<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-7665
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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 RD., P.O.B. 151, 06045-0151
MANCHESTER, CONNECTICUT (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(203) 646-1233
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.)
----------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Common stock $.10 par value per Share.
Total shares outstanding May 2,1995 8,626,065
</TABLE>
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<PAGE>
LYDALL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
Part I. Financial Information
Item 1. Financial Statements........................................
Consolidated Condensed Balance Sheets.............................
Consolidated Condensed Statements of Income.......................
Consolidated Condensed Statements of Cash Flows...................
Notes to Consolidated Condensed Financial Statements..............
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................
Signature.............................................................
</TABLE>
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LYDALL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH DECEMBER 31,
31, 1995 1994
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 14,862 $ 11,684
Short-term investments................................. 3,503 2,904
Accounts receivable, net............................... 34,539 31,825
Inventories:
Finished goods....................................... 7,424 5,423
Work in process...................................... 2,983 2,941
Raw materials and supplies........................... 7,396 6,822
LIFO reserve......................................... (1,908) (1,659)
-------- --------
Total inventories...................................... 15,895 13,527
Prepaid expenses....................................... 604 662
Deferred tax assets.................................... 3,496 3,485
-------- --------
Total current assets................................. 72,899 64,087
-------- --------
Property, plant and equipment, at cost................... 98,257 94,431
Less accumulated depreciation............................ (41,800) (39,660)
-------- --------
56,457 54,771
Other assets, at cost, less amortization................. 16,913 17,755
-------- --------
$146,269 $136,613
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt...................... $ 2,862 $ 2,843
Accounts payable....................................... 16,427 17,032
Accrued payroll and other compensation................. 3,961 5,420
Accrued taxes.......................................... 3,960 2,196
Other accrued liabilities.............................. 7,293 5,773
-------- --------
Total current liabilities............................ 34,503 33,264
Long-term debt........................................... 10,083 10,607
Deferred tax liabilities................................. 12,252 11,752
Pensions and other long-term liabilities................. 4,933 4,763
Stockholders' equity:
Preferred stock........................................ -- --
Common stock........................................... 1,041 1,013
Capital in excess of par value......................... 33,081 31,419
Retained earnings...................................... 61,329 56,023
Pension liability adjustment........................... (486) (547)
Foreign currency translation adjustment................ 2,352 1,138
-------- --------
97,317 89,046
Less: treasury stock, at cost.......................... (12,819) (12,819)
-------- --------
Total stockholders' equity........................... 84,498 76,227
-------- --------
$146,269 $136,613
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
2
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LYDALL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
1995 1994
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(UNAUDITED)
<S> <C> <C>
Net sales...................................................... $62,736 $48,116
Cost of sales.................................................. 43,510 32,971
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Gross margin................................................... 19,226 15,145
Selling, product development and administrative expenses....... 10,263 8,585
------- -------
Operating income............................................... 8,963 6,560
Other (income) expense
Investment (income) expense.................................. (232) 103
Interest expense............................................. 264 260
Other........................................................ 224 171
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256 534
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Income before income taxes..................................... 8,707 6,026
Income tax expense............................................. 3,401 2,498
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Net income..................................................... $ 5,306 $ 3,528
======= =======
Per-share amounts:
Net income per share........................................... $ .58 $ .40
======= =======
Weighted average common stock and equivalents outstanding...... 9,072 8,892
======= =======
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
3
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LYDALL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------
1995 1994
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(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 5,306 $ 3,528
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................ 1,826 1,483
Amortization............................................ 382 274
Changes in operating assets and liabilities:
Accounts receivable................................... (2,254) (3,251)
Inventories........................................... (2,078) (974)
Other assets.......................................... 526 (177)
Accounts payable...................................... (884) 3,366
Accrued taxes......................................... 1,690 2,276
Accrued payroll and other compensation................ (1,492) (1,207)
Deferred income taxes................................. 190 203
Other long-term liabilities........................... 13 (245)
Other accrued liabilities............................. 1,485 1,723
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Total adjustments....................................... (596) 3,471
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Net cash provided by operating activities................... 4,710 6,999
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Cash flows from investing activities:
Purchase of assets of Columbus Operation.................. -- (15,000)
Additions of property, plant & equipment.................. (2,179) (565)
Sale (purchase) of short-term investments, net............ (599) 412
Disposals of property, plant & equipment, net............. 4 38
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Net cash used for investing activities...................... (2,774) (15,115)
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Cash flows from financing activities:
Long-term debt repayments................................. (538) (29)
Issuance of common stock.................................. 1,751 40
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Net cash provided by financing activities................... 1,213 11
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Effect of exchange rate changes on cash..................... 29 41
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Increase (decrease) in cash and cash equivalents............ 3,178 (8,064)
Cash and cash equivalents at beginning of period............ 11,684 13,820
------- --------
Cash and cash equivalents at end of period.................. $14,862 $ 5,756
======= ========
Supplemental Schedule of Cash Flow Information:
Cash paid during the period for:
Interest.................................................. $ 149 $ 7
Income taxes.............................................. 1,716 551
Non-cash transactions:
Note issued to purchase assets of Columbus Operation...... -- 2,250
Reclassification of short-term investment to long-term,
net...................................................... -- 538
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
4
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LYDALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying consolidated condensed financial statements include the
accounts of Lydall, Inc. and its wholly owned subsidiaries. All financial
information is unaudited for interim periods reported. All significant
intercompany transactions have been eliminated in the consolidated condensed
financial statements. Management believes that all adjustments, which
include only normal recurring accruals, necessary to present a fair
statement of the financial position and results of the periods have been
included. The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
2. Earnings per common share are based on the weighted average number of common
shares outstanding during the period, including the effect of stock options,
stock awards and warrants where such effect would be dilutive. Fully diluted
earnings per share are not presented since the dilution is not material.
3. 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
For the first quarter ended March 31, 1995, sales were $62.7 million compared
with $48.1 million for the same quarter last year, a 30-percent increase. Net
income was $5.3 million compared with $3.5 million, an increase of 51 percent.
On a per-share basis, the Company earned $.58 in the first quarter of 1995
compared with $.40 in the same period last year, representing a 45-percent
increase in earnings per share.
Demand was strong in most of the Company's markets. Although acquisitions
were a positive factor in the quarter, two-thirds of the sales growth came from
increased sales in established operations. Also, international sales grew by 28
percent in the quarter compared with the same period last year. There was
5
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particularly strong growth in the materials-handling slipsheet business both
domestically and overseas. The acquisition of a complementary slipsheet
business in Jacksonville, Florida last year has expanded Lydall's position in
this market.
Sales of high-efficiency air filtration media continued to be robust both
domestically and abroad. As planned, the manufacture of certain grades of these
media at the French facility has proven to be advantageous to the Company in
this strong market.
Thermal barrier products also contributed to internal growth. New-product
sales of all-metal automotive heat shields contributed significantly to the
sales growth in the quarter, as did increased sales of cryogenic insulation
products. The demand for cryogenic vessels is growing and Lydall is gaining
market share as the insulating technology moves towards the Company's preferred
lightweight, multilayered materials. Additionally, the Company will continue to
see growth from the battery insulator product line, particularly in the second
half of this year when 1996 models go into production.
Sales and net income for the first quarter 1995 included a full quarter's
results from both the Jacksonville, Florida and Columbus, Ohio Operations which
were acquired during 1994. First quarter 1994 results included only one month
of results from the Columbus Operation and no results from the Jacksonville
Operation which was acquired in late June 1994.
Gross margin in the first quarter of 1995 was $19.2 million, or 30.6 percent
of sales, and return on sales was 8.5 percent. This compares with a gross
margin in the first quarter of 1994 of $15.1 million or 31.5 percent of sales,
and a return on sales of 7.3 percent. As reported in 1994, acquisitions
continued to negatively affect gross margins. Gross margins for the quarter
ended March 31, 1995 would have been 33.0 percent without the effect of the
1994 acquisitions. However, the Company made progress during the quarter in
improving margins at the recently acquired operations and expects to continue
to bring these margins in line with the company-wide average through 1995 and
into 1996.
Selling, product development and administrative expenses were 16.4 percent of
sales for the quarter ended March 31, 1995 compared with 17.8 percent of sales
for the quarter ended March 31, 1994. The Company anticipates that these
expenses will remain at the 16 to 17 percent level through the end of the year.
The Company's effective income tax rate decreased to 39.1 percent in the
quarter versus 41.5 percent in 1994. This reduction in tax rates is due to
several factors including stronger export sales resulting in a favorable
Foreign Sales Corporation benefit and the settlement of Internal Revenue
Service audits which were more favorable than expected.
LIQUIDITY AND CAPITAL RESOURCES:
Lydall generated operating cash flow of nearly $11 million in the first
quarter of 1995. As of March 31, 1995, cash, cash equivalents and short-term
investments were $18.4 million and working capital was $38.4 million. The
current ratio increased to 2.11, and total debt to total capitalization
decreased to 13 percent. Capital expenditures of approximately $2 million were
funded during the quarter. Increased levels of accounts receivable and
inventories are directly attributable to higher sales levels. The aging of
accounts receivable has not deteriorated from December 1994 levels.
During the month of April 1995, the Company repaid $2.2 million in long-term
debt, made the semi-annual interest payment and funded quarterly federal and
state income taxes and pension payments. The above payments were made with cash
from operations. The Company expects to continue to finance its day-to-day
operating needs from accumulated cash plus net cash from operations.
6
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Lydall continues to actively seek strategic acquisitions and to reinvest in
the Company with the primary focus on the ongoing comprehensive quality
program.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
10.1 --Employment Agreement with John E. Hanley dated March 10, 1995,
filed herewith.
10.2 --Employment Agreement with James P. Carolan dated March 10, 1995,
filed herewith.
10.3 --Employment Agreement with Elliott F. Whitely dated March 10, 1995,
filed herewith.
10.4 --Employment Agreement with Alan J. Gnann dated March 10, 1995,
filed herewith.
10.5 --Employment Agreement with Raymond J. Lanzi dated March 10, 1995,
filed herewith.
10.6 --Employment Agreement with Christopher R. Skomorowski dated March
10, 1995, filed herewith.
10.7 --Employment Agreement with William J. Rankin dated March 10, 1995,
filed herewith.
10.8 --Employment Agreement with Carole F. Butenas dated March 10, 1995,
filed herewith.
10.9 --Employment Agreement with Mona G. Estey dated March 10, 1995,
filed herewith.
10.10 --Employment Agreement with Mary Adamowicz dated March 10, 1995,
filed herewith.
11.1 --Schedule of Computation of Weighted Average Shares Outstanding,
filed herewith.
</TABLE>
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended March 31, 1995.
7
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SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Lydall, Inc. (Registrant)
By __________________________________
JOHN E. HANLEY
Vice President-Finance
and Treasurer
(Principal Financial and
Accounting Officer)
May 9, 1995
8
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LYDALL, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
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<C> <S>
10.1 Employment Agreement with John E. Hanley dated March 10, 1995,
filed herewith.
10.2 Employment Agreement with James P. Carolan dated March 10, 1995,
filed herewith.
10.3 Employment Agreement with Elliott F. Whitely dated March 10,
1995, filed herewith.
10.4 Employment Agreement with Alan J. Gnann dated March 10, 1995,
filed herewith.
10.5 Employment Agreement with Raymond J. Lanzi dated March 10, 1995,
filed herewith.
10.6 Employment Agreement with Christopher R. Skomorowski dated March
10, 1995, filed herewith.
10.7 Employment Agreement with William J. Rankin dated March 10,
1995, filed herewith.
10.8 Employment Agreement with Carole F. Butenas dated March 10,
1995, filed herewith.
10.9 Employment Agreement with Mona G. Estey dated March 10, 1995,
filed herewith.
10.10 Employment Agreement with Mary Adamowicz dated March 10, 1995,
filed herewith.
11.1 Schedule of Computation of Weighted Average Shares Outstanding,
filed herewith.
</TABLE>
<PAGE>
AGREEMENT
---------
THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC.
and its subsidiaries (the "Company") and John E. Hanley (the "Executive").
W I T N E S S E T H :
Recitals.
- ---------
Executive is employed by the Company as a Vice President-Finance and
Treasurer. The Company and Executive have agreed that if Executive should cease
to be Vice President-Finance and Treasurer 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:
1. Executive to Serve as Vice President-Finance and Treasurer. The
-----------------------------------------------------------
Executive shall continue to act as Vice President-Finance and Treasurer, subject
to the direction of its Chairman, President and Chief Executive Officer.
2. 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
1
<PAGE>
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;
provided, however, that a termination shall not be for "cause" hereunder unless,
- ------------------
such conviction or breach is detailed in a
2
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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 Chairman,
President and Chief Executive Officer'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.
3. 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 a Vice President-Finance and Treasurer of the Company
within one year from the time such Change of Control occurs or (b) another shall
be appointed or elected Vice President-Finance and Treasurer by the Company in
place of Executive at any time prior to June 1, 2021, 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 Company 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.
4. Termination Prior to Change of Control. If prior to a Change of
---------------------------------------
Control (a) the Executive shall resign as Vice
3
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President-Finance and Treasurer of the Company at the request of the Company or
because the duties and responsibilities of the Vice President-Finance and
Treasurer have been significantly modified by the Company without his consent or
(b) another is appointed Vice President-Finance and Treasurer 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 Company 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.
5. 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.
6. Employment Period. In the event of a Termination pursuant to paragraph
-----------------
3b above, Executive shall continue to be an employee of the Company for a period
of two years from the date of such Termination, and in the event of a
Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive
shall
4
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continue to be an employee of the Company for a period of one year from the date
of such Termination, such two year period or one 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 June 1, 2021,
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 and with
Executive's full recognition of his responsibilities under Paragraph 11 below
(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).
7. 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 Chairman, President and Chief Executive Officer;
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.
8. 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
5
<PAGE>
(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 Vice President-
Finance and Treasurer during such period, (b) reimbursement for reasonable
expenses incurred by him in the performance of his duties and (c) 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 two year term provided for in Paragraph 3b above or the one year term
provided for in Paragraph 3a or 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.
9. 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
6
<PAGE>
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 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
7
<PAGE>
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 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 9 and the
Executive thereafter is
8
<PAGE>
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.
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
9
<PAGE>
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 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,
10
<PAGE>
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
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not
11
<PAGE>
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.
10. 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.
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.
For purposes of COBRA, a qualifying event is not deemed to occur until the
Employment Period, as defined in paragraph 6, has expired.
11. Non-Compete. During the Employment Period Executive
------------
12
<PAGE>
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 two years from
Termination if such Termination occurred pursuant to Paragraph 3b above or one
year from Termination if such Termination occurred pursuant to Paragraph 3a or
Paragraph 4 above, notwithstanding any prior ending of the Employment Period
pursuant to Paragraph 6 above.
12. 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.
13. Indemnification. The parties agree to execute a separate
---------------
Indemnification Agreement in the form attached as
13
<PAGE>
Exhibit B.
14. 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.
15. 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
14
<PAGE>
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.
16. 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 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
15
<PAGE>
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.
17. 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.
18. Modification. This Agreement may not be changed orally, but only be
------------
means of an agreement in writing signed by the parties hereto.
19. 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.
20. Applicable Law. This Agreement shall be governed and construed in
---------------
accordance with the laws of the State of
16
<PAGE>
Connecticut, without reference to principles of conflict of laws.
21. 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.
LYDALL, INC.
By__________________________ _______________________
Roger M. Widmann, Chairman, John E. Hanley
Compensation and Stock Option Vice President-Finance
Committee and Treasurer
By____________________________
Leonard R. Jaskol
Chairman, President and CEO
17
<PAGE>
EXHIBIT A - FRINGE BENEFITS
---------------------------
1. Medical Benefits
a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes
dental benefits)
b. Lydall, Inc. Health Care Expense Plan
c. Lydall, Inc. Health Care Spending 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
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
b. Lydall, Inc. Dependent Care Assistance Plan
18
<PAGE>
AGREEMENT
---------
THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC.
and its subsidiaries (the "Company") and James P. Carolan (the "Executive").
W I T N E S S E T H :
Recitals.
- ---------
Executive is employed by the Company as a Division President. The Company
and Executive have agreed that if Executive should cease to be Division
President 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:
1. Executive to Serve as Division President. The Executive shall continue
-----------------------------------------
to act as Division President, subject to the direction of its Chairman,
President and Chief Executive Officer.
2. 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
1
<PAGE>
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;
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
2
<PAGE>
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 Chairman, President and Chief Executive Officer'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.
3. 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 a Division President of the Company within one year
from the time such Change of Control occurs or (b) another shall be appointed or
elected Division President by the Company in place of Executive at any time
prior to April 1, 2008, 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 Company 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.
4. Termination Prior to Change of Control. If prior to a Change of
---------------------------------------
Control (a) the Executive shall resign as Division President of the Company at
the request of the Company or because the duties and responsibilities of the
Division President have
3
<PAGE>
been significantly modified by the Company without his consent or (b) another is
appointed Division President 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 Company 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.
5. 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.
6. Employment Period. In the event of a Termination pursuant to paragraph
-----------------
3b above, Executive shall continue to be an employee of the Company for a period
of two years from the date of such Termination, and in the event of a
Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive
shall continue to be an employee of the Company for a period of one year from
the date of such Termination, such two year period or one year period, as the
case may be, being hereinafter referred
4
<PAGE>
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, 2008, 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 and with Executive's full recognition of his
responsibilities under Paragraph 11 below (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).
7. 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 Chairman, President and Chief Executive Officer;
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.
8. 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
5
<PAGE>
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 Division President during such period, (b)
reimbursement for reasonable expenses incurred by him in the performance of his
duties and (c) 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 two year term provided for in Paragraph 3b above
or the one year term provided for in Paragraph 3a or 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.
9. 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
6
<PAGE>
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 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
7
<PAGE>
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 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 9 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
8
<PAGE>
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.
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
9
<PAGE>
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 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
10
<PAGE>
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
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.
10. Medical Insurance Coverage. Executive and his
---------------------------
11
<PAGE>
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.
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.
For purposes of COBRA, a qualifying event is not deemed to occur until the
Employment Period, as defined in paragraph 6, has expired.
11. 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
12
<PAGE>
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 two years from Termination if such Termination
occurred pursuant to Paragraph 3b above or one year from Termination if such
Termination occurred pursuant to Paragraph 3a or Paragraph 4 above,
notwithstanding any prior ending of the Employment Period pursuant to Paragraph
6 above.
12. 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.
13. Indemnification. The parties agree to execute a separate
---------------
Indemnification Agreement in the form attached as Exhibit B.
14. 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
13
<PAGE>
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.
15. 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 expenses are
incurred in investigating, prosecuting, defending or preparing to prosecute or
defend, regardless of the outcome
14
<PAGE>
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.
16. 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 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
15
<PAGE>
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.
17. 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.
18. Modification. This Agreement may not be changed orally, but only be
------------
means of an agreement in writing signed by the parties hereto.
19. 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.
20. 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.
21. Successors This Agreement is personal to the Executive and without the
----------
prior written consent of the Company shall not be
16
<PAGE>
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.
LYDALL, INC.
By__________________________ _______________________
Roger M. Widmann, Chairman, James P. Carolan
Compensation and Stock Option Division President
Committee
By____________________________
Leonard R. Jaskol
Chairman, President and CEO
17
<PAGE>
EXHIBIT A - FRINGE BENEFITS
---------------------------
1. Medical Benefits
a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes
dental benefits)
b. Lydall, Inc. Health Care Expense Plan
c. Lydall, Inc. Health Care Spending 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
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
b. Lydall, Inc. Dependent Care Assistance Plan
18
<PAGE>
AGREEMENT
---------
THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC.
and its subsidiaries (the "Company") and Elliott F. Whitely (the "Executive").
W I T N E S S E T H :
Recitals.
- ---------
Executive is employed by the Company as a Division President. The Company
and Executive have agreed that if Executive should cease to be Division
President 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:
1. Executive to Serve as Division President. The Executive shall continue
-----------------------------------------
to act as Division President, subject to the direction of its Chairman,
President and Chief Executive Officer.
2. 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
1
<PAGE>
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;
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
2
<PAGE>
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 Chairman, President and Chief Executive Officer'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.
3. 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 a Division President of the Company within one year
from the time such Change of Control occurs or (b) another shall be appointed or
elected Division President by the Company in place of Executive at any time
prior to Marh 1, 2009, 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 Company 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.
4. Termination Prior to Change of Control. If prior to a Change of
---------------------------------------
Control (a) the Executive shall resign as Division President of the Company at
the request of the Company or because the duties and responsibilities of the
Division President have
3
<PAGE>
been significantly modified by the Company without his consent or (b) another is
appointed Division President 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 Company 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.
5. 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.
6. Employment Period. In the event of a Termination pursuant to paragraph
-----------------
3b above, Executive shall continue to be an employee of the Company for a period
of two years from the date of such Termination, and in the event of a
Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive
shall continue to be an employee of the Company for a period of one year from
the date of such Termination, such two year period or one year period, as the
case may be, being hereinafter referred
4
<PAGE>
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 March 1, 2009, 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 and with Executive's full recognition of his
responsibilities under Paragraph 11 below (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).
7. 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 Chairman, President and Chief Executive Officer;
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.
8. 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
5
<PAGE>
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 Division President during such period, (b)
reimbursement for reasonable expenses incurred by him in the performance of his
duties and (c) 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 two year term provided for in Paragraph 3b above
or the one year term provided for in Paragraph 3a or 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.
9. 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
6
<PAGE>
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 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
7
<PAGE>
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 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 9 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
8
<PAGE>
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.
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
9
<PAGE>
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 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
10
<PAGE>
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
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.
10. Medical Insurance Coverage. Executive and his
---------------------------
11
<PAGE>
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.
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.
For purposes of COBRA, a qualifying event is not deemed to occur until the
Employment Period, as defined in paragraph 6, has expired.
11. 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
12
<PAGE>
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 two years from Termination if such Termination
occurred pursuant to Paragraph 3b above or one year from Termination if such
Termination occurred pursuant to Paragraph 3a or Paragraph 4 above,
notwithstanding any prior ending of the Employment Period pursuant to Paragraph
6 above.
12. 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.
13. Indemnification. The parties agree to execute a separate
---------------
Indemnification Agreement in the form attached as Exhibit B.
14. 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
13
<PAGE>
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.
15. 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 expenses are
incurred in investigating, prosecuting, defending or preparing to prosecute or
defend, regardless of the outcome
14
<PAGE>
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.
16. 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 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
15
<PAGE>
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.
17. 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.
18. Modification. This Agreement may not be changed orally, but only be
------------
means of an agreement in writing signed by the parties hereto.
19. 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.
20. 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.
21. Successors This Agreement is personal to the Executive and without the
----------
prior written consent of the Company shall not be
16
<PAGE>
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.
LYDALL, INC.
By__________________________ _______________________
Roger M. Widmann, Chairman, Elliott F. Whitely
Compensation and Stock Option Division President
Committee
By____________________________
Leonard R. Jaskol
Chairman, President and CEO
17
<PAGE>
EXHIBIT A - FRINGE BENEFITS
---------------------------
1. Medical Benefits
a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes
dental benefits)
b. Lydall, Inc. Health Care Expense Plan
c. Lydall, Inc. Health Care Spending 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
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
b. Lydall, Inc. Dependent Care Assistance Plan
18
<PAGE>
AGREEMENT
---------
THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC.
and its subsidiaries (the "Company") and Alan J. Gnann (the "Executive").
W I T N E S S E T H :
Recitals.
- ---------
Executive is employed by the Company as a Vice President-Corporate
Development. The Company and Executive have agreed that if Executive should
cease to be Vice President-Corporate Development 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:
1. Executive to Serve as Vice President-Corporate Development. The
-----------------------------------------------------------
Executive shall continue to act as Vice President-Corporate Development, subject
to the direction of its Chairman, President and Chief Executive Officer.
2. 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
1
<PAGE>
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;
provided, however, that a termination shall not be for "cause" hereunder unless,
- ------------------
such conviction or breach is detailed in a
2
<PAGE>
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 Chairman,
President and Chief Executive Officer'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.
3. 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 a Vice President-Corporate Development of the Company
within one year from the time such Change of Control occurs or (b) another shall
be appointed or elected Vice President-Corporate Development by the Company in
place of Executive at any time prior to July 1, 2014, 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 Company 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.
4. Termination Prior to Change of Control. If prior to a Change of
---------------------------------------
Control (a) the Executive shall resign as Vice
3
<PAGE>
President-Corporate Development of the Company at the request of the Company or
because the duties and responsibilities of the Vice President-Corporate
Development have been significantly modified by the Company without his consent
or (b) another is appointed Vice President-Corporate Development 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 Company 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.
5. 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.
6. Employment Period. In the event of a Termination pursuant to paragraph
-----------------
3b above, Executive shall continue to be an employee of the Company for a period
of two years from the date of such Termination, and in the event of a
Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive
shall
4
<PAGE>
continue to be an employee of the Company for a period of one year from the date
of such Termination, such two year period or one 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 July 1, 2014,
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 and with
Executive's full recognition of his responsibilities under Paragraph 11 below
(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).
7. 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 Chairman, President and Chief Executive Officer;
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.
8. 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
5
<PAGE>
(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 Vice President-
Corporate Development during such period, (b) reimbursement for reasonable
expenses incurred by him in the performance of his duties and (c) 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 two year term provided for in Paragraph 3b above or the one year term
provided for in Paragraph 3a or 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.
9. 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
6
<PAGE>
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 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
7
<PAGE>
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 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 9 and the
Executive thereafter is
8
<PAGE>
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.
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
9
<PAGE>
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 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,
10
<PAGE>
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
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not
11
<PAGE>
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.
10. 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.
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.
For purposes of COBRA, a qualifying event is not deemed to occur until the
Employment Period, as defined in paragraph 6, has expired.
11. Non-Compete. During the Employment Period Executive
------------
12
<PAGE>
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 two years from
Termination if such Termination occurred pursuant to Paragraph 3b above or one
year from Termination if such Termination occurred pursuant to Paragraph 3a or
Paragraph 4 above, notwithstanding any prior ending of the Employment Period
pursuant to Paragraph 6 above.
12. 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.
13. Indemnification. The parties agree to execute a separate
---------------
Indemnification Agreement in the form attached as
13
<PAGE>
Exhibit B.
14. 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.
15. 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
14
<PAGE>
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.
16. 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 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
15
<PAGE>
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.
17. 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.
18. Modification. This Agreement may not be changed orally, but only be
------------
means of an agreement in writing signed by the parties hereto.
19. 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.
20. Applicable Law. This Agreement shall be governed and construed in
---------------
accordance with the laws of the State of
16
<PAGE>
Connecticut, without reference to principles of conflict of laws.
21. 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.
LYDALL, INC.
By__________________________ _______________________
Roger M. Widmann, Chairman, Alan J. Gnann
Compensation and Stock Option Vice President-Corporate
Committee Development
By____________________________
Leonard R. Jaskol
Chairman, President and CEO
17
<PAGE>
EXHIBIT A - FRINGE BENEFITS
---------------------------
1. Medical Benefits
a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes
dental benefits)
b. Lydall, Inc. Health Care Expense Plan
c. Lydall, Inc. Health Care Spending 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
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
b. Lydall, Inc. Dependent Care Assistance Plan
18
<PAGE>
AGREEMENT
---------
THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC.
and its subsidiaries (the "Company") and Raymond J. Lanzi (the "Executive").
W I T N E S S E T H :
Recitals.
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Executive is employed by the Company as a Division President. The Company
and Executive have agreed that if Executive should cease to be Division
President 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:
1. Executive to Serve as Division President. The Executive shall continue
-----------------------------------------
to act as Division President, subject to the direction of its Chairman,
President and Chief Executive Officer.
2. 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
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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;
provided, however, that a termination shall not be for "cause" hereunder unless,
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such conviction or breach is detailed in a written notice of intent to terminate
by the Board, providing for
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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 Chairman, President and Chief Executive Officer'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.
3. 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 a Division President of the Company within one year
from the time such Change of Control occurs or (b) another shall be appointed or
elected Division President by the Company in place of Executive at any time
prior to November 1, 2003, 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 Company 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.
4. Termination Prior to Change of Control. If prior to a Change of
---------------------------------------
Control (a) the Executive shall resign as Division President of the Company at
the request of the Company or because
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the duties and responsibilities of the Division President have been
significantly modified by the Company without his consent or (b) another is
appointed Division President 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 Company 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.
5. 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.
6. Employment Period. In the event of a Termination pursuant to paragraph
-----------------
3b above, Executive shall continue to be an employee of the Company for a period
of two years from the date of such Termination, and in the event of a
Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive
shall continue to be an employee of the Company for a period of one year from
the date of such Termination, such two year period or
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one 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 November 1, 2003, 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 and with Executive's full recognition of his
responsibilities under Paragraph 11 below (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).
7. 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 Chairman, President and Chief Executive Officer;
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.
8. 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
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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 Division President during such period, (b) reimbursement for reasonable
expenses incurred by him in the performance of his duties and (c) 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 two year term provided for in Paragraph 3b above or the one year term
provided for in Paragraph 3a or 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.
9. 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
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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 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
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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 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 9 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
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<PAGE>
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.
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
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<PAGE>
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 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
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<PAGE>
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
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.
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10. 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.
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.
For purposes of COBRA, a qualifying event is not deemed to occur until the
Employment Period, as defined in paragraph 6, has expired.
11. Non-Compete. During the Employment Period Executive will not compete
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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
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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 two years from Termination if such Termination occurred pursuant to
Paragraph 3b above or one year from Termination if such Termination occurred
pursuant to Paragraph 3a or Paragraph 4 above, notwithstanding any prior ending
of the Employment Period pursuant to Paragraph 6 above.
12. Trade Secrets. Executive shall regard and preserve as confidential
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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.
13. Indemnification. The parties agree to execute a separate
---------------
Indemnification Agreement in the form attached as Exhibit B.
14. Arbitration. The Company and Executive undertake to execute this
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Agreement in good faith. Any controversy or claim
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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.
15. 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 expenses are
incurred in investigating, prosecuting, defending or
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<PAGE>
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.
16. 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 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
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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.
17. Entire Agreement. This Agreement embodies the whole understanding
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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.
18. Modification. This Agreement may not be changed orally, but only be
------------
means of an agreement in writing signed by the parties hereto.
19. Waiver. The waiver by any party of a breach of any provision of this
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Agreement shall not operate as, or be construed as, a waiver of any subsequent
breach.
20. 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.
21. Successors This Agreement is personal to the Executive and without the
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prior written consent of the Company shall not be
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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.
LYDALL, INC.
By__________________________ _______________________
Roger M. Widmann, Chairman, Raymond J. Lanzi
Compensation and Stock Option Division President
Committee
By____________________________
Leonard R. Jaskol
Chairman, President and CEO
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EXHIBIT A - FRINGE BENEFITS
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1. Medical Benefits
a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes
dental benefits)
b. Lydall, Inc. Health Care Expense Plan
c. Lydall, Inc. Health Care Spending 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
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
b. Lydall, Inc. Dependent Care Assistance Plan
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AGREEMENT
---------
THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC.
and its subsidiaries (the "Company") and Christopher R. Skomorowski (the
"Executive").
W I T N E S S E T H :
Recitals.
- ---------
Executive is employed by the Company as a Division President. The Company
and Executive have agreed that if Executive should cease to be Division
President 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:
1. Executive to Serve as Division President. The Executive shall continue
-----------------------------------------
to act as Division President, subject to the direction of its Chairman,
President and Chief Executive Officer.
2. 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
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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;
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
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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 Chairman, President and Chief Executive Officer'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.
3. 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 a Division President of the Company within one year
from the time such Change of Control occurs or (b) another shall be appointed or
elected Division President by the Company in place of Executive at any time
prior to June 1, 2018, 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 Company 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.
4. Termination Prior to Change of Control. If prior to a Change of
---------------------------------------
Control (a) the Executive shall resign as Division President of the Company at
the request of the Company or because the duties and responsibilities of the
Division President have
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been significantly modified by the Company without his consent or (b) another is
appointed Division President 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 Company 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.
5. 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.
6. Employment Period. In the event of a Termination pursuant to paragraph
-----------------
3b above, Executive shall continue to be an employee of the Company for a period
of two years from the date of such Termination, and in the event of a
Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive
shall continue to be an employee of the Company for a period of one year from
the date of such Termination, such two year period or one year period, as the
case may be, being hereinafter referred
4
<PAGE>
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 June 1, 2018, 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 and with Executive's full recognition of his responsibilities
under Paragraph 11 below (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).
7. 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 Chairman, President and Chief Executive Officer;
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.
8. 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
5
<PAGE>
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 Division President during such period, (b)
reimbursement for reasonable expenses incurred by him in the performance of his
duties and (c) 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 two year term provided for in Paragraph 3b above
or the one year term provided for in Paragraph 3a or 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.
9. 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
6
<PAGE>
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 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
7
<PAGE>
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 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 9 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
8
<PAGE>
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.
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
9
<PAGE>
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 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
10
<PAGE>
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
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.
10. Medical Insurance Coverage. Executive and his
---------------------------
11
<PAGE>
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.
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.
For purposes of COBRA, a qualifying event is not deemed to occur until the
Employment Period, as defined in paragraph 6, has expired.
11. 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
12
<PAGE>
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 two years from Termination if such Termination
occurred pursuant to Paragraph 3b above or one year from Termination if such
Termination occurred pursuant to Paragraph 3a or Paragraph 4 above,
notwithstanding any prior ending of the Employment Period pursuant to Paragraph
6 above.
12. 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.
13. Indemnification. The parties agree to execute a separate
---------------
Indemnification Agreement in the form attached as Exhibit B.
14. 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
13
<PAGE>
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.
15. 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 expenses are
incurred in investigating, prosecuting, defending or preparing to prosecute or
defend, regardless of the outcome
14
<PAGE>
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.
16. 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 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
15
<PAGE>
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.
17. 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.
18. Modification. This Agreement may not be changed orally, but only be
------------
means of an agreement in writing signed by the parties hereto.
19. 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.
20. 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.
21. Successors This Agreement is personal to the Executive and without the
----------
prior written consent of the Company shall not be
16
<PAGE>
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.
LYDALL, INC.
By__________________________ _______________________
Roger M. Widmann, Chairman, Christopher R. Skomorowski
Compensation and Stock Option Division President
Committee
By____________________________
Leonard R. Jaskol
Chairman, President and CEO
17
<PAGE>
EXHIBIT A - FRINGE BENEFITS
---------------------------
1. Medical Benefits
a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes
dental benefits)
b. Lydall, Inc. Health Care Expense Plan
c. Lydall, Inc. Health Care Spending 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
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
b. Lydall, Inc. Dependent Care Assistance Plan
18
<PAGE>
AGREEMENT
---------
THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC.
and its subsidiaries (the "Company") and William J. Rankin (the "Executive").
W I T N E S S E T H :
Recitals.
- ---------
Executive is employed by the Company as a Division President. The Company
and Executive have agreed that if Executive should cease to be Division
President 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:
1. Executive to Serve as Division President. The Executive shall continue
-----------------------------------------
to act as Division President, subject to the direction of its Chairman,
President and Chief Executive Officer.
2. 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
1
<PAGE>
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;
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
2
<PAGE>
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 Chairman, President and Chief Executive Officer'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.
3. 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 a Division President of the Company within one year
from the time such Change of Control occurs or (b) another shall be appointed or
elected Division President by the Company in place of Executive at any time
prior to March 1, 2019, 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 Company 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.
4. Termination Prior to Change of Control. If prior to a Change of
---------------------------------------
Control (a) the Executive shall resign as Division President of the Company at
the request of the Company or because the duties and responsibilities of the
Division President have
3
<PAGE>
been significantly modified by the Company without his consent or (b) another is
appointed Division President 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 Company 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.
5. 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.
6. Employment Period. In the event of a Termination pursuant to paragraph
-----------------
3b above, Executive shall continue to be an employee of the Company for a period
of two years from the date of such Termination, and in the event of a
Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive
shall continue to be an employee of the Company for a period of one year from
the date of such Termination, such two year period or one year period, as the
case may be, being hereinafter referred
4
<PAGE>
one 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 March 1, 2019, 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 and with Executive's full recognition of his
responsibilities under Paragraph 11 below (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).
7. 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 Chairman, President and Chief Executive Officer;
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.
8. 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
5
<PAGE>
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 Division President during such period, (b)
reimbursement for reasonable expenses incurred by him in the performance of his
duties and (c) 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 two year term provided for in Paragraph 3b above
or the one year term provided for in Paragraph 3a or 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.
9. 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
6
<PAGE>
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 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
7
<PAGE>
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 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 9 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
8
<PAGE>
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.
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
9
<PAGE>
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 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
10
<PAGE>
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
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.
10. Medical Insurance Coverage. Executive and his
---------------------------
11
<PAGE>
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.
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.
For purposes of COBRA, a qualifying event is not deemed to occur until the
Employment Period, as defined in paragraph 6, has expired.
11. 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
12
<PAGE>
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 two years from Termination if such Termination
occurred pursuant to Paragraph 3b above or one year from Termination if such
Termination occurred pursuant to Paragraph 3a or Paragraph 4 above,
notwithstanding any prior ending of the Employment Period pursuant to Paragraph
6 above.
12. 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.
13. Indemnification. The parties agree to execute a separate
---------------
Indemnification Agreement in the form attached as Exhibit B.
14. 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
13
<PAGE>
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.
15. 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 expenses are
incurred in investigating, prosecuting, defending or preparing to prosecute or
defend, regardless of the outcome
14
<PAGE>
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.
16. 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 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
15
<PAGE>
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.
17. 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.
18. Modification. This Agreement may not be changed orally, but only be
------------
means of an agreement in writing signed by the parties hereto.
19. 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.
20. 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.
21. Successors This Agreement is personal to the Executive and without the
----------
prior written consent of the Company shall not be
16
<PAGE>
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.
LYDALL, INC.
By__________________________ _______________________
Roger M. Widmann, Chairman, William J. Rankin
Compensation and Stock Option Division President
Committee
By____________________________
Leonard R. Jaskol
Chairman, President and CEO
17
<PAGE>
EXHIBIT A - FRINGE BENEFITS
---------------------------
1. Medical Benefits
a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes
dental benefits)
b. Lydall, Inc. Health Care Expense Plan
c. Lydall, Inc. Health Care Spending 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
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
b. Lydall, Inc. Dependent Care Assistance Plan
18
<PAGE>
AGREEMENT
---------
THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC.
and its subsidiaries (the "Company") and Carole F. Butenas (the "Executive").
W I T N E S S E T H :
Recitals.
- ---------
Executive is employed by the Company as Vice President-Communications. The
Company and Executive have agreed that if Executive should cease to be Vice
President-Communications under the circumstances set forth in this Agreement her
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:
1. Executive to Serve as Vice President-Communications. The Executive
----------------------------------------------------
shall continue to act as Vice President-Communications, subject to the direction
of its Chairman, President and Chief Executive Officer.
2. 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
1
<PAGE>
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 her 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
2
<PAGE>
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 Chairman, President and Chief Executive Officer'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.
3. 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 a Vice President-Communications of the Company within
one year from the time such Change of Control occurs or (b) another shall be
appointed or elected Vice President-Communications by the Company in place of
Executive at any time prior to May 1, 2007, 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 Company 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.
4. Termination Prior to Change of Control. If prior to a Change of
--------------------------------------
Control (a) the Executive shall resign as Vice President-Communications of the
Company at the request of the
3
<PAGE>
Company or because the duties and responsibilities of the Vice President-
Communications have been significantly modified by the Company without her
consent or (b) another is appointed Vice President-Communications in place of
the Executive (such resignation or replacement of the Executive being
hereinafter referred to as 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 Company 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.
5. Termination for Cause If Executive's employment is terminated for
---------------------
cause prior to the beginning of the Employment Period, (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.
6. 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 one year from the date of such Termination, and in the event of a Termination
pursuant to either Paragraph 3a or Paragraph 4 above, Executive shall continue
to be an employee of the Company for a period six months
4
<PAGE>
from the date of such Termination such one year period or six months 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 her 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 May 1,
2007, 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 and with
Executive's full recognition of her responsibilities under Paragraph 11 below
(but such termination of the Employment Period under clause (a), (b) or (c)
above shall not preclude the Executive from being paid for her obligation not to
compete as provided in Paragraphs 10 and 11 below).
7. Title and Duties. During the Employment Period, the Executive shall
----------------
perform such duties and undertake such responsibilities as are assigned to her
from time to time by the Chairman, President and Chief Executive Officer;
provided, however, that such duties and responsibilities shall be commensurate
with her status as a senior executive of the Company and bear a reasonable
relationship to the business of the Company.
8. 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 her during the period
commencing three (3) years prior to the date of Termination and ending on the
date
5
<PAGE>
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 she would have been entitled to receive if she had continued to be
Vice President-Communications during such period and (b) reimbursement for
reasonable expenses incurred by her in the performance of her duties. If the
Employment Period shall end, pursuant to Paragraph 5 above, prior to the end of
the one year term provided for in Paragraph 3 above or the six month term
provided for in Paragraph 3a or Paragraph 4 above, as the case may be,the Annual
Salary (but, except to the extent provided in Paragraph 9 below, not fringe
benefits and perquisites) shall continue to be payable until the end of the non-
compete period provided for in Paragraph 10 below and shall be deemed payment
for Executive's obligation not to compete as provided in said Paragraph 10, 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.
9. 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 8 (a 'Payment') would be
subject to the excise tax imposed by Section
6
<PAGE>
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 8
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 8, all
determinations required to be made under this Section 8, 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
7
<PAGE>
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 8, 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
8
<PAGE>
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.
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.
9
<PAGE>
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 8,
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)
10
<PAGE>
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 8, 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 8 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 8, 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
11
<PAGE>
required to be paid.
10. Medical Insurance Coverage. Executive and her 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.
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 her 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 her 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.
For purposes of COBRA, a qualifying event is not deemed to occur until the
Employment Period, as defined in paragraph 6, has expired.
11. 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
12
<PAGE>
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 10, the Employment Period shall be deemed to extend
one year from Termination if such Termination occurred pursuant to Paragraph 3b
above or six months from Termination if such Termination occurred pursuant to
Paragraph 3a or Paragraph 4 above notwithstanding any prior ending of the
Employment Period pursuant to Paragraph 5 above.
12. 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 her custody and control.
13. Indemnification. The parties agree to execute a separate
---------------
Indemnification Agreement in the form attached as Exhibit B.
14. Arbitration. The Company and Executive undertake to
------------
13
<PAGE>
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.
15. 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 her rights hereunder, the Company
shall promptly pay or reimburse the Executive upon such Executive's written
demand therefor, for eighty (80) percent of her 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
14
<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 14 shall survive the termination
for any reason of this Agreement. This Section 14 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 14.
16. 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 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
15
<PAGE>
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 15 may not be amended after a Change of
Control.
17. 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.
18. Modification. This Agreement may not be changed orally, but only be
------------
means of an agreement in writing signed by the parties hereto.
19. 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.
20. 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.
21. Successors This Agreement is personal to the Executive
----------
16
<PAGE>
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.
LYDALL, INC.
By____________________________ _______________________
Roger M. Widmann, Chairman, Carole F. Butenas
Compensation and Stock Option Vice President-Communications
Committee
By___________________________
Leonard R. Jaskol
Chairman, President and CEO
17
<PAGE>
CFB
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
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
b. Lydall, Inc. Dependent Care Assistance Plan
18
<PAGE>
AGREEMENT
---------
THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC.
and its subsidiaries (the "Company") and Mona G. Estey (the "Executive").
W I T N E S S E T H :
Recitals.
- ---------
Executive is employed by the Company as Manager, Human Resources and
Employee Benefits. The Company and Executive have agreed that if Executive
should cease to be Manager, Human Resources and Employee Benefits under the
circumstances set forth in this Agreement her 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:
1. Executive to Serve as Manager, Human Resources and Employee Benefits.
---------------------------------------------------------------------
The Executive shall continue to act as Manager, Human Resources and Employee
Benefits, subject to the direction of its Chairman, President and Chief
Executive Officer.
2. 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
1
<PAGE>
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 her 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
2
<PAGE>
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 Chairman,
President and Chief Executive Officer'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.
3. 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 a Manager, Human Resources and Employee Benefits of
the Company within one year from the time such Change of Control occurs or (b)
another shall be appointed or elected Manager, Human Resources and Employee
Benefits by the Company in place of Executive at any time prior to August 1,
2019, 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 Company 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.
4. Termination Prior to Change of Control. If prior to a Change of
--------------------------------------
Control (a) the Executive shall resign as Manager,
3
<PAGE>
Human Resources and Employee Benefits of the Company at the request of the
Company or because the duties and responsibilities of the Manager, Human
Resources and Employee Benefits have been significantly modified by the Company
without her consent or (b) another is appointed Manager, Human Resources and
Employee Benefits in place of the Executive (such resignation or replacement of
the Executive being hereinafter referred to as 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 Company 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.
5. Termination for Cause If Executive's employment is terminated for
---------------------
cause prior to the beginning of the Employment Period, (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.
6. 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 one year from the date of such Termination, and in the event of a Termination
pursuant to
4
<PAGE>
either Paragraph 3a or Paragraph 4 above, Executive shall continue to be an
employee of the Company for a period six months from the date of such
Termination such one year period or six months 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 her 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 August 1, 2019, 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 and with Executive's full recognition of her
responsibilities under Paragraph 11 below (but such termination of the
Employment Period under clause (a), (b) or (c) above shall not preclude the
Executive from being paid for her obligation not to compete as provided in
Paragraphs 10 and 11 below).
7. Title and Duties. During the Employment Period, the Executive shall
----------------
perform such duties and undertake such responsibilities as are assigned to her
from time to time by the Chairman, President and Chief Executive Officer;
provided, however, that such duties and responsibilities shall be commensurate
with her status as a senior executive of the Company and bear a reasonable
relationship to the business of the Company.
8. 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
5
<PAGE>
salary and bonuses paid to her 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 she would have been
entitled to receive if she had continued to be Manager, Human Resources and
Employee Benefits during such period and (b) reimbursement for reasonable
expenses incurred by her in the performance of her duties. If the Employment
Period shall end, pursuant to Paragraph 5 above, prior to the end of the one
year term provided for in Paragraph 3 above or the six month term provided for
in Paragraph 3a or Paragraph 4 above, as the case may be,the Annual Salary (but,
except to the extent provided in Paragraph 9 below, not fringe benefits and
perquisites) shall continue to be payable until the end of the non-compete
period provided for in Paragraph 10 below and shall be deemed payment for
Executive's obligation not to compete as provided in said Paragraph 10, 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.
9. 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
6
<PAGE>
any additional payments required under this Section 8 (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 8 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 8, all
determinations required to be made under this Section 8, 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
7
<PAGE>
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 8,
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
8
<PAGE>
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.
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
9
<PAGE>
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 8,
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,
10
<PAGE>
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 8, 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 8 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 8, 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
11
<PAGE>
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.
10. Medical Insurance Coverage. Executive and her 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.
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 her 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 her 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.
For purposes of COBRA, a qualifying event is not deemed to occur until the
Employment Period, as defined in paragraph 6, has expired.
11. Non-Compete. During the Employment Period Executive
------------
12
<PAGE>
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 10, the Employment Period shall be deemed to extend one year from
Termination if such Termination occurred pursuant to Paragraph 3b above or six
months from Termination if such Termination occurred pursuant to Paragraph 3a or
Paragraph 4 above notwithstanding any prior ending of the Employment Period
pursuant to Paragraph 5 above.
12. 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 her custody and control.
13. Indemnification. The parties agree to execute a separate
---------------
Indemnification Agreement in the form attached as
13
<PAGE>
Exhibit B.
14. 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.
15. 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 her rights hereunder, the Company
shall promptly pay or reimburse the Executive upon such Executive's written
demand therefor, for eighty (80) percent of her costs and expenses (including
costs and fees of witnesses,
14
<PAGE>
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 14 shall
survive the termination for any reason of this Agreement. This Section 14 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 14.
16. 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 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
15
<PAGE>
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 15 may not be
amended after a Change of Control.
17. 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.
18. Modification. This Agreement may not be changed orally, but only be
------------
means of an agreement in writing signed by the parties hereto.
19. 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.
20. Applicable Law. This Agreement shall be governed and
---------------
16
<PAGE>
construed in accordance with the laws of the State of Connecticut, without
reference to principles of conflict of laws.
21. 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.
LYDALL, INC.
By____________________________ _______________________
Roger M. Widmann, Chairman, Mona G. Estey
Compensation and Stock Option Manager, Human Resources and
Committee Employee Benefits
By___________________________
Leonard R. Jaskol
Chairman, President and CEO
17
<PAGE>
MA,MGE
EXHIBIT A - FRINGE BENEFITS
---------------------------
1. Medical Benefits
a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes
dental benefits)
b. Lydall, Inc. Health Care Expense Plan
c. Lydall, Inc. Health Care Spending 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
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
b. Lydall, Inc. Dependent Care Assistance Plan
18
<PAGE>
AGREEMENT
---------
THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC.
and its subsidiaries (the "Company") and Mary Adamowicz (the "Executive").
W I T N E S S E T H :
Recitals.
- ---------
Executive is employed by the Company as General Counsel and Secretary. The
Company and Executive have agreed that if Executive should cease to be General
Counsel and Secretary under the circumstances set forth in this Agreement her
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:
1. Executive to Serve as General Counsel and Secretary. The Executive
----------------------------------------------------
shall continue to act as General Counsel and Secretary, subject to the direction
of its Chairman, President and Chief Executive Officer.
2. 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
1
<PAGE>
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 her 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
2
<PAGE>
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 Chairman, President and Chief Executive Officer'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.
3. 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 a General Counsel and Secretary of the Company within
one year from the time such Change of Control occurs or (b) another shall be
appointed or elected General Counsel and Secretary by the Company in place of
Executive at any time prior to June 1, 2025, 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 Company 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.
4. Termination Prior to Change of Control. If prior to a Change of
--------------------------------------
Control (a) the Executive shall resign as General Counsel and Secretary of the
Company at the request of the
3
<PAGE>
Company or because the duties and responsibilities of the General Counsel and
Secretary have been significantly modified by the Company without her consent or
(b) another is appointed General Counsel and Secretary in place of the Executive
(such resignation or replacement of the Executive being hereinafter referred to
as 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 Company 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.
5. Termination for Cause If Executive's employment is terminated for
---------------------
cause prior to the beginning of the Employment Period, (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.
6. 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 one year from the date of such Termination, and in the event of a Termination
pursuant to either Paragraph 3a or Paragraph 4 above, Executive shall continue
to be an employee of the Company for a period six months
4
<PAGE>
from the date of such Termination such one year period or six months 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 her 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 June 1,
2025, 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 and with
Executive's full recognition of her responsibilities under Paragraph 11 below
(but such termination of the Employment Period under clause (a), (b) or (c)
above shall not preclude the Executive from being paid for her obligation not to
compete as provided in Paragraphs 10 and 11 below).
7. Title and Duties. During the Employment Period, the Executive shall
----------------
perform such duties and undertake such responsibilities as are assigned to her
from time to time by the Chairman, President and Chief Executive Officer;
provided, however, that such duties and responsibilities shall be commensurate
with her status as a senior executive of the Company and bear a reasonable
relationship to the business of the Company.
8. 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 her during the period
commencing three (3) years prior to the date of Termination and ending on the
date
5
<PAGE>
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 she would have been entitled to receive if she had continued to be
General Counsel and Secretary during such period and (b) reimbursement for
reasonable expenses incurred by her in the performance of her duties. If the
Employment Period shall end, pursuant to Paragraph 5 above, prior to the end of
the one year term provided for in Paragraph 3 above or the six month term
provided for in Paragraph 3a or Paragraph 4 above, as the case may be,the Annual
Salary (but, except to the extent provided in Paragraph 9 below, not fringe
benefits and perquisites) shall continue to be payable until the end of the non-
compete period provided for in Paragraph 10 below and shall be deemed payment
for Executive's obligation not to compete as provided in said Paragraph 10, 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.
9. 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 8 (a 'Payment') would be
subject to the excise tax imposed by Section
6
<PAGE>
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 8
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 8, all
determinations required to be made under this Section 8, 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
7
<PAGE>
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 8, 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
8
<PAGE>
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.
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.
9
<PAGE>
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 8,
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)
10
<PAGE>
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 8, 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 8 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 8, 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
11
<PAGE>
required to be paid.
10. Medical Insurance Coverage. Executive and her 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.
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 her 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 her 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.
For purposes of COBRA, a qualifying event is not deemed to occur until the
Employment Period, as defined in paragraph 6, has expired.
11. 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
12
<PAGE>
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 10, the Employment Period shall be deemed to extend
one year from Termination if such Termination occurred pursuant to Paragraph 3b
above or six months from Termination if such Termination occurred pursuant to
Paragraph 3a or Paragraph 4 above notwithstanding any prior ending of the
Employment Period pursuant to Paragraph 5 above.
12. 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 her custody and control.
13. Indemnification. The parties agree to execute a separate
---------------
Indemnification Agreement in the form attached as Exhibit B.
14. Arbitration. The Company and Executive undertake to
------------
13
<PAGE>
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.
15. 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 her rights hereunder, the Company
shall promptly pay or reimburse the Executive upon such Executive's written
demand therefor, for eighty (80) percent of her 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
14
<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 14 shall survive the termination
for any reason of this Agreement. This Section 14 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 14.
16. 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 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
15
<PAGE>
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 15 may not be amended after a Change of
Control.
17. 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.
18. Modification. This Agreement may not be changed orally, but only be
------------
means of an agreement in writing signed by the parties hereto.
19. 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.
20. 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.
21. Successors. This Agreement is personal to the
-----------
16
<PAGE>
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.
LYDALL, INC.
By____________________________ _______________________
Roger M. Widmann, Chairman, Mary Adamowicz
Compensation and Stock Option General Counsel and Secretary
Committee
By___________________________
Leonard R. Jaskol
Chairman, President and CEO
17
<PAGE>
MA,MGE
EXHIBIT A - FRINGE BENEFITS
---------------------------
1. Medical Benefits
a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes
dental benefits)
b. Lydall, Inc. Health Care Expense Plan
c. Lydall, Inc. Health Care Spending 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
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
b. Lydall, Inc. Dependent Care Assistance Plan
18
<PAGE>
EXHIBIT 11.1
LYDALL, INC.
SCHEDULE OF COMPUTATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31,
-----------
1995 1994
----- -----
(INTHOUSANDS)
(UNAUDITED)
<S> <C> <C>
Primary
Weighted average number of common shares......................... 8,620 8,275
Additional shares assuming conversion of stock options and
warrants........................................................ 452 617
----- -----
Weighted average common shares and equivalents outstanding....... 9,072 8,892
===== =====
Fully Diluted
Weighted average number of common shares......................... 8,620 8,275
Additional shares assuming conversion of stock options and
warrants........................................................ 455 641
----- -----
Weighted average common shares and equivalents outstanding....... 9,075 8,916
===== =====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 14,862
<SECURITIES> 3,503
<RECEIVABLES> 34,791
<ALLOWANCES> 1,657
<INVENTORY> 15,895
<CURRENT-ASSETS> 72,899
<PP&E> 98,257
<DEPRECIATION> 41,800
<TOTAL-ASSETS> 146,269
<CURRENT-LIABILITIES> 34,503
<BONDS> 12,945
<COMMON> 1,041
0
0
<OTHER-SE> 83,457
<TOTAL-LIABILITY-AND-EQUITY> 146,269
<SALES> 62,736
<TOTAL-REVENUES> 62,736
<CGS> 43,510
<TOTAL-COSTS> 43,510
<OTHER-EXPENSES> 224
<LOSS-PROVISION> 47
<INTEREST-EXPENSE> 264
<INCOME-PRETAX> 8,707
<INCOME-TAX> 3,401
<INCOME-CONTINUING> 5,306
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,306
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
</TABLE>
