<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
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.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
LYDALL, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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:
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<PAGE>
[LOGO]
PROXY
STATEMENT
1999 PROXY STATEMENT
--------------------------------
NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1999
<PAGE>
One Colonial Road
P.O. Box 151
Manchester, Connecticut 06045-0151
(860) 646-1233
CHRISTOPHER R. SKOMOROWSKI
President and Chief Executive Officer
[LOGO]
March 30, 1999
Dear Lydall Stockholders:
I am pleased to enclose Lydall's Annual Report describing the Company's
operations and results for the past year. We appreciate your continuing interest
in Lydall and invite you to attend the Company's Annual Meeting to be held on
Wednesday, May 12, 1999 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.
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,
/s/ CHRISTOPHER R. SKOMOROWSKI
---------------------------------------------------------------------
Christopher R. Skomorowski
<PAGE>
[LOGO]
------------------------------------
NOTICE OF ANNUAL MEETING
------------------------------------
TO BE HELD MAY 12, 1999
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 12, 1999, at
11:00 a.m. E.D.T. for the following purposes:
1. To elect 8 Directors to serve for one-year terms until the next Annual
Meeting to be held in 2000.
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
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, Connecticut
March 30, 1999
<PAGE>
[LOGO]
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 30, 1999 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 12, 1999 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 2000. 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 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. The election of directors
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
<PAGE>
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 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 15, 1999 are entitled to
vote at the meeting. On that date there were 15,725,703 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, David Freeman, Christopher R. Skomorowski, Elliott F. Whitely,
Roger M. Widmann and Albert 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 2000.
The Company has decided to discontinue the continuing rotation of two senior
managers on the Board. The only nominee for Director who is a current employee
of the Company is the Chief Executive Officer, Christopher R. Skomorowski. 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
2
<PAGE>
establish the number of directorships between 3 and 15. The Board of Directors
has currently fixed the number of directorships at 8. As of the Record Date,
there were no vacancies.
Additional nominations for Directors may be made from the floor by
stockholders who attend the meeting. It is the intention of the Proxy Committee
of the Board of Directors to vote only for the Director nominees described on
pages 3 through 5 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.
- ----------------------------------------------------------------
BOARD OF DIRECTORS
- ----------------------------------------------------------------
Nominees for election at the next Annual Meeting to serve for a term of one
year, until 2000:
- ----------------------------------------------------------------
LEE A. ASSEO, 61, is, as of June 1996, the 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 1998, Mr. Asseo served as Chairman of the
Nominating Committee and as a member of the Compensation and Stock Option and
Audit Committees.
- ----------------------------------------------------------------
SAMUEL P. COOLEY, 67, 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 1998, he served as Chairman of the
Audit Committee and as a member of the Pension Committee.
- ----------------------------------------------------------------
3
<PAGE>
W. LESLIE DUFFY, 59, 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 1998, Mr. Duffy served as Chairman of the Pension Committee, Chairman of
the Executive Committee and a member of the Development Committee.
- ----------------------------------------------------------------
DAVID FREEMAN, 54, is the Chairman and Chief Executive Officer of Loctite
Corporation. He has been with Loctite since 1974 when he joined as Financial
Director based in London. He advanced to Vice President, Loctite European Group
in Paris in 1979. Mr. Freeman came to the United States in 1981 when he was
promoted to Vice President Finance of Loctite International. He advanced to
Chief Financial Officer of Loctite Corporation in 1983, President of Loctite
North American Group in 1985, and Executive Vice President, Chief Operating
Officer and a member of Loctite's Board of Directors in 1990. He became
President of Loctite in 1991, added the Chief Executive Officer responsibilities
in April 1993, and was appointed Chairman in April 1996. He became a Lydall
Director in 1998.
- ----------------------------------------------------------------
CHRISTOPHER R. SKOMOROWSKI, 45, is the Chief Executive Officer and President of
Lydall, a position he has held since December 1998. 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 then became President of that Division in 1991. He joined the Company
in 1978 as Manager of Internal Auditing at the Corporate Office. He served as a
rotating senior management Director from 1994 to 1995 and then became a
non-rotating member in 1998. During 1998, Mr. Skomorowski served as a member of
the Executive and Nominating Committees.
- ----------------------------------------------------------------
ELLIOTT F. WHITELY, 55, is the retired President of the Technical Papers
Division of a subsidiary of the Company, a position he had held from 1987
through 1997. 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. He served as a rotating senior management Director from 1993 to 1994
and 1996 to 1997. He joined the Board in a non-rotating position in 1998. During
1998, Mr. Whitely served as a member of the Development Committee.
- ----------------------------------------------------------------
4
<PAGE>
ROGER M. WIDMANN, 59, was elected Chairman of the Board on December 29, 1998 and
is a Principal of Tanner & Co. Inc., an investment banking firm, a position he
has held since 1997. Formerly, Mr. Widmann was Senior Managing Director,
Corporate Finance, of Chemical Securities, Inc. He joined Chemical Bank, (now
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. Mr. Widmann has served as a Director of Weatherford Enterra,
Inc. Mr. Widmann has been a Lydall Director since 1974. During 1998, Mr. Widmann
served as Chairman of the Compensation and Stock Option Committee and as a
member of the Development and Nominating Committees.
- ----------------------------------------------------------------
ALBERT E. WOLF, 69, is the former Chairman of the Board and a current 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 1998, Mr. Wolf served as a member
of the Compensation and Stock Option and Audit Committees.
- ----------------------------------------------------------------
ACTIVITIES OF THE BOARD OF DIRECTORS AND CERTAIN
COMMITTEES OF THE BOARD
- ----------------------------------------------------------------
The Board of Directors held five meetings during 1998, one of which was a
teleconference Board Meeting. All current Directors attended all of the meetings
of the Board held while they were Directors, with the exception of one Director
who attended four of the five meetings. All Directors attended all meetings of
any committees on which they served.
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, in certain circumstances, acquisitions and joint ventures.
The Compensation and Stock Option Committee: (i) reviews the executive
5
<PAGE>
compensation of officers of the Company at the division president level and
above; (ii) approves various contracts with officers; and (iii) 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 "1992 Plan"). The Pension Committee considers matters 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 intervals between its meetings on all matters other than those that are
specifically reserved to the full Board under the applicable provisions of the
Delaware General Corporation Law and those specifically assigned by the Board of
Directors to its other committees.
During 1998, the Audit Committee held two meetings; the Development
Committee held no meetings; the Compensation and Stock Option Committee held no
meetings and acted by unanimous written consent on two occasions; the Pension
Committee held one meeting and acted by unanimous written consent on one
occasion; the Nominating Committee held one meeting and the Executive Committee
held no meetings.
During 1998, 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 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, 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 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 1996, the Company maintained a Deferred Compensation Plan
for
6
<PAGE>
outside Directors and the Chairman (the "Deferred Compensation Plan"). The
Deferred Compensation Plan was discontinued in 1996, and no further benefits
will accrue thereunder. All Directors who participated in this plan 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 for each full or partial
calendar year 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 through December 31, 1996. All benefits are fully
vested.
In accordance with the amendment and restatement of the 1992 Plan, the
payment 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.
TRANSACTIONS WITH DIRECTORS
During 1998, Cahill Gordon & Reindel, of which Director W. Leslie Duffy is a
partner, was engaged by the Company as special counsel for limited matters.
7
<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 beneficially 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 8, 1999.
<TABLE>
<CAPTION>
PERCENT
NATURE OF OF
NAME AMOUNT BENEFICIAL OWNERSHIP CLASS
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
Lee A. Asseo 19,034 Direct
Director and Nominee 18,000 (Exercisable under 1982 Stock
for Director Incentive Compensation Plan)
11,247 (Exercisable under 1992 Plan)
---------
48,281 *
---------
---------
- ---------------------------------------------------------------------------------
James P. Carolan 39,114 Direct
Executive Vice President and 8,953 Indirect (Spouse)
Division President 25,000 (Exercisable under 1982 Stock
Incentive Compensation Plan)
63,334 (Exercisable under 1992 Plan)
21,946 (Allocated under Lydall Profit
Sharing Plan)(1)
---------
158,347 1.0
---------
---------
- ---------------------------------------------------------------------------------
Samuel P. Cooley 5,034 Direct
Director and Nominee 18,000 (Exercisable under 1982 Stock
for Director Incentive Compensation Plan)
11,247 (Exercisable under 1992 Plan)
---------
34,281 *
---------
---------
- ---------------------------------------------------------------------------------
W. Leslie Duffy 3,034 Direct
Director and Nominee 9,000 (Exercisable under 1982 Stock
for Director Incentive Compensation Plan)
11,247 (Exercisable under 1992 Plan)
---------
23,281 *
---------
---------
- ---------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
PERCENT
NATURE OF OF
NAME AMOUNT BENEFICIAL OWNERSHIP CLASS
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
David Freeman 681 Direct
Director and Nominee
for Director
---------
681 *
---------
---------
- ---------------------------------------------------------------------------------
John E. Hanley 19,274 Direct
Vice President-Finance and 34,508 Indirect (Spouse)
Treasurer 18,000 (Exercisable under 1982 Stock
Incentive Compensation Plan)
60,528 (Exercisable under 1992 Plan)
13,288 (Allocated under Lydall Profit
Sharing Plan)(1)
---------
145,598 *
---------
---------
- ---------------------------------------------------------------------------------
Leonard R. Jaskol 394,739 Direct
former Chairman of the Board 48,000 (Exercisable under 1982 Stock
and Chief Executive Officer Incentive Compensation Plan)
84,247 (Exercisable under 1992 Plan)
59,974 (Allocated under Lydall Profit
Sharing Plan)(1)
---------
586,960 3.7
---------
---------
- ---------------------------------------------------------------------------------
Raymond J. Lanzi 93,094 Direct
Division President 4,500 (Exercisable under 1982 Stock
Incentive Compensation Plan)
47,136 (Exercisable under 1992 Plan)
31,830 (Allocated under Lydall Profit
Sharing Plan)(1)
---------
176,560 1.1
---------
---------
- ---------------------------------------------------------------------------------
Joel Schiavone 2,034 Direct
Director 2,247 (Exercisable under 1992 Plan)
---------
4,281 *
---------
---------
- ---------------------------------------------------------------------------------
Christopher R. Skomorowski 42,272 Direct
President, CEO, Director and 5,000 Indirect (Spouse)
Nominee for Director 15,200 (Exercisable under 1982 Stock
Incentive Compensation Plan)
80,875 (Exercisable under 1992 Plan)
16,934 (Allocated under Lydall Profit
Sharing Plan)(1)
---------
160,281 1.0
---------
---------
- ---------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PERCENT
NATURE OF OF
NAME AMOUNT BENEFICIAL OWNERSHIP CLASS
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Elliott F. Whitely 40,319 Direct
former Division President, 41,334 (Exercisable under 1992 Plan)
Director and Nominee for 32,980 (Allocated under Lydall Profit
Director Sharing Plan) (1) *
---------
114,633
---------
---------
- ---------------------------------------------------------------------------------
Roger M. Widmann 60,870 Direct
Chairman of the Board, 450 Indirect (Spouse)
Director and Nominee for 18,000 (Exercisable under 1982 Stock
Director Incentive Compensation Plan)
11,247 (Exercisable under 1992 Plan) *
---------
90,567
---------
---------
- ---------------------------------------------------------------------------------
Albert E. Wolf 7,144 Direct
Director and Nominee 2,000 Indirect (Spouse)
for Director 18,000 (Exercisable under 1982 Stock
Incentive Compensation Plan)
11,247 (Exercisable under 1992 Plan) *
---------
38,391
---------
---------
- ---------------------------------------------------------------------------------
John J. Worthington 2,405 Direct
Division President and 8,125 (Exercisable under 1992 Plan)
Director *
---------
10,530
---------
---------
- ---------------------------------------------------------------------------------
Lydall Profit Sharing Plan 1,095,732(1) 7.0
c/o First Union National Bank
123 South Broad Street
Philadelphia, PA 19101
- ---------------------------------------------------------------------------------
Westport Asset Management, 1,069,860(2) 6.8
Inc.
253 Riverside Avenue
Westport, CT 06880
- ---------------------------------------------------------------------------------
Dimensional Fund Advisors, 1,031,580(3) 6.6
Inc.
1299 Ocean Avenue, 11(th)
Floor
Santa Monica, CA 90401
- ---------------------------------------------------------------------------------
Oppenheimer Capital 826,105(4) 5.3
Oppenheimer Tower
World Financial Center
New York, NY 10281
- ---------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PERCENT
NATURE OF OF
NAME AMOUNT BENEFICIAL OWNERSHIP CLASS
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
All Directors and 1,774,279(5) 11.3
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 10, 1999.
(3) As reported in Schedule 13G filed with the Securities and Exchange
Commission on February 11, 1999.
(4) As reported in Schedule 13G filed with the Securities and Exchange
Commission on February 16, 1999.
(5) Of the 1,774,279 shares, 193,600 are exercisable under the 1982 Stock
Incentive Compensation Plan, and 533,652 are exercisable under the 1992
Plan.
11
<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
Awards, 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.
The Committee has been guided by the following principles in determining the
compensation levels of the senior executives named in the Summary Compensation
Table -- the Chief Executive Officer, Mr. Skomorowski, the former Chief
Executive Officer, Leonard R. Jaskol, and Messrs. Carolan, Lanzi, Worth- ington
and Hanley.
PHILOSOPHY
Lydall ties its executive compensation to the long-term goals and strategy
of the Company which are to regain the strength and profitability of the Company
and to protect and grow stockholder value through above-average, consistent
corporate performance. In 1998, incentive compensation was based on the
employee's operation's performance and progress made toward long-term goals.
Lydall's incentive compensation plans are in the process of being re-crafted to
base part of every eligible employee's bonus compensation on the earnings of the
Company as a whole. Those working for operating divisions will also have the
remainder based on their division's performance. This will further emphasize 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. 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
12
<PAGE>
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.
Prior to his resignation, Mr. Jaskol's base salary was approved at the
December 1997 Board meeting to be effective January 1, 1998 through December 31,
1999. However, as discussed below, Mr. Jaskol resigned from the Company. See
"Transactions with Management". The severance arrangement is more fully
described in that section of this Proxy Statement. In determining Mr. Jaskol's
compensation, the Committee in 1997 had considered pay levels among Chief
Executive Officers of diversified manufacturers similar in size to Lydall as
well as Mr. Jaskol's past contributions to the successful operating performance
and financial management of the Company over the past several years. The
Committee measured Mr. Jaskol's contributions by the Company's long-term
earnings growth, balance sheet strength, and management development.
When Mr. Skomorowski became Chief Operating Officer and President, effective
October 1, 1998, his salary was increased by 40 percent, to reflect a salary
commensurate
13
<PAGE>
with his new role and responsibilities, through December 31, 2000. Mr. Carolan's
salary was increased on May 16, 1998 by 8.6 percent when he was promoted to
Executive Vice President. In determining Mr. Skomorowski's and Mr. Carolan's
salaries, the Committee considered their individual performance and long-term
contributions to the Company.
A similar process was followed for setting the salary levels for Mr. Hanley,
Mr. Worthington and Mr. Lanzi, which 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
compensation is a key component of its management's total compensation packages.
In 1998 Individual Performance Award agreements ("IPAs") were based on
earnings-per-share targets and the accomplishment of individually defined
milestones. Threshold, and outstanding earnings-per-share targets are determined
by the Committee at the beginning of each year. Individual milestones were also
established annually, when applicable. As discussed above, the 1999 bonus
compensation program will be based on division and corporate earnings.
Companywide, the amounts for individual awards range from 5 percent to 75
percent of base salary. In 1998, the senior executives named in the Summary
Compensation Table, excluding Mr. Jaskol and Mr. Skomorowski, were eligible to
receive a bonus of up to 62.5 percent of their base salary. In 1998, 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 1998, and thus, Mr. Jaskol did not receive any
bonus for the year.
In 1998, Mr. Skomorowski was eligible to receive a bonus of up to 68.75
percent of his base salary provided that Lydall's performance reached or
surpassed the outstanding target levels. These levels were not attained in 1998,
and thus Mr. Skomorowski did not receive any 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.
Worthington's, Mr. Carolan's and Mr. Lanzi's bonuses were based on this formula
for 1998. Mr. Hanley's bonus was based solely on corporate earnings-per-share
targets. None of
14
<PAGE>
the divisions nor corporate earnings-per-share met 1998's performance targets,
and thus, no individual bonuses were paid.
STOCK OPTION AWARDS. To link the Company's performance with executive
compensation, the Committee has granted stock options towards achieving
appropriate levels of Common Stock ownership for executives. These levels 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, options vest over four
years; individuals must be employed by the Company at the time of vesting in
order to exercise the options.
In 1998, Mr. Jaskol did not receive option grants. He now holds options
covering a total of 164,603 shares of Common Stock, 132,247 of which were vested
as of the record date.
Upon being elected to the Board in 1998, Mr. Skomorowski received an option
grant covering 5,351 shares of Lydall, Inc. Common Stock. He now holds options
covering a total of 114,551 shares of Common Stock, 96,075 of which were vested
as of the record date. Mr. Skomorowski'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
grants to Mr. Skomorowski are also tied to his level of base salary and to the
long-term performance of the Company.
In 1998, Mr. Worthington, upon being elected to the Board, received an
option grant covering 5,351 shares of Common Stock. Mr. Lanzi, Mr. Hanley and
Mr. Carolan did not receive option grants in 1998.
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
15
<PAGE>
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 have
interlocking relationships with the Company and all are outside Directors.
16
<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, the Standard &
Poor's Small Cap 600 Index, and the Russell 2000 Index. Cumulative total return
is measured assuming an initial investment of $100 on December 31, 1993,
including reinvestment of dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DEC-93 DEC-94 DEC-95 DEC-96 DEC-97 DEC-98
<S> <C> <C> <C> <C> <C> <C> <C>
LYDALL, INC. $100 $152 $213 $211 $182 $111
S&P INDUSTRIALS $100 $104 $140 $172 $225 $301
S&P SMALLCAP 600 $100 $95 $124 $150 $189 $194
RUSSELL 2000 $100 $98 $126 $147 $180 $179
</TABLE>
Since Lydall, Inc. is included as a constituent of the Standard & Poor's
Small Cap 600 Index ("S&P 600"), the Company will use this index as a
performance comparison in place of the Standard & Poor's Industrial Index in
future years. The S&P 600 provides a better reflection of companies with market
capitalization similar to Lydall's.
Due to the diversity of niche businesses that Lydall participates in, it is
difficult to identify a reasonable peer group or one line-of-business index for
comparison purposes. Thus, Lydall has chosen to compare its performance to the
Russell 2000 Index, which is comprised of companies with similar market
capitalizations.
17
<PAGE>
SUMMARY COMPENSATION TABLE
The following table shows the compensation either paid or awarded by the
Company for the past three years through December 31, 1998 to Mr. Jaskol, the
former Chief Executive Officer of the Company and each of the four other most
highly compensated executive officers who were serving as executive officers as
of December 31, 1998. Also provided is the compensation either paid or awarded
by the Company for 1998 to Mr. Skomorowski, the current CEO.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUTS
----------------------------- -----------------------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
SECUR-
OTHER ITIES UNDER-
NAME ANNUAL RE- LYING ALL OTHER
AND COMPEN- STRICTED STOCK OPTIONS/ LTIP PAY- COMPEN-
PRINCIPAL SALARY BONUS SATION AWARDS SARS OUT SATION
POSITION YEAR ($) ($) ($)(1) ($) (#) ($) ($)(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C.R. Skomorowski 1998 275,000 0 7,632 0 5,351/0 0 63,812(4)
CEO, President
and
Director(3)
L.R. Jaskol 1998 568,295 0 377,587(6) 0 0/0 0 70,570
former CEO & 1997 499,999 127,500 49,802 0 25,325/0 0 68,422
Chairman of 1996 499,999 375,000 51,559 0 19,278/0 0 68,289
the Board(5)
J.P. Carolan 1998 305,625 0 9,890 0 0/0 0 71,790(4)(7)
Executive VP 1997 250,000 17,709 11,205 0 20,000/0 0 34,979
and Division 1996 250,000 143,334 9,860 0 9,419/0 0 54,590
President
R.J. Lanzi 1998 280,000 0 14,071 0 0/0 0 34,078
Division 1997 250,000 17,709 12,530 0 7,500/0 0 35,489
President 1996 250,000 85,001 11,164 0 7,500/0 0 32,191
J.J. Worthington 1998 230,000 0 12,622 0 5,351/0 0 26,014
Division 1997 210,000 20,223 12,905 0 7,500/0 0 30,007
President and 1996 150,000 104,891 8,292 0 12,500/0 0 44,378
Director
J.E. Hanley 1998 218,000 0 4,002 0 0/0 0 15,930
VP-Finance & 1997 200,000 42,500 3,783 0 4,500/0 0 19,094
Treasurer 1996 200,000 125,000 3,585 0 6,000/0 0 17,829
</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) The items reported in column (i) for 1998 include amounts paid on behalf of
the named individuals by the Company for:
Defined contribution plans (401(k) Plan & ESOP):
C.R. Skomorowski ($9,600); L.R. Jaskol ($9,600); J.P. Carolan
($9,600); R.J. Lanzi ($9,600); J.J. Worthington ($9,600); J.E. Hanley
($9,600);
18
<PAGE>
The Employee Stock Purchase Plan:
C.R. Skomorowski ($600); L.R. Jaskol ($575); J.P. Carolan ($600); R.J.
Lanzi ($600); J.J. Worthington ($600); J.E. Hanley ($600);
Life Insurance premiums:
C.R. Skomorowski ($5,299); L.R. Jaskol ($49,361); J.P. Carolan
($10,445); R.J. Lanzi ($16,578); J.J. Worthington ($10,959); J.E.
Hanley ($1,959);
Long-Term Disability premiums:
C.R. Skomorowski ($4,966); L.R. Jaskol ($11,034); J.P. Carolan
($6,646); R.J. Lanzi ($7,300); J.J. Worthington ($4,854); J.E. Hanley
($3,772);
(3) Mr. Skomorowski was appointed Chief Executive Officer of the Company on
December 2, 1998.
(4) In 1998, Mr. Skomorowski and Mr. Carolan both relocated to take new
positions in the Company and received reimbursement of relocation expenses,
in the amounts of $43,323 and $44,187 respectively, in accordance with the
Company's relocation policy.
(5) Mr. Jaskol retired from the Company on December 2, 1998. See "Transactions
with Management".
(6) In 1998, Mr. Jaskol's loans from the Company were forgiven upon his
resignation. The amount of the loans forgiven together with the gross-up for
tax effect was $320,184. See "Transactions with Management". Additional tax
gross-ups amounted to $54,103.
(7) In 1998, Mr. Carolan 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 better understand 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.
19
<PAGE>
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. Skomorowski, Carolan, Lanzi, Worthington and Hanley are
expected to receive annual benefits upon retirement at normal retirement age
(assuming salary increases of 5 percent per year) in the amounts of $130,208,
$70,069, $65,985, $73,754, $149,285 respectively. The aforementioned amounts are
not subject to any further reductions for Social Security benefits or for any
other offset amounts. Mr. Jaskol will receive an estimated $76,346 in annual
benefits upon reaching 65, assuming he does not elect reduced benefits prior to
age 65 as described above.
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 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.
20
<PAGE>
STOCK OPTION TABLES
The following table provides information regarding stock options granted to
the named executive officers during 1998. 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
REALIZED VALUE
AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR
OPTION TERM (*)
INDIVIDUAL GRANTS
-------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
(A) (B) (C) (D) (E) (F) (G)
<CAPTION>
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>
- -----------------------------------------------------------------------------------------------
C.R. Skomorowski 5,351(1)/0 25.98/0 $ 18.6875 5/12/08 62,887 159,369
- -----------------------------------------------------------------------------------------------
L.R. Jaskol 0/0 0/0 0 0 0 0
- -----------------------------------------------------------------------------------------------
J.P. Carolan 0/0 0/0 0 0 0 0
- -----------------------------------------------------------------------------------------------
R.J. Lanzi 0/0 0/0 0 0 0 0
- -----------------------------------------------------------------------------------------------
J.J. Worthington 5,351(1)/0 25.98/0 $ 18.6875 5/12/08 62,887 159,369
- -----------------------------------------------------------------------------------------------
J.E. Hanley 0/0 0/0 0 0 0 0
- -----------------------------------------------------------------------------------------------
</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% 5/13/99; 50% 5/13/00; 75% 5/13/01; 100% 5/13/02.
21
<PAGE>
The following table shows stock option exercises by the named executive
officers during 1998, 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, 1998. 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>
(D)
NUMBER OF (E)
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-MONEY
(B) OPTIONS/SARS AT OPTIONS/SARS AT
------------- (C) FY-END (#) FY-END ($)
(A) SHARES ------------ ---------------- ----------------
- --------------------- ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
C.R. Skomorowski..... 0 0 96,075/18,476 130,858/0
L.R. Jaskol.......... 98,388 1,159,436 132,247/32,356 287,391/0
J.P. Carolan......... 27,160 472,305 88,334/21,585 155,966/0
R.J. Lanzi........... 0 0 51,636/11,250 54,194/0
J.J. Worthington..... 0 0 8,125/17,226 0/0
J.E. Hanley.......... 0 0 92,928/7,972 226,428/0
- --------------------------------------------------------------------------------------
</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 are based 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. During 1998, no performance awards were paid to the officers named in the
Summary Compensation 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.
22
<PAGE>
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 for the plan year 1998.
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 individual named in the Summary
Compensation Table 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
23
<PAGE>
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 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 equals or exceeds 70. Mr.
Jaskol and Mr. Lanzi are the only participants named in the Summary Compensation
Table who are fully vested. Messrs. Skomorowski, Jaskol, Carolan, Lanzi,
Worthington and Hanley, are expected to receive annual benefits upon retirement
at normal retirement age in the amount of $82,424, 146,108, 48,491, -0-, 83,025,
- -0- respectively.
TRANSACTIONS WITH MANAGEMENT
Mr. Leonard R. Jaskol resigned as the Chairman and Chief Executive Officer
of the Company effective as of December 2, 1998. Mr. Jaskol had served in those
positions pursuant to the terms of an Agreement, dated March 1, 1995 (the
"Agreement"). Among other things, the Agreement generally provided that Mr.
Jaskol would continue to be treated as an employee of the Company for a
specified period of time (referred to as the "Employment Period") in the event
that he were ever replaced or otherwise forced to resign either before or after
a Change of Control (as defined in the Agreement) of the Company. During the
Employment Period, Mr. Jaskol would be entitled to receive an annual salary
equal to one-third of the aggregate of the base salary and bonuses paid to him
during the period commencing three years prior to the date of termination and
ending on the date of termination. In addition, during the Employment Period,
Mr. Jaskol would be entitled to receive the same fringe benefits that he would
have been entitled to receive if he had continued to be employed as the Chief
Executive Officer during the Employment Period, reimbursement for any reasonable
expenses incurred by him in the performance of any duties for the Company, a
monthly allowance of $1,500 in lieu of an office and secretarial help, and the
use of an automobile on substantially the same basis as prior to his
termination. Mr. Jaskol would also be entitled to continue to participate in all
life, health, disability and other welfare plans or programs of the Company
existing at the time of
24
<PAGE>
the termination, with such participation to continue throughout the term of the
Employment Period and after the Employment Period up to age 65 or the earlier
death of Mr. Jaskol. Finally, the Agreement provided that Mr. Jaskol would be
made whole on an after-tax basis with respect to certain excise taxes which
might be imposed upon certain payments due and payable under the Agreement. In
exchange for the foregoing, the Agreement provided that Mr. Jaskol would be
prohibited from competing with the Company or be directly or indirectly
interested in any business competing with the business being conducted by the
Company.
In connection with the resignation of Mr. Jaskol, the Company and Mr. Jaskol
entered into an Agreement and General Release, dated December 2, 1998 (the
"Separation Agreement"), which modifies and supplements the Agreement. Among
other things, the Separation Agreement provides that the resignation of Mr.
Jaskol shall be considered as a termination without cause under the Agreement.
The Separation Agreement also provides that, for purposes of the Agreement, Mr.
Jaskol's annual salary shall be $780,000 and the Employment Period shall be the
thirty-month period beginning on December 2, 1998 and ending on June 1, 2001.
Mr. Jaskol will receive medical benefits until the date on which Mr. Jaskol
attains age 70, with one-half of the cost of such coverage generally being paid
by Mr. Jaskol after attaining the age of 66. Mr. Jaskol's existing stock
options, if not then exercisable, will become exercisable on June 1, 2001 and
any non-qualified stock option that has not been exercised prior to the end of
the Employment Period shall remain exercisable for a period of one year after
the end of the Employment Period (but not beyond the term of the option).
Finally, the Separation Agreement provides for the forgiveness of two
outstanding loans from the Company to Mr. Jaskol aggregating approximately
$174,340 plus accrued interest. In all other respects, the Separation Agreement
provides that the Agreement shall remain in full force and effect. In exchange
for the foregoing, the Separation Agreement includes a full release, pursuant to
which Mr. Jaskol releases any and all claims he had, or may have had, arising
from or relating to the termination of his employment.
The Company has entered into agreements with (i) Mr. Skomor- owski; (ii)
certain of the Division Presidents of the Company, including Executive Vice
President Carolan and the others named in the Summary Compensation Table; (iii)
Vice President Finance and Treasurer John E. Hanley;
25
<PAGE>
(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 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. 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. Skomorowski's
and Mr. Carolan's agreements are dated February 1, 1999. Mr. Worth- ington's
agreement is dated November 7, 1998 and each of the other agreements is 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. Skomorowski, 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 with agreements, and the Vice President-Finance and
Treasurer, the period
26
<PAGE>
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 6 months
if termination occurs prior to a Change of Control and 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
1998, all filing requirements applicable to its Directors, officers and greater
than 10 percent stockholders were satisfied.
APPOINTMENT OF AUDITORS
The Board of Directors approved, upon recommendation of the Audit Committee,
PricewaterhouseCoopers LLP, as independent accountants to the Company for the
year ended December 31, 1998. It is expected that the Board of Directors will
appoint PricewaterhouseCoopers LLP as the Company's independent accountants for
the current year. Representatives of PricewaterhouseCoopers LLP, 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.
27
<PAGE>
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, 2000 must be received by
the Company by December 1, 1999 in order to be included in the Proxy Statement
and on the proxy card relating to the 2000 Annual Meeting.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR 1998 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, Christopher R.
Skomorowski 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 12, 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 30, 1999
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 REVISE SIDE)
<PAGE>
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
LYDALL, INC.
MAY 12, 1999
<TABLE>
<CAPTION>
Please Detach and Mail in the Envelope Provided
<C> <C> <C>
A /X/ Please mark your voting
as in the example.
NOMINEES:
1. ELECTION OF FOR WITHHELD Lee A. Asseo 2. In their discretion, such other business as may properly
DIRECTORS / / / / Samuel P. Cooley come before the meeting.
W. Leslie Duffy
For, Except vote withheld from the David Preeman The shares represented by this Proxy will be voted as
following nominee(s). Christopher R. Skomorowski specified. IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE
Elliott F. Whitely VOTED IN FAVOR OF THE SPECIFIED NOMINEES. THIS PROXY CARD
Roger M. Wadmann MUST BE PROPERLY COMPLETED, SIGNED, DATED AND RETURNED IN
- ---------------------------------- Albert E. Wolf 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 corporate, sign in the corporation name by a duly
authorized officer.
</TABLE>
