<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
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)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<CAPTION>
/X/ No fee required.
<S> <C> <C>
/ / 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:
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4. Date Filed:
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</TABLE>
<PAGE>
[LOGO]
<PAGE>
One Colonial Road
P.O. Box 151
Manchester, Connecticut 06045-0151
(860) 646-1233
CHRISTOPHER R. SKOMOROWSKI
President and Chief Executive Officer
[LOGO]
April 3, 2000
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 10, 2000 at 11:00 a.m. at The Hartford Club located at 46
Prospect Street in Hartford, Connecticut. For your convenience, free parking
will be available for stockholders attending the meeting in the parking garage
adjacent to The Hartford Club. Your parking ticket will be validated at the
sign-in table at the meeting.
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 10, 2000
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 10,
2000, 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 2001.
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
April 3, 2000
<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
April 3, 2000 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 10, 2000 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 2001. 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 shares
entitled to vote is necessary to constitute a quorum for the transaction of
business at the Annual Meeting.
The election of Directors requires the affirmative vote of a plurality of
the votes cast by the holders of shares who are present in person or represented
by proxy at the Annual Meeting and are entitled to vote on the matter. With
respect to all other matters, the affirmative vote of a majority of the shares
present in person or represented by proxy at the Annual Meeting and entitled to
vote and voting thereon shall be the act of the stockholders, unless the
question is one upon which, by express provision of an applicable statute, the
Certification of Incorporation or the By-laws of the Company, a different vote
is required, in which case such express provision
<PAGE>
shall govern and control the decision of the question. For purposes of
determining the number of votes cast with respect to the election of Directors,
only those votes cast "FOR all nominees", "WITHHELD for all nominees" or
specifying that votes be withheld from one or more designated nominees are
counted. For purposes of determining the number of votes cast with respect to
any other matter submitted to stockholders, only those votes cast "FOR" or
"AGAINST" the matter or providing the designated proxies with the right to vote
in their discretion are counted. 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 not have any effect on
the outcome of the voting. 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 not have any 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 13, 2000 (the "Record Date")
are entitled to vote at the meeting. On that date there were 15,699,776 shares
of Common Stock outstanding, the holders of which are entitled to one vote per
share.
2
<PAGE>
ELECTION OF LYDALL DIRECTORS
- ----------------------------------------------------------------
The Board of Directors has nominated Messrs. Lee A. Asseo, Samuel P. Cooley,
W. Leslie Duffy, David Freeman, Robert E. McGill, III, Christopher R.
Skomorowski, Elliott F. Whitely, Roger M. Widmann and Albert E. Wolf and Ms.
Suzanne Hammett for re-election as Directors of the Company for a term of one
year until the next Annual Meeting to be held in 2001.
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 establish the number of directorships between 3 and 15. The Board
of Directors has currently fixed the number of directorships at 10. As of the
Record Date, there were no vacancies.
Additional nominations for Directors may be made from the floor by
stockholders who have complied fully with the advance notice procedures set
forth in the By-laws of the Company. It is the intention of the Proxy Committee
of the Board of Directors 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 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
vote of a plurality of the votes cast by the holders of 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 2001:
- ----------------------------------------------------------------
LEE A. ASSEO, 62, is a retired Chairman of the Board and Chief Executive
Officer of The Whiting Company, a manufacturer of synthetic fibers for the brush
industry, which he joined in 1983. Mr. Asseo retired from The Whiting Company in
1996. He has been a Lydall Director since 1985. During 1999, Mr. Asseo served as
a member of the Audit, Compensation and Stock Option, and Nominating Committees.
- ----------------------------------------------------------------
SAMUEL P. COOLEY, 68, is a retired Executive Vice President and Senior
Credit Approval Officer of Shawmut Bank Connecticut, N.A., now FleetBoston
Financial, which he joined in 1955. Mr. Cooley retired from Shawmut Bank in
1993. He currently serves as a member of the Board of HPSC, Inc. He has been a
Lydall Director since 1966. During 1999, Mr. Cooley served as Chairman of the
Audit Committee and as a member of the Pension Committee.
- ----------------------------------------------------------------
W. LESLIE DUFFY, 60, 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 1999, Mr. Duffy served as Chairman of the Pension Committee
and a member of the Development and Executive Committees.
- ----------------------------------------------------------------
DAVID FREEMAN, 55, is a Professor of International Business at Central
Connecticut State University. He is a retired Chairman and Chief Executive
Officer of Loctite Corporation, which he joined in 1974. Mr. Freeman retired
from Loctite in 2000. He became a member of Loctite's Board of Directors in
1990, President of Loctite in 1991, and Chief Executive Officer in 1993. He was
appointed Chairman of Loctite in April 1996. Mr. Freeman currently serves as a
Director of Sealed Air Corporation and Mech Financial Inc. He became a Lydall
Director in 1998. During 1999, Mr. Freeman served as a member of the Executive,
Nominating and Pension Committees.
- ----------------------------------------------------------------
4
<PAGE>
SUZANNE HAMMETT, 44, is a Managing Director of The Chase Manhattan Bank,
Global Credit Capital and Asset Management. She has global responsibility for
the Bank's Wholesale Loan Portfolio, the Lending Platform, client servicing
activities, and the Associate and Analyst resources. Ms. Hammett has been with
The Chase Manhattan Bank since 1977 and is a member of the Bank's Management
Committee. She became a Vice President in 1983 and Managing Director in 1989.
She became a Lydall Director in January, 2000.
- ----------------------------------------------------------------
ROBERT E. MCGILL, III, 68, is a retired Executive Vice President-Finance and
Administration of Dexter Corporation, which he joined in 1975. Mr. McGill
retired from Dexter in 1994. He was elected to Dexter's Board of Directors in
1983 from which he retired in 1995. Mr. McGill currently serves as a member of
the Boards of Directors of Chemfab Corporation and Ravenswood Winery, Inc. He
also serves as a Trustee of the Travelers Variable Annuities Mutual Funds. He
became a Lydall Director in August, 1999. During 1999, Mr. McGill served as a
member of the Audit Committee.
- ----------------------------------------------------------------
CHRISTOPHER R. SKOMOROWSKI, 46, is the Chief Executive Officer and President
of Lydall, a position he has held since December 1998. From 1983 to 1984 he
served as Division Controller of the Westex Division of Lydall. He was 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 in 1994 to 1995 and then became a
non-rotating member in 1998. During 1999, Mr. Skomorowski served as Chairman of
the Development and Nominating Committees and as a member of the Executive
Committee.
- ----------------------------------------------------------------
ELLIOTT F. WHITELY, 56, is the retired President of the Technical Papers
Division of Lydall, 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 its President. He served as a rotating senior
management Director in 1993 to 1994 and 1996 to 1997. He joined the Board in a
non-rotating position in 1998. During 1999, Mr. Whitely served as a member of
the Development and Nominating Committees.
- ----------------------------------------------------------------
5
<PAGE>
ROGER M. WIDMANN, 60, 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 1999,
Mr. Widmann served as Chairman of the Compensation and Stock Option and
Executive Committees.
- ----------------------------------------------------------------
ALBERT E. WOLF, 70, is the former Chairman of the Board and a current
Director of Checkpoint Systems, Inc., which manufactures and markets electronic
security systems. Mr. Wolf had been Chairman of Checkpoint Systems since 1972
until 1999 when he retired. He has been a Lydall Director since 1977. During
1999, Mr. Wolf served as a member of the Compensation and Stock Option and Audit
Committees.
- ----------------------------------------------------------------
6
<PAGE>
- ----------------------------------------------------------------
ACTIVITIES OF THE BOARD OF DIRECTORS AND CERTAIN
COMMITTEES OF THE BOARD
- ----------------------------------------------------------------
The Board of Directors held ten meetings during 1999, four of which were
teleconference Board meetings. All current Directors attended at least
75 percent of the meetings of the Board held while they were Directors. 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
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 "Stockholder Proposals and Nominations for
Director" below. 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 1999, the Audit Committee held two meetings; the Development
Committee held one meeting; the Compensation and Stock Option Committee held two
meetings; the Pension Committee held no meetings; the Nominating Committee held
no formal meetings, and the Executive Committee held one meeting and acted by
unanimous written consent on one occasion.
7
<PAGE>
During 1999, 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 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 addition to the foregoing, each Director currently receives a $16,000
annual retainer paid 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 1999, Cahill Gordon & Reindel, of which Director W. Leslie Duffy is a
partner, was engaged by the Company as special counsel for limited matters.
8
<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 1, 2000.
<TABLE>
<CAPTION>
PERCENT
NATURE OF OF
NAME AMOUNT BENEFICIAL OWNERSHIP CLASS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
Lee A. Asseo 30,961 Direct
Director and Nominee 6,000 Indirect (Trust)
for Director 8,000 (Exercisable under 1982 Stock
Incentive Compensation Plan)
12,532 (Exercisable under 1992 Plan)
---------
57,493 *
=========
- ------------------------------------------------------------------------------------
James P. Carolan 39,353 Direct
Executive Vice President and 8,953 Indirect (Spouse)
Division President 20,500 (Exercisable under 1982 Stock
Incentive Compensation Plan)
73,814 (Exercisable under 1992 Plan)
22,392 (Allocated under Lydall Profit
Sharing Plan)(1)
---------
165,012 1.1
=========
- ------------------------------------------------------------------------------------
Samuel P. Cooley 6,961 Direct
Director and Nominee 18,000 (Exercisable under 1982 Stock
for Director Incentive Compensation Plan)
12,532 (Exercisable under 1992 Plan)
---------
37,493 *
=========
- ------------------------------------------------------------------------------------
W. Leslie Duffy 8,961 Direct
Director and Nominee 9,000 (Exercisable under 1982 Stock
for Director Incentive Compensation Plan)
12,532 (Exercisable under 1992 Plan)
---------
30,493 *
=========
- ------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PERCENT
NATURE OF OF
NAME AMOUNT BENEFICIAL OWNERSHIP CLASS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
Bill W. Franks, Jr. 2,543 Direct
Division President 24,875 (Exercisable under 1992 Stock
Incentive Compensation Plan)
6,367 (Allocated under Lydall Profit
Sharing Plan)(1)
---------
33,785 *
=========
- ------------------------------------------------------------------------------------
David Freeman 2,608 Direct
Director and Nominee 2,012 (Exercisable under 1992 Stock
for Director Incentive Compensation Plan)
---------
4,620 *
=========
- ------------------------------------------------------------------------------------
Suzanne Hammett 0 Direct
Director and Nominee
for Director
---------
0 *
=========
- ------------------------------------------------------------------------------------
John E. Hanley 2,732 Direct
former Vice President- 51,290 Indirect (Spouse)
Finance and Treasurer 18,000 (Exercisable under 1982 Stock
Incentive Compensation Plan)
65,875 (Exercisable under 1992 Plan)
13,734 (Allocated under Lydall Profit
Sharing Plan)(1)
---------
151,631 1.0
=========
- ------------------------------------------------------------------------------------
Raymond J. Lanzi 93,333 Direct
Division President 4,500 (Exercisable under 1982 Stock
Incentive Compensation Plan)
54,011 (Exercisable under 1992 Plan)
32,276 (Allocated under Lydall Profit
Sharing Plan)(1)
---------
184,120 1.2
=========
- ------------------------------------------------------------------------------------
Robert E. McGill, III 2,231 Direct
Director and Nominee
for Director
---------
2,231 *
=========
- ------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PERCENT
NATURE OF OF
NAME AMOUNT BENEFICIAL OWNERSHIP CLASS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
Christopher R. Skomorowski 42,631 Direct
President, CEO, Director and 7,500 Indirect (Spouse)
Nominee for Director 15,200 (Exercisable under 1982 Stock
Incentive Compensation Plan)
93,462 (Exercisable under 1992 Plan)
17,380 (Allocated under Lydall Profit
Sharing Plan)(1)
---------
176,173 1.1
=========
- ------------------------------------------------------------------------------------
Elliott F. Whitely 75,226 Direct
Director and Nominee for 12,314 (Exercisable under 1992 Plan)
Director
---------
87,540 *
=========
- ------------------------------------------------------------------------------------
Roger M. Widmann 70,797 Direct
Chairman of the Board, 450 Indirect (Spouse)
Director and Nominee for 18,000 (Exercisable under 1982 Stock
Director Incentive Compensation Plan)
27,532 (Exercisable under 1992 Plan)
---------
116,779 *
=========
- ------------------------------------------------------------------------------------
Albert E. Wolf 9,071 Direct
Director and Nominee 2,000 Indirect (Spouse)
for Director 18,000 (Exercisable under 1982 Stock
Incentive Compensation Plan)
12,532 (Exercisable under 1992 Plan)
---------
41,603 *
=========
- ------------------------------------------------------------------------------------
Lydall Profit Sharing Plan 1,068,730(1) 6.8
c/o First Union National Bank
123 South Broad Street
Philadelphia, PA 19101
- ------------------------------------------------------------------------------------
Westport Asset 1,369,760(2) 8.7
Management, Inc.
253 Riverside Avenue
Westport, CT 06880
- ------------------------------------------------------------------------------------
Dimensional Fund 1,181,880(3) 7.5
Advisors, Inc.
1299 Ocean Avenue,
11(th) Floor
Santa Monica, CA 90401
- ------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
PERCENT
NATURE OF OF
NAME AMOUNT BENEFICIAL OWNERSHIP CLASS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
Axa Financial Inc., et.al. 855,500(4) 5.5
(formerly known as
The Equitable Companies
Incorporated)
1290 Avenue of the Americas
New York, NY 10104
- ------------------------------------------------------------------------------------
Wellington Management 835,900(5) 5.3
Company, LLP
75 State Street
Boston, MA 02109
- ------------------------------------------------------------------------------------
All Directors and 1,255,042(6) 8.0
Executive Officers as a
Group (19 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 16, 2000.
(3) As reported in Schedule 13G filed with the Securities and Exchange
Commission on February 11, 2000.
(4) As reported in Schedule 13G filed with the Securities and Exchange
Commission on February 14, 2000.
(5) As reported in Schedule 13G filed with the Securities and Exchange
Commission on February 11, 2000.
(6) Of the 1,255,042 shares, 131,100 are exercisable under the 1982 Stock
Incentive Compensation Plan, and 508,767 are exercisable under the 1992
Plan.
12
<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 Bonus Compensation
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, and Messrs. Carolan, Lanzi,
Hanley and Franks.
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 Lydall and
to protect and grow stockholder value through above-average, consistent
corporate performance. In 1999, bonus compensation was based 75 percent on the
performance of the employee's operation and 25 percent on the earnings of the
Company as a whole. Bonus compensation of those individuals at the corporate
level was based 100 percent on the earnings of the Company as a whole.
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 strategic goals. Lydall seeks to attract and
retain the highest qualified executives by offering competitive levels of base
compensation as well as an incentive cash bonus program and stock-based
incentive plans closely tied to the interests of the stockholders of the
Company.
Senior executives' compensation packages are intended to be consistent with
those of executives in comparable positions with
13
<PAGE>
diversified manufacturers similar in size to Lydall. However, since Lydall
directly ties a large portion of its executive compensation to corporate
performance, 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 and stockholder interests. Therefore, 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 also believes in aligning the
cash bonus plan of the Company directly with the creation of stockholder value.
During 1999, a new Economic Value Added ("EVA") Incentive Bonus Plan was drafted
which became effective January 1, 2000.
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. Annual salaries for executives at $200,000 and
above are reviewed by the Committee every two years and based on changes in
competitive pay levels and the Committee's agreement that the individual's
contribution to the Company has increased or decreased relative to operating
performance.
When Mr. Skomorowski became President and Chief Operating Officer, effective
October 1, 1998, his salary was increased by 40 percent, to reflect a salary
commensurate 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. Mr. Carolan's salary will be reviewed
again at the end of 2000. In determining Mr. Skomorowski's and Mr. Carolan's
salaries, the Committee considered pay levels among comparable executive
positions at diversified manufacturers similar in size to Lydall as well as
their individual performance and long-term contributions to the Company.
Similar considerations were given to setting the salaries of Messrs. Lanzi,
Hanley and Franks.
BONUS COMPENSATION. The cash bonus portion of Lydall's executive
compensation is a key component of its management's total compensation packages.
In
14
<PAGE>
1999 Bonus Compensation Agreements were based on earnings-per-share targets.
Threshold and outstanding earnings-per-share targets were determined by the
Committee at the beginning of the year. As discussed above, the 1999 bonus
compensation was based on division and corporate performance.
Companywide, the amounts for individual awards range from 5 percent to
75 percent of base salary. In 1999, the senior executives named in the Summary
Compensation Table other than Mr. Skomorowski were eligible to receive a bonus
of up to 62.5 percent of their base salary.
In 1999, Mr. Skomorowski 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 1999,
and thus, Mr. Skomorowski did not receive a bonus for the year.
Bonus Compensation Agreements for all division presidents are based
two-thirds on the results of their division and one-third on corporate
earnings-per-share targets. Mr. Carolan's, Mr. Lanzi's and Mr. Franks' bonuses
were based on this formula for 1999. Mr. Hanley's bonus was based solely on
corporate earnings-per-share targets. Mr. Franks was the only executive to
receive a bonus in 1999 and in 1998 based on the results of his division.
Effective January 1, 2000, Lydall adopted EVA as the framework for its
financial management and incentive compensation system. EVA is the measure of
financial performance that is most closely correlated with increases in stock
market value compared with traditional measures. EVA equals the profit achieved
after subtracting a charge for the use of capital (including debt and equity)
from the Company's net operating profit after taxes.
Lydall's EVA Incentive Bonus Plan (the "Plan"), is based on incremental EVA
improvements year over year. It rewards sound decision-making based on long-term
sustainable growth. The objective of the Plan is to create a strong incentive
for Lydall's employees to increase stockholder value by allowing them to share a
portion of the increase.
All full-time salaried employees of the Company are eligible to participate
in the Plan. Employees of EVA Centers, which are either individual operations or
groups of related businesses of Lydall, will have their Declared Bonuses based
70 percent on the performance of the specific EVA Center and 30 percent based on
the performance of Lydall on a consolidated basis. Declared Bonuses for
employees of the Corporate EVA
15
<PAGE>
Center will be based totally on the performance of Lydall on a consolidated
basis.
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 on the grant date
and will only have value if the Company's stock price increases above the grant
price. 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. Skomorowski received two option grants covering 29,000 shares of
Lydall, Inc. Common Stock in 1999(1). He now holds options covering a total of
173,551 shares of Common Stock, 108,662 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 1999, Messrs. Carolan, Lanzi, Hanley and Franks received option grants
covering 5,000, 5,000, 4,500, and 7,500 shares, respectively.
LIMITATION ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenue Code of 1986, as amended. Section 162(m) generally denies a
publicly held corporation, such as the Company, a federal income tax deduction
for compensation in excess of $1 million per year paid or accrued for each of
its chief executive officer and four other most highly compensated executive
officers. Certain "performance-based" compensation is not subject to the
limitation on deductibility
- ------------------------
(1) One of which was an automatic award of 9,000 shares to Directors of the
Company on May 7, 1999.
16
<PAGE>
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 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
- ----------------------------------------------------------------
17
<PAGE>
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.
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 Small Cap 600 Index and the Russell
2000 Index. Cumulative total return is measured assuming an initial investment
of $100 on December 31, 1994, including reinvestment of dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS
<S> <C> <C> <C> <C> <C> <C>
12/94 12/95 12/96 12/97 12/98 12/99
LYDALL INC DEL 100.00 140.00 138.46 120.00 73.08 40.77
S & P SMALLCAP 600 100.00 129.96 157.67 198.01 203.41 228.64
RUSSELL 2000 100.00 127.49 154.73 203.91 190.75 187.92
</TABLE>
Due to the diversity of niche businesses that Lydall participates in, it is
difficult to identify a reasonable peer group or one line-of-business index for
comparison purposes. Thus, Lydall has chosen to compare its performance to the
Standard & Poor's Small Cap 600 Index of which it is a constituent, and the
Russell 2000 Index, which is comprised of companies with similar market
capitalizations.
18
<PAGE>
SUMMARY COMPENSATION TABLE
The following table shows the compensation either paid or awarded by the
Company for the past three years through December 31, 1999 to the Chief
Executive Officer of the Company during 1999 and each of the four other most
highly compensated executive officers who were serving as executive officers as
of December 31, 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
AWARDS PAYOUTS
---------------------- --------------------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
SECUR-
ITIES
OTHER RE- UNDER-
NAME ANNUAL STRICTED LYING LTIP ALL OTHER
AND COMPEN- STOCK OPTIONS/ PAY- COMPEN-
PRINCIPAL SALARY BONUS SATION AWARDS SARS OUT SATION
POSITION YEAR ($) ($) ($)(1) ($) (#) ($) ($)(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C.R. Skomorowski 1999 350,000 0 7,786 0 29,000/0 0 49,670(4)
CEO, President and 1998 275,000 0 7,632 0 5,351/0 0 63,812(5)
Director(3)
J.P. Carolan 1999 315,000 0 10,406 0 5,000/0 0 142,800(4)
Executive VP and 1998 305,625 0 9,890 0 0/0 0 71,790(5)(6)
Division President 1997 250,000 17,709 11,205 0 20,000/0 0 34,979
R.J.Lanzi 1999 280,000 0 14,292 0 5,000/0 0 34,505
Division President 1998 280,000 0 14,071 0 0/0 0 34,078
1997 250,000 17,709 12,530 0 7,500/0 0 35,489
J.E. Hanley 1999 218,000 0 4,002 0 4,500/0 0 16,061
VP-Finance & 1998 218,000 0 4,002 0 0/0 0 15,930
Treasurer(7) 1997 200,000 42,500 3,783 0 4,500/0 0 19,094
B.W. Franks, Jr. 1999 165,000 30,300 1,173 0 7,500/0 0 53,616(4)
Division President 1998 150,000 43,731 0 0 0/0 0 51,886(5)
1997 113,000 10,322 0 0 7,500/0 0 9,761
</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 1999 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); J.P. Carolan ($9,600); R.J. Lanzi ($9,600);
J.E. Hanley ($9,600); B.W. Franks, Jr. ($9,600)
The Employee Stock Purchase Plan:
C.R. Skomorowski ($600); J.P. Carolan ($600); R.J. Lanzi ($600); J.E.
Hanley ($600); B.W. Franks, Jr. ($400)
Life Insurance Premiums:
C.R. Skomorowski ($4,771); J.P. Carolan ($11,185); R.J. Lanzi
($16,895); J.E. Hanley ($1,959); B.W. Franks, Jr. ($0)
19
<PAGE>
Long-Term Disability Premiums:
C.R. Skomorowski ($6,289); J.P. Carolan ($6,863); R.J. Lanzi ($7,410);
J.E. Hanley ($3,903); B.W. Franks, Jr. ($0)
(3) Mr. Skomorowski was appointed Chief Executive Officer of the Company on
December 2, 1998.
(4) In 1999, Mr. Skomorowski, Mr. Carolan, and Mr. Franks received relocation
expense reimbursements in connection with moves in 1998 to take new
positions in the Company in the amounts of $28,410, $114,565 and $43,616,
respectively.
(5) In 1998, Mr. Skomorowski, Mr. Carolan, and Mr. Franks relocated to take new
positions in the Company and received reimbursement of relocation expenses
in the amounts of $43,323, $44,187, and $42,186, respectively, in accordance
with the Company's relocation policy.
(6) In 1999, Mr. Carolan received a nonsmoking bonus of $312 in accordance with
the policy for his location.
(7) Mr. Hanley resigned from the Company on January 31, 2000. See "Transactions
with Management."
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 and full-time
hourly employees at certain Lydall locations. 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.
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, Franks are expected to receive
annual benefits upon retirement at normal retirement
20
<PAGE>
age (assuming salary increases of 5 percent per year) in the amounts of
$128,408, $69,152, $65,785, and $147,782, respectively. The aforementioned
amounts are not subject to any further reductions for Social Security benefits
or for any other offset amounts. Mr. Hanley will receive an estimated $34,734 in
annual benefits upon reaching 65, assuming he does not elect reduced benefits
prior to age 65 as described above.
PROFIT SHARING PLAN
The Company has a noncontributory stock bonus 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.
21
<PAGE>
STOCK OPTION TABLES
The following table provides information regarding stock options granted
during 1999 to the executive officers named in the Summary Compensation Table.
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
INDIVIDUAL GRANTS OPTION TERM (*)
- ------------------------------------------------------------------------- -------------------
(A) (B) (C) (D) (E) (F) (G)
% OF
TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS
UNDERLYING GRANTED TO
OPTIONS/ EMPLOYEES EXERCISE
SARS IN OR BASE EXPIRA-
GRANTED FISCAL PRICE TION
(#) YEAR ($/SH) DATE 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
C.R. Skomorowski 20,000(1)/0 8.23/0 11.1875 1/14/09 140,715 356,600
9,000(2)/0 3.70/0 10.5000 5/6/09 59,431 150,609
- -----------------------------------------------------------------------------------------------
J.P. Carolan 5,000(1)/0 2.06/0 11.1875 1/14/09 35,179 89,150
- -----------------------------------------------------------------------------------------------
R.J. Lanzi 5,000(1)/0 2.06/0 11.1875 1/14/09 35,179 89,150
- -----------------------------------------------------------------------------------------------
J.E. Hanley 4,500(1)/0 1.85/0 11.1875 4/30/00 2,517 5,034
- -----------------------------------------------------------------------------------------------
B.W. Franks, Jr 7,500(1)/0 3.08/0 11.1875 1/14/09 52,768 133,725
- -----------------------------------------------------------------------------------------------
</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% 1/15/00; 50% 1/15/01; 75% 1/15/02; 100% 1/15/03.
(2) Exercisable 25% 5/7/00; 50% 5/7/01; 75% 5/7/02; 100% 5/7/03.
22
<PAGE>
The following table shows stock option exercises by the named executive
officers during 1999, 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, 1999. 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) (E)
NUMBER OF VALUE OF
SECURITIES UNEXERCISED IN-
UNDERLYING THE-
UNEXERCISED MONEY OPTIONS/
OPTIONS/SARS AT SARS AT
(A) (B) (C) FY-END (#) FY-END ($)
- --------------------- ------------- ------------- ---------------- ----------------
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
C.R. Skomorowski..... 0 0 103,662/39,889 0/0
J.P. Carolan......... 4,500 12,751 93,064/17,355 5,730/0
R.J. Lanzi........... 0 0 57,261/10,625 0/0
J.E. Hanley.......... 14,400 82,202 82,750/8,250 0/0
B.W. Franks, Jr...... 0 0 17,500/12,000 0/0
- ------------------------------------------------------------------------------------------
</TABLE>
BONUS COMPENSATION AGREEMENTS
Lydall's Bonus Compensation Agreements provide 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 division performance and corporate
earnings-per-share targets. Individual awards, which may vary from 5 to
75 percent of base salary, are paid during the first quarter of the following
year.
STOCK PURCHASE PLAN
The Lydall Employee Stock Purchase Plan (the "Stock Purchase Plan") gives
certain full-time, nonunion and union (if negotiated) Lydall employees the
opportunity to purchase Common Stock through regular payroll deductions. Lydall
contributes 33 1/3 percent of each employee's contribution up to $150 a month.
Purchases are made on the open market by a brokerage firm.
401(K) PLAN
Lydall and certain of its subsidiaries maintain 401(k) Plans
23
<PAGE>
that are available to most full-time, non-union employees with at least three
months of service and all union employees. In accordance with Section 401(k) of
the Internal Revenue Code, the 401(k) Plans provide 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 generally matches the nonunion
employees' pretax contributions up to 4 percent of each employee's annual
compensation, although different matching formulas exist with respect to the
employees of certain subsidiaries. The first 2 percent generally 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. Union
facilities, if negotiated, have varying 401(k) matching employer contributions.
OTHER EMPLOYEE BENEFIT PLANS REMUNERATION
Lydall provides group life insurance of two 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 and executives of the Company, such life insurance
coverage is three to four times salary and consists of an individual Universal
Life Policy which is owned by the individual.
Lydall provides under a group plan long-term disability coverage of
60 percent of base salary to all eligible salaried employees and full-time
hourly employees at certain Lydall locations. 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. Most 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
24
<PAGE>
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. Carolan and Mr. Lanzi are the only participants named in the Summary
Compensation Table who are fully vested. Mr. Hanley was not vested at the date
of his resignation and, therefore, will receive no benefits under the
Supplemental Executive Retirement Plan in future years. Messrs. Skomorowski,
Carolan, and Lanzi, are estimated to receive annual benefits upon retirement at
normal retirement age in the amount of $209,760, $114,374, $50,441,
respectively.
TRANSACTIONS WITH MANAGEMENT
The Company has entered into employment agreements with Messrs. Skomorowski,
Franks, Grupinski, Lynch, and Ruschmeyer, and Mses. Butenas, Estey,
Krallis-Nixon, and Tremblay. All agreements, with the exception of that
belonging to Mr. Ruschmeyer, are dated March 1, 2000. Mr. Ruschmeyer's agreement
is dated March 16, 2000. These agreements provide, among other things, for
benefits in the event of termination of the employee's employment by the Company
other than for "cause" (as defined in the agreements) or by the employee for
"good reason" (as defined in the agreements). If such a termination without
"cause" or for "good reason" does not occur within 12 months following a "Change
of Control" of the Company, such termination benefits would include (i) a
severance benefit equal to one times (two times in the case of Mr. Skomorowski)
the sum of the employee's annual base salary rate and average annual incentive
bonus (payable in a lump sum in the case of Mr. Skomorowski and spread over
12 months in the case of the other employees); (ii) continued coverage under the
Company's medical, dental and life insurance plans, and in the case of
Mr. Skomorowski the Company's long-term disability plan (if reasonably
commercially available), for up to 12 months (18 months in the case of
Mr. Skomorowski), subject to any required employee contributions; (iii) for
Mr. Skomorowski only, supplemental benefits under the Company's tax-qualified
pension plan and supplemental executive retirement plan as if he had 18
additional months of service; and (iv) certain other benefits. If such a
termination without "cause" or
25
<PAGE>
for "good reason" occurs within 12 months following a "Change of Control" of the
Company, such termination benefits would include: (i) a severance benefit equal
to two times (three times in the case of Mr. Skomorowski) the sum of the
employee's annual base salary rate and average annual incentive bonus (payable
in a lump sum); (ii) a pro-rata portion of the employee's maximum bonus
opportunity for the year of termination of employment; (iii) continued coverage
under the Company's medical, dental, life insurance and (if reasonably
commercially available) long-term disability plans for up to 24 months
(36 months for Mr. Skomorowski), subject to any required employee contributions;
(iv) supplemental benefits under the Company's tax-qualified pension plan and
supplemental executive retirement plan as if the employee had two additional
years of service (three additional years in the case of Mr. Skomorowski);
(v) vesting in stock options and restricted stock; and (vi) certain other
benefits. If any payments or benefits for Mr. Skomorowski are subject to the
federal excise tax on "excess parachute payments," Mr. Skomorowski will receive
under his employment agreement an additional payment in an amount designed to
put him in the same after-tax position as if the excise tax had not been
imposed. The employment agreements define a "Change of Control" to mean (i) the
acquisition of 25 percent or more of the voting power of all classes of the
Company's stock by a person, entity or group other than the Company or any
subsidiary thereof, (ii) the directors on the date of the employment agreement
and their successors whose election or nomination for election was approved by
at least a majority of such directors and successors cease to constitute a
majority of the Board of Directors of the Company, or (iii) the shareholders of
the Company approve a plan of complete liquidation, an agreement for the sale or
other disposition of all or substantially all of the assets of the Company, or
an agreement for the merger or consolidation of the Company (other than a merger
or consolidation in which holders of the Company's common stock before the
merger or consolidation have a majority of the common stock of the surviving
corporation immediately after the merger or consolidation or the Board of
Directors before the merger or consolidation would constitute a majority of the
Board of Directors of the surviving corporation immediately after the merger or
consolidation).
The Company has also entered into employment agreements with
Messrs. Carolan and Lanzi dated February 1, 1999 and March 10, 1995,
respectively. The
26
<PAGE>
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 a
specific period of continued employment for each such executive officer in the
event that he could be forced to resign or otherwise replaced (unless he 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 Messrs. Carolan and Lanzi 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.
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 received during the three years prior to the Employment Period.
The period during which the Company would be obligated to pay such amount would
be one year if forced resignation or replacement occurs prior to a change in
control and two years if forced resignation or other replacement occurs
following a change in control. Each of the agreements provides that the covered
executive officers will not be entitled to any benefits after their normal
retirement date.
John E. Hanley resigned as Vice President-Finance and Treasurer of the
Company effective as of January 31, 2000. Mr. Hanley was provided a negotiated
severance package which includes 11 months of continued base compensation and
paid COBRA premiums for medical and dental coverage through the earlier of
December 31, 2000, or until such time as he is first afforded the opportunity to
secure health-care
27
<PAGE>
coverage through a subsequent employer. Lydall also agreed to pay Mr. Hanley's
premiums under the Executive Life and Disability Plans until December 31, 2000.
The total cost to the Company for these benefits will be approximately $11,500.
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
1999, 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,
the retention of PricewaterhouseCoopers LLP, as independent accountants to the
Company for the year ended December 31, 1999. It is expected that the Board of
Directors will reappoint 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.
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR DIRECTOR
Any proposals or recommendations for Directors by stockholders which are to
be presented at the Annual Meeting to be held in 2001 must be received by the
Company by December 1, 2000 in order to be included in the Proxy Statement and
on the proxy card
28
<PAGE>
relating to the 2001 Annual Meeting.
Under the Company's By-laws, no business, including the nomination of
persons for election to the Board of Directors of the Company, may be brought
before an Annual Meeting of Stockholders, except as set forth in the notice of
the meeting or as otherwise brought before the meeting by, or at the direction
of, the Board of Directors or by a stockholder who has delivered a written
notice to the Company containing certain specified information. Such notice must
be received by the Company not less than 60 days nor more than 90 days prior to
the first anniversary of the preceding year's annual meeting. However, in the
event the annual meeting is not within 30 days before or after such anniversary
date, the notice must be received by the Company not later than the close of
business on the tenth day following the day on which notice of the date of the
annual meeting is mailed or public announcement of the date of the annual
meeting is made, whichever first occurs. The notice must contain certain
specified information about each item of business that the stockholder proposes
for consideration or with respect to each person whom the stockholder proposes
to nominate for election or reelection as a Director, whichever the case may be.
Any proposal or nomination which does not comply with the procedures set forth
in the By-laws will be disregarded. A copy of the By-law provisions discussed in
this paragraph may be obtained by writing to the Company at its principal
executive offices located at One Colonial Road, Manchester, Connecticut 06040,
Attention: Corporate Secretary. These requirements are separate and distinct
from, and are in addition to, the Securities and Exchange Commission
requirements that a stockholder must meet in order to have a stockholder
proposal included in the Company's proxy statement.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR 1999 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.
29
<PAGE>
<TABLE>
<CAPTION>
FOR WITHHELD NOMINEES:
<S> <C> <C> <C>
1. ELECTION / / / / Lee A. Asseo
OF Samuel P. Cooley
DIRECTORS W. Leslie Duffy
David Freeman
Suzanne Hammett
Robert E. McGill, III
Christopher R. Skomorowski
Elliott F. Whitely
Roger M. Widmann
Albert E. Wolf
</TABLE>
FOR, EXCEPT vote withheld from the following nominee(s)
- ------------------------------------------------
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Signature Date Signature Date
----------------------------- ----------- ----------------------------- -----------
</TABLE>
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.
<PAGE>
PROXY
LYDALL, INC.
The undersigned hereby appoints Samuel P. Cooley, Roger M. Widmann, and
Christopher R. Skomorowski, 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 10, 2000 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 April 3, 2000 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)
