<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1994
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
Commission File Number: 1-7665
LYDALL, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0865505
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Colonial Road, Manchester, Connecticut 06040
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (203) 646-1233
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, $.10 par value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
--
On March 13, 1995, the aggregate market value of the Registrant's voting
stock held by nonaffiliates was $263,167,659.
On March 13, 1995, there were 8,623,003 shares of Common Stock outstanding,
exclusive of treasury shares.
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(CONTINUED)
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II incorporate certain information by reference from the Annual
Report to Stockholders for the year ended December 31, 1994. Part III
incorporates information by reference from the definitive Proxy Statement to be
distributed in connection with the Registrant's Annual Meeting of Stockholders
to be held on May 10, 1995.
2
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PART I
------
Item 1. BUSINESS.
Lydall, Inc. (hereafter referred to as "Lydall" or the "Company") is a
manufacturer of technologically advanced engineered materials for demanding
specialty applications.
Lydall develops and manufactures engineered fiber materials and composites
in both roll and sheet form; fiber-based as well as combination-metal-and-fiber
heat shields; and fabricates certain medical filtration and automotive thermal
barrier components. All of Lydall's products are supplied to customers who in
turn incorporate them into finished products. Utilizing a broad spectrum of
available fibers, materials, binders, resins, etc. combined with both dry-laid
or wet-laid forming capabilities, the Company has been able to develop a broad
range of high-performance materials.
The Company serves a number of market niches. Lydall's products are
primarily sold directly to the customer (or fabricator), through an internal
sales force and are distributed through common carrier, ocean cargo, or the
Company's trucking operation. Within each market niche there are typically
several competitors. The Company primarily competes through high-quality
products and customer service. Lydall has a number of domestic and foreign
competitors for its products, most of whom are either privately owned or
divisions of large companies, making it difficult to determine the Company's
market share.
During 1994, Lydall made two strategic acquisitions. On February 28, 1994,
the Company acquired for $15 million in cash and a note payable of $2.25
million, the operations and certain assets and assumed certain liabilities of
the Clecon Molding Division of Standard Packaging, Inc. ("Columbus Operation").
As a result of this purchase, the Company recorded goodwill and other intangible
assets of approximately $11.4 million. The Columbus Operation is a designer and
manufacturer of thermal and acoustical insulation products sold to the
automotive market. The results of the Columbus Operation since the date of
acquisition have been included in the Company's consolidated results.
On June 30, 1994, the Company acquired the laminates operation of Riverwood
International Georgia, Inc. located in Jacksonville, Florida ("Jacksonville
Operation"). The Company purchased inventory, equipment, and other assets for
approximately $1.8 million. This operation, which manufactures materials-
handling slipsheets, directly complements Lydall's existing slipsheet business
in Richmond, Virginia. The Company will continue to operate the Jacksonville
location as part of the Southern Products Division. The results of the
operations of the Jacksonville Operation since the date of acquisition have been
included in the Company's consolidated results.
Lydall's products fall into five basic categories: thermal barriers, air
and liquid filtration media, materials handling systems, electrical insulation,
and other products and services.
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MAJOR PRODUCTS
Thermal Barriers
- ----------------
Lydall manufactures a broad range of materials which serve as heat or
thermal barriers. The Cryotherm(R) and Lytherm(R) product lines include an
assortment of composites using distinctive materials, in both rigid and flexible
forms, manufactured by a variety of processes. Lydall's thermal barrier
products in differing forms are capable of withstanding temperatures ranging
from -459 degrees F to +3,000 degrees F.
At the highest temperature requirements, Lytherm thermal barrier products
are used as linings for ovens, kilns, and furnaces and in glass and metal
manufacturing.
At mid-range temperatures Lytherm nonwovens are patented layered composites
of either organic and inorganic fibers or fiber and metal foil combinations
which are used as thermal barriers in medium- and light-duty trucks, vans, sport
utility vehicles, and passenger cars. The Columbus Operation acquisition
contributed to the growth of thermal barrier sales. This acquisition also
expanded the Company's product offerings to include metal-and-fiber combination
automotive heat shields.
Also, in mid-range temperatures, Manninglas(R) nonwovens are employed in
consumer appliances and heat ventilation and air conditioning ducting and
insulation.
At the very coldest temperatures (approaching absolute zero), Cryotherm(R)
cryogenic insulation materials are used for super-insulating applications.
These include tanker trucks which transport liquid gases; stationary and
portable cryogenic storage vessels; gas tanks for vehicles fueled by liquid
natural gas; and supercolliders. These nonwovens are composed of 100-percent
inorganic fibers.
Lydall also manufactures custom-designed media employed in automotive
air-bag pyrotechnic inflators. Although these sales are classified as thermal
barriers by the Company, this specialty product performs both a filtration and
heat-reduction function.
Sales of thermal barriers approximated 34 percent of the Company's sales
for 1994, 24 percent of sales for 1993, and 20 percent of sales for 1992. The
increase in thermal barrier sales as a percent of total sales is primarily
attributable to the addition of the Columbus Operation acquired during 1994.
Filtration Media
- ----------------
The Company manufactures high-efficiency air filtration media, marketed
under the Lydair(R) name. Lydair filtration media are used for applications
where clean air is vital, such as in semiconductor
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manufacturing clean rooms, industrial clean rooms, and biotechnology
laboratories.
Lydall manufactures Lydair media in six filtration classes in over 100
grades with filtering efficiencies from 10 percent at 0.3 micron particle size
to 99.999999 percent at 0.1 micron particle size.
Lydall filtration media are primarily used in air filters for capital goods
rather than consumables and last approximately five years. A replacement market
exists as facilities using these filters upgrade clean room technology. The
Company's HEPA filtration media are also used in home air-purification units.
Lydall's line of fabricated medical filter components are sold under the
trademark Lypore(R) and are widely used in blood filtration devices, such as
cardiotomy reservoirs which filter the blood supply of an open-heart surgery
patient during the operation, and autotransfusion filters used to filter blood
collected from a patient before surgery or from an injured patient.
Lydall also produces liquid filtration media used primarily in high-
efficiency hydraulic oil and lubrication oil elements for off-road vehicles,
trucks, and heavy equipment. These products are also sold under the Lypore
trademark.
Sales of filtration media declined to 20 percent of sales for 1994 compared
with 24 percent and 25 percent of sales for 1993 and 1992, respectively. While
sales of filtration media as a percentage of overall sales declined, 1994 sales
of filtration media actually increased 13 percent over 1993 sales levels. The
decline as a percentage of total sales is primarily due to two factors: 1)
acquisitions in Lydall's other lines of business, and 2) a recovery in the
domestic automotive industry which contributed to increased sales of thermal
barriers. Management expects future sales of filtration media as a percentage
of overall sales to remain relatively constant, absent any acquisition activity.
Materials Handling
- ------------------
Lydall produces slipsheets, separator sheets, and protective sheets. The
Ly-Pak(R) slipsheets are used to ship a growing number of products such as
food, pharmaceuticals, and chemicals. Ly-Pak slipsheet systems are used to
replace wooden pallets, providing significant cost and space reductions for a
shipper. Ly-Pak separator sheets are supplied to the glass and polyethylene
terephthalate (PET) bottle industry and are manufactured to meet industry
specifications for bulk palletizing. Ly-Pak protective sheets are used as pallet
pads, protective top caps, and stabilizing sheets. These products are custom-
made from plies of virgin kraft linerboard and laminated with a
special moisture-resistant adhesive. The Company also sells a complete line of
dunnage products.
5
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Although sales of these products approximated 14 percent of 1994 sales as
compared with 15 percent of 1993 and 1992 total sales; 1994 materials-handling
sales actually increased by 28 percent over 1993 sales. This exceptional growth
is attributable to the acquisition of the Jacksonville Operation and an
increasing level of exports. It is expected that this business will continue to
grow; however, it is not expected to represent an increasing percentage of
Lydall's total sales, absent any acquisition activity.
Electrical Insulation
- ---------------------
Lydall's electrical insulation material, sold under the SE/duroid(R),
Sep-R-Max(R), and Voltex(R) trademarks are found in a broad range of
applications such as computers, consumer appliances, utility power transformers,
electric motors and other wiring devices. These materials are manufactured to
electrical resistance, flame retardancy, formability, thermal aging, and
moisture resistance specifications.
The Company's electrical insulation products also include battery
separator materials primarily used in European automotive batteries. These
products are manufactured at the Company's European location. Lydall also
manufactures Actipore(R) separators used in sealed lead acid batteries which
power emergency standby energy systems.
A significiant portion of the 1994 electrical insulation sales were derived
from foreign operations. There are no anticipated operating risks related to
foreign investment law, expropriation, inflation effects or availability of
material, labor and energy. The Company's foreign and domestic operations
limit currency and foreign exchange transaction risks by completing transactions
primarily in their functional currencies.
Sales of electrical insulation products were approximately 8 percent of
total sales in 1994, 10 percent in 1993, and 13 percent in 1992. Actual sales
increased in 1994 by 13 percent over 1993 levels. The dynamic growth of the
thermal barrier businesses in 1994 accounts for the decline of sales of
electrical products as a percent of total sales. The decline from 1992 to 1993
was due to a poor European economy and lower demand for automotive battery
separator materials to that market. Also, an expected shift in battery
separator technology favoring different materials than those used by the Company
affected Lydall beginning in 1993. The Company's electrical insulation sales
are tied more closely to economic conditions than other products. Lydall
expects that European separator sales will decline gradually and that these
sales will be replaced with new products in air filtration and thermal
insulation at the foreign facility.
Other Products and Services
- ---------------------------
Lydall maintains a transportation operation which brokers and/or hauls
freight for and between Lydall plants as well as for outside customers. In
addition, the Company manufactures paperboard products used in games and
packaging, specialty gasketing materials, and fiberboard shoe insole materials.
Lydall also produces a wood replacement material made from recycled newsprint
and cardboard
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which is currently being made into writing instruments. Sales of all other
products and services approximated 24 percent of the Company's sales in
1994, and 27 percent in both 1993 and 1992.
GENERAL BUSINESS INFORMATION
Lydall operates ten manufacturing facilities in the United States which are
located in Rochester, New Hampshire; Green Island, New York; Hoosick Falls, New
York; Manchester, Connecticut; Richmond, Virginia; Hamptonville, North Carolina;
Rockwell, North Carolina; Columbus, Ohio; Jacksonville, Florida and Covington,
Tennessee. Lydall has one manufacturing facility in Saint-Rivalain en Melrand,
France.
Lydall holds a number of patents, trademarks, and licenses. While no
single patent, trademark or license by itself is critical to the success of
Lydall, together these intangible assets are of considerable value to the
Company's operations.
The working capital requirements of the Company are financed primarily from
operations. No significant portion of Lydall's business is seasonal. Lydall
maintains levels of inventory and grants credit terms which are normal within
the industries it serves. The Company uses a wide range of raw materials in the
manufacturing of its products and was able to obtain all the raw materials
needed during 1994. Generally these materials are available from a variety of
suppliers who can be substituted if necessary. Therefore, the availability of
any individual raw material is not a significant risk to the Company's
operations.
Thirty-one percent of Lydall's total sales in 1994 were to the world-wide
automotive market. Lydall's automotive sales are sold to various customers
including parts suppliers, thermal insulation fabricators, air-bag manufacturers
and original equipment manufacturers for use in a variety of models and
applications. Although no single customer represents 10 percent or more of
Lydall's total sales, the ultimate customers for almost 25 percent of automotive
sales are Ford Motor Company, General Motors Corporation and Chrysler
Corporation.
Lydall invested $5.5 million in 1994, $4.8 million in 1993, and $4.7
million in 1992, respectively, on activities to develop new products and special
manufacturing processes or to improve existing products. Most of Lydall's
investment in research and development is application specific; very little is
pure research. There were no significant customer-sponsored research and
development activities during the past three years.
Lydall's backlog was $24.5 million at December 31, 1994, $13.7 million at
December 31, 1993, and $12.1 million at December 31, 1992. Lydall expects to
fill its backlog of 1994 orders during the first quarter of 1995. Backlog at
February 28, 1995 was $26.7 million. The increased backlog over prior year
levels is primarily due to backlog at the facilities acquired during 1994 and
increased demand for both filtration and thermal barrier products. There are no
seasonal aspects to this backlog.
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No material portion of Lydall's business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
government.
Lydall believes that its plants and equipment are in substantial compliance
with applicable federal, state and local provisions that have been enacted or
adopted regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment. Additional measures to maintain
compliance with presently enacted laws and regulations are not expected to have
a substantial adverse effect on the capital expenditures, earnings and
competitive position of the Company and its subsidiaries. For information
relating to certain environmental proceedings involving the Company, please
refer to Item 3 below.
As of March 1, 1995, Lydall and its subsidiaries had 1,307 employees,
including foreign employees. Approximately 187 of the domestic employees are
represented by eight unions under contracts expiring between November 1997 and
November 1999. Lydall considers its employee relationships to be satisfactory,
and there have not been any actual or threatened work stoppages due to union
related activities. All employees at the Company's facility in France are
covered under a National Collective Bargaining Agreement.
Foreign and export sales were 21 percent of total sales in 1994 and 1993,
and 23 percent in 1992. Export sales are concentrated primarily in Europe, the
Far East, Mexico, and Canada and were $30.7 million, $21.7 million, and $19.8
million in 1994, 1993 and 1992, respectively.
Foreign sales were $14.4 million, $12.3 million and $16.4 million for the
years ended December 31, 1994, 1993, and 1992, respectively. Net income was
$192 thousand, $57 thousand, and $1.1 million, for the years ended December 31,
1994, 1993, and 1992, respectively. Total foreign assets were $19.5 million at
December 31, 1994, and $17.1 million at December 31, 1993.
8
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Item 2. PROPERTIES
The principal properties of the Company and its subsidiaries are situated
at the following locations and have the following characteristics:
<TABLE>
<CAPTION>
Approximate Area
---------------------
General Land Buildings
Location Description (Acres) (Sq. Feet)
-------- ----------- ------- ----------
<S> <C> <C> <C>
1 Manchester, Warehouse 2.0 25,000
Connecticut Facilities
2 Manchester, Paperboard 11.6 70,500
Connecticut Manufacturing
3 Covington, Composite 26.0 155,000
Tennessee Materials
Manufacturing
4 Richmond, Laminated Kraft 5.0 104,000
Virginia Manufacturing
5 Rochester, Specialty Paper 18.0 111,000
New Hampshire Manufacturing
6 Hoosick Falls, Composite 11.0 129,000
New York Materials
Manufacturing
7 Hamptonville, Nonwoven Materials 35.2 85,000
North Carolina Manufacturing
8 Green Island, Specialty Paper 6.3 270,000
New York Manufacturing &
Warehouse
9 Manchester, Corporate Office 4.5 20,000
Connecticut and Computer
Center
10 Rockwell, Fabricating Facility 11.5 51,000
North Carolina
11 Saint-Rivalain Specialty Paper 14.3 156,000
en Melrand, Manufacturing
France
12 Columbus, Fabricating Facility 9.0 80,000
Ohio
13 Jacksonville, Laminated Kraft - 52,000
Florida Manufacturing
</TABLE>
Properties numbered 1, 4, 10, 12, and 13, are being leased; all others are
owned. For information with respect to obligations for lease rentals and owned
property, see the operating lease note to the Consolidated Financial Statements
of the Company included in the 1994 Annual Report to Stockholders, which are
incorporated herein by reference.
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Lydall considers its properties to be suitable and adequate for its present
needs. The properties are being fully utilized. In addition to the properties
listed above, the Company has several additional leases for sales offices and
warehouses in the United States and overseas.
Item 3. LEGAL PROCEEDINGS
In the mid-1980's, the United States Environmental Protection Agency ("EPA")
notified a former subsidiary of the Company that it and other entities may be
potentially responsible in connection with the release of hazardous substances
at a landfill and property located adjacent to a landfill located in Michigan
City, Indiana. The two sites have been combined and are viewed by the EPA as one
site. The preliminary indication, based on the Site Steering Committee's
volumetric analysis, is that the alleged contribution to the waste volume at the
site of the plant once owned by a former subsidiary is approximately 0.434
percent of the total volume. The portion of the 0.434 percent specifically
attributable to the former subsidiary by the current operator of the plant is
approximately 0.286 percent.
There are over 800 potentially responsible parties ("prp") which have been
identified by the Site Steering Committee. Of these, 38, not including the
Company's former subsidiary, are estimated to have contributed over 80 percent
of the total waste volume at the site. These prp's include Fortune 500
companies, public utilities, and the State of Indiana. The Company believes
that, in general, these parties are financially solvent and should be able to
meet their obligations at the site. The Company has reviewed the financial
statements and credit reports on several of these prp's, and based on these
financial reports, does not believe the Company will have any material
additional volume attributed to it for reparation of this site due to insolvency
of other prp's.
During the quarter ended September 30, 1994, the Company learned that the EPA
recently completed its Record of Decision ("ROD") for the Michigan site and has
estimated the total cost of remediation to be between $17 million and $22
million. Based on the alleged contribution of its former subsidiary to the
site, the Company's alleged total exposure would be less than $100 thousand,
which has been accrued.
Management believes the ultimate disposition of this matter will not have a
material adverse effect upon the Company's consolidated financial position or
results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
fourth quarter of 1994.
EXECUTIVE OFFICERS AND OTHER SIGNIFICANT EMPLOYEES OF THE REGISTRANT:
The name, age, current position, and other business experience since
January 1, 1990 of each executive officer of the Company are listed on the
following page. Leonard R. Jaskol, John E. Hanley, Carole F. Butenas, Alan J.
Gnann and Mary Adamowicz are elected
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annually at the organizational meeting of the Board of Directors. All others are
appointed by the President and Chief Executive Officer for an indefinite period.
There are no family relationships among executive officers or other significant
employees.
<TABLE>
<CAPTION>
Other Business
Experience Since
Name Age Title 1990
---- --- ----- ----------------
<S> <C> <C> <C>
Leonard R. Jaskol 57 Chairman of the Board N/A
(since 1991) President and
Chief Executive Officer
(since 1988)
John E. Hanley 38 Vice President-Finance and Lydall, Inc. Treasurer
Treasurer (since 1992) and Controller
Carole F. Butenas 52 Vice-President-Communications Lydall, Inc. Secretary
(since 1991) and Manager of Corporate
Relations
Alan J. Gnann 45 Vice President-Corporate President - Manning
Development (since 1993) Nonwovens Division
Mary Adamowicz 34 General Counsel and Secretary Litigation Attorney,
(since 1991) Murtha, Cullina,
Richter & Pinney
Raymond S. Lanzi 56 Division President (since 1979) N/A
Elliott F. Whitely 51 Division President (since 1987) N/A
James P. Carolan 51 Division President (since 1993) President-
Director (1994) Lydall International;
President-Westex
Division
William J. Rankin 41 Division President (since 1992) General Manager-Lydall
Express
Christopher R. 41 Division President (since 1990) N/A
Skomorowski Director (1994)
</TABLE>
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PART II
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Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information regarding the common stock of the Company and recent market
prices of such stock, the cash dividend policy, and the approximate number of
holders of common stock, is incorporated herein by reference to pages 26, 35,
and 44 of the 1994 Annual Report to Stockholders.
Item 6. SELECTED FINANCIAL DATA.
Information regarding selected financial data of the Company is
incorporated herein by reference to the inside front cover of the 1994 Annual
Report to Stockholders.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's discussion and analysis of financial condition and results of
operations is incorporated herein by reference to the President's Letter, the
Analysis of Results and Key Financial Items on pages 2 through 5 and 18 through
26 of the 1994 Annual Report to Stockholders.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of Lydall, Inc. and its
subsidiaries and the supplementary quarterly financial information are
incorporated by reference to pages 27 through 31 and 41 of the 1994 Annual
Report to Stockholders.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no disagreements with the Company's independent public
accountants on accounting and financial disclosure.
PART III
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Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the directors of Lydall is incorporated by reference
to the definitive Proxy Statement of Lydall to be filed with the Commission
relating to its Annual Meeting of stockholders to be held on May 10, 1995.
Information regarding the executive officers and other significant employees of
the Company is contained on pages 10 and 11 of this report.
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Item 11. EXECUTIVE COMPENSATION.
Information regarding the compensation of Lydall's directors and executive
officers is incorporated by reference to the definitive Proxy Statement of
Lydall to be filed with the Commission relating to its Annual Meeting of
stockholders to be held on May 10, 1995, excluding the Compensation and Stock
Option Committee Report to Stockholders found on pages 12 through 14, and the
comparative performance graph located on page 15, therein.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding beneficial ownership of the common stock by certain
beneficial owners and by management of the Company is incorporated by reference
to the definitive Proxy Statement of Lydall to be filed with the Commission
relating to its Annual Meeting of stockholders to be held on May 10, 1995.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions with
management is incorporated by reference to the definitive Proxy Statement of
Lydall to be filed with the Commission relating to its Annual Meeting of
stockholders to be held on May 10, 1995.
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PART IV
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Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a)1) The following consolidated financial statements of Lydall, Inc.
and its subsidiaries are found in and are incorporated by reference to the
Annual Report to Stockholders for the year ended December 31, 1994:
<TABLE>
<CAPTION>
Annual
Report
Pages
------
<S> <C>
Consolidated Income Statements--Years ended December 31, 1994,
1993, and 1992 27
Consolidated Balance Sheets--December 31, 1994 and 1993 28 - 29
Consolidated Statements of Cash Flows--
Years ended December 31, 1994, 1993, and 1992 30
Consolidated Statements of Changes in Stockholders'
Equity--Years ended December 31, 1994, 1993, and 1992 31
Notes to Consolidated Financial Statements 32 - 41
Report of Independent Accountants 42
</TABLE>
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a)2) Financial Statement Schedule:
<TABLE>
<CAPTION>
10-K
Pages
-----
<S> <C>
Report and Consent of Independent Accountants 19
Schedule II--Valuation and Qualifying Accounts--
Years ended December 31, 1994, 1993, and 1992. 20
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable, or are presented in
the notes to financial statements, and therefore have been omitted.
With the exception of the consolidated financial statements and the
accountants' report thereon listed in the above index, the information referred
to in Items 2, 5, 6 and 7 and the supplementary quarterly financial information
referred to in Item 8, all of which is included in the 1994 Annual Report to
Stockholders of the Company and incorporated by reference into this Form 10-K
Annual Report, the 1994 Annual Report to Stockholders is not to be deemed
"filed" as part of this report.
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a)3) Exhibits included herein:
3.1 Amended and Restated Certificate of Incorporation of the registrant dated
May 12, 1993, (filed as Exhibit 3.1 to the registrants Annual Report on
Form 10-K dated March 28, 1994 and incorporated herein by this
reference).
3.2 Bylaws of the registrant (filed as Exhibit 3.2 to the registrant's
Registration Statement on Form 8-B dated October 16, 1987, and
incorporated herein by this reference).
4.1 Certain long-term debt instruments, each representing indebtedness in an
amount equal to less than 10 percent of the registrant's total
consolidated assets, have not been filed as exhibits to this Annual
Report on Form 10-K. The registrant hereby undertakes to file these
instruments with the Commission upon request.
10.1* Lydall, Inc. 1978 Long-Term Incentive Compensation Plan (filed as Exhibit
4.4 to the registrant's Registration Statement on Form S-8 dated March
18, 1988 (Reg. No. 33-20777), and incorporated herein by this reference).
10.2* Amended and restated, Lydall, Inc. 1982 Stock Incentive Compensation
Plan, amended through May 14, 1991 (filed as Exhibit 10.6 to the
registrant's Annual Report on Form 10-K dated March 26, 1992 and
incorporated herein by this reference).
10.3* Amended and restated, 1992 Stock Incentive Compensation Plan, dated May
14, 1992, amended through May 11, 1994, filed herewith.
10.4* Lydall, Inc. Senior Management Annual Incentive Compensation Plan (filed
as Exhibit 3.5 to the registrant's Registration Statement on Form 8-B
dated October 16, 1987, and incorporated herein by this reference).
10.5* Lydall, Inc. Management Annual Incentive Compensation Plan (filed as
Exhibit 3.6 to the registrant's Registration Statement on Form 8-B dated
October 16, 1987, and incorporated herein by this reference).
10.6* Employment Agreement with Leonard R. Jaskol dated March 1, 1995, filed
herewith.
10.7* Employment Agreement with John E. Hanley dated November 5, 1990 (filed as
Exhibit 10.10 to the registrant's Annual Report on Form 10-K dated March
26, 1991 and incorporated herein by this reference).
10.8* Employment Agreement with James P. Carolan dated November 5, 1990 (filed
as Exhibit 10.12 to the registrant's Annual Report on Form 10-K dated
March 26, 1991 and incorporated herein by this reference).
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10.9* Employment Agreement with Elliott F. Whitely dated November 5, 1990
(filed as Exhibit 10.13 to the registrant's Annual Report on Form 10-K
dated March 26, 1991 and incorporated herein by this reference).
10.10* Employment Agreement with Alan J. Gnann dated November 5, 1990 (filed
as Exhibit 10.14 to the registrant's Annual Report on Form 10-K dated
March 26, 1991 and incorporated herein by this reference).
10.11* Employment Agreement with Raymond J. Lanzi dated November 5, 1990
(filed as Exhibit 10.15 to the registrant's Annual Report on Form 10-K
dated March 26, 1991 and incorporated herein by this reference).
10.12* Employment Agreement with Christopher R. Skomorowski dated February 6,
1992, filed as Exhibit 10.16 to the registrant's Annual Report on Form
10-K dated March 26, 1992 and incorporated herein by reference).
10.13* Lydall, Inc. Board of Directors Deferred Compensation Plan effective
January 1, 1991, (filed as Exhibit 10.17 to the registrant's Annual
Report on Form 10-K dated March 26, 1991 and incorporated herein by
this reference).
10.14 Asset Purchase Agreement between Lydall Central, Inc. and Standard
Packaging, Inc. (filed as Exhibit 2.1 to the registrant's Current
Report on Form 8-K dated February 28, 1994 and incorporated herein by
this reference).
10.15 Asset Purchase Agreement between Lydall Eastern, Inc. and Riverwood
International Georgia, Inc. (filed as Exhibit 10.1 to the registrant's
Quarterly Report on Form 10-Q dated August 10, 1994 and incorporated
herein by this reference).
11.1 Schedule of Computation of Weighted Average Common Shares and
Equivalents Outstanding, filed herewith.
13.1 Annual Report to Stockholders for the year ended December 31, 1994,
filed herewith.
21.1 List of subsidiaries of the registrant, filed herewith.
23.1 Consent of Independent Public Accountants, filed herewith.
24.1 Power of Attorney, dated March 20, 1995, authorizing Leonard R. Jaskol
and/or John E. Hanley to sign this report on behalf of each member of
the Board of Directors indicated therein, filed herewith.
27.1 Financial Data Schedule, filed herewith.
*Management contract or compensatory plan.
b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter, 1994.
17
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Lydall, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LYDALL, INC.
Date March 20, 1995 By Leonard R. Jaskol
------------------------- -------------------------
March 20, 1995 Leonard R. Jaskol
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of Lydall, Inc. in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Leonard R. Jaskol Chairman, Chief March 20, 1995
- ---------------------- --------------
Leonard R. Jaskol Executive Officer and March 20, 1995
Director
John E. Hanley Vice President-Finance March 20, 1995
- ---------------------- --------------
John E. Hanley and Treasurer (Principal March 20, 1995
Financial and Accounting Officer)
John E. Hanley March 20, 1995
- ---------------------- --------------
John E. Hanley March 20, 1995
Attorney-in-fact for:
Lee A. Asseo Director
Paul S. Buddenhagen Director
James P. Carolan Director
Samuel P. Cooley Director (constituting in excess of
W. Leslie Duffy Director a majority of the full Board
William P. Lyons Director of Directors)
Joel Schiavone Director
Christopher R. Skomorowski Director
Roger M. Widmann Director
Albert E. Wolf Director
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders of
Lydall, Inc.:
Our report on the consolidated financial statements of Lydall, Inc. and
Subsidiaries has been incorporated by reference in this Form 10-K from page 42
of the 1994 Annual Report to Stockholders of Lydall, Inc. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on page 15 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 10, 1995
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration statement of
Lydall, Inc. on Form S-8 (File No. 33-68776) of our reports dated February 10,
1995, on our audits of the consolidated financial statements and financial
statement schedule of Lydall, Inc. and Subsidiaries as of December 31, 1994 and
1993, and for the years ended December 31, 1994, 1993, and 1992, which reports
are incorporated by reference from the Annual Report to Stockholders, and
included, respectively, in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
March 27, 1995
19
<PAGE>
Schedule II
LYDALL, INC. AND SUBSIDIARIES
-----------------------------
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
-----------------------------------------------------
<TABLE>
<CAPTION>
$ thousands
Additions
-----------------------
Charged To
Charged To Other
Balance At Costs and Accounts - Deductions - Balance At
Description January 1 Expenses Describe Describe December 31
----------- ---------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1994
- ----
Allowance for doubtful
receivables $1,126 $1,345 $ - $(747)(1) $1,724
Accumulated amortization
of intangible assets 6,733 921 - (130)(3) 7,524
Accrued reorganization 95 72 - (10)(2) 157
Accrued environmental 954 - 90 (4) (42)(2) 1,002
Accumulated amortization
of goodwill 34 482 - - 516
<CAPTION>
1993
- ----
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
receivables $ 808 $ 340 $ - $ (22)(1) $1,126
Accumulated amortization
of intangible assets (5) 5,822 911 - - 6,733
Accrued reorganization 56 42 - (3)(2) 95
Accrued environmental 1,003 67 (59)(4) (57)(2) 954
Accumulated amortization
of goodwill (5) 21 13 - - 34
<CAPTION>
1992
- ----
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
receivables $ 884 $ 30 $ - $(106)(1) $ 808
Accumulated amortization
of intangible assets (5) 4,927 897 - (2)(4) 5,822
Accrued reorganization 42 60 - (46)(2) 56
Accrued environmental 1,063 298 (60)(4) (298)(2) 1,003
Accumulated amortization
of goodwill (5) 9 12 - - 21
</TABLE>
Notes (1): Uncollected receivables written off.
(2): Disbursements of amounts previously accrued.
(3): Write off of fully amortized asset.
(4): Record foreign currency translation adjustments.
(5): Prior year amounts have been adjusted to separately identify
goodwill amortization from other intangibles.
20
<PAGE>
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Page in
Exhibit Sequentially
Number Description of Document Numbered Copy
- ------ ----------------------- -------------
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of the registrant dated
May 12, 1993, (filed as Exhibit 3.1 to the registrants Annual Report on
Form 10-K dated March 28, 1994 and incorporated herein by this
reference).
3.2 Bylaws of the registrant (filed as Exhibit 3.2 to the registrant's
Registration Statement on Form 8-B dated October 16, 1987, and
incorporated herein by this reference).
4.1 Certain long-term debt instruments, each representing indebtedness in an
amount equal to less than 10 percent of the registrant's total
consolidated assets, have not been filed as exhibits to this Annual
Report on Form 10-K. The registrant hereby undertakes to file these
instruments with the Commission upon request.
10.1 Lydall, Inc. 1978 Long-Term Incentive Compensation Plan (filed as Exhibit
4.4 to the registrant's Registration Statement on Form S-8 dated March
18, 1988 (Reg. No. 2-77176), and incorporated herein by this reference).
10.2 Amended and restated, Lydall, Inc. 1982 Stock Incentive Compensation
Plan, (filed as Exhibit 10.6 to the registrant's Annual Report on Form
10-K dated March 26, 1992) amended through May 14, 1991, by this
reference.
10.3 Amended and restated 1992 Stock Incentive Compensation Plan, dated May
14, 1992, amended through May 11, 1994, filed herewith.
10.4 Lydall, Inc. Senior Management Annual Incentive Compensation Plan (filed
as Exhibit 3.5 to the registrant's Registration Statement on Form 8-B
dated October 16, 1987, and incorporated herein by this reference).
10.5 Lydall, Inc. Management Annual Incentive Compensation Plan (filed as
Exhibit 3.6 to the registrant's Registration Statement on Form 8-B dated
October 16, 1987, and incorporated herein by this reference).
</TABLE>
21
<PAGE>
INDEX TO EXHIBITS--continued
-----------------
<TABLE>
<CAPTION>
Page in
Exhibit Sequentially
Number Description of Document Numbered Copy
- ------ ----------------------- -------------
<S> <C> <C>
10.6 Employment Agreement with Leonard R. Jaskol dated March 1, 1995, filed
herewith.
10.7 Employment Agreement with John E. Hanley dated November 5, 1990 (filed as
Exhibit 10.10 to the registrant's Annual Report on Form 10-K dated March
26, 1991 and incorporated herein by this reference).
10.8 Employment Agreement with James P. Carolan dated November 5, 1990 (filed
as Exhibit 10.12 to the registrant's Annual Report on Form 10-K dated
March 26, 1991 and incorporated herein by this reference).
10.9 Employment Agreement with Elliott F. Whitely dated November 5, 1990
(filed as Exhibit 10.13 to the registrant's Annual Report on Form 10-K
dated March 26, 1991 and incorporated herein by this reference).
10.10 Employment Agreement with Alan J. Gnann dated November 5, 1990 (filed as
Exhibit 10.14 to the registrant's Annual Report on Form 10-K dated March
26, 1991 and incorporated herein by this reference).
10.11 Employment Agreement with Raymond J. Lanzi dated November 5, 1990 (filed
as Exhibit 10.15 to the registrant's Annual Report on Form 10-K dated
March 26, 1991 and incorporated herein by this reference).
10.12 Employment Agreement with Christopher R. Skomorowski dated February 6,
1992, (filed as Exhibit 10.16 to the registrant's Annual Report on Form
10-K dated March 26, 1992 and incorporated herein by this reference).
10.13 Lydall, Inc. Board of Directors Deferred Compensation Plan effective
January 1, 1991, (filed as Exhibit 10.17 to the registrant's Annual
Report on Form 10-K dated March 26, 1991 and incorporated herein by this
reference).
10.14 Asset Purchase Agreement between Lydall Central, Inc. and Standard
Packaging, Inc. (filed as Exhibit 2.1 to the registrant's Current Report
on Form 8-K dated February 28, 1994 and incorporated herein by this
reference).
</TABLE>
22
<PAGE>
INDEX TO EXHIBITS (Continued)
-----------------------------
<TABLE>
<CAPTION>
Page in
Exhibit Sequentially
Number Description of Document Numbered Copy
- ------- ----------------------- -------------
<S> <C> <C>
10.15 Asset Purchase Agreement between Lydall Eastern, Inc. and Riverwood
International Georgia, Inc. (filed as Exhibit 10.1 to the registrant's
Quarterly Report on Form 10-Q dated August 10, 1994 and incorporated
herein by this reference).
11.1 Schedule of Computation of Weighted Average Common Shares and Equivalents
Outstanding, filed herewith.
13.1 Annual Report to Stockholders for the year ended December 31, 1994, filed
herewith.
21.1 List of subsidiaries of the registrant, filed herewith.
23.1 Consent of Independent Public Accountants, filed herewith.
24.1 Power of Attorney, dated March 20, 1995, authorizing Leonard R. Jaskol
and/or John E. Hanley to sign this report on behalf of each member of the
Board of Directors indicated therein, filed herewith.
27.1 Financial Data Schedule, filed herewith.
</TABLE>
23
<PAGE>
1992 STOCK INCENTIVE COMPENSATION PLAN
1. Purpose
-------
The purpose of the Plan is to further the growth and prosperity of the
Company and its Subsidiaries through payment of incentive compensation in
the form of Common Stock to officers, key employees and directors and by
encouraging investment in the Company's Common Stock by officers, key
employees and directors who are in a position to contribute materially to
the Company's prosperity.
2. Definitions
-----------
Unless the context clearly indicates otherwise, the following terms, when
used in this Plan, shall have the meanings set forth in this Section 2.
"Award Period" means for each Restricted Stock Award, the period beginning
------------
with the date on which such Award is granted and ending on a date specified
by the Committee at the time of the granting of such Award. In no event
shall the Award Period be greater than ten (10) years.
"Board of Directors" or "Board" means the Board of Directors of the
------------------ -----
Company.
"Change in Control of the Company" means (i) an acquisition of the Company
--------------------------------
by means of a merger or consolidation or purchase of substantially all of
its assets if and when incident thereto (a) the composition of the Board of
Directors or its successor changes so that a majority of the Board is not
comprised of individuals who were members of the Board immediately prior to
such merger, consolidation or purchase of assets or (b) the stockholders of
the Company acquire a right to receive, in exchange for or upon surrender
of their stock, cash or other securities or a combination of the two, or
(ii) the acquisition by a Person (as that term is hereafter defined) of the
voting rights with respect to 25% or more of the outstanding Common Stock
of the Company if such person was not an officer or director of the Company
on May 13, 1992.
"Code" means the Internal Revenue Code of 1986, as amended, and any
----
successor Code, and related rules, regulations and interpretations.
"Committee" means the committee of the Board of Directors that has been
---------
designated to administer the Plan, which shall consist of not less than two
members of the Board of Directors as so designated and appointed from time
to time by the Board. To be eligible to serve as a
<PAGE>
member of the committee, a director must qualify as a "disinterested
person," as that term is defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended, and any successor to such
rule.
"Common Stock" means the common stock of the Company with the par value set
------------
forth in the Certificate of Incorporation.
"Company" means Lydall, Inc.
-------
"Fair Market Value" means the closing sale price per share on the New York
-----------------
Stock Exchange (or on whatever national exchange the shares of the common
stock of the Company are traded) on the day before the award date or on the
day before the exercise date, as appropriate. If no trade occurred on the
Exchange on the day before the award date or on the day before the exercise
date, the closing sale price per share on the most recent date on which
sales were reported will be substituted for the closing sale price on that
day.
"Incentive Award" means an Option, a Restricted Stock Award, a Stock Bonus
---------------
Award, or a combination of them.
"Incentive Stock Option" means an Option which meets the requirements of
----------------------
Section 422A of the Code.
"Nonqualified Option" means an Option not qualifying for Incentive Stock
-------------------
Option treatment under the Code.
"Option" means a Nonqualified Option or Incentive Stock Option. "Person" -
------ ------
for purposes of the definition of "Change in Control of the Company," a
"person" means an individual, corporation, trust or other legal or
commercial entity and includes two or more persons acting as a partnership,
limited partnership, syndicate, or other group for the purpose of
acquiring, holding, or disposing of securities of the Company.
"Plan" means the Lydall, Inc. 1992 Stock Incentive Compensation Plan.
----
"Restricted Stock Award" means the right to receive a specified
----------------------
number of shares of Common Stock in annual installments over a designated
Award Period.
<PAGE>
"Stock Bonus Award" means an award of shares of Common Stock to an employee
-----------------
in recognition of his or her superior performance.
"Subsidiary" or "Subsidiaries" means a corporation or other form of
---------- ------------
business entity, more than 50% of the voting interest of which is owned or
controlled, directly or indirectly, by the Company.
3. Shares of Common Stock Subject to the Plan
------------------------------------------
(a) Subject to the provisions of paragraph (c) of this Section 3 and
Section 10, the total number of shares of Common Stock which may be
issued or transferred under this Plan: 1) upon exercise of Options; 2)
when an employee becomes entitled to receive shares of stock pursuant
to a Stock Bonus Award; and 3) under the terms of a Restricted Stock
Award, shall not exceed 790,000 shares.
(b) Shares to be transferred to employees will be made available, at the
discretion of the Board of Directors, either from authorized but
unissued shares of Common Stock, or from shares of Common Stock held
by the Company as treasury shares, including shares purchased in the
open market.
(c) If any share of Common Stock transferable under an Incentive Award is
not transferred and ceases to be issuable or transferable because of
the lapse, in whole or in part, of such Incentive Award, or, subject
to the provisions of paragraph (b) of Section 7, and paragraphs (c)
and (d) of Section 8, or for any other reason, the shares not so
issued or transferred shall no longer be charged against the
limitation provided for in paragraph (a) of this Section 3 and may
again be used for Incentive Awards.
4. Administration of the Plan
--------------------------
The Plan shall be administered by the Committee. The Committee shall have
authority, in its discretion and after receiving the recommendations of the
Chairman of the Company, to determine the employees to whom, and the time
or times at which Incentive Awards will be granted and the number of shares
to be subject to each Incentive Award. In making such determinations, the
nature of the services rendered by the respective employees, their present
and potential contributions to the Company's success and such other factors
deemed to be
<PAGE>
relevant will be taken into account. Subject to the express provisions of
the Plan, the Committee shall also have authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, to
determine the terms and provisions of the respective Incentive Award
Agreements (which need not be identical) including the determination of
whether Options granted will be designated as Incentive Stock Options and
to make all other determinations necessary or advisable for the
administration of the Plan. The Committee will hold its meetings at such
times and places as it may determine. A majority of its members will
constitute a quorum, and all determinations of the Committee shall be made
by a majority of its members.
5. Participation
-------------
(a) Except as set forth in Section 6 hereof, Incentive Awards may be
granted only to salaried officers and other key employees of the
Company and its Subsidiaries.
(b) From time to time the Chairman of the Company will determine and
recommend to the Committee those officers and key employees of the
Company and of its Subsidiaries who should be granted Incentive
Awards, the type of Incentive Awards to be granted, and the number of
shares subject to each Incentive Award. The Committee shall approve
or disapprove such recommendations.
(c) Incentive Awards may be granted in the following forms:
(i) a Restricted Stock Award, in accordance with Section
7,
(ii) an Option, in accordance with Section 8, which may be
designated as an Incentive Stock Option as that term is
defined in Section 422A of the Code,
(iii) a Stock Bonus Award, in accordance with Section 9,
(iv) a combination of the foregoing.
6. Automatic Awards to Directors
-----------------------------
(a) Subject to the limits set forth in Section 3(a) hereof, each director
of the Company is hereby granted a Nonqualified Option, where the
director is serving in such position, on each of the following dates:
May 7, 1993, May 7, 1996, May 7, 1999 and May 7, 2002.
<PAGE>
The Option will cover the lesser of (i) 3,000 shares (appropriately
adjusted pursuant to Section 10 hereof) of Common Stock, (ii) a number
of shares of Common Stock having an aggregate Fair Market Value on the
date of grant equal to $100,000, or (iii) the number of shares then
available under the applicable limits imposed by Section 3(a) hereof.
Except to the extent specified in this Section, the terms and
conditions of each such Nonqualified Option shall be specified in
Section 8 below.
(b) Each person who is first elected a director of the Company after May
13, 1992, shall be granted automatically upon such election a
Nonqualified Option covering the lesser of (i) 3,000 shares
(appropriately adjusted pursuant to Section 10 hereof) of Common
Stock, (ii) a number of shares of Common Stock having an aggregate
Fair Market Value on the date of grant equal to $100,000, or (iii) the
number of shares then available under the applicable limits imposed by
Section 3(a) hereof.
(c) If, on account of the limit set forth in Section 3(a) hereof, a
director receives no Option or an Option covering fewer shares than he
or she would have received under paragraphs (a) and (b) of this
Section 6 and additional shares later become available under that
limit while he or she remains a director of the Company and during the
term of this Plan, then with respect to each such instance, such
director shall be granted automatically upon such availability a
Nonqualified Option covering a number of shares equal to the lesser of
(i) 3,000 shares (appropriately adjusted pursuant to Section 10
hereof) of Common Stock, less the number of shares (as adjusted) for
which one or more Options were previously granted to him or her under
paragraphs (a) and (b), (ii) a number of shares of Common Stock having
an aggregate Fair Market Value on the date of grant equal to $100,000
less the Fair Market Value of the shares for which one or more Options
were previously granted to him or her under paragraphs (a) and (b), or
(iii) the number of shares then available under Section 3(a). For
purposes of the preceding sentence, priority among directors for
additional Options as shares become available shall be determined on
the basis of the order of their election as such. If the limit set
forth in Section 3(a) affects two or more directors elected as such on
the same date, the total
<PAGE>
number of shares which are then available or which later became
available for Options shall be allocated equally among such directors
entitled to receive additional Options until each such director has
received Options for the number of shares he or she would have
received initially if said limit had not applied .
(d) The purchase price of each share of Common Stock under each Option
granted under this Section 6 shall be the Fair Market Value of a
share of Common Stock on the date the Option is granted, such date
being either the date of the award or the date of the director's
election as such, as appropriate .
(e) Each Option granted under this Section 6 shall be exercisable as
follows:
(i) (A) twenty-five percent (25%) of the shares subject to such
Option may be purchased commencing one year after the
date of grant, and
(B) an additional twenty-five percent (25%) of such shares
may be purchased commencing on each of the second,
third and fourth anniversaries of the date of grant;
and
(ii) subject to clause (i) above, such Option may only be exercised
during the ten-year period beginning on the date the Option
is granted.
(f) Except as specifically provided for and pursuant to the terms of this
Section 6, with respect to the automatic grant of Nonqualified
Options, any director who is not a full-time salaried employee of the
Company shall not be eligible to receive any Incentive Award or other
grant under the Plan. Any director who is a full-time, salaried
employee of the Company shall be eligible at the discretion of the
Committee to receive additional Incentive Awards, but shall be
prohibited from serving as a member of the Committee.
7. Restricted Stock Awards
-----------------------
An Incentive Award in the form of a Restricted Stock Award shall be subject
to the following provisions:
(a) The restricted stock agreement shall specify (i) the number of shares
of Common Stock to be transferred to the recipient over the Award
Period, and (ii) the times at which portions of those shares shall be
<PAGE>
transferred to the recipient. In no event may shares be transferred
before one year after the date of the Award, or later than ten years
from such date, excepting, however, that for persons who are not
officers of the Company, the Committee may waive any part of the one-
year period after the date of the Award during which the shares may
not be transferred.
(b) The Restricted Stock Award shall terminate if the holder, with or
without cause, shall cease to be an employee of the Company or any of
its Subsidiaries and any installments of shares of Common Stock which
have not yet become transferable to such holder shall be forfeited
upon cessation of employment; provided, however, in the event that an
employee's employment shall terminate as a result of death or
disability, the foregoing provision of this subparagraph (b) shall not
apply and all shares of stock subject to Restricted Stock Awards shall
immediately become vested.
(c) At the time an installment of shares of Common Stock is transferred to
the holder of a Restricted Stock Award, an additional payment shall be
made to such holder, either in cash or shares of Common Stock as the
Committee shall determine in its sole discretion, in an amount equal
to the cash dividends which would have been payable to the holder of
the Restricted Stock Award in respect to the shares transferred to the
holder at the time the Restricted Stock Award was granted.
(d) Each Restricted Stock Award shall be evidenced by a written instrument
containing terms and conditions determined by the Committee,
consistent with the terms of the Plan.
<PAGE>
8. Options
-------
An Incentive Award in the form of an Option shall be subject to the
following provisions:
(a) At the time of grant, the Option shall specify (i) the number of
shares of Common Stock which may be purchased by the recipient over
the term of the Option; (ii) the times at which portions of such
shares may be purchased by the recipient; and (iii) whether the
Option is an Incentive Stock Option. No Option shall be deemed to be
an Incentive Stock Option unless the Committee has so designated
such Option and the Option states that it is an Incentive Stock
Option.
(b) The purchase price of each share of Common Stock under each Option
will be at least 100 percent of the Fair Market Value of a share of
Common Stock at the time of grant.
(c) The Option must provide that it is not transferable and may be
exercised solely by the person to whom granted, except as provided
in paragraph (e) of this Section 8 in the event of such person's
death.
(d) Each Option granted to an employee will be subject to the condition
that it may be exercised only if the optionee remains in the employ
of the Company and/or a Subsidiary for at least one year after the
date of the granting of the Option. An Option may be exercised at
the times and in the amounts determined by the Committee. In no
event, however, shall an Option be exercisable after ten years from
the granting of the Option.
(e) An Option granted to an employee shall terminate if and when the
optionee shall cease to be an employee of the Company and its
Subsidiaries, except as follows:
(i) If an optionee who has been continuously employed by the
Company or any of its Subsidiaries for at least one year
from the date of grant of an Option dies (x) while
employed by the Company or a Subsidiary, or (y) during any
period after retirement or the termination of his/her
employment when the Option would otherwise be exercisable
under subparagraph (ii) below, the Option theretofore
granted to him/her may be exercised (x) by the beneficiary
designated pursuant to paragraph (g) of Section 11 or (y)
in the absence of such designation or if no such
beneficiary survives the optionee by a
<PAGE>
representative of such optionee's estate provided that such
Option may be exercised only within six months from the date
of death and within ten years from the date of grant of the
Option .
(ii) If an optionee retires or if his/her employment with the Company
or a Subsidiary is terminated for any reason (other than
death) subsequent to one year from the date of grant of any
Option, such Option may be exercised within three years (or
such lesser period as the Option Agreement shall specify)
from the date of such retirement or termination of
employment, but in no event after ten years from date of
grant of the Option; provided, however, that if such Option
is an Incentive Stock Option, it may be exercised only
within ninety (90) days (or such lesser period as the Option
Agreement shall specify) from the date of such retirement or
termination of employment, but in no event after ten years
from the date of grant of the Option.
(iii) Notwithstanding (i) and (ii) above, if an optionee is dismissed
for cause, of which the Committee shall be the sole judge,
his/her Option shall expire immediately upon termination.
(iv) The Committee may determine that, for the purpose of the Plan,
an employee who is on a leave of absence will be considered
as still in the employ of the Company, provided that an
Option shall be exercisable during a leave of absence only
as to the number of shares which were exercisable at the
commencement of such leave of absence.
(v) No Option may be exercised for more than the number of
shares for which the optionee might have exercised his/her
Option at the time he/she ceased for any reason to be an
employee of the Company or a Subsidiary .
<PAGE>
(f) A Nonqualified Option granted to a nonemployee director of the Company
shall terminate if and when the optionee shall cease to serve as a
director of the Company, except as follows:
(i) If the optionee who has continuously served as a director
of the Company for at least one year from the date of grant
of a Nonqualified Option dies (x) while serving as a
director of the Company, or (y) during any period after
having ceased to be a director when the Nonqualified Option
would otherwise be exercisable under subparagraph (ii)
below, the Nonqualified Option theretofore granted to
him/her may be exercised by a representative of his/her
estate, provided that such Nonqualified Option may be
exercised only within six months after the date of death
and prior to the expiration date specified in such
Nonqualified Option.
(ii) If the optionee ceases for any reason (other than death) to be
a director of the Company subsequent to one year from the
date of grant, such Nonqualified Option may be exercised
within three months from the date of such cessation and
prior to the expiration date specified in such Option
Agreement.
(iii) No Option may be exercised for more than the number of shares
for which the optionee might have exercised his/her
Option at the time he/she ceased for any reason to be a
director of the Company.
<PAGE>
(g) A person electing to exercise an Option will give written notice to
the Company of such election and of the number of shares he/she has
elected to purchase and the date on which he/she wishes to exercise
the Option. Any person exercising an Option may tender the full
purchase price in cash of the shares he/she has elected to purchase
on the date specified by him/her for completion of such purchase. If
authorized by the Committee, in its discretion, at or after the time
of grant, payment in full or in part may also be made by an employee
of the Company in the form of shares of Common Stock not then subject
to restriction under any Company plan (but which may include shares
the disposition of which constitutes a disqualifying disposition for
purposes of obtaining incentive stock option treatment for federal
tax purposes); provided, however, that shares of Common Stock may not
be used to pay any of the purchase price of an Option unless such
shares have been owned by the employee for at lease six months, or
such longer period as the Committee shall determine, prior to being
surrendered as payment in full or in part of the purchase price of an
Option. Such surrendered shares shall be valued at "Fair Market
Value."
(h) The Option agreements or Option grants authorized by the Plan may
contain such other provisions, consistent with the terms of the Plan,
as the Committee shall consider advisable.
<PAGE>
(i) Incentive Stock Options may not be issued to any person who at the
time of grant owns stock possessing more than 10 percent of the
total combined voting power of all classes of stock of the Company
or any of its Subsidiaries.
(j) The aggregate Fair Market Value (determined at the time an option is
granted) of stock of the Company (including Common Stock) granted an
employee to which Incentive Stock Options are exercisable for the
first time by such employee during any calendar year (under all
incentive stock option plans of the Company or its Subsidiaries)
shall not exceed $100,000.
9. Stock Bonus Awards
------------------
A Stock Bonus Award may be granted to any employee of the Company or its
Subsidiaries whom the Committee determines, upon recommendation of the
Chairman of the Company, should be rewarded for exemplary performance,
subject to the following provisions:
(a) The Committee shall determine, in its discretion, the number
of shares of stock to be granted pursuant to a Stock Bonus Award and
the time at which an Award shall be made.
(b) A Stock Bonus Award shall be evidenced by the delivery to the employee
of a stock certificate representing the shares awarded.
(c) Shares of Common Stock transferred pursuant to a Stock Bonus Award
shall be subject only to such conditions as are directed by the Board
of Directors in accordance with Section 11(a) hereof.
<PAGE>
10. Adjustment Provisions
---------------------
Except as otherwise provided herein, the following provisions shall apply
to all Common Stock authorized for issuance, and optioned, granted or
awarded under the Plan:
(a) Stock Dividends, Splits, Etc. In the event of a stock dividend,
stock split, or other subdivision or combination of the Common
Stock, the number of shares of Common Stock authorized under the
Plan will be adjusted proportionately. Similarly, in any such event
there will be a proportionate adjustment in the number of shares of
Common Stock subject to unexercised Options (but without adjustment
to the aggregate option price) and in the number of shares of Common
Stock then subject to Restricted Stock Awards.
(b) Divisive Reorganization, Merger, Exchange or other Reorganization.
In the event that the outstanding shares of Common Stock are
changed or converted into, exchanged or exchangeable for, a
different number or kind of shares or other securities of the
Company or of another corporation, by reason of a reorganization,
merger, consolidation, reclassification or combination, or in the
event that the Company engages in a divisive reorganization, such
as a spin-off of any significant portion of its business, the total
number of shares of Common Stock which may be issued under the Plan
shall be appropriately adjusted and appropriate adjustment shall be
made by the Committee in the number of shares, kind of Common Stock
and/or the Option price for which Incentive Awards may be or may
have been awarded under the Plan, to the end that the
proportionate interests of participants and inherent values of
outstanding Incentive Awards shall be maintained as before the
occurrence of such event.
(c) Adjustments under this Section 10 shall be made by the Board of
Directors, whose determination as to what adjustments shall be made,
and the extent thereof, shall be final, binding and conclusive. No
fractional shares of Common Stock shall be issued under the Plan on
account of any such adjustments.
(d) Change in control of the Company. If, and at such time as, a "change
in control of the Company" (as defined in Section 2) shall have
occurred, any and all provisions of any and all outstanding
Incentive Awards which condition the right to exercise such
<PAGE>
Incentive Awards upon the holder of any such Incentive Award having
been an employee of the Company or any of its Subsidiaries or a
director of the Company for a period of time shall be deemed to have
been rescinded, so that such holder, upon the occurrence of such
change in control, shall have the right to exercise such Incentive
Award in full, (including, in the case of Restricted Stock Awards, the
right to be issued the stock awarded and any dividend accrued
thereon), irrespective of whether such holder has been an employee or
director for the period of time specified in the Incentive Award;
provided, however, if any such recision would cause the maximum period
during which an Option may be exercised or a Restricted Stock Award
transferred to exceed nine years, such recision shall not occur with
respect to such Option or Restricted Stock Award unless and until such
Option or Restricted Stock Award is amended, with the consent of the
holder, to reduce such maximum period to nine years or less.
11. General Provisions
------------------
(a) With respect to any shares of Common Stock issued or transferred under
the provisions of this Plan, such shares may be issued or transferred
subject to such conditions, in addition to those specifically provided
in the Plan, as the Board of Directors or Committee may direct.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
will confer upon any employee any right to continue in the employ of
the Company or a Subsidiary or will affect the right of the Company or
of a Subsidiary to terminate the employment of any employee with or
without cause. Nothing in the Plan or in any instrument executed
pursuant thereto will confer upon any director of the Company any
right to continue in such capacity or will affect the right of
shareholders to remove or not reelect such person as a director of the
Company with or without cause.
(c) No shares of Common Stock will be issued or transferred pursuant to an
Incentive Award unless and until all legal requirements applicable to
the issuance or transfer of such shares have, in the opinion of
counsel to the Company, been complied with. In connection with any
such issuance or transfer, the person acquiring the shares will, if
<PAGE>
requested by the Company, give written assurances satisfactory to
counsel to the Company that the shares are being acquired for
investment and not with a view to resale or distribution thereof and
assurances in respect of such other matters as the Company or a
Subsidiary may consider desirable to assure compliance with all
applicable legal requirements.
(d) No employee (individually or as a member of a group), and no
beneficiary or other person claiming under or through him/her, will
have any right, title or interest in any shares of Common Stock
allocated or reserved for the purposes of the Plan or subject to any
Incentive Award except as to such shares of Common Stock, if any, as
shall have been issued or transferred to him/her and except as
otherwise provided in Section 12(a).
(e) In the case of any employee of a Subsidiary, the Committee
may direct the Company to issue the shares covered by the Incentive
Award to the Subsidiary for such lawful consideration as the Committee
may specify upon the condition that the Subsidiary will transfer the
shares to the employee in accordance with the terms of the Incentive
Award. Notwithstanding any other provision of this Plan, an Incentive
Award, excluding an Incentive Stock Option, may be issued by and in
the name of the Subsidiary and shall be considered granted on the date
it is approved by the Committee, on the date it is delivered by the
Subsidiary, or on such other date between such two dates as the
Committee will specify. For options which are intended to qualify as
Incentive Stock Options, the date of grant shall be determined in
accordance with the applicable regulations under the Code.
(f) The Company or a Subsidiary may make such provisions as it
may consider appropriate for the withholding of any taxes which the
Company or Subsidiary determines it is required to withhold in
connection with any Incentive Award.
(g) No Incentive Award and no rights under the Plan, contingent
or otherwise, shall be assignable, transferable or subject to any
encumbrance, pledge or charge of any nature, provided that, under such
rules and regulations as the
<PAGE>
Committee may establish pursuant to the terms of the Plan, a
beneficiary may be designated in respect of an Incentive Award in the
event of the death of the holder of such Incentive Award and provided,
also, that if such beneficiary shall be the executor or administrator
of the estate of the holder of such Incentive Award, any rights in
respect of such Incentive Award may be transferred to the person or
persons or entity (including a trust) entitled thereto under the will
of the holder of such Incentive Award or, in case of intestacy, under
the laws relating to intestacy.
(h) Nothing in the Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other
plan, practice or arrangement for the payment of directors' fees or
compensation or fringe benefits to employees generally, or to any
class or group of employees, which the Company or any Subsidiary now
has or may hereafter lawfully put into effect, including, with
limitation, any retirement, pension, insurance, stock purchase,
incentive compensation or bonus plan.
(i) Except as the Delaware Corporation law otherwise may require, the
place of administration of the Plan will conclusively be deemed to be
within the State of Connecticut and the validity, construction,
interpretation and administration of the Plan and of any rules and
regulations or determinations or decisions made thereunder, will be
governed by, and determined exclusively and solely in accordance with,
the laws of the State of Connecticut. Without limiting the generality
of the foregoing, the period within which any action arising under or
in connection with the Plan, or any payment or Award made or
purportedly made under or in connection therewith, must be commenced
and will be governed by the laws of the State of Connecticut,
irrespective of the place where the act or omission complained of took
place and of the residence of any party to such action and
irrespective of the place where the action may be brought.
12. Amendment, Suspension and Termination of Plan
---------------------------------------------
(a) The Board of Directors may at any time terminate, suspend or amend the
Plan, provided, however, that no such amendment will, without approval
of the shareholders of the Company, except as provided in Section 10
hereof, (i) materially increase the aggregate
<PAGE>
number of shares which may be issued in connection with Incentive
Awards; (ii) change the minimum Option exercise price; (iii) increase
the maximum period during which Options may be exercised, or
Restricted Stock Awards transferred; (iv) extend the effective period
of this Plan; or (v) materially modify the requirements as to
eligibility for participation in the Plan. No such amendment will
permit the granting of Incentive Awards to members of the Committee.
(b) The Committee may, with the consent of the person by whom a Restricted
Stock Award or an Option is held, modify or change the terms of any
Option or Restricted Stock Award in a manner which does not conflict
with the provisions of the Plan.
13. Effective Date and Duration of Plan
-----------------------------------
This Plan becomes effective upon its approval by the stockholders of the
Company on May 13, 1992. Any amendment to this Plan will become effective
upon approval by Directors, unless stockholder approval is deemed
necessary, in which case such amendment shall become effective upon
approval by stockholders. Unless previously terminated by the Board of
Directors, this Plan shall terminate at the close of business on May 12,
2002, and no Restricted Stock Award or Option may be granted under it
thereafter, but such termination shall not affect any Incentive Award
theretofore granted.
As Amended May 11, 1994.
<PAGE>
AGREEMENT
---------
THIS AGREEMENT MADE THIS FIRST DAY OF MARCH, 1995 BY AND BETWEEN LYDALL,
----- -----
INC. (THE "COMPANY") AND LEONARD R. JASKOL (THE "EXECUTIVE").
W I T N E S S E T H :
RECITALS.
- ---------
EXECUTIVE IS EMPLOYED BY THE COMPANY AS ITS CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER. THE COMPANY AND EXECUTIVE HAVE AGREED THAT IF EXECUTIVE
SHOULD CEASE TO BE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE
COMPANY UNDER THE CIRCUMSTANCES SET FORTH IN THIS AGREEMENT HIS EMPLOYMENT WILL
BE CONTINUED IN ANOTHER CAPACITY FOR A SPECIFIED PERIOD;
NOW, THEREFORE, THE COMPANY AND EXECUTIVE, IN CONSIDERATION OF THE MUTUAL
PROMISES SET FORTH BELOW, AGREE AS FOLLOWS:
Executive to Serve as Chairman, President and Chief Executive Officer.
----------------------------------------------------------------------
The Executive shall continue to act as Chairman, President and Chief Executive
Officer of the Company, subject to the direction of its Board of Directors.
Definitions. The phrase "Change of Control," as used in this
------------
Agreement, shall mean i) an acquisition of the Company by means of a merger or
consolidation or purchase of substantially all of its assets if and when
incident thereto (a) the composition of the Board of Directors of the Company
(the "Board") or its successor changes so that a majority of the Board
<PAGE>
is not comprised of individuals who were members of the board immediately
prior to such merger, consolidation or purchase of assets or (b) the
stockholders of the Company acquire a right to receive, in exchange for or upon
surrender a majority of their stock, cash or other securities or a combination
of the two; and/or ii) the acquisition by a person (as that term is hereafter
defined) of the voting rights with respect to 25 percent or more of the
outstanding Common Stock of the Company if such person was not an officer of
director of the Company on the date of this Agreement; and/or iii) the election
or appointment to the Board of any director or directors whose appointment or
election or nomination for election was not approved by a vote of at least a
majority of the directors then still in office who were either directors on the
date hereof or whose election, appointment or nomination for election was
previously so approved.
THE WORD "PERSON," AS USED IN THE PRECEDING SENTENCE, SHALL MEAN AN
INDIVIDUAL, CORPORATION, TRUST, OR OTHER LEGAL OR COMMERCIAL ENTITY AND INCLUDE
TWO OR MORE PERSONS ACTING AS A PARTNERSHIP, LIMITED PARTNERSHIP, SYNDICATE OR
OTHER GROUP FOR THE PURPOSE OF ACQUIRING, HOLDING OR DISPOSING OF SECURITIES OF
THE COMPANY.
THE WORD "CAUSE", AS USED IN THIS AGREEMENT, SHALL MEAN (I) CONVICTION OF A
CRIME INVOLVING MORAL TURPITUDE, OR (II) MATERIAL AND UNEXCUSED BREACH BY
EXECUTIVE OF HIS OBLIGATIONS UNDER THIS AGREEMENT, WHICH RESULTS IN MATERIAL
HARM TO THE COMPANY AND WHICH IS NOT CURED WITHIN THE PERIOD SET FORTH BELOW;
<PAGE>
PROVIDED, HOWEVER, THAT A TERMINATION SHALL NOT BE FOR "CAUSE" HEREUNDER UNLESS,
- ------------------
SUCH CONVICTION OR BREACH IS DETAILED IN A WRITTEN NOTICE OF INTENT TO TERMINATE
BY THE BOARD, PROVIDING FOR SIXTY (60) DAYS FROM RECEIPT BY EXECUTIVE TO CURE
THE BREACH PRIOR TO TERMINATION OF EXECUTIVE; EXCEPT THAT SUCH NOTICE WOULD NOT
BE REQUIRED IF, IN THE BOARD'S DISCRETION, THE COMPANY WOULD BE IMMEDIATELY
HARMED.
THE PHRASE "FRINGE BENEFITS," AS USED IN THIS AGREEMENT, SHALL MEAN THE
BENEFITS LISTED ON Exhibit A HERETO.
TERMINATION AFTER CHANGE OF CONTROL. IF A CHANGE OF CONTROL OCCURS
-----------------------------------
AFTER THE DATE OF THIS AGREEMENT AND SUBSEQUENT TO SUCH CHANGE OF CONTROL (A)
EXECUTIVE SHALL RESIGN AS CHIEF EXECUTIVE OFFICER OF THE COMPANY WITHIN ONE YEAR
FROM THE TIME SUCH CHANGE OF CONTROL OCCURS OR (B) ANOTHER SHALL BE APPOINTED OR
ELECTED CHAIRMAN, PRESIDENT OR CHIEF EXECUTIVE OFFICER BY THE BOARD IN PLACE OF
EXECUTIVE AT ANY TIME PRIOR TO APRIL 1, 2002, EXECUTIVE'S NORMAL RETIREMENT DATE
(SUCH RESIGNATION OR REPLACEMENT OF EXECUTIVE BEING HEREINAFTER REFERRED TO AS A
"TERMINATION"), EXECUTIVE SHALL CONTINUE TO BE AN EMPLOYEE OF THE COMPANY AND BE
COMPENSATED AND RECEIVE BENEFITS IN ACCORDANCE WITH THIS AGREEMENT; PROVIDED,
HOWEVER, THAT IF EXECUTIVE'S RESIGNATION SHALL BE REQUESTED BY THE BOARD FOR
CAUSE OR EXECUTIVE IS REPLACED FOR CAUSE, SUCH RESIGNATION OR REPLACEMENT SHALL
NOT BE DEEMED A TERMINATION FOR THE PURPOSE OF THIS AGREEMENT AND SHALL NOT
ENTITLE EXECUTIVE TO CONTINUE TO BE AN EMPLOYEE
<PAGE>
OF THE COMPANY AND BE COMPENSATED AND RECEIVE THE BENEFITS PROVIDED FOR IN THIS
AGREEMENT.
2. TERMINATION PRIOR TO CHANGE OF CONTROL. IF PRIOR TO A CHANGE OF
---------------------------------------
CONTROL (A) THE EXECUTIVE SHALL RESIGN AS CHAIRMAN, PRESIDENT OR CHIEF EXECUTIVE
OFFICER OF THE COMPANY AT THE REQUEST OF THE BOARD OR BECAUSE THE DUTIES AND
RESPONSIBILITIES OF THE CHAIRMAN, PRESIDENT OR CHIEF EXECUTIVE OFFICER HAVE BEEN
SIGNIFICANTLY MODIFIED BY THE BOARD WITHOUT HIS CONSENT OR (B) ANOTHER IS
APPOINTED OR ELECTED CHAIRMAN, PRESIDENT OR CHIEF EXECUTIVE OFFICER BY THE BOARD
IN PLACE OF THE EXECUTIVE (SUCH RESIGNATION OR REPLACEMENT OF THE EXECUTIVE
BEING HEREINAFTER REFERRED TO A "TERMINATION"), THE EXECUTIVE SHALL CONTINUE TO
BE AN EMPLOYEE OF THE COMPANY AND BE COMPENSATED AND RECEIVE BENEFITS IN
ACCORDANCE WITH THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF EXECUTIVE'S
RESIGNATION SHALL BE REQUESTED BY THE BOARD FOR CAUSE OR IF EXECUTIVE IS
REPLACED FOR CAUSE, SUCH RESIGNATION OR REPLACEMENT SHALL NOT BE DEEMED A
TERMINATION FOR THE PURPOSE OF THIS AGREEMENT AND SHALL NOT ENTITLE EXECUTIVE TO
CONTINUE TO BE AN EMPLOYEE OF THE COMPANY AND BE COMPENSATED AND RECEIVE THE
BENEFITS PROVIDED FOR IN THIS AGREEMENT.
3. TERMINATION FOR CAUSE IF EXECUTIVE'S EMPLOYMENT IS TERMINATED FOR
---------------------
CAUSE PRIOR TO THE BEGINNING OF THE EMPLOYMENT PERIOD, (EITHER PRIOR OR
SUBSEQUENT TO A CHANGE OF CONTROL), EARNED BUT UNPAID BASE SALARY WILL BE PAID
ON A PRORATED BASIS FOR THE YEAR IN WHICH THE TERMINATION OCCURS, PLUS ACCRUED
VACATION BENEFITS, BUT ALL OTHER COMPANY OBLIGATIONS SHALL CEASE AS OF THE DATE
OF TERMINATION FOR CAUSE, UNLESS OTHERWISE PROVIDED IN SEPARATE AGREEMENTS.
<PAGE>
4. EMPLOYMENT PERIOD. IN THE EVENT OF A TERMINATION PURSUANT TO
-----------------
PARAGRAPH 3 ABOVE, EXECUTIVE SHALL CONTINUE TO BE AN EMPLOYEE OF THE COMPANY FOR
A PERIOD OF THREE YEARS FROM THE DATE OF SUCH TERMINATION, AND IN THE EVENT OF A
TERMINATION PURSUANT TO PARAGRAPH 4 ABOVE, EXECUTIVE SHALL CONTINUE TO BE AN
EMPLOYEE OF THE COMPANY FOR A PERIOD OF TWO YEARS FROM THE DATE OF SUCH
TERMINATION, SUCH THREE YEAR PERIOD OR TWO YEAR PERIOD, AS THE CASE MAY BE,
BEING HEREINAFTER REFERRED TO AS THE "EMPLOYMENT PERIOD"; PROVIDED, HOWEVER,
THAT (A) EXECUTIVE MAY END THE EMPLOYMENT PERIOD AT ANY TIME IN HIS ABSOLUTE
DISCRETION AND THE EMPLOYMENT PERIOD MAY BE ENDED BY THE COMPANY AT ANY TIME FOR
CAUSE, (B) THE EMPLOYMENT PERIOD SHALL NOT EXTEND BEYOND APRIL 1, 2002,
EXECUTIVE'S NORMAL RETIREMENT DATE, AND (C) THE EMPLOYMENT PERIOD SHALL
TERMINATE IF AND WHEN THE EXECUTIVE BECOMES EMPLOYED ON SUBSTANTIALLY A FULL
TIME BASIS BY ANOTHER ENTITY OR AS A PARTNER OR SOLE PROPRIETOR (BUT SUCH
TERMINATION OF THE EMPLOYMENT PERIOD UNDER CLAUSE (A), (B) OR (C) ABOVE SHALL
NOT PRECLUDE THE EXECUTIVE FROM BEING PAID FOR HIS OBLIGATION NOT TO COMPETE AS
PROVIDED IN PARAGRAPHS 11 AND 12 BELOW).
5. TITLE AND DUTIES. DURING THE EMPLOYMENT PERIOD, THE EXECUTIVE SHALL
----------------
PERFORM SUCH DUTIES AND UNDERTAKE SUCH RESPONSIBILITIES AS ARE ASSIGNED TO HIM
FROM TIME TO TIME BY THE BOARD; PROVIDED, HOWEVER, THAT SUCH DUTIES AND
RESPONSIBILITIES SHALL BE COMMENSURATE WITH HIS STATUS AS A SENIOR EXECUTIVE OF
THE COMPANY AND BEAR A REASONABLE RELATIONSHIP TO THE BUSINESS OF THE COMPANY.
<PAGE>
6. COMPENSATION. THE COMPANY SHALL PAY TO EXECUTIVE DURING THE
------------
EMPLOYMENT PERIOD AN ANNUAL SALARY (THE "ANNUAL SALARY") EQUAL TO ONE-THIRD
(1/3RD) OF THE AGGREGATE OF THE BASE SALARY AND BONUSES PAID TO HIM DURING THE
PERIOD COMMENCING THREE (3) YEARS PRIOR TO THE DATE OF TERMINATION AND ENDING ON
THE DATE OF TERMINATION. PAYMENT SHALL BE MADE TWICE MONTHLY AND BE
APPROPRIATELY PRORATED DURING THE FIRST AND LAST MONTH OF THE EMPLOYMENT PERIOD.
IN ADDITION, DURING THE EMPLOYMENT PERIOD EXECUTIVE SHALL RECEIVE (A) THE SAME
FRINGE BENEFITS THAT HE WOULD HAVE BEEN ENTITLED TO RECEIVE IF HE HAD CONTINUED
TO BE CHIEF EXECUTIVE OFFICER DURING SUCH PERIOD, (B) REIMBURSEMENT FOR
REASONABLE EXPENSES INCURRED BY HIM IN THE PERFORMANCE OF HIS DUTIES (C) IN LIEU
OF AN OFFICE AND SECRETARIAL HELP, AN ALLOWANCE OF $1,500 MONTHLY AND (D) THE
USE OF AN AUTOMOBILE ON SUBSTANTIALLY THE SAME BASIS AS PRIOR TO HIS
TERMINATION. IF THE EMPLOYMENT PERIOD SHALL END, PURSUANT TO PARAGRAPH 6 ABOVE,
PRIOR TO THE END OF THE THREE YEAR TERM PROVIDED FOR IN PARAGRAPH 3 ABOVE OR THE
TWO YEAR TERM PROVIDED FOR IN PARAGRAPH 4 ABOVE, AS THE CASE MAY BE, THE ANNUAL
SALARY (BUT, EXCEPT TO THE EXTENT PROVIDED IN PARAGRAPH 10 BELOW, NOT FRINGE
BENEFITS AND PERQUISITES) SHALL CONTINUE TO BE PAYABLE UNTIL THE END OF THE NON-
COMPETE PERIOD PROVIDED FOR IN PARAGRAPH 11 BELOW AND SHALL BE DEEMED PAYMENT
FOR EXECUTIVE'S OBLIGATION NOT TO COMPETE AS PROVIDED IN SAID PARAGRAPH 11, AND
SUCH ANNUAL SALARY FOR THE
REMAINDER OF THE NON-COMPETE PERIOD SHALL BE PAID TO THE EXECUTIVE IN A LUMP SUM
CASH PAYMENT WITHIN TEN DAYS AFTER THE END OF THE EMPLOYMENT PERIOD.
<PAGE>
7. TAX GROSS-UP. ANYTHING IN THIS AGREEMENT TO THE CONTRARY
-------------
NOTWITHSTANDING, IN THE EVENT IT SHALL BE DETERMINED THAT ANY PAYMENT OR
DISTRIBUTION MADE, OR BENEFIT PROVIDED, BY THE COMPANY TO OR FOR THE BENEFIT OF
THE EXECUTIVE (WHETHER PAID OR PAYABLE OR DISTRIBUTED OR DISTRIBUTABLE PURSUANT
TO THE TERMS OF THIS AGREEMENT OR OTHERWISE, BUT DETERMINED WITHOUT REGARD TO
ANY ADDITIONAL PAYMENTS REQUIRED UNDER THIS SECTION 9 (A 'PAYMENT') WOULD BE
SUBJECT TO THE EXCISE TAX IMPOSED BY SECTION 4999 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED AND THEN IN EFFECT (THE 'CODE') (OR ANY SIMILAR EXCISE TAX)
OR ANY INTEREST OR PENALTIES ARE INCURRED BY THE EXECUTIVE WITH RESPECT TO SUCH
EXCISE TAX (SUCH EXCISE TAX, TOGETHER WITH ANY SUCH INTEREST AND PENALTIES, ARE
HEREINAFTER COLLECTIVELY REFERRED TO AS THE ('EXCISE TAX'), THEN THE EXECUTIVE
SHALL BE ENTITLED TO RECEIVE AN ADDITIONAL PAYMENT (A 'GROSS-UP PAYMENT') IN AN
AMOUNT SUCH THAT AFTER PAYMENT BY THE EXECUTIVE OF ALL FEDERAL, STATE, LOCAL OR
OTHER TAXES (INCLUDING ANY INTEREST OR PENALTIES IMPOSED WITH RESPECT TO ANY
SUCH TAXES), INCLUDING, WITHOUT LIMITATION, ANY SUCH INCOME TAXES (AND ANY
INTEREST AND PENALTIES IMPOSED WITH RESPECT THERETO) AND EXCISE TAX IMPOSED UPON
THE GROSS-UP PAYMENT, THE EXECUTIVE RETAINS AN AMOUNT OF THE GROSS-UP PAYMENT
EQUAL TO THE EXCISE TAX IMPOSED UPON THE PAYMENTS. AN EXECUTIVE MAY RECEIVE
GROSS-UP PAYMENTS UNDER THIS SECTION 9 WHETHER OR NOT THE EXECUTIVE ACTUALLY
RECEIVES OTHER PAYMENTS OR BENEFITS UNDER THE AGREEMENT.
(I) SUBJECT TO THE PROVISIONS OF PARAGRAPH (II) OF THIS SECTION 9, ALL
DETERMINATIONS REQUIRED TO BE MADE UNDER THIS SECTION 9, INCLUDING WHETHER AND
WHEN A GROSS-UP PAYMENT IS REQUIRED AND THE AMOUNT OF SUCH GROSS-UP
<PAGE>
PAYMENT AND THE ASSUMPTIONS TO BE UTILIZED IN ARRIVING AT SUCH DETERMINATION,
SHALL BE MADE BY COOPERS & LYBRAND (THE "ACCOUNTING FIRM') WHICH SHALL PROVIDE
DETAILED SUPPORTING CALCULATIONS BOTH TO THE COMPANY AND THE EXECUTIVE WITHIN 20
CALENDAR DAYS OF THE RECEIPT OF WRITTEN NOTICE FROM THE EXECUTIVE THAT THERE HAS
BEEN A PAYMENT, OR SUCH EARLIER TIME AS IS REQUESTED BY THE COMPANY. IN THE
EVENT THAT THE ACCOUNTING FIRM IS SERVING AS ACCOUNTANT OR AUDITOR FOR THE
INDIVIDUAL, ENTITY OR GROUP EFFECTING THE CHANGE OF CONTROL, THE EXECUTIVE SHALL
HAVE THE RIGHT BY WRITTEN NOTICE TO THE COMPANY TO APPOINT ANOTHER NATIONALLY
RECOGNIZED ACCOUNTING FIRM TO MAKE THE DETERMINATIONS REQUIRED HEREUNDER (WHICH
ACCOUNTING FIRM SHALL THEN BE REFERRED TO AS THE ACCOUNTING FIRM HEREUNDER). ALL
FEES AND EXPENSES OF THE ACCOUNTING FIRM SHALL BE BORNE SOLELY BY THE COMPANY
AND SHALL BE PAID BY THE COMPANY UPON DEMAND OF THE EXECUTIVE AS INCURRED OR
BILLED BY THE ACCOUNTING FIRM. ANY GROSS-UP PAYMENT, AS DETERMINED PURSUANT TO
THIS SECTION 9, SHALL BE PAID BY THE COMPANY TO THE EXECUTIVE WITHIN FIVE DAYS
OF THE RECEIPT OF THE ACCOUNTING FIRM'S DETERMINATION. IF THE ACCOUNTING FIRM
DETERMINES THAT NO EXCISE TAX IS PAYABLE BY THE EXECUTIVE, IT SHALL FURNISH THE
EXECUTIVE WITH AN UNQUALIFIED WRITTEN OPINION IN FORM AND SUBSTANCE SATISFACTORY
TO THE EXECUTIVE THAT FAILURE TO REPORT THE EXCISE TAX ON THE EXECUTIVE'S
APPLICABLE FEDERAL INCOME TAX RETURN WOULD NOT RESULT IN THE IMPOSITION OF A
NEGLIGENCE OR SIMILAR PENALTY. AS A RESULT OF THE UNCERTAINTY IN THE APPLICATION
OF SECTION 4999 OF THE CODE AT THE TIME OF THE INITIAL DETERMINATION BY THE
ACCOUNTING FIRM HEREUNDER, IT IS POSSIBLE THAT GROSS-UP PAYMENTS WHICH WILL NOT
HAVE BEEN MADE BY THE COMPANY SHOULD HAVE BEEN
<PAGE>
MADE ('UNDERPAYMENT'), CONSISTENT WITH THE CALCULATIONS REQUIRED TO BE MADE
HEREUNDER. IN THE EVENT THAT THE COMPANY EXHAUSTS ITS REMEDIES DESCRIBED IN
PARAGRAPH (II) OF THIS SECTION 8 AND THE EXECUTIVE THEREAFTER IS REQUIRED TO
MAKE A PAYMENT OF ANY EXCISE TAX, THE ACCOUNTING FIRM SHALL DETERMINE THE AMOUNT
OF THE UNDERPAYMENT THAT HAS OCCURRED AND ANY SUCH UNDERPAYMENT SHALL BE PAID BY
THE COMPANY TO OR FOR THE BENEFIT OF THE EXECUTIVE WITHIN FIVE DAYS OF THE
RECEIPT OF THE ACCOUNTING FIRM'S DETERMINATION. ALL DETERMINATIONS MADE BY THE
ACCOUNTING FIRM IN CONNECTION WITH ANY GROSS-UP PAYMENT OR UNDERPAYMENT SHALL BE
FINAL AND BINDING UPON THE COMPANY AND THE EXECUTIVE.
(ii) THE EXECUTIVE SHALL NOTIFY THE COMPANY IN WRITING OF ANY CLAIM
ASSERTED IN WRITING BY THE INTERNAL REVENUE SERVICE TO THE EXECUTIVE THAT, IF
SUCCESSFUL, WOULD REQUIRE THE PAYMENT BY THE COMPANY OF THE GROSS-UP PAYMENT.
SUCH NOTIFICATION SHALL BE GIVEN AS SOON AS PRACTICABLE BUT NOT LATER THAN 60
DAYS AFTER THE EXECUTIVE IS INFORMED IN WRITING OF SUCH CLAIM AND SHALL APPRISE
THE COMPANY OF THE NATURE OF SUCH CLAIM AND THE DATE ON WHICH SUCH CLAIM IS
REQUESTED TO BE PAID. THE EXECUTIVE SHALL NOT PAY SUCH CLAIM PRIOR TO THE
EXPIRATION OF THE 30-DAY PERIOD FOLLOWING THE DATE ON WHICH IT GIVES SUCH NOTICE
TO THE COMPANY (OR SUCH SHORTER PERIOD ENDING ON THE DATE THAT ANY PAYMENT OF
TAXES WITH RESPECT TO SUCH CLAIM IS DUE). IF THE COMPANY NOTIFIES THE EXECUTIVE
IN WRITING PRIOR TO THE EXPIRATION OF SUCH PERIOD THAT IT DESIRES TO CONTEST
SUCH CLAIM, THE EXECUTIVE SHALL AT THE COMPANY'S EXPENSE:
A. GIVE THE COMPANY ANY INFORMATION REASONABLY REQUESTED BY THE COMPANY
RELATING TO SUCH CLAIM.
<PAGE>
B. TAKE SUCH ACTION IN CONNECTION WITH CONTESTING SUCH CLAIM AS THE
COMPANY SHALL REASONABLY REQUEST IN WRITING FROM TIME TO TIME, INCLUDING,
WITHOUT LIMITATION, ACCEPTING LEGAL REPRESENTATION WITH RESPECT TO SUCH CLAIM BY
AN ATTORNEY REASONABLY SELECTED BY THE COMPANY.
C. COOPERATE WITH THE COMPANY IN GOOD FAITH IN ORDER EFFECTIVELY TO
CONTEST SUCH CLAIM, AND
D. PERMIT THE COMPANY TO PARTICIPATE IN ANY PROCEEDINGS RELATING TO SUCH
CLAIM; PROVIDED, HOWEVER, THAT THE COMPANY SHALL BEAR AND PAY DIRECTLY AS
INCURRED ALL COSTS AND EXPENSES (INCLUDING ADDITIONAL INTEREST AND PENALTIES)
INCURRED IN CONNECTION WITH SUCH CONTEST AND SHALL INDEMNIFY AND HOLD THE
EXECUTIVE HARMLESS, ON AN AFTER-TAX BASIS, FOR ANY EXCISE TAX OR ANY FEDERAL,
STATE, LOCAL OR OTHER INCOME OR OTHER TAX (INCLUDING INTEREST AND PENALTIES WITH
RESPECT THERETO) IMPOSED AS A RESULT OF SUCH REPRESENTATION AND PAYMENT OF COSTS
AND EXPENSES. WITHOUT LIMITATION ON THE FOREGOING PROVISIONS OF THIS SECTION 9,
THE COMPANY SHALL CONTROL ALL PROCEEDINGS TAKEN IN CONNECTION WITH SUCH CONTEST
AND, AT ITS SOLE OPTION, MAY PURSUE OR FOREGO ANY AND ALL ADMINISTRATIVE
APPEALS, PROCEEDINGS, HEARINGS AND CONFERENCES WITH THE TAXING AUTHORITY IN
RESPECT OF SUCH CLAIM AND MAY, AT ITS SOLE OPTION, EITHER DIRECT THE EXECUTIVE
TO PAY THE TAX CLAIMED AND SUE FOR A REFUND OR CONTEST THE CLAIM IN ANY
PERMISSIBLE MANNER, AND THE EXECUTIVE AGREES TO PROSECUTE SUCH CONTEST TO A
DETERMINATION BEFORE ANY ADMINISTRATIVE TRIBUNAL, IN A COURT OF INITIAL
JURISDICTION AND IN ONE OR MORE APPELLATE COURTS, AS THE COMPANY SHALL
DETERMINE; PROVIDED, HOWEVER, THAT IF THE COMPANY DIRECTS THE EXECUTIVE TO PAY
SUCH CLAIM AND SUE
<PAGE>
FOR A REFUND, THE COMPANY SHALL ADVANCE THE AMOUNT OF SUCH PAYMENT TO THE
EXECUTIVE ON AN INTEREST-FREE BASIS AND SHALL INDEMNIFY AND HOLD THE EXECUTIVE
HARMLESS, ON AN AFTER-TAX BASIS, FROM ANY EXCISE TAX OR FEDERAL, STATE, LOCAL OR
OTHER INCOME OR OTHER TAX (INCLUDING INTEREST OR PENALTIES WITH RESPECT THERETO)
IMPOSED WITH RESPECT TO SUCH ADVANCE OR WITH RESPECT TO ANY IMPUTED INCOME WITH
RESPECT TO SUCH ADVANCE; AND FURTHER PROVIDED THAT ANY EXTENSION OF THE STATUS
OF LIMITATIONS RELATING TO PAYMENT OF TAXES FOR THE TAXABLE YEAR OF THE
EXECUTIVE WITH RESPECT TO WHICH SUCH CONTESTED AMOUNT IS CLAIMED TO BE DUE IS
LIMITED SOLELY TO SUCH CONTESTED AMOUNT. FURTHERMORE, THE COMPANY'S CONTROL OF
THE CONTEST SHALL BE LIMITED TO ISSUES WITH RESPECT TO WHICH A GROSS-UP PAYMENT
WOULD BE PAYABLE HEREUNDER AND THE EXECUTIVE SHALL BE ENTITLED TO SETTLE OR
CONTEST, AS THE CASE MAY BE, ANY OTHER ISSUE RAISED BY THE INTERNAL REVENUE
SERVICE OR ANY OTHER TAXING AUTHORITY.
(III) IF, AFTER THE RECEIPT BY THE EXECUTIVE OF AN AMOUNT ADVANCED BY THE
COMPANY PURSUANT TO PARAGRAPH (II) OF THIS SECTION 9, THE EXECUTIVE BECOMES
ENTITLED TO RECEIVE ANY REFUND WITH RESPECT TO SUCH CLAIM, THE EXECUTIVE SHALL
(SUBJECT TO THE COMPANY'S COMPLYING WITH THE REQUIREMENTS OF PARAGRAPH (II) OF
THIS SECTION 9 PROMPTLY PAY TO THE COMPANY THE AMOUNT OF SUCH REFUND (TOGETHER
WITH ANY INTEREST PAID OR CREDITED THEREON AFTER TAXES APPLICABLE THERETO) UPON
RECEIPT THEREOF. IF, AFTER THE RECEIPT BY THE EXECUTIVE OF AN AMOUNT ADVANCED
BY THE COMPANY PURSUANT TO PARAGRAPH (II) OF THIS SECTION 9, A DETERMINATION IS
MADE THAT THE EXECUTIVE SHALL NOT BE ENTITLED TO ANY REFUND WITH RESPECT TO SUCH
CLAIM AND THE COMPANY DOES NOT NOTIFY THE EXECUTIVE IN WRITING OF ITS INTENT TO
<PAGE>
CONTEST SUCH DENIAL OF REFUND PRIOR TO THE EXPIRATION OF 30 DAYS AFTER SUCH
DETERMINATION, THEN SUCH ADVANCE SHALL BE FORGIVEN AND SHALL NOT BE REQUIRED TO
BE REPAID AND THE AMOUNT OF SUCH ADVANCE SHALL OFFSET, TO THE EXTENT THEREOF,
THE AMOUNT OF GROSS-UP PAYMENT REQUIRED TO BE PAID.
1. MEDICAL INSURANCE COVERAGE.EXECUTIVE AND HIS BENEFICIARIES SHALL
---------------------------
CONTINUE TO PARTICIPATE IN ALL LIFE, HEALTH, DISABILITY AND OTHER WELFARE PLANS
OR PROGRAMS EXISTING AT THE TIME OF A CHANGE OF CONTROL IN WHICH THEY WERE
PARTICIPATING AT SUCH TIME (OR SUBSTANTIALLY SIMILAR PLANS OR PROGRAMS), TO THE
EXTENT THAT SUCH CONTINUED PARTICIPATION IS POSSIBLE UNDER THE GENERAL TERMS AND
CONDITIONS OF SUCH PLANS AND PROGRAMS, THROUGHOUT THE EMPLOYMENT PERIOD AND
AFTER THE EMPLOYMENT PERIOD UP TO AGE 65 OR EARLIER DEATH.
COMPANY AND EXECUTIVE WILL CONTINUE TO PAY THE SAME RELATIVE PORTION OF THE
COST OF EACH SUCH PLAN OR PROGRAM AS EACH WERE PAYING AT THE TIME OF THE CHANGE
OF CONTROL. FURTHER, IN THE EVENT THAT EXECUTIVE'S OR HIS BENEFICIARIES'
CONTINUED PARTICIPATION IN ANY GROUP PLAN OR PROGRAM IS NOT PERMITTED, THEN IN
LIEU THEREOF, COMPANY SHALL ACQUIRE INDIVIDUAL INSURANCE POLICIES PROVIDING
SUBSTANTIALLY SIMILAR COVERAGE FOR EXECUTIVE AND HIS BENEFICIARIES, AND COMPANY
AND EXECUTIVE WILL PAY THE SAME RELATIVE PORTION OF THE COST OF SUCH COMPARABLE
COVERAGE PLANS OR PROGRAMS OR IN THE EVENT THAT COMPANY CANNOT ACQUIRE
INDIVIDUAL INSURANCE POLICIES PROVIDING SUBSTANTIALLY SIMILIAR COVERAGE, THE
COMPANY WILL SELF-INSURE THE EXECUTIVE, AND THE EXECUTIVE IN THE CASE OF SELF
<PAGE>
INSURANCE WILL PAY THE COBRA RATE THEN APPLICABLE TO THE COMPANY'S GROUP PLAN.
2. NON-COMPETE. DURING THE EMPLOYMENT PERIOD EXECUTIVE WILL NOT COMPETE
-----------
DIRECTLY OR INDIRECTLY WITH THE COMPANY OR BE DIRECTLY OR INDIRECTLY INTERESTED
IN ANY BUSINESS COMPETING WITH THE BUSINESS BEING CONDUCTED BY THE COMPANY.
OWNERSHIP OF LESS THAN 1 PERCENT OF THE ISSUED AND OUTSTANDING CAPITAL STOCK OF
ANY CORPORATION THE STOCK OF WHICH IS LISTED UPON A NATIONAL EXCHANGE OR
REGULARLY QUOTED BY THE NATIONAL ASSOCIATION OF SECURITY DEALERS AUTOMATED
QUOTATION (NASDAQ) SHALL NOT BE DEEMED TO CREATE A MATERIAL CONFLICT OF INTEREST
AS CONTEMPLATED HEREUNDER. FOR THE PURPOSE OF THIS PARAGRAPH 11, THE EMPLOYMENT
PERIOD SHALL BE DEEMED TO EXTEND THREE YEARS FROM TERMINATION IF SUCH
TERMINATION OCCURRED PURSUANT TO PARAGRAPH 3 ABOVE OR TWO YEARS FROM TERMINATION
IF SUCH TERMINATION OCCURRED PURSUANT TO PARAGRAPH 4 ABOVE, NOTWITHSTANDING ANY
PRIOR ENDING OF THE EMPLOYMENT PERIOD PURSUANT TO PARAGRAPH 6 ABOVE.
3. TRADE SECRETS. EXECUTIVE SHALL REGARD AND PRESERVE AS CONFIDENTIAL
-------------
AND NOT USE, COMMUNICATE OR DISCLOSE TO ANY PERSON, ORALLY, IN WRITING OR BY A
PUBLICATION, ANY SECRET OR CONFIDENTIAL INFORMATION OF THE COMPANY, REGARDLESS
OF WHERE OR WHEN OR HOW ACQUIRED BY THE COMPANY, OR OF OTHERS WHICH THE COMPANY
IS OBLIGATED TO MAINTAIN IN CONFIDENCE. THIS OBLIGATION SHALL EXIST DURING THE
EMPLOYMENT PERIOD AND AFTER THE TERMINATION OF THE EMPLOYMENT PERIOD UNTIL SUCH
INFORMATION BECOMES A MATTER OF PUBLIC KNOWLEDGE THROUGH NO ACT OF EXECUTIVE.
AT THE TERMINATION OF EMPLOYMENT BY THE COMPANY, EXECUTIVE
<PAGE>
AGREES TO RETURN TO EMPLOYER ALL DOCUMENTS, WRITINGS, DRAWINGS AND OTHER
PROPERTY OF THE COMPANY WITHIN HIS CUSTODY AND CONTROL.
4. INDEMNIFICATION THE PARTIES AGREE TO EXECUTE A SEPARATE
---------------
INDEMNIFICATION AGREEMENT IN THE FORM ATTACHED AS EXHIBIT B.
5. ARBITRATION. THE COMPANY AND EXECUTIVE UNDERTAKE TO EXECUTE THIS
-----------
AGREEMENT IN GOOD FAITH. ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OTHER BENEFIT PLANS OR ARRANGEMENTS WITH THE COMPANY OR BREACH OF
THIS AGREEMENT, SHALL RECEIVE PROMPT ATTENTION BY THE OTHER PARTY AND BOTH
PARTIES AGREE TO MAKE GOOD FAITH EFFORTS TO RESOLVE ANY CONTROVERSY OR CLAIM IN
AN AMICABLE WAY.
IF THE COMPANY AND EXECUTIVE FAIL TO SETTLE THE CONTROVERSY OR CLAIM IN AN
AMICABLE WAY, THEY AGREE TO SUBMIT THE MATTER TO BE SETTLED BY ARBITRATION IN
ACCORDANCE WITH THE ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION.
THIS AGREEMENT, ITS EXECUTION, INTERPRETATION AND PERFORMANCE SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF CONNECTICUT OF THE UNITED STATES OF AMERICA. THE
ARBITRATION WILL BE HELD IN HARTFORD, CONNECTICUT, OR SUCH OTHER PLACE AS MAY BE
AGREED AT THE TIME BY THE PARTIES. THE AWARD OF THIS ARBITRATION SHALL BE FINAL
AND BINDING BOTH FOR THE COMPANY AND EXECUTIVE AND MAY BE ENTERED IN ANY COURT
WITH JURISDICTION.
6. LITIGATION EXPENSES IN THE EVENT OF ANY ACTION, SUIT, PROCEEDING,
-------------------
ARBITRATION OR CLAIM BETWEEN OR BY OR AGAINST THE COMPANY AND/OR THE EXECUTIVE
WITH RESPECT TO THIS AGREEMENT, OTHER BENEFIT PLANS OR ARRANGEMENTS BETWEEN
<PAGE>
THE PARTIES, AND THE ASSERTION OR ENFORCEMENT OF HIS RIGHTS HEREUNDER, THE
COMPANY SHALL PROMPTLY PAY OR REIMBURSE THE EXECUTIVE UPON SUCH EXECUTIVE'S
WRITTEN DEMAND THEREFOR, FOR EIGHTY (80) PERCENT OF HIS COSTS AND EXPENSES
(INCLUDING COSTS AND FEES OF WITNESSES, EVIDENCE AND ATTORNEY FEES AND EXPENSES)
RELATING TO OR ARISING OUT OF (DIRECTLY OR INDIRECTLY) SUCH ACTION, SUIT,
PROCEEDING, ARBITRATION OR CLAIM, ON A MONTHLY BASIS, AS SUCH COSTS AND EXPENSES
ARE INCURRED IN INVESTIGATING, PROSECUTING, DEFENDING OR PREPARING TO PROSECUTE
OR DEFEND, REGARDLESS OF THE OUTCOME THEREOF. IN NO EVENT SHALL THE EXECUTIVE BE
REQUIRED TO REIMBURSE THE COMPANY FOR ANY OF THE COSTS AND EXPENSES RELATING TO
ANY SUCH ACTION, SUIT, PROCEEDING, ARBITRATION OR CLAIM. THE OBLIGATION OF THE
COMPANY UNDER THIS SECTION 15 SHALL SURVIVE THE TERMINATION FOR ANY REASON OF
THIS AGREEMENT. THIS SECTION 15 CANNOT BE AMENDED OR MODIFIED TO AFFECT THE
RIGHTS OF THE EXECUTIVE WITHOUT THE PRIOR WRITTEN CONSENT OF SUCH EXECUTIVE
WHICH SPECIFICALLY REFERS TO THIS SECTION 15.
7. RABBI TRUST.WITHIN SIXTY (60) DAYS OF THE DATE OF THIS AGREEMENT, THE
-----------
COMPANY SHALL ENTER INTO A TRUST AGREEMENT (THE "TRUST AGREEMENT") WITH A THIRD
PARTY INSTITUTIONAL TRUSTEE, SUBSTANTIALLY IN THE FORM SET FORTH IN REV. PROC.
92-64, 1992-2 C.B. 422, TO ASSIST IT IN MEETING ITS OBLIGATIONS TO THE EXECUTIVE
UNDER THE COMPANY'S SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (THE "SERP"). THE
TRUST ESTABLISHED PURSUANT TO THE TRUST AGREEMENT (THE "TRUST") SHALL BE
IRREVOCABLE. THE TRUST AGREEMENT SHALL PROVIDE THAT UPON A CHANGE OF CONTROL
THE COMPANY SHALL, NO LATER THAN 30 DAYS FOLLOWING THE CHANGE OF CONTROL, MAKE
AN IRREVOCABLE CONTRIBUTION OF CASH OR CASH EQUIVALENTS TO THE TRUST IN AN
<PAGE>
AMOUNT SUFFICIENT TO PAY EACH SERP PARTICIPANT OR BENEFICIARY THE BENEFITS TO
WHICH THEY WOULD BE ENTITLED PURSUANT TO THE TERMS OF THE SERP, AND WITHIN 30
DAYS FOLLOWING THE END OF EACH CALENDAR YEAR ENDING AFTER THE CHANGE OF CONTROL
THE COMPANY SHALL IRREVOCABLY CONTRIBUTE ANY ADDITIONAL CASH TO THE TRUST
NECESSARY FOR THE TRUSTEE TO PAY EACH SERP PARTICIPANT OR BENEFICIARY THE
BENEFITS PAYABLE PURSUANT TO THE TERMS OF THE SERP AS OF THE CLOSE OF THE YEAR.
THE TRUST AGREEMENT SHALL ALSO PROVIDE (I) THAT ALL INCOME RECEIVED BY THE TRUST
SHALL BE ACCUMULATED AND REINVESTED, (II) THAT THE COMPANY WILL BE RESPONSIBLE
FOR THE PAYMENT OF ALL FEES AND EXPENSES RELATED TO THE TRUST, (III) THAT AFTER
A CHANGE OF CONTROL THE TRUSTEE MAY NOT BE REMOVED BY THE COMPANY, AND (IV)
THAT, IF THE TRUSTEE SHALL RESIGN, ANY SUCCESSOR TRUSTEE MUST BE AN INDEPENDENT
INSTITUTIONAL ENTITY, SUCH AS A BANK TRUST DEPARTMENT OR OTHER PARTY THAT HAS
BEEN GRANTED CORPORATE TRUSTEE POWERS UNDER STATE LAW. THE TRUST AGREEMENT SHALL
ALSO PROVIDE THAT THE PROVISIONS OF THE TRUST DESCRIBED IN THIS PARAGRAPH 16 MAY
NOT BE AMENDED AFTER A CHANGE OF CONTROL.
8. ENTIRE AGREEMENT. THIS AGREEMENT EMBODIES THE WHOLE UNDERSTANDING
----------------
BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND
SUPERSEDES ALL EARLIER AGREEMENTS. THERE ARE NO INDUCEMENTS, PROMISES, TERMS,
CONDITIONS OR OBLIGATIONS MADE OR ENTERED INTO BY EITHER PARTY OTHER THAN AS
CONTAINED HEREIN.
9. MODIFICATION THIS AGREEMENT MAY NOT BE CHANGED ORALLY, BUT ONLY BE
------------
MEANS OF AN AGREEMENT IN WRITING SIGNED BY THE PARTIES HERETO.
<PAGE>
10. WAIVER. THE WAIVER BY ANY PARTY OF A BREACH OF ANY PROVISION OF THIS
-------
AGREEMENT SHALL NOT OPERATE AS, OR BE CONSTRUED AS, A WAIVER OF ANY SUBSEQUENT
BREACH.
11. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
--------------
ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT, WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICT OF LAWS.
12. SUCCESSORS THIS AGREEMENT IS PERSONAL TO THE EXECUTIVE AND WITHOUT THE
----------
PRIOR WRITTEN CONSENT OF THE COMPANY SHALL NOT BE ASSIGNABLE BY THE EXECUTIVE
OTHERWISE THAN BY WILL OR THE LAWS OF DESCENT AND DISTRIBUTION. THIS AGREEMENT
SHALL INURE TO THE BENEFIT OF AND BE ENFORCEABLE BY THE EXECUTIVE'S LEGAL
REPRESENTATIVES. THIS AGREEMENT SHALL INURE TO THE BENEFIT OF AND BE BINDING
UPON THE COMPANY AND ITS SUCCESSORS AND ASSIGNS. THE COMPANY WILL REQUIRE ANY
SUCCESSOR (WHETHER DIRECT OR INDIRECT, BY PURCHASE, MERGER, CONSOLIDATION OR
OTHERWISE) TO ALL OR SUBSTANTIALLY ALL OF THE BUSINESS AND/OR ASSETS OF THE
COMPANY TO ASSUME EXPRESSLY AND AGREE TO PERFORM THIS AGREEMENT IN THE SAME
MANNER AND TO THE SAME EXTENT THAT THE COMPANY WOULD BE REQUIRED TO PERFORM IT
IF NO SUCH SUCCESSION HAD TAKEN PLACE. AS USED IN THIS AGREEMENT, "COMPANY"
SHALL MEAN THE COMPANY AS HEREINBEFORE DEFINED AND ANY SUCCESSOR TO ITS BUSINESS
AND/OR ASSETS AS AFORESAID WHICH ASSUMES AND AGREES TO PERFORM THIS AGREEMENT BY
OPERATION OF LAW OR OTHERWISE.
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HAVE HEREUNTO SET THEIR HANDS AS OF THE
DATE FIRST ABOVE WRITTEN.
LYDALL, INC.
BY____________________________
ROGER M. WIDMANN CHAIRMAN,
COMPENSATION AND STOCK OPTION
COMMITTEE
______________________________
LEONARD R. JASKOL
<PAGE>
EXHIBIT A - FRINGE BENEFITS
---------------------------
1. MEDICAL BENEFITS
A. LYDALL, INC. HEALTH CARE PAYMENT PLAN FOR SALARIED EMPLOYEES (INCLUDES
DENTAL BENEFITS)
B. LYDALL, INC. EXECUTIVE MEDICAL REIMBURSEMENT PLAN
2. DISABILITY BENEFITS
A. LYDALL, INC. SHORT TERM DISABILITY PLAN
B. LYDALL, INC. EXECUTIVE GROUP LONG TERM DISABILITY PLAN
3. LIFE INSURANCE
A. EXECUTIVE LIFE INSURANCE PLAN
B. ACCIDENTAL DEATH AND DISMEMBERMENT PLAN
C. FAMILY ASSISTANCE PROGRAM
D. BUSINESS TRAVEL ACCIDENT PLAN
E. INDIVIDUAL WHOLE LIFE POLICIES (FORMERLY SENIOR OFFICER LIFE PLAN)
4. RETIREMENT PLANS
A. LYDALL, INC. PENSION PLAN NO. 1A
B. LYDALL, INC. PROFIT SHARING PLAN NO. 1
C. LYDALL, INC. 401(K) PLAN
D. LYDALL, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
5. STOCK PLANS
1
<PAGE>
A. LYDALL, INC. EMPLOYEE STOCK PURCHASE PLAN
B. LYDALL, INC. 1992 STOCK INCENTIVE COMPENSATION PLAN
C. LYDALL, INC. 1982 STOCK INCENTIVE COMPENSATION PLAN
6. OTHER
A. HOLIDAYS, VACATIONS
AGREEMENT
---------
THIS AGREEMENT MADE THIS _____ DAY OF _____ 1995 BY AND BETWEEN LYDALL,
INC. (THE "COMPANY") AND LEONARD R. JASKOL (THE "EXECUTIVE").
W I T N E S S E T H :
RECITALS.
- --------
EXECUTIVE IS EMPLOYED BY THE COMPANY AS ITS CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER. THE COMPANY AND EXECUTIVE HAVE AGREED THAT IF EXECUTIVE
SHOULD CEASE TO BE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE
COMPANY UNDER THE CIRCUMSTANCES SET FORTH IN THIS AGREEMENT HIS EMPLOYMENT WILL
BE CONTINUED IN ANOTHER CAPACITY FOR A SPECIFIED PERIOD;
NOW, THEREFORE, THE COMPANY AND EXECUTIVE, IN CONSIDERATION OF THE MUTUAL
PROMISES SET FORTH BELOW, AGREE AS FOLLOWS:
Executive to Serve as Chairman, President and Chief Executive Officer.
----------------------------------------------------------------------
The Executive shall continue to act as Chairman, President and Chief Executive
Officer of the Company, subject to the direction of its Board of Directors.
2
<PAGE>
Definitions. The phrase "Change of Control," as used in this
------------
Agreement, shall mean i) an acquisition of the Company by means of a merger or
consolidation or purchase of substantially all of its assets if and when
incident thereto (a) the composition of the Board of Directors of the Company
(the "Board") or its successor changes so that a majority of the Board
is not comprised of individuals who were members of the board immediately
prior to such merger, consolidation or purchase of assets or (b) the
stockholders of the Company acquire a right to receive, in exchange for or upon
surrender a majority of their stock, cash or other securities or a combination
of the two; and/or ii) the acquisition by a person (as that term is hereafter
defined) of the voting rights with respect to 25 percent or more of the
outstanding Common Stock of the Company if such person was not an officer of
director of the Company on the date of this Agreement; and/or iii) the election
or appointment to the Board of any director or directors whose appointment or
election or nomination for election was not approved by a vote of at least a
majority of the directors then still in office who were either directors on the
date hereof or whose election, appointment or nomination for election was
previously so approved.
THE WORD "PERSON," AS USED IN THE PRECEDING SENTENCE, SHALL MEAN AN
INDIVIDUAL, CORPORATION, TRUST, OR OTHER LEGAL OR COMMERCIAL ENTITY AND INCLUDE
3
<PAGE>
TWO OR MORE PERSONS ACTING AS A PARTNERSHIP, LIMITED PARTNERSHIP, SYNDICATE OR
OTHER GROUP FOR THE PURPOSE OF ACQUIRING, HOLDING OR DISPOSING OF SECURITIES OF
THE COMPANY.
THE WORD "CAUSE", AS USED IN THIS AGREEMENT, SHALL MEAN (I) CONVICTION OF A
CRIME INVOLVING MORAL TURPITUDE, OR (II) MATERIAL AND UNEXCUSED BREACH BY
EXECUTIVE OF HIS OBLIGATIONS UNDER THIS AGREEMENT, WHICH RESULTS IN MATERIAL
HARM TO THE COMPANY AND WHICH IS NOT CURED WITHIN THE PERIOD SET FORTH BELOW;
PROVIDED, HOWEVER, THAT A TERMINATION SHALL NOT BE FOR "CAUSE" HEREUNDER UNLESS,
- ------------------
SUCH CONVICTION OR BREACH IS DETAILED IN A WRITTEN NOTICE OF INTENT TO TERMINATE
BY THE BOARD, PROVIDING FOR SIXTY (60) DAYS FROM RECEIPT BY EXECUTIVE TO CURE
THE BREACH PRIOR TO TERMINATION OF EXECUTIVE; EXCEPT THAT SUCH NOTICE WOULD NOT
BE REQUIRED IF, IN THE BOARD'S DISCRETION, THE COMPANY WOULD BE IMMEDIATELY
HARMED.
THE PHRASE "FRINGE BENEFITS," AS USED IN THIS AGREEMENT, SHALL MEAN THE
BENEFITS LISTED ON Exhibit A HERETO.
1. TERMINATION AFTER CHANGE OF CONTROL. IF A CHANGE OF CONTROL OCCURS
-----------------------------------
AFTER THE DATE OF THIS AGREEMENT AND SUBSEQUENT TO SUCH CHANGE OF CONTROL (A)
EXECUTIVE SHALL RESIGN AS CHIEF EXECUTIVE OFFICER OF THE COMPANY WITHIN ONE YEAR
FROM THE TIME SUCH CHANGE OF CONTROL OCCURS OR (B) ANOTHER SHALL BE APPOINTED OR
ELECTED CHAIRMAN, PRESIDENT OR CHIEF EXECUTIVE OFFICER BY THE
4
<PAGE>
BOARD IN PLACE OF EXECUTIVE AT ANY TIME PRIOR TO APRIL 1, 2002, EXECUTIVE'S
NORMAL RETIREMENT DATE (SUCH RESIGNATION OR REPLACEMENT OF EXECUTIVE BEING
HEREINAFTER REFERRED TO AS A "TERMINATION"), EXECUTIVE SHALL CONTINUE TO BE AN
EMPLOYEE OF THE COMPANY AND BE COMPENSATED AND RECEIVE BENEFITS IN ACCORDANCE
WITH THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF EXECUTIVE'S RESIGNATION SHALL BE
REQUESTED BY THE BOARD FOR CAUSE OR EXECUTIVE IS REPLACED FOR CAUSE, SUCH
RESIGNATION OR REPLACEMENT SHALL NOT BE DEEMED A TERMINATION FOR THE PURPOSE OF
THIS AGREEMENT AND SHALL NOT ENTITLE EXECUTIVE TO CONTINUE TO BE AN EMPLOYEE OF
THE COMPANY AND BE COMPENSATED AND RECEIVE THE BENEFITS PROVIDED FOR IN THIS
AGREEMENT.
2. TERMINATION PRIOR TO CHANGE OF CONTROL. IF PRIOR TO A CHANGE OF
---------------------------------------
CONTROL (A) THE EXECUTIVE SHALL RESIGN AS CHAIRMAN, PRESIDENT OR CHIEF EXECUTIVE
OFFICER OF THE COMPANY AT THE REQUEST OF THE BOARD OR BECAUSE THE DUTIES AND
RESPONSIBILITIES OF THE CHAIRMAN, PRESIDENT OR CHIEF EXECUTIVE OFFICER HAVE BEEN
SIGNIFICANTLY MODIFIED BY THE BOARD WITHOUT HIS CONSENT OR (B) ANOTHER IS
APPOINTED OR ELECTED CHAIRMAN, PRESIDENT OR CHIEF EXECUTIVE OFFICER BY THE BOARD
IN PLACE OF THE EXECUTIVE (SUCH RESIGNATION OR REPLACEMENT OF THE EXECUTIVE
BEING HEREINAFTER REFERRED TO A "TERMINATION"), THE EXECUTIVE SHALL CONTINUE TO
BE AN EMPLOYEE OF THE COMPANY AND BE COMPENSATED AND RECEIVE BENEFITS IN
ACCORDANCE WITH THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF EXECUTIVE'S
RESIGNATION SHALL BE REQUESTED BY THE BOARD FOR CAUSE OR IF EXECUTIVE IS
REPLACED FOR CAUSE, SUCH RESIGNATION OR REPLACEMENT SHALL NOT BE
5
<PAGE>
DEEMED A TERMINATION FOR THE PURPOSE OF THIS AGREEMENT AND SHALL NOT ENTITLE
EXECUTIVE TO CONTINUE TO BE AN EMPLOYEE OF THE COMPANY AND BE COMPENSATED AND
RECEIVE THE BENEFITS PROVIDED FOR IN THIS AGREEMENT.
3. TERMINATION FOR CAUSE IF EXECUTIVE'S EMPLOYMENT IS TERMINATED FOR
---------------------
CAUSE PRIOR TO THE BEGINNING OF THE EMPLOYMENT PERIOD, (EITHER PRIOR OR
SUBSEQUENT TO A CHANGE OF CONTROL), EARNED BUT UNPAID BASE SALARY WILL BE PAID
ON A PRORATED BASIS FOR THE YEAR IN WHICH THE TERMINATION OCCURS, PLUS ACCRUED
VACATION BENEFITS, BUT ALL OTHER COMPANY OBLIGATIONS SHALL CEASE AS OF THE DATE
OF TERMINATION FOR CAUSE, UNLESS OTHERWISE PROVIDED IN SEPARATE AGREEMENTS.
4. EMPLOYMENT PERIOD. IN THE EVENT OF A TERMINATION PURSUANT TO
-----------------
PARAGRAPH 3 ABOVE, EXECUTIVE SHALL CONTINUE TO BE AN EMPLOYEE OF THE COMPANY FOR
A PERIOD OF THREE YEARS FROM THE DATE OF SUCH TERMINATION, AND IN THE EVENT OF A
TERMINATION PURSUANT TO PARAGRAPH 4 ABOVE, EXECUTIVE SHALL CONTINUE TO BE AN
EMPLOYEE OF THE COMPANY FOR A PERIOD OF TWO YEARS FROM THE DATE OF SUCH
TERMINATION, SUCH THREE YEAR PERIOD OR TWO YEAR PERIOD, AS THE CASE MAY BE,
BEING HEREINAFTER REFERRED TO AS THE "EMPLOYMENT PERIOD"; PROVIDED, HOWEVER,
THAT (A) EXECUTIVE MAY END THE EMPLOYMENT PERIOD AT ANY TIME IN HIS ABSOLUTE
DISCRETION AND THE EMPLOYMENT PERIOD MAY BE ENDED BY THE COMPANY AT ANY TIME FOR
CAUSE, (B) THE EMPLOYMENT PERIOD SHALL NOT EXTEND BEYOND APRIL 1, 2002,
EXECUTIVE'S NORMAL RETIREMENT DATE, AND (C) THE EMPLOYMENT PERIOD SHALL
TERMINATE IF AND WHEN THE EXECUTIVE BECOMES EMPLOYED ON SUBSTANTIALLY A FULL
TIME BASIS BY ANOTHER ENTITY OR AS A PARTNER OR SOLE PROPRIETOR (BUT SUCH
6
<PAGE>
TERMINATION OF THE EMPLOYMENT PERIOD UNDER CLAUSE (A), (B) OR (C) ABOVE SHALL
NOT PRECLUDE THE EXECUTIVE FROM BEING PAID FOR HIS OBLIGATION NOT TO COMPETE AS
PROVIDED IN PARAGRAPHS 11 AND 12 BELOW).
5. TITLE AND DUTIES. DURING THE EMPLOYMENT PERIOD, THE EXECUTIVE SHALL
----------------
PERFORM SUCH DUTIES AND UNDERTAKE SUCH RESPONSIBILITIES AS ARE ASSIGNED TO HIM
FROM TIME TO TIME BY THE BOARD; PROVIDED, HOWEVER, THAT SUCH DUTIES AND
RESPONSIBILITIES SHALL BE COMMENSURATE WITH HIS STATUS AS A SENIOR EXECUTIVE OF
THE COMPANY AND BEAR A REASONABLE RELATIONSHIP TO THE BUSINESS OF THE COMPANY.
6. COMPENSATION. THE COMPANY SHALL PAY TO EXECUTIVE DURING THE
------------
EMPLOYMENT PERIOD AN ANNUAL SALARY (THE "ANNUAL SALARY") EQUAL TO ONE-THIRD
(1/3RD) OF THE AGGREGATE OF THE BASE SALARY AND BONUSES PAID TO HIM DURING THE
PERIOD COMMENCING THREE (3) YEARS PRIOR TO THE DATE OF TERMINATION AND ENDING ON
THE DATE OF TERMINATION. PAYMENT SHALL BE MADE TWICE MONTHLY AND BE
APPROPRIATELY PRORATED DURING THE FIRST AND LAST MONTH OF THE EMPLOYMENT PERIOD.
IN ADDITION, DURING THE EMPLOYMENT PERIOD EXECUTIVE SHALL RECEIVE (A) THE SAME
FRINGE BENEFITS THAT HE WOULD HAVE BEEN ENTITLED TO RECEIVE IF HE HAD CONTINUED
TO BE CHIEF EXECUTIVE OFFICER DURING SUCH PERIOD, (B) REIMBURSEMENT FOR
REASONABLE EXPENSES INCURRED BY HIM IN THE PERFORMANCE OF HIS DUTIES (C) IN LIEU
OF AN OFFICE AND SECRETARIAL HELP, AN ALLOWANCE OF $1,500 MONTHLY AND (D) THE
USE OF AN AUTOMOBILE ON SUBSTANTIALLY THE SAME BASIS AS PRIOR TO HIS
TERMINATION. IF THE EMPLOYMENT PERIOD SHALL END, PURSUANT TO PARAGRAPH 6 ABOVE,
PRIOR TO THE
7
<PAGE>
END OF THE THREE YEAR TERM PROVIDED FOR IN PARAGRAPH 3 ABOVE OR THE TWO YEAR
TERM PROVIDED FOR IN PARAGRAPH 4 ABOVE, AS THE CASE MAY BE, THE ANNUAL SALARY
(BUT, EXCEPT TO THE EXTENT PROVIDED IN PARAGRAPH 10 BELOW, NOT FRINGE BENEFITS
AND PERQUISITES) SHALL CONTINUE TO BE PAYABLE UNTIL THE END OF THE NON-COMPETE
PERIOD PROVIDED FOR IN PARAGRAPH 11 BELOW AND SHALL BE DEEMED PAYMENT FOR
EXECUTIVE'S OBLIGATION NOT TO COMPETE AS PROVIDED IN SAID PARAGRAPH 11, AND
SUCH ANNUAL SALARY FOR THE
REMAINDER OF THE NON-COMPETE PERIOD SHALL BE PAID TO THE EXECUTIVE IN A LUMP SUM
CASH PAYMENT WITHIN TEN DAYS AFTER THE END OF THE EMPLOYMENT PERIOD.
7. TAX GROSS-UP. ANYTHING IN THIS AGREEMENT TO THE CONTRARY
-------------
NOTWITHSTANDING, IN THE EVENT IT SHALL BE DETERMINED THAT ANY PAYMENT OR
DISTRIBUTION MADE, OR BENEFIT PROVIDED, BY THE COMPANY TO OR FOR THE BENEFIT OF
THE EXECUTIVE (WHETHER PAID OR PAYABLE OR DISTRIBUTED OR DISTRIBUTABLE PURSUANT
TO THE TERMS OF THIS AGREEMENT OR OTHERWISE, BUT DETERMINED WITHOUT REGARD TO
ANY ADDITIONAL PAYMENTS REQUIRED UNDER THIS SECTION 9 (A 'PAYMENT') WOULD BE
SUBJECT TO THE EXCISE TAX IMPOSED BY SECTION 4999 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED AND THEN IN EFFECT (THE 'CODE') (OR ANY SIMILAR EXCISE TAX)
OR ANY INTEREST OR PENALTIES ARE INCURRED BY THE EXECUTIVE WITH RESPECT TO SUCH
EXCISE TAX (SUCH EXCISE TAX, TOGETHER WITH ANY SUCH INTEREST AND PENALTIES, ARE
HEREINAFTER COLLECTIVELY REFERRED TO AS THE ('EXCISE TAX'), THEN THE EXECUTIVE
SHALL BE ENTITLED TO RECEIVE AN ADDITIONAL PAYMENT (A 'GROSS-UP PAYMENT') IN AN
AMOUNT SUCH THAT AFTER PAYMENT BY THE EXECUTIVE OF ALL FEDERAL, STATE, LOCAL OR
8
<PAGE>
OTHER TAXES (INCLUDING ANY INTEREST OR PENALTIES IMPOSED WITH RESPECT TO ANY
SUCH TAXES), INCLUDING, WITHOUT LIMITATION, ANY SUCH INCOME TAXES (AND ANY
INTEREST AND PENALTIES IMPOSED WITH RESPECT THERETO) AND EXCISE TAX IMPOSED UPON
THE GROSS-UP PAYMENT, THE EXECUTIVE RETAINS AN AMOUNT OF THE GROSS-UP PAYMENT
EQUAL TO THE EXCISE TAX IMPOSED UPON THE PAYMENTS. AN EXECUTIVE MAY RECEIVE
GROSS-UP PAYMENTS UNDER THIS SECTION 9 WHETHER OR NOT THE EXECUTIVE ACTUALLY
RECEIVES OTHER PAYMENTS OR BENEFITS UNDER THE AGREEMENT.
(I) SUBJECT TO THE PROVISIONS OF PARAGRAPH (II) OF THIS SECTION 9, ALL
DETERMINATIONS REQUIRED TO BE MADE UNDER THIS SECTION 9, INCLUDING WHETHER AND
WHEN A GROSS-UP PAYMENT IS REQUIRED AND THE AMOUNT OF SUCH GROSS-UP
PAYMENT AND THE ASSUMPTIONS TO BE UTILIZED IN ARRIVING AT SUCH DETERMINATION,
SHALL BE MADE BY COOPERS & LYBRAND (THE "ACCOUNTING FIRM') WHICH SHALL PROVIDE
DETAILED SUPPORTING CALCULATIONS BOTH TO THE COMPANY AND THE EXECUTIVE WITHIN 20
CALENDAR DAYS OF THE RECEIPT OF WRITTEN NOTICE FROM THE EXECUTIVE THAT THERE HAS
BEEN A PAYMENT, OR SUCH EARLIER TIME AS IS REQUESTED BY THE COMPANY. IN THE
EVENT THAT THE ACCOUNTING FIRM IS SERVING AS ACCOUNTANT OR AUDITOR FOR THE
INDIVIDUAL, ENTITY OR GROUP EFFECTING THE CHANGE OF CONTROL, THE EXECUTIVE SHALL
HAVE THE RIGHT BY WRITTEN NOTICE TO THE COMPANY TO APPOINT ANOTHER NATIONALLY
RECOGNIZED ACCOUNTING FIRM TO MAKE THE DETERMINATIONS REQUIRED HEREUNDER (WHICH
ACCOUNTING FIRM SHALL THEN BE REFERRED TO AS THE ACCOUNTING FIRM HEREUNDER). ALL
FEES AND EXPENSES OF THE ACCOUNTING FIRM SHALL BE BORNE SOLELY BY THE COMPANY
AND SHALL BE PAID BY THE COMPANY UPON DEMAND OF THE
9
<PAGE>
EXECUTIVE AS INCURRED OR BILLED BY THE ACCOUNTING FIRM. ANY GROSS-UP PAYMENT, AS
DETERMINED PURSUANT TO THIS SECTION 9, SHALL BE PAID BY THE COMPANY TO THE
EXECUTIVE WITHIN FIVE DAYS OF THE RECEIPT OF THE ACCOUNTING FIRM'S
DETERMINATION. IF THE ACCOUNTING FIRM DETERMINES THAT NO EXCISE TAX IS PAYABLE
BY THE EXECUTIVE, IT SHALL FURNISH THE EXECUTIVE WITH AN UNQUALIFIED WRITTEN
OPINION IN FORM AND SUBSTANCE SATISFACTORY TO THE EXECUTIVE THAT FAILURE TO
REPORT THE EXCISE TAX ON THE EXECUTIVE'S APPLICABLE FEDERAL INCOME TAX RETURN
WOULD NOT RESULT IN THE IMPOSITION OF A NEGLIGENCE OR SIMILAR PENALTY. AS A
RESULT OF THE UNCERTAINTY IN THE APPLICATION OF SECTION 4999 OF THE CODE AT THE
TIME OF THE INITIAL DETERMINATION BY THE ACCOUNTING FIRM HEREUNDER, IT IS
POSSIBLE THAT GROSS-UP PAYMENTS WHICH WILL NOT HAVE BEEN MADE BY THE COMPANY
SHOULD HAVE BEEN MADE ('UNDERPAYMENT'), CONSISTENT WITH THE CALCULATIONS
REQUIRED TO BE MADE HEREUNDER. IN THE EVENT THAT THE COMPANY EXHAUSTS ITS
REMEDIES DESCRIBED IN PARAGRAPH (II) OF THIS SECTION 8 AND THE EXECUTIVE
THEREAFTER IS REQUIRED TO MAKE A PAYMENT OF ANY EXCISE TAX, THE ACCOUNTING FIRM
SHALL DETERMINE THE AMOUNT OF THE UNDERPAYMENT THAT HAS OCCURRED AND ANY SUCH
UNDERPAYMENT SHALL BE PAID BY THE COMPANY TO OR FOR THE BENEFIT OF THE EXECUTIVE
WITHIN FIVE DAYS OF THE RECEIPT OF THE ACCOUNTING FIRM'S DETERMINATION. ALL
DETERMINATIONS MADE BY THE ACCOUNTING FIRM IN CONNECTION WITH ANY GROSS-UP
PAYMENT OR UNDERPAYMENT SHALL BE FINAL AND BINDING UPON THE COMPANY AND THE
EXECUTIVE.
(ii) THE EXECUTIVE SHALL NOTIFY THE COMPANY IN WRITING OF ANY CLAIM
ASSERTED IN WRITING BY THE INTERNAL REVENUE SERVICE TO THE EXECUTIVE THAT, IF
10
<PAGE>
SUCCESSFUL, WOULD REQUIRE THE PAYMENT BY THE COMPANY OF THE GROSS-UP PAYMENT.
SUCH NOTIFICATION SHALL BE GIVEN AS SOON AS PRACTICABLE BUT NOT LATER THAN 60
DAYS AFTER THE EXECUTIVE IS INFORMED IN WRITING OF SUCH CLAIM AND SHALL APPRISE
THE COMPANY OF THE NATURE OF SUCH CLAIM AND THE DATE ON WHICH SUCH CLAIM IS
REQUESTED TO BE PAID. THE EXECUTIVE SHALL NOT PAY SUCH CLAIM PRIOR TO THE
EXPIRATION OF THE 30-DAY PERIOD FOLLOWING THE DATE ON WHICH IT GIVES SUCH NOTICE
TO THE COMPANY (OR SUCH SHORTER PERIOD ENDING ON THE DATE THAT ANY PAYMENT OF
TAXES WITH RESPECT TO SUCH CLAIM IS DUE). IF THE COMPANY NOTIFIES THE EXECUTIVE
IN WRITING PRIOR TO THE EXPIRATION OF SUCH PERIOD THAT IT DESIRES TO CONTEST
SUCH CLAIM, THE EXECUTIVE SHALL AT THE COMPANY'S EXPENSE:
A. GIVE THE COMPANY ANY INFORMATION REASONABLY REQUESTED BY THE COMPANY
RELATING TO SUCH CLAIM.
B. TAKE SUCH ACTION IN CONNECTION WITH CONTESTING SUCH CLAIM AS THE
COMPANY SHALL REASONABLY REQUEST IN WRITING FROM TIME TO TIME, INCLUDING,
WITHOUT LIMITATION, ACCEPTING LEGAL REPRESENTATION WITH RESPECT TO SUCH CLAIM BY
AN ATTORNEY REASONABLY SELECTED BY THE COMPANY.
C. COOPERATE WITH THE COMPANY IN GOOD FAITH IN ORDER EFFECTIVELY TO
CONTEST SUCH CLAIM, AND
D. PERMIT THE COMPANY TO PARTICIPATE IN ANY PROCEEDINGS RELATING TO SUCH
CLAIM; PROVIDED, HOWEVER, THAT THE COMPANY SHALL BEAR AND PAY DIRECTLY AS
INCURRED ALL COSTS AND EXPENSES (INCLUDING ADDITIONAL INTEREST AND PENALTIES)
INCURRED IN CONNECTION WITH SUCH CONTEST AND SHALL INDEMNIFY AND HOLD THE
11
<PAGE>
EXECUTIVE HARMLESS, ON AN AFTER-TAX BASIS, FOR ANY EXCISE TAX OR ANY FEDERAL,
STATE, LOCAL OR OTHER INCOME OR OTHER TAX (INCLUDING INTEREST AND PENALTIES WITH
RESPECT THERETO) IMPOSED AS A RESULT OF SUCH REPRESENTATION AND PAYMENT OF COSTS
AND EXPENSES. WITHOUT LIMITATION ON THE FOREGOING PROVISIONS OF THIS SECTION 9,
THE COMPANY SHALL CONTROL ALL PROCEEDINGS TAKEN IN CONNECTION WITH SUCH CONTEST
AND, AT ITS SOLE OPTION, MAY PURSUE OR FOREGO ANY AND ALL ADMINISTRATIVE
APPEALS, PROCEEDINGS, HEARINGS AND CONFERENCES WITH THE TAXING AUTHORITY IN
RESPECT OF SUCH CLAIM AND MAY, AT ITS SOLE OPTION, EITHER DIRECT THE EXECUTIVE
TO PAY THE TAX CLAIMED AND SUE FOR A REFUND OR CONTEST THE CLAIM IN ANY
PERMISSIBLE MANNER, AND THE EXECUTIVE AGREES TO PROSECUTE SUCH CONTEST TO A
DETERMINATION BEFORE ANY ADMINISTRATIVE TRIBUNAL, IN A COURT OF INITIAL
JURISDICTION AND IN ONE OR MORE APPELLATE COURTS, AS THE COMPANY SHALL
DETERMINE; PROVIDED, HOWEVER, THAT IF THE COMPANY DIRECTS THE EXECUTIVE TO PAY
SUCH CLAIM AND SUE FOR A REFUND, THE COMPANY SHALL ADVANCE THE AMOUNT OF SUCH
PAYMENT TO THE EXECUTIVE ON AN INTEREST-FREE BASIS AND SHALL INDEMNIFY AND HOLD
THE EXECUTIVE HARMLESS, ON AN AFTER-TAX BASIS, FROM ANY EXCISE TAX OR FEDERAL,
STATE, LOCAL OR OTHER INCOME OR OTHER TAX (INCLUDING INTEREST OR PENALTIES WITH
RESPECT THERETO) IMPOSED WITH RESPECT TO SUCH ADVANCE OR WITH RESPECT TO ANY
IMPUTED INCOME WITH RESPECT TO SUCH ADVANCE; AND FURTHER PROVIDED THAT ANY
EXTENSION OF THE STATUS OF LIMITATIONS RELATING TO PAYMENT OF TAXES FOR THE
TAXABLE YEAR OF THE EXECUTIVE WITH RESPECT TO WHICH SUCH CONTESTED AMOUNT IS
CLAIMED TO BE DUE IS LIMITED SOLELY TO SUCH CONTESTED AMOUNT. FURTHERMORE, THE
COMPANY'S CONTROL OF
12
<PAGE>
THE CONTEST SHALL BE LIMITED TO ISSUES WITH RESPECT TO WHICH A GROSS-UP PAYMENT
WOULD BE PAYABLE HEREUNDER AND THE EXECUTIVE SHALL BE ENTITLED TO SETTLE OR
CONTEST, AS THE CASE MAY BE, ANY OTHER ISSUE RAISED BY THE INTERNAL REVENUE
SERVICE OR ANY OTHER TAXING AUTHORITY.
(III) IF, AFTER THE RECEIPT BY THE EXECUTIVE OF AN AMOUNT ADVANCED BY THE
COMPANY PURSUANT TO PARAGRAPH (II) OF THIS SECTION 9, THE EXECUTIVE BECOMES
ENTITLED TO RECEIVE ANY REFUND WITH RESPECT TO SUCH CLAIM, THE EXECUTIVE SHALL
(SUBJECT TO THE COMPANY'S COMPLYING WITH THE REQUIREMENTS OF PARAGRAPH (II) OF
THIS SECTION 9 PROMPTLY PAY TO THE COMPANY THE AMOUNT OF SUCH REFUND (TOGETHER
WITH ANY INTEREST PAID OR CREDITED THEREON AFTER TAXES APPLICABLE THERETO) UPON
RECEIPT THEREOF. IF, AFTER THE RECEIPT BY THE EXECUTIVE OF AN AMOUNT ADVANCED BY
THE COMPANY PURSUANT TO PARAGRAPH (II) OF THIS SECTION 9, A DETERMINATION IS
MADE THAT THE EXECUTIVE SHALL NOT BE ENTITLED TO ANY REFUND WITH RESPECT TO SUCH
CLAIM AND THE COMPANY DOES NOT NOTIFY THE EXECUTIVE IN WRITING OF ITS INTENT TO
CONTEST SUCH DENIAL OF REFUND PRIOR TO THE EXPIRATION OF 30 DAYS AFTER SUCH
DETERMINATION, THEN SUCH ADVANCE SHALL BE FORGIVEN AND SHALL NOT BE REQUIRED TO
BE REPAID AND THE AMOUNT OF SUCH ADVANCE SHALL OFFSET, TO THE EXTENT THEREOF,
THE AMOUNT OF GROSS-UP PAYMENT REQUIRED TO BE PAID.
1. MEDICAL INSURANCE COVERAGE.EXECUTIVE AND HIS BENEFICIARIES SHALL
---------------------------
CONTINUE TO PARTICIPATE IN ALL LIFE, HEALTH, DISABILITY AND OTHER WELFARE PLANS
OR PROGRAMS EXISTING AT THE TIME OF A CHANGE OF CONTROL IN WHICH THEY WERE
PARTICIPATING AT SUCH TIME (OR SUBSTANTIALLY SIMILAR PLANS OR PROGRAMS), TO THE
13
<PAGE>
EXTENT THAT SUCH CONTINUED PARTICIPATION IS POSSIBLE UNDER THE GENERAL TERMS AND
CONDITIONS OF SUCH PLANS AND PROGRAMS, THROUGHOUT THE EMPLOYMENT PERIOD AND
AFTER THE EMPLOYMENT PERIOD UP TO AGE 65 OR EARLIER DEATH.
COMPANY AND EXECUTIVE WILL CONTINUE TO PAY THE SAME RELATIVE PORTION OF THE
COST OF EACH SUCH PLAN OR PROGRAM AS EACH WERE PAYING AT THE TIME OF THE CHANGE
OF CONTROL. FURTHER, IN THE EVENT THAT EXECUTIVE'S OR HIS BENEFICIARIES'
CONTINUED PARTICIPATION IN ANY GROUP PLAN OR PROGRAM IS NOT PERMITTED, THEN IN
LIEU THEREOF, COMPANY SHALL ACQUIRE INDIVIDUAL INSURANCE POLICIES PROVIDING
SUBSTANTIALLY SIMILAR COVERAGE FOR EXECUTIVE AND HIS BENEFICIARIES, AND COMPANY
AND EXECUTIVE WILL PAY THE SAME RELATIVE PORTION OF THE COST OF SUCH COMPARABLE
COVERAGE PLANS OR PROGRAMS OR IN THE EVENT THAT COMPANY CANNOT ACQUIRE
INDIVIDUAL INSURANCE POLICIES PROVIDING SUBSTANTIALLY SIMILIAR COVERAGE, THE
COMPANY WILL SELF-INSURE THE EXECUTIVE, AND THE EXECUTIVE IN THE CASE OF SELF
INSURANCE WILL PAY THE COBRA RATE THEN APPLICABLE TO THE COMPANY'S GROUP PLAN.
2. NON-COMPETE. DURING THE EMPLOYMENT PERIOD EXECUTIVE WILL NOT COMPETE
-----------
DIRECTLY OR INDIRECTLY WITH THE COMPANY OR BE DIRECTLY OR INDIRECTLY INTERESTED
IN ANY BUSINESS COMPETING WITH THE BUSINESS BEING CONDUCTED BY THE COMPANY.
OWNERSHIP OF LESS THAN 1 PERCENT OF THE ISSUED AND OUTSTANDING CAPITAL STOCK OF
ANY CORPORATION THE STOCK OF WHICH IS LISTED UPON A NATIONAL EXCHANGE OR
REGULARLY QUOTED BY THE NATIONAL ASSOCIATION OF SECURITY DEALERS
14
<PAGE>
AUTOMATED QUOTATION (NASDAQ) SHALL NOT BE DEEMED TO CREATE A MATERIAL CONFLICT
OF INTEREST AS CONTEMPLATED HEREUNDER. FOR THE PURPOSE OF THIS PARAGRAPH 11, THE
EMPLOYMENT PERIOD SHALL BE DEEMED TO EXTEND THREE YEARS FROM TERMINATION IF SUCH
TERMINATION OCCURRED PURSUANT TO PARAGRAPH 3 ABOVE OR TWO YEARS FROM TERMINATION
IF SUCH TERMINATION OCCURRED PURSUANT TO PARAGRAPH 4 ABOVE, NOTWITHSTANDING ANY
PRIOR ENDING OF THE EMPLOYMENT PERIOD PURSUANT TO PARAGRAPH 6 ABOVE.
3. TRADE SECRETS. EXECUTIVE SHALL REGARD AND PRESERVE AS CONFIDENTIAL
-------------
AND NOT USE, COMMUNICATE OR DISCLOSE TO ANY PERSON, ORALLY, IN WRITING OR BY A
PUBLICATION, ANY SECRET OR CONFIDENTIAL INFORMATION OF THE COMPANY, REGARDLESS
OF WHERE OR WHEN OR HOW ACQUIRED BY THE COMPANY, OR OF OTHERS WHICH THE COMPANY
IS OBLIGATED TO MAINTAIN IN CONFIDENCE. THIS OBLIGATION SHALL EXIST DURING THE
EMPLOYMENT PERIOD AND AFTER THE TERMINATION OF THE EMPLOYMENT PERIOD UNTIL SUCH
INFORMATION BECOMES A MATTER OF PUBLIC KNOWLEDGE THROUGH NO ACT OF EXECUTIVE. AT
THE TERMINATION OF EMPLOYMENT BY THE COMPANY, EXECUTIVE AGREES TO RETURN TO
EMPLOYER ALL DOCUMENTS, WRITINGS, DRAWINGS AND OTHER PROPERTY OF THE COMPANY
WITHIN HIS CUSTODY AND CONTROL.
4. INDEMNIFICATION THE PARTIES AGREE TO EXECUTE A SEPARATE
---------------
INDEMNIFICATION AGREEMENT IN THE FORM ATTACHED AS EXHIBIT B.
5. ARBITRATION. THE COMPANY AND EXECUTIVE UNDERTAKE TO EXECUTE THIS
-----------
AGREEMENT IN GOOD FAITH. ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OTHER BENEFIT PLANS OR ARRANGEMENTS WITH THE COMPANY OR
15
<PAGE>
BREACH OF THIS AGREEMENT, SHALL RECEIVE PROMPT ATTENTION BY THE OTHER PARTY AND
BOTH PARTIES AGREE TO MAKE GOOD FAITH EFFORTS TO RESOLVE ANY CONTROVERSY OR
CLAIM IN AN AMICABLE WAY.
IF THE COMPANY AND EXECUTIVE FAIL TO SETTLE THE CONTROVERSY OR CLAIM IN AN
AMICABLE WAY, THEY AGREE TO SUBMIT THE MATTER TO BE SETTLED BY ARBITRATION IN
ACCORDANCE WITH THE ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION.
THIS AGREEMENT, ITS EXECUTION, INTERPRETATION AND PERFORMANCE SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF CONNECTICUT OF THE UNITED STATES OF AMERICA. THE
ARBITRATION WILL BE HELD IN HARTFORD, CONNECTICUT, OR SUCH OTHER PLACE AS MAY BE
AGREED AT THE TIME BY THE PARTIES. THE AWARD OF THIS ARBITRATION SHALL BE FINAL
AND BINDING BOTH FOR THE COMPANY AND EXECUTIVE AND MAY BE ENTERED IN ANY COURT
WITH JURISDICTION.
6. LITIGATION EXPENSES IN THE EVENT OF ANY ACTION, SUIT, PROCEEDING,
-------------------
ARBITRATION OR CLAIM BETWEEN OR BY OR AGAINST THE COMPANY AND/OR THE EXECUTIVE
WITH RESPECT TO THIS AGREEMENT, OTHER BENEFIT PLANS OR ARRANGEMENTS BETWEEN
THE PARTIES, AND THE ASSERTION OR ENFORCEMENT OF HIS RIGHTS HEREUNDER, THE
COMPANY SHALL PROMPTLY PAY OR REIMBURSE THE EXECUTIVE UPON SUCH EXECUTIVE'S
WRITTEN DEMAND THEREFOR, FOR EIGHTY (80) PERCENT OF HIS COSTS AND EXPENSES
(INCLUDING COSTS AND FEES OF WITNESSES, EVIDENCE AND ATTORNEY FEES AND EXPENSES)
RELATING TO OR ARISING OUT OF (DIRECTLY OR INDIRECTLY) SUCH ACTION, SUIT,
PROCEEDING, ARBITRATION OR CLAIM, ON A MONTHLY BASIS, AS SUCH COSTS AND
16
<PAGE>
EXPENSES ARE INCURRED IN INVESTIGATING, PROSECUTING, DEFENDING OR PREPARING TO
PROSECUTE OR DEFEND, REGARDLESS OF THE OUTCOME THEREOF. IN NO EVENT SHALL THE
EXECUTIVE BE REQUIRED TO REIMBURSE THE COMPANY FOR ANY OF THE COSTS AND EXPENSES
RELATING TO ANY SUCH ACTION, SUIT, PROCEEDING, ARBITRATION OR CLAIM. THE
OBLIGATION OF THE COMPANY UNDER THIS SECTION 15 SHALL SURVIVE THE TERMINATION
FOR ANY REASON OF THIS AGREEMENT. THIS SECTION 15 CANNOT BE AMENDED OR MODIFIED
TO AFFECT THE RIGHTS OF THE EXECUTIVE WITHOUT THE PRIOR WRITTEN CONSENT OF SUCH
EXECUTIVE WHICH SPECIFICALLY REFERS TO THIS SECTION 15.
7. RABBI TRUST.WITHIN SIXTY (60) DAYS OF THE DATE OF THIS AGREEMENT, THE
-----------
COMPANY SHALL ENTER INTO A TRUST AGREEMENT (THE "TRUST AGREEMENT") WITH A THIRD
PARTY INSTITUTIONAL TRUSTEE, SUBSTANTIALLY IN THE FORM SET FORTH IN REV. PROC.
92-64, 1992-2 C.B. 422, TO ASSIST IT IN MEETING ITS OBLIGATIONS TO THE EXECUTIVE
UNDER THE COMPANY'S SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (THE "SERP"). THE
TRUST ESTABLISHED PURSUANT TO THE TRUST AGREEMENT (THE "TRUST") SHALL BE
IRREVOCABLE. THE TRUST AGREEMENT SHALL PROVIDE THAT UPON A CHANGE OF CONTROL
THE COMPANY SHALL, NO LATER THAN 30 DAYS FOLLOWING THE CHANGE OF CONTROL, MAKE
AN IRREVOCABLE CONTRIBUTION OF CASH OR CASH EQUIVALENTS TO THE TRUST IN AN
AMOUNT SUFFICIENT TO PAY EACH SERP PARTICIPANT OR BENEFICIARY THE
17
<PAGE>
BENEFITS TO WHICH THEY WOULD BE ENTITLED PURSUANT TO THE TERMS OF THE SERP, AND
WITHIN 30 DAYS FOLLOWING THE END OF EACH CALENDAR YEAR ENDING AFTER THE CHANGE
OF CONTROL THE COMPANY SHALL IRREVOCABLY CONTRIBUTE ANY ADDITIONAL CASH TO THE
TRUST NECESSARY FOR THE TRUSTEE TO PAY EACH SERP PARTICIPANT OR BENEFICIARY THE
BENEFITS PAYABLE PURSUANT TO THE TERMS OF THE SERP AS OF THE CLOSE OF THE YEAR.
THE TRUST AGREEMENT SHALL ALSO PROVIDE (I) THAT ALL INCOME RECEIVED BY THE TRUST
SHALL BE ACCUMULATED AND REINVESTED, (II) THAT THE COMPANY WILL BE RESPONSIBLE
FOR THE PAYMENT OF ALL FEES AND EXPENSES RELATED TO THE TRUST, (III) THAT AFTER
A CHANGE OF CONTROL THE TRUSTEE MAY NOT BE REMOVED BY THE COMPANY, AND (IV)
THAT, IF THE TRUSTEE SHALL RESIGN, ANY SUCCESSOR TRUSTEE MUST BE AN INDEPENDENT
INSTITUTIONAL ENTITY, SUCH AS A BANK TRUST DEPARTMENT OR OTHER PARTY THAT HAS
BEEN GRANTED CORPORATE TRUSTEE POWERS UNDER STATE LAW. THE TRUST AGREEMENT SHALL
ALSO PROVIDE THAT THE PROVISIONS OF THE TRUST DESCRIBED IN THIS PARAGRAPH 16 MAY
NOT BE AMENDED AFTER A CHANGE OF CONTROL.
8. ENTIRE AGREEMENT. THIS AGREEMENT EMBODIES THE WHOLE UNDERSTANDING
----------------
BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND
SUPERSEDES ALL EARLIER AGREEMENTS. THERE ARE NO INDUCEMENTS, PROMISES, TERMS,
CONDITIONS OR OBLIGATIONS MADE OR ENTERED INTO BY EITHER PARTY OTHER THAN AS
CONTAINED HEREIN.
9. MODIFICATION THIS AGREEMENT MAY NOT BE CHANGED ORALLY, BUT ONLY BE
------------
MEANS OF AN AGREEMENT IN WRITING SIGNED BY THE PARTIES HERETO.
10. WAIVER. THE WAIVER BY ANY PARTY OF A BREACH OF ANY PROVISION OF THIS
-------
AGREEMENT SHALL NOT OPERATE AS, OR BE CONSTRUED AS, A WAIVER OF ANY SUBSEQUENT
BREACH.
18
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11. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
--------------
ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT, WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICT OF LAWS.
12. SUCCESSORS THIS AGREEMENT IS PERSONAL TO THE EXECUTIVE AND WITHOUT THE
----------
PRIOR WRITTEN CONSENT OF THE COMPANY SHALL NOT BE ASSIGNABLE BY THE EXECUTIVE
OTHERWISE THAN BY WILL OR THE LAWS OF DESCENT AND DISTRIBUTION. THIS AGREEMENT
SHALL INURE TO THE BENEFIT OF AND BE ENFORCEABLE BY THE EXECUTIVE'S LEGAL
REPRESENTATIVES. THIS AGREEMENT SHALL INURE TO THE BENEFIT OF AND BE BINDING
UPON THE COMPANY AND ITS SUCCESSORS AND ASSIGNS. THE COMPANY WILL REQUIRE ANY
SUCCESSOR (WHETHER DIRECT OR INDIRECT, BY PURCHASE, MERGER, CONSOLIDATION OR
OTHERWISE) TO ALL OR SUBSTANTIALLY ALL OF THE BUSINESS AND/OR ASSETS OF THE
COMPANY TO ASSUME EXPRESSLY AND AGREE TO PERFORM THIS AGREEMENT IN THE SAME
MANNER AND TO THE SAME EXTENT THAT THE COMPANY WOULD BE REQUIRED TO PERFORM IT
IF NO SUCH SUCCESSION HAD TAKEN PLACE. AS USED IN THIS AGREEMENT, "COMPANY"
SHALL MEAN THE COMPANY AS HEREINBEFORE DEFINED AND ANY SUCCESSOR TO ITS BUSINESS
AND/OR ASSETS AS AFORESAID WHICH ASSUMES AND AGREES TO PERFORM THIS AGREEMENT BY
OPERATION OF LAW OR OTHERWISE.
IN WITNESS WHEREOF, THE PARTIES HAVE HEREUNTO SET THEIR HANDS AS OF THE
DATE FIRST ABOVE WRITTEN.
19
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EXHIBIT B
---------
INDEMNIFICATION AGREEMENT
-------------------------
This Agreement, made and entered into this lst day of March, 1995
("Agreement"), by and between Lydall, Inc., a Delaware corporation ("Company"),
and ("Indemnitee"):
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
WHEREAS, the current impracticability of obtaining adequate insurance and
the uncertainties relating to indemnification have increased the difficulty of
attracting and retaining such persons;
WHEREAS, the Board of Directors of the Company has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's stockholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on
additional service for or on behalf of the Company on the condition that he be
so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. Indemnitee agrees to serve (as a
-----------------------
director, officer, employee, agent of the Company) (at the request of the
Company, as a director, officer, employee, agent, fiduciary of another
corporation, partnership, joint venture, trust employee benefit plan or other
enterprise. Indemnitee may at any time and for any reason resign from such
position (subject to any other contractual obligation or any obligation imposed
by operation of law), in which event the Company shall have no obligation under
this Agreement to continue Indemnitee in such position.
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Section 2. Indemnification - General. The Company shall indemnify, and
--------------------------
advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this
Agreement and (b) to the fullest extent permitted by applicable law in effect on
the date hereof and as amended from time to time. The rights of Indemnitee
provided under the preceding sentence shall include, but shall not be limited
to, the rights set forth in the other Sections of this Agreement.
Section 3. Proceedings Other than Proceedings by or in the Right of the
------------------------------------------------------------
Company. Indemnitee shall be entitled to the rights of indemnification provided
- --------
in this Section 3 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to any threatened,
pending, or completed Proceeding (as hereinafter defined), other than a
Proceeding by or in the right of the Company. Pursuant to this Section 3,
Indemnitee shall be indemnified against all expenses, judgements, penalties,
fines, and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with such Proceeding or any claim, issue or matter
therein, if he acted in good faith and in a manner be reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to any
criminal Proceeding, had no reasonable cause to believe his conduct was
unlawful.
Section 4. Proceedings by or in the Right of the Company. Indemnitee
----------------------------------------------
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to any threatened, pending or completed Proceeding brought by or in the
right of the Company to procure a judgment in its favor. Pursuant to this
Section, Indemnitee shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company; provided, however, that if
applicable law so provides, no indemnification against such Expenses shall be
made in respect of any claim, issue or matter in such Proceeding as to which
Indemnitee shall have been adjudged to be liable to the Company unless and to
the extent that the Court of Chancery of the State of Delaware, or the court in
which such Proceeding shall have been brought or is pending, shall determine
that such indemnification may be made.
Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly
---------------------------------------------------------------
Successful. Notwithstanding any other provision of this Agreement, to the
- -----------
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or
2
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otherwise, as to one or more but less than all claims, issues or matters in such
Proceeding, the Company shall indemnify Indemnitee against all expenses actually
and reasonably incurred by him or on his behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section and
without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
Section 6. Indemnification for Expenses of a Witness. Notwithstanding any
------------------------------------------
other provision of this Agreement, to the extent that Indemnitee is, by reason
of his Corporate Status, a witness in any Proceeding to which Indemnitee is not
a party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
Section 7. Advancement of Expenses. The Company shall advance all
------------------------
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within ten days after the receipt by the Company of a statement
or statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
Section 8. Procedures for Determination of Entitlement to Indemnification.
---------------------------------------------------------------
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shell, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to the
first sentence of Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case; (i)if a Change in Control (as hereinafter defined) shall
be made in the Independent Counsel (as hereinafter defined) in a written opinion
to the Board of Directors, a copy of which shall be delivered to Indemnitee; or
(ii) if a Change of Control shall not have occurred, (A) by the Board of
Directors by a majority vote of a quorum consisting of Disinterested Directors
(as
3
<PAGE>
hereinafter defined), or (B) if a quorum of the Board of Directors consisting of
Disinterested Directors is not obtainable or, even if obtainable, such quorum of
Disinterested Directors so directs, by Independent Counsel in a written opinion
to the Board of Directors, a copy of which shall be delivered to Indemnitee or
(C) if so directed by the Board of Directors, by the stockholders of the
Company; and, if it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with this person, persons or entity making such
determination shall be borne by the Company (Irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 8(b) hereof, the Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a Change
of Control shall have occurred, the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors, in which event the preceding sentence shall apply), and
Indemnitee shall give written notice to the Company advising it of the identity
of the Independent Counsel so selected. In either event, Indemnitee or the
Company, as the case may be, may, within 10 days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, a written objection to such selection; provided, however, that such
-------- -------
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 17 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
so made and substantiated, the Independent Counsel so selected may not serve as
Independent Counsel unless and until such objection is withdrawn or a court has
determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the
4
<PAGE>
Court of Chancery of the State of Delaware or other court of competent
jurisdiction for resolution of any objection which shall have been made the
Company or Indemnitee to the other's selection of Independent Counsel and/or for
the appointment as Independent Counsel of a person selected by the Court of by
such other person as the Court shall designate, and the person with respect to
whom all objections are so resolved or the person so appreciated shall act as
Independent Counsel under Section 8(b) hereof. The Company shall pay any and all
reasonable fees and expenses of Independent Counsel incurred by such Independent
Counsel in connection with acting pursuant to Section 8(b) hereof, and the
Company shall pay all reasonable fees and expenses incident to the procedures of
this Section 8(c), regardless of the manner in which such Independent Counsel
was selected or appointed. Upon the due commencement of any judicial proceeding
or arbitration pursuant to Section 10(a)(iii) of this Agreement, Independent
Counsel shall be discharged and relived of any further responsibility in such
capacity (subject to the applicable standards of professional conduct then
prevailing).
Section 9. Presumptions and Effect of Certain Proceedings.
----------------------------------------------
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement of conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
Section 10. Remedies of Indemnitee.
----------------------
(a) In the event that (i) a determination is made pursuant to Section
8 of this Agreement that Indemnitee is not entitled to indemnification under
this Agreement, (ii) advancement of Expenses is not timely made pursuant to
Section 7 of this Agreement, (iii) no determination of entitlement to
5
<PAGE>
indemnification shall have been made pursuant to Section 8(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to Section 5 or 6 of this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within 10 (10) days
after a determination has been made that Indemnitee is entitled to
indemnification, Indemnitee shall be entitled to an adjudication in an
appropriate court of the State of Delaware, or in any other court of competent
jurisdiction, of his entitlement to such indemnification or advancement of
Expenses. Alternatively, Indemnitee, at his option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the Commercial
Arbitration Rules of the American Arbitration Association. Indemnitee shall
commence such proceeding seeking an adjudication or an award in arbitration
within 180 days following the data on which Indemnitee first has the right to
commence such proceeding pursuant to this Section 10(a); provided, however, that
-------- -------
the foregoing clause shall not apply in respect of a proceeding brought by
Indemnitee to enforce his rights under Section 5 of this Agreement.
(b) In the event that a determination shall have been made pursuant to
Section 8(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a de novo trial, or
-- ----
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 10 the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 8(b)
of this Agreement that Indemnitee is entitled to indemnification, the Company
shall be bound by such determination in any judicial proceeding or arbitration
commenced pursuant to this Section 10, absent (i) a misstatement by Indemnitee
of a material fact, or an omission of a material fact necessary to make
Indemnitee's statement not materially misleading, in connection with the request
for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
(d) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17 of this Agreement) actually
6
<PAGE>
and reasonably incurred by him in such judicial adjudication or arbitration, but
only if he prevails therein. If it shall be determined in said judicial
adjudication or arbitration that Indemnitee is entitled to receive part but not
all of the indemnification or advancement of expenses sought, the expenses
incurred by Indemnitee in connection with such judicial adjudication or
arbitration shall be appropriately prorated.
Section 11. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
-----------------------------------------------------------
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnities, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extend that
Indemnities has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 12. Duration of Agreement. This Agreement shall continue until
----------------------
and terminate upon the later of: (a)10 years after the date that Indemnities
shall have ceased to serve as a director, officer, employee, or agent of the
Company or of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which Indemnitee served
7
<PAGE>
at the request of the Company; or (b) the final termination of any Proceeding
then pending in respect of which Indemnitee is granted rights of indemnification
or advancement of expenses hereunder and of any proceeding commenced by
Indemnitee pursuant to Section 10 of this Agreement relating thereto. This
Agreement shall be binding upon the Company and its successors and assigns and
shall inure to the benefit of Indemnitee and his heirs, executors and
administrators.
Section 13. Severability. If any provision or provisions of this
-------------
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (b) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed to as to give effect to
the intent manifested thereby.
Section 14. Exception to Right of Indemnification or Advancement of
-------------------------------------------------------
Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
- --------
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding brought by Indemnitee, or any claim
therein prior to a Change in Control, unless the bringing of such Proceeding or
making of such claim shall have been approved by the Board of Directors.
Section 15. Identical Counterparts. This agreement may be executed in one
----------------------
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
Section 16. Headings. The headings of the paragraphs of this Agreement re
--------
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
Section 17. Definitions. (a) The phrase "Change of Control," as used in
-----------
this Agreement, shall mean i) an acquisition of the Company by means of a merger
or consolidation or purchase of substantially all of its assets if and when
incident thereto (A) the composition of the Board of Directors of the Company
(the "Board") or its successor changes so that a
8
<PAGE>
majority of the Board is not comprised of individuals who were members of the
board immediately prior to such merger, consolidation or purchase of assets or
(B) the stockholders of the Company acquire a right to receive, in exchange for
or upon surrender a majority of their stock, cash or other securities or a
combination of the two; and/or ii) the acquisition by a person (as that term is
hereafter defined) of the voting rights with respect to 25 percent or more of
the outstanding Common Stock of the Company if such person was not an officer of
director of the Company on the date of this Agreement; and/or iii) the election
or appointment to the Board of any director or directors whose appointment or
election or nomination for election was not approved by a vote of at least a
majority of the directors then still in office who were either directors on the
date hereof or whose election, appointment or nomination for election was
previously so approved.
(b) "Corporate Status" describes the status of a person who is or was
a director, officer, employee or agent of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who is
not and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(d) "Effective Date" means March 1, 1995.
(e) "Expenses" shall include all reasonable attorney's fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
9
<PAGE>
(g) "Proceeding" includes any action, suite, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative, or investigative, except
one (i) initiated by an Indemnitee pursuant to Section 10 of this Agreement to
enforce his rights under this Agreement or (ii) pending on or before the
Effective Date.
Section 18. Modification and Waiver. No supplement, modification or
-----------------------
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
--------------------
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
Section 20. Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
Leonard R. Jaskol
2 Saint Andrews Drive
Farmington, CT 06032
(b) If to the Company to:
Mary Adamowicz
General Counsel and Secretary,
Lydall, Inc.
P.O. Box 151
One Colonial Road
Manchester, CT 06045-0151
or to such other address as may have been furnished to Indemnitee
10
<PAGE>
by the Company or to the Company by Indemnitee, as the case may be.
Section 21. Governing Law. The parties agree that this Agreement shall be
-------------
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
Section 22. Miscellaneous. Use of the masculine pronoun shall be deemed
-------------
to include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written.
ATTEST: LYDALL, INC.
By_____________________________ By______________________
INDEMNITEE
_____________________________
Leonard R. Jaskol
2 Saint Andrews Drive
Framington, CT 06032
11
<PAGE>
EXHIBIT A - FRINGE BENEFITS
---------------------------
1. Medical Benefits
a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes
dental benefits)
b. Lydall, Inc. Executive Medical Reimbursement Plan
2. Disability Benefits
a. Lydall, Inc. Short Term Disability Plan
b. Lydall, Inc. Executive Group Long Term Disability Plan
3. Life Insurance
a. Executive Life Insurance Plan
b. Accidental Death and Dismemberment Plan
c. Family Assistance Program
d. Business Travel Accident Plan
e. Individual whole life policies (Formerly Senior Officer Life Plan)
4. Retirement Plans
a. Lydall, Inc. Pension Plan No. 1A
b. Lydall, Inc. Profit Sharing Plan No. 1
c. Lydall, Inc. 401(k) Plan
d. Lydall, Inc. Supplemental Executive Retirement Plan
5. Stock Plans
a. Lydall, Inc. Employee Stock Purchase Plan
b. Lydall, Inc. 1992 Stock Incentive Compensation Plan
c. Lydall, Inc. 1982 Stock Incentive Compensation Plan
6. Other
a. Holidays, vacations
18
<PAGE>
LYDALL, INC.
Exhibit 11.1
Schedule of Computation of Weighted Average Shares Outstanding
<TABLE>
<CAPTION>
Years ended
December 31,
----------------------
In thousands 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Primary
- -------
Weighted average number of
common shares 8,319 8,219 7,963
Additional shares assuming
conversion of stock options
and warrants 657 572 747
----- ----- -----
Weighted average common shares
and equivalents outstanding 8,976 8,791 8,710
----- ----- -----
Fully Diluted
- -------------
Weighted average number of
common shares 8,319 8,219 7,963
Additional shares assuming
conversion of stock options
and warrants 667 573 753
----- ----- -----
Weighted average common 8,986 8,792 8,716
----- ----- -----
</TABLE>
1992 has been restated to reflect a three-for-two stock split distributed in
September 1993.
<PAGE>
lydall, inc
STRATEGY
NEW PRODUCTS
QUALITY PROGRAM
ACQUISITIONS
1994
Annual
Report
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Percent
In thousands, except per-share data 1994 1993 Increase
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $213,072 $157,431 35
Net income 15,503 10,248 51
Net income per common share 1.73 1.17 48
Stockholders' equity 76,227 60,057 27
Stockholders' equity per share 9.14 7.26 26
Market capitalization at December 31, 271,010 176,751 53
Closing price NYSE on December 31, 32.500 21.375 52
Weighted average common stock & equivalents outstanding 8,976 8,791 2
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
1994 HIGHLIGHTS 10th Consecutive Year of Record Earnings
Sales Increased 35%
Earnings Per Share Up 48%
Return on Sales -- 7.3%
Record Operating Cash Flow
Two Acquisitions
Sales set a new record at $213 million. Net income was a record $15.5 million --
up 51 percent. Earnings per share were $1.73 -- an increase of 48 percent.
Strong domestic sales of high-efficiency air filtration products, dynamic growth
in sales of thermal barrier and heat shields to the automotive market, and
increasing demand for media supplied to automotive air-bag component
manufacturers were major contributors to 1994's record results. Another sizable
component was a healthy 35 percent rise in international business, including
exports as well as sales from a foreign operation.
Acquisitions supplemented the robust internal growth of the Company. Two
profitable additions -- one, a designer and manufacturer of automotive thermal
insulation products in Columbus, Ohio, and the other, a small materials handling
slipsheet producer in Jacksonville, Florida -- contributed significantly to
record sales levels.
With the acquisition of the Columbus plant, Lydall enhanced its position as an
automotive supplier. During 1994, sales to the automotive market represented 31
percent of Lydall's total sales. The Company's sales to other market segments
also grew during the year. Sales to air and liquid filtration markets increased
by 13 percent; the materials handling business was up 13 percent; and electrical
insulation sales rose by 19 percent.
1
<PAGE>
TO OUR STOCKHOLDERS AND EMPLOYEES
Ten consecutive years of earnings growth! I am very proud of the employees
of Lydall and the achievements that have led to this impressive milestone in
the Company's history.
In 1994 we increased sales by 35 percent, net income by 51 percent, and earnings
per share by 48 percent. In addition, we closed the year with a strong balance
sheet and record operating cash flow.
I'm pleased to report that stockholders' value increased by 52 percent during
1994. Lydall was listed in Fortune as one of the "50 Best Performing Stocks
in 1994" and in USA Today as one of the best performing stocks for the past
five years.
Reflecting on what has enabled Lydall to achieve these record results and what
will support our future growth, I believe a great deal of credit can be
attributed to four key elements. We have a focused strategy; a continuing flow
of new products and advancing technologies; a strong, results-oriented
philosophy of quality; and an energetic acquisition program.
STRATEGY
Lydall produces technologically advanced engineered materials for demanding
specialty applications. We have not deviated from that focus and concentrate on
products or businesses having a high technical component.
Lydall sells its products to high-value, niche markets and continuously
strives to upgrade its base technologies. We look for opportunities where a
leadership position within the market is attainable and where Lydall's
distinctive marketing and technical competence fit. Our strategy has given us
opportunities to grow with new applications for existing products as well
as to enter emerging markets. This has served us particularly well in poor
economic times; notably, we were able to post gains in earnings through the
recession of the early 1990's.
Lydall is customer-driven and highly responsive to service, quality and
end-use requirements. This is of the utmost importance. In addition to
allowing us to gain customer loyalty, being close to our customers has
allowed us to identify opportunities, shifts in our markets, and industry
trends -- sometimes well in advance of our competition.
NEW PRODUCTS
A flow of new products has been and continues to be important to Lydall's
growth. We classify products and technology introduced within the previous
three-year period as new in the current year. Each year we report incremental
sales attributable to new products, and over the past five years, we have added
an average of $8 million a year.
During 1994, we had robust sales of air-bag media as well as automotive
battery covers and heat shields. These are all products introduced by Lydall
within the past three years.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
$ thousands except per-share amounts
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales from continuing operations 213.11 57.4 151.1 135.5 123.1 128.4 114.7 98.5 75.9 70.4
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
$ thousands except per-share amounts 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income 15.5 10.2 9.0 8.5 8.3 7.9 5.1 4.1 3.0 2.9
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Lydall's custom-designed media found in automotive air-bag inflators uniquely
combine, in one application, the Company's strongest talents -- filtration
technology and heat management expertise. Lydall's specialty products assist in
heat reduction and filtration of the pyrotechnic reaction that inflates an air
bag. We expect continued opportunities in this business mainly because the law
requires all passenger cars to have dual air bags by September 1996 and all
vehicles (trucks, vans, etc.) to have dual air bags by 1998. Although inflator
devices using technologies other than that which employs Lydall's material are
being introduced, we feel confident that the pyrotechnic unit will sustain a
major portion of this rapidly expanding market. We look forward to remaining a
major supplier in this area for many years.
We are also enthusiastic about the continuing growth of our patented Lytherm
/(R)/ battery insulating cover. As the sizes of passenger compartments are
increasing, the sizes of engine compartments are decreasing; hood lines are
being designed lower; and components such as the battery, are being "packed in"
more tightly, reducing free air flow. This is causing temperatures under the
hood to increase. The need to insulate the battery has arisen because automotive
batteries fail prematurely due to excessive heat. We developed our battery cover
at Ford Motor Company's request and look forward to supplying it for just about
every vehicle made by Ford in the next few years. Other automotive companies are
also evaluating various designs of the Lydall cover.
Sales of all our heat management products to the automotive market have been
strong, and the acquisition early in 1994 of an automotive thermal and
acoustical shield manufacturer enhanced this growth. Currently, our heat
management shields and components can be found on most domestically produced
sport-utility vehicles, about 95 percent of light- and medium-duty trucks, close
to 70 percent of vans, and nearly 30 percent of cars. The addition of the
battery cover on an increasing number of 1995 and 1996 Ford models will increase
the percentage of cars by the end of 1995. Also, if you include the air-bag
application, our penetration of passenger cars becomes greater.
We will continue to be very active in the development of the next generation of
fiber, fiber-and-metal-combination, and all-metal thermal shields. Lydall has
unique relationships with its automotive customers, and the opportunities
connected with heat management issues continue to proliferate. Vehicle designs,
stricter emissions standards, and consumer demands for increasing comfort and
safety make this a dynamic market particularly suited to Lydall's abilities.
Thirty-one percent of Lydall's total sales in 1994 were to the automotive
market. I have been asked if this increasing focus on automotive applications
concerns me. The answer is, "No." Lydall supplies unique, niche applications.
There is no direct correlation between the number of Lydall parts on a
vehicle to the number of units built, as with tires or steering wheels for
instance. Typically, we develop one solution for a specific problem in one
model;
[PHOTO APPEARS HERE]
3
<PAGE>
then other applications are identified within that one model; eventually, those
applications are addressed in additional models. Other automotive companies in
turn recognize the utility of the Lydall solution and begin to employ our
products. There is virtually a compounding effect that takes place. In addition
to our unique, niche positions in the automotive market, Lydall is committed to
aggressively growing its businesses outside of this industry.
High-efficiency air filtration is one of those businesses. It has played a major
role in our growth over the past ten years. We have continued to advance our
expertise and have introduced new products and technologies into that market.
During 1994, our domestic sales of high-efficiency air filtration media were
particularly healthy -- the strongest we've ever seen. We also gained market
share in the United States and Europe, led by increased demand for our advanced
High-Alpha and high-strength ASHRAE product lines.
An article in Investor's Business Daily recently quoted an industry analyst:
"Increased use of semiconductors in staple consumer electronic products and
manufacturing, including automobile, cellular and cordless phones, and video
equipment is smoothing the demand for semiconductor products. Personal computers
are practically consumables now."
Obviously, as a world leader in high-efficiency air filtration, Lydall stands
to benefit significantly from the increased use of semiconductor products.
More and more industrial and process operations are also being performed
under clean-room conditions, and we continue to be excited and optimistic
about the growth opportunities in the high-efficiency air filtration market.
QUALITY
It would be very difficult, if not impossible, to credit a single program or
effort with Lydall's successes; however, our ongoing, results-oriented quality
program rates very high on the list. Although these efforts are referred to as
"cost of quality" within the Company, the accounting aspect of Lydall's
Comprehensive Quality Program is only one component. Under this program, we
measure all the costs associated with using resources with less-than-perfect
efficiency. It is a tool that is used by accountants, plant managers, line
supervisors, quality control people, R & D engineers, marketing teams -- anyone
and everyone involved in delivering a quality Lydall product to a customer. The
program is aimed at process efficiency, product consistency and quality, and
customer satisfaction. Since 1986, when we started reporting incremental dollars
saved, we have gained an average of $2 million a year. In 1994 alone we captured
$3.2 million in savings from these efforts. Although dollars are used as a way
of measuring success, the most valuable result, of course, is better service and
products for our customers.
Our capital investment projects go hand in hand with our quality program. We
focus on strategic projects to improve product quality, process efficiencies
and productivity. During 1994 our capital expenditures totaled $8.0 million.
We classify capital appropriations as strategic or
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
$ thousands except per-share amounts 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings Per Share 1.73 1.17 1.04 .94 .94 .90 .61 .49 .35 .32
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
upgrade, which relate directly to the strategic objectives we have outlined, and
mandatory or replacement, which are projects required by law or necessary for
equipment maintenance. Over the last ten years, we estimate that at least two-
thirds of all capital projects have been either upgrade or strategic which
directly tied to our quality program.
ACQUISITION PROGRAM
To supplement internal growth, Lydall actively pursues acquisitions of
businesses and products that we believe would benefit from our marketing
competence and management resources, especially our focused quality improvement
program. We look for nondilutive, strategically compatible acquisitions that
offer a highly advanced and evolving technological component. Although we focus
on companies that are profitable, we need to see some area within the business
where we can make a decided difference.
Over the past five years, approximately 50 percent of our sales growth has come
from acquisitions. In 1994, we acquired a Columbus, Ohio operation that designs
and manufactures thermal and acoustical insulation products for the automotive
market. This acquisition complemented and extended our heat management product
line and brought us closer to certain customers by making us a direct supplier
to Ford, General Motors, and Chrysler. It also expanded our product offering to
include all-metal and metal-and-fiber-combination automotive heat shields. The
operation was profitable in 1994 and contributed significantly to Lydall's sales
growth. We expect improved performance in 1995 and into 1996 as we implement our
quality program and invest in improving process efficiencies at the facility.
In June 1994, we acquired a producer of materials-handling slipsheets located in
Jacksonville, Florida. The operation, which is now part of our Southern Products
Division, directly complements our existing slipsheet business and enhances our
market position. Lydall's systems, which replace wooden pallets, are being used
to ship a growing number of products such as food, pharmaceuticals, and
chemicals. Our materials-handling business continued to do well in 1994,
benefiting from increased market share and broadening export opportunities.
- ----------------------------
The four distinct advantages I've outlined -- strategy, new products, quality,
and acquisition program -- together with the commitment of our employees, have
brought Lydall prolonged growth and powerful market recognition, and I firmly
believe they will continue to be the tools of our future successes. I'm very
optimistic about the Lydall of tomorrow and look forward to ten more years of
growth.
/s/ Leonard R. Jaskol
- ----------------------------
Leonard R. Jaskol
Chairman and Chief Executive Officer
5
<PAGE>
[PHOTOS APPEAR HERE]
Above: Lydall employees consult with Ford engineers continually from product
conception through final vehicle assembly. John J. Hiers, Vice President -
Technical Development, Lydall, and Brian Murphy, Battery SBU Manager, Lydall,
observe the Installation of a Lydall cover on a new Continental at Ford's Wixom
Plant.
Top: Lydall produces the battery insulating cover complete through
finished product fabrication. Jec Shuping, an operator at Lydall's Rockwell,
North Carolina plant, sonically seals Lytherm insulating packs for the Ford
Explorer battery cover.
6
<PAGE>
STRATEGY
Lydall is customer-driven, highly responsive to service, quality and end-use
requirements.
- --------------------------------------------------------------------------------
Lydall takes pride in the many development partnerships it has with its
customers. These joint development efforts have led to a succession of
products meeting critical engineering and processing demands and have played
an important role in the growth of the Company.
The evolution of Lydall's automotive battery insulating cover is an excellent
example of how partnering with customers benefits all involved. Systems
engineers at Ford Motor Company are constantly seeking innovative solutions to
heat management issues brought on by aerodynamic vehicle designs and smaller
engine compartments. They are very conscious of the "cost" of losing a Ford
buyer, and they focus on making sure that does not happen. In 1990 Ford
engineers sent out a call to their suppliers for a solution to premature battery
failure due to increasing levels of heat generated in engine compartments.
Lydall responded with a cost-effective solution that considered all aspects of
Ford's needs: thermal properties, space and cost constraints, aesthetic
considerations, and the ability to be easily incorporated into Ford's assembly
process. Within nine months of receiving the order from Ford, Lydall, known for
its "fanatical response", delivered the final product.
Key to Lydall's response is its team approach to product development and
marketing. The customer does not work "through" one sales representative as with
a traditional customer/supplier relationship. Lydall employees from a variety of
functions --marketing, technical development, manufacturing -- interact daily
with their counterparts at the customer's facility. This interaction allows
Lydall to recognize industry trends and anticipate customers' needs -- to move
in rhythm with its customers. Product development does not take place in the
vacuum of the laboratory, and flexibility and quick response are invaluable
byproducts. In fact, Lydall employees have modified prototype parts directly on
the production line, shoulder to shoulder with Ford engineers.
7
<PAGE>
The genesis of Lydall's family of automotive thermal barrier products was
undercarpet insulation. These components are strategically placed in areas of
the carpet assembly that are located over or near sources of heat such as the
exhaust system and catalytic converter. Today, Lydall insulating components can
be found in virtually all U.S. manufactured sport-utility vehicles, extensively
in light- and medium-duty trucks, in vans, and increasingly in automobiles.
Lydall sells these products to carpet and mat manufacturers who in turn supply
automotive manufacturers. The industry trend requiring total systems from direct
automotive suppliers has pushed carpet manufacturers to expand their expertise
beyond quality and durability to include thermal protection and acoustical
properties as well. Lydall's expertise in these areas, its extensive development
and testing capabilities, and its history of partnering with customers fit the
needs of the carpet manufacturers perfectly.
Of particular importance in the working relationship with its
customers has been Lydall's value-engineering and value-analysis efforts.
These programs focus on active involvement with automotive manufacturers and
carpet producers as early in a program as possible to provide the best
solution, avoid overengineering, minimize a trial-and-error approach, and
ensure easy adaptation of a product to the final assembly process.
Opposite page top: Left to right: Gail Carolan, Lydall Product Manager; Bill
Morgan, VE/VA Manager , Collins & Aikman. Mr. Morgan commented, "The Collins
& Aikman's partnership with Lydall has reaped benefits for both firms beyond
our original expectations. Lydall's testing capabilities and rapid turnaround
of thermal assessments have enhanced Collins & Aikman's ability to solve heat
issues. We have been able to identify issues sometimes before our OEM
customers have recognized there was a problem. This has been very positive
for our position in the market."
Bottom: Lytherm insulating components are incorporated into the automotive
carpet and mat system at points of heat stress such as over the exhaust
system and catalytic converter.
8
<PAGE>
[PHOTOS APPEAR HERE]
9
<PAGE>
[PHOTOS APPEAR HERE]
NEW PRODUCTS
Lydall considers products or technology introduced within the previous three
years as new. High-Alpha air filtration products and the Company's
combination filtration/thermal media employed in automotive air-bag inflator
components exemplify recent new-product successes.
High-Alpha air filtration media Lydall's air filtration customers
(rigid-frame filter manufacturers) face intense cost pressures as well as
stringent performance issues. In addition, they require filtration media
that are "workable" -- media with the strength and integrity to withstand the
filter assembly process. Addressing this difficult mandate, Lydall personnel
have focused on delivering the highest performance, most "process friendly"
media in the industry.
The performance of a filter is defined primarily by its efficiency (size and
amount of particles captured) and resistance (power required to move air
through the filter). These two forces are in direct opposition to one another
- -- the greater the efficiency, the less the air flow. The relationship
between efficiency and resistance is known as Alpha. In response to its
customers' needs, Lydall developed its advanced High-Alpha, Class 4000 HEPA
and Class 6000 ULPA, products which provide the highest efficiencies with
lower pressure drops than ever before achieved in the industry.
Use of Lydall's High-Alpha media enable manufacturers to reduce operating and
capital costs while delivering the most advanced filtering capability
available; first, because fewer units are needed to reach desired efficiency,
and second, because less operating energy is required. In fact, Lydall's
High-Alpha media improve efficiency by 15 percent over competitive grades,
providing filter manufacturers with a cost-effective, high-performance
alternative.
Left: The Company's Lydair high-efficiency air filtration media are found in
filter systems that literally cover the ceilings and floors of semiconductor
and microchip manufacturing facilities, as well as areas in hospitals,
industrial clean rooms, food and pharmaceutical processing plants, and
biotechnology laboratories. Lydair air filtration media serve a wide range of
performance efficiencies from 40 percent ASHRAE up to 99.999999 percent ULPA
at the most penetrating particle size.
Opposite page: As a component of the inflator system, Lydall's custom-designed
media assist in heat reduction and filtration of the pyrotechnic reaction which
takes place to inflate an automotive air bag.
Opposite page, inset: Bill Lonstein, Lydall Product manager; Rick Lindsay,
Senior Buyer, Morton International Automotive Safety Products Kevin Lynch, Vice
President-Marketing and Sales for Lydall's Technical Papers Division.
10
<PAGE>
[PHOTOS APPEAR HERE]
Filtration/thermal air-bag inflator media The growth momentum of Lydall's
filtration/thermal media supplied to automotive air-bag igniter manufacturers
continued in 1994. Although Lydall has supplied media for components of
driver-side inflators for many years, development of media for passenger-side
air bags has been a new and different challenge. Passenger-side air bags are
much larger and more complex. In addition, designs vary widely from vehicle
to vehicle. Lydall's success stems from its intimate understanding of the
filtration and thermal performance requirements for hot gases generated by
the pyrotechnic reaction that inflates the air bag. Working closely with
design engineers, Lydall develops unique media to meet the exacting demands
of each inflator design, catering to different sizes, inflation requirements,
materials, and flow rates.
11
<PAGE>
[PHOTO APPEARS HERE]
QUALITY PROGRAM
Lydall's quality program, internally referred to as "Cost of Quality" (COQ), has
become a way of life at the Company and has infused employees with a
determination to continuously improve process and quality. Lydall's quality
teams represent all parts of the organization -- engineers, production workers,
accountants, sales people, general managers, customer service representatives,
and senior management. Used as an extension of traditional financial
measurements, COQ enables Lydall employees to track and identify areas that need
improvement -- excess waste, unplanned downtime, process inefficiencies,
ineffective service, etc. Lydall's COQ Program serves as an excellent framework
within which to control costs and engineer continuous quality improvements, thus
ensuring customer satisfaction.
Photo of John E. Hanley, Vice President - Finance and Treasurer:
"... Our goal is a perfectly efficient process, zero `cost of quality,' and a
completely satisfied customer every time. This may sound a little idealistic.
However, we are always striving towards this end, and it is a very real
objective to everyone at Lydall..."
[PHOTO APPEARS HERE]
12
<PAGE>
[PHOTO APPEARS HERE]
Opposite page, top: Lydall Westex Division employees, Grady Gardner, Reclaim
Operator; Randy Niston, Web Department Manager; Michael Gregory, Maintenance
Department Manager; and Ray Grupinski, Director of Operations. A sophisticated
fiber reclaiming system recently installed at the Westex Division is an
excellent example of the way Lydall's capital investments are directly tied to
continuous process improvement and the systematic elimination of waste. By
recycling edge trim generated by Lydall's own process, plus the scrap form
customer' die-cut parts, the Company reduces landfill costs and provides
cost-effective advantages to customers, while, at the same time improving
Lydall's margins.
Above: Forklift operator, Dennis Ellis, selects product at Lydall's storage
facility for high-efficiency air filtration media. The Company's custom-designed
warehouse and roll-tracking system enhance inventory control, product quality,
and customer service.
13
<PAGE>
[PHOTO APPEARS HERE]
Top: Robert Raymond, Production Manager, and Carol Roelofs, Administrative
Sales Manager, at Lydall's Southern Products, Jacksonville Operation.
Above: Left to right - Verl Harnapp, Molding Process Engineer and Phillip
McElroy, Quality Control Technician perform final inspection of a new contour
die-cutting process recently installed at the Columbus Operation. The part is an
engine-side dash insulator that Lydall supplies for Chrysler minivans.
Opposite page: Left to right - John Rash, Mold Line Operator; Ken McGill,
Columbus Plant Manager; and Rich Morris, Plant Supervisor, make the last
adjustments to the molding specifications of the Chrysler minivan dash insulator
before commercial production.
14
<PAGE>
ACQUISITIONS
Early in 1994, Lydall acquired the Clecon Division of Standard Packaging,
Inc., located in Columbus, Ohio. Integrated into the Company's Westex
Division as the Columbus Operation, this leading designer and manufacturer of
thermal insulation products for the automotive market made a significant
contribution to the year's record sales. The operation fabricates a variety of
highly engineered insulating materials into finished parts sold directly to
automotive manufacturers and extends Lydall's thermal barrier business from all-
fiber components to include metal-and-fiber combination and all-metal shields.
In June 1994, Lydall acquired the Laminates Division of Riverwood
International of Georgia, Inc., a manufacturer of materials-handling
slipsheets located in Jacksonville, Florida. This business directly
complements Lydall's existing materials-handling business and strengthens the
Company's position in this market. As the Jacksonville Operation of Lydall's
Southern Products Division, this acquisition also contributed positively to
growth in 1994.
[PHOTO APPEARS HERE]
15
<PAGE>
[GRAPHS APPEAR HERE]
16
<PAGE>
FINANCIAL REVIEW 18 Analysis of Results
26 Key Financial Items
27 Income Statements
28 Balance Sheets
30 Statements of Cash Flow
31 Statements of Changes in Stockholders' Equity
32 Notes to Consolidated Financial Statements
42 Report of Independent Accountants
42 Management Report
43 Five-Year Statistical Review
44 Officers, Directors, and Stockholders Information
45 Directory of Locations
17
<PAGE>
ANALYSIS OF RESULTS
Sales
- --------------------------------------------------------------------------------
OVERVIEW
In 1994, Lydall generated record sales of $213.1 million, the fourth
consecutive year of record sales. This represented an increase of $55.7
million, or 35 percent over 1993 sales of $157.4 million. These results
compare with increases of 4 percent and 12 percent in 1993 and 1992,
respectively. The 1994 revenue growth can be grouped into three major
categories:
Acquisitions
. Two operating companies, specializing in automotive thermal barriers and
materials-handling products, contributed approximately half of Lydall's sales
growth in 1994
Internal Marketing Actions
. Successful commercialization of new products covering most of Lydall's
end-use markets
. Market-share gains in a number of product lines
. Price increases, mostly driven by raw material increases in wood pulp and
pulp substitute markets
External Market Forces
. Improving macroeconomic performance in North America, Europe and the Far
East with especially strong sales in automotive and air filtration markets
. Substantial market growth in thermal barriers sold to light-duty truck and
sport-utility vehicle markets
Incremental sales gains from new products in filtration and thermal barrier
markets were particularly key to revenue growth in 1993 and 1992.
Acquisitions also played a major role. In 1992, the full-year effect of the
Axohm and Rockwell acquisitions made in 1991 created a sales increase of
$10.2 million. In 1993, while sales from the Rockwell acquisition grew, sales
at Axohm declined primarily due to a poor European economy.
ACQUISITIONS
Lydall purchased two companies in 1994, the Columbus Operation and the
Jacksonville Operation. The Columbus Operation, managed under the Westex
Division, designs and fabricates automotive thermal and acoustical barriers.
Results of operations include ten months of activity for Columbus, which was
acquired on February 28, 1994.
The Jacksonville Operation, acquired on June 30, 1994, is operated under the
Southern Products Division. The addition of the Jacksonville Operation enhanced
Lydall's market position as a producer of solid fiber slipsheets and provided
valuable economies of scale. Results of operations include activity for
Jacksonville since the date acquired.
Together, Columbus and Jacksonville contributed $26.1 million in sales in 1994,
accounting for 47 percent of Lydall's sales growth for the year.
The Company reports results from acquired companies or product lines as
acquisitions for three fiscal years. Thus, Lydall reported incremental sales
from the Axohm Division and the Rockwell Operation, both acquired in 1991, as
sales from acquisitions in 1993 and 1992. In 1994, incremental sales from
these operations are captured under External Market Forces and Internal
Marketing Actions. In 1993, combined sales from acquired units actually
declined by $2.6 million from 1992. This was due to poor economic conditions
in the European market for Axohm's battery separator materials and to the
effects of an expected shift in technology favoring different materials than
those used at Axohm. Increased sales of domestic automotive thermal barrier
products from the Rockwell Operation somewhat offset this decline. Sales
increased by $10.2 million in 1992 over 1991, representing the full-year
effect of the Axohm and Rockwell acquisitions.
18
<PAGE>
INTERNAL MARKETING ACTIONS
Lydall's internal marketing programs produced sales gains of almost $24.9
million in 1994 compared with $7.5 million in 1993 and $11.4 million in 1992.
The largest factor was Lydall's successful new-product commercialization
program, which added sales of $15.2 million in 1994. Partially offsetting
this gain was the discontinuation of approximately $4.8 million in product
sales, much of which was directly displaced by Lydall's own new-product
introductions. Successful new products included:
. air-filtration products at the highest end of the efficiency spectrum
. air-bag materials that perform a filtration and thermal function in the
igniter unit
. flame barriers for the appliance and office furniture industries
. wood-replacement materials used in pencils
Lydall's new-product introductions often displace existing sales. In 1994, this
phenomenon was particularly evident in the air-filtration and air-bag markets.
For the past three years including 1994, product discontinuation has averaged
$4.3 million per year, while new-product introductions have averaged $10.5
million. Lydall discontinued sales of $4.8 million in 1994, $5.3 million in
1993, and $2.9 million in 1992. As in 1994, most of the discontinued sales in
1993 and 1992 resulted from direct displacement by Lydall's product upgrades.
The Company made significant market-share gains in battery-separator
materials, air-filtration products, and transportation services. Market-share
gains, estimated to be over $10 million in 1994, were significantly greater
than prior-year levels of $2.7 million in 1993 and $6.0 million in 1992.
Lydall raised prices more actively in 1994 than in the past two years. In
1994, prices were raised by approximately 2.3 percent compared with increases
of less than 1 percent in 1993 and just 1 percent in 1992. Most of the
increases were directly related to rising raw material costs of wood pulp and
pulp substitute materials. As has been the case for a number of years,
pricing remains constrained.
EXTERNAL MARKET FORCES
For the first time in more than three years, Lydall experienced favorable
economic activity in all three of its major trading spheres: North America,
Europe and the Far East. External forces, including the effects of economic
and market growth beyond the influence of Lydall, less the effects of market
decay, produced a net positive impact of $4.7 million on 1994 revenues. This
compares to a net positive impact of $1.4 million in 1993, and a net negative
impact of $6.0 million in 1992.
STATEMENTS OF CHANGES IN SALES
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- ----------------------------------=============================================
<S> <C> <C> <C>
Prior year's net sales $157,400 $151,100 $135,500
- -------------------------------------------------------------------------------
Acquisitions 26,100 (2,600) 10,200
Internal marketing actions 24,900 7,500 11,400
External market forces 4,700 1,400 (6,000)
- -------------------------------------------------------------------------------
Total change 55,700 6,300 15,600
- -------------------------------------------------------------------------------
Current year's net sales $213,100 $157,400 $151,100
- ----------------------------------=============================================
</TABLE>
19
<PAGE>
ANALYSIS OF RESULTS continued
Gross Margin
- --------------------------------------------------------------------------------
OVERVIEW
Gross margin rose to $64.9 million, or 30.5 percent of sales, in 1994 compared
with $48.5 million, or 30.8 percent of sales in 1993. Strong internal growth and
operating leverage in 1994 were offset by the impact of acquisitions that
produced gross margins at much lower levels than Lydall's established
operations. These plants generated gross margins of $3.8 million on sales of
$26.1 million, a rate of 14.6 percent. Established operations, including the
1991 acquisitions, produced gross margins of 32.7 percent compared with 30.8
percent in 1993 and 30.6 percent in 1992.
Volume increases other than from acquisitions drove margins up significantly,
accounting for over 70 percent of the gain. Cost-reduction efforts under
Lydall's continuous improvement programs added a record $3.2 million to gross
margin during the year.
In 1993, gross margin rose by $2.2 million, largely due to benefits of
operating leverage from increased sales volume and cost-reduction programs.
Offsetting these positive factors was a net decline in margins at acquired
units as well as other effects, such as depreciation and overhead related to
capital programs and local capacity expansions. During 1992, margins rose by
$5.4 million with positive contributions from acquisitions, sales volume
improvements, and cost-reduction programs.
ACQUISITIONS
The Columbus and Jacksonville Operations were integrated into the Company
over the course of 1994 with mixed results. Both factories are undergoing
major reconfigurations to improve operating efficiencies, safety, and cost of
quality. Although these programs are expected to produce meaningful
improvements to gross margin in 1995, progress in 1994 was somewhat
disappointing. The blended margin at both plants was 14.6 percent of sales,
depressing overall margins by more than 2 percent of sales.
During 1993, acquisitions produced a net reduction in margins of $1.6
million, primarily due to lower volume at Lydall's Axohm Division, which was
partially offset by improvements at the Rockwell Operation. In 1992, these
operations generated a positive contribution of $2.3 million reflecting the
first full year as part of Lydall.
EFFECTS OF CHANGES IN SALES VOLUME
New products and increased worldwide demand for Lydall's products contributed
heavily to 1994's record sales. Volume increases at operations other than
acquisitions generated gross margins of $11.6 million on sales of approximately
$26 million. This compares favorably with results in 1993 and 1992 when
increases in sales volume contributed $4.2 million and $2.0 million to gross
margin, respectively. New-product mix, with margins that exceed Lydall averages,
has been especially strong in recent years. Most of these products have been in
development stages for two to three years at substantial development cost to the
Company, and premium margins are required to recover these development costs
over relatively short product life cycles.
PRICE INCREASES IN RELATION TO COST INCREASES
In 1994 and 1993, cost increases exceeded price increases by $500 thousand
and $300 thousand, respectively. Lydall experienced severe cost inflation in
several raw material categories, most notably wood pulp and pulp substitute
products. Price increases were passed on to customers for these grades, but
only after some of these costs were absorbed by the Company. By the end of
1994, Lydall was able to pass through sufficient price increases to cover the
current level of cost increases. In 1992, the relationship between price
increases to customers and vendor-imposed cost increases was a positive $100
thousand.
20
<PAGE>
COST REDUCTIONS
Lydall produced record savings from manufacturing improvement programs in 1994
of $3.2 million compared to $2.0 million in 1993 and $1.6 million in 1992. The
record level of savings was caused by continuous quality improvement programs
and a net reduction in Cost of Quality, Lydall's internal measure of the cost of
inefficiency. Savings from management actions were approximately equivalent to
savings generated by capital projects. One capital project to reclaim fiber from
formerly disposed of materials produced striking savings in fiber costs while
reducing landfill costs. This project is one example of the continuing focus on
process efficiency and cost reduction that has increased Lydall's gross margin
by $6.8 million over the past three years, more than 3 percent of 1994 sales.
INVENTORY EFFECTS
Inventory accounting caused $800 thousand of negative effects in 1994
following little or no impact in 1993 and 1992. Contributing circumstances
were:
. Inflation in raw materials and finished goods necessitated increased LIFO
reserves, which rose by $200 thousand.
. Inventory obsolescence resulting in modest write-offs
. Finished goods and work-in-process inventories at operations other than
acquisitions declined by over $1.7 million, affecting absorption of
manufacturing overhead
OTHER EFFECTS
Increased manufacturing overhead and depreciation costs eroded margins by
$900 thousand compared to $1.9 million in 1993 and $600 thousand in 1992.
STATEMENTS OF CHANGES IN GROSS MARGIN
<TABLE>
<CAPTION>
$ thousands 1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prior year's gross margin $48,500 $46,300 $40,900
- -------------------------------------------------------------------------------------------------
Acquisitions 3,800 (1,600) 2,300
Effects of changes in sales volume 11,600 4,200 2,000
Price increases in relation to cost increases (500) (300) 100
Cost reductions 3,200 2,000 1,600
Inventory effects (800) (200) -
Other effects (900) (1,900) (600)
- -------------------------------------------------------------------------------------------------
Total change 16,400 2,200 5,400
- -------------------------------------------------------------------------------------------------
Current year's gross margin $64,900 $48,500 $46,300
- -------------------------------------------------------------------------------------------------
As a percent of net sales 30.5 30.8 30.6
- -------------------------------------------------------------------------------------------------
</TABLE>
Pretax Income
- --------------------------------------------------------------------------------
OVERVIEW
Pretax income rose by 57 percent to $26.5 million from $16.9 million in 1993
compared to a 16-percent rise in 1993 and a 10 percent increase in 1992. In
1994, operations other than acquisitions generated a net pretax income gain
of $8.7 million, while acquisitions generated $900 thousand of incremental
pretax income. The 1994 improvement from operations is the largest ever
recorded by the Company. Acquisitions produced a positive impact for the year
and, based on programs well underway in 1994 and early 1995, should generate
meaningful incremental gains in 1995. The net change in nonoperating
investments and financing costs was negligible for 1994 following a gain of
$800 thousand in 1993 and no net effect in 1992.
ACQUISITIONS
The 1994 results indicate positive contributions from the combined results of
the Columbus and Jacksonville acquisitions, both of which were profitable for
the year. As indicated earlier, both plants are expected to produce
progressively improving returns beginning in 1995 and continuing through
1996. Acquisitions made in 1991 had a negative impact on pretax earnings of
$1.6 million in 1993 compared with a positive contribution of $700 thousand
in 1992
21
<PAGE>
ANALYSIS OF RESULTS continued
OPERATIONS
Lydall's strong performance in new-product commercialization and market-share
expansion fueled the majority of the pretax earnings improvement in 1994.
Gross margin gains were significant, and support costs, such as selling and
product development, increased less dramatically, yielding an $8.7 million
increase in pretax income. In the past two years, internally generated new
products have proven to be Lydall's most productive method of improving
profits. This results primarily from improved operating leverage in plants
where fixed costs are already absorbed by preexisting business levels.
Other Expense, Net increased by $1.1 million in 1994 after declining by $900
thousand in 1993 and rising by $600 thousand in 1992. Most of the increase
resulted from a return to historical levels of equipment disposals resulting
from equipment upgrades and changes in manufacturing processes. During 1993
Lydall recovered environmental remediation costs from former owners of a
Company property thereby reducing expenses in that year.
NONOPERATING INVESTMENTS AND FINANCING
The net impact of nonoperating interest income and expenses in 1994 compared
with 1993 was negligible as a small decrease in total interest expense was
offset by a small decline in investment income. For 1994, interest expense on
long-term debt declined by $500 thousand due to lower levels of outstanding
debt and lower interest rates negotiated in October 1993. Offsetting most of
this decline was an interest payment of $400 thousand in December 1994 to the
Internal Revenue Service resulting from the examination of tax years 1987
through 1989.
In 1993, lower levels of long-term debt combined with a reduction in the
interest rate charged on the Note Purchase Agreement caused interest expense
to decline by $600 thousand. Interest income rose in 1993 by $200 thousand
resulting in an improvement of $800 thousand in pretax income. There was no
net change in 1992 from 1991.
STATEMENTS OF CHANGES IN PRETAX INCOME
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prior year's pretax income $16,900 $14,600 $13,300
- --------------------------------------------------------------------------------------
Acquisitions - change in:
Gross margin 3,800 (1,600) 2,300
Selling, product development,
and administrative expenses (2,900) - (1,600)
- --------------------------------------------------------------------------------------
Total change from acquisitions 900 (1,600) 700
- --------------------------------------------------------------------------------------
Operations - change in:
Gross margin 12,600 3,800 3,100
Selling, product development,
and administrative expenses (2,800) (1,600) (1,900)
Other expense, net (1,100) 900 (600)
- --------------------------------------------------------------------------------------
Total change from operations 8,700 3,100 600
- --------------------------------------------------------------------------------------
Nonoperating investments and
financing - change in:
Income from investments (100) 200 (100)
Interest expense 100 600 100
- --------------------------------------------------------------------------------------
Total change from nonoperating
investments and financing - 800 -
- --------------------------------------------------------------------------------------
Total change 9,600 2,300 1,300
- --------------------------------------------------------------------------------------
Current year's pretax income $26,500 $16,900 $14,600
- --------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
Liquidity and Capital Resources
- --------------------------------------------------------------------------------
LIQUIDITY OVERVIEW
Lydall generated record levels of cash from operating activities in 1994 for
the third consecutive year. After-tax cash from operating activities reached
$26.8 million, representing a 47 percent increase over 1993 record levels.
Liquidity was particularly strong during this period for two key reasons:
. Healthy after-tax earnings
. Improved working capital productivity and inventory turnover
The following table summarizes major components of Lydall's after-tax cash
flow from operating activities:
<TABLE>
<CAPTION>
$ thousands 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $15,503 $10,248 $ 9,038
Depreciation and amortization 7,504 5,921 5,256
Working capital changes 4,868 2,572 2,987
Other changes (1,032) (523) 380
- --------------------------------------------------------------------------------
Total cash generated from
operating activities $26,843 $18,218 $17,661
- --------------------------------------------------------------------------------
Change from previous year 47% 3% 60%
- --------------------------------------------------------------------------------
</TABLE>
WORKING CAPITAL PRODUCTIVITY
Working capital productivity is an effective financial measure of
performance. The management of Lydall is committed to improving all aspects
of financial performance by improving processes and utilizing resources more
efficiently.
The Company's working capital productivity continued to improve in 1994
including the impact of two acquisitions during the year. Lydall's working
capital productivity, defined as annual sales divided by the quarterly
average of all receivables and inventory, less accounts payable, shows the
following three-year trend:
<TABLE>
<CAPTION>
$ thousands 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $213,072 $157,431 $151,148
Average working capital 29,702 24,542 26,915
Working capital productivity (turnover) 7.17 6.41 5.62
Change from previous year 12% 14% 9%
- --------------------------------------------------------------------------------
</TABLE>
INVENTORY TURNOVER
Inventory turnover continued to improve in 1994 rising to 10.2 times the
quarterly average, up from 8.9 times in 1993 and 7.4 times in 1992. These
improving financial indicators are by-products of Lydall's continuous
improvement programs that are designed with two goals in mind:
. continuously improving service to customers
. reducing process and product-development cycle times
23
<PAGE>
ANALYSIS OF RESULTS continued
CASH FLOW OVERVIEW
In each of the past three years, Lydall has generated significant cash flow
from operating activities. These amounts have been more than sufficient to
cover annual capital spending requirements as well as the 1994 acquisitions
of the Columbus and Jacksonville Operations.
SUMMARY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net cash provided by operations $ 26,843 $18,218 $17,661
Key investing activities:
Acquisitions of operating companies (16,846) - -
Capital expenditures (7,979) (6,253) (6,235)
- ---------------------------------------------------------------------------------------------------
(24,825) (6,253) (6,235)
- ---------------------------------------------------------------------------------------------------
Key financing activities:
Repayment of debt (2,724) (5,235) (6,458)
Issuance of common stock 519 775 2,177
Acquisition of common stock (855) - -
- ---------------------------------------------------------------------------------------------------
(3,060) (4,460) (4,281)
- ---------------------------------------------------------------------------------------------------
Other increase (decrease), net (1,215) 252 453
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in cash, cash
equivalents and short-term investments $ (2,257) $ 7,757 $ 7,598
- ---------------------------------------------------------------------------------------------------
</TABLE>
INTEREST COVERAGE
Lydall generated record operating cash flow in 1994 for the eleventh
consecutive year. Interest coverage was outstanding for each of the past
three years as shown below. Lydall defines operating cash flow as earnings
before interest, taxes, depreciation, and amortization.
<TABLE>
<CAPTION>
$ thousands 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating cash flow $35,144 $23,941 $21,782
Interest expense 1,335 1,474 2,124
Interest coverage 26.3 16.2 10.3
- --------------------------------------------------------------------------------
</TABLE>
FUTURE CASH REQUIREMENTS
Cash requirements for 1995 will include ongoing operations, capital
expenditures, and acquisitions. Lydall's Board of Directors has approved a
$9.6 million capital spending plan for 1995 with spending focused on
continuous quality and process improvement as well as capacity expansions for
various product lines. Management expects to finance all capital spending and
ongoing operating cash needs from cash on hand and cash generated from
operations. Lydall remains committed to expansion through acquisitions of
product lines and operating companies; however, none are specifically
contemplated as of early 1995.
CREDIT ARRANGEMENTS
Lydall maintains domestic and foreign bank credit arrangements totaling
approximately $10 million, which are renewed annually. Lydall primarily pays
interest at the lower of prime or money market rates and compensates its banks
for services on a fee basis. At December 31, 1994, no amounts were outstanding
on the domestic lines of credit and $187 thousand was outstanding on the foreign
line of credit. No amounts were outstanding on any lines of credit at December
31, 1993.
24
<PAGE>
CAPITAL STRUCTURE
The following chart summarizes year-end leverage ratios over the past four
years.
<TABLE>
<CAPTION>
1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt to equity .18 .23 .38 .66
Debt to total capitalization .15 .19 .28 .40
- --------------------------------------------------------------------------------
</TABLE>
A steady decline in debt leverage has been evident over the past four years.
Lydall's strong cash flow from operations has exceeded cash requirements for
working capital, acquisitions, and capital spending plans over the periods.
Because Lydall is actively seeking strategic acquisitions of high quality
companies that fit the Company's defined technology and product profiles,
management regularly monitors borrowing capacity under what it considers a
long-term, debt-to-capitalization target of 40 percent. At the end of 1994,
Lydall could have borrowed nearly $40 million while remaining within that
long-term target capital structure. Coupled with existing cash and investment
balances, Lydall retains significant capacity for external expansion.
25
<PAGE>
KEY FINANCIAL ITEMS
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Cash and cash equivalents decreased to $11.7 million in 1994 from $13.8
million in 1993.
SHORT-TERM INVESTMENTS
Lydall invests in high-quality, fixed-income securities and other
high-quality, liquid money market instruments with a maturity of more than
three months when purchased and which management intends to liquidate within
one year. The Company had short-term investments of $2.9 million and $3.0
million at December 31, 1994 and 1993, respectively.
RECEIVABLES
Receivables were $31.8 million in 1994 and $22.2 million in 1993, of which
trade receivables were $31.1 million and $20.6 million for 1994 and 1993,
respectively. Days of sales outstanding in trade receivables were 47 in 1994
and 52 in 1993. Foreign and export sales were approximately 21 percent of
total sales in 1994 and 1993, and 23 percent in 1992. These sales are
concentrated primarily in Europe, the Far East, Mexico, and Canada.
INVENTORIES
Inventories were $13.5 million at December 31, 1994 and $11.8 million at
December 31, 1993. Inventory levels were reduced by $1.7 million and $1.4
million at the end of 1994 and 1993, respectively, to reflect the LIFO method
of inventory valuation.
WORKING CAPITAL
Working capital decreased to $30.8 million on December 31, 1994 from $31.8
million on December 31, 1993. The ratio of current assets to current
liabilities decreased to 1.93 from 2.48.
CAPITAL ASSET EXPENDITURES
Capital asset expenditures were $8.0 million in 1994 and $6.3 million in
1993. Depreciation was $6.1 million in 1994, $5.0 million in 1993, and $4.3
million in 1992. The Company's 1995 Capital Plan calls for commitments of
$9.6 million with spending focused in two critical areas -- investments that
increase utilization of Lydall's fixed assets and overhead, and investments
that improve quality and productivity. Expenditures in 1995 are expected to
be financed from cash balances or cash generated from operations. Capital
spending at Lydall is closely tied to generating new products and supporting
continuous improvement in the quality of processes and products.
DEBT TO TOTAL CAPITALIZATION
Debt to total capitalization decreased to .15 in 1994 from .19 in 1993.
COMMON STOCKHOLDERS' EQUITY
Common stockholders' equity increased to $76.2 million at December 31, 1994,
an increase of 27 percent from $60.1 million last year. On a per-share basis,
common stockholders' equity increased to $9.14 in 1994 from $7.26 in 1993.
DIVIDEND POLICY
The Company does not pay a cash dividend on its common stock and does not
anticipate doing so for the foreseeable future. Cash will be conserved and
reinvested into core businesses which should continue to earn Lydall
stockholders an excellent overall return on their common stock investment.
RESEARCH AND DEVELOPMENT
Research and development investment was $5.5 million in 1994, $4.8 million in
1993, and $4.7 million in 1992.
26
<PAGE>
INCOME STATEMENTS
<TABLE>
<CAPTION>
In thousands except per-share data For the years ended December 31, 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $213,072 $157,431 $151,148
Cost of sales 148,188 108,977 104,894
- ------------------------------------------------------------------------------------------------------------------------------
Gross margin 64,884 48,454 46,254
Selling, product development,
and administrative expenses 36,211 30,492 28,910
- ------------------------------------------------------------------------------------------------------------------------------
Operating income 28,673 17,962 17,344
- ------------------------------------------------------------------------------------------------------------------------------
Other (income) expense:
Investment income (231) (355) (194)
Interest expense 1,335 1,474 2,124
Other 1,033 (58) 818
- ------------------------------------------------------------------------------------------------------------------------------
2,137 1,061 2,748
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative
effect of accounting change 26,536 16,901 14,596
Income tax expense 11,033 6,888 5,558
- ------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
accounting change 15,503 10,013 9,038
Cumulative effect of accounting change/1/ - 235 -
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 15,503 $ 10,248 $ 9,038
- ------------------------------------------------------------------------------------------------------------------------------
Per-share amounts://2//
Income per share before cumulative effect of
accounting change $ 1.73 $ 1.14 $ 1.04
Cumulative effect of accounting change/1/ - .03 -
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ 1.73 $ 1.17 $ 1.04
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average common stock and
equivalents outstanding/2/ 8,976 8,791 8,710
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
/1/ Cumulative effect of adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
/2/ 1992 restated to reflect a three-for-two stock split distributed in 1993.
27
<PAGE>
BALANCE SHEETS
<TABLE>
<CAPTION>
In thousands except share data December 31, 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,684 $ 13,820
Short-term investments 2,904 3,025
Accounts receivable (less allowance for doubtful receivables
of $1,724 in 1994 and $1,126 in 1993) 31,825 22,248
Inventories:
Finished goods 5,423 6,334
Work in process 2,941 3,115
Raw materials and supplies 6,822 3,741
LIFO reserve (1,659) (1,426)
- -------------------------------------------------------------------------------------------------
Total inventories 13,527 11,764
- -------------------------------------------------------------------------------------------------
Prepaid expenses 662 944
- -------------------------------------------------------------------------------------------------
Deferred tax assets 3,485 1,427
- -------------------------------------------------------------------------------------------------
Total current assets 64,087 53,228
- -------------------------------------------------------------------------------------------------
PROPERTY, PLANT, AND EQUIPMENT, AT COST:
Land 870 865
Buildings and improvements 16,849 15,277
Machinery and equipment 69,753 62,503
Office equipment 5,685 4,404
Vehicles 1,274 1,292
- -------------------------------------------------------------------------------------------------
94,431 84,341
Less accumulated depreciation (39,660) (34,977)
- -------------------------------------------------------------------------------------------------
54,771 49,364
- -------------------------------------------------------------------------------------------------
OTHER NONCURRENT ASSETS:
Goodwill, at cost (net of accumulated amortization
of $516 in 1994 and $34 in 1993) 11,171 284
Other assets, at cost (net of accumulated amortization
of $7,524 in 1994 and $6,733 in 1993) 6,584 4,966
- -------------------------------------------------------------------------------------------------
17,755 5,250
- -------------------------------------------------------------------------------------------------
$136,613 $107,842
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE>
<TABLE>
<CAPTION>
In thousands except share data December 31, 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,843 $ 2,672
Accounts payable 17,032 9,763
Accrued taxes 2,196 621
Accrued payroll and other compensation 5,420 4,590
Other accrued liabilities 5,773 3,791
- ----------------------------------------------------------------------------------------------------
Total current liabilities 33,264 21,437
- ----------------------------------------------------------------------------------------------------
LONG-TERM DEBT 10,607 11,171
- ----------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES 11,752 10,382
- ----------------------------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 4,763 4,795
- ----------------------------------------------------------------------------------------------------
CONTINGENCIES
- ----------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock, par value $.10 per share,
authorized 15,000,000 shares, issued
10,125,613 shares in 1994 and
10,029,914 shares in 1993 1,013 1,003
Capital in excess of par value 31,419 30,910
Foreign currency translation adjustment 1,138 117
Pension liability adjustment (547) (529)
Retained earnings 56,023 40,520
- ----------------------------------------------------------------------------------------------------
89,046 72,021
Less cost of 1,786,851 shares of common stock in treasury
in 1994 and 1,760,851 in 1993 (12,819) (11,964)
- ----------------------------------------------------------------------------------------------------
Total stockholders' equity 76,227 60,057
- ----------------------------------------------------------------------------------------------------
$136,613 $107,842
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
In thousands For the years ended December 31, 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $15,503 $10,248 $ 9,038
- ---------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,101 4,997 4,347
Amortization 1,403 924 909
Changes in operating assets and liabilities,
excluding effects from acquisitions:
Accounts receivable (5,503) 1,141 1,107
Inventories 645 1,600 (387)
Other assets 93 (276) 238
Accounts payable 5,465 (468) 1,142
Accrued taxes 1,532 24 226
Accrued payroll and other accrued liabilities 2,729 275 899
Deferred income taxes (954) 380 148
Other long-term liabilities (171) (627) (6)
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments 11,340 7,970 8,623
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 26,843 18,218 17,661
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of assets of Columbus and Jacksonville Operations (16,846) - -
Additions of property, plant, and equipment (7,979) (6,253) (6,235)
Disposals of property, plant, and equipment, net 687 356 487
Sale (purchase) of short-term investments, net (1,863) 2,741 (5,766)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (26,001) (3,156) (11,514)
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt repayments (2,724) (5,235) (6,458)
Issuance of common stock 519 775 2,177
Acquisition of common stock (855) - -
Proceeds from line of credit agreements - 3,820 300
Payments under line of credit agreements - (3,820) (300)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES (3,060) (4,460) (4,281)
- ---------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 82 (104) (34)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (2,136) 10,498 1,832
Cash and cash equivalents at beginning of year 13,820 3,322 1,490
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $11,684 $13,820 $3,322
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 1,339 $ 1,644 $2,176
Income taxes 10,894 6,521 3,463
Noncash transactions:
Note issued to purchase assets of Columbus Operation 2,250 - -
Reclassification of short-term investments to long-term 1,984 - -
SFAS 109 cumulative effect fixed asset step-up - 2,912 -
Additional minimum pension liability - 574 210
Stock split effected in the form of stock dividend - 333 -
Issuance/receipt of treasury stock - 4 576
Reclassification of common stock for reduction in par value - - 20,923
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Foreign
Capital in Currency Pension Cost of Total
Preferred Common Excess of Translation Liability Retained Stock in Stockholders'
In thousands except per share data Stock Stock Par Value Adjustment Adjustment Earnings Treasury Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 $ - $21,317 $ 7,145 $1,463 $ (44) $21,567 $(12,374) $39,074
Reduction of par value from
$3.33-1/3 to $.10 (20,923) 20,923 -
Stock options exercised 265 1,912 2,177
Issuance of treasury stock to
fund the 1991 ESOT contribution 162 414 576
Foreign currency translation
adjustment (669) (669)
Pension liability adjustment (125) (125)
Net income 9,038 9,038
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 - 659 30,142 794 (169) 30,605 (11,960) 50,071
Three-for-two stock split in
the form of a stock dividend 333 (333) -
Stock options exercised 11 768 (4) 775
Foreign currency translation
adjustment (677) (677)
Pension liability adjustment (360) (360)
Net income 10,248 10,248
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 - 1,003 30,910 117 (529) 40,520 (11,964) 60,057
Stock options exercised 10 509 519
Acquisition of Common Stock (855) (855)
Foreign currency translation
adjustment 1,021 1,021
Pension liability adjustment (18) (18)
Net income 15,503 15,503
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 $ - $ 1,013 $31,419 $1,138 $(547) $56,023 $(12,819) $76,227
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The Consolidated Financial Statements include
the accounts of Lydall, Inc. and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include cash on hand and
highly liquid investments with a maturity of three months or less at the date
of purchase. The investments are stated at cost plus accrued interest, which
approximates market value.
SHORT-TERM INVESTMENTS. Short-term investments consist primarily of high-
quality, fixed-income securities and other high-quality, liquid money market
instruments with a maturity of more than three months when purchased and which
management intends to liquidate within one year. The investments are recorded at
the lower of cost or market, plus accrued interest.
CONCENTRATION OF CREDIT RISK. Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of cash,
cash equivalents and short-term investments, and trade receivables. The
Company places its cash, cash equivalents and short-term investments in high
credit-quality financial institutions and instruments. Concentrations of
credit risk with respect to trade receivables are limited becuase of the
large number of customers that make up the Company's customer base and their
dispersion across many different industries and geographies. The Company
performs ongoing credit evaluations of its customers' financial conditions
and generally does not require collateral. Thirty-one percent of the
Company's sales were to the automotive market in 1994; however, no single
customer accounted for more than 10 percent of total sales. As of December
31, 1994, the Company had no other significant concentrations of credit risk.
INVENTORIES. Approximately 63 percent in 1994 and 51 percent in 1993 of the
inventories have been valued on a last-in, first-out (LIFO) method and the
balance on a first-in, first-out (FIFO) method at the lower of cost or
market.
DEPRECIATION AND AMORTIZATION. Property, plant, and equipment are depreciated
over their estimated useful lives on the straight-line method for financial
statement purposes. Leasehold improvements are depreciated on a straight-line
basis over the term of the lease or the life of the asset, whichever is
shorter.
INTANGIBLES. Goodwill and other intangibles arising from acquisitions are
being amortized on a straight-line basis over periods not exceeding 25 years.
The carrying amount of the cost in excess of the net assets acquired is
evaluated for future recoverability on a recurring basis.
RESEARCH AND DEVELOPMENT. Costs are charged to expense as incurred.
REVENUE RECOGNITION. Lydall recognizes revenues when the product is shipped.
EARNINGS PER SHARE. Earnings per common share are based on net income divided
by the weighted average number of common shares outstanding during the
period, including the effect of stock options, stock awards and warrants
where such effect is dilutive. Fully diluted earnings per share are not
presented since the dilution is not material.
INCOME TAXES. The provision for income taxes is based upon income reported in
the accompanying financial statements. Deferred income taxes reflect the
impact of temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and such amounts recognized for
tax purposes. In accordance with SFAS 109, these deferred taxes are measured
by applying currently enacted tax laws.
FOREIGN OPERATIONS. The Company operates a nonwovens manufacturing facility
located in Saint-Rivalain, Melrand, France. Foreign sales were $14.4 million,
$12.3 million, and $16.4 million for the years ended December 31, 1994, 1993,
and 1992, respectively. Net income was $192 thousand, $57 thousand, and $1.1
million for the years ended December 31, 1994, 1993, and 1992, respectively.
Total foreign assets were $19.5 million and $17.1 million at December 31,
1994 and 1993, respectively.
32
<PAGE>
TRANSLATION OF FOREIGN CURRENCIES. Assets and liabilities of the foreign
subsidiary are translated at exchange rates prevailing on the balance sheet
date; revenues and expenses are translated at average exchange rates
prevailing during the period; and elements of stockholders' equity are
translated at historical rates. Any resulting translation gains and losses are
reported separately in stockholders' equity.
INVESTMENTS
On January 1, 1994, the Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." In connection with the
implementation, based upon management's intent and ability to hold these
investments, approximately $2 million of securities were transferred from
short-term investments to other long-term assets.
The net unrealized loss on the available-for-sale portfolio is immaterial and
is included in Stockholders' Equity at December 31, 1994. The gross realized
gains and losses on sales of available-for-sale securities are immaterial to
the consolidated financial statements during 1994. Realized gains or
losses are based on specific identification of the security being sold.
Investments on December 31, 1994 consisted of available-for-sale and
held-to-maturity securities. Available-for-sale securities, which include
equity and debt instruments, had an amortized cost of $15.2 million which
approximated fair market value. Investments that are classified as
held-to-maturity consist of obligations of state and local governments and
had an amortized cost which approximated fair value of $2.4 million at
December 31, 1994. Investment components for 1993 have not been restated
under SFAS 115.
The amortized cost of investments in debt securities by contractual maturity
are shown below:
<TABLE>
<CAPTION>
In thousands December 31, 1994 Available-for-Sale Held-to-Maturity
- --------------------------------------------------------------------------------
<S> <C> <C>
One year or less $2,100 $ 383
One year through five years 441 1,200
Five years through ten years - 250
After ten years - 545
- --------------------------------------------------------------------------------
$2,541 $2,378
- --------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
LONG-TERM DEBT
<TABLE>
<CAPTION>
In thousands December 31, 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
7.25% Note Purchase Agreement, payable
annually to 1999. $10,900 $13,100
5% Promissory Note, $500,000 payable
annually in 1995 and 1996; balance due
in full in 1997. 2,250 -
French money market rate plus 0.8% bank
loan, payable quarterly to 1996;
machinery and equipment of the Axohm
Division serve as collateral. 300 387
10% bank loans, payable annually to 1994;
shares of Axohm Industries, S.A. stock
serve as collateral. - 356
- --------------------------------------------------------------------------------
13,450 13,843
Less portion due within one year (2,843) (2,672)
- --------------------------------------------------------------------------------
$10,607 $11,171
- --------------------------------------------------------------------------------
</TABLE>
The Note Purchase Agreement is restricted by a debt covenant, among others, that
requires a debt-to-capital ratio of no more than .45 in order to borrow under
long-term debt agreements in the future. While by commonly used methods Lydall's
current debt-to-capital ratio is .15, it is .24 as defined by the terms of this
agreement as of December 31, 1994. Effective October 1, 1993, the Company
renegotiated the interest rate on the Note Purchase Agreement from 9.85 percent
to 7.25 percent. Additionally, a loan covenant was deleted. There were no other
material changes to the existing agreement.
Lydall guarantees an industrial revenue bond of an unrelated party for $1.1
million. At the time of the guarantee and at December 31, 1994, this issue
was not in default as to principal or interest, and management has no reason
to believe that the debtor will subsequently permit the issue to go into
default. In such an unlikely event, Lydall's exposure on its guarantee of the
bond issue is collateralized by tangible assets and real property which
Lydall management believes have a market value in excess of the obligation.
Long-term debt repayment requirements:
<TABLE>
<CAPTION>
In thousands 1995 1996 1997 1998 1999 Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt payments $2,843 $2,857 $3,450 $2,200 $2,100 $13,450
- ------------------------------------------------------------------------------------------------------------
</TABLE>
CREDIT ARRANGEMENTS
Lydall maintains domestic and foreign bank credit arrangements totaling
approximately $10 million which are renewed annually. Lydall primarily pays
interest at the lower of prime or money market rates and compensates its banks
for services on a fee basis. At December 31, 1994, no amounts were outstanding
on the domestic lines of credit, and $187 thousand was outstanding on the
foreign line of credit. No amounts were outstanding on any lines of credit at
December 31, 1993.
LONG-TERM OPERATING LEASES
Lydall has over 100 leases which cost the Company $1.9 million in 1994, $1.3
million in 1993, and $1.4 million in 1992. These contracts range from vehicle
leases to building leases which require payment of property taxes, insurance,
repairs and other operating costs.
Future net lease commitments under noncancelable operating leases are:
<TABLE>
<CAPTION>
In thousands 1995 1996 1997 1998 1999 Thereafter Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net lease payments $1,553 $1,313 $792 $608 $608 $3,053 $7,927
- -----------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
ACQUISITIONS AND OTHER INVESTMENTS
During 1994, Lydall made two strategic acquisitions. On February 28, 1994, the
Company acquired for, $15 million in cash and a note payable of $2.25 million,
the operations and certain assets and assumed certain liabilities of the Clecon
Molding Division of Standard Packaging, Inc. ("Columbus Operation"). As a result
of this purchase, the Company recorded goodwill and other intangible assets of
approximately $11.4 million. The Columbus Operation is a designer and
manufacturer of thermal and acoustical insulation products sold to the
automotive market. The results of the Columbus Operation since the date of
acquisition have been included in the Company's consolidated results.
On June 30, 1994, the Company acquired the laminates operation of Riverwood
International Georgia, Inc. located in Jacksonville, Florida ("Jacksonville
Operation"). The Company purchased inventory, equipment, and other assets for
approximately $1.8 million. This operation, which manufactures materials-
handling slipsheets, directly complements Lydall's existing slipsheet business
in Richmond, Virginia. The Company will continue to operate the business at the
Jacksonville location as part of the Southern Products Division. The results of
the operations of the Jacksonville Operation since the date of acquisition have
been included in the Company's consolidated results.
The following pro forma consolidated information of Lydall, Inc. reflects the
acquisitions described above as if the acquisitions had occurred at the
beginning of each period presented.
<TABLE>
<CAPTION>
In thousands except per-share data 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C>
Sales $220,968 $186,450
Net income 16,020 12,628
Net income per common share and common equivalents 1.78 1.44
- ------------------------------------------------------------------------------------
</TABLE>
The pro forma consolidated information is presented for informational
purposes only and does not purport to be indicative of results that would
actually have been obtained if the acquisitions had been in effect for the
periods indicated or of results that may be obtained in the future.
CAPITAL STOCK
Preferred Stock--The Company has a class of Serial Preferred Stock with a par
value of $1. None of the 500,000 authorized shares has been issued.
Common Stock--At the end of 1994, 1,900 Lydall stockholders of record held
8,338,762 shares of Common Stock. Approximately 7 percent of the Company's
Common Stock was owned by Lydall's officers and directors and their immediate
families. Other Lydall employees, their families and Lydall associates owned
an additional 9 percent either directly or through participation in the
Company's Employee Stock Ownership Trust.
During 1993, Lydall's Board of Directors declared a three-for-two-stock split
in the form of a stock dividend which resulted in the issuance of 3,332,175
shares of previously unissued Common Stock. December 31, 1993 account
balances reflect the split with an increase in Common Stock and a reduction
in Retained Earnings of $333 thousand. The distribution was made on September
15, 1993 to stockholders of record on August 18, 1993. All earnings-per-share
information in this report prior to the distribution date has been adjusted
to reflect the 1993 stock split.
On May 13, 1992, the Company increased its authorized shares to 15,000,000
from 10,000,000. Also on that date, the par value of the Company's Common
Stock was changed to $.10 from $3.33-1/3 per share. This resulted in a
reclassification from Common Stock toCapital in Excess of Par Value of $20.9
million.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Stock Plans--The Company has three stock option plans under which employees and
directors are granted options or warrants to purchase Lydall Common Stock. Under
these plans--the 1984 Outside Directors Warrant Plan, the 1982 Stock Incentive
Compensation Plan, and the 1992 Stock Incentive Compensation Plan--options are
granted at fair market value on the grant date and expire ten years after the
grant date. The Warrant and 1982 Plans have expired. The 1992 Plan provides for
automatic acceleration of vesting in the event of a change in control of the
Company. The Plan also provides for the use of shares of Lydall Common Stock in
lieu of cash to exercise options if the shares are held for more than six months
and if the Compensation and Stock Option Committee of the Board of Directors
approves this form of exercise.
A summary of option transactions under the plans follows:
<TABLE>
In thousands
except per-share data For the years ended December 31,
1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at the beginning of the year 1,142 1,001 1,159
Options granted during the year 118 306 153
Options exercised during the year (96) (150) (288)
Options cancelled during the year (3) (15) (23)
- ------------------------------------------------------------------------------------------------------------------
Options outstanding at end of the year 1,161 1,142 1,001
Options exercisable at end of the year 711 655 688
Shares reserved for option grants 372 88 387
Option price range per share $3.09-$33.50 $2.94-$21.33 $1.40-$21.33
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
EMPLOYER-SPONSORED BENEFIT PLANS
The Company contributes to four defined benefit pension plans which cover
substantially all domestic Lydall employees. The pension plans are
noncontributory, and benefits are based on either years of service or
eligible compensation paid while a participant in a plan. The Company's
funding policy is to fund not less than the ERISA minimum funding standard
nor more than the maximum amount which can be deducted for federal income tax
purposes.
The following items are the components of net pension cost:
<TABLE>
<CAPTION>
In thousands For the years ended December 31,
1994 1993 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 851 $ 649 $ 708
Interest cost on projected benefit obligations 1,025 946 778
Actual return on plan assets 75 (1,042) (696)
Net amortization and deferral (1,020) 169 (85)
- ----------------------------------------------------------------------------------------------------
Net pension cost $ 931 $ 722 $ 705
- ----------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
Plan assets include investments in bonds and equity securities. Actuarial
computations, which used the "projected unit credit" method and the "unit
credit" method, assumed discount rates on benefit obligations of 7.25 percent
for 1994 and 1993 and 8.5 percent for 1992; expected long-term rates of
return on plan assets of 9.5 percent for 1994, 1993, and 1992; and annual
compensation increases of 4.75 percent for 1994 and 1993, and 5.5 percent for
1992. The Company determines the assumed discount rate, long-term rate, and
annual compensation increase rate for each year. The following table presents
a reconciliation of the funded status of the plans:
<TABLE>
<CAPTION>
1994 1993
-------------------------------------------------- ----------------
Plans in Which Plans in Which Plans in Which
Assets Exceed Accumulated Accumulated
Accumulated Benefits Exceed Benefits Exceed
In thousands December 31, Benefits Assets Total Assets
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested $7,481 $3,661 $11,142 $11,278
Nonvested 251 94 345 419
- ---------------------------------------------------------------------------------------------------------------------
Accumulated benefit
obligations 7,732 3,755 11,487 11,697
Additional benefits related
to assumed future
compensation levels 2,363 - 2,363 2,407
- ---------------------------------------------------------------------------------------------------------------------
Projected benefit obligations 10,095 3,755 13,850 14,104
- ---------------------------------------------------------------------------------------------------------------------
Plan assets at fair
market value 7,791 2,840 10,631 10,122
- ---------------------------------------------------------------------------------------------------------------------
Projected benefit
obligations in excess of
the plan assets (2,304) (915) (3,219) (3,982)
Unrecognized net assets (662) (176) (838) (941)
Unrecognized prior-service cost (171) 318 147 279
Unrecognized net losses 2,644 937 3,581 4,099
Additional minimum liability - (1,079) (1,079) (1,100)
- ---------------------------------------------------------------------------------------------------------------------
Accrued pension cost included
in Other Long-term
Liabilities $ (493) $ (915) $ (1,408) $ (1,645)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company sponsors a Stock Purchase Plan, Profit Sharing Plan, and 401(k)
Plan. Contributions are determined under various formulas. Employer
contributions to these plans amounted to $1.4 million
in 1994 and $1.3 million in 1993 and in 1992.
POSTEMPLOYMENT, POSTRETIREMENT AND DEFERRED COMPENSATION
While it is not Lydall's practice to provide health care or life insurance
for retired employees, it does so for some retired employees of certain units
acquired before 1990. These benefits are unfunded. The plan participants are
primarily retirees; therefore, the postretirement benefit transition
obligation of $691 thousand is being amortized over the actuarially
determined average remaining future lifetime of the plan participants.
The discount rates used in determining the accumulated postretirement benefit
obligations were 7.25 percent at December 31, 1994 and 8.5 percent at
December 31, 1993. The health-care cost trend rate for both years was 12
percent, gradually declining to 6 percent over an eight-year period. A
1-percent
37
<PAGE>
increase in the health-care cost trend rates would cause the
accumulated benefit obligation to increase by $29 thousand. The increase in
the service and interest components of the 1994 postretirement benefit cost
is immaterial. The total expense was $136 thousand for 1994 and $143 thousand
for 1993. In 1992, prior to the adoption of SFAS 106, these costs totaled
$101 thousand.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
During the first quarter of 1994, the Company adopted SFAS 112,"Employers'
Accounting for Postemployment Benefits." SFAS 112 requires that
postemployment benefits be accounted for under the accrual method of
accounting. The implementation of this standard was immaterial to the
consolidated results of operations and the consolidated financial position of
the Company.
The Company provides deferred compensation to a small number of former
employees and has a deferred compensation plan which provides the Company's
outside directors and the Chairman with compensation upon their retirement
from service with the Board. In addition, in 1994, the Company adopted a
Supplemental Executive Retirement Plan ("SERP") which provides supplemental
income payments after retirement for senior executives. The total net
deferred compensation expense related to these three plans was $105 thousand
in 1994, $144 thousand in 1993, and $117 thousand in 1992. The 1994 net
expense includes $171 thousand related to the SERP, offset by an actuarially
calculated credit of $166 thousand related to the retired employees'
compensation plan. At December 31, 1994 and 1993, the Company had accrued
$824 thousand and $571 thousand, respectively, in Other Long-term Liabilities
for these obligations.
INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
In thousands For the years ended December 31, 1994 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 9,802 $5,207 $4,196
State 2,057 910 674
Foreign 142 60 381
- ---------------------------------------------------------------------------------------------
Total current 12,001 6,177 5,251
Deferred
Federal (895) 437 231
State 7 356 127
Foreign (80) (82) (51)
- ---------------------------------------------------------------------------------------------
Total deferred (968) 711 307
- ---------------------------------------------------------------------------------------------
Provision for income taxes $11,033 $6,888 $5,558
- ---------------------------------------------------------------------------------------------
</TABLE>
The Company implemented SFAS 109 effective January 1, 1993. This statement
requires the adoption of an asset and liability approach in accounting for
income taxes. The cumulative effect of this change on 1993 income was $235
thousand, or $.03 per share. Financial statements for 1992 have not been
restated. Additionally, SFAS 109 requires that the Company restate certain
assets and the related deferred taxes payable acquired in prior business
combinations to a pretax basis versus the after-tax approach required under
the prior accounting standard. Accordingly, property, plant, and equipment
and deferred taxes were increased by a total of $2.9 million as a result of
this implementation. The income statement effect of this change was
immaterial. Additionally, under SFAS 109, the Company is permitted to
recognize deferred tax assets if it is more likely than not that a benefit
will be realized. The Company has determined that a valuation allowance is
not required
38
<PAGE>
for the deferred tax assets. As a result of the implementation
of SFAS 109, the Company recognized deferred tax assets totaling $1.1 million
at January 1, 1993, which are expected to be realized upon the reversal of
taxable, temporary differences related to existing deferred tax liabilities.
Under the Omnibus Budget Reconciliation Act enacted during 1993, the
statutory federal income tax rate was increased to 35 percent retroactive to
January 1, 1993. The provision for income taxes for 1993 includes $112
thousand for the impact of the higher tax rate on the deferred tax liability
balance and $126 thousand for the impact on 1993 results.
The following is a reconciliation of the difference between the actual
provision for income taxes and the provision computed by applying the federal
statutory tax rate on earnings before the cumulative effect of the change in
accounting principle:
<TABLE>
<CAPTION>
For the years ended December 31, 1994 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rates 35.0% 34.75% 34.0%
- ---------------------------------------------------------------------------------------------
State income taxes, net of federal
tax deduction 5.1 4.9 3.6
- ---------------------------------------------------------------------------------------------
Exempt FSC foreign trade income (1.1) (1.8) (1.1)
U.S. and foreign research and other tax credits - - (1.2)
Foreign tax rate differential (.1) (.2) -
Other 2.7 2.4 2.8
Tax rate changes - .7 -
- ---------------------------------------------------------------------------------------------
Effective income tax rates 41.6% 40.75% 38.1%
- ---------------------------------------------------------------------------------------------
</TABLE>
The following is a schedule of the net current deferred tax assets and
long-term deferred tax liability accounts by tax jurisdiction as of December 31:
<TABLE>
<CAPTION>
1994 1993
---------------------------- ----------------------------------
Current Long-term Current Deferred Long-term
Deferred Deferred Tax Tax Assets Deferred Tax
In thousands Tax Assets Liabilities (Liabilities) Liabilities
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal $2,626 $ 6,732 $1,441 $ 6,442
State 776 2,225 43 1,485
Foreign 83 2,795 (57) 2,455
- ---------------------------------------------------------------------------------------------------------------
Total $3,485 $11,752 $1,427 $10,382
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1994 1993
------------------------------ ----------------------------------
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
In thousands Assets Liabilities Assets Liabilities
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accounts receivable $ 833 $ - $ 450 $ -
Inventory 814 - 484 -
Plant and equipment - 10,600 - 9,924
Other accrued expenses 1,838 - 493 -
Retirement accounts 742 - 351 -
Other, net - 1,894 - 809
$4,227 $12,494 $1,778 $10,733
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
The Internal Revenue Service has conducted its examination of the Company's
federal income tax returns for the years 1987, 1988, and 1989 and has
proposed various adjustments which increased federal taxable income in those
years. During December 1994, Lydall settled all but one issue raised during
the examination and paid approximately $600 thousand in taxes and $400
thousand in interest. The unresolved issue relates to the timing of the
deductibility of certain accrued liabilities. An unfavorable resolution of
this issue will not result in a material adverse effect upon the Company's
consolidated financial position or results of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Unremitted earnings of foreign subsidiaries which are deemed to be
permanently invested amounted to $1.9 million at December 31, 1994. The
unrecognized deferred tax liability on those earnings is not practical to
calculate.
CONTINGENCIES
In the mid-1980's, the United States Environmental Protection Agency ("EPA")
notified a former subsidiary of the Company that it and other entities may be
potentially responsible in connection with the release of hazardous
substances at a landfill and property located adjacent to a landfill located
in Michigan City, Indiana. The two sites have been combined and are viewed by
the EPA as one site. The preliminary indication, based on the Site Steering
Committee's volumetric analysis, is that the alleged contribution to the
waste volume at the site of the plant once owned by a former subsidiary is
approximately 0.434 percent of the total volume. The portion of the 0.434
percent specifically attributable to the former subsidiary by the current
operator of the plant is approximately 0.286 percent.
There are over 800 potentially responsible parties ("prp") which have been
identified by the Site Steering Committee. Of these, 38, not including the
Company's former subsidiary, are estimated to have contributed over 80
percent of the total waste volume at the site. These prp's include Fortune
500 companies, public utilities, and the State of Indiana. The Company
believes that, in general, these parties are financially solvent and should
be able to meet their obligations at the site. The Company has reviewed the
financial statements and credit reports on several of these prp's, and based
on these financial reports, does not believe the Company will have any
material additional volume attributed to it for reparation of this site due
to insolvency of other prp's.
During the quarter ended September 30, 1994, the Company learned that the EPA
recently completed its Record of Decision ("ROD") for the Michigan site and has
estimated the total cost of remediation to be between $17 million and $22
million. Based on the alleged contribution of its former subsidiary to the site,
the Company's alleged total exposure would be less than $100 thousand which has
been accrued.
Management believes the ultimate disposition of this matter will not have a
material adverse effect upon the Company's consolidated financial position or
results of operations.
40
<PAGE>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table summarizes quarterly financial information for 1994 and
1993. In management's opinion, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the information for such
quarters have been reflected below:
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-----------------------------------------------------------------------------------------
In thousands except per-share data 1994 1993 1994 1993 1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $48,116 $38,239 $53,556 $40,424 $54,446 $38,842 $56,954 $39,926
- ---------------------------------------------------------------------------------------------------------------------------------
Gross margin 15,145 11,283 16,047 12,152 16,388 11,744 17,304 13,275
- ---------------------------------------------------------------------------------------------------------------------------------
Income before cumulative
effect of accounting change 3,528 2,547 3,758 2,490 3,878 2,282 4,339 2,694
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of accounting
change - 235 - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,528 $ 2,782 $ 3,758 $ 2,490 $ 3,878 $ 2,282 $ 4,339 $ 2,694
- ---------------------------------------------------------------------------------------------------------------------------------
Income per common share
before cumulative effect
of accounting change $ .40 $ .29 $ .42 $ .28 $ .43 $ .26 $ .48 $ .31
- ---------------------------------------------------------------------------------------------------------------------------------
Net income per common share $ .40 $ .32 $ .42 $ .28 $ .43 $ .26 $ .48 $ .31
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Lydall, Inc.:
We have audited the accompanying consolidated balance sheets of Lydall, Inc.
and Subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lydall, Inc.
and Subsidiaries as of December 31,1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in the notes to the consolidated financial statements, the
Company has changed its methods of accounting for postretirement benefits
other than pensions and income taxes in 1993.
Hartford, Connecticut (Signature goes here)
February 10, 1995 Coopers & Lybrand L.L.P.
MANAGEMENT'S REPORT
While Lydall's financial statements and the related financial data contained
in this Annual Report have been prepared in conformity with generally
accepted accounting principles, and such financial statements have been
audited by Coopers & Lybrand, L.L.P. the ultimate accuracy and validity of
this information is the responsibility of the Company's management. To carry
out this responsibility, Lydall maintains comprehensive financial policies,
procedures, accounting systems and internal controls which management
believes provide reasonable assurance that accurate financial records are
maintained and corporate assets are safeguarded.
The Audit Committee of the Board of Directors, consisting of three outside
directors, meets regularly with Company management and the internal auditor
to review corporate financial policies and internal controls. The Audit
Committee also meets with the independent auditors to review the scope of the
annual audit and any comments they may have regarding the Company's internal
accounting controls.
In management's opinion, Lydall's system of internal accounting control is
adequate to ensure that the financial information in this report presents
fairly the Company's operations and financial condition.
(Signature goes here)
John E. Hanley
Vice President-Finance
and Treasurer
42
<PAGE>
FIVE-YEAR STATISTICAL REVIEW
<TABLE>
<CAPTION>
$ thousands except per-share amounts 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial results
Net sales $213,072 $157,431 $151,148 $135,487 $123,079
Income before cumulative effect of
accounting change 15,503 10,013 9,038 8,486 8,346
Net income 15,503 10,248 9,038 8,486 8,346
- -------------------------------------------------------------------------------------------------------------------------------
Common stock per-share data
Income before cumulative effect of
accounting change $ 1.73 $ 1.14 $ 1.04 $ .94 $ .94
Net income 1.73 1.17 1.04 .94 .94
Common stockholders' equity 9.14 7.26 6.17 5.01 4.67
- -------------------------------------------------------------------------------------------------------------------------------
Financial position
Total assets $136,613 $107,842 $ 99,353 $ 93,213 $ 83,124
Working capital 30,823 31,791 24,614 19,743 26,085
Current ratio 1.93 2.48 2.11 1.96 2.76
Long-term debt, net of
current maturities 10,607 11,171 16,195 22,737 20,400
Total stockholders' equity 76,227 60,057 50,071 39,074 38,494
Debt to total capitalization 15.0% 18.7% 27.7% 39.7% 34.9%
- -------------------------------------------------------------------------------------------------------------------------------
Property, plant, and equipment
Net property, plant, and equipment $ 54,771 $ 49,364 $ 46,269 $ 45,418 $ 35,853
Capital additions from acquisitions 3,077 - - 8,120 -
Other capital additions 7,979 6,253 6,235 4,121 8,223
Capital divestments, net 687 356 487 221 304
Depreciation 6,101 4,997 4,347 3,784 3,160
- -------------------------------------------------------------------------------------------------------------------------------
Performance ratios and other items
Return on average assets 12.7% 9.9% 9.4% 9.6% 10.6%
Return on average common stockholders' equity 22.8% 18.6% 20.3% 21.9% 24.3%
Return on sales 7.3% 6.5% 6.0% 6.3% 6.8%
Days of inventory on hand (FIFO) 35 48 53 58 60
Days of receivables outstanding 47 52 57 56 52
Number of employees at year-end 1,306 944 945 947 832
- -------------------------------------------------------------------------------------------------------------------------------
Shares and stockholders
Weighted average common stock
and equivalents 8,976,000 8,791,000 8,710,000 9,051,000 8,886,000
Common shares outstanding at year-end 8,338,762 8,269,063 8,119,690 7,802,702 8,242,452
Stockholders at year-end 1,900 1,904 1,960 2,015 2,121
Market price per share of common stock -
Highest close $37.25 $21.38 $22.33 $16.42 $10.08
Lowest close $20.25 $19.00 $16.08 $ 8.58 $ 7.21
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Share figures adjusted to reflect a three-for-two stock split in 1993 and a
two-for one-stock split in 1991.
43
<PAGE>
OFFICERS
LEONARD R. JASKOL
Chairman and Chief Executive Officer
JOHN E. HANLEY
Vice President-Finance and Treasurer
CAROLE F. BUTENAS
Vice President-Communications
ALAN J. GNANN
Vice President-Corporate
Development
MARY ADAMOWICZ
General Counsel and Secretary
GEOFFREY W. NELSON
Assistant Secretary
DIRECTORS
LEE A. ASSEO /2/,/6/
Chairman and Chief Executive Officer
The Whiting Company
PAUL S. BUDDENHAGEN /1/,/6/
Vice President
Mercer Management Consulting, Inc.
JAMES P. CAROLAN/5/
President
Lydall Manning Nonwovens Division
SAMUEL P. COOLEY /3/,/4/
Retired Executive Vice President and
Senior Credit Approval Officer
Shawmut Bank Connecticut, N.A.
W. LESLIE DUFFY /3/,/5/
Partner
Cahill Gordon & Reindel
LEONARD R. JASKOL /1/,/5/,/6/
Chairman and Chief Executive Officer
Lydall, Inc.
WILLIAM P. LYONS /3/,/4/
Chairman
JVL Corp.
JOEL SCHIAVONE /1/
President and Chief Executive Officer
The Schiavone Corporation
CHRISTOPHER R. SKOMOROWSKI /3/
President
Lydall Westex Division
ROGER M. WIDMANN /2/,/5/
Senior Managing Director
Corporate Finance
Chemical Securities, Inc.
ALBERT E. WOLF /2/,/4/
Chairman
Checkpoint Systems, Inc.
/1/ Executive Committee
/2/ Compensation and Stock Option Committee
/3/ Pension Committee
/4/ Audit Committee
/5/ Development Committee
/6/ Nominating Committee
TRANSFER AGENT
American Stock Transfer &
Trust Company
New York, New York
AUDITORS
Coopers & Lybrand L.L.P.
Hartford, Connecticut
ANNUAL MEETING
Lydall's annual meeting will be held on Wednesday, May 10, 1995 at 11:00 a.m. at
The Hartford Club located at 46 Prospect Street in Hartford, Connecticut.
Stockholders who are unable to attend the meeting are invited to mail any
questions they might have about the Company to any of Lydall's Officers.
Questions may also be directed to the Audit Committee of Lydall's Board of
Directors. Such inquiries may be sent to Samuel P. Cooley, Chairman of the Audit
Committee, in care of Lydall, Inc.
STOCKHOLDER INFORMATION
Lydall Common Stock is traded on the New York Stock Exchange under the symbol
LDL. During 1994 and 1993, 2,765,600 and 1,413,500 shares, respectively, were
traded. The closing price on December 31, 1994 was $32.50.
As of March 13, 1995, the record date of Lydall's 1995 Annual Meeting, 1,899
stockholders of record held 8,623,003 shares of Common Stock.
The following are the high, low and closing prices of Lydall Common Stock for
each quarter during the past two years. 1993 prices are restated to reflect a
three-for-two stock split distributed in September of that year.
<TABLE>
<CAPTION>
Quarters 1 2 3 4
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 High $27.375 $28.750 $34.500 $37.250
Low 20.250 24.500 26.500 31.000
Close 25.125 26.250 34.500 32.500
1993 High $21.583 $20.250 $23.500 $22.250
Low 19.417 18.750 19.167 20.000
Close 19.833 19.083 20.375 21.375
- ------------------------------------------------------------------
</TABLE>
Any stockholder correspondence regarding change of address or other
recordkeeping matters may be addressed to:
Isaac Kagan
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Telephone: 800-937-5449
All other stockholder correspondence -- questions about the Company and requests
for Lydall's Annual Report and Form 10-K -- may be directed to:
Carole F. Butenas
Vice President-Communications
Lydall, Inc.
P.O. Box 151
Manchester, Connecticut 06045-0151
Lydall hires and promotes qualified employees without regard to race, color,
sex, national origin, age, marital status, or physical or mental disabilities in
accordance with law.
44
<PAGE>
DIRECTORY
CORPORATE HEADQUARTERS
Lydall, Inc.
One Colonial Road
P.O. Box 151
Manchester, Connecticut
06045-0151
Telephone (203) 646-1233
Facsimile (203) 646-4917
Facsimile (203) 646-8847
AXOHM DIVISION
Saint-Rivalain
56310 Melrand
France
Telephone 33-97-28-5300
Facsimile 33-97-39-5890
COMPOSITE MATERIALS DIVISION
Division President James P. Carolan
12 Davis Street
P.O. Box 400
Hoosick Falls, New York
12090-0400
Telephone (518) 686-7313
Facsimile (518) 686-7205
Covington Operation
230 Industrial Park Road
P.O. Box 599
Covington, Tennessee 38019
Telephone (901) 476-7174
Facsimile (901) 476-9685
LOGISTICS MANAGEMENT, INC.
Division President William J. Rankin
580 Parker Street
P.O. Box 151
Manchester, Connecticut
06045-0151
Telephone (203) 646-1233
Facsimile (203) 645-0822
LYDALL & FOULDS DIVISION
Division President William J. Rankin
580 Parker Street
P.O. Box 151
Manchester, Connecticut
06045-0151
Telephone (203) 646-1233
Facsimile (203) 646-4448
LYDALL INTERNATIONAL, INC.
Saint-Rivalain
56310 Melrand
France
Telephone 33-97-28-8989
Facsimile 33-97-28-8980
Branch Office
Roppongi SK Building
3-15, Roppongi 3-Chome
Minato-ku, Tokyo 106 Japan
Telephone 81-3-3589-4621
Facsimile 81-3-3584-5249
MANNING NONWOVENS DIVISION
Division President James P. Carolan
P.O. Box 328
Troy, New York 12181
Telephone (518) 273-6320
Facsimile (518) 273-6361
SOUTHERN PRODUCTS DIVISION
Division President Raymond J. Lanzi
3021 Vernon Road
P.O. Box 9550
Richmond, Virginia 23228
Telephone (804) 266-9611
Facsimile (804) 266-3875
Jacksonville Operation
500-B North Ellis Road
Jacksonville, Florida 32254
Telephone (904) 783-1247
Facsimile (904) 783-8907
Sales Office
1300 West Lodi Avenue, Suite A9
Lodi, California 95242
Telephone (209) 333-0885
Fascimile (209) 333-0887
TECHNICAL PAPERS DIVISION
Division President Elliott F. Whitely
Chestnut Hill Road
P.O. Box 1960
Rochester, New Hampshire 03866
Telephone (603) 332-4600
Facsimile (603) 332-9602
Sales Office
One Wakefield Street
Rochester, New Hampshire 03867
Telephone (603) 332-8477
Facsimile (603) 332-9604
WESTEX DIVISION
Division President
Christopher R. Skomorowski
Brooks Crossroads
P.O. Box 109
Hamptonville, North Carolina 27020
Telephone (910) 468-8522
Facsimile (910) 468-8555
Columbus Operation
6767 Huntley Road
Columbus, Ohio 43229
Telephone (614) 885-6379
Facsimile (614) 885-5967
Rockwell Operation
711 Palmer Road
Rockwell, North Carolina 28138
Telephone (704) 279-5031
Facsimile (704) 279-6104
Sales Office
4555 Corporate Drive, Suite 205
Troy, Michigan 48098
Telephone (810) 952-5570
Facsimile (810) 952-5575
45
<PAGE>
Lydall, Inc. One Colonial Road P.O. Box 151 Manchester, CT 06045-0151
<PAGE>
Charts on page 16 of Lydall, Inc. 1994 Annual Report Per-share figures
adjusted to reflect stock splits in 1993 and 1991.
Net Sales
In Millions
1990 $123.1
1991 $135.5
1992 $151.1
1993 $157.4
1994 $213.1
Net Income
In Millions
1990 $8.3
1991 $8.4
1992 $9.0
1993 $10.2
1994 $15.5
EPS
In dollars
1990 $.94
1991 $.94
1992 $1.04
1993 $1.17
1994 $1.73
Closing Market Price Per Share
In dollars
1990 $8.42
1991 $16.42
1992 $19.83
1993 $21.38
1994 $32.50
Return on Sales
Percent
1990 6.8%
1991 6.3%
1992 6.0%
1993 6.5%
1994 7.3%
<PAGE>
<TABLE>
<CAPTION>
Operating Cash Flow
In Millions
<S> <C>
1990 $19.1
1991 $19.7
1992 $21.8
1993 $23.9
1994 $35.1
</TABLE>
<TABLE>
<CAPTION>
Total Capitalization
In Millions
Debt Equity
<S> <C> <C>
1990 $20.6 $38.5
1991 $25.7 $39.1
1992 $19.2 $50.1
1993 $13.8 $60.1
1994 $13.5 $76.2
</TABLE>
Photo Descriptions
Page 3: Leonard R. Jaskol, Chairman and CEO of Lydall, Inc.
Page 6: Small photo, top, right: Jec Shuping, an operator at Lydall's Rockwell,
North Carolina plant, is sonically sealing insulating packs for the Ford
Explorer battery cover.
Page 6: Large, center photo: Joe Hiers, Vice President of Technical Development
of Lydall's Westex Division and Brian Murphy, a Lydall Product Manager, are
inspecting Lydall's battery cover as it is installed on a new Continental at
Ford's Wixom Plant.
Page 9: Large photo, upper center, Bill Morgan, VE/VA Manager of Collins &
Aikman, a Lydall customer, and Gail Carolan, a Lydall Product Manager, inspect
undercarpet insulation parts made from Lydall material.
Page 9: Small photo, lower left: A close-up of Lydall insulating material as it
appears installed as part of light-duty truck carpet assembly.
Page 10: Upper, left: A semiconductor clean room representing that Lydall's
high-efficiency air filtration media can be found in an application such as this
type of clean room.
Page 10: Lower, left: An arrangement of Lydall high-efficiency air filtration
media and some different types of filter housings in which it is used.
Page 11: Upper, left: Lydall Product Manager, Bill Lonstein, Risk Lindsay,
Senior Buyer, Morton International Automotive Safety Products, a Lydall
customer, and Kevin Lynch, Vice President-Marketing and Sales for Lydall's
Technical Papers Division, are shown at Morton's manufacturing facility in Utah.
Page 11: Center: Stock photo of a deployed, driver-side air bag.
Page 12: Upper, left: Lydall Westex, Division employees, Grady Gardner, Randy
Niston, Michael Gregory, and Ray Grupinski shown by the division's fiber reclaim
system.
Page 12: Lower, center: John E. Hanley, Vice President-Finance and Treasurer
of Lydall, Inc.
<PAGE>
Page 13: Warehouse at Lydall's Technical Papers Division. Forklift operator is
Dennis Ellis.
Page 14: Upper, left: Robert Raymond, Production Manager and Carol Roelofs,
Administrative Sales Manager, at Lydall's Southern Products, Jacksonville
Operation.
Page 14: Center, right. Verl Harnapp, Molding Process Engineer and Phillip
McElroy, Quality Control Technician, at Lydall's Westex Division, Columbus
Operation.
Page 15: John Rash, Mold Line Operator, Ken McGill, Columbus Plant Manager, and
Rich Morris, Plant Supervisor, at Lydall's Westex Division, Columbus Operation.
<PAGE>
LYDALL, INC.
Exhibit 21.1
List of Subsidiaries
Lydall, Inc. - Incorporated in the State of Delaware
Logistics Management, Inc. - Incorporated in the State of Connecticut
Lydall Distribution Services, Inc. - Incorporated in the State of Connecticut
Lydall Transport, Ltd. - Incorporated in the State of Virginia
Lydall Express, Inc. - Incorporated in the State of Connecticut
Lydall Eastern, Inc. - Incorporated in State of Connecticut
DBA: Lydall Composite Materials, Covington Operation
Lydall Southern Products, Richmond Operation
Lydall Southern Products, Jacksonville Operation
Lydall Technical Papers
Lydall & Foulds
Lydall New York, Inc. - Incorporated in State of New York
DBA: Lydall Composite Materials, Hoosick Falls Operation
Lydall Manning Nonwovens Division
Lydall Central, Inc. - Incorporated in State of Indiana
DBA: Lydall Westex, Hamptonville Operation
Lydall Westex, Rockwell Operation
Lydall Westex, Columbus Operation
Lydall International, Inc. - Incorporated in State of Delaware
Lydall FSC, Limited - Incorporated in Jamaica
Trident II, Inc. - Incorporated in State of Connecticut
Sopatex, S.A. - Organized under the laws of France
Axohm Industries, S.A. - Organized under the laws of France
DBA: Lydall Axohm
Axohm S.A. Operations
Axohm U.K. - Organized under the laws of Great Britain
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration statement of
Lydall, Inc. on Form S-8 (File No. 33-68776) of our reports dated February 10,
1995, on our audits of the consolidated financial statements and financial
statement schedule of Lydall, Inc. and Subsidiaries as of December 31, 1994 and
1993, and for the years ended December 31, 1994, 1993, and 1992, which reports
are incorporated by reference from the Annual Report to Stockholders, and
included, respectively, in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
March 27, 1995
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of Lydall, Inc. (the "Corporation"), does hereby constitute and appoint
Leonard R. Jaskol and John E. Hanley, and each of them singly, as his agent and
attorney-in-fact to do any and all things and acts in his name and in the
capacities indicated below and to execute any and all instruments for him and in
his name in the capacities indicated below which said Leonard R. Jaskol and John
E. Hanley, or either of them, may deem necessary or advisable to enable the
Corporation to comply with the Securities Exchange Act of 1934, as amended, and
any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the preparation and filing of the Corporation's
Annual Report on Form 10-K (the "Annual Report") respecting the fiscal year
ended December 31, 1994, including specifically, but not limited to, power and
authority to sign for him in his name in the capacities indicated below the
Annual Report and any and all amendments thereto, and each of the undersigned
does hereby ratify and confirm all that said Leonard R. Jaskol and John E.
Hanley, or either of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated opposite his or her name.
___________________ Chairman of the March 14, 1995
Leonard R. Jaskol Board and Chief
Executive Officer
__________________ Director March 14, 1995
Lee A. Asseo
__________________ Director March 14, 1995
Paul S. Buddenhagen
__________________ Director March 14, 1995
James P. Carolan
__________________ Director March 14, 1995
Samuel P. Cooley
<PAGE>
__________________ Director March 14, 1995
W. Leslie Duffy
__________________ Director March 14, 1995
William P. Lyons
__________________ Director March 14, 1995
Joel Schiavone
__________________ Director March 14, 1995
Christopher R.
Skomorowski
__________________ Director March 14, 1995
Roger M. Widmann
__________________ Director March 14, 1995
A.E. Wolf
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 11,684
<SECURITIES> 2,904
<RECEIVABLES> 32,788
<ALLOWANCES> 1,724
<INVENTORY> 13,527
<CURRENT-ASSETS> 64,087
<PP&E> 94,431
<DEPRECIATION> 39,660
<TOTAL-ASSETS> 136,613
<CURRENT-LIABILITIES> 33,264
<BONDS> 13,450
<COMMON> 1,013
0
0
<OTHER-SE> 75,214
<TOTAL-LIABILITY-AND-EQUITY> 136,613
<SALES> 213,072
<TOTAL-REVENUES> 213,072
<CGS> 148,188
<TOTAL-COSTS> 148,188
<OTHER-EXPENSES> 1,033
<LOSS-PROVISION> 1,201
<INTEREST-EXPENSE> 1,335
<INCOME-PRETAX> 26,536
<INCOME-TAX> 11,033
<INCOME-CONTINUING> 15,503
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,503
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
</TABLE>
