<PAGE>
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))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Lydall, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Lydall, Inc.
- --------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
[_] 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:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(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):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] 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:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
<PAGE>
[LOGO OF LYDALL, INC. APPEARS HERE]
PROXY
STATEMENT
1998 PROXY STATEMENT
--------------------------------------------
NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 1998
<PAGE>
One Colonial Road
P.O. Box 151
Manchester, Connecticut 06045-0151
(860) 646-1233
LEONARD R. JASKOL
Chairman, President and Chief
Executive Officer
[LOGO OF LYDALL, INC. APPEARS HERE]
March 27, 1998
Dear Lydall Stockholders:
I am pleased to enclose Lydall's Annual Report describing the Company's op-
erations and results for the past year. We hope you find it to be an informa-
tive summary of major developments during 1997.
We appreciate your continuing interest in Lydall and invite you to attend
the Company's Annual Meeting to be held on Wednesday, May 13, 1998 at 11:00
a.m. at The Hartford Club located at 46 Prospect Street in Hartford, Connecti-
cut. 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 EN-
CLOSED PROXY CARD PROMPTLY TO ENSURE THAT YOUR SHARES WILL BE VOTED.
Sincerely,
/s/ Leonard R. Jascol
<PAGE>
[LOGO OF LYDALL APPEARS HERE]
--------------------------------------------
NOTICE OF ANNUAL MEETING
--------------------------------------------
TO BE HELD MAY 13, 1998
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 13, 1998, at
11:00 a.m. E.D.T. for the following purposes:
1. To elect ten Directors to serve for one-year terms until the next
Annual Meeting to be held in 1999.
2. 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 A. Tremblay
MARY A. TREMBLAY
General Counsel and Secretary
Manchester, CT
March 27, 1998
<PAGE>
[LOGO OF LYDALL APPEARS HERE]
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, 1998 in connection with the solicitation by the Board of Di-
rectors of Lydall of proxies to be voted at the Annual Meeting of Stockhold-
ers. The Annual Meeting will be held on Wednesday, May 13, 1998 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 the
election of all nominees for Directors of the Company to serve for terms of
one year until the Annual Meeting in 1999. 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 re-
voked. A proxy may be revoked at any time before it is exercised by (a) noti-
fying 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 RE-
TURNED to the Company will be voted "FOR" the nominees for the Board of Direc-
tors named in the proxy.
Under the applicable provisions of the Company's By-laws, the presence, ei-
ther 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. The election of directors
requires the affirmative vote of the holders of a majority of the shares pres-
ent 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
<PAGE>
in determining whether a matter has been approved by stockholders. Absten-
tions, 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.
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 interest 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 ma-
terials 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 solic-
iting firm, the Company's Directors, officers and other employees, without ad-
ditional remuneration, may solicit proxies by telephone and personal inter-
views.
Only holders of record of Lydall's Common Stock, par value $.10 per share
("Common Stock"), at the close of business on March 16, 1998 are entitled to
vote at the meeting. On that date there were 16,068,885 shares of Common Stock
outstanding, the holders of which are entitled to one vote per share.
ELECTION OF LYDALL DIRECTORS
- -------------------------------------------------------------------------------
The Board of Directors has nominated Messrs. Lee A. Asseo, Samuel P. Cooley,
W. Leslie Duffy, Leonard R. Jaskol, Joel Schiavone, Roger M. Widmann and Al-
bert E. Wolf for re-election as Directors of the Company for a term of one
year until the next Annual Meeting to be held in 1999.
The Board of Directors has also nominated Elliott F. Whitely for re-election
as a Director of the Company, to serve a term of one year until the next An-
nual Meeting in 1999. Mr. Whitely, a former Division President of Lydall Tech-
nical Papers, reduced his role to less than full time working on special pro-
jects, beginning January 1, 1998, due to
2
<PAGE>
personal health reasons. The Company believes Mr. Whitely's invaluable knowl-
edge of the business and markets of Lydall gained during the twenty-three
years he has spent with the Company will be a significant asset to the Board
of Directors.
Also, management has proposed and the Board of Directors has unanimously
voted to nominate, for election as Directors to serve for one-year terms, two
additional senior management officers, Christopher R. Skomorowski and John J.
Worthington. The one-year term will run until the next Annual Meeting to be
held in 1999. The rotation of two senior managers on the Board 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 ob-
serve 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 Com-
pany 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. As of the
Record Date, there was one vacancy. The Company is actively seeking qualified
candidates for nomination.
Additional nominations for Directors may be made from the floor by stock-
holders who attend the meeting, including nominations for persons to fill the
Board vacancy. It is the intention of the Proxy Committee of the Board of Di-
rectors to vote only for the Director nominees described on pages 4 through 6
of this Proxy Statement. Proxies cannot be voted for a greater number of per-
sons than the number of nominees named.
All nominees have indicated that they are willing and able to serve as Di-
rectors if elected. If any of such nominees should become unable or unwilling
to serve, the Proxy Committee intends to vote for the replacement or replace-
ments 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.
3
<PAGE>
- -------------------------------------------------------------------------------
BOARD OF DIRECTORS
- -------------------------------------------------------------------------------
Nominees for election at the next Annual Meeting to serve for a term of one
year, until 1999:
- -------------------------------------------------------------------------------
LEE A. ASSEO, 60, is a retired Chairman of the Board and Chief Executive Offi-
cer 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 1997, Mr. Asseo served as Chairman of the Nominating Committee
and as a member of the Compensation and Stock Option Committee.
- -------------------------------------------------------------------------------
SAMUEL P. COOLEY, 66, 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 1997, he served as Chairman of the
Audit Committee and as a member of the Pension Committee.
- -------------------------------------------------------------------------------
W. LESLIE DUFFY, 58, 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 1997, Mr. Duffy served as Chairman of the Pension Committee and a
member of the Development Committee.
- -------------------------------------------------------------------------------
4
<PAGE>
LEONARD R. JASKOL, 61, 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 Composite Mate-
rials, 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 1997, Mr. Jaskol served as Chairman of the De-
velopment Committee and as a member of the Executive and Nominating Commit-
tees.
- -------------------------------------------------------------------------------
JOEL SCHIAVONE, 61, has been Chief Executive Officer of The Schiavone Corpora-
tion, a diversified holding company, since 1981, and a Lydall Director since
1983. During 1997, Mr. Schiavone served as a member of the Executive Commit-
tee.
- -------------------------------------------------------------------------------
ROGER M. WIDMANN, 58, is a Principal of Tanner & Co. Inc., an investment bank-
ing firm. Formerly, Mr. Widmann was Senior Managing Director, Corporate Fi-
nance, of Chemical Securities, Inc. He joined Chemical Bank, (now Chase Man-
hattan 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 1997, Mr. Widmann served as Chairman
of the Compensation and Stock Option Committee and as a member of the Develop-
ment Committee.
- -------------------------------------------------------------------------------
ALBERT E. WOLF, 68, is Chairman of the Board and a Director of Checkpoint Sys-
tems, 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 1997, Mr. Wolf served as a member of the
Compensation and Stock Option Committee and as a member of the Audit Commit-
tee.
- -------------------------------------------------------------------------------
5
<PAGE>
- -------------------------------------------------------------------------------
NOMINEES FROM SENIOR MANAGEMENT:
- -------------------------------------------------------------------------------
CHRISTOPHER R. SKOMOROWSKI, 44, is the President of the Westex Division of a
subsidiary of Lydall, based in Hamptonville, North Carolina, a position he has
held since 1991. From 1983 to 1984 he was Division Controller of the Westex
Division of Lydall. He was then promoted to Marketing Manager of that Division
in 1984 in which capacity he served until 1990. He joined the Company in 1978
as Manager of Internal Auditing at the Corporate Office.
- -------------------------------------------------------------------------------
ELLIOTT F. WHITELY, 54, was the President of the Technical Papers Division of
a subsidiary of the Company located in Rochester, New Hampshire until December
31, 1997, a position he had held since 1987. He joined Lydall in 1974 and
later served as Vice President of Development and Technology for that Divi-
sion, until he became President of that Division. As described above, Mr.
Whitely has stepped down as Division President but will continue as an em-
ployee on special projects for Lydall Technical Papers.
- -------------------------------------------------------------------------------
JOHN J. WORTHINGTON, 49, is the President of the Composite Materials Division
of a subsidiary of Lydall, located in Hoosick Falls, New York and Covington,
Tennessee, a position he has held since 1996, when he joined Lydall. Prior to
joining Lydall, he held the position of General Manager of Eudura Products, a
division of Specialty Paperboard, Inc., formerly part of W.R. Grace and Co.
since 1988. He began his career at W.R. Grace in 1976.
- -------------------------------------------------------------------------------
6
<PAGE>
ACTIVITIES OF THE BOARD OF DIRECTORS AND CERTAIN
COMMITTEES OF THE BOARD
- -------------------------------------------------------------------------------
The Board of Directors held six meetings during 1997. All Directors attended
all of the meetings of the Board, with the exception of Mr. Wolf who attended
five of the meetings. All Directors attended all meetings of any committees on
which they served, except for Mr. Lyons who attended all except one meeting of
his respective committees.
The Company's Board of Directors has six standing committees: Audit, Devel-
opment, 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 divi-
sion 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 rec-
ommendations 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 1997, the Audit Committee held two meetings; the Development Commit-
tee held no meetings; the Compensation and Stock Option Committee held two
meetings and acted by unanimous written consent on three occasions; the
7
<PAGE>
Pension Committee held no meetings and acted by unanimous written consent on
one occasion; and the Nominating Committee and the Executive Committee held no
meetings.
During 1997, Directors who were not employees of the Company or otherwise
compensated by the Company were paid $1,000 for each meeting of the Board of
Directors attended, as well as $500 for any committee meeting held on a day
other than the day on which a Board meeting was held. In addition, the 1992
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 1992 Plan.
From 1991 through 1997, the Company has maintained a Deferred Compensation
Plan for outside Directors and the Chairman (the "Deferred Compensation
Plan"). The Deferred Compensation Plan was discontinued in 1997, and no fur-
ther benefits will accrue thereunder. 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 num-
ber 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. All benefits are
fully vested.
In accordance with the amendment and restatement of the 1992 Plan, the pay-
ment of the current $16,000 retainer is in the form of unrestricted shares of
Common Stock rather than cash, and there is an 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.
8
<PAGE>
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.
During 1997, Directors Cooley, Widmann and Wolf each exercised their remain-
ing warrants for 10,110 shares at an exercise price of $1.855 per share. There
are no remaining warrants outstanding under the Warrant Plan.
TRANSACTIONS WITH DIRECTORS
During 1997, Cahill Gordon & Reindel, of which Director W. Leslie Duffy is a
partner, was engaged by the Company as special counsel for limited matters.
9
<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 Com-
mon 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 per-
son 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, 1998.
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND NATURE OF OF
NAME BENEFICIAL OWNERSHIP CLASS
- ------------------------------------------------------------------------------
<C> <C> <S> <C>
Lee A. Asseo 15,801 Direct
Director 18,000 (Exercisable under 1982 Stock Incentive
Compensation Plan)
10,069 (Exercisable under 1992 Stock Incentive
Compensation Plan)
43,870 *
=======
- ------------------------------------------------------------------------------
Paul S. 7,422 Direct
Buddenhagen 12,000 (Exercisable under 1982 Stock
Director Incentive Compensation Plan)
10,069 (Exercisable under 1992 Stock Incentive
Compensation Plan)
-------
29,491 *
=======
- ------------------------------------------------------------------------------
James P. Carolan 53,917 Direct
Division President 8,719 Indirect (Spouse)
Director 25,000 (Exercisable under 1982 Stock Incentive
Compensation Plan)
45,602 (Exercisable under 1992 Stock Incentive
Compensation Plan)
21,500 (Allocated under Lydall Profit Sharing
Plan)/(1)/
-------
154,738 1.0
=======
- ------------------------------------------------------------------------------
Samuel P. Cooley 3,801 Direct
Director 18,000 (Exercisable under 1982 Stock Incentive
Compensation Plan)
10,069 (Exercisable under 1992 Stock Incentive
Compensation Plan)
-------
31,870 *
=======
- ------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND NATURE OF OF
NAME BENEFICIAL OWNERSHIP CLASS
- -----------------------------------------------------------------------
<C> <C> <S> <C>
W. Leslie Duffy 801 Direct
Director 9,000 (Exercisable under 1982 Stock
Incentive Compensation Plan)
10,069 (Exercisable under 1992 Stock
Incentive Compensation Plan)
-------
19,870 *
=======
- -----------------------------------------------------------------------
Christopher R. 41,977 Direct
Skomorowski 15,200 (Exercisable under 1982 Stock
Division President Incentive Compensation Plan)
Nominee for Director
68,875 (Exercisable under 1992 Stock
Incentive Compensation Plan)
16,488 (Allocated under Lydall
Profit Sharing Plan) /(1)/
-------
142,540 *
=======
- -----------------------------------------------------------------------
Leonard R. Jaskol 326,203 Direct
Chairman of the
Board, 146,388 (Exercisable under 1982 Stock
Chief Executive Offi-
cer Incentive Compensation Plan)
54,837 (Exercisable under 1992 Stock
Incentive Compensation Plan)
59,528 (Allocated under Lydall
Profit Sharing Plan) /(1)/
-------
586,956 3.7
=======
- -----------------------------------------------------------------------
Raymond J. Lanzi 145,897 Direct
Division President 4,500 (Exercisable under 1982 Stock
Incentive Compensation Plan)
38,511 (Exercisable under 1992 Stock
Incentive Compensation Plan)
31,384 (Allocated under Lydall
Profit Sharing Plan) /(1)/
-------
220,292 1.4
=======
- -----------------------------------------------------------------------
William P. Lyons 28,505 Direct
Director 3,319 (Exercisable under 1992 Stock
Incentive Compensation Plan)
-------
31,824 *
=======
- -----------------------------------------------------------------------
William J. Rankin 16,567 Direct
Division President 12,000 (Exercisable under 1982 Stock
Incentive Compensation Plan)
65,087 (Exercisable under 1992 Stock
Incentive Compensation Plan)
9,920 (Allocated under Lydall
Profit Sharing Plan) /(1)/
-------
103,574 *
=======
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND NATURE OF OF
NAME BENEFICIAL OWNERSHIP CLASS
- ------------------------------------------------------------------------------
<C> <C> <S> <C>
Joel Schiavone 801 Direct
Director 4,528 Indirect (Spouse)
18,000 (Exercisable under 1982 Stock
Incentive Compensation Plan)
10,069 (Exercisable under 1992 Stock
Incentive Compensation Plan)
---------
33,398 *
=========
- ------------------------------------------------------------------------------
Elliott F. Whitely 148,019 Direct
Former Division Pres- 34,104 (Exercisable under 1992 Stock
ident, Director Incentive Compensation Plan)
32,534 (Allocated under Lydall
Profit Sharing Plan) /(1)/
---------
214,657 1.3
=========
- ------------------------------------------------------------------------------
Roger M. Widmann 54,637 Direct
Director 450 Indirect (Spouse)
18,000 (Exercisable under 1982 Stock
Incentive Compensation Plan)
10,069 (Exercisable under 1992 Stock
Incentive Compensation Plan)
---------
83,156 *
=========
- ------------------------------------------------------------------------------
Albert E. Wolf 5,911 Direct
Director 2,000 Indirect (Spouse)
18,000 (Exercisable under 1982 Stock
Incentive Compensation Plan)
10,069 (Exercisable under 1992 Stock
Incentive Compensation Plan)
---------
35,980 *
=========
- ------------------------------------------------------------------------------
John J. Worthington 1,208 Direct
Division President 3,125 (Exercisable under 1992 Stock
Nominee for Director Incentive Compensation Plan)
---------
4,333 *
=========
- ------------------------------------------------------------------------------
</TABLE>
Lydall Profit Sharing Plan 1,112,602/(1)/ 6.9
c/o CoreStates Bank, N.A.
1500 Market Street
P.O. Box 13839
Philadelphia, PA 19101-3839
- --------------------------------------------------------------------------------
12
<PAGE>
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND NATURE OF OF
NAME BENEFICIAL OWNERSHIP CLASS
- ----------------------------------------------------
<C> <C> <S>
Stein, Roe & Farnham 983,000/(2)/ 6.1
Incorporated
One South Wacker
Drive
Chicago, IL 60606-
4685
- ----------------------------------------------------
Westport Asset 1,042,710/(3)/ 6.5
Management, Inc.
253 Riverside Avenue
Westport, CT 06880
- ----------------------------------------------------
All Directors and 1,898,791/(4)/ 11.8
Executive Officers as a
Group (20 persons)
- ----------------------------------------------------
</TABLE>
* Indicates that the Director/Officer owns less than 1 percent of the out-
standing 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 re-
spect to the shares is exercised by the participating employee.
/(2)/As reported in Schedule 13G filed with the Securities and Exchange Commis-
sion on February 11, 1998.
/(3)/As reported in Schedule 13G filed with the Securities and Exchange Commis-
sion on February 20, 1998.
/(4)/Of the 1,898,791 shares, 289,396 are exercisable under the 1982 Stock In-
centive Compensation Plan, and 478,588 are exercisable under the 1992
Stock Incentive Compensation Plan.
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 Perfor-
mance Plan, or cash bonus program, and the Lydall, Inc. Stock Incentive Com-
pensation 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.
The Committee is guided by the following principles in determining the com-
pensation levels of the senior executives named
13
<PAGE>
in the Summary Compensation Table -- Messrs. Skomorowski, Rankin, Whitely and
Lanzi, 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 com-
petitive levels of compensation that are closely integrated with the Company's
annual and long-term performance goals. Lydall's goal is to achieve above-av-
erage, consistent corporate performance and it recognizes individual initia-
tive and achievements that lead to the accomplishment of that goal. The Com-
pany 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 disap-
pointing 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 di-
rect 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 diver-
sified manufacturers of similar size, as determined by independently published
compensation surveys.
14
<PAGE>
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.
Mr. Jaskol's base salary was approved at the December 1997 Board meeting to
be effective January 1, 1998 through 1999. Mr. Jaskol's salary will be re-
viewed again at the end of 1999. 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 finan-
cial management of the Company over the past several years. The Committee mea-
sures 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. Skomorowski, Rankin, Whitely and
Lanzi. Mr. Skomorowski's salary level was set at the end of 1996 for two years
until the end of 1998. The salary levels for Mr. Rankin, Mr. Worthington and
Mr. Lanzi were set at the end of 1997 for two years until the end of 1999.
INDIVIDUAL PERFORMANCE AWARDS. The bonus portion of Lydall's executive com-
pensation 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 Compensa-
tion Table, excluding Mr. Jaskol, are eligible to receive a bonus of up to
62.5 percent of their base salary.
In 1997, 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. These levels were not attained in 1997, and thus,
Mr. Jaskol did not receive his maximum bonus for the year.
15
<PAGE>
Individual performance awards, or bonuses, for all division presidents are
based two-thirds on personal milestones relating to the results of their divi-
sion together with each division's contribution to the overall results of the
Company, and one-third on corporate earnings-per-share targets. Mr.
Skomorowski's, Mr. Rankin's, Mr. Whitely's and Mr. Lanzi's bonuses were based
on this formula for 1997. Not all of the divisions met 1997's performance tar-
gets, and thus, individual bonuses varied for the year.
STOCK OPTION AWARDS. The Committee has determined certain appropriate levels
of common stock 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 addi-
tion 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 25,325 shares of Lydall, Inc.
Common Stock in 1997. He now holds options covering a total of 203,999 shares
of Common Stock, 142,233 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 maxi-
mizing 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.
In 1997, Mr. Lanzi and Mr. Rankin each received an option grant covering
7,500 shares, and Mr. Skomorowski received an option grant covering 10,000
shares of Common Stock. Mr. Whitely did not receive an option grant in 1997.
LIMITATION ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Internal Rev-
16
<PAGE>
enue Code of 1986, as amended. Section 162(m) generally denies a publicly held
corporation, such as the Company, a federal income tax deduction for compensa-
tion 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 di-
rector requirements are met.
Because of the fact that the compensation paid to each of the Company's ex-
ecutive officers has not exceeded $1 million per year, the Committee does not
believe that the limitation on deductibility of executive compensation is cur-
rently material to the Company. The Committee will continue to review the sit-
uation 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. Wid-
mann, Lee A. Asseo, and Albert E. Wolf, -- have interlocking relationships
with the Company, and all are outside directors.
17
<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 $100 on December 31, 1992, including reinvestment of dividends.
[LINE GRAPH APPEARS HERE]
DATE LYDALL, INC. S&P INDUSTRIALS RUSSELL 2000
----- ------------ --------------- ------------
12/92 100 100 100
12/93 109 108 119
12/94 164 113 117
12/95 229 152 150
12/96 227 187 175
12/97 197 246 214
18
<PAGE>
SUMMARY COMPENSATION TABLE
The following table shows the compensation either paid or allocated by the
Company for the past three years through December 31, 1997 to the Chief Execu-
tive Officer of the Company and each of the four other most highly compensated
executive officers of the Company.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------
--------------------------------------------------------------
AWARDS PAYOUTS
----------------- -------------
--
(A) (B) (C) (D) (E) (F) (G) (H) (I)
SECUR-
ITIES
OTHER RE- UNDER- ALL
NAME ANNUAL STRICTED LYING LTIP OTHER
AND COMPEN- STOCK OPTIONS/ PAY- COMPEN-
PRINCIPAL YEAR SALARY BONUS SATION AWARDS SARS OUT SATION
POSITION ($) ($) ($)/(1)/ ($) (#)/(2)/ ($) ($)/(3)/
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
L.R. Jaskol 1997 499,999 127,500 49,802 0 25,325/0 0 68,422
CEO & 1996 499,999 375,000 51,559 0 19,278/0 0 68,289
Chairman of 1995 400,000 300,000 40,654 0 15,000/0 0 54,804
the Board
- -----------------------------------------------------------------------------------
C.R. Skomorowski 1997 250,000 117,500 7,203 0 10,000/0 0 23,065
Division 1996 200,000 125,000 4,781 0 7,500/0 0 18,177
President 1995 200,000 41,950 4,860 0 7,500/0 0 18,085
- -----------------------------------------------------------------------------------
W.J. Rankin 1997 230,000 69,412 6,911 0 7,500/0 0 24,905
Division 1996 180,000 79,830 4,465 0 8,278/0 0 19,983
President 1995 180,000 89,025 4,465 0 13,036/0 0 19,096
- -----------------------------------------------------------------------------------
E.F. Whitely 1997 250,000 32,709 8,100 0 0/0 0 26,890/(4)/
Division 1996 250,000 78,751 7,171 0 9,419/0 0 24,611/(4)/
President & 1995 200,000 125,000 5,701 0 7,500/0 0 22,560/(4)/
Director
- -----------------------------------------------------------------------------------
R.J. Lanzi 1997 250,000 17,709 12,530 0 7,500/0 0 35,489
Division 1996 250,000 85,001 11,164 0 7,500/0 0 32,191
President 1995 200,000 125,000 24,964 0 7,500/0 0 25,757
- -----------------------------------------------------------------------------------
</TABLE>
/(1)/None of the named executive officers received perquisite and other per-
sonal benefits in excess of the lesser of $50,000 or 10 percent of his to-
tal 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 1997 ($12,800), 1996 ($12,000), 1995 ($12,000); C.R.
Skomorowski 1997 ($12,800), 1996 ($12,000), 1995 ($12,000); W.J. Rankin
1997 ($12,800), 1996 ($12,000), 1995 ($12,000); E.F. Whitely 1997
($12,800), 1996 ($12,000), 1995 ($12,000); R.J. Lanzi 1997 ($12,800),
1996 ($12,000), 1995 ($12,000).
19
<PAGE>
The Employee Stock Purchase Plan:
L.R. Jaskol 1997 ($600), 1996 ($600), 1995 ($600); C.R. Skomorowski
1997 ($600), 1996 ($600), 1995 ($600); W.J. Rankin 1997 ($600), 1996
($600), 1995 ($600); E.F. Whitely 1997 ($600), 1996 ($600), 1995
($583); R.J. Lanzi 1997 ($600), 1996 ($600), 1995 ($600).
Life Insurance premiums:
L.R. Jaskol 1997 ($43,988), 1996 ($44,630), 1995 ($31,337); C.R.
Skomorowski 1997 ($4,794), 1996 ($2,579), 1995 ($2,766); W.J. Rankin
1997 ($6,022), 1996 ($3,092), 1995 ($2,919); E.F. Whitely 1997
($8,512), 1996 ($7,178), 1995 ($5,499), R.J. Lanzi 1997 ($14,874), 1996
($12,912), 1995 ($9,971).
Long-Term Disability premiums:
L.R. Jaskol 1997 ($11,034), 1996 ($11,059), 1995 ($10,867); C.R.
Skomorowski 1997 ($4,871), 1996 ($2,998), 1995 ($2,719); W.J. Rankin
1997 ($5,483), 1996 ($4,292), 1995 ($3,577); E.F. Whitely 1997
($4,666), 1996 ($4,521), 1995 ($4,166); R.J. Lanzi 1997 ($7,215), 1996
($6,679), 1995 ($3,186).
(/4)/In 1997, 1996 and 1995, Mr. Whitely received a nonsmoking bonus of $312 in
accordance with the policy for his location.
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 ta-
bles.
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 partic-
ipant's annual eligible earnings, (subject to limitations imposed by the In-
ternal 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 ap-
pointed 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 re-
duced bene-
20
<PAGE>
fits are available at age 55 if the participant has ten years of service.
Messrs. Jaskol, Skomorowski, Rankin, Whitely and Lanzi are expected to receive
annual benefits upon retirement at normal retirement age (assuming salary in-
creases of 4 percent per year for Mr. Jaskol and 5 percent per year for the
others) in the amounts of $79,763, $130,736, $131,261, $39,331, and $68,541
respectively. The aforementioned amounts are not subject to any further reduc-
tions 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 cer-
tain 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 pay-
ments 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 in-
vested 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 re-
tirement 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 2,420,000 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.
21
<PAGE>
STOCK OPTION TABLES
The following table provides information regarding stock options granted to
the named executive officers during 1997. In addition, in accordance with Se-
curities 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 ulti-
mate 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 exec-
utives, but all stockholders.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZED VALUE
AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION
FOR
INDIVIDUAL GRANTS OPTION TERM (*)
---------------------------------------------- ---------------
(A) (B) (C) (D) (E) (F) (G)
NUMBER OF % OF
SECURITIES TOTAL
UNDERLYING OPTIONS/
OPTIONS/ SARS EXERCISE
SARS GRANTED TO OR BASE EXPIRA-
GRANTED EMPLOYEES PRICE TION
(#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
L.R. Jaskol 25,000/(1)//0 $19.8125 12/02/07 311,497 789,398
325/(2)//0 $19.0000 12/30/07 3,883 9,841
-------------
25,325 16.25/0
- --------------------------------------------------------------------------------
C.R. Skomorowski 10,000/(1)//0 6.42/0 $19.8125 12/02/07 124,598 315,758
- --------------------------------------------------------------------------------
W.J. Rankin 7,500/(1)//0 4.81/0 $19.8125 12/02/07 93,449 236,819
- --------------------------------------------------------------------------------
E.F. Whitely 0/0 0 0 0 0 0
- --------------------------------------------------------------------------------
R.J. Lanzi 7,500/(1)//0 4.81/0 $19.8125 12/02/07 93,449 236,819
- --------------------------------------------------------------------------------
</TABLE>
(*) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises and Common Stock holdings are de-
pendent on the future performance of the Common Stock and overall stock
market conditions.
/(1)/ Exercisable 25% 12/3/98; 50% 12/3/99; 75% 12/3/00; 100% 12/3/01.
/(2)/ Exercisable one-third 12/31/98; two-thirds 12/31/99; 100% 12/31/00.
22
<PAGE>
The following table shows stock option exercises by the named officers dur-
ing 1997, including the aggregate value of gains on the date of exercise. In
addition, this table includes the number of shares covered by both exercisable
and nonexercisable stock options as of December 31, 1997. Also reported are
the values for "in-the-money" options which represent the positive spread be-
tween the exercise price of any such existing stock options and the year-end
price of Common Stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(D)
NUMBER OF (E)
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
(A) (B) (C) AT FY-END (#) AT FY-END ($)
- --------------------- ------------ ------------ -------------- ----------------
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
L.R. Jaskol.......... 54,612 992,136 201,225/61,766 2,462,117/86,657
C.R. Skomorowski..... 10,000 122,920 74,511/34,689 546,322/106,427
W.J. Rankin.......... 12,000 195,504 76,631/24,183 562,102/14,613
E.F. Whitely......... 33,000 380,016 34,104/13,815 186,752/6,750
R.J. Lanzi........... 0 0 43,011/19,875 280,241/6,750
- -------------------------------------------------------------------------------
</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 ad-
ministered by the Stock Option and Compensation Committee of the Board of Di-
rectors. Performance awards depend upon individual performance and achievement
of specified objectives. Individual awards, which may vary from 5 to 75 per-
cent of base salary, are paid during the first quarter of the following year.
Amounts earned in 1997, whether paid to or deferred by the persons included in
the Summary Compensation Table, are included in the amounts shown in such Ta-
ble.
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 op-
portunity to purchase Common Stock through regular
23
<PAGE>
payroll deductions. Lydall contributes 33 1/3 percent of each employee's con-
tribution up to $150 a month. Purchases are made on the open market by a bro-
kerage 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 negotiat-
ed. 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. Gen-
erally, participants may contribute up to 10 percent of their total compensa-
tion 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
for the plan year 1997.
OTHER EMPLOYEE BENEFIT PLANS REMUNERATION
Lydall provides group life insurance of two to five times salary, and Acci-
dental 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, con-
sists of an individual Universal Life Policy which is owned by the covered in-
dividual. With respect to Mr. Jaskol, the only senior officer eligible for in-
surance 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 per-
cent 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 in-
24
<PAGE>
tended 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 15 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 partici-
pant's compensation in excess of the limitation imposed by the Internal Reve-
nue 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 Compensa-
tion Table who are fully vested. Messrs. Jaskol, Skomorowski, Rankin, Whitely
and Lanzi are expected to receive annual benefits upon retirement at normal
retirement age in the amount of $179,677, 74,405, 74,945, -0-, and -0- respec-
tively.
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 Execu-
tive Officer of the Company. The first such loan is scheduled to mature on
January 1, 2000, or whenever Mr. Jaskol terminates his employment, whichever
is sooner. The loan is an unsecured term loan that is currently bearing inter-
est at the rate of 8.5 percent. During 1997, the highest unpaid principal bal-
ance of this loan was $24,340, which also was the unpaid principal balance as
of March 16, 1998. The other loan is for $150,000, bearing interest at 8.5
percent per annum on the unpaid balance of the note and maturing on January 1,
2000. The note is secured by 27,414 shares of Lydall Common Stock owned by
Mr. Jaskol. During the period from January 1, 1997 through December 31, 1997,
the highest unpaid principal balance of this loan was $150,000, which also was
the unpaid principal bal-
25
<PAGE>
ance as of March 18, 1998. The Company grosses up Mr. Jaskol's salary to reim-
burse 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 inter-
est 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 Finance and Treasurer John E.
Hanley; (iv) Vice President Investor Relations Carole F. Butenas; (v) General
Counsel and Secretary Mary A. Tremblay and (vi) Director, Human Resources 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 an incentive for the continued employment of each such executive
officer in the event that he or she could be forced to resign or otherwise re-
placed (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 agree-
ments 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 Peri-
od." During the Employment Period, each covered executive would be en-
26
<PAGE>
titled 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, and the Vice President-Finance and Treasurer, the pe-
riod 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 con-
trol 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 regu-
lations 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 representa-
tions that no reports were required, the Company believes that, during 1997,
all filing requirements applicable to its Directors, officers and greater than
10 percent stockholders were satisfied, except that two Form 4s, each covering
a single transaction, were filed late for Director Wolf, by one and two
months, respectively.
APPOINTMENT OF AUDITORS
The Board of Directors approved, upon recommendation of the Audit Committee,
Coopers & Lybrand, L.L.P. as inde-
27
<PAGE>
pendent accountants to the Company for the year ended December 31, 1997. 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 ac-
cordance 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, 1999 must be received by
the Company by November 27, 1998 in order to be included in the Proxy State-
ment and on the proxy card relating to the 1999 Annual Meeting.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR 1997 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.
28
<PAGE>
PROXY
LYDALL, INC.
The undersigned hereby appoints Samuel P. Cooley, W. Leslie Duffy and
Leonard R. Jaskol, 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 13, 1998 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, 1998 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. ELECTION OF FOR WITHHELD NOMINEES: Lee A. Asseo
DIRECTORS [_] [_] Samuel P. Cooley
W. Leslie Duffy
Leonard R. Jaskol
Joel Schiavone
Christopher R. Skomorowski
Elliott F. Whitely
Roger M. Widmann
Albert E. Wolf
John J. Worthington
2. In their discretion, such other business as 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 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
title. If the signer is a corporation, sign in the corporate name by a
duly authorized officer.
