     the provision described in the preceding sentence has not been made with
     respect to any Incentive Option that is not then fully vested, such
     Incentive Option shall become vested and exercisable in full upon such
     date.  Any adjustment with respect to Incentive Options required by this
     paragraph shall be effected in such manner that the difference between the
     aggregate fair market value of the shares or other securities subject to
     the Incentive Options immediately after giving effect to such

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     adjustment and the aggregate option price of such shares or other
     securities shall be substantially equal to (but shall not be more than) the
     difference between the aggregate fair market value of the shares subject to
     such Incentive Options immediately prior to such adjustment and the
     aggregate option price of such shares. Any adjustments made under this
     paragraph shall be determined by the Board.

               Upon the approval by the shareowners of the Company of a merger,
     consolidation or other reorganization pursuant to which the outstanding
     shares of Common Stock are to be exchanged for cash, or upon the adoption
     by the shareowners of the Company of a plan of complete liquidation, all
     Incentive Options that are not then fully vested shall become vested and
     exercisable in full upon such date.

6.   Tax Withholding.  The Board shall have the power to withhold, or require a
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     participant to remit to the Company, an amount sufficient to satisfy any
     withholding or other tax due with respect to any amount payable and/or
     shares of Common Stock issuable under this Plan, and the Board may defer
     such payment or issuance unless indemnified to its satisfaction. Subject to
     the consent of the Board, a participant may make an irrevocable election to
     have shares of Common Stock otherwise issuable hereunder or under an
     Incentive Option withheld, tender back to the Company shares of Common
     Stock received pursuant to exercise of an Incentive Option or deliver to
     the Company previously acquired shares of Common Stock having a Fair Market
     Value determined as of the date of issuance and/or payment (or if such date
     is not a trading day, the trading day immediately succeeding such date)
     sufficient to satisfy all or part of the participant's estimated tax
     obligations associated with the transaction.  Such election must be made by
     a participant prior to the date on which the relevant tax obligation
     arises.  The Board may disapprove of any election and may limit, suspend or
     terminate the right to make such elections.

7.   Beneficiary Designation.  Subject to the restrictions on transfer and the
     -----------------------
     Incentive Option terms set forth in this Plan, participants shall name,
     upon the initial grant of the Annual Retainer hereunder and from time to
     time thereafter, beneficiaries (who may be named contingently or
     successively) who may exercise awards and rights granted under this Plan in
     the event of the death of a participant before he or she exercises such
     awards or rights.  Each designation will revoke all prior designations by
     the same participant, shall be in a form approved by the Board and will be
     effective only when filed by the participant in writing with the Board
     during the participant's lifetime. In the absence of any such designation,
     awards and rights remaining unexercised at the participant's death may be
     exercised by the participant's estate.

8.   Administration of the Plan.  This Plan shall be administered by the Board
     --------------------------
     in accordance with the provisions of this paragraph.  The Board shall have
     full power and authority to prescribe, amend and rescind rules and
     procedures governing administration of this Plan.  The Board shall have
     full power and authority (i) to interpret the terms of this Plan, the terms
     of the Incentive Options, the grants of Common Stock and Deferred Stock
     Units and the rules and procedures established by the Board and (ii) to
     determine the meaning of or requirements imposed by or the rights of any
     person under this Plan, any Incentive Option or any rule or procedure
     established by the Board.  All such rules, procedures and

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     interpretations relating to this Plan adopted by the Board shall be
     conclusive and binding on all parties.

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

10.  Amendment, Suspension and Termination of Plan.  The Board may suspend or
     ---------------------------------------------
     terminate this Plan or any portion hereof, or any agreement evidencing an
     award made under this Plan, at any time and may amend it from time to time
     in such respects as the Board may deem advisable; provided, however, that
                                                       --------  -------
     no such amendment shall be made without shareowner approval to the extent
     (i) such approval is required by law, agreement or the rules of any
     exchange upon which the Common Stock is listed or (ii) such amendment
     reprices, replaces, regrants through cancellation, or lowers the exercise
     of a previously granted Incentive Option; provided further, that the
     provisions of this Plan that relate to the amount, price and timing of
     awards shall not be amended more than once every six months, except as set
     forth in Rule 16b-3(c)(2)(ii)(B) under the Securities Exchange Act of 1934,
     as amended ("Rule 16b-3").  No such amendment, suspension or termination
     shall materially impair the rights of participants under outstanding awards
     without the consent of the participants affected thereby or make any change
     that would disqualify this Plan, or any other plan of the Company intended
     to be so qualified, from the exemption provided by Rule 16b-3.

11.  Compliance with 16b-3.  It is the intent of the Company that this Plan
     ---------------------
     comply in all respects with Rule 16b-3, that any ambiguities or
     inconsistencies in the construction of this Plan be interpreted to give
     effect to such intention and that if any provision of this Plan is found
     not to be in compliance with Rule 16b-3, that such provision shall be
     deemed null and void to the extent required to permit this Plan to comply
     with Rule 16b-3.

12.  Effective Date and Term of Plan.  This Plan shall become effective on March
     -------------------------------
     1, 2001 (the "Effective Date"); provided, that this Plan shall cease to be
     effective and any Incentive Options granted here under shall become null
     and void if this Plan is not approved by the Company's shareowners at the
     2000 annual meeting of shareowners of the Company.  This Plan shall
     terminate on February 29, 2004, unless terminated prior thereto by action
     of the Board; provided, however, the termination of the Plan on such date
                   --------  -------
     shall not affect any Deferred Stock Units, Incentive Options or Re-Load
     Options which are outstanding on such date. No further grants shall be made
     under this Plan after termination, but

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<PAGE>

     termination shall not affect the right of any participant under any grants
     made prior to termination.

                                      -10-<PAGE>   1
                                                                   EXHIBIT 4.2.4

                          SECOND SUPPLEMENTAL INDENTURE

         This Second Supplemental Indenture (this "Agreement") is entered into
as of August 1, 2000, by and among (i) FelCor Lodging Limited Partnership, a
Delaware limited partnership ("FelCor LP"), (ii) FelCor Lodging Trust
Incorporated, a Maryland corporation ("FelCor"), (iii) FelCor/CSS Hotels,
L.L.C., a Delaware limited liability company, FelCor/LAX Hotels, L.L.C., a
Delaware limited liability company, FelCor/CSS Holdings, L.P., a Delaware
limited partnership, FelCor/St. Paul Holdings, L.P., a Delaware limited
partnership, FelCor/LAX Holdings, L.P., a Delaware limited partnership, FelCor
Eight Hotels, L.L.C., a Delaware limited liability company, FelCor Hotel Asset
Company, L.L.C., a Delaware limited liability company, FelCor Nevada Holdings,
L.L.C., a Nevada limited liability company, FHAC Nevada Holdings, L.L.C., a
Nevada limited liability company, and FHAC Texas Holdings, L.P., a Texas limited
partnership, (collectively, the "Subsidiary Guarantors"), (iv) FelCor Country
Villa Hotel, L.L.C., a Delaware limited liability company, FelCor Moline Hotel,
L.L.C., a Delaware limited liability company, FelCor Omaha Hotel Company,
L.L.C., a Delaware limited liability company and FelCor Canada Co., a Nova
Scotia unlimited liability company (collectively, the "New Guarantors"), and (v)
SunTrust Bank, as Trustee ("Trustee").

         WHEREAS, FelCor LP, as Issuer, FelCor and the Subsidiary Guarantors, as
Guarantors, and Trustee, as Trustee, entered into that certain Indenture dated
as of October 1, 1997, as previously amended by that certain First Amendment to
Indenture dated as of February 5, 1998, that certain Second Amendment to
Indenture and First Supplemental Indenture dated December 30, 1998 and that
certain Third Amendment to Indenture dated March 30, 1999 (collectively, the
"Indenture"); and

         WHEREAS, pursuant to Section 4.07 of the Indenture, the New Guarantors
are required to execute and deliver a supplemental indenture to the Indenture
providing for a Subsidiary Guaranty (as defined in the Indenture) by such New
Guarantor;

         NOW, THEREFORE, for and in consideration of the mutual promises and
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:

         1. Each of the New Guarantors hereby executes this Agreement as a
supplemental indenture to the Indenture for the purpose of providing a guarantee
of the Notes, as that term is defined in the Indenture, and of certain of FelCor
LP's obligations under the Indenture as set forth therein and agrees to assume
and be subject to all of the terms, conditions, waivers and covenants applicable
to a Subsidiary Guarantor under the Indenture, including without limitation,
those set forth in Article 11 thereof. Upon its execution hereof, each of the
New Guarantors hereby acknowledges that it shall be a Subsidiary Guarantor for
all purposes as defined and as set forth in the Indenture, effective as of the
date hereof. Further, each New Guarantor hereby waives and shall not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement,

<PAGE>   2

indemnity, or subrogation or any other rights against FelCor LP, FelCor or any
other Restricted Subsidiary as a result of any payment by such New Guarantor
under its Subsidiary Guaranty.

         2. The parties hereto hereby confirm and acknowledge that the Indenture
shall continue in full force and effect according to its original terms, except
as expressly supplemented hereby.

         IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.

                                 FELCOR LODGING LIMITED PARTNERSHIP,
                                 a Delaware limited partnership

                                 By: FelCor Lodging Trust Incorporated, a
                                     Maryland corporation, its general partner

                                     By: /s/ LAWRENCE D. ROBINSON
                                        ---------------------------------------
                                        Lawrence D. Robinson,
                                        Senior Vice President

                                 FELCOR LODGING TRUST INCORPORATED,
                                 a Maryland corporation

                                 By: /s/ LAWRENCE D. ROBINSON
                                    -------------------------------------------
                                    Lawrence D. Robinson, Senior Vice President

                                 FELCOR/CSS HOTELS, L.L.C.,
                                 a Delaware limited liability company

                                 By: /s/ LAWRENCE D. ROBINSON
                                    -------------------------------------------
                                    Lawrence D. Robinson, Senior Vice President

                                       -2-

<PAGE>   3

                                 FELCOR/LAX HOTELS, L.L.C.,
                                 a Delaware limited liability company

                                 By: /s/ LAWRENCE D. ROBINSON
                                    -------------------------------------------
                                    Lawrence D. Robinson, Senior Vice President

                                 FELCOR/CSS HOLDINGS, L.P.,
                                 a Delaware limited partnership

                                 By: FelCor/CSS Hotels, L.L.C., a Delaware
                                     limited liability company, its general
                                     partner

                                     By: /s/ LAWRENCE D. ROBINSON
                                        ---------------------------------------
                                        Lawrence D. Robinson,
                                        Senior Vice President

                                 FELCOR/ST. PAUL HOLDINGS, L.P.,
                                 a Delaware limited partnership

                                 By: FelCor/CSS Hotels, L.L.C., a Delaware
                                     limited liability company, its general
                                     partner

                                     By: /s/ LAWRENCE D. ROBINSON
                                        ---------------------------------------
                                        Lawrence D. Robinson,
                                        Senior Vice President

                                 FELCOR/LAX HOLDINGS, L.P.,
                                 a Delaware limited partnership

                                 By: FelCor/LAX Hotels, L.L.C., a Delaware
                                     limited liability company, its general
                                     partner

                                     By: /s/ LAWRENCE D. ROBINSON
                                        ---------------------------------------
                                        Lawrence D. Robinson,
                                        Senior Vice President

                                       -3-

<PAGE>   4

                                 FELCOR EIGHT HOTELS, L.L.C.,
                                 a Delaware limited liability company

                                 By: /s/ LAWRENCE D. ROBINSON
                                    -------------------------------------------
                                    Lawrence D. Robinson, Senior Vice President

                                 FELCOR HOTEL ASSET COMPANY, L.L.C.,
                                 a Delaware limited liability company

                                 By: /s/ LAWRENCE D. ROBINSON
                                    -------------------------------------------
                                    Lawrence D. Robinson, Senior Vice President

                                 FELCOR NEVADA HOLDINGS, L.L.C.,
                                 a Nevada limited liability company

                                 By: /s/ LAWRENCE D. ROBINSON
                                    -------------------------------------------
                                    Lawrence D. Robinson, Senior Vice President

                                 FHAC NEVADA HOLDINGS, L.L.C.,
                                 a Nevada limited liability company

                                 By: /s/ LAWRENCE D. ROBINSON
                                    -------------------------------------------
                                    Lawrence D. Robinson, Senior Vice President

                                 FHAC TEXAS HOLDINGS, L.P.,
                                 a Texas limited partnership

                                 By: FelCor Hotel Asset Company, L.L.C.,
                                     a Delaware limited liability company,
                                     its general partner

                                     By: /s/ LAWRENCE D. ROBINSON
                                        ---------------------------------------
                                        Lawrence D. Robinson,
                                        Senior Vice President

                                       -4-

<PAGE>   5

                                 FELCOR COUNTRY VILLA HOTEL, L.L.C.
                                 a Delaware limited liability company

                                 By:  /s/ LAWRENCE D. ROBINSON
                                    -------------------------------------------
                                    Lawrence D. Robinson, Senior Vice President

                                 FELCOR MOLINE HOTEL, L.L.C.,
                                 a Delaware limited liability company

                                 By:  /s/ LAWRENCE D. ROBINSON
                                    -------------------------------------------
                                    Lawrence D. Robinson, Senior Vice President

                                 FELCOR OMAHA HOTEL COMPANY, L.L.C.,
                                 a Delaware limited liability company

                                 By: /s/ LAWRENCE D. ROBINSON
                                    -------------------------------------------
                                    Lawrence D. Robinson, Senior Vice President

                                 FELCOR CANADA CO.,
                                 a Nova Scotia unlimited liability company

                                 By: /s/ LAWRENCE D. ROBINSON
                                    -------------------------------------------
                                    Lawrence D. Robinson, Senior Vice President

                                 SUNTRUST BANK,
                                 as Trustee

                                 By: /s/ GEORGE T. HOGAN
                                    -------------------------------------------
                                 Name: George T. Hogan
                                      -----------------------------------------
                                 Title: Vice President
                                       ----------------------------------------

                                 By: /s/ B. A.  DONALDSON
                                    -------------------------------------------
                                 Name: B. A.  Donaldson
                                      -----------------------------------------
                                 Title: Vice President
                                       ----------------------------------------

                                       -5-

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