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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Lydall, Inc.
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(Name of Registrant as Specified In Its Charter)
Lydall, Inc.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[LOGO OF LYDALL APPEARS HERE]
Notice of Annual Meeting, to be held
May 14, 1997
Proxy Statement
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LEONARD R. JASKOL
Chairman, President and Chief
Executive Officer
One Colonial Road
P.O. Box 151
Manchester, Connecticut 06045-0151
(860) 646-1233
[LOGO O F LYDALL
APPEARS HERE]
March 27, 1997
Dear Lydall Stockholders:
I am pleased to enclose Lydall's Annual Report describing the Company's
operations and results for the past year. We hope you find it to be an
informative summary of major developments during 1996.
We appreciate your continuing interest in Lydall and invite you to attend the
Company's Annual Meeting to be held on Wednesday, May 14, 1997 at 11:00 a.m. at
The Hartford Club located at 46 Prospect Street in Hartford, Connecticut. For
your convenience, Lydall will validate for stockholders' parking at the parking
garage adjacent to The Hartford Club. It is an underground garage entered by a
driveway to the right of The Hartford Club.
The following pages contain the formal notice of the Annual Meeting and the
Proxy Statement. PLEASE BE SURE TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY TO ENSURE THAT YOUR SHARES WILL BE VOTED.
Sincerely,
[SIGNATURE APPEARS HERE]
<PAGE>
LYDALL, INC.
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NOTICE OF ANNUAL MEETING To Be Held May 14, 1997
To: The Owners of Common Stock
The Annual Meeting of Stockholders of Lydall, Inc. will be held at The
Hartford Club, 46 Prospect Street, Hartford, Connecticut, on Wednesday, May
14, 1997, at 11:00 a.m. E.D.T. for the following purposes:
1. To consider and vote upon a proposal to approve the 1992 Stock
Incentive Compensation Plan, as proposed to be amended and restated.
2. To elect 11 Directors to serve for one-year terms until the next
Annual Meeting to be held in 1998.
3. To transact any other business which may properly come before the
meeting.
The Board of Directors urges you to complete, date and sign the accompanying
proxy and return it promptly in the enclosed envelope. All stockholders are
cordially invited to attend the meeting, and your right to vote in person will
not be affected if you mail your proxy.
YOUR VOTE IS IMPORTANT
Sincerely,
/s/ Mary Tremblay
Manchester, CT Mary Adamowicz Tremblay
March 27, 1997 General Counsel and Secretary
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LYDALL, INC.
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PROXY STATEMENT
GENERAL
This Proxy Statement of Lydall, Inc. ("Lydall" or the "Company"), a Delaware
corporation, is being mailed or otherwise furnished to stockholders on or
about March 27, 1997 in connection with the solicitation by the Board of
Directors of Lydall of proxies to be voted at the Annual Meeting of
Stockholders. The Annual Meeting will be held on Wednesday, May 14, 1997 at
11:00 a.m. at The Hartford Club located at 46 Prospect Street in Hartford,
Connecticut.
Enclosed with this Proxy Statement and Notice of Annual Meeting is a proxy
card on which the Board of Directors requests that you vote in favor of: a)
the approval of the 1992 Stock Incentive Compensation Plan, as proposed to be
amended and restated and b) the election of all nominees for Directors of the
Company to serve for terms of one year until the Annual Meeting in 1998. We
would appreciate the return of your completed proxy card AS SOON AS POSSIBLE
for use at the Annual Meeting or at any adjournments of the Annual Meeting.
Properly executed proxies received by Lydall's Secretary before the meeting
will be voted as directed unless revoked. A proxy may be revoked at any time
before it is exercised by a) notifying Lydall's Secretary in writing, b)
delivering a proxy with a later date or c) by attending the meeting and voting
in person. Unless you indicate on your proxy otherwise, shares represented by
proxies properly SIGNED AND RETURNED to the Company will be voted "FOR" the
approval of the 1992 Stock Incentive Compensation Plan, as amended, and "FOR"
the nominees for the Board of Directors named in the proxy.
Under the applicable provisions of the Company's By-laws, the presence,
either in person or by proxy, of the holders of a majority of the voting power
of the issued and outstanding stock is necessary to constitute a quorum for
the transaction of business at the Annual Meeting. Approval of the 1992 Stock
Incentive Compensation Plan, as amended, requires the affirmative vote of the
holders of at least a majority of the shares present in person or represented
by proxy and entitled to vote on the matter at the Annual Meeting. The
election of directors also requires the affirmative vote of the holders of a
majority of the shares present in person or represented by proxy at the Annual
Meeting and entitled to vote on the matter. For purposes of determining the
number of affirmative votes cast with respect to any matter submitted to
stockholders, only those votes cast "For" the matter are included. Abstentions
will be treated as shares present and entitled to vote for purposes of
determining the presence of a quorum but will not be considered as votes cast
in determining whether a matter has been approved by stockholders.
Abstentions, therefore, will have the same effect as a negative vote. If a
broker or other holder of record or nominee indicates on a proxy that it does
not have authority as to certain shares to vote on a particular matter, those
shares will not be considered as present and entitled to vote with respect to
that matter. As a result, these so-called "broker non-votes" will have no
effect on the outcome of the voting with respect to either proposal.
All costs of solicitation of proxies will be borne by the Company. Lydall
has engaged the services of the outside proxy solicitation firm of Morrow &
Co. Inc. in the interests of increasing the number of shares represented at
the meeting. The anticipated cost of the engagement is approximately $4,000.
The contract provides for consultation regarding the written solicitation
materials as well as the actual solicitation of proxies. Other costs
anticipated are those ordinarily incurred in connection with the preparation
and mailing of proxy material. In addition to solicitations by mail and the
outside soliciting firm, the Company's Directors, officers and other
employees, without additional remuneration, may solicit proxies by telephone
and personal interviews.
Only holders of record of Lydall's common stock, par value $.10 per share
("Common Stock"), at the close of business on March 17, 1997 are entitled to
vote at the meeting. On that date there were 16,881,912 shares of Common Stock
outstanding, the holders of which are entitled to one vote per share.
<PAGE>
PROPOSAL 1: AMENDMENT AND RESTATEMENT OF THE 1992 STOCK INCENTIVE COMPENSATION
PLAN
On December 4, 1996, the Company's Board of Directors unanimously approved
and adopted, subject to the approval of the stockholders at the Annual
Meeting, the amendment and restatement of the 1992 Stock Incentive
Compensation Plan ("1992 Plan"). The proposed amendment and restatement of the
1992 Plan would (i) provide for the payment of the annual Outside Director (as
defined below) retainer in the form of unrestricted shares of Common Stock;
(ii) provide for the automatic grant each year of a nonqualified stock option
covering 325 shares of Common Stock to the Chairman and each Outside Director
of the Company; (iii) increase the aggregate number of shares of Common Stock
which may be issued in connection with incentive awards granted under the 1992
Plan; and (iv) conform the 1992 Plan to the requirements of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder. As discussed more fully below, the Board believes the
proposed amendments are advisable and in the best interests of the Company and
its stockholders and unanimously recommends that stockholders vote their
shares of Common Stock "for" approval and adoption of the proposed amendment
and restatement of the 1992 Plan.
A SUMMARY OF THE PROPOSED CHANGES TO BE EFFECTUATED BY THE AMENDMENT AND
RESTATEMENT OF THE 1992 PLAN, AS WELL AS THE PRINCIPAL FEATURES OF THE 1992
PLAN, ARE PROVIDED BELOW. THE FULL TEXT OF THE 1992 PLAN, AS PROPOSED TO BE
AMENDED AND RESTATED, IS ATTACHED AS EXHIBIT A TO THIS PROXY STATEMENT.
STOCKHOLDERS ARE URGED TO REVIEW CAREFULLY THE FULL TEXT OF THE 1992 PLAN, AS
PROPOSED TO BE AMENDED AND RESTATED, BEFORE VOTING ON THIS PROPOSAL. THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE 1992 PLAN, AS PROPOSED TO BE AMENDED AND RESTATED, ATTACHED AS EXHIBIT
A TO THIS PROXY STATEMENT.
DESCRIPTION OF PROPOSED AMENDMENTS
A. Payment of Annual Retainer in Shares of Common Stock. As proposed to be
amended and restated, the 1992 Plan would provide for the payment of the
annual Outside Director retainer in the form of unrestricted shares of Common
Stock, rather than cash, commencing with the 1997 calendar year. On June 30
and December 31 of each year during the term of the 1992 Plan, each person
then serving as an Outside Director of the Company would become entitled to
receive a stock bonus award equal to the number of whole shares of Common
Stock obtained by dividing fifty percent of the annual retainer then in effect
by the fair market value of a share of Common Stock as of the date of grant,
in each case rounded upward to the nearest whole number of shares. An Outside
Director is defined to mean any member of the Board of Directors who, as of
the close of business on the date of grant of any incentive award granted
under the 1992 Plan, is not an employee of the Company or any of its
subsidiaries.
As of January 1, 1997, the current annual Outside Director retainer amount
was increased from $12,000 to $16,000 per annum. Under the terms of the 1992
Plan as proposed to be amended and restated, this amount may not be changed
more often than once every twelve months. If the proposed amendment and
restatement of the 1992 Plan is approved by Stockholders, the annual Outside
Director retainer would no longer be paid in cash.
B. Automatic Awards of Stock Options in Lieu of Further Accruals under the
Directors' Deferred Compensation Plan. The proposed amendment and restatement
of the 1992 Plan would also provide for the automatic grant of nonqualified
stock options to the Chairman and the Outside Directors of the Company in lieu
of any further accruals under the Lydall, Inc. Directors' Deferred
Compensation Plan (the "Directors Deferred Compensation Plan"). On December 31
of each year during the term of the 1992 Plan, the Chairman and each person
then serving as an Outside Director of the Company would
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be granted a non-qualified stock option covering 325 shares of Common Stock.
The exercise price for each share of Common Stock purchasable upon exercise of
each such option will be 100% of the fair market value of a share of Common
Stock as of date of grant.
Each non-qualified stock option shall become exercisable in three equal
annual installments commencing as of the first anniversary of the date of
grant and generally shall have a term of ten years. In the event that a
recipient ceases to be a Director of the Company, all outstanding stock
options then held by such person generally shall expire three years after the
date on which such person ceases to be a Director of the Company. If the
effective date of any such cessation of service occurs on or before March 31
of any given year, however, the non-qualified stock option, granted as of the
previous December 31 (and only that non-qualified stock option), if any, shall
continue to vest and be exercisable in whole or in part until March 31 of the
year that is three years from the date on which such person ceases to be a
Director of the Company. In no event, shall any non-qualified stock option
extend beyond the maximum ten year term of the option.
The automatic award of non-qualified stock options under the terms and
conditions of the amended and restated 1992 Plan shall be in lieu of any
future accruals under the Directors' Deferred Compensation Plan, which has
been terminated as of December 31, 1996, assuming the proposed amendment and
restatement of the 1992 Plan is approved by stockholders and becomes
effective. In the event that the proposed amendment and restatement of the
1992 Plan is not approved by stockholders at the Annual Meeting, the
Directors' Deferred Compensation Plan will continue in full force and effect.
For a description of the current terms and provisions of the Directors'
Deferred Compensation Plan, please see "Proposal 2-Election of Lydall
Directors--Activities of the Board of Directors and certain Committees of the
Board," below.
The Company believes that stock based compensation provides long-term
rewards to Directors which are consistent with long-term stock price
appreciation recognizable by the stockholders. Tying Director compensation to
the Company's stock performance is viewed as preferable to the current cash-
based deferred compensation benefits, which are based on length of service
regardless of Company performance. The stock ownership will add incentive to
increase efforts on the Company's behalf, as well as to encourage continued
service. It will also increase the Directors' proprietary interest in the
Company and its continued success.
C. Increase in shares available. The proposed amendment and restatement of
the 1992 Stock Plan would also increase the aggregate number of shares of
Common Stock which may be issued in connection with incentive awards granted
under the 1992 plan. At present, the 1992 Plan provides that the total number
of shares of Common Stock which may be issued under the 1992 Plan shall not
exceed 1,580,000 shares (as adjusted to reflect the two-for-one stock split in
the form of a stock dividend distributed on June 21, 1995 to stockholders of
record on May 24, 1995). Of the 1,580,000 shares, 1,152,340 have already been
awarded under the 1992 Plan, leaving 427,660 shares available for future
awards. The amendment would increase the total number of shares to 2,420,000.
The Board of Directors believes it is in the best interest of the Company to
continue to award key employees with stock options or other similar incentives
because it induces the continued service of participants and assists in the
recruitment of candidates with outstanding qualifications. The Board also
believes it stimulates employees' efforts toward the continued long-term
success of the Company.
D. Compliance with Section 162(m) of the Code. Finally, the proposed
amendment and restatement of the 1992 Plan is intended to conform the 1992
Plan to the requirements of Section 162(m) of the Code and the regulations
promulgated thereunder. Section 162(m) of the Code generally denies a publicly
held corporation such as Lydall a federal income tax deduction for
compensation in
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excess of $1 million per year paid or accrued for its chief executive officer
and each of its four most highly compensated executive officers. Certain
performance based compensation is not subject to the limitation on
deductibility provided that certain stockholder approval and independent
director requirements are met. The proposed amendments to the 1992 Plan are
intended to satisfy the requirements of Section 162(m) and the regulations
promulgated thereunder.
The Board believes that it is in the best interests of the Company and its
stockholders to continue to award key employees with equity-based incentives
under the 1992 Plan because it induces the continued service of employees,
assists in the recruitment of additional employees with outstanding
qualifications, and stimulates the efforts of employees toward the continued
long-term financial success of the Company. Also, the Board of Directors
believes it is important to structure the 1992 Plan so as to permit the
Corporation, to deduct to the fullest extent permitted by law, the
compensation that is payable thereunder. Accordingly, the Board of Directors
has approved and adopted, subject to the approval of stockholders at the
Annual Meeting, the proposed amendments to the 1992 Plan.
BACKGROUND
The 1992 Plan provides for the issuance of shares of Common Stock to
Directors, officers and other key employees of the Company and its
subsidiaries. The 1992 Plan was originally approved by stockholders on May 13,
1992.
SUMMARY OF LYDALL, INC. 1992 STOCK INCENTIVE COMPENSATION PLAN
The following discussion summarizes several additional provisions of the
1992 Plan as proposed to be amended and restated.
General. The purpose of the 1992 Plan is to further the growth and
prosperity of the Company and its subsidiaries through the grant of incentive
awards to those officers, key employees and Directors who are in a position to
contribute materially to the Company's growth, profitability and success. The
1992 Plan provides for the grant of the following types of incentive awards:
(i) nonqualified stock options; (ii) incentive stock options; (iii) restricted
stock awards; and (iv) stock bonus awards.
Directors of the Company are automatically awarded nonqualified stock
options where the Director is serving in such position on May 7, 1993, May 7,
1996, May 7, 1999 and May 7, 2002. Each option covers a maximum of 9,000 (as
adjusted for the 1995 stock split) shares of Common Stock. In addition, each
person who is first elected a Director of the Company after May 13, 1992 is
automatically granted a nonqualified stock option covering a maximum of 9,000
(as adjusted for the 1995 stock split) shares of Common Stock subject to
certain limitations set forth in the 1992 Plan.
Administration. The 1992 Plan provides for administration by the
Compensation and Stock Option Committee of the Board of Directors (the
"Committee") which is comprised of not less than two members of the Board of
Directors, each of whom must qualify as a "Non-Employee Director" within the
meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
and any successor to such rule, and an "Outside Director" within the meaning
of Section 162(m) of the Internal Revenue Code of 1986, and any successor to
such Section. Among the powers granted to the Committee are the authority to
interpret the 1992 Plan, establish rules and regulations for its operation,
select the officers and key employees of the Company and its subsidiaries to
receive incentive awards, and determine the form and amount and other terms
and conditions of an incentive award.
Eligibility. All key employees of the Company and any of its 50 percent or
more owned subsidiaries are eligible to be selected to receive incentive
awards under the 1992 Plan. The selection of key employees who will receive
awards is within the discretion of the Committee, after receiving the
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recommendations of the Chairman. All full-time employees are eligible to
receive incentive awards under the 1992 Plan.
Amendment or Termination. The 1992 Plan provides that it may be modified,
amended or terminated by action of the Board of Directors; however, without
further stockholder approval, the Board generally may not (a) materially
increase the aggregate number of shares issuable under the 1992 Plan; (b)
change the minimum option exercise price; (c) increase the maximum period
during which options may be exercised; (d) increase the maximum period for
restricted stock awards to vest; (e) extend the ten-year period of the 1992
Plan; or (f) materially modify the eligibility requirements of participants
under the 1992 Plan.
Incentive Awards. The Chairman of the Company determines and recommends to
the Committee those officers and key employees of the Company and its
subsidiaries who should be granted incentive awards, the type of incentive
awards to be granted, and the number of the shares subject to each incentive
award. The Committee then approves or disapproves those recommendations. Set
forth below is a brief description of each type of award which could be
granted under the 1992 Plan.
Stock Options. The 1992 Plan authorizes the Committee to grant incentive
awards in the form of options to purchase shares of Common Stock. After
receiving the recommendations of the Chairman, the Committee, with respect to
each stock option, determines the number of shares of Common Stock which may
be purchased by the recipient over the term of the option, the times at which
portions of those shares may be purchased by the recipient, and whether the
option is an incentive stock option. The Committee also determines the
exercise price per share of Common Stock subject to the option, which shall be
at least 100 percent of the fair market value of the Common Stock at the time
of grant.
Options may be exercised by giving written notice of such election to the
Company specifying the number of shares of Common Stock the participant has
elected to purchase and the date on which the participant wishes to exercise
the option, together with payment of the full purchase price plus taxes, if
applicable, in cash. If authorized by the Committee at or after the time of
grant, payment in full or in part may also be made by an employee of the
Company in the form of shares of Common Stock not then subject to restriction
under any Company plan; provided, however, that shares of Common Stock may not
be used to pay any of the purchase price of an option unless the shares have
been owned by the employee for at least six months, or such longer period as
the Committee shall determine, prior to being surrendered as payment of the
purchase price of an option. It is intended that any stock option granted in
the form of an incentive stock option will satisfy the applicable requirements
of Section 422A of the Internal Revenue Code of 1986, as amended.
Restricted Stock Awards. The 1992 Plan also authorizes the Committee, after
receiving the recommendations of the Chairman, to grant incentive awards in
the form of shares of Common Stock subject to such terms, conditions and
restrictions as the Committee deems appropriate including restrictions on
transferability and continued employment.
Stock Bonus Awards. The 1992 Plan also authorizes the Committee, after
receiving the recommendations of the Chairman, to grant incentive awards in
the form of stock bonus awards. Such stock bonus awards consist of shares of
Common Stock issued to participating employees as additional compensation for
exemplary performance in fulfilling their responsibility to the Company.
Other Terms of Incentive Awards. The 1992 Plan provides for the forfeiture
of incentive awards in the event of termination of employment for any reason
other than death, disability, retirement, or any other approved reason. Upon
the grant of any incentive award, the Committee may, in its discretion,
establish such other terms, conditions, restrictions and/or limitations
governing the grant of such incentive award as are not inconsistent with the
1992 Plan.
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Change in Control Provisions. In the event of a change in control of the
Company (as defined in the 1992 Plan), the 1992 Plan provides that any and all
provisions of all outstanding incentive awards, which condition the right to
exercise such incentive awards upon the holder having been an employee of the
Company or any of its subsidiaries or a Director of the Company for a period
of time, shall be deemed to have been rescinded so that such holder, upon the
occurrence of a change in control, shall have the right to exercise his or her
incentive awards in full. The 1992 Plan defines a "change in control" of the
Company to 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 or its
successor changes so that a majority of the Board is not comprised of
individuals who were members of the Board immediately prior to such merger,
consolidation or purchase of assets or (b) the stockholders of the Company
acquire a right to receive in exchange for or upon surrender of their stock,
cash or other securities or a combination of the two or (ii) the acquisition
by any person of voting rights with respect to 25 percent or more of the
outstanding shares of Common Stock, if such person was not an officer or
Director of the Company on May 13, 1992.
Federal Tax Treatment. Under current federal tax law, the following are the
federal tax consequences generally arising with respect to incentive awards
granted under the 1992 Plan. A participant who is granted an incentive stock
option does not realize any taxable income at the time of the grant or at the
time of exercise. Similarly, the Company is not entitled to any tax deduction
at the time of grant or at the time of exercise. If the participant makes no
disposition of the shares acquired pursuant to an incentive stock option
before the later of two years from the date of grant of such option and one
year of the transfer of such shares to him or her, any gain or loss realized
on a subsequent disposition of the shares will be treated as a long-term
capital gain or loss. Under such circumstances, the Company will not be
entitled to any deduction for federal income tax purposes.
A participant who was granted a nonqualified stock option does not have
taxable income at the time of grant but does have taxable income at the time
of exercise equal to the difference between the exercise price of the shares
and the market value of the shares on the date of exercise. The Company is
entitled to a corresponding tax deduction for the same amount.
A participant who has been granted an incentive award consisting of
restricted shares of Common Stock will not realize taxable income at the time
of grant and the Company will not be entitled to a deduction at the time of
grant, assuming the restrictions constitute a substantial risk of forfeiture
for federal income tax purposes. When such restrictions lapse, the participant
will receive taxable income in an amount equal to the excess of the fair
market value of the shares at such time over the amount, if any, paid for the
shares. The Company will be entitled to a corresponding tax deduction.
The award of an outright grant of Common Stock in the form of a stock bonus
award will produce immediate tax consequences for both the participant and the
Company. The participant will be treated as having received taxable
compensation in an amount equal to the then Fair Market Value of the Common
Stock distributed to him or her. The Company will receive a corresponding tax
deduction for the same amount.
Notwithstanding the foregoing discussion with respect to the deductibility
of compensation under the 1992 Plan, Section 162(m) of the Code and the
regulations promulgated thereunder (collectively, "Section 162(m)") would
render nondeductible to the Company certain compensation in excess of $1
million paid in any year to certain executive officers of the Company (i.e.,
the Chief Executive Officer and the four other most highly compensated
executive officers of the Company, the "IRC Officers"), unless such excess
compensation is "performance-based" (as defined under Section 162(m)) or is
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otherwise exempt from the operation of Section 162(m). The applicable
conditions of an exemption for a performance-based compensation plan include,
among others, a requirement that the stockholders approve the material terms
of the plan and a requirement that the plan is administered by a committee of
two or more "outside directors" (as defined under Section 162(m)). Stock
options and certain other types of incentive awards that may be granted to the
IRC Officers under the terms of the 1992 Plan, as proposed to be amended and
restated, are intended to qualify for the exemption for performance-based
compensation under Section 162(m). In light of various uncertainties regarding
the ultimate interpretation of Section 162(m), however, no assurances can be
given that all compensation intended to be so qualified will, in fact, be
deductible if the non-qualifying amount should, together with other non-exempt
compensation paid to an IRC Officer, exceed $1 million.
NEW PLAN BENEFITS
As described above, the selection of employees of the Company and its
subsidiaries who will receive incentive awards under the 1992 Plan are
determined by the Committee in its discretion after receiving the
recommendation of the Chairman. As a result, it is not possible to predict the
amounts or kinds of incentive awards that will be received by or allocated to
particular individuals or groups of employees in the future or to determine
the amounts and kinds of incentive awards that would have been received or
allocated to particular individuals or groups of employees in 1996 had the
proposed amendment and restatement of the 1992 Plan been in effect during that
year.
Directors and, to some extent the Chairman of the Company, are the exception
because, as stated above, the amended and restated 1992 Plan will provide for
the automatic grant of shares of Common Stock and stock options in lieu of the
annual Outside Director cash retainer and any further accruals under the
Directors' Deferred Compensation Plan. If the proposed amendment and
restatement of the 1992 Plan is approved by stockholders at the Annual
Meeting, each of the eight Outside Directors of the Company will receive semi-
annual stock bonus awards equal to the number of whole shares of Common Stock
obtained by dividing fifty percent of the annual retainer then in effect by
the fair market value of a share of Common Stock as of the date of grant, in
each case rounded upward to the nearest whole number of shares. The value of
each such stock bonus award will be equal to one-half of the then current
annual retainer amount (currently $16,000). The Chairman and each of the eight
Outside Directors will also receive annual non-qualified stock options
covering 325 shares of Common Stock in lieu of any further accruals under the
Directors' Deferred Compensation Plan. In addition, the 1992 Plan currently
provides for the automatic grant of non-qualified stock options to Directors
as of specified dates. Each person serving as a Director of the Company on May
7, 1999 and May 7, 2002 will be granted a non-qualified stock option covering
the lesser of 9,000 shares of Common Stock or a number of shares of Common
Stock having a fair market value on the date of grant equal to $100,000.
However, no dollar value is assigned to any of these non-qualified stock
options because, in each case, the exercise price of the options will be equal
to the fair market value of the underlying shares of Common Stock as of the
date of grant.
As of March 17, 1997, the closing price of a share of Common Stock on the
New York Stock Exchange was $22.125.
VOTE REQUIRED FOR ADOPTION
In order to approve the 1992 Stock Incentive Compensation Plan as amended,
the affirmative votes of a majority of the shares of Common Stock represented
and entitled to vote at the Annual Meeting is required.
THE BOARD OF DIRECTORS RECOMMENDS
THAT STOCKHOLDERS VOTE
FOR THE APPROVAL OF THE AMENDED AND RESTATED
1992 STOCK INCENTIVE COMPENSATION PLAN.
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PROPOSAL 2: ELECTION OF LYDALL DIRECTORS
The Board of Directors has nominated Messrs. Lee A. Asseo, Paul S.
Buddenhagen, Samuel P. Cooley, W. Leslie Duffy, Leonard R. Jaskol, William P.
Lyons, Joel Schiavone, Roger M. Widmann and Albert E. Wolf to serve as
Directors of the Company for a term of one year until the next Annual Meeting
to be held in 1998.
Also, management has proposed and the Board of Directors has unanimously
voted to nominate, for a second consecutive term, two senior management
officers, Elliott F. Whitely and James P. Carolan for election as Directors to
serve for one-year terms, until the next Annual Meeting to be held in 1998. At
the end of the one-year term, these two individuals are expected to be
replaced by two other senior managers. The rotation of senior managers on the
Board for two-year periods will be on a continuing basis. The Company feels
that having senior management on the Board has been beneficial because it
allows outside Directors to work with and observe the skills of the Company's
managers, and it provides the Board with valuable input regarding the details
of the operation of the Company. The Company has no intention of further
expanding management participation on the Board. The Company intends to
maintain its Board with a majority of outside Directors.
Under the current Certificate of Incorporation, the Board of Directors is
empowered to establish the number of directorships between 3 and 15. The Board
of Directors has currently fixed the number of directorships at 12. There
remains one vacancy.
Additional nominations for Directors may be made from the floor by
stockholders who attend the meeting, including nominations for persons to fill
the present Board vacancy. It is the intention of the Proxy Committee of the
Board of Directors to vote only for the Director nominees described on pages 9
through 10 of this Proxy Statement. Proxies cannot be voted for a greater
number of persons than the number of nominees named.
All nominees have indicated that they are willing and able to serve as
Directors if elected. If any of such nominees should become unable or
unwilling to serve, the Proxy Committee intends to vote for the replacement or
replacements nominated by the Company's management.
VOTE REQUIRED FOR ADOPTION
In order to be elected, the nominees must be approved by the affirmative
votes of a majority of the shares of Common Stock represented, and entitled to
vote, at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS
THAT STOCKHOLDERS VOTE
FOR THE ELECTION OF NOMINEES REFERRED TO IN THIS SECTION.
8
<PAGE>
BOARD OF DIRECTORS
Nominees for election at the next Annual Meeting to serve for a term of one
year, until 1998:
LEE A. ASSEO, 59, is a retired Chairman of the Board and Chief Executive
Officer of The Whiting Company, a manufacturer of synthetic fibers for the
brush industry, which he joined in 1983. Mr. Asseo has been a Lydall Director
since 1985. During 1996, Mr. Asseo served as Chairman of the Nominating
Committee and as a member of the Compensation and Stock Option Committee.
PAUL S. BUDDENHAGEN, 51, Partner of Carlisle Fagan Gaskins & Wise, Inc. was
Vice President of Mercer Management Consulting, Inc., and head of its
acquisition and valuation practice from 1988 through 1996. Mercer Management
Consulting, Inc. is a financial services and consulting firm. From 1986 to
1988, Mr. Buddenhagen was President of TBS Capital, an investment management
and investment banking subsidiary of the former Temple, Barker & Sloane, Inc.
Prior to 1986, he also served as a senior consultant in Temple, Barker &
Sloane Inc.'s Corporate Planning and Development Group. A Lydall Director
since 1989, Mr. Buddenhagen served as Chairman of the Executive Committee and
a member of the Nominating Committee during 1996.
SAMUEL P. COOLEY, 65, is a retired Executive Vice President and Senior
Credit Approval Officer of Shawmut Bank Connecticut, N.A., now Fleet National
Bank, which he joined in 1955, and a position from which he retired in 1993.
He has been a Lydall Director since 1966. During 1996, he served as Chairman
of the Audit Committee and as a member of the Pension Committee.
W. LESLIE DUFFY, 57, is a partner in the law firm of Cahill Gordon &
Reindel. He has been with that firm since 1965. He has been a Lydall Director
since 1992. During 1996, Mr. Duffy served as Chairman of the Pension Committee
and a member of the Development Committee.
LEONARD R. JASKOL, 60, was elected Chairman of the Board on October 9, 1991.
He also serves as President and Chief Executive Officer of Lydall, positions
he has held since July 1, 1988. He has been a Lydall Director since May 25,
1988. Prior to July 1, 1988, Mr. Jaskol had been a Vice President of Lydall
and Group President of its Fiber Materials Group since 1977. Mr. Jaskol joined
Lydall in 1973 as Vice President-Industrial Products of Lydall's Composite
Materials Division, formerly the Colonial Fiber Division. In 1976, Mr. Jaskol
was appointed Vice President-Division Manager of the Composite Materials
Division, and in 1977 he was named President of that division and Group
Executive of Lydall's Fiber Materials Group. Mr. Jaskol serves as a Director
of Rogers Corporation and Eastern Enterprises. During 1996, Mr. Jaskol served
as Chairman of the Development Committee and as a member of the Executive and
Nominating Committees.
WILLIAM P. LYONS, 55, has been Chairman of JVL Corp. since 1992. JVL Corp.,
formerly a generic drug manufacturer, is now an acquisition investment firm.
Mr. Lyons has also been Chairman of the Board of Holmes Protection Group,
Inc., an electronic security systems and monitoring Company since 1995. In
addition, he has been Managing Partner of Madison Partners L.L.C. since 1996.
He was also Chairman and Chief Executive Officer of Duro-Test Corporation from
1988 to 1991. From 1973 through 1989, Mr. Lyons was a faculty member of Yale
University Schools of Management and Law. A Lydall Director since 1983, Mr.
Lyons is also a Director of Keystone Consolidated Industries, Inc., Video
Lottery Technologies, Inc., and Holmes Protection Group, Inc. During 1996, Mr.
Lyons served as a member of the Pension and Audit Committees.
JOEL SCHIAVONE, 60, has been Chief Executive Officer of The Schiavone
Corporation, a diversified holding company, since 1981, and a Lydall Director
since 1983. During 1996, Mr. Schiavone served as a member of the Executive
Committee.
ROGER M. WIDMANN, 57, Principal of Tanner & Co. Inc. Formerly, Mr. Widmann
was Senior Managing Director, Corporate Finance, of Chemical Securities, Inc.
He joined Chemical Bank, (now
9
<PAGE>
Chase Manhattan Bank) in May 1986. Prior to that, he had been a founder and
Managing Director of First Reserve Corporation, an energy investment and
finance firm, since 1981. In addition, Mr. Widmann serves as a Director of
Weatherford Enterra, Inc. and Mercantile International Petroleum Corp. Mr.
Widmann has been a Lydall Director since 1974. During 1996, Mr. Widmann served
as Chairman of the Compensation and Stock Option Committee and as a member of
the Development Committee.
ALBERT E. WOLF, 67, is Chairman of the Board and a Director of Checkpoint
Systems, Inc., which manufactures and markets electronic security systems. Mr.
Wolf has held his present position with Checkpoint since 1972. He has been a
Lydall Director since 1977. During 1996, Mr. Wolf served as a member of the
Compensation and Stock Option Committee and as a member of the Audit
Committee.
- - -------------------------------------------------------------------------------
NOMINEES FROM SENIOR MANAGEMENT:
JAMES P. CAROLAN, 54, is the President of the Manning Nonwovens Division of
Lydall, located in Green Island, New York, a position he has held since 1993.
Before the position at Manning, he was President of Lydall International, Inc.
located in France. Prior to his affiliation with Lydall International, Inc.,
Mr. Carolan served as President of the Westex Division of Lydall from 1983 to
1991. He joined Lydall in 1980 as Vice President of Marketing of the Technical
Papers Division.
ELLIOTT F. WHITELY, 53, is the President of the Technical Papers Division of
the Company located in Rochester, New Hampshire, a position he has held since
1987. He joined Lydall in 1974 and later served as Vice President of
Development and Technology for that Division, until he became President of
that Division.
ACTIVITIES OF THE BOARD OF DIRECTORS AND CERTAIN COMMITTEES OF THE BOARD
The Board of Directors held five meetings during 1996. All Directors
attended all of the meetings of the Board, with the exception of Mr. Lyons and
Mr. Schiavone who each attended four of the meetings, and Mr. Wolf who
attended three of the meetings. All Directors attended all meetings of any
committees on which they served, except for Mr. Wolf and Mr. Lyons who
attended all but one meeting of their respective committees.
The Company's Board of Directors has six standing committees: Audit,
Development, Compensation and Stock Option, Pension, Nominating and Executive.
The Audit Committee considers and reviews all matters connected with internal
and external audit reports, the external auditors' management report, and
similar matters. The Development Committee reviews management proposals for
possible mergers and acquisitions and approves investments made in connection
with the Company's development program. The Compensation and Stock Option
Committee (i) reviews the executive compensation of officers of the Company at
the division president level and above; (ii) approves various employment
contracts with officers; (iii) approves nonqualified deferred compensation
arrangements with Directors and officers of the Company upon recommendation of
the Company's officers; and (iv) approves the granting of restricted stock
awards, stock options and stock bonus awards to key employees pursuant to the
Lydall, Inc. 1992 Stock Incentive Compensation Plan. The Pension Committee
makes recommendations concerning the pension and profit sharing plans of the
Company. The Nominating Committee recommends persons to be nominated as
Directors and considers nominees recommended by stockholders. (See "Deadline
for Submission of Stockholder Proposals"). The Executive Committee acts on
behalf of the Board of Directors in the interval between its meetings on all
matters other than those specifically assigned by the Board of Directors to
its other committees.
During 1996, the Audit Committee held two meetings; the Development
Committee held no meetings; the Compensation and Stock Option Committee held
one meeting and acted by unanimous written consent on three occasions; the
Pension Committee held no meetings and acted by unanimous written consent on
five occasions; the Nominating Committee and the Executive Committee held no
meetings.
10
<PAGE>
During 1996, Directors who were not employees of the Company or otherwise
compensated by the Company were paid a retainer of $3,000 per quarter, $1,000
for each meeting of the Board of Directors attended, and $500 for any
committee meeting held on a day other than the day on which a Board meeting
was held. In addition, the 1992 Stock Incentive Compensation Plan (the "Plan")
provides for the automatic grant of nonqualified stock options covering 9,000
(as adjusted for the 1995 stock split) shares of Common Stock to each person
serving as a Director on May 7, 1999 and May 7, 2002. New Directors, upon
joining the Board, receive an automatic grant of nonqualified options covering
the lesser of (i) 9,000 (as adjusted for the 1995 stock split) shares of
Common Stock, (ii) a number of shares of Common Stock having an aggregate fair
market value on the date of grant equal to $100,000 or (iii) the number of
shares then available for such purpose under the Plan.
Since 1991, the Company has maintained a Deferred Compensation Plan for
outside Directors and the Chairman. Under this plan, those Directors will
receive a lump-sum cash payment upon the later of the date they cease to serve
as a Director or their attaining 62 years of age. For each of those Directors,
the total amount of the payment will be equal to $3,000 multiplied by the
number of full or partial calendar years of service as a Director completed
prior to January 1, 1991, plus $6,000 for each full or partial calendar year
of service as a Director completed after December 31, 1990. Benefits
attributable to service as a Director after December 31, 1990 will vest and
accrue immediately. Benefits attributable to service as a Director prior to
January 1, 1991 will vest immediately provided the Director has held such
position for at least five years and accrue over a seven-year period starting
December 31, 1990 unless a Director is at least 62 years of age, in which case
the benefits automatically will become fully vested. Benefits also will vest
and accrue fully upon ceasing to serve as a Director within one year following
a change in control, as defined in the Plan document, of the Company.
The Board of Directors has unanimously approved and adopted, subject to the
approval of stockholders at the Annual Meeting, the amendment and restatement
of the 1992 Plan. Among other things, the proposed amendment and restatement
of the 1992 Plan would (i) provide for the payment of the cash retainer in the
form of unrestricted shares of Common Stock rather than cash, and (ii) provide
for the automatic grant each year of a nonqualified stock option covering 325
shares of Common Stock to the Chairman and each Outside Director of the
Company in lieu of any further accruals under the Directors' Deferred
Compensation Plan. See "Proposal 1-Amendment and Restatement of the 1992 Stock
Incentive Compensation Plan."
From 1984 through 1992, the Company maintained the Lydall, Inc. 1984 Outside
Directors Warrant Plan (the "Warrant Plan"). The Warrant Plan provided for the
grant of warrants to purchase shares of Common Stock to outside Directors. It
was terminated by the Board of Directors on May 13, 1992 because no remaining
shares were available under the Warrant Plan to be awarded, and because the
1992 Stock Incentive Compensation Plan provides for automatic option grants to
Directors of the Company.
As of March 1, 1997, there was an aggregate of 30,330 authorized but
unissued shares of the Company's Common Stock reserved for issuance under the
Warrant Plan upon exercise of the warrants, all of which shares are subject to
outstanding warrants. There was no exercise activity in 1996. Directors
Cooley, Widmann and Wolf are the only directors who have warrants outstanding.
Each of them hold warrants for 10,110 shares at an exercise price of $1.855
per share.
TRANSACTIONS WITH DIRECTORS
During 1996, Mercer Management Consulting, Inc., of which Director Paul S.
Buddenhagen was until recently Vice President, was engaged by several
subsidiaries of Lydall as consultants in connection with strategic planning
and market research issues. A total of $133,493 was paid to Mercer Management
Consulting in 1996 in connection with such services.
During 1996, Cahill Gordon & Reindel, of which Director W. Leslie Duffy is a
partner, was engaged by the Company as special counsel for limited matters.
11
<PAGE>
SECURITIES OWNERSHIP OF DIRECTORS, CERTAIN EXECUTIVE OFFICERS AND 5 PERCENT
BENEFICIAL OWNERS
The following table lists, to the Company's knowledge, the ownership of
Common Stock and the nature of such ownership for each Director and nominee
for Director, for each executive officer named in the Summary Compensation
Table, for all executive officers and Directors of Lydall as a group and for
each person who owns in excess of 5 percent of the outstanding shares of
Common Stock. Unless otherwise noted, each holder has sole voting and
dispositive power with respect to the shares listed. All information is given
as of March 1, 1997.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name Beneficial Ownership of Class
- - ----------------------------------------------------------------
<S> <C> <C> <C>
Lee A. Asseo 15,000 Direct
Director 18,000 (Exercisable under 1982
Stock Incentive
Compensation Plan)
6,750 (Exercisable under 1992
Stock Incentive
Compensation Plan)
-------
39,750 *
=======
- - ----------------------------------------------------------------
Paul S. Buddenhagen 7,000 Direct
Director 18,000 (Exercisable under 1982
Stock Incentive
Compensation Plan)
6,750 (Exercisable under 1992
Stock Incentive
Compensation Plan)
-------
31,750 *
=======
- - ----------------------------------------------------------------
James P. Carolan 63,805 Direct
Division President, 8,549 Indirect (Spouse)
Director 72,160 (Exercisable under 1982
Stock Incentive
Compensation Plan)
30,069 (Exercisable under 1992
Stock Incentive
Compensation Plan)
21,252 (Allocated under Lydall
Profit Sharing Plan) (1)
-------
195,835 1.1
=======
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name Beneficial Ownership of Class
- - --------------------------------------------------------------------
<S> <C> <C> <C>
Samuel P. Cooley 3,000 Direct
Director 10,110 (Exercisable under
Warrant Plan)
18,000 (Exercisable under 1982
Stock Incentive
Compensation Plan)
6,750 (Exercisable under 1992
Stock Incentive
Compensation Plan)
-------
37,860 *
=======
- - --------------------------------------------------------------------
W. Leslie Duffy 0 Direct
Director 9,000 (Exercisable under 1982
Stock Incentive
Compensation Plan)
6,750 (Exercisable under 1992
Stock Incentive
Compensation Plan)
-------
15,750 *
=======
- - --------------------------------------------------------------------
John E. Hanley 15,966 Direct
Vice President-- 25,108 Indirect (Spouse)
Finance & Treasurer 47,400 (Exercisable under 1982
Stock Incentive
Compensation Plan)
38,785 (Exercisable under 1992
Stock Incentive
Compensation Plan)
12,498 (Allocated under Lydall
Profit Sharing Plan) (1)
-------
139,757 *
=======
- - --------------------------------------------------------------------
Leonard R. Jaskol 351,477 Direct
Chairman of the Board, 201,000 (Exercisable under 1982
Chief Executive Officer Stock Incentive
Compensation Plan)
28,380 (Exercisable under 1992
Stock Incentive
Compensation Plan)
59,184 (Allocated under Lydall
Profit Sharing Plan) (1)
-------
640,041 3.7
=======
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name Beneficial Ownership of Class
- - ----------------------------------------------------------------
<S> <C> <C> <C>
Raymond J. Lanzi 177,771 Direct
Division President 4,500 (Exercisable under 1982
Stock Incentive
Compensation Plan)
23,095 (Exercisable under 1992
Stock Incentive
Compensation Plan)
34,054 (Allocated under Lydall
Profit Sharing Plan)(1)
-------
239,420 1.4
=======
- - ----------------------------------------------------------------
William P. Lyons 29,904 Direct
Director 0 (Exercisable under 1992
Stock Incentive
Compensation Plan)
-------
29,904 *
=======
- - ----------------------------------------------------------------
Joel Schiavone 0 Direct
Director 4,528 Indirect (Spouse)
18,000 (Exercisable under 1982
Stock Incentive
Compensation Plan)
6,750 (Exercisable under 1992
Stock Incentive
Compensation Plan)
-------
29,278 *
=======
- - ----------------------------------------------------------------
Elliott F. Whitely 172,217 Direct
Division President, 18,000 (Exercisable under 1982
Director Stock Incentive
Compensation Plan)
34,242 (Exercisable under 1992
Stock Incentive
Compensation Plan)
32,190 (Allocated under Lydall
Profit Sharing Plan) (1)
-------
256,649 1.5
=======
- - ----------------------------------------------------------------
Roger M. Widmann 44,526 Direct
Director 450 Indirect (Spouse)
10,110 (Exercisable under
Warrant Plan)
18,000 (Exercisable under 1982
Stock Incentive
Compensation Plan)
6,750 (Exercisable under 1992
Stock Incentive
Compensation Plan)
-------
79,836 *
=======
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name Beneficial Ownership of Class
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Albert E. Wolf 0 Direct
Director 6,000 Indirect (Spouse)
10,110 (Exercisable under
Warrant Plan)
18,000 (Exercisable under 1982
Stock Incentive
Compensation Plan)
6,750 (Exercisable under 1992
Stock Incentive
Compensation Plan)
---------
40,860 *
=========
- - ------------------------------------------------------------------------------
Lydall Profit Sharing Plan 1,160,820(1) 6.8
c/o CoreStates Bank NA
1500 Market Street
P.O. Box 13839
Philadelphia, PA 19101-13839
- - ------------------------------------------------------------------------------
Stein, Roe & Farnham 1,076,300(2) 6.3
Incorporated
One South Wacker Drive
Chicago, IL 60606
- - ------------------------------------------------------------------------------
All Directors and 2,305,618(3) 13.5
Executive Officers as a
Group (20 persons)
</TABLE>
* Indicates that the Director/Officer owns less than 1 percent of the
outstanding shares of Common Stock.
(1) Shares also listed as beneficially owned by the Lydall Profit Sharing Plan
which has the sole power to dispose of the shares. Voting power with
respect to the shares is exercised by the participating employee.
(2) As reported in Schedule 13G filed with the Securities and Exchange
Commission on February 12, 1997.
(3) Of the 2,305,618 shares, 30,330 are exercisable under the Warrant Plan,
536,010 are exercisable under the 1982 Stock Incentive Compensation Plan,
and 353,069 are exercisable under the 1992 Stock Incentive Compensation
Plan.
15
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION AND STOCK OPTION COMMITTEE REPORT TO STOCKHOLDERS
Based on a management proposal, the Compensation and Stock Option Committee
(the "Committee") approves the compensation levels of Lydall's executives at
the division president level and above, subject to ratification by the Board
of Directors. The Committee also administers the Company's Individual
Performance Plan, or cash bonus program, and the Lydall, Inc. Stock Incentive
Compensation Plans as approved by stockholders. Each of the three members of
the Committee is a nonemployee Director. All decisions by the Committee
relating to the compensation of the Company's senior executives are reviewed
by the full Board except for decisions about awards under the Company's stock-
based compensation plans which must be made solely by the Committee in order
for the grants or awards under such plans to satisfy applicable requirements
of the federal securities laws.
The Committee is guided by the following principles in determining the
compensation levels of the senior executives named in the Summary Compensation
Table--Messrs. Carolan, Lanzi, Whitely, and Hanley, and the Chief Executive
Officer, Mr. Leonard R. Jaskol.
PHILOSOPHY
Lydall ties its executive compensation to the long-term goals and strategy
of the Company which is to build a strong, profitable business and to protect
and grow stockholder value. Lydall's incentive compensation plans are directly
based on Company performance, progress made toward long-term goals and, in
turn, on the value received and reasonably anticipated by stockholders.
The Committee's executive compensation policies are designed to provide
competitive levels of compensation that are closely integrated with the
Company's annual and long-term performance goals. Lydall's goal is to achieve
above-average, consistent corporate performance and it recognizes individual
initiative and achievements that lead to the accomplishment of that goal. The
Company seeks to attract and retain the highest qualified executives and seeks
to ensure its compensation levels are competitive.
Senior executives' compensation packages are intended to be consistent with
those of executives in comparable positions with diversified manufacturers
similar in size to Lydall. Because Lydall directly ties a large portion of its
executive compensation to corporate performance, however, executives may be
paid more in a particular year of good results and less in a year of
disappointing results.
The Committee believes that stock ownership by management serves to align
management's and stockholders' interests. The Company's stock-based incentive
plans are an important component of its executive compensation and are
intended to retain and motivate executives to improve the long-term operating
results and growth of the Company. The Committee believes that there is a
direct correlation between the accomplishment of these objectives and the
value of Lydall's Common Stock.
ELEMENTS OF COMPENSATION
The following describes each of the three components of Lydall's executive
compensation packages.
Base Salary. Base salary is compared with the competitive median for
diversified manufacturers of similar size, as determined by independently
published compensation surveys.
Salaries for executives are reviewed by the Committee every two years and
are based on the Committee's agreement that the individual's contribution to
the Company has increased or decreased relative to operating performance and
that competitive pay levels have changed.
16
<PAGE>
Mr. Jaskol's base salary was approved at the December 1995 Board meeting to
be effective January 1, 1996 through 1997. Mr. Jaskol's salary will be
reviewed at the end of 1997. In determining Mr. Jaskol's compensation, the
Committee considers pay levels among Chief Executive Officers of diversified
manufacturers similar in size to Lydall as well as the Board's agreement on
Mr. Jaskol's contributions to the successful operating performance and
financial management of the Company over the past several years. The Committee
measures Mr. Jaskol's contributions by the Company's long-term earnings
growth, balance sheet strength, management development, and new product
opportunities. A similar process is followed for Messrs. Carolan, Lanzi,
Whitely and Hanley. Salary levels for all of these senior officers were set at
the end of 1995 for the two years 1996 and 1997. Their salaries will be
reviewed at the end of 1997.
Individual Performance Awards. The bonus portion of Lydall's executive
compensation is a key component of its management's total compensation
packages. Individual Performance Award agreements (IPAs) are based on
earnings-per-share targets and the accomplishment of individually defined
milestones. Threshold, superior, and outstanding earnings-per-share targets
are determined by the Committee at the beginning of each year. Individual
milestones are also established annually.
Companywide, the amounts for individual awards range from 5 percent to 75
percent of base salary. The senior executives named in the Summary
Compensation Table, excluding Mr. Jaskol, are eligible to receive a bonus of
up to 62.5 percent of their base salary.
In 1996, Mr. Jaskol was eligible to receive a bonus of up to 75 percent of
his base salary provided that Lydall's performance reached or surpassed the
outstanding target levels. Mr. Hanley was eligible to receive a bonus of up to
62.5 percent of his base salary provided that Lydall's performance reached or
surpassed the outstanding target levels. These levels were attained in 1996
and thus, Mr. Jaskol and Mr. Hanley each received his maximum bonus for the
year.
Individual performance awards, or bonuses, for all division presidents are
based two-thirds on personal milestones relating to the results of their
division together with each division's contribution to the overall results of
the Company, and one-third on corporate earnings-per-share targets.
Mr. Carolan, Mr. Lanzi and Mr. Whitely's bonuses were based on this formula
for 1996. Not all of the divisions met 1996's performance targets, and thus,
individual bonuses varied for the year.
Stock Option Awards. The Committee has determined certain appropriate levels
of ownership for Lydall's senior executives and has granted stock options
towards achieving those predetermined levels. These targets are based on
comparison studies of executive stock ownership in other public companies
similar in size to Lydall. Outstanding historical performance by an individual
is additionally recognized through larger than normal option grants. In
addition to the senior executives named in the Summary Compensation Table, a
large number of Lydall's managers participate in the Company's stock option
program.
Stock options are granted at the prevailing market price and will only have
value if the Company's stock price increases. Generally, grants vest over four
years; individuals must be employed by the Company at the time of vesting in
order to exercise the options.
Mr. Jaskol received option grants covering 19,278 shares of Lydall, Inc.
Common Stock in 1996. He now holds options covering a total of 292,278 shares
of Common Stock, 229,380 of which were vested as of the record date. Mr.
Jaskol's option holdings are reviewed annually to ensure that his relative
stock ownership in the Company adequately reflects his contributions to
maximizing stockholder value for the long term. Option awards to Mr. Jaskol
are also tied to his level of base salary and to the long-term performance of
the Company.
17
<PAGE>
In 1996, Mr. Carolan and Mr. Whitely each received an option grant covering
5,000 shares and Mr. Hanley received an option grant covering 6,000 shares of
Common Stock. In addition, Mr. Carolan and Mr. Whitely received an additional
4,419 upon becoming a director, in accordance with the terms of 1992 Stock
Option Plan. Mr. Lanzi received an option grant covering 7,500 shares of
Common Stock.
LIMITATION ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenue Code of 1986, as amended. Section 162(m) generally denies a
publicly held corporation, such as the Company, a federal income tax deduction
for compensation in excess of $1 million per year paid or accrued for each of
its chief executive officer and four other most highly compensated executive
officers. Certain "performance based" compensation is not subject to the
limitation on deductibility provided that certain stockholder approval and
independent director requirements are met.
Because of the fact that the compensation paid to each of the Company's
executive officers has not exceeded $1 million per year, the Committee does
not believe that the limitation on deductibility of executive compensation is
currently material to the Company. The Committee will continue to review the
situation in light of the final regulations and future events with the
objective of achieving deductibility to the extent appropriate.
COMPENSATION AND STOCK OPTION
COMMITTEE
Roger M. Widmann, Chairman
Lee A. Asseo and Albert E. Wolf
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the Compensation and Stock Option Committee members, Roger M.
Widmann, Lee A. Asseo, and Albert E. Wolf, have interlocking relationships
with the Company and all are outside directors.
18
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Company's
shares over the past five years with the cumulative total return on shares of
companies comprising the Standard & Poor's Industrials Index and the Russell
2000 Index. Cumulative total return is measured assuming an initial investment
of $100 and the reinvestment of dividends.
[GRAPH APPEARS HERE]
19
<PAGE>
SUMMARY COMPENSATION TABLE
The following table shows the compensation either paid or allocated by the
Company for the past three years through December 31, 1996 to the Chief
Executive Officer of the Company and each of the four other most highly
compensated executive officers of the Company.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Awards Payouts
- - -------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Other Re- Under- All
Name Annual stricted lying LTIP Other
and Compen- Stock Options/ Pay- Compen-
Principal Salary Bonus sation Awards SARs out sation
Position Year ($) ($) ($)/(1)/ ($) (#)/(2)/ ($) ($)/(3)/
- - -------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
L.R. JASKOL
CEO & 1996 499,999 375,000 51,559 0 19,278/0 0 68,289
Chairman of the 1995 400,000 300,000 40,654 0 15,000/0 0 54,804
Board 1994 400,000 300,000 35,319 0 24,000/0 0 53,499
- - -------------------------------------------------------------------------------------------
J.P.CAROLAN 1996 250,000 143,334 9,860 0 9,419/0 0 54,590/(6)/
Division 1995 200,000 125,000 59,321 0 7,500/0 0 53,154/(4)/
President & Director 1994 200,000 125,000 71,776 0 21,000/0 0 68,488/(4)/
- - -------------------------------------------------------------------------------------------
R.J.LANZI 1996 250,000 85,001 11,164 0 7,500/0 0 32,191
Division 1995 200,000 125,000 24,964 0 7,500/0 0 25,757
President 1994 200,000 41,666 11,525 0 12,000/0 0 25,623
- - -------------------------------------------------------------------------------------------
E.F.WHITELY 1996 250,000 78,751 7,171 0 9,419/0 0 24,611/(5)/
Division 1995 200,000 125,000 5,701 0 7,500/0 0 22,560/(5)/
President & Director 1994 200,000 125,000 5,640 0 12,000/0 0 20,954/(5)/
- - -------------------------------------------------------------------------------------------
J.E. HANLEY 1996 200,000 125,000 3,585 0 6,000/0 0 17,829
V.President 1995 180,000 112,500 3,204 0 6,000/0 0 16,765
Finance-Treasurer 1994 150,000 93,750 2,301 0 12,000/0 0 13,844
</TABLE>
/(1)/ None of the named executive officers received perquisite and other
personal benefits in excess of the lesser of $50,000 or 10 percent of his
total annual salary and bonus.
/(2)/ Share amounts prior to the 1995 stock split have been restated to reflect
the two-for-one stock split distributed June 21, 1995.
/(3)/ The items reported in column (i) include amounts paid on behalf of the
named individuals by the Company for:
DEFINED CONTRIBUTION PLANS (401(K) PLAN & ESOP):
L.R. Jaskol 1996 ($12,000), 1995 ($12,000), 1994 ($10,500); J.P. Carolan
1996 ($8,484), 1995 ($8,690), 1994 ($7,711); R.J. Lanzi 1996 ($12,000),
1995 ($12,000), 1994 ($10,500); E.F. Whitely 1996 ($12,000), 1995
($12,000), 1994 ($10,500; J.E. Hanley 1996 ($12,000), 1995 ($12,000),
1994 ($10,500).
THE EMPLOYEE STOCK PURCHASE PLAN:
L.R. Jaskol 1996 ($600), 1995 ($600),1994 ($400); J.P. Carolan 1996
($400), 1995 ($400), 1994 ($400); R.J. Lanzi 1996 ($600), 1995 ($600),
1994 ($400); E.F. Whitely 1996 ($600), 1995 ($583), 1994 ($400); J.E.
Hanley 1996 ($600), 1995 ($600), 1994 ($400).
LIFE INSURANCE PREMIUMS:
L.R. Jaskol 1996 ($44,630), 1995 ($31,337), 1994 ($31,892); J.P. Carolan
1996 ($7,973), 1995 ($6,037), 1994 ($6,399); R.J. Lanzi 1996 ($12,912),
1995 ($9,971), 1994 ($10,232); E.F. Whitely 1996 ($7,178), 1995 ($5,499),
1994 ($5,892); J.E. Hanley 1996 ($1,790), 1995 ($1,411), 1994 ($1,095).
LONG-TERM DISABILITY PREMIUMS:
L.R. Jaskol 1996 ($11,059), 1995 ($10,867), 1994 ($10,707); J.P. Carolan
1996 ($6,297), 1995 ($4,308), 1994 ($3,978); R.J. Lanzi 1996 ($6,679),
1995 ($3,186), 1994 ($4,491); E.F. Whitely 1996 ($4,521), 1995 ($4,166),
1994 ($3,850); J.E. Hanley 1996 ($3,439), 1995 ($2,754), 1994 ($1,849).
/(4)/ Forgiveness of bridge loans provided to Mr. Carolan to reimburse him when
he was required by the Company to relocate from France are included in
this total: 1995 ($33,719); 1994 ($50,000).
/(5)/ In 1996, 1995 and 1994, Mr. Whitely received a nonsmoking bonus of $312 in
accordance with the policy for his location.
/(6)/ In 1996, Mr. Carolan received $31,436 for reimbursement of relocation
expenses when he was required by the company to relocate from France.
20
<PAGE>
PLAN DESCRIPTIONS
While not required by the Securities and Exchange Commission rules in every
case, the Company believes a brief description of each compensation plan will
enable stockholders to understand better the information presented in the
tables.
DEFINED BENEFIT PENSION PLAN
The Company provides a noncontributory, "career average" defined benefit
pension plan (the "Pension Plan") to most salaried employees of Lydall. The
Pension Plan provides that benefits, in the amount of 2 percent of the
participant's annual eligible earnings, (subject to limitations imposed by the
Internal Revenue Code) will accrue annually. The Pension Plan benefits are not
determined primarily by final or average final compensation. The Company pays
the entire cost of the Pension Plan which is administered by a committee
appointed by the Board of Directors.
A participant's compensation for purposes of determining pension benefits is
the participant's W-2 compensation (less bonus and other similar compensation
payments) plus pretax employee contributions to the pretax plans of Lydall,
Inc.
The normal retirement age under the Pension Plan is 65 and actuarially
reduced benefits are available at age 55 if the participant has ten years of
service. Messrs. Jaskol, Carolan, Lanzi, Whitely, and Hanley are expected to
receive annual benefits upon retirement at normal retirement age (assuming
salary increases of 4 percent per year for Mr. Jaskol and 5 percent per year
for the others) in the amounts of $80,188, $71,763, $67,185, $85,828 and
$155,946, respectively. The aforementioned amounts are not subject to any
further reductions for Social Security benefits or for any other offset
amounts.
SALARIED PROFIT SHARING PLAN
The Company has a noncontributory profit sharing plan (the "Profit Sharing
Plan") covering most salaried employees and full-time hourly employees at
certain Lydall locations. The Board of Directors has discretionary authority
to determine the amount of contributions (if any) to be made each year by the
Company. Each employee receives a percentage of his or her W-2 compensation,
as determined by the Board of Directors, (subject to the limitations imposed
by the Internal Revenue Code) less bonus and other similar compensation
payments plus employee pretax contributions. Contributions are made either in
shares of Common Stock or in cash. If cash, the trustee of the Profit Sharing
Plan uses it to purchase Common Stock, so that the Profit Sharing Plan is
invested primarily in Lydall Common Stock. The Profit Sharing Plan provides
that an employee's Profit Sharing Plan account shall be distributed to an
employee who terminates employment with a vested benefit, or who retires at
normal retirement age.
STOCK INCENTIVE PLAN
The Company maintains the Lydall, Inc. 1992 Stock Incentive Compensation
Plan (the "1992 Plan"), which expires on May 12, 2002. The 1992 Plan presently
authorizes an aggregate of 1,580,000 shares of Common Stock for issuance under
the terms of incentive awards that may be granted to Directors, officers and
other key employees of the Company. Incentive awards granted under the 1992
Plan may take the form of nonqualified stock options, incentive stock options,
restricted stock awards, or stock bonus awards. The 1992 Plan is proposed to
be amended and restated at the Annual Meeting. Please see the description
provided under Proposal 1 above.
21
<PAGE>
STOCK OPTION TABLES
The following table provides information regarding stock options granted to
the named executive officers during 1996. In addition, in accordance with
Securities and Exchange Commission rules, the values assigned to each reported
option are shown using gains based on assumed rates of annual compound stock
price appreciation of 5 percent and 10 percent from the date the options were
granted over the full option term.
In assessing these values, it should be kept in mind that no matter what
theoretical value is placed on a stock option on the date of grant, its
ultimate value will be dependent on the market value of the Company's stock at
a future date, and that value will depend on the efforts of such executives to
foster the future success of the Company for the benefit of not only the
executives, but all stockholders.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term (*)
- - ----------------------------------------------------------------------
(a) (c) (d) (e) (f) (g)
(b) % of Total
Number of Options/
Securities SARs
Underlying Granted to
Options/ Employees Exercise or
SARs in Fiscal Base Price Expiration
Granted (#) Year ($/Sh) Date 5% ($) 10% ($)
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
L.R. Jaskol 4,278(1)/0 $23.375 5/6/06 62,887 159,371
15,000(3)/0 $23.500 12/3/06 221,683 561,792
19,278 10.11/0
- - -----------------------------------------------------------------------------
J.P. Carolan 4,419(2)/0 $22.625 5/14/06 62,876 159,341
5,000(3)/0 $23.500 12/3/06 73,894 187,264
9,419 4.94/0
- - -----------------------------------------------------------------------------
R.J. Lanzi 7,500(3)/0 3.93/0 $23.500 12/3/06 110,841 280,896
- - -----------------------------------------------------------------------------
E.F. Whitely 4,419(2)/0 $22.625 5/14/06 62,876 159,341
5,000(3)/0 $23.500 12/3/06 73,894 187,264
9,419 4.94/0
- - -----------------------------------------------------------------------------
J.E. Hanley 6,000(3)/0 3.15/0 $23.500 12/3/06 88,672 224,716
</TABLE>
(*) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the future performance of the Common Stock and overall stock
market conditions.
(1) Exercisable 25% 5/7/97; 50% 5/7/98; 75% 5/7/99; 100% 5/7/2000.
(2) Exercisable 25% 5/15/97; 50% 5/15/98; 75% 5/15/99; 100% 5/15/2000.
(3) Exercisable 25% 12/4/97; 50% 12/4/98; 75% 12/4/99; 100% 12/4/2000.
22
<PAGE>
The following table shows stock option exercises by the named officers
during 1996, including the aggregate value of gains on the date of exercise.
In addition, this table includes the number of shares covered by both
exercisable and nonexercisable stock options as of December 31, 1996. Also
reported are the values for "in-the-money" options which represent the
positive spread between the exercise price of any such existing stock options
and the year-end price of Common Stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (c)
(b) (d) (e)
Number of Value of
Securities Under- Unexercised
lying Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Name Shares Acquired Value Realized Exercisable/ Exercisable/
on Exercise (#) ($) Unexercisable Unexercisable
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
L.R. Jaskol 40,000 841,680 229,380/62,898 4,017,050/312,691
- - -----------------------------------------------------------------------------------
J.P. Carolan 11,154 213,186 98,479/38,600 1,531,490/230,676
- - -----------------------------------------------------------------------------------
R.J. Lanzi 0 0 23,845/31,541 238,176/185,120
- - -----------------------------------------------------------------------------------
E.F. Whitely 52,800 910,013 46,180/34,739 538,489/201,529
- - -----------------------------------------------------------------------------------
J.E. Hanley 0 0 76,103/35,297 1,072,464/263,218
</TABLE>
INDIVIDUAL PERFORMANCE AWARD PLAN
Lydall's Individual Performance Award Plan provides individual cash awards
for improvement in annual operating results. The performance award plan is
administered by the Stock Option and Compensation Committee of the Board of
Directors. Performance awards depend upon individual performance and
achievement of specified objectives. Individual awards, which may vary from 5
to 75 percent of base salary, are paid during the first quarter of the
following year. Amounts earned in 1996, whether paid to or deferred by the
persons included in the Summary Compensation Table, are included in the
amounts shown in such Table.
STOCK PURCHASE PLAN
The Lydall Employee Stock Purchase Plan (the "Stock Purchase Plan") gives
certain full-time, nonunion and union (if negotiated) Lydall employees the
opportunity to purchase Common Stock through regular payroll deductions.
Lydall contributes 33 1/3 percent of each employee's contribution up to $150 a
month. Purchases are made on the open market by a brokerage firm.
401(K) PLAN
Lydall's 401(k) Plan is available to certain full-time, nonunion employees
with at least three months of service and certain union employees as
negotiated. In accordance with Section 401(k) of the Internal Revenue Code,
the 401(k) Plan provides participants with the option to reduce their gross
income for federal income tax purposes to the extent of their pretax
contributions. Generally, participants may contribute up to 10 percent of
their total compensation on a pretax basis (subject to limitations imposed by
the Internal Revenue Code). Lydall matches the nonunion employees' pretax
contributions up to 4 percent of each employee's annual compensation. The
first 2 percent is matched dollar for dollar, and the next 2 percent is
matched by 50 cents for every dollar. Lydall's matching contribution is
immediately fully vested. The union facilities have not negotiated a matching
contribution on their 401(k) plan.
23
<PAGE>
OTHER EMPLOYEE BENEFIT PLANS REMUNERATION
Lydall provides group life insurance of two to five times salary, and
Accidental Death & Dismemberment Insurance for all eligible salaried
employees. With respect to all executive officers named in the Summary
Compensation Table and certain other officers of the Company, such life
insurance coverage, consists of an individual Universal Life Policy which is
owned by the covered individual. With respect to Mr. Jaskol, the only senior
officer eligible for insurance coverage of five times his salary, a portion of
this coverage is in the form of an individual whole life policy owned by him.
Lydall provides under a group plan long term disability coverage of 60
percent of base salary to all eligible salaried employees. The Company
provides all executive officers named in the Summary Compensation Table and
certain other officers of the Company with long term disability coverage equal
to their base salary subject to availability in the marketplace.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company has a supplemental retirement plan intended to provide
retirement benefits, supplementing those provided under other Company-related
retirement plans to certain officers and key employees. All of the officers
named in the Summary Compensation Table are participants. Upon retirement and
for a period of up to fifteen years, a participant is entitled to receive a
monthly retirement benefit. That benefit is equal to the lesser of (i) 60
percent of the participant's final average pay less the participant's benefits
(attributable to Company contributions) under all of the Company's qualified
plans or (ii) an amount equal to the sum each year of the excess benefits for
such participant under each plan attributable to the participant's
compensation in excess of the limitation imposed by the Internal Revenue Code.
The participant is deemed vested in the supplemental benefits when they have
attained age 55 and the sum of their age and service equal or exceed 70. Mr.
Jaskol and Mr. Lanzi are the only participants named in the Summary
Compensation Table who are fully vested. Messrs. Jaskol, Carolan, Lanzi,
Whitely and Hanley are expected to receive annual benefits upon retirement at
normal retirement age in the amount of $174,601, $99,944, $27,687, $2,113 and
$0 respectively.
TRANSACTIONS WITH MANAGEMENT
The Company currently has outstanding two loans to Leonard R. Jaskol, both
of which were made to facilitate his acquisition of a greater equity stake in
the Company. Mr. Jaskol is Chairman of the Board, President and Chief
Executive Officer of the Company. The first such loan is scheduled to mature
on January 1, 1998, or whenever Mr. Jaskol terminates his employment,
whichever is sooner. The loan is an unsecured term loan that is currently
bearing interest at the rate of 8.75 percent. During 1996, the highest unpaid
principal balance of this loan was $24,340, which also was the unpaid
principal balance as of March 18, 1997. The other loan is for $150,000,
bearing interest at 8.75 percent per annum on the unpaid balance of the note
and maturing on January 1, 1998. The note is secured by 9,138 shares of Lydall
Common Stock owned by Mr. Jaskol. During the period from January 1, 1996
through December 31, 1996, the highest unpaid principal balance of this loan
was $150,000, which also was the unpaid principal balance as of March 18,
1997. The Company grosses up Mr. Jaskol's salary to reimburse him for the
amount of the interest due and payable under the loans, as well as the
additional taxes incurred by Mr. Jaskol as a result of the interest
reimbursement.
The Company has entered into employment agreements with (i) Mr. Jaskol; (ii)
each of the Division Presidents of the Company, including those named in the
Summary Compensation Table; (iii) Vice President Corporate Development Alan J.
Gnann; (iv) Vice President Finance and Treasurer John E. Hanley; (v) Vice
President Investor Relations Carole F. Butenas; (vi) General Counsel and
24
<PAGE>
Secretary Mary Tremblay and (vii) Manager of Human Resources and Employee
Benefits Mona G. Estey. The agreements are intended to provide for continuity
of management in the event of a change in control of the Company. The
agreements generally provide for the continued employment of each such
executive officer in the event that he or she is forced to resign or is
otherwise replaced (unless he or she resigns or is replaced for "cause," as
defined in the agreements) after a change in control of the Company. Certain
of the agreements also provide for the continued employment of certain
executive officers in the event of termination before a change in control. The
agreements define a change in control of the Company to mean (a) an
acquisition of the Company by means of a merger or consolidation or purchase
of substantially all of its assets if incident thereto the composition of the
Company's Board of Directors changes with the result that a majority of the
Board consists of new members or the Company's stockholders receive cash or
other consideration in exchange for their Lydall stockholdings, (b) the
acquisition of 25 percent or more of the outstanding shares of Common Stock by
an entity or a person who was not an officer or a Director of the Company on
the dates of the respective agreements or (c) the election or appointment to
the Board of any director(s), where that appointment or election was not
approved by a vote of at least a majority of the Directors then in office. Mr.
Jaskol's current agreement is dated March 1, 1995, and each of the remaining
current agreements are dated March 10, 1995.
The period during which the Company would be obligated to continue to employ
the covered executives is defined in the agreements as the "Employment
Period." During the Employment Period, each covered executive would be
entitled to receive an annual salary equal to one-third of the aggregate of
the base salary and bonuses he or she received during the three years prior to
the Employment Period. With respect to Mr. Jaskol, the Company would be
obligated to pay such amount to him for a period of two years if he is forced
to resign or is otherwise replaced prior to a change in control of the Company
or three years if he resigns (including a voluntary resignation) or is
otherwise replaced following a change in control of the Company. With respect
to each of the Division Presidents, the Vice President-Corporate Development
and the Vice President-Finance and Treasurer, the period during which the
Company would be obligated to pay such amount would be one year if forced
resignation or replacement occurs prior to a change in control and two years
if forced resignation or other replacement occurs following a change in
control. With respect to Ms. Butenas, Ms. Tremblay and Ms. Estey the period
during which the Company would be obligated to pay such amount would be one
year if termination occurs within one year following a change of control. Each
of the agreements provides that the covered executive officers will not be
entitled to any benefits after their normal retirement date.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors, executive officers and persons who beneficially own more than 10
percent of the Company's stock to file certain reports with the Securities and
Exchange Commission ("SEC") and the New York Stock Exchange concerning their
beneficial ownership of the Company's equity securities. Applicable SEC
regulations also require such persons to furnish the Company with copies of
all such reports. Based solely on a review of the copies of such reports
furnished to the Company as of the date of this proxy statement, or written
representations that no reports were required, the Company believes that,
during 1996, all filing requirements applicable to its Directors, officers and
greater than 10 percent stockholders were satisfied, except that a Form 3
filed for Mr. Worthington, who became an executive officer of the Company
during 1996, mistakenly did not disclose his beneficial ownership of non-
qualified stock options held by him as of such date. The error was corrected
when such stock options were subsequently disclosed in a Form 5 filed after
the end of the year.
25
<PAGE>
APPOINTMENT OF AUDITORS
The Board of Directors approved, upon recommendation of the Audit Committee,
Coopers & Lybrand, L.L.P. as independent accountants to the Company for the
year ended December 31, 1996. It is expected that the Board of Directors will
appoint Coopers & Lybrand, L.L.P. as the Company's independent accountants for
the current year. Representatives of Coopers & Lybrand, L.L.P. will be present
at the Annual Meeting and will be available to respond to questions.
OTHER MATTERS
The Board of Directors does not know of other matters which may come before
the meeting. However, if other matters are properly presented at the meeting,
it is the intention of the proxy committee to vote or otherwise to act in
accordance with their judgment on such matters.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Any proposals or recommendations for Directors by stockholders which are to
be presented at the Annual Meeting to be held in May, 1998 must be received by
the Company by November 27, 1997 in order to be included in the Proxy
Statement and on the proxy card relating to the 1998 Annual Meeting.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR 1996 WILL BE PROVIDED
WITHOUT CHARGE, UPON REQUEST. REQUESTS MAY BE DIRECTED TO: CAROLE F. BUTENAS,
VICE PRESIDENT-INVESTOR RELATIONS, LYDALL, INC., P.O. BOX 151, MANCHESTER,
CONNECTICUT 06045-0151.
26
<PAGE>
EXHIBIT A
LYDALL, INC.
- - -------------------------------------------------------------------------------
1992 STOCK INCENTIVE COMPENSATION PLAN
Purpose.
The purpose of the Plan is to further the growth and prosperity of the
Company and its Subsidiaries through payment of incentive compensation in the
form of Common Stock to officers, key employees and directors and by
encouraging investment in the Company's Common Stock by officers, key
employees and directors who are in a position to contribute materially to the
Company's prosperity.
Definitions.
Unless the context clearly indicates otherwise, the following terms, when
used in this Plan, shall have the meanings set forth in this Section.
"Annual Retainer" means the annual retainer payable to each Outside Director
of the Company for each full year of service as such, the amount of which for
purposes of this Plan may not be changed more often than once every twelve
(12) months.
"Award Period" means for each Restricted Stock Award, the period beginning
with the date on which such Award is granted and ending on a date specified by
the Committee at the time of the granting of such Award. In no event shall the
Award Period be greater than ten (10) years.
"Board of Directors" or "Board" means the Board of Directors of the Company.
"Change in Control of the Company" means (i) an acquisition of the Company
by means of a merger or consolidation or purchase of substantially all of its
assets if and when incident thereto (a) the composition of the Board of
Directors or its successor changes so that a majority of the Board is not
comprised of individuals who were members of the Board immediately prior to
such merger, consolidation or purchase of assets or (b) the stockholders of
the Company acquire a right to receive, in exchange for or upon surrender of
their stock, cash or other securities or a combination of the two, or (ii) the
acquisition by a Person (as that term is hereafter defined) of the voting
rights with respect to 25 percent or more of the outstanding Common Stock of
the Company if such person was not an officer or director of the Company on
May 13, 1992.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, related rules, regulations and interpretations.
"Committee" means the committee of the Board of Directors that has been
designated to administer the Plan. The Committee shall consist of not less
than two members of the Board of Directors as so designated and appointed from
time to time by the Board. To be eligible to serve as a member of the
Committee, a director must qualify as (i) a "Non-Employee Director" within the
meaning of Rule 16b-3(b)(3) promulgated under the Securities Exchange Act of
1934, as amended, and any successor to such rule, and (ii) an "Outside
Director" within the meaning of Section 162(m) of the Code and any successor
to such Section.
"Common Stock" means the common stock of the Company with the par value set
forth in the Certificate of Incorporation.
"Company" means Lydall, Inc.
"Director" means a member of the Board of Directors.
A-1
<PAGE>
"Fair Market Value" means the closing sale price per share on the New York
Stock Exchange (or if not traded on the New York Stock Exchange, then on
whatever national exchange the shares of the Common Stock of the Company are
traded) on the day before the award date or on the day before the exercise
date, as appropriate. If no trade occurred on the Exchange on the day before
the award date or on the day before the exercise date, the closing sale price
per share on the most recent date on which sales were reported will be
substituted for the closing sale price on that day.
"Incentive Award" means an Option, a Restricted Stock Award, a Stock Bonus
Award, or a combination of them.
"Incentive Stock Option" means an Option which meets the requirements of
Section 422A of the Code.
"Non-Qualified Option" means an Option not qualifying for Incentive Stock
Option treatment under the Code.
"Option" means a Non-Qualified Option or Incentive Stock Option.
"Outside Director" means a member of the Board of Directors who, as of the
close of business on the date of grant of any Incentive Award hereunder, is
not an employee of the Company or any of its Subsidiaries.
"Person" for purposes of the definition of "Change in Control of the
Company," a "person" means an individual, corporation, trust or other legal or
commercial entity and includes two or more persons acting as a partnership,
limited partnership, syndicate or other group for the purpose of acquiring,
holding, or disposing of securities of the Company.
"Plan" means the Lydall, Inc. 1992 Stock Incentive Compensation Plan.
"Restricted Stock Award" means the right to receive a specified number of
shares of Common Stock in annual installments over a designated Award Period.
"Stock Bonus Award" means an award of shares of Common Stock to an Outside
Director pursuant to Section 6 or to an employee of the Company pursuant to
Section 11 hereof.
"Subsidiary" or "Subsidiaries" means a corporation or other form of business
entity, more than 50 percent of the voting interest of which is owned or
controlled, directly or indirectly, by the Company.
Shares of Common Stock Subject to the Plan.
Subject to the provisions of paragraph (c) of this Section 3 and Section 12,
the total number of shares of Common Stock which may be issued or transferred
under this Plan 1) upon exercise of Options; 2) when an Outside Director or an
employee becomes entitled to receive shares of stock pursuant to a Stock Bonus
Award; and 3) under the terms of a Restricted Stock Award, shall not exceed
2,420,000 shares.
Shares to be issued or transferred under this Plan will be made available,
at the discretion of the Board of Directors, either from authorized but
unissued shares of Common Stock or from shares of Common Stock held by the
Company as treasury shares, including shares purchased in the open market.
If any share of Common Stock issuable or transferable under an Incentive
Award is not issued or transferred and ceases to be issuable or transferable
because (i) of the lapse, in whole or in part, of such Incentive Award; (ii)
it is subject to the provisions of paragraph (b) of Section 9 or paragraph (d)
A-2
<PAGE>
of Section 10; or (iii) for any other reason, the shares not so issued or
transferred shall no longer be charged against the limitation provided for in
paragraph (a) of this Section 3 and may again be used for Incentive Awards.
Administration of the Plan.
The Plan shall be administered by the Committee. The Committee shall have
authority, in its discretion and after receiving the recommendations of the
Chairman of the Company, to determine the employees to whom Incentive Awards
will be granted, the time or times at which Incentive Awards will be granted,
and the number of shares to be subject to each Incentive Award. In making such
determinations, the nature of the services rendered by the respective
employees, their present and potential contributions to the Company's success
and such other factors deemed to be relevant will be taken into account.
Subject to the express provisions of the Plan, the Committee shall also have
authority to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it, to determine the terms and provisions of the
respective Incentive Award Agreements (which need not be identical) including
the determination of whether Options granted will be designated as Incentive
Stock Options and to make all other determinations necessary or advisable for
the administration of the Plan. The Committee will hold its meetings at such
times and places as it may determine. A majority of its members will
constitute a quorum, and all determinations of the Committee shall be made by
a majority of its members.
Participation.
Except as set forth in Sections 6, 7 and 8 hereof, Incentive Awards may be
granted to officers and other key employees of the Company and its
Subsidiaries.
From time to time the Chairman of the Company will determine and recommend
to the Committee those officers and key employees of the Company and of its
Subsidiaries who should be granted Incentive Awards, the type of Incentive
Awards to be granted, and the number of shares subject to each Incentive
Award; provided, however, that no person may be granted in any calendar year
Incentive Awards covering more than 100,000 shares of Common Stock. The
Committee shall approve or disapprove such recommendations.
Incentive Awards may be granted in the following forms:
a Restricted Stock Award, in accordance with Section 9,
an Option, in accordance with Section 10, which may be designated as an
Incentive Stock Option as that term is defined in Section 422A of the Code,
a Stock Bonus Award, in accordance with Section 11, or
a combination of the foregoing.
Stock Bonus Awards to Outside Directors in Lieu of Annual Cash Retainers. On
June 30 and December 31 of each year during the term of the Plan, each person
then serving as an Outside Director of the Company shall be granted a Stock
Bonus Award in respect of that number of whole shares of Common Stock obtained
by dividing fifty percent (50%) of the Annual Retainer then in effect by the
Fair Market Value of a share of Common Stock as of the date of grant, in each
case rounded upward to the nearest number of whole shares. The Stock Bonus
Awards contemplated by this Section 6 shall be granted in lieu of any future
cash payments to Outside Directors in respect of the Annual Retainer.
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<PAGE>
Non-Qualified Option Awards to Directors in Lieu of Cash-Based Retirement
Benefits.
On December 31 of each year during the term of the Plan, each person then
serving as an Outside Director and the Chairman of the Company shall be
granted a Non-Qualified Option covering three hundred twenty-five (325) shares
of Common Stock. The Non-Qualified Options contemplated by this Section 7
shall be granted in lieu of any future accruals under the Lydall, Inc. Board
of Directors Deferred Compensation Plan.
The purchase price of each share of Common Stock under a Non-Qualified
Option granted under this Section 7 shall be the Fair Market Value of a share
of Common Stock as of the date each such Non-Qualified Option is granted.
Each Non-Qualified Option granted under this Section 7 shall become
exercisable in three equal annual installments commencing as of the first
anniversary of the date of grant and shall be exercisable until the earlier of
ten (10) years from the date of grant or the expiration of the three (3) year
period provided in paragraph (d) below.
Whenever a recipient of Non-Qualified Options granted under this Section 7
ceases to be a Director of the Company for any reason whatsoever, all
outstanding Non-Qualified Options granted under this Section 7 then held by
such person shall continue to vest and be exercisable in whole or in part for
a period of three (3) years from the date on which such person ceases to be a
Director of the Company; provided, however, that, if the effective date of any
such cessation of service occurs on or before March 31 of any given year, the
Non-Qualified Option granted as of the previous December 31 (and only that
Non-Qualified Option), if any, shall continue to vest and be exercisable in
whole or in part until March 31 of the year that is three (3) years from the
date on which such person ceases to be a Director of the Company; and provided
further that, in no event, shall any such Non-Qualified Option be exercisable
beyond the ten (10) year term of the Option specified in paragraph (c) above.
Except as set forth above, the terms and conditions of each Non-Qualified
Stock Option granted under this Section 7 shall be as specified in Section 10
below.
Additional Automatic Awards to Directors.
On each of May 7, 1999 and May 7, 2002, each person then serving as a
Director of the Company shall be granted a Non-Qualified Option covering the
lesser of 9,000 shares of Common Stock or a number of shares of Common Stock
having an aggregate Fair Market Value on the date of grant equal to $100,000.
Each person who is first elected a Director of the Company after May 13, 1992
shall be granted, automatically upon such election, a Non-Qualified Option
covering the lesser of 9,000 shares of Common Stock or a number of shares of
Common Stock having an aggregate Fair Market Value on the date of grant equal
to $100,000. The Non-Qualified Options contemplated by this Section 8
represent a continuation of the automatic awards of Non-Qualified Options to
Directors approved by the stockholders of the Company at the 1992 Annual
Meeting of Stockholders.
The purchase price of each share of Common Stock under a Non-Qualified
Option granted under this Section 8 shall be the Fair Market Value of a share
of Common Stock as of the date each such Non-Qualified Option is granted.
Each Non-Qualified Option granted under this Section 8 shall become
exercisable in four equal annual installments commencing as of the first
anniversary of the date of grant, provided the holder of such Non-Qualified
Option is a Director or employee of the Company on such anniversary, and shall
be exercisable until the earlier of ten (10) years from the date of grant or
the expiration of the applicable period specified in paragraph (d) or (e)
below.
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<PAGE>
Each Non-Qualified Option granted under this Section 8 to an Outside
Director of the Company shall terminate if and when the optionee shall cease
to serve as a Director of the Company, except as follows:
(i) If the optionee has continuously served as a Director of the Company
for at least one year from the date of grant of a Non-Qualified Option and
dies (x) while serving as a Director of the Company or (y) during any
period after having ceased to be a Director when the Non-Qualified Option
would otherwise be exercisable under subparagraph (ii) below, the Non-
Qualified Option theretofore granted to him/her may be exercised by a
representative of his/her estate provided that such Non-Qualified Option
may be exercised only within six months after the date of death and prior
to the expiration date specified in such Non-Qualified Option.
(ii) If the optionee ceases for any reason (other than death) to be a
Director of the Company subsequent to one year from the date of grant, such
Non-Qualified Option may be exercised within three months from the date of
such cessation and prior to the expiration date specified in such Non-
Qualified Option.
(iii) No Non-Qualified Option may be exercised for more than the number
of shares for which the optionee might have exercised his/her Option at the
time he/she ceased for any reason to be a Director of the Company.
Each Non-Qualified Option granted under this Section 8 to a Director who is
an employee of the Company shall terminate in accordance with Section 10(e)
below.
Except as set forth above, the terms and conditions of each Non-Qualified
Stock Option granted under this Section 8 shall be as specified in Section 10
below.
Restricted Stock Awards.
An Incentive Award in the form of a Restricted Stock Award shall be subject
to the following provisions:
The restricted stock agreement shall specify (i) the number of shares of
Common Stock to be transferred to the recipient over the Award Period and (ii)
the times at which portions of those shares shall be transferred to the
recipient. In no event may shares be transferred before one year after the
date of the Award or later than ten years from such date, except, however,
that for persons who are not officers of the Company, the Committee may waive
any part of the one-year period after the date of the Award during which the
shares may not be transferred.
The Restricted Stock Award shall terminate if the holder, with or without
cause, shall cease to be an employee of the Company or any of its
Subsidiaries, and any installments of shares of Common Stock which have not
yet become transferable to such holder shall be forfeited upon cessation of
employment; provided, however, in the event that an employee's employment
shall terminate as a result of death or disability, the foregoing provision of
this subparagraph (b) shall not apply, and all shares of stock subject to
Restricted Stock Awards shall immediately become vested.
At the time an installment of shares of Common Stock is transferred to the
holder of a Restricted Stock Award, an additional payment shall be made to
such holder, either in cash or shares of Common Stock as the Committee shall
determine in its sole discretion, in an amount equal to the cash dividends
which would have been payable to the holder of the Restricted Stock Award in
respect to the shares transferred to the holder at the time the Restricted
Stock Award was granted.
Each Restricted Stock Award shall be evidenced by a written instrument
containing terms and conditions determined by the Committee consistent with
the terms of the Plan.
A-5
<PAGE>
Options.
An Incentive Award in the form of an Option shall be subject to the
following provisions:
At the time of grant, the Option shall specify (i) the number of shares of
Common Stock which may be purchased by the recipient over the term of the
Option; (ii) the times at which portions of such shares may be purchased by
the recipient; and (iii) whether the Option is an Incentive Stock Option. No
Option shall be deemed to be an Incentive Stock Option unless the Committee
has so designated such Option and the Option states that it is an Incentive
Stock Option.
The purchase price of each share of Common Stock under each Option will be
at least 100 percent of the Fair Market Value of a share of Common Stock at
the time of grant.
The Option must provide that it is not transferable and may be exercised
solely by the person to whom granted except as provided in paragraph (e) of
this Section 10 in the event of such person's death.
Each Option granted to an employee will be subject to the condition that it
may be exercised only if the optionee remains in the employ of the Company
and/or a Subsidiary for at least one year after the date of the granting of
the Option. An Option may be exercised at the times and in the amounts
determined by the Committee. In no event, however, shall an Option be
exercisable after ten years from the granting of the Option.
An Option granted to an employee shall terminate if and when the optionee
shall cease to be an employee of the Company and its Subsidiaries, except as
follows:
If an optionee who has been continuously employed by the Company or any of
its Subsidiaries for at least one year from the date of grant of an Option
dies (x) while employed by the Company or a Subsidiary, or (y) during any
period after retirement or the termination of his/her employment when the
Option would otherwise be exercisable under subparagraph (ii) below, the
Option theretofore granted to him/her may be exercised (x) by the beneficiary
designated pursuant to paragraph (g) of Section 13 or (y) in the absence of
such designation, or if no such beneficiary survives the optionee, by a
representative of such optionee's estate, provided that such Option may be
exercised only within six months from the date of death and within ten years
from the date of grant of the Option.
If an optionee retires or if his/her employment with the Company or a
Subsidiary is terminated for any reason (other than death) subsequent to one
year from the date of grant of any Option, such Option may be exercised within
three years (or such lesser period as the Option Agreement shall specify) from
the date of such retirement or termination of employment, but in no event
after ten years from date of grant of the Option; provided, however, that if
such Option is an Incentive Stock Option, it may be exercised only within
ninety (90) days (or such lesser period as the Option Agreement shall specify)
from the date of such retirement or termination of employment, but in no event
after ten years from the date of grant of the Option.
Notwithstanding (i) and (ii) above, if an optionee is dismissed for cause,
of which the Committee shall be the sole judge, his/her Option shall expire
immediately upon termination.
The Committee may determine that, for the purpose of the Plan, an employee
who is on a leave of absence will be considered as still in the employ of the
Company, provided that such leave of absence meets the requirements of
Treasury Regulation (S)1.421-7(h) promulgated under the Code and provided that
an Option shall be exercisable during a leave of absence only as to the number
of shares which were exercisable at the commencement of such leave of absence.
A-6
<PAGE>
No Option may be exercised for more than the number of shares for which the
optionee might have exercised his/her Option at the time he/she ceased for any
reason to be an employee of the Company or a Subsidiary.
A person electing to exercise an Option will give written notice to the
Company of such election and of the number of shares he/she has elected to
purchase and the date on which he/she wishes to exercise the Option. Any
person exercising an Option may tender the full purchase price plus taxes, if
applicable, in cash of the shares he/she has elected to purchase on the date
specified by him/her for completion of such purchase. If authorized by the
Committee, in its discretion, at or after the time of grant, payment in full
or in part may also be made by an employee of the Company in the form of
shares of Common Stock not then subject to restriction under any Company plan
(but which may include shares the disposition of which constitutes a
disqualifying disposition for purposes of obtaining incentive stock option
treatment for federal tax purposes); provided, however, that shares of Common
Stock may not be used to pay any of the purchase price of an Option unless
such shares have been owned by the employee for at least six months, or such
longer period as the Committee shall determine, prior to being surrendered as
payment in full or in part of the purchase price of an Option. Such
surrendered shares shall be valued at "Fair Market Value."
The Option agreements or Option grants authorized by the Plan may contain
such other provisions, consistent with the terms of the Plan, as the Committee
shall consider advisable.
Incentive Stock Options may not be issued to any person who at the time of
grant owns stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company or any of its Subsidiaries.
The aggregate Fair Market Value (determined at the time an option is
granted) of stock of the Company (including Common Stock) granted an employee
to which Incentive Stock Options are exercisable for the first time by such
employee during any calendar year (under all incentive stock option plans of
the Company or its Subsidiaries) shall not exceed $100,000.
Stock Bonus Awards.
A Stock Bonus Award may be granted to any employee of the Company or its
Subsidiaries whom the Committee determines, upon recommendation of the
Chairman of the Company, should be rewarded for exemplary performance, subject
to the following provisions:
The Committee shall determine, in its discretion, the number of shares of
stock to be granted pursuant to a Stock Bonus Award and the time at which an
Award shall be made.
A Stock Bonus Award shall be evidenced by the delivery to the employee of a
stock certificate representing the shares awarded.
Shares of Common Stock transferred pursuant to a Stock Bonus Award shall be
subject only to such conditions as are directed by the Board of Directors or
Committee in accordance with Section 13(a) hereof.
Adjustment Provisions.
Except as otherwise provided herein, the following provisions shall apply to
all Common Stock authorized for issuance and optioned, granted or awarded
under the Plan:
Stock Dividends, Splits, etc. In the event of a stock dividend, stock
split, or other subdivision or combination of the Common Stock, the number
of shares of Common Stock authorized under the Plan will be adjusted
proportionately. Similarly, in any such event there will be a proportionate
A-7
<PAGE>
adjustment in the number of shares of Common Stock subject to unexercised
Options (but without adjustment to the aggregate option price) and in the
number of shares of Common Stock then subject to Restricted Stock Awards.
Divisive Reorganization, Merger, Exchange or other Reorganization. In the
event that the outstanding shares of Common Stock are changed or converted
into, exchanged or exchangeable for, a different number or kind of shares
or other securities of the Company or of another corporation, by reason of
a reorganization, merger, consolidation, reclassification or combination,
or in the event that the Company engages in a divisive reorganization such
as a spin-off of any significant portion of its business, the total number
of shares of Common Stock which may be issued under the Plan shall be
appropriately adjusted and appropriate adjustment shall be made by the
Committee in the number of shares, kind of Common Stock and/or the Option
price for which Incentive Awards may be or may have been awarded under the
Plan, to the end that the proportionate interests of participants and
inherent values of outstanding Incentive Awards shall be maintained as
before the occurrence of such event.
Adjustments. Adjustments under this Section 12 shall be made by the
Committee whose determination as to what adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive. No fractional
shares of Common Stock shall be issued under the Plan on account of any
such adjustments.
Change in control of the Company. If, and at such time as, a "change in
control of the Company" (as defined in Section 2) shall have occurred, any
and all provisions of any and all outstanding Incentive Awards which
condition the right to exercise such Incentive Awards upon the holder of
any such Incentive Award having been an employee of the Company or any of
its Subsidiaries or a director of the Company for a period of time shall be
deemed to have been rescinded, so that such holder, upon the occurrence of
such change in control, shall have the right to exercise such Incentive
Award in full, (including, in the case of Restricted Stock Awards, the
right to be issued the stock awarded and any dividend accrued thereon),
irrespective of whether such holder has been an employee or director for
the period of time specified in the Incentive Award; provided, however, if
any such recision would cause the maximum period during which an Option may
be exercised or a Restricted Stock Award transferred to exceed nine years,
such recision shall not occur with respect to such Option or Restricted
Stock Award unless and until such Option or Restricted Stock Award is
amended, with the consent of the holder, to reduce such maximum period to
nine years or less.
General Provisions.
With respect to any shares of Common Stock issued or transferred under the
provisions of this Plan, such shares may be issued or transferred subject to
such conditions, in addition to those specifically provided in the Plan, as
the Committee may direct.
Nothing in the Plan or in any instrument executed pursuant thereto will
confer upon any employee any right to continue in the employ of the Company or
a Subsidiary or will effect the right of the Company or of a Subsidiary to
terminate the employment of any employee with or without cause. Nothing in the
Plan or in any instrument executed pursuant thereto will confer upon any
Director of the Company any right to continue in such capacity or will affect
the right of stockholders to remove or not re-elect such person as a Director
of the Company with or without cause.
No shares of Common Stock will be issued or transferred pursuant to an
Incentive Award unless and until all legal requirements applicable to the
issuance or transfer of such shares have, in the opinion of counsel to the
Company, been complied with. In connection with any such issuance or transfer,
the person acquiring the shares will, if requested by the Company, give
written assurances satisfactory to counsel to the Company that the shares are
being acquired for investment and not with a view to resale or distribution
thereof and assurances in respect of such other matters as the
A-8
<PAGE>
Company or a Subsidiary may consider desirable to assure compliance with all
applicable legal requirements.
No employee (individually or as a member of a group), and no beneficiary or
other person claiming under or through him/her, will have any right, title or
interest in any shares of Common Stock allocated or reserved for the purposes
of the Plan or subject to any Incentive Award except as to such shares of
Common Stock, if any, as shall have been issued or transferred to him/her and
except as otherwise provided in Section 14(a).
In the case of any employee of a Subsidiary, the Committee may direct the
Company to issue the shares covered by the Incentive Award to the Subsidiary
for such lawful consideration as the Committee may specify upon the condition
that the Subsidiary will transfer the shares to the employee in accordance
with the terms of the Incentive Award. Notwithstanding any other provision of
this Plan, an Incentive Award, excluding an Incentive Stock Option, may be
issued by and in the name of the Subsidiary and shall be considered granted on
the date it is approved by the Committee, on the date it is delivered by the
Subsidiary, or on such other date between such two dates as the Committee will
specify. For options which are intended to qualify as Incentive Stock Options,
the date of grant shall be determined in accordance with the applicable
regulations under the Code.
The Company or a Subsidiary may make such provisions as it may consider
appropriate for the withholding of any taxes which the Company or Subsidiary
determines it is required to withhold in connection with any Incentive Award.
No Incentive Award and no rights under the Plan, contingent or otherwise,
shall be assignable, transferable or subject to any encumbrance, pledge or
charge of any nature, provided that, under such rules and regulations as the
Committee may establish pursuant to the terms of the Plan, a beneficiary may
be designated in respect of an Incentive Award in the event of the death of
the holder of such Incentive Award and provided, also, that if such
beneficiary shall be the executor or administrator of the estate of the holder
of such Incentive Award, any rights in respect of such Incentive Award may be
transferred to the person or persons or entity (including a trust) entitled
thereto under the will of the holder of such Incentive Award or, in case of
intestacy, under the laws relating to intestacy.
Nothing in the Plan is intended to be a substitute for, or shall preclude or
limit the establishment or continuation of, any other plan, practice or
arrangement for the payment of directors' fees or compensation or fringe
benefits to employees generally, or to any class or group of employees, which
the Company or any Subsidiary now has or may hereafter lawfully put into
effect, including, with limitation, any retirement, pension, insurance, stock
purchase, incentive compensation or bonus plan.
Except as the Delaware Corporation law otherwise may require, the place of
administration of the Plan will conclusively be deemed to be within the State
of Connecticut and the validity, construction, interpretation and
administration of the Plan and of any rules and regulations or determinations
or decisions made thereunder, will be governed by, and determined exclusively
and solely in accordance with, the laws of the State of Connecticut. Without
limiting the generality of the foregoing, the period within which any action
arising under or in connection with the Plan, or any payment or Award made or
purportedly made under or in connection therewith, must be commenced and will
be governed by the laws of the State of Connecticut, irrespective of the place
where the act or omission complained of took place and of the residence of any
party to such action and irrespective of the place where the action may be
brought.
Amendment, Suspension and Termination of Plan.
The Board of Directors may at any time terminate, suspend or amend the Plan,
provided, however, that no such amendment will, without approval of the
stockholders of the Company, except
A-9
<PAGE>
as provided in Section 12 hereof, (i) materially increase the aggregate number
of shares which may be issued in connection with Incentive Awards; (ii) change
the minimum Option exercise price; (iii) increase the maximum period during
which Options may be exercised, or Restricted Stock Awards transferred; (iv)
extend the effective period of this Plan; or (v) materially modify the
requirements as to eligibility for participation in the Plan.
The Committee may, with the consent of the person by whom a Restricted Stock
Award or an Option is held, modify or change the terms of any Option or
Restricted Stock Award in a manner which does not conflict with the provisions
of the Plan.
Effective Date and Duration of Plan.
This Plan becomes effective upon its approval by the stockholders of the
Company on May 13, 1992. Any amendment to this Plan will become effective upon
approval by Directors unless stockholder approval is deemed necessary, in
which case such amendment shall become effective upon approval by
stockholders. Unless previously terminated by the Board of Directors, this
Plan shall terminate at the close of business on May 12, 2002 and no
Restricted Stock Award or Option may be granted under it thereafter, but such
termination shall not affect any Incentive Award theretofore granted.
A-10
<PAGE>
PROXY
LYDALL, INC.
The undersigned hereby appoints Samuel P. Cooley, Leonard R. Jaskol and
Roger M. Widmann, or any one of them, with full power of substitution, as
attorneys and proxies, to vote all shares of stock of Lydall, Inc. which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of the
Company to be held at The Hartford Club, 46 Prospect Street, Hartford,
Connecticut on May 14, 1997 at 11:00 a.m. E.D.T. and at any adjournments
thereof. The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting and the Proxy Statement dated March 27, 1997 and instructs its attorneys
and proxies to vote as set forth on this Proxy.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
(To be Signed on Reverse Side)
<PAGE>
A [X] Please mark your votes as in this example.
1. APPROVAL OF THE AMENDED AND FOR AGAINST ABSTAIN
RESTATED 1992 STOCK INCENTIVE [_] [_] [_]
COMPENSATION PLAN (Proposal 1)
2. ELECTION OF FOR WITHHELD NOMINEES: Lee A. Asseo
DIRECTORS [_] [_] Paul S. Buddenhagen
(Proposal 2) James P. Carolan
Samuel P. Cooley
W. Leslie Duffy
Leonard R. Jaskol
William P. Lyons
Joel Schiavone
Elliot F. Whitely
Roger M Widmann
Albert E. Wolf
3. In their discretion, such other business at may properly come before the
meeting.
The shares represented by this Proxy will be voted as specified. IF NO CHOICE IS
SPECIFIED, THE PROXY WILL BE VOTED IN FAVOR OF THE AMENDMENT AND RESTATEMENT OF
THE 1992 STOCK INCENTIVE COMPENSATION PLAN AND OF THE SPECIFIED NOMINEES. THIS
PROXY CARD MUST BE PROPERLY COMPLETED, SIGNED, DATED AND RETURNED IN ORDER TO
HAVE YOUR SHARES VOTED.
PLEASE NOTE ANY CHANGE OF ADDRESS.
Signature Date
----------------------------- -----------------------------
Signature Date
----------------------------- -----------------------------
NOTE: Please sign exactly as name appears above. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee, etc. indicate
?????. If the signor of a corporation, sign ??????????????????????????????
