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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
Form 10-K
ANNUAL REPORT
/X/ Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee
Required)
For the Fiscal Year Ended December 31, 1999
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from to Commission File Number: 1-7665
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LYDALL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 06-0865505
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
ONE COLONIAL ROAD, MANCHESTER, CONNECTICUT 06045-0151
(Address of principal executive offices) (zip code)
</TABLE>
Registrant's telephone number, including area code: (860) 646-1233
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.10 par value New York Stock Exchange
</TABLE>
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
On March 24, 2000, the aggregate market value of the Registrant's voting stock
held by nonaffiliates was $119,909,456.
On March 24, 2000, there were 15,753,776 shares of Common Stock outstanding,
exclusive of treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive Proxy
Statement to be distributed in connection with the Registrant's Annual Meeting
of Stockholders to be held on May 10, 2000.
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INDEX TO ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1999
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PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 5
Item 3. Legal Proceedings........................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......... 6
Executive Officers and Other Significant Employees of the
Registrant.................................................. 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 7
Item 6. Selected Financial Data..................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 7a. Quantitative and Qualitative Disclosure about Market Risk... 20
Item 8. Financial Statements and Supplementary Data................. 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 20
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 21
Item 11. Executive Compensation...................................... 21
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 21
Item 13. Certain Relationships and Related Transactions.............. 21
The information called for by items 10, 11, 12, and 13, to the extent not
included in this document, is incorporated herein by reference to such
information to be included under the captions "Election of Directors," "Common
Stock Ownership of Management," "Directors' Compensation," and "Executive
Compensation," in the Company's definitive Proxy Statement which is expected to
be filed by March 30, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 22
Signatures.................................................. 25
</TABLE>
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PART I
ITEM 1. BUSINESS
Lydall, Inc. and its subsidiaries (hereafter referred to as "Lydall", the
"Company", or the "Registrant") are manufacturers of engineered products for
demanding specialty applications.
The Company develops and manufactures engineered specialty papers in both roll
and sheet form; fabricated automotive heat shields and acoustical barriers; and
certain medical filtration and bioprocessing components. Lydall's specialty
papers are supplied to other manufacturers for conversion or incorporation into
finished products. The Company's fabricated products are sold to original
equipment manufacturers and tier-one suppliers. Lydall uses wet-laid and
dry-laid nonwoven manufacturing processes incorporating a broad spectrum of
fibers, materials, binders, and resins and a variety of value-added systems to
produce a range of high-performance materials and products.
The Company serves a number of market niches. Lydall's products are primarily
sold directly to the customer through an internal sales force and distributed
through common carrier, ocean cargo, or the Company's distribution operation.
Within each market niche there are typically several competitors. The Company
competes through high-quality products, technology, and customer service. Lydall
has a number of domestic and foreign competitors for its products, most of whom
are either privately owned or divisions of large companies, making it difficult
to determine the Company's market share.
In 1999, the Company defined the thermal/acoustical and filtration/separation
segments as its core businesses and stated its long-term strategy to concentrate
primarily on these segments. In accordance with this strategic focus, Lydall
intends to divest businesses outside of these markets.
Lydall's products fall into four reportable segments: Thermal/Acoustical,
Filtration/Separation, Paperboard and Wovens. All other products are aggregated
in Other Products and Services. During the fourth quarter of 1999, Lydall
announced the discontinuation of the Wovens segment, the sale of which was
completed on February 29, 2000. Also, in the fourth quarter, the Company renamed
two of its segments to reflect the range of products included. Heat-Management
was renamed Thermal/Acoustical, and Filtration was renamed
Filtration/Separation. Financial reporting classifications and presentations
were not affected by these name changes.
SEGMENTS
THERMAL/ACOUSTICAL
Lydall's thermal and acoustical barriers, heat shields, and insulating products
include a range of fiber-based materials, fiber-and-metal combinations, and
all-metal products that protect and insulate within temperature environments
ranging from -459 DEG. F (-237 DEG. C) up to +3000 DEG. F (+1649 DEG. C).
At the highest temperature requirements, Lytherm-Registered Trademark- specialty
papers are used as linings for ovens, kilns, furnaces, and in glass and metal
manufacturing.
At mid-range temperatures, Manninglas-Registered Trademark- specialty papers are
employed in consumer appliances as well as heating, ventilation, and
air-conditioning ductwork. Lydall's automotive heat shields include organic and
inorganic fiber composites, fiber-and-metal combinations, and all-metal
components which are used as thermal barriers in medium- and light-duty trucks,
vans, sport-utility vehicles, and cars. The Company holds patents on many of
these
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products which are employed both inside and outside of vehicles to insulate
passenger compartments, exhaust systems, gas tanks, luggage compartments, heat
and air-conditioning ducts, batteries, electronic components, and engine
compartments. Acoustical barrier and trim products for automotive applications
are also included in this segment.
At the very coldest temperatures (approaching absolute zero),
Cryotherm-Registered Trademark- cryogenic materials, composed of 100-percent
inorganic fibers, are used for super-insulating applications. These applications
include tanker trucks that transport liquid gases, stationary and portable
cryogenic storage vessels, gas tanks for vehicles fueled by liquid natural gas,
and supercolliders.
Thermal/Acoustical segment sales represented 53 percent of the Company's total
sales in 1999, and 36 percent in both 1998 and 1997, respectively. Sales of
thermal/acoustical products increased 107 percent in 1999 from 1998 levels. The
acquisition of Gerhardi & Cie. GmbH & Co. Kg ("Gerhardi"), a German-based
automotive supplier, on December 30, 1998, accounted for the majority of this
growth.
FILTRATION/SEPARATION
The Company manufactures Lydair-Registered Trademark- high-efficiency, glass
microfiber air filtration media for rigid frame applications. Lydall
manufactures six filtration classes of Lydair-Registered Trademark- media in
over 100 grades with filtering efficiencies from 10 percent at 0.3-micron
particle size to 99.999999 percent at 0.1-micron particle size.
Lydair-Registered Trademark- filtration media are used in air filters, which are
capital goods rather than consumables and last approximately five years. Lydall
also supplies media for pre-filters and intermediary filters in air-handling
systems that are replaced more frequently. The Company's HEPA filtration media
are also used in home air purification systems.
Lydall also produces liquid filtration media which are used primarily in
high-efficiency hydraulic oil and lubrication oil elements for off-road
vehicles, trucks, and heavy equipment. These products are sold under the
Lypore-Registered Trademark- trademark.
Charter Medical, Ltd. fabricates medical filter components employed in blood
filtration devices, such as cardiotomy reservoirs which filter the blood supply
of open-heart surgery patients during operations, and autotransfusion filters
used to filter blood collected from patients before surgery or from injured
patients. Charter Medical also manufactures proprietary medical devices for
biotech and pharmaceutical packaging, blood bank and transfusion services, and
neonatal intensive care.
Sales from the Filtration/Separation segment represented 19 percent of total
sales in 1999 compared with 25 percent in 1998, and 24 percent in 1997. Overall
sales of filtration/separation products increased 5 percent in 1999 from 1998.
PAPERBOARD
The Paperboard segment includes commodity paper products which are employed
primarily in materials-handling and packaging applications.
Lydall produces slipsheets, separator sheets, and protective sheets.
Ly-Pak-Registered Trademark- slipsheets are used to ship a growing number of
products such as food, pharmaceuticals, and chemicals.
Ly-Pak-Registered Trademark- slipsheet systems are a substitute for wooden
pallets, providing significant cost and space reductions for the customer.
Ly-Pak-Registered Trademark- separator sheets are supplied to the glass and
plastic bottle industry and are manufactured to meet industry specifications for
bulk
2
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palletizing. Ly-Pak-Registered Trademark- protective sheets are used as pallet
pads, protective top caps, and stabilizing sheets. These products are
custom-made from plies of virgin kraft linerboard and laminated with a special
moisture-resistant adhesive.
Paperboard sales represented 14 percent of total sales in 1999 compared with
18 percent in 1998 and 17 percent in 1997. Sales of these products increased by
6 percent in 1999.
WOVENS
During the fourth quarter of 1999, the Company announced the discontinuation of
this segment, the sale of which was completed on February 29, 2000. The Wovens
segment included specialty woven composites used in advanced structural
materials sold to the aerospace, marine, and sporting goods industries.
The results of the Wovens segment have been excluded from continuing operations
for the years ended December 31, 1999, 1998, and 1997. See Note 5 in "Notes to
Consolidated Financial Statements."
OTHER PRODUCTS AND SERVICES
Other Products and Services includes pencil slats made from recycled newsprint
and cardboard, electrical insulation, several specialty products, battery
separators made in Europe, and the Company's distribution and warehouse
services. It also includes fiberboard composites manufactured at Lydall's
Composite Materials, Hoosick Falls Operation and sold in sheet form to
fabricators of high-performance gaskets. The Hoosick Falls Operation was sold on
January 28, 2000.
Other Products and Services sales were 16 percent of the Company's total sales
in 1999, compared with 21 percent in 1998, and 23 percent in 1997.
3
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GENERAL BUSINESS INFORMATION
Lydall holds a number of patents, trademarks, and licenses. While no single
patent, trademark or license by itself is critical to the success of Lydall,
together these intangible assets are of considerable value to the Company.
No significant portion of Lydall's business is seasonal. Lydall maintains levels
of inventory and grants credit terms which are normal within the industries it
serves. The Company uses a wide range of raw materials in the manufacturing of
its products and was able to obtain the raw materials needed during 1999. The
majority of raw materials used by Lydall are available from a variety of
suppliers who can be substituted if necessary.
Sales to the automotive market represented 46 percent of Lydall's total sales in
1999 compared with 26 percent and 27 percent in 1998 and 1997, respectively.
Lydall sells to both original equipment manufacturers and tier-one suppliers for
use in a variety of models and applications. Sales to Ford Motor Co. were
$36.8 million, or 12 percent of Lydall's total sales in 1999. No other single
customer accounted for more than 10 percent of total sales in 1999.
Lydall invested $7.6 million in 1999, and $8.7 million in both 1998 and 1997 to
develop new products and manufacturing processes and to improve existing
products. Most of Lydall's investment in research and development is application
specific; very little is pure research. There were no significant
customer-sponsored research and development activities during the past three
years.
Lydall's backlog was $48.5 million at December 31, 1999, $29.5 million at
December 31, 1998, and $18.8 million at December 31, 1997. Backlog at
February 29, 2000 was $50.8 million. The large increase in backlog at
December 31, 1999 is related to Gerhardi orders that mainly will be filled in
the first nine months of 2000. There are no seasonal aspects to this backlog.
No material portion of Lydall's business is subject to renegotiation of profits
or termination of contracts or subcontracts at the election of any governmental
body.
Lydall believes that its plants and equipment are in substantial compliance with
applicable federal, state and local provisions that have been enacted or adopted
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment. Additional measures to maintain
compliance with presently enacted laws and regulations are not expected to have
a substantial adverse effect on the capital expenditures, earnings, or
competitive position of the Company. For information relating to certain
environmental proceedings involving the Company, please refer to Note 14 in
"Notes to Consolidated Financial Statements."
As of February 29, 2000, Lydall had 1,914 employees. Four unions under contracts
expiring at various points through March 2005 represented approximately 122 of
the domestic employees. Lydall considers its employee relationships to be
satisfactory, and there have not been any actual or threatened work stoppages
due to union-related activities. All employees at the Company's facility in
France are covered under a National Collective Bargaining Agreement. Hourly and
certain salaried employees at the German operations are also covered under a
National Collective Bargaining Agreement.
Foreign and export sales were 39 percent of total sales in 1999, 18 percent in
1998 and 20 percent in 1997. Export sales are concentrated primarily in Europe,
the Far East, Mexico, and Canada and aggregated $35.5 million, $30.4 million,
and $34.6 million in 1999, 1998, and 1997, respectively. Foreign sales were
$89.1 million, $10.8 million, and $11.2 million for the years ended
December 31, 1999, 1998, and 1997, respectively. Foreign operations
4
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incurred losses of $1.2 million, $1.0 million (including the recognition of an
impairment loss of $941 thousand), and $348 thousand, for the years ended
December 31, 1999, 1998 and 1997, respectively. Total foreign assets were
$65.0 million at December 31, 1999 compared with $73.4 million at December 31,
1998 and $16.4 million at December 31, 1997.
There are no anticipated operating risks related to foreign investment law,
expropriation, inflation effects or availability of material, labor and energy.
The Company's foreign and domestic operations limit currency and foreign
exchange transaction risks by completing transactions primarily in their
functional currencies.
ITEM 2. PROPERTIES
The principal properties of the Company are situated at the following locations
and have the following characteristics:
<TABLE>
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Approximate Area
Land Buildings
Location General Description (Acres) (Sq.Feet)
<C> <S> <C> <C> <C>
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1 Rochester, New Hampshire Specialty Papers Manufacturing 18.0 158,000
2 Green Island, New York Specialty Papers Manufacturing 5.4 275,000
3 Saint-Rivalain, France Specialty Papers Manufacturing 14.3 156,000
4 Hamptonville, North Carolina Thermal/Acoustical Products Fabricating and 35.0 85,000
Manufacturing
5 Columbus, Ohio Thermal/Acoustical Products Fabricating 9.0 80,000
6 St. Johnsbury, Vermont Thermal/Acoustical Products Fabricating 10.0 43,000
7 Ludenscheid, Germany Thermal/Acoustical Products Fabricating and 2.9 118,000
Manufacturing
8 Ibbenburen, Germany Thermal/Acoustical Products Fabricating and 9.9 180,000
Manufacturing
9 Meinerzhagen, Germany Thermal/Acoustical Products Fabricating and 3.8 86,000
Manufacturing
10 Lakewood, New Jersey Biomedical Products Fabricating -- 20,000
11 Winston-Salem, North Biomedical Products Fabricating and Manufacturing -- 29,000
Carolina
12 Covington, Tennessee Composite Materials Manufacturing 26.0 155,000
13 Richmond, Virginia Laminated Paperboard Manufacturing 5.0 104,000
14 Jacksonville, Florida Laminated Paperboard Manufacturing -- 52,000
15 Manchester, Connecticut Paperboard Manufacturing 11.6 70,000
16 Manchester, Connecticut Warehouse and Office Facility 9.1 120,000
17 Manchester, Connecticut Corporate Office 4.5 20,000
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</TABLE>
Properties numbered 5, 6, 10, 11, 13 and 14 are being leased; all others are
owned. For information regarding obligations for lease rentals and owned
property, see Note 4 in "Notes to Consolidated Financial Statements." Lydall
considers its properties to be suitable and adequate for its present needs. The
properties are being fully utilized. In addition to the properties listed above,
the Company has several additional leases for sales offices and warehouses in
the United States, Europe, and Japan.
5
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ITEM 3. LEGAL PROCEEDINGS
No legal proceedings were settled in the fourth quarter of 1999. See Note 14 in
"Notes to Consolidated Financial Statements" for additional information on legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of 1999.
EXECUTIVE OFFICERS AND OTHER SIGNIFICANT EMPLOYEES OF THE REGISTRANT:
The executive officers of Lydall, Inc., together with the offices presently held
by them, their business experience since January 1, 1995, and their ages, are as
follows:
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Other Business
Name Age Title Experience Since 1995
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Christopher R. Skomorowski 46 President and Chief Executive Division President
Officer (since 1998), Director Lydall Westex
(1994-1995, 1998-1999)
Walter A. Ruschmeyer 49 Executive Vice President- Interim Vice President of
Finance and Administration, Finance and Treasurer, Lydall,
and Chief Financial Officer Inc. Partner in Bushavior,
(since March 2000) Controller of Carrier
Corporation
James P. Carolan 57 Executive Vice President N/A
(since 1998), Division
President (since 1983),
Director (1994-1995,
1996-1998)
Carole F. Butenas 57 Vice President-Investor N/A
Relations (since 1991),
Director (1995-1996)
Mary A. Tremblay 39 General Counsel and Secretary N/A
(since 1991)
Raymond J. Lanzi 61 Division President (since N/A
1979), Director (1993-1994)
Bill W. Franks, Jr. 41 Division President (since Vice President and General
1997) Manager, Lydall Logistics
Management
Raymond S. Grupinski, Jr. 38 Division President (since Director of Operations, Lydall
1998) Westex and General Manager of
Lydall Westex-Columbus
Operation
Kevin G. Lynch 47 Division President (since Vice President of Sales and
1998) Marketing at Lydall Technical
Papers
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</TABLE>
6
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol LDL. Shares totaling 9,316,600 and 7,507,000 were traded during 1999 and
1998, respectively. The table below shows the range of reported sale prices on
the New York Stock Exchange Composite Tape for the Company's Common Stock for
the periods indicated. As of March 13, 2000, the record date of the Company's
2000 Annual Meeting, 1,516 stockholders of record held 15,699,776 shares of
Lydall's Common Stock, $.10 par value. As of the record date, there were no
shares outstanding of the Company's Preferred Stock, $1.00 par value.
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High Low Close
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<S> <C> <C> <C>
1999
FIRST QUARTER $12.88 $7.75 $8.31
SECOND QUARTER 12.50 8.31 11.50
THIRD QUARTER 12.88 9.81 10.31
FOURTH QUARTER 10.38 5.25 6.63
1998
First Quarter $20.81 $17.06 $18.06
Second Quarter 18.94 14.44 14.56
Third Quarter 14.75 10.25 10.25
Fourth Quarter 13.31 9.25 11.88
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</TABLE>
The Company did not pay a cash dividend on its Common Stock and does not
anticipate doing so for the foreseeable future. Cash will be reinvested in core
businesses.
7
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ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR STATISTICAL REVIEW
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$ thousands except per-share amounts 1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
FINANCIAL RESULTS FROM CONTINUING
OPERATIONS
Net sales $318,505 $224,286 $234,447 $252,652 $252,128
Income from continuing operations 12,952 9,825 22,380 24,736 22,438
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COMMON STOCK PER-SHARE DATA
Continuing operations (diluted) $ .82 $ .61 $ 1.29 $ 1.38 $ 1.23
Common stockholders' equity 7.34 6.96 7.04 6.89 5.88
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FINANCIAL POSITION
Total assets $220,236 $226,848 $160,124 $182,119 $158,072
Working capital (deficit) 64,630 (9,090) 39,203 53,358 52,730
Current ratio 2.28 .91 2.39 2.24 2.77
Long-term debt, net of current
maturities 38,334 -- 2,100 5,050 7,750
Total stockholders' equity 115,236 109,225 113,030 117,844 101,811
Debt to total capitalization 28.2% 33.4% 4.3% 12.9% 9.4%
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PROPERTY, PLANT, AND EQUIPMENT
Net property, plant, and equipment $80,556 $107,836 $68,860 $62,038 $60,074
Capital additions from acquisitions -- 32,065 -- 500 --
Other capital additions 16,773 17,657 17,104 10,893 12,006
Capital divestment, net 303 679 685 894 632
Depreciation 11,946 8,844 7,993 7,824 7,122
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PERFORMANCE RATIOS AND OTHER ITEMS
Return on average assets 5.9% 5.4% 14.3% 15.2% 15.2%
Return on average common
stockholders' equity 11.5% 8.8% 19.4% 22.5% 25.2%
Return on sales 4.1% 4.4% 9.6% 9.8% 8.9%
Days of inventory on hand 34 34 30 29 33
Days of receivables outstanding 43 50 48 46 49
Number of employees at year-end 2,047 1,330 1,225 1,268 1,227
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SHARES AND STOCKHOLDERS
Weighted average common stock and
equivalents 15,784,000 16,163,000 17,319,000 17,988,000 18,197,000
Common stock outstanding at year-end 15,699,776 15,693,860 16,065,473 17,092,011 17,320,252
Stockholders at year-end 1,516 1,603 1,653 1,855 1,918
Market price per share of common
stock--
Highest close $ 12.81 $ 20.13 $ 25.75 $ 25.87 $ 28.50
Lowest close $ 5.81 $ 9.25 $ 18.50 $ 19.75 $ 14.75
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</TABLE>
Share figures adjusted to reflect a two-for-one stock split in 1995.
1998 financial position items incorporate the assets and liabilities of Gerhardi
which was acquired on December 30, 1998. The 1998 balances of Gerhardi are not
included in calculations in the Performance Ratios and Other Items section
above.
The results of operations of the discontinued Wovens segment have been excluded
from the selected financial data schedule for all applicable periods. Wovens
segment balance sheet items have been excluded from calculations in the
Performance Ratios and Other Items section for 1996 through 1999.
8
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ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion reflects the discontinuation of the Wovens segment.
Thus, the results of operations of the Wovens segment have been excluded for all
periods discussed.
SALES
OVERVIEW
In 1999, sales from continuing operations increased 42 percent to
$318.5 million.
- Acquisitions contributed sales of $84.3 million.
- Internal marketing actions resulted in a net increase in sales of
$14.0 million.
- External forces accounted for a net decrease of $4.1 million.
In 1998, the acquisition of a manufacturer of medical and pharmaceutical
products and an automotive heat-shield operation contributed sales of
$11.4 million. Internal marketing actions plus external market forces produced a
combined negative impact of $21.5 million.
During 1997, internal and external forces combined reduced sales by a net
$18.3 million.
ACQUISITIONS
Lydall isolates the impact of acquisitions for three years, after which time it
considers such operations to be fully integrated. The Company made no
acquisitions in 1999. However, three acquisitions made in 1998 were the primary
drivers of sales growth in 1999.
The acquisition of Gerhardi, included in the Thermal/Acoustical segment, had no
impact on sales or results of operations in 1998. In 1999, Gerhardi contributed
sales totaling $75.3 million. Acquiring Gerhardi increased international sales
and fulfilled the Company's goal of having a thermal manufacturing presence in
Europe. Gerhardi's heat-shield business directly complements Lydall's domestic
automotive business and opens growth opportunities both in the U. S. and Europe.
The injection-molding and chrome-plating operations of Gerhardi, however, are
not central to Lydall's long-term strategic focus. Accordingly, in the fourth
quarter of 1999, the Company announced its intention to divest the two non-core
operations. These two operations generated sales of approximately $50 million in
1999. The Company expects to sell these businesses in 2000.
Two other 1998 acquisitions--a medical device business, part of the
Filtration/Separation segment, and a domestic automotive heat-shield operation,
included in the Thermal/Acoustical segment--added incremental sales of
$9.0 million in 1999 and $11.4 million in 1998.
9
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INTERNAL MARKETING ACTIONS
During 1999, sales increased by a net $14.0 million due to internal marketing
actions. Lydall defines product introductions, net of product discontinuances,
market-share changes, and selling price changes as internal marketing actions.
Internal marketing actions caused a net increase in sales of $700 thousand in
1998 and a net decrease of $13.1 million in 1997.
Sales from 1999 product introductions of $13.7 million represented a 54-percent
increase over 1998 new-product sales of $8.9 million. This compares with
incremental new-product sales of $2.4 million in 1997. 1999 growth was primarily
attributable to automotive applications; specifically, the development of Zero
Clearance-TM- high-performance, self-adhesive underbody shields, innovative
Polyshield-TM- components, the acoustical barrier, dBLyte-TM-, and a large
thermal/acoustical shield introduced on the latest Lincoln LS and Jaguar S-type
models. New-product introductions also occurred in the Filtration/Separation
segment, including both air filtration and biomedical fluid processing products.
Product discontinuances amounted to $6.6 million in 1999 compared with
$3.1 million in 1998 and $6.1 million in 1997. As with product introductions,
most product discontinuances related to automotive products under the
Thermal/Acoustical segment. The 1999 and 1998 reductions were primarily
attributable to the replacement of existing products by new products. In 1997,
Lydall exited certain low-margin non-core products, while discontinuing a
flame-barrier material sold to the office-panel market.
Market-share changes in 1999 caused a net sales increase of $8.9 million. A
healthy market expansion overseas by the materials-handling business of the
Paperboard segment was offset by losses of boxboard market share within that
same segment. The Filtration/Separation segment achieved market-share increases,
particularly in Europe and Asia, and the Company's distribution services
operation captured market share.
In 1998, changes in market share caused sales to decrease by $4.2 million. This
decrease was primarily due to lower Asian demand for filtration media employed
in high-efficiency air-filtration applications and from losses to lower cost
competitors in the mature electrical insulation market.
In 1997, net market-share losses of $1.4 million occurred primarily in the
Thermal/Acoustical segment related to the automotive market.
Prices declined by a net $2.0 million during 1999 and $900 thousand over the
course of 1998. In both years, pricing weakness was felt in the
Thermal/Acoustical and Filtration/Separation segments, specifically related to
non-automotive thermal barriers and air filter media. Pricing adjustments
associated with long-term contractual commitments also affected certain
automotive products. In 1998, the Paperboard segment recorded price increases of
approximately $1.7 million.
In 1997, pricing caused a drop in sales of $8.0 million. Price changes in 1997
were concentrated in the Paperboard segment. Selling prices of Lydall's
materials-handling products in this segment are somewhat dependent on the
pricing of linerboard, its primary raw material.
EXTERNAL MARKET FORCES
Lydall defines external forces as the effects of economic and market changes
beyond the influence of management, including the effects of market decay,
pricing pressures, and foreign exchange. During 1999, external forces
10
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reduced sales by a net $4.1 million. Economic growth and market-share gains made
in the Filtration/Separation segment were offset by market changes, such as the
design-out of certain products in the Thermal/Acoustical segment. Competitive
pricing environments, particularly in the Paperboard segment, also countered
economic and market-share growth during the year.
In 1998, external market forces caused a deterioration in sales of
$22.2 million. A weak air-filtration market, declining use of pyrotechnic airbag
inflator systems that employ Lydall's materials, and a number of automotive
thermal barrier design changes were the major contributors to this decline.
In 1997, external forces reduced sales by $5.2 million. Positive economic forces
and market growth substantially offset the effects of market decay and other
negative market changes during the year. Currency exchange rates, which have a
nominal effect in most years, resulted in a $2.2 million reduction in sales in
1997.
- - --------------------------------------------------------------------------------
CHANGES IN SALES
<TABLE>
- - ---------------------------------------------------------------------
$ millions 1999 1998 1997
- - ---------------------------------------------------------------------
<S> <C> <C> <C>
Prior year's net sales $224.3 $234.4 $252.7
.....................................................................
Acquisitions 84.3 11.4 --
Internal marketing actions 14.0 .7 (13.1)
External market forces (4.1) (22.2) (5.2)
.....................................................................
Total change 94.2 (10.1) (18.3)
.....................................................................
Current year's net sales $318.5 $224.3 $234.4
- - ---------------------------------------------------------------------
</TABLE>
GROSS MARGIN
OVERVIEW
Gross margin increased to $75.5 million during 1999, but declined as a percent
of sales to 23.7 percent.
- Acquisitions added gross margin of $9.9 million.
- The increased volume had a positive impact of $2.2 million.
- Net pricing actions eroded gross margin by $1.2 million.
- Cost reductions improved gross margin by $1.0 million.
In 1999, margins were lowered by cost overruns associated with process redesigns
and new process implementations necessitated by the introduction of a record
number of new automotive products. The Company improved manufacturing
efficiencies during the year and put procedures in place to facilitate smoother,
more cost efficient new-product launches in the future.
Gross margin in 1998 was $65.9 million, or 29.4 percent of sales. Acquisitions
produced incremental margin improvements in 1998, but lower sales volume, and
the combined effect of price decreases in relation to net cost increases acted
to reduce margins. The shutdown and consolidation of automotive thermal
operations in North
11
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Carolina and additional overhead to support the operations of Charter
Medical, Ltd. as a stand-alone facility lowered margins. Cost-reduction programs
during the year contributed positively to overall gross-margin performance.
In 1997, gross margin was $76.9 million, or 32.8 percent of sales. Gross margin
was negatively impacted by lower sales volume and the net effects of price
decreases that were only partially offset by cost decreases from vendors.
ACQUISITIONS
Gerhardi increased Lydall's total 1999 sales by approximately 34 percent, but
diluted total gross margin as a percent of total sales. During the year,
Gerhardi improved its margins while making management changes, relocating and
consolidating metal heat-shield production, and successfully completing an
extensive expansion of the Meinerzhagen plant.
CharterMed, Inc., now Charter Medical in New Jersey, and Engineered Thermal
Systems, Incorporated, now the St. Johnsbury Operation of Lydall Westex, were
successfully integrated into the Company over the course of 1999. Margins at the
New Jersey Operation showed marked improvement despite the distraction of
construction during the year of a manufacturing clean room devoted to
pharmaceutical processing products. The St. Johnsbury Operation improved its
margin performance, added new business, and began construction of a larger
manufacturing plant to accommodate sales growth and to support its focus on
large, complex shields. Lydall looks forward to both these acquisitions
continuing to grow and contributing positively to company-wide margin
improvements in 2000.
In 1998, Charter Medical in New Jersey and the St. Johnsbury Operation combined
to produce $3.2 million of incremental gross margin. Since Gerhardi was acquired
on December 30, 1998, it had no effect on Lydall's 1998 consolidated operating
results.
Gross margin was not affected by acquisitions in 1997.
EFFECTS OF CHANGES IN SALES VOLUME
In 1999, gross margin was depressed by increased sales volume resulting from the
acquisition of Gerhardi, whose margins were significantly below the Company's
average. Also, gains in gross margin from increased sales of Lydall's core
businesses and benefits of cost-reduction efforts during the year were
diminished by pricing pressures.
Lower sales volume produced a $9.7 million decline in gross margin in 1998,
accounting for approximately 90 percent of the total margin decline for the
year. Positive contributions from new products and market growth in several
product lines were recorded in 1998. However, the combined negative effects from
design-outs of automotive heat-management products, market decay, market-share
losses, effects of the Asian economy, and a poor market for filtration products
worldwide overwhelmed these positives.
The same dynamics that affected gross margin in 1998 reduced gross margin in
1997 by $5.2 million. The loss of operating leverage due to design-outs and
product discontinuation offset the benefits of economic and market growth.
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PRICE CHANGES IN RELATION TO COST INCREASES
Net pricing actions eroded gross margin by $1.2 million in 1999. In both 1999
and 1998, the Thermal/Acoustical and Filtration/Separation segments faced
pricing pressures as described under "Sales" in this Item 7. The pricing
environments for the Paperboard segment, although somewhat more stable than in
the two previous years, remained extremely competitive in 1999.
A primary focus of the Company's cost-reduction campaign in 1999 was in the area
of raw material costs. Savings achieved through these initiatives partly
alleviated pricing pressures experienced during the year.
In 1998, prices declined overall by $900 thousand. Vendor costs rose by an
estimated $2.0 million which created a combined negative impact on gross margin
of $2.9 million. The largest impact occurred in the Thermal/Acoustical segment
for products sold to non-automotive thermal applications. The materials-handling
and automotive thermal-barrier businesses also experienced some margin erosion
due to pricing pressures.
During 1997, pricing actions reduced gross margin by $3.5 million. The largest
part of this reduction emanated from the Paperboard segment related to
materials-handling products. Price concessions were evident in Lydall's
Thermal/Acoustical and Filtration/Separation segments as well.
COST REDUCTIONS
Over the last three years, Lydall has focused a great deal of effort on a
company-wide cost-reduction program. A large portion of the savings realized in
1999 was reinvested in the development of the core businesses of thermal/
acoustical and filtration/separation and in other initiatives such as Lydall's
Economic Value-Added (EVA) Program. The net impact of these actions on gross
margin was a positive $1.0 million.
The Company has consistently driven down manufacturing costs over the years
through a combination of management actions and capital improvements. The
positive impact on gross margin of these actions in 1998 was $2.5 million
compared with savings of $2.4 million in 1997.
OTHER EFFECTS
Other effects normally include fluctuations in inventory, depreciation expense,
and other adjustments. These factors reduced gross margin by $2.3 million in
1999.
In 1998, the above factors reduced margins by approximately $2.0 million. Lydall
also closed a facility in North Carolina and wrote off an outdated production
line and related support equipment in France. In addition, the Company set up a
new legal entity and relocated the medical business from within an automotive
thermal/ acoustical operation to a separate facility. The total impact of other
effects on 1998 gross margin was $4.1 million.
In 1997, other effects had a positive impact on gross margin of $1.1 million.
13
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- - --------------------------------------------------------------------------------
CHANGES IN GROSS MARGIN
<TABLE>
- - --------------------------------------------------------------------------------
$ millions 1999 1998 1997
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Prior year's gross margin $65.9 $76.9 $82.1
................................................................................
Acquisitions 9.9 3.2 --
Effects of changes in sales volume 2.2 (9.7) (5.2)
Price increases in relation to cost changes (1.2) (2.9) (3.5)
Cost reductions 1.0 2.5 2.4
Other effects (2.3) (4.1) 1.1
................................................................................
Total change 9.6 (11.0) (5.2)
Current year's gross margin $75.5 $65.9 $76.9
................................................................................
As a percent of net sales 23.7 29.4 32.8
- - --------------------------------------------------------------------------------
</TABLE>
PRETAX INCOME FROM CONTINUING OPERATIONS
OVERVIEW
The Company earned $19.2 million of pretax income from continuing operations in
1999. The net impact of acquisitions was slightly positive in 1999, however,
pricing pressures, especially in paperboard markets, lowered pretax income.
Pretax income from continuing operations declined to $14.5 million in 1998 from
$35.2 million in 1997.
ACQUISITIONS
In 1999, Gerhardi incurred an operating loss of $600 thousand. As disclosed
under "Sales" in this Item 7, Lydall intends to sell the unprofitable
injection-molding and chrome-plating operations of Gerhardi in 2000. Charter
Medical in New Jersey and the St. Johnsbury Operation contributed an incremental
$1.1 million of operating profit. There was no acquisition effect on pretax
income in 1998 and 1997.
OPERATIONS
Pretax income from continuing operations in 1999, other than acquisitions,
equaled $18.6 million compared with $14.5 million in 1998. As discussed in the
"Gross Margin" section of Item 7, there were many factors that impacted
operating results in 1999. Gains from increased sales volume and operating
efficiencies were countered by delays associated with new-product launches at
domestic automotive operations, pricing pressures in the filtration markets, and
competitive conditions in the Paperboard segment.
14
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Selling, product development, and administrative expenses were reduced during
the year by $5.1 million. This compares with an increase in 1998 of
$3.7 million, including the pretax cost of the severance agreement for the
Company's former chairman and chief executive officer and selected impairment
charges.
INVESTMENTS AND FINANCING
Nonoperating investments and financing costs combined to reduce pretax income by
$600 thousand in 1999. Investment and foreign exchange transaction income rose
by a net $1.2 million. The majority of this increase resulted from a foreign
exchange transaction gain due to the appreciation of the dollar in relation to
the Euro. The gain related to a portion of the Gerhardi purchase price funded
from domestic credit lines denominated in Euro. Also, during 1999, interest
expense increased by $1.8 million as a result of higher debt levels associated
with the three acquisitions made in 1998.
Nonoperating investments and financing costs combined to decrease pretax income
by $2.7 million in 1998. Investment balances were much lower as Lydall funded a
major capital program, repurchased common stock, and made three acquisitions.
In 1997, investments and financing costs produced $700 thousand of additional
pretax income. Cash flow during 1997 was in excess of operating and financing
requirements resulting in higher investment income.
CHANGES IN PRETAX INCOME FROM CONTINUING OPERATIONS
<TABLE>
- - --------------------------------------------------------------------------------------------
$ millions 1999 1998 1997
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prior year's pretax income from continuing operations $14.5 $35.2 $39.9
............................................................................................
Acquisitions--change in:
Gross margin 9.9 3.2 --
Selling, product development, and administrative
expenses (9.4) (3.2) --
............................................................................................
Total change from acquisitions .5 -- --
............................................................................................
Operations--change in:
Gross margin (.3) (14.2) (5.2)
Selling, product development, and administrative
expenses 5.1 (3.7) (0.6)
Other income/expense -- (0.1) 0.4
............................................................................................
Total change from operations 4.8 (18.0) (5.4)
Nonoperating investments and financing--change in:
Investment and foreign exchange transaction gain (loss) 1.2 (2.3) 0.6
Interest expense (1.8) (0.4) 0.1
............................................................................................
Total change from nonoperating investments and financing (.6) (2.7) 0.7
............................................................................................
Total change 4.7 (20.7) (4.7)
............................................................................................
Current year's pretax income from continuing operations $19.2 $14.5 $35.2
- - --------------------------------------------------------------------------------------------
</TABLE>
15
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FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. In general, any
statements contained in this report that are not statements of historical fact
may be deemed to be forward-looking statements within the meaning of
Section 21E. Without limiting the generality of the foregoing, the words
"believes," "anticipates," "plans," "expects," and other similar expressions are
intended to identify forward-looking statements. Investors should be aware that
such forward-looking statements are based on the current expectations of
management and are inherently subject to a number of risks and uncertainties
that could cause the actual results of the Company to differ materially from
those reflected in the forward-looking statements. In addition to general
economic conditions and market trends, some of the important factors which could
cause actual results to differ materially from those projected include, but are
not limited to, the following:
A MAJOR DOWNTURN OF THE U.S. AND EUROPEAN AUTOMOTIVE MARKET. Although Lydall's
automotive sales are not solely contingent on the strength of the automotive
market, a significant downturn of the U.S. and European automotive industry
could have a substantial impact on Lydall's results. The Company can also be
affected when automotive manufacturers discontinue production of specific models
that contain Lydall's products. On the other hand, Lydall benefits from the
introduction of new models. Approximately 46 percent of Lydall's total sales in
1999 were to the automotive market. Lydall's primary automotive products are
thermal barriers and heat shields employed both inside and outside of vehicles.
The Company also produces acoustical barrier products. Most of Lydall's products
are supplied to meet unique, niche applications. There is no direct correlation
between the number of Lydall parts on a vehicle and the number of units built,
as with tires or steering wheels for example. Slight fluctuations in automotive
production have relatively little effect on Lydall's business; however, a major
downward shift could prevent Lydall from achieving its projected results.
RAW-MATERIAL PRICING AND SUPPLY. Raw-material pricing and supply issues affect
all of Lydall's businesses and can influence results in the short term. Pricing
fluctuations, however, particularly impact the Company's materials-handling
business. These products are made from laminated virgin kraft paperboard, also
known as linerboard. The materials-handling business is unique for Lydall
because the selling price of Lydall's products move in relation to pricing of
linerboard, its primary raw material. Thus, significant changes in the pricing
of linerboard directly affect this portion of Lydall's business.
The Thermal/Acoustical segment uses aluminum in the manufacturing of most
automotive heat-shields. The heat shields are sold under long-term agreements
with established fixed sales prices. The volatility in aluminum prices over the
agreement periods could impact Thermal/Acoustical segment profitability.
NEW-PRODUCT INTRODUCTIONS. Improved performance and growth is partially linked
to new-product introductions planned for the future. The timing and degree of
success of new-product programs could impact Lydall's projected results.
The Company does not undertake to update any forward-looking statement made in
this report or that may from time to time be made by or on behalf of the
Company.
LIQUIDITY AND CAPITAL RESOURCES
Lydall completed 1999 with $45.2 million outstanding under its various credit
facilities. The indebtedness is related to the three strategic acquisitions
completed in 1998. The 1999 year-end balance represents a decrease of
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$9.5 million, or 17 percent. Operating cash flow in 1999 increased by
19 percent from 1998 to $35.6 million. Debt was reduced, and capital investments
of $16.8 million were made in 1999. The Company funded a similar level of
capital expenditures in 1998 and 1997. Purchases of Common Stock in 1999 totaled
$800 thousand compared with purchases in 1998 and 1997 totaling $10.3 million
and $27.4 million, respectively.
CASH FLOW OVERVIEW
Cash from operating activities in 1999 was $20.6 million compared with
$20.3 million in 1998. In 1997, cash from operating activities equaled
$24.5 million. The positive cash flows in 1999 were derived from operating
earnings before deducting non-cash charges from depreciation, amortization, and
loss on disposal of the Wovens segment.
Cash used for investing activities in 1999 was $17.1 million, mostly related to
capital expenditures. Investment activity in 1999 was down from $60.0 million in
1998, as no acquisitions were completed in 1999. Investing activities in 1997
totaled $16.2 million, primarily capital expenditure related.
Financing activities used $4.5 million in 1999. Payments and proceeds related to
short- and long-term borrowings were $208.5 million and $201.7 million,
respectively in 1999. In 1998 Lydall generated $33.0 million in cash from
financing activities. Net proceeds from bank credit lines were $44.6 million,
while the largest use of cash was the purchase of common stock for
$10.3 million. In 1997, financing activities resulted in net cash outflows of
$37.5 million, including debt repayments totaling $12.5 million and common stock
purchases of $27.4 million.
WORKING CAPITAL PRODUCTIVITY
Lydall measures working capital productivity, or working capital turnover, to
assess short-term utilization of operating resources. Working capital turnover
is defined as net sales divided by the quarterly average of receivables and
inventory, less accounts payable. Turnover declined by 9 percent in 1999 to 5.6
times from 6.2 times in 1998, and 7.3 times in 1997. Overall performance was
negatively impacted by the Gerhardi acquisition and Charter Medical in New
Jersey, both acquired in 1998. Excluding the aforementioned operations,
significant progress with inventory management was achieved throughout the
Company, offset by increased levels of accounts receivable and lower accounts
payable. Management's goal is to improve turnover to historical rates in 2000.
<TABLE>
- - -------------------------------------------------------------------------------------------------
$ millions 1999 1998 1997
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $318.5 $224.3 $234.4
Average working capital 56.7 36.2 32.3
Working capital productivity 5.6 6.2 7.3
Percent change from previous year (9) (15) (12)
- - -------------------------------------------------------------------------------------------------
</TABLE>
FUTURE CASH REQUIREMENTS
Cash requirements for 2000 include the funding of ongoing operations, capital
expenditures, and acquisitions. In 1998, Lydall suspended purchases of Common
Stock except to offset shares granted under the Company's stock option award
program, choosing to focus on cash requirements for existing operations and
acquisitions.
The 2000 capital budget is $14.7 million, down from actual expenditures in 1999
and 1998 of $16.8 million and $17.7 million, respectively.
Management expects to finance capital expenditures and working capital needs
from cash provided by operating activities in 2000. Acquisitions, if completed,
would be financed under the credit facility described under "Credit
Arrangements" below.
17
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CREDIT ARRANGEMENTS
Lydall, Inc. and certain subsidiaries entered into a $69 million credit facility
on July 14,1999 with a group of five banking institutions. The entire facility
is comprised of a $50 million domestic revolving credit facility, renewed every
three years, and a Euro-denominated five-year term loan, which is an obligation
of Lydall's German subsidiary. The current credit facility replaces annually
renewed domestic unsecured credit lines totaling $70 million. The interest rate
on the revolving credit facility is based on various money-market rates selected
by the Company at the time of borrowing. The credit facility carries an annual
facility fee, as well as a commitment fee on the unused portion of the facility.
The Company is required to maintain certain financial ratios and other financial
conditions as part of the credit agreement. The agreement also prohibits the
Company from incurring certain indebtedness, restricts asset sales and capital
expenditures, and limits certain investments and dividends to the extent such
activity affects the financial ratios.
Certain domestic and foreign subsidiaries of the Company maintain additional
lines of credit totaling $11.5 million as of December 31, 1999. These credit
facilities incur interest at rates ranging from 2.3 percent to LIBOR plus
2 percent.
Management believes that current credit arrangements provide ample capacity to
meet working capital requirements and to fund future capital expenditures.
CAPITAL STRUCTURE
Lydall's long-term financial strategy calls for the prudent use of debt
financing. Substantial debt financing in combination with cash from operating
activities are available to complete strategic acquisitions in Lydall's core
thermal/acoustical and filtration/separation markets. At the end of 1999, total
indebtedness was $45.2 million, representing 28 percent of Lydall's total
capital structure.
The Company continually explores its core markets for suitable acquisitions.
Based on a 40-percent debt-to-total-capitalization ratio and maintaining
investment grade credit quality, the Company could borrow up to $50 million to
fund acquisitions. Management has indicated a willingness to exceed the
40 percent debt-to-total-capitalization ratio to complete a compelling strategic
acquisition.
YEAR 2000
Lydall began a comprehensive information technology upgrade program (Lydall
2000) in 1995. Lydall 2000 addressed information technology and non-information
technology systems, and also included an assessment of the status of third
parties. The project went beyond accommodating century-dating issues and
included the implementation of systems to improve product quality, process
efficiencies, and productivity.
As of December 31, 1999, the Company had satisfactorily completed the Lydall
2000 initiative, which included testing major systems in a simulated environment
on and around sensitive Year 2000 dates. Date-sensitive components of machinery
and equipment had been reviewed and remediation of any non-compliant parts was
completed. The Company also examined information from all major customers and
suppliers and did not identify any significant Year 2000 concerns.
As of the date of this report, the Company has not experienced any material
interruptions resulting from Year 2000 date processing. While the possibility of
issues arising from Year 2000 date processing still exists, the impact is likely
to be immaterial. The Company will continue to monitor for Year 2000 problems
during the first half of 2000 to ensure that any potential problems are
minimized.
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OTHER KEY FINANCIAL ITEMS
CASH AND CASH EQUIVALENTS. Cash and cash equivalents decreased to $1.2 million
at the end of 1999 from $2.3 million in 1998.
RECEIVABLES. Receivables were $47.1 million in 1999 and $48.6 million in 1998,
of which trade receivables were $44.7 million and $46.8 million for 1999 and
1998, respectively. Days of sales outstanding in trade receivables were 43 in
1999 and 50 in 1998. Foreign and export sales were approximately 39 percent of
total sales in 1999, 18 percent in 1998, and 20 percent in 1997. These sales are
concentrated primarily in Europe, the Far East, Mexico and Canada.
INVENTORIES. Inventories were $29.1 million at December 31, 1999, net of LIFO
reserves of $1.6 million and $28.9 million at December 31, 1998 net of LIFO
reserves of $1.2 million.
WORKING CAPITAL. Working capital increased to $64.6 million on December 31,
1999 from a deficit of $9.1 million on December 31, 1998. The ratio of current
assets to current liabilities increased to 2.28 from 0.91. The majority of the
working capital improvement resulted from reclassification of certain long-term
assets and liabilities to current assets and related liabilities held for sale.
In addition, a portion of debt classified as current at December 31, 1998 is
classified as long-term at December 31, 1999 based on the Company's new credit
arrangement entered into in July 1999.
CAPITAL ASSET EXPENDITURES. Capital asset expenditures were $16.8 million in
1999, $17.7 million in 1998, and $17.1 million in 1997. Depreciation was
$11.9 million in 1999, $8.8 million in 1998, and $8.0 million in 1997. The
Company's 2000 Capital Plan calls for commitments of $14.7 million. Expenditures
in 2000 are expected to be financed from existing cash balances or cash
generated from operations.
DEBT TO TOTAL CAPITALIZATION. Debt to total capitalization decreased to
28 percent in 1999 from 33 percent in 1998.
COMMON STOCKHOLDERS' EQUITY. Common stockholders' equity increased to
$115.2 million at December 31, 1999, from $109.2 million at December 31, 1998.
On a per-share basis, common stockholders' equity increased to $7.34 at
December 31, 1999 from $6.96 at December 31, 1998.
DIVIDEND POLICY. The Company does not pay a cash dividend on its Common Stock
and does not anticipate doing so in the foreseeable future. Cash will be
reinvested into core businesses.
RESEARCH AND DEVELOPMENT. Research and development investments were
$7.6 million in 1999, and $8.7 million in both 1998 and 1997.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 1 in "Notes to Consolidated Financial Statements."
19
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Lydall is exposed to market risk related to changes in foreign currency exchange
rates and interest rates.
FOREIGN CURRENCY RISK
Lydall has sales and manufacturing activities in foreign countries. As a result,
financial results could be affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in the foreign markets in
which the Company distributes its products. The Company's primary currency
exposure is with the Euro.
Lydall's foreign and domestic operations limit foreign currency exchange
transaction risk by completing transactions primarily in their local currencies.
Lydall utilizes bank loans and other debt instruments throughout its operations.
To mitigate foreign currency risk, such debt is taken out primarily in
underlying local currencies of its subsidiaries.
Lydall uses foreign currency forward contracts to mitigate exposure to foreign
currency volatility. At December 31, 1999, the Company had no foreign currency
forward contracts outstanding. Lydall had a forward contract outstanding at
December 31, 1998 to mitigate the exposure to foreign currency volatility in the
December 30, 1998 acquisition of a German subsidiary. The contract, for a
contractual amount equivalent to $17 million at a contract rate of 1.6733,
limited Lydall's exposure to both favorable and unfavorable currency
fluctuations and settled in January 1999 at a minimal gain.
INTEREST RATE RISK
The Company's interest rate exposure is most sensitive to fluctuations in United
States and European interest rates, which primarily impacts interest paid on
debt. At December 31, 1999 the Company had $26.6 million outstanding on various
lines of credit with variable interest rates. The weighted average interest rate
paid on this debt was 5.4 percent in 1999. The Company also had $17.7 million
outstanding on a 5-year term loan with a variable interest rate. In July of
1999, Lydall entered into an interest rate swap agreement to convert the base
rate component of the interest rate on the term loan to a fixed rate of
3.45 percent to take advantage of favorable long-term borrowing rates in Europe.
Including the effect of the swap the weighted average interest rate on the
long-term debt was 4.7 percent.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is contained under Item 14 Exhibits, Financial
Statement Schedules, and Reports on Form 8-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with the Company's independent accountants on
accounting and financial disclosure matters.
20
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of Lydall and disclosure of late filings
required by Section 16 of the Exchange Act are incorporated by reference to the
definitive Proxy Statement of Lydall to be filed with the Commission relating to
its Annual Meeting of Stockholders to be held on May 10, 2000. Information
regarding the executive officers and other significant employees of the Company
is contained on page 6 of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the compensation of Lydall's directors and executive
officers is incorporated by reference to the definitive Proxy Statement of
Lydall to be filed with the Commission relating to its Annual Meeting of
Stockholders to be held on May 10, 2000, including the Compensation and Stock
Option Committee Report to Stockholders, found on pages 13 through 17, and the
comparative performance graph located on page 18, therein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding beneficial ownership of the Common Stock by certain
beneficial owners and by management of the Company is incorporated by reference
to the definitive Proxy Statement of Lydall to be filed with the Commission
relating to its Annual Meeting of Stockholders to be held on May 10, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions with
management is incorporated by reference to the definitive Proxy Statement of
Lydall to be filed with the Commission relating to its Annual Meeting of
Stockholders to be held on May 10, 2000.
21
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
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PAGE
- - ----------------------------------------------------------------------
<S> <C>
A)1, FINANCIAL STATEMENTS:
Statement of Management Responsibility F-1
Report of Independent Accountants F-2
Consolidated Statements of Income and Comprehensive Income
for the three years ended December 31, 1999 F-3
Consolidated Balance Sheets at December 31, 1999 and 1998 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the three years ended
December 31, 1999 F-6
Consolidated Statements of Cash Flows for the three years
ended December 31, 1999 F-7
Notes to Consolidated Financial Statements F-8
A)2, FINANCIAL STATEMENT SCHEDULES:
Schedule II-Valuation and Qualifying Accounts for the
three years ended December 31, 1999 S-1
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable, or are presented in "Notes to
Consolidated Financial Statements," and therefore have been omitted.
22
<PAGE>
- - --------------------------------------------------------------------------------
A)3, EXHIBITS INCLUDED HEREIN OR INCORPORATED BY REFERENCE:
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of the Registrant, filed
herewith.
3.2 Bylaws of the Registrant (filed as Exhibit 3(ii) to the
Registrant's Quarterly Report on Form 10-Q dated
November 12, 1999, and incorporated herein by this
reference).
4.1 Certain long-term debt instruments, each representing
indebtedness in an amount equal to less than 10 percent of
the Registrant's total consolidated assets, have not been
filed as exhibits to this Annual Report on Form 10-K. The
Registrant will file these instruments with the Commission
upon request.
10.1* Amended and restated, Lydall, Inc. 1982 Stock Incentive
Compensation Plan, amended through May 14, 1991 (filed as
Exhibit 10.6 to the Registrant's Annual Report on Form 10-K
dated March 26, 1992, and incorporated herein by this
reference).
10.2* Lydall, Inc. Senior Management Annual Incentive Compensation
Plan (filed as Exhibit 3.5 to the Registrant's Registration
Statement on Form 8-B dated October 16, 1987, and
incorporated herein by this reference).
10.3* Lydall, Inc. Management Annual Incentive Compensation Plan
(filed as Exhibit 3.6 to the Registrant's Registration
Statement on Form 8-B dated October 16, 1987, and
incorporated herein by this reference).
10.4* Agreement and General Release with Leonard R. Jaskol dated
December 2, 1998, (filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q dated May 17, 1999, and
incorporated herein by this reference.)
10.5* Employment Agreement with John E. Hanley dated March 10,
1995 (filed as Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q dated May 9, 1995, and incorporated
herein by this reference).
10.6* Employment Agreement with Elliott F. Whitely dated
March 10, 1995 (filed as Exhibit 10.3 to the Registrant's
Quarterly report on Form 10-Q dated May 9, 1995, and
incorporated herein by this reference).
10.7* Employment Agreement with Raymond J. Lanzi dated March 10,
1995 (filed as Exhibit 10.5 to the Registrant's Quarterly
report on Form 10-Q dated May 9, 1995, and incorporated
herein by this reference).
10.8* Employment Agreement with Carole F. Butenas dated March 1,
2000, filed herewith.
10.9* Employment Agreement with Mona G. Estey dated March 1, 2000,
filed herewith.
10.10* Employment Agreement with Mary A. Tremblay dated March 1,
2000, filed herewith.
10.11* Lydall, Inc. Board of Directors Deferred Compensation Plan
effective January 1, 1991, (filed as Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K dated March 26,
1991, and incorporated herein by this reference).
10.12* Lydall, Inc. Supplemental Executive Retirement Plan
effective January 1, 1994, (filed as Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K dated March 27,
1996, and incorporated herein by this reference).
10.13* Amended and restated, 1992 Stock Incentive Compensation
Plan, dated May 14, 1992, amended through May 11, 1994,
(filed as Exhibit 4.3 to the Registrant's Registration
Statement on Form S-8 dated April 17, 1998, Reg. No.
[33-93768], and incorporated herein by this reference).
10.14* Employment Agreement with James P. Carolan dated
February 1, 1999 (filed as 10.16 to the Registrant's Annual
Report on Form 10-K dated March 18, 1999, and incorporated
herein by this reference).
10.15* Employment Agreement with Christopher R. Skomorowski dated
March 1, 2000, filed herewith.
</TABLE>
23
<PAGE>
- - --------------------------------------------------------------------------------
<TABLE>
<C> <S>
10.16* Employment Agreement with Walter A. Ruschmeyer dated
March 16, 2000, filed herewith.
10.17* Employment Agreement with Kevin G. Lynch dated March 1,
2000, filed herewith.
10.18* Employment Agreement with Lisa Krallis-Nixon dated March 1,
2000, filed herewith.
10.19* Employment Agreement with Raymond S. Grupinski dated
March 1, 2000, filed herewith.
10.20* Employment Agreement with Bill W. Franks, Jr. dated
March 1, 2000, filed herewith.
10.21 Asset Purchase Agreement between CharterMed, Inc. and
Charter Medical Ltd. (filed as Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K dated March 16,
1998, and incorporated herein by this reference).
10.22 Asset Purchase Agreement between Lydall Central, Inc. and
Engineered Thermal Systems, Inc. (filed as Exhibit 10.1 to
the Registrant's Quarterly report on Form 10-Q dated May 7,
1998, and incorporated herein by this reference).
10.23 Purchase and Sale Agreement (English Translation) signed as
of December 30, 1998 by and between HOHENSTAUFEN
EINHUNDERTSTE. Vermogensverwaltungs GmbH, a wholly owned
subsidiary of Lydall, Inc. and Gerhardi & Cie. Gmbh & Co. KG
related to the purchase of all the outstanding shares of
Gerhardi & Cie. GmbH & Co. KG (filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K filed January 14,
1999).
10.24 Credit Agreement dated July 14, 1999 between Lydall, Inc.
and certain subsidiaries and Chase Manhattan Bank, as
Administrative Agent, and Fleet National Bank, as
Documentation Agent, (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q dated August 11,
1999, and incorporated herein by this reference).
21.1 List of subsidiaries of the Registrant (filed as Exhibit
21.1 to the Registrant's Annual Report on Form 10-K dated
March 27, 1996, and incorporated here by reference).
23.1 Consent of PricewaterhouseCoopers LLP, filed herewith.
24.1 Power of Attorney, dated February 18, 2000, authorizing
Christopher R. Skomorowski and/or Walter A. Ruschmeyer to
sign this report on behalf of each member of the Board of
Directors indicated therein, filed herewith.
27.1 Financial Data Schedule, filed herewith.
* Management contract or compensatory plan.
B) REPORTS ON FORM 8-K:
The Company did not file any reports on Form 8-K during the
three months ended December 31, 1999.
</TABLE>
24
<PAGE>
- - --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Lydall, Inc. has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C> <C>
LYDALL, INC.
Date March 30, 2000 By /s/ CHRISTOPHER R. SKOMOROWSKI
-------------------------------------------
Christopher R. Skomorowski
President and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Lydall, Inc. in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ CHRISTOPHER R. SKOMOROWSKI President and Chief Executive
- - ------------------------------------------------ Officer March 30, 2000
Christopher R. Skomorowski
/s/ WALTER A. RUSCHMEYER Vice President-Finance and Chief
- - ------------------------------------------------ Financial Officer and March 30, 2000
Walter A. Ruschmeyer Principal Accounting Officer
/s/ WALTER A. RUSCHMEYER
- - ------------------------------------------------
Walter A. Ruschmeyer March 30, 2000
Attorney-in-fact for:
</TABLE>
<TABLE>
<S> <C> <C>
Christopher R. Skomorowski Director
Lee A. Asseo Director
Samuel P. Cooley Director
W. Leslie Duffy Director
David Freeman Director
Suzanne Hammett Director
Robert E. McGill, III Director
Elliott F. Whitely Director
Roger M. Widmann Director
Albert E. Wolf Director
</TABLE>
(constituting in excess of a majority
of the full Board of Directors)
25
<PAGE>
- - --------------------------------------------------------------------------------
STATEMENT OF MANAGEMENT RESPONSIBILITY
The consolidated financial statements of Lydall, Inc. and its subsidiaries have
been prepared in accordance with generally accepted accounting principles. The
integrity and objectivity of these statements, including the effect of certain
estimates and judgements, is the responsibility of management.
Lydall's management has established and maintains a system of internal
accounting controls that is designed to provide reasonable assurance that
Company assets are safeguarded, transactions are executed in accordance with
management's authorization, and that the Company's financial records may be
relied upon for the purpose of preparing financial statements. That system is
continuously monitored and assessed by direct management review and by the
Company's internal auditor. Management has concluded that the system of internal
accounting controls was effective throughout the year ended December 31, 1999.
Each year, Lydall's Board of Directors appoints independent accountants who
audit the Company's financial statements in accordance with generally accepted
auditing standards. Their audit includes a review of internal accounting
controls and tests of selected transactions.
The Audit Committee of the Board of Directors, which consists of directors who
are neither officers nor employees of the Company, meets regularly with
management, the independent accountants and the internal auditor to review
financial reporting, internal accounting control and auditing matters. The
Committee has direct and private access to both internal and external auditors.
<TABLE>
<S> <C>
Christopher A. Skomorowski Walter A. Ruschmeyer
President and Chief Executive Officer Executive Vice President-Finance and
Administration and Chief Financial Officer
</TABLE>
F-1
<PAGE>
- - --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Lydall, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 22 present fairly, in all material
respects, the financial position of Lydall, Inc. and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)(2) on page 22 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and the
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 29, 2000
F-2
<PAGE>
- - --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
- - -----------------------------------------------------------------------------------------------
In thousands except per-share data For the years ended
December 31, 1999 1998 1997
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $318,505 $224,286 $234,447
Cost of sales 242,985 158,370 157,517
...............................................................................................
Gross margin 75,520 65,916 76,930
Selling, product development, and administrative expenses 54,827 48,588 43,525
Impairment loss -- 1,948 --
...............................................................................................
Operating income 20,693 15,380 33,405
Other (income) expense:
Investment (income) loss (46) 284 (1,986)
Interest expense 2,612 820 262
Foreign currency transaction (gain) loss (961) (87) 60
Other (134) (127) (143)
...............................................................................................
1,471 890 (1,807)
...............................................................................................
Income from continuing operations before income taxes 19,222 14,490 35,212
Income tax expense 6,270 4,665 12,832
- - -----------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 12,952 9,825 22,380
...............................................................................................
Discontinued operations:
Loss from operations of the Wovens segment, net of tax
benefit of $215, $3,483 and $290, respectively (347) (5,623) (469)
Loss on disposal of the Wovens segment, including
provision for operating losses during the phase-out
period, net of tax benefit of $1,133 (1,830) -- --
...............................................................................................
LOSS FROM DISCONTINUED OPERATIONS (2,177) (5,623) (469)
...............................................................................................
NET INCOME $ 10,775 $ 4,202 $ 21,911
...............................................................................................
BASIC EARNINGS (LOSS) PER COMMON SHARE
Continuing operations $ .82 $ .62 $ 1.34
Discontinued operations (.14) (.35) (.03)
Net income $ .68 $ .27 $ 1.31
Weighted average common stock outstanding 15,715 15,847 16,692
...............................................................................................
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Continuing operations $ .82 $ .61 $ 1.29
Discontinued operations (.14) (.35) (.02)
Net income $ .68 $ .26 $ 1.27
Weighted average common stock and equivalents outstanding 15,784 16,163 17,319
...............................................................................................
NET INCOME $ 10,775 $ 4,202 $ 21,911
...............................................................................................
Other comprehensive income (loss):
Foreign currency translation adjustments, net of $2,563,
$(180), and $772, in tax effect, respectively (5,295) 637 (1,349)
Unrealized gain (loss) on securities:
Unrealized holding gains (losses) arising during
period, net of $0, $103, and $(317) in tax effect,
respectively -- (366) 553
Less: reclassification adjustment for gains (losses)
included in net income -- (344) 608
...............................................................................................
Net unrealized loss on securities, net of $0, $6, and
$31 in tax effect, respectively -- (22) (55)
Minimum pension liability adjustment, net of $(422),
$281, and $121 in tax effect, respectively 784 (522) (224)
...............................................................................................
Other comprehensive income (loss), net of tax (4,511) 93 (1,628)
...............................................................................................
COMPREHENSIVE INCOME $ 6,264 $ 4,295 $ 20,283
- - -----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
- - --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------
<S> <C> <C>
In thousands except share data December 31, 1999 1998
<CAPTION>
- - -----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,154 $ 2,254
Accounts receivable (less allowance for doubtful receivables
of $1,511 in 1999 and $1,504 in 1998) 45,517 48,609
Inventories:
Finished goods 8,529 10,303
Work in process 5,044 8,859
Raw materials and supplies 8,576 11,003
LIFO reserve (1,619) (1,216)
...................................................................................
Total inventories 20,530 28,949
Taxes receivable 4,022 2,256
Prepaid expenses 1,895 1,966
Net investment in discontinued operations (Note 5) 2,125 --
Assets held for sale (Note 6) 35,183 --
Deferred tax assets 4,807 6,785
...................................................................................
Total current assets 115,233 90,819
...................................................................................
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land 1,410 2,729
Buildings and improvements 24,779 30,764
Machinery and equipment 91,761 111,157
Office equipment 22,471 16,865
Vehicles 943 1,310
Assets in progress 5,464 9,660
...................................................................................
146,828 172,485
Less accumulated depreciation (66,272) (64,649)
...................................................................................
80,556 107,836
OTHER NONCURRENT ASSETS:
Goodwill, at cost (net of accumulated amortization of $4,652
and $4,463 in 1999 and 1998, respectively, and an
impairment loss of $6,519 recognized in 1998) 19,444 23,380
Other assets, at cost (net of accumulated amortization of
$6,038 in 1999 and $7,922 in 1998) 5,003 4,813
...................................................................................
24,447 28,193
...................................................................................
TOTAL ASSETS $220,236 $226,848
- - -----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
- - --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------
<S> <C> <C>
In thousands except share data December 31, 1999 1998
<CAPTION>
- - -----------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft $ 2,564 $ --
Current portion of long-term debt 6,849 2,340
Short-term borrowings -- 52,324
Accounts payable 18,438 22,530
Accrued taxes 920 1,411
Accrued payroll and other compensation 4,021 5,810
Liabilities related to assets held for sale (Note 6) 6,945 --
Other accrued liabilities 10,866 15,494
...................................................................................
Total current liabilities 50,603 99,909
...................................................................................
Long-term debt 38,334 --
Deferred tax liabilities 11,306 10,726
Other long-term liabilities 4,757 6,988
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Common stock, par value $.10 per share, authorized
30,000,000 shares, issued 21,797,164 shares in 1999 and
21,714,301 shares in 1998 2,180 2,171
Capital in excess of par value 39,195 38,697
Retained earnings 140,085 129,310
Accumulated other comprehensive loss (4,582) (71)
...................................................................................
176,878 170,107
Less cost of 6,097,388 shares of common stock in treasury in
1999 and 6,020,441 shares in 1998 (61,642) (60,882)
...................................................................................
Total stockholders' equity 115,236 109,225
...................................................................................
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $220,236 $226,848
- - -----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
- - --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Accumulated
in Other Cost of Total
Preferred Common Excess of Retained Comprehensive Stock in Stockholders'
In thousands Stock Stock Par Value Earnings Income (Loss) Treasury Equity
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 $-- $2,112 $34,235 $103,197 $ 1,464 $(23,164) $117,844
Stock options exercised 31 2,275 2,306
Purchase of treasury shares (27,403) (27,403)
Net income 21,911 21,911
Other comprehensive loss (1,628) (1,628)
........................................................................................................................
BALANCE AT DECEMBER 31, 1997 -- 2,143 36,510 125,108 (164) (50,567) 113,030
Stock options exercised 28 2,187 2,215
Purchase of treasury shares (10,315) (10,315)
Net income 4,202 4,202
Other comprehensive income 93 93
........................................................................................................................
BALANCE AT DECEMBER 31, 1998 -- 2,171 38,697 129,310 (71) (60,882) 109,225
Stock options exercised 9 498 507
Purchase of treasury shares (760) (760)
Net income 10,775 10,775
Other comprehensive loss (4,511) (4,511)
........................................................................................................................
BALANCE AT DECEMBER 31, 1999 $-- $2,180 $39,195 $140,085 $(4,582) $(61,642) $115,236
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
- - --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
In thousands For the years ended December 31, 1999 1998 1997
<CAPTION>
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 10,775 $ 4,202 $ 21,911
............................................................................................
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 11,946 8,844 7,993
Amortization 1,775 2,052 1,569
Loss on disposal of Wovens segment 1,830 -- --
Impairment loss -- 8,467 --
Loss on disposition of property, plant and equipment 303 403 685
Foreign currency transaction (gain) loss (961) (87) 60
Changes in operating assets and liabilities, excluding
effects from acquisitions:
Accounts receivable 100 2,132 1,221
Taxes receivable (1,766) (224) (2,032)
Inventories (1,527) 333 (1,140)
Prepaid expenses and other assets (1,292) 5 (1,708)
Accounts payable (2,798) (895) (2,049)
Accrued taxes (348) 343 (249)
Accrued payroll and other accrued liabilities (469) (2,294) (2,452)
Deferred income taxes 3,954 (5,600) 818
Other long-term liabilities (904) 2,651 (158)
............................................................................................
Total adjustments 9,843 16,130 2,558
............................................................................................
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,618 20,332 24,469
............................................................................................
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (281) (46,447) (78)
Additions of property, plant and equipment (16,773) (17,657) (17,104)
Proceeds from the sale of property, plant and equipment -- 276 --
Sale of investments, net -- 3,851 1,013
............................................................................................
NET CASH USED FOR INVESTING ACTIVITIES (17,054) (59,977) (16,169)
............................................................................................
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft 2,564 -- --
Long-term debt payments (75,444) (3,484) (4,450)
Long-term debt proceeds 108,840 -- --
Proceeds from short-term borrowings 92,902 110,820 --
Payments of short-term borrowings (133,087) (66,245) --
Notes payable -- -- (8,000)
Issuance of common stock 507 2,215 2,306
Acquisition of common stock (760) (10,315) (27,403)
............................................................................................
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (4,478) 32,991 (37,547)
............................................................................................
EFFECT OF EXCHANGE RATE CHANGES ON CASH (186) 17 (88)
............................................................................................
Decrease in cash and cash equivalents (1,100) (6,637) (29,335)
Cash and cash equivalents at beginning of year 2,254 8,891 38,226
............................................................................................
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,154 $ 2,254 $ 8,891
- - --------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
- - --------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 2,689 $ 734 $ 687
Income taxes 5,016 6,231 14,678
Noncash transactions:
Amounts payable for acquired operations -- 240 16
Additional minimum pension liability 1,206 999 591
Unrealized losses on available-for-sale securities -- (22) (55)
Liabilities assumed with acquisitions -- 26,496 --
Net cash provided by operating activities includes changes in certain assets and
liabilities which have been reclassified as "Net Investment in Discontinued Operations,"
"Assets Held for Sale," and "Liabilities Related to Assets Held for Sale" in the
Consolidated Balance Sheet.
- - --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
- - --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of Lydall, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES. The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
financial statement dates, and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include cash on hand and
highly liquid investments with a maturity of three months or less at the date of
purchase.
CONCENTRATION OF RISK. Financial instruments which potentially subject the
Company to concentrations of credit risk consist principally of cash, cash
equivalents, short-term investments, and trade receivables. The Company places
its cash, cash equivalents and short-term investments in high-quality financial
institutions and instruments. Concentrations of credit risk with respect to
trade receivables are limited by the large number of customers comprising the
Company's customer base and their dispersion across many different industries
and geographies. The Company performs ongoing credit evaluations of its
customers' financial condition and generally does not require collateral. Sales
to the automotive market were 46 percent of the Company's 1999 total sales
compared with 26 percent in 1998 and 27 percent in 1997. Sales to Ford Motor Co.
represented 12 percent, 15 percent, and 19 percent of Lydall's total sales in
1999, 1998, and 1997, respectively. No other single customer accounted for more
than 10 percent of total sales in 1999, 1998, or 1997. As of December 31, 1999,
the Company had no other significant concentrations of risk.
INVENTORIES. Approximately 37 percent in 1999 and 33 percent in 1998 of the
inventories have been valued on a last-in, first-out (LIFO) method and the
balance on a first-in, first-out (FIFO) method at the lower of cost or market.
DEPRECIATION AND AMORTIZATION. Property, plant, and equipment are depreciated
over their estimated useful lives using the straight-line method for financial
statement purposes. Leasehold improvements are depreciated on a straight-line
basis over the term of the lease or the life of the asset, whichever is shorter.
Useful lives by category are as follows:
<TABLE>
- - -------------------------------------------------------------------------
Category Useful Life
- - -------------------------------------------------------------------------
<S> <C>
Buildings and improvements 10-35 years
Machinery and equipment 5-25 years
Office equipment 2-8 years
Vehicles 3-6 years
- - -------------------------------------------------------------------------
</TABLE>
INTANGIBLES. Goodwill and other intangibles are being amortized on a
straight-line basis primarily over periods not exceeding 25 years.
F-8
<PAGE>
- - --------------------------------------------------------------------------------
VALUATION OF LONG-LIVED ASSETS. The Company periodically evaluates the
recoverability of long-lived assets, including goodwill and other intangible
assets. At the time such evaluations indicate that the future undiscounted cash
flows are not sufficient to recover the carrying value of the asset, the asset
is adjusted to fair value. Fair value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Based on these evaluations, certain machinery and goodwill were adjusted to fair
value in 1998.
REVENUE RECOGNITION. Lydall recognizes revenues when the product is shipped.
RESEARCH AND DEVELOPMENT. Costs are charged to expense as incurred.
EARNINGS PER SHARE. Basic earnings per common share are based on net income
divided by the weighted average number of common shares outstanding during the
period. Diluted earnings per common share are based on net income divided by the
weighted average number of common shares outstanding during the period,
including the effect of stock options, stock awards and warrants where such
effect is dilutive.
INCOME TAXES. The provision for income taxes is based upon income reported in
the accompanying financial statements. Deferred income taxes reflect the impact
of temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and such amounts recognized for tax
purposes. In accordance with SFAS 109, these deferred taxes are measured by
applying currently enacted tax laws.
TRANSLATION OF FOREIGN CURRENCIES. Assets and liabilities of foreign
subsidiaries are translated at exchange rates prevailing on the balance sheet
date; revenues and expenses are translated at average exchange rates prevailing
during the period except for individually significant transactions which are
translated at the prevailing rate on the date of the transaction; and elements
of stockholders' equity are translated at historical rates. Any resulting gains
or losses are reported in Other Comprehensive Income.
RECLASSIFICATION OF FINANCIAL INFORMATION. Certain components of the financial
statements have been reclassified to be consistent with current year
presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS. The Company will adopt the Financial
Accounting Standards Board's Emerging Issues Task Force Issue No. 99-5,
"Accounting for Pre-production Costs Related to Long-Term Supply Arrangements"
("EITF No. 99-5"), which is effective prospectively for fiscal years beginning
after December 31, 1999. EITF No. 99-5 provides guidance on accounting for
design and development costs for products sold under long-term supply
arrangements and costs incurred for molds, dies and other tools that will be
used in producing products under long-term supply agreements. The Company has
elected to implement this consensus prospectively. The accounting treatment
proposed by EITF 99-5 is not expected to have a material impact on the
consolidated financial position or results of operations of the Company.
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133"), effective for fiscal years
beginning after June 15, 2000, will be adopted by the Company when effective.
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivatives embedded in other contracts, and for
hedging activities. It requires that an entity recognize all
F-9
<PAGE>
- - --------------------------------------------------------------------------------
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The effect of adopting SFAS 133 is still being
assessed.
2. FINANCIAL INSTRUMENTS
The Company held no investment instruments at December 31, 1999 and 1998. No
gains or losses from the sale of securities were realized in 1999. Gains of
$1.1 million were realized on sales of securities in both 1998 and 1997, and
losses of $1.5 million and $136 thousand during 1998 and 1997, respectively. For
the purpose of computing realized gains and losses, cost is determined on a
specific identification basis.
The Company utilizes letters of credit in the ordinary course of business and to
satisfy self-insurance security deposit requirements. Outstanding letters of
credit were $1.3 million and $2.4 million as of December 31, 1999 and 1998,
respectively. The Company does not expect any material losses to result from
these off-balance-sheet instruments as performance is not expected to be
required.
The carrying amount of debt outstanding at December 31, 1999 and 1998
approximates current fair market value.
3. LONG-TERM DEBT AND CREDIT ARRANGEMENTS
On July 14, 1999, Lydall, Inc. and certain subsidiaries entered into a
$69 million credit facility with a group of five banking institutions. A
Euro-denominated term loan of approximately $19 million bears interest based on
Euro LIBOR plus a percentage based on negotiated ratios. A balance of
$17.7 million is outstanding at December 31, 1999 and is held in the name of
Lydall's German subsidiary. The remaining $50 million is a revolving credit
facility which is renewed every three years, on which approximately $18 million
is outstanding at December 31, 1999. The interest rate on the revolving credit
facility is based on various money market rate options selected by the Company
at the time of borrowing. The bank credit agreement carries an annual facility
fee on the total revolving credit and a commitment fee on the unused amount of
the facility. The credit agreement requires the Company to maintain certain
financial ratios and other financial conditions. The agreement also prohibits
the Company from incurring certain additional indebtedness, restricts asset
sales and capital expenditures, and limits certain investments and dividends to
the extent such activity affects the financial ratios. As of and during the year
ended December 31, 1999, the Company was in compliance with all loan covenants
and conditions. Total long-term debt maturities in 2000, 2001, 2002, 2003, and
2004 are $6.8 million, $3.9 million, $27.0 million, $4.8 million and
$2.4 million, respectively.
In July of 1999, the Company entered into an interest rate swap agreement to
convert the base rate component of the interest rate on the Euro-denominated
term loan to a fixed rate of 3.45 percent.
Certain domestic and foreign subsidiaries of the Company maintain additional
lines of credit totaling $11.5 million of which $8.6 million is outstanding as
of December 31, 1999. These credit facilities incur interest at rates ranging
from 2.3 percent to LIBOR plus 2 percent.
<TABLE>
- - ---------------------------------------------------------------------------------
In thousands December 31, 1999 1998
- - ---------------------------------------------------------------------------------
<S> <C> <C>
Credit Agreement term loan, effective rate 7.43% due 2002,
collateralized by common stock of the Company $18,025 $ --
Credit Agreement term loan, effective rate 4.7% due
quarterly, collateralized by German subsidiary stock 17,697 --
Deutsche Bank, line of credit, effective rate 2.3-4.2% due
2006, collateralized by real estate and equipment in
Meinerzhagen, Germany 8,560 --
IKB Deutsche Industriebank of Dusseldorf term loan, 4.5%
interest rate, due semiannnually 901 --
Note Purchase Agreement, 7.25% paid in full in 1999 -- 2,100
Note Payable, 5.37% paid in full in 1999 -- 240
.................................................................................
45,183 2,340
Less portion due within one year (6,849) (2,340)
.................................................................................
$38,334 $ --
- - ---------------------------------------------------------------------------------
</TABLE>
4. LONG-TERM OPERATING LEASES
Lydall has operating leases which resulted in an expense of $3.0 million in
1999, $2.6 million in 1998, and $1.9 million in 1997. These contracts include
vehicle, building, other office equipment, and machinery leases which require
payment of property taxes, insurance, repairs and other operating costs.
Future net lease commitments under noncancelable operating leases are:
<TABLE>
<CAPTION>
In thousands
2000 2001 2002 2003 2004 THEREAFTER TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------
Net lease payments $2,588 $2,312 $1,770 $1,546 $1,160 $786 $10,162
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
5. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
On December 30, 1998, a subsidiary of the Company acquired for cash all of the
outstanding shares of Gerhardi & Cie GmbH & Co. KG ("Gerhardi"), a privately
held German manufacturer of automotive components. Under the terms of the
agreement, and in consideration for Gerhardi's outstanding shares, the Company's
subsidiary paid to Gerhardi a negotiated purchase price of $30.7 million and
assumed Gerhardi's existing liabilities, net of cash, of approximately
$26.5 million. The purchase price is subject to a post-closing net equity
adjustment as defined in the agreement. This adjustment could result in a
decrease in the purchase price and will be reflected in the Company's financial
statements once the amount is determined. Lydall, Inc. funded this acquisition
through interim borrowing on existing lines of credit and subsequently
refinanced the majority of the borrowing with a Euro-denominated term loan. This
acquisition was accounted for under the purchase method of accounting. The fair
value of assets acquired exceeded the cost of acquisition and as a result, the
Company reduced the appraised value of long-term assets by $8.8 million. The
results of Gerhardi have been included in the Company's consolidated results
since the date of acquisition.
On April 18, 1998, a subsidiary of Lydall acquired Engineered Thermal
Systems, Inc. ("ETSI"), a producer of automotive thermal and acoustical
components for $9.2 million, accounted for under the purchase method. The
acquisition, which operates as the St. Johnsbury Operation of Lydall Westex,
complements the Company's extensive automotive thermal barrier business. The
results of the St. Johnsbury Operation have been included in the Company's
consolidated results since the date of acquisition.
F-10
<PAGE>
- - --------------------------------------------------------------------------------
Early in 1998, a Lydall subsidiary funded the capitalization of Charter
Medical Ltd. On February 6, 1998, this separate corporate entity acquired
CharterMed, Inc., a privately held company located in Lakewood, New Jersey, for
$6.6 million in cash and a note for $720 thousand, which was paid in 1999. The
acquisition was accounted for under the purchase method. Charter Medical is a
growing and profitable manufacturer of proprietary medical devices serving
applications such as biotech and pharmaceutical packaging, blood bank and
transfusion services and neonatal intensive care. The results of the Charter
Medical Operation since the date of acquisition have been included in the
Company's consolidated results.
DISPOSITIONS
In November 1999, the Company's Board of Directors adopted a plan to discontinue
the operations of the Wovens segment. Accordingly, the operating results have
been segregated from continuing operations and reported as discontinued
operations. Revenues from the Wovens segment were $3.9, $5.7, and $9.8 million
for the years ended December 31, 1999, 1998, and 1997, respectively. During
1999, the Company recorded an estimated net loss on disposal of $1.8 million, or
$.12 cents per common share, associated with the disposition of this segment.
The estimated net loss includes the estimated costs to dispose and operating
losses during the phase-out period of approximately $400 thousand. Wovens
segment net assets to be disposed of, consisting primarily of inventory,
property, plant and equipment, and certain intangibles with a total net
realizable value of $2.1 million, have been classified in the Consolidated
Balance Sheet at December 31, 1999 as "Net Investment in Discontinued
Operations."
The Company completed the sale of the Wovens segment on February 29, 2000, see
Note 16.
6. ASSETS AND RELATED LIABILITIES HELD FOR SALE
In October of 1999, the Company's Board of Directors formalized a plan to sell
the Composite Materials, Hoosick Falls Operation, which was mainly a component
of Other Products and Services for segment reporting purposes. Assets of
$6.4 million and related liabilities of $800 thousand have been reclassified as
"Assets Held for Sale" and "Liabilities Related to Assets Held for Sale" in the
Consolidated Balance Sheet at December 31, 1999. For the years ended
December 31, 1999, 1998 and 1997, sales and income from operations of the
Hoosick Falls Operation were $10.7 million, $10.3 million, and $12.1 million,
and $1.1 million, $500 thousand, and $900 thousand, respectively. The sale of
the Hoosick Falls Operation was completed on January 28, 2000. See Note 16 for
further details on the sale.
Assets Held for Sale at December 31, 1999 also include $28.8 million for the
chrome-plating and injection-molding operations of Gerhardi, the disposition of
which was approved by the Company's Board of Directors in December 1999. The
liabilities related to the chrome-plating and injection-molding assets held for
sale were $6.1 million at December 31, 1999 and are included in "Liabilities
Related to Assets Held for Sale." The results of these operations for 1999 are
included in the Thermal/Acoustical segment. The Company is in the process of
negotiating the sale of these operations and expects to complete the sale during
2000. No impairment charge was recognized in relation to these assets held for
sale, which are reported in the Consolidated Balance Sheet at their carrying
values.
7. CAPITAL STOCK
PREFERRED STOCK--The Company has a class of Serial Preferred Stock with a par
value of $1. None of the 500,000 authorized shares has been issued.
COMMON STOCK--At the end of 1999, 1,516 Lydall stockholders of record held
15,699,776 shares of Common Stock. Approximately 4 percent of the Company's
Common Stock was owned by Lydall's officers and directors and their immediate
families. Other Lydall employees, their families, and Lydall associates owned an
additional 12 percent either directly or through participation in the Company's
Employee Stock Ownership Trust.
STOCKHOLDER REPURCHASE RIGHTS PLAN--In the second quarter of 1999, the Company's
Board of Directors adopted a Share Repurchase Rights Plan by granting a dividend
of one preferred share purchase right for each common share to stockholders of
record at the close of business on June 30, 1999. Under certain conditions, each
right entitles the holder to purchase one-thousandth of a Series A Junior
Participating Preferred Share. The rights cannot be exercised or transferred
apart from common shares unless a person or group acquires 10 percent or more of
the Company's outstanding common shares. The rights will expire May 15, 2009 if
they are not redeemed.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED 1999 For the Year Ended 1998 For the Year Ended 1997
--------------------------------- --------------------------------- ---------------------------------
INCOME Income Income
FROM from from
CONTINUING PER-SHARE Continuing Per-Share Continuing Per-Share
OPERATIONS SHARES AMOUNT Operations Shares Amount Operations Shares Amount
--------------------------------- --------------------------------- ---------------------------------
Basic earnings per
share $12,952 15,715 $ .82 $ 9,825 15,847 $ .62 $22,380 16,692 $1.34
Effect of dilutive
stock options -- 69 (.00) -- 316 (.01) -- 627 (.05)
..................................................................................................................................
Diluted earnings per
share $12,952 15,784 $ .82 $ 9,825 16,163 $ .61 $22,380 17,319 $1.29
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED 1999 For the Year Ended 1998 For the Year Ended 1997
--------------------------------- --------------------------------- ---------------------------------
NET PER-SHARE Net Per-Share Net Per-Share
INCOME SHARES AMOUNT Income Shares Amount Income Shares Amount
--------------------------------- --------------------------------- ---------------------------------
Basic earnings per
share $10,775 15,715 $ .68 $ 4,202 15,847 $ .27 $21,911 16,692 $1.31
Effect of dilutive
stock options -- 69 (.00) -- 316 (.01) -- 627 (.04)
..................................................................................................................................
Diluted earnings per
share $10,775 15,784 $ .68 $ 4,202 16,163 $ .26 $21,911 17,319 $1.27
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Options to purchase 974,467, 593,700, and 297,946 shares of Lydall Common Stock
were not included in the 1999, 1998 and 1997 computation of diluted earnings per
share because the average exercise price was greater than the average market
price of the common shares at the end of each respective year.
F-11
<PAGE>
- - --------------------------------------------------------------------------------
8. STOCK OPTION PLANS
At December 31, 1999, the Company had two stock option plans under which
employees and directors had options to purchase Lydall Common Stock. Under these
plans--the 1982 Stock Incentive Compensation Plan and the 1992 Stock Incentive
Compensation Plan--options are granted at fair market value on the grant date
and expire ten years after the grant date. In most cases, options vest at a rate
of 25 percent per year starting with the first anniversary of the award. A few
incentive stock option (ISO) awards have an extended vesting period because IRS
regulations, with regard to ISO awards, cap the total dollar amount that can
vest in one year for an individual at $100,000. The
F-12
<PAGE>
- - --------------------------------------------------------------------------------
1982 Plan has expired; therefore, no further options can be granted under this
Plan. The 1992 Plan provides for automatic acceleration of vesting in the event
of a change in control of the Company. The Plan also provides for the use of
shares of Lydall Common Stock in lieu of cash to exercise options if the shares
are held for more than six months and if the Compensation and Stock Option
Committee of the Board of Directors approves this form of exercise.
At January 1, 1997, the Company had three stock option plans under which
employees and directors had options or warrants to purchase Lydall Common Stock.
The 1984 Outside Directors' Warrant Plan was terminated in 1992. At the
beginning of 1997, there were warrants for 30,330 shares outstanding under the
Plan. All of these warrants were exercised during 1997.
The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees",
and related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized. Had compensation cost for the Company's
three stock option plans been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
- - -----------------------------------------------------------------------------------------
In thousands except per-share data
For the years ended December 31, 1999 1998 1997
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income As reported $10,775 $ 4,202 $21,911
Pro forma 9,556 3,228 21,170
Basic earnings per share As reported $ .68 $ .27 $ 1.31
Pro forma .61 .20 1.27
Diluted earnings per share As reported $ .68 $ .26 $ 1.27
Pro forma .61 .20 1.22
- - -----------------------------------------------------------------------------------------
</TABLE>
The fair value of each option granted is estimated for the above disclosure on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1999, 1998 and 1997,
respectively: zero dividend yield for all years; expected volatility of
50 percent, 40 percent and 27 percent; risk-free interest rates of 6.7 percent,
4.7 percent and 5.8 percent; and an expected eight-year life in 1999 and a
six-year life for 1998 and 1997.
F-13
<PAGE>
- - --------------------------------------------------------------------------------
A summary of the status of the Company's stock option plans as of December 31,
1999, 1998, and 1997, and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
In thousands except per-share data 1999 1998 1997
<CAPTION>
- - ---------------------------------------- --------------------------- --------------------------- ------
WEIGHTED-AVERAGE Weighted-Average
FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES
- - ---------------------------------------- --------------------------- --------------------------- ------
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,263 $14.38 1,592 $13.14 1,772
Granted 243 10.88 21 15.86 156
Exercised (68) 5.64 (274) 5.35 (303)
Forfeited (109) 17.16 (76) 21.28 (33)
............................................................................................................
Outstanding at end of year 1,329 $13.96 1,263 $14.38 1,592
............................................................................................................
Options exercisable at year-end 1,002 1,037 1,156
Shares reserved for grants 1,140 1,274 1,219
Weighted-average fair value per option
granted during the year $ 6.16 $ 7.37 $ 7.85
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
In 1997, the option price of outstanding shares ranged from $1.85 to $26.00 per
share. Options with exercise prices of $1.85 to $16.75 were exercised in 1997.
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
--------------------------------------------- ---------------------------
Number Weighted-Average Number
Outstanding Remaining Exercisable
Range of at Contractual Weighted-Average at Weighted-Average
Exercise Prices 12/31/99 Life Exercise Price 12/31/99 Exercise Price
- - ----------------------- --------------------------------------------- ---------------------------
$ 4.21 - $ 6.51 103,100 .7 $4.34 100,500 $ 4.34
8.21 - 11.75 676,977 4.7 10.06 459,417 9.64
13.13 - 19.81 321,881 6.0 17.77 248,171 17.34
22.63 - 26.00 227,134 6.1 24.50 194,093 24.68
.....................................................................................................
$ 4.21 - $26.00 1,329,092 4.9 $13.96 1,002,181 $13.93
- - -----------------------------------------------------------------------------------------------------
</TABLE>
F-14
<PAGE>
- - --------------------------------------------------------------------------------
9. EMPLOYER-SPONSORED BENEFIT PLANS
The Company contributed to four defined benefit pension plans which cover
substantially all domestic Lydall employees. The pension plans are
noncontributory, and benefits are based on either years of service or eligible
compensation paid while a participant is in a plan. The Company's funding policy
is to fund not less than the ERISA minimum funding standard nor more than the
maximum amount which can be deducted for federal income tax purposes.
The following items are the components of net periodic benefit cost for pension
benefits:
<TABLE>
- - --------------------------------------------------------------------------------------------
In thousands For the years ended December 31, 1999 1998 1997
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 1,412 $ 1,184 $ 1,065
Interest cost 1,717 1,530 1,392
Expected return on assets (1,814) (1,623) (1,434)
Amortization of:
Transition asset (103) (103) (103)
Prior service cost 19 12 9
Actuarial loss 186 81 77
Special termination benefit and curtailment charges -- 85 --
............................................................................................
Total net periodic benefit cost $ 1,417 $ 1,166 $ 1,006
- - --------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1999, there were no plans with an accumulated benefit obligation
in excess of plan assets. The projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets were $25.8 million, $21.4 million,
and $19.5 million, respectively, as of December 31, 1998.
F-16
<PAGE>
- - --------------------------------------------------------------------------------
Plan assets include investments in bonds and equity securities. The Company
determines the assumed discount rate, long-term rate, and annual compensation
increase rate for each year. The following presents the assumptions and a
summary of funded status for all plans:
<TABLE>
- - ---------------------------------------------------------------------------------
December 31, 1999 1998
- - ---------------------------------------------------------------------------------
<S> <C> <C>
Weighted average assumption
Discount rate 7.75% 6.50%
Expected return on plan assets 9.25% 9.25%
Rate of compensation increase 5.00% 5.00%
- - ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
- - ---------------------------------------------------------------------------------
In thousands December 31, 1999 1998
- - ---------------------------------------------------------------------------------
<S> <C> <C>
Change in Benefit Obligation:
Net benefit obligation at beginning of year $25,827 $20,250
Service cost 1,412 1,184
Interest cost 1,717 1,530
Plan amendments 30 198
Actuarial (gain) loss (5,842) 3,299
Curtailments -- (62)
Special termination benefits -- 79
Gross benefits paid (1,051) (651)
.................................................................................
Net benefit obligation at end of year $22,093 $25,827
- - ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
- - ---------------------------------------------------------------------------------
In thousands December 31, 1999 1998
- - ---------------------------------------------------------------------------------
<S> <C> <C>
Change in Plan Assets:
Fair value of plan assets at beginning of year $19,456 $16,929
Actual return on plan assets 3,253 1,836
Employer contributions 642 1,342
Gross benefits paid (1,051) (651)
.................................................................................
Fair value of plan assets at end of year $22,300 $19,456
.................................................................................
Funded status at end of year $ 207 $(6,371)
Unrecognized net actuarial (gain) loss (1,337) 6,130
Unrecognized prior service cost 384 373
Unrecognized net transition asset (322) (425)
.................................................................................
Net amount recognized $(1,068) $ (293)
.................................................................................
Amounts recognized in the statements of financial position
consist of:
Prepaid benefit cost $ 663 $ 573
Accrued benefit liability (1,731) (866)
Additional minimum liability -- (1,698)
Intangible assets -- 492
Accumulated other comprehensive income -- 1,206
.................................................................................
Net amount recognized $(1,068) $ (293)
- - ---------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE>
- - --------------------------------------------------------------------------------
The Company also sponsors a Stock Purchase Plan, Profit Sharing Plan, and 401(k)
Plan. Contributions are determined under various formulas. Employer
contributions to these plans amounted to $1.7 million in 1999, $1.9 million in
1998, and $2.1 million in 1997.
10. POSTEMPLOYMENT, POSTRETIREMENT, AND DEFERRED COMPENSATION
Lydall provides health care and life insurance benefits to certain groups of
retired and hourly employees. The actuarially determined expense of these
benefits was less than $100 thousand for each of the last three years.
The Company provides deferred compensation to a small number of former
employees, and has a deferred compensation plan, which was frozen as of
December 31, 1996, that provides the Company's outside directors and the former
Chairman with compensation upon their retirement from service with the Board. In
addition, the Company provides a Supplemental Executive Retirement Plan ("SERP")
which provides supplemental income payments after retirement to senior
executives. The total net deferred compensation expense related to these three
plans was $327 thousand in 1999, $564 thousand in 1998, and $234 thousand in
1997.
11. IMPAIRMENT LOSS
In 1998, the Company recognized $8.5 million in pretax impairment losses on
certain long-lived assets. The largest portion of the loss, $6.5 million,
represented impaired goodwill of the Wovens segment which is reported in
discontinued operations for all years presented. The remaining impairment losses
related to fiber processing equipment at the Axohm operation and equipment at
the Manning, Green Island operation.
No impairment losses were recorded in 1999 and 1997.
12. SEGMENT INFORMATION
Lydall's reportable segments are: Thermal/Acoustical, Filtration/Separation,
Paperboard and Wovens. All other products are aggregated in Other Products and
Services. In the fourth quarter of 1999, the Company renamed two of its segments
to reflect the range of products included. Heat-Management was renamed
Thermal/Acoustical, and
F-18
<PAGE>
- - --------------------------------------------------------------------------------
Filtration was renamed Filtration/Separation. Financial reporting
classifications and presentations were not affected by these name changes.
Lydall evaluates performance and allocates resources based on sales and
operating income, net of a corporate charge. Sales by segment reported below
include intercompany transactions. Operating income is calculated using specific
cost identification for most items, with some allocation of overhead, based on
sales volume.
THERMAL/ACOUSTICAL
The Thermal/Acoustical segment includes Lydall's thermal and acoustical barriers
manufactured from a range of fiber and metal materials that protect and insulate
within temperature environments ranging from -459 DEG.F (-237 DEG.C) to
+3000 DEG.F (+1649 DEG.C).
FILTRATION/SEPARATION
The Company's Filtration/Separation segment includes Lydall's air and liquid
filtration media and biomedical fluid management products. Lydall's
high-efficiency air filtration glass microfiber media are employed in a whole
series of filters in air-handling systems. Liquid filtration applications range
from water purification to hydraulic lubricating oil filters. Bio-medical
products include blood filtration media and devices as well as biotech and
pharmaceutical processing containers.
PAPERBOARD
The Paperboard segment includes commodity paper products which are employed
primarily in materials-handling and packaging applications.
WOVENS
During the fourth quarter of 1999, the Company announced the discontinuation of
this segment, the sale of which was completed on February 29, 2000. The Wovens
segment included specialty woven composites used in advanced structural
materials sold to the aerospace, marine, and sporting goods industries.
The results of the Wovens segment have been excluded from continuing operations
for the years ended December 31, 1999, 1998, and 1997.
OTHER PRODUCTS AND SERVICES
Other Products and Services includes pencil slats made from recycled newsprint
and cardboard, electrical insulation, several specialty products, battery
separators made in Europe, and the Company's distribution and warehouse
services. It also includes fiberboard composites manufactured at Lydall's
Composite Materials, Hoosick Falls Operation and sold in sheet form to
fabricators of high-performance gaskets. The Hoosick Falls Operation was sold on
January 28, 2000.
The table below presents sales and operating income by segment as used by the
chief operating decision-maker of Lydall (the Operating Committee led by the
President and CEO) for the years ended December 31, 1999, 1998, and 1997.
F-19
<PAGE>
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Other
In thousands Thermal/ Filtration/ Products Reconciling Consolidated
for the years ended Acoustical Separation Paperboard & Services Items Totals
<S> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
SALES $169,283 $58,994 $43,521 $50,489 ($3,782) $318,505
OPERATING INCOME $ 8,916 $ 6,546 $ 1,284 $ 6,561 ($2,614) $ 20,693
.....................................................................................................................
December 31, 1998
Sales $ 81,831 $55,935 $41,050 $47,506 $(2,036) $224,286
Operating income $ 8,121 $ 5,029 $ 2,125 $ 2,345 $(2,240) $ 15,380
.....................................................................................................................
December 31, 1997
Sales $ 84,483 $57,238 $40,927 $54,594 $(2,795) $234,447
Operating income $ 15,785 $ 9,045 $ 4,290 $ 5,349 $(1,064) $ 33,405
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation of total segment sales to total consolidated sales and of total
segment operating income to total consolidated operating income for the years
ended December 31, 1999, 1998, and 1997 is as follows:
<TABLE>
- - -----------------------------------------------------------------------------------------------
In thousands For the years ended December 31, 1999 1998 1997
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES
Total segment sales $322,287 $226,322 $237,242
Elimination of intersegment sales (3,782) (2,036) (2,795)
...............................................................................................
Consolidated sales $318,505 $224,286 $234,447
- - -----------------------------------------------------------------------------------------------
OPERATING INCOME
Total segment operating income $ 23,307 $ 17,620 $ 34,469
Corporate expenses (2,457) (2,027) (1,082)
Elimination of intersegment income (loss) (157) (213) 18
...............................................................................................
Consolidated operating income $ 20,693 $ 15,380 $ 33,405
- - -----------------------------------------------------------------------------------------------
</TABLE>
Asset information by reportable segment is not reported since the chief
operating decision-maker does not use such information internally.
Net sales and long-lived assets information by geographic area as of and for the
years ended December 31, 1999, 1998, and 1997 is as follows:
<TABLE>
- - -----------------------------------------------------------------------------------------------------------
Net Sales Long-Lived Assets
- - ------------------------------------------------------------------------ --------------------------------
In thousands 1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------------
United States $229,400 $213,465 $223,280 $ 87,901 $ 97,537 $82,893
France 13,809 10,821 11,167 8,244 8,983 9,794
Germany 75,296 -- -- 8,858 29,509 --
...........................................................................................................
Total $318,505 $224,286 $234,447 $105,003 $136,029 $92,687
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
Foreign sales are based on the country in which the sales originate, i.e., where
the legal entity is domiciled.
Lydall has a major customer, which accounted for sales of $36.8 million,
$35.0 million, and $47.2 million in 1999, 1998, and 1997, respectively. These
sales are reported in the Thermal/Acoustical segment.
F-20
<PAGE>
- - --------------------------------------------------------------------------------
13. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
In thousands For the years ended December 31, 1999 1998 1997
<CAPTION>
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $3,479 $ 6,432 $10,397
State 546 1,256 1,864
Foreign 289 (187) 341
............................................................................................
Total current $4,314 $ 7,501 $12,602
............................................................................................
Deferred
Federal $2,548 $(1,739) $ 137
State (191) (489) 108
Foreign (401) (608) (15)
............................................................................................
Total deferred $1,956 $(2,836) $ 230
............................................................................................
Provision for income taxes $6,270 $ 4,665 $12,832
- - --------------------------------------------------------------------------------------------
</TABLE>
The following is a reconciliation of the difference between the actual provision
for income taxes and the provision computed by applying the federal statutory
tax rate on earnings.
<TABLE>
- - ---------------------------------------------------------------------------------------------------------
For the years ended December 31, 1999 1998 1997
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rates 35.0% 35.0% 35.0%
.........................................................................................................
State income taxes, net of federal tax deduction 2.5 4.6 3.9
Exempt FSC foreign trade income (5.0) (5.0) (1.0)
Tax exempt income (.4) (.1) (.8)
Other .5 (2.3) (.7)
.........................................................................................................
Effective income tax rates 32.6% 32.2% 36.4%
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
F-21
<PAGE>
- - --------------------------------------------------------------------------------
The following is a schedule of the net current deferred tax assets and long-term
deferred tax liabilities accounts by tax jurisdiction as of December 31:
<TABLE>
- - --------------------------------------------------------------------------------------------------------
1999 1998
------------------------------- ------------------------------
LONG-TERM Long-term
CURRENT DEFERRED DEFERRED TAX Current Deferred Deferred Tax
In thousands TAX ASSETS LIABILITIES Tax Assets Liabilities
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal $3,758 $ 7,657 $3,794 $ 4,594
State 744 1,822 2,476 3,694
Foreign 305 1,827 515 2,438
........................................................................................................
Total $4,807 $11,306 $6,785 $10,726
- - --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- - -----------------------------------------------------------------------------------
In thousands 1999 1998
- - -----------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets
Accounts receivable $ 598 $ 634
Inventories 1,032 1,202
Other accrued expenses 2,960 3,337
Intangible assets 2,574 475
Retirement accounts 1,939 1,394
Net operating losses 2,170 --
Discontinued operations 1,133 --
Other, net 1,155 116
...................................................................................
Total deferred tax assets 13,561 7,158
Deferred tax liabilities
Property, plant and equipment 17,538 11,099
Assets held for sale 418 --
...................................................................................
Total deferred tax liabilities 17,956 11,099
Valuation reserve 2,104 --
...................................................................................
Net deferred tax liabilities $ 6,499 $ 3,941
- - -----------------------------------------------------------------------------------
</TABLE>
The Internal Revenue Service is currently examining the Company's federal income
tax return for 1996. Lydall's management believes any potential issues resulting
from this examination will be immaterial to the consolidated financial position
or the results of operations of the Company.
14. COMMITMENTS AND CONTINGENCIES
On or about March 10, 1986, the United States Environmental Protection Agency
("EPA") notified a former subsidiary of the Company that it and other entities
may be potentially responsible in connection with the release of hazardous
substances at a landfill and property located adjacent to a landfill located in
Michigan City, Indiana. Lydall has received no further communication from the
EPA in the 13 years following that notice. The preliminary
F-22
<PAGE>
- - --------------------------------------------------------------------------------
indication, based on the Site Steering Committee's volumetric analysis, is that
the alleged contribution to the waste volume at the site of the plant once owned
by a former subsidiary is approximately 0.434 percent of the total volume. The
portion of the 0.434 percent specifically attributable to the former subsidiary
by the current operator of the plant is approximately 0.286 percent. The EPA
completed its Record of Decision for the site and estimated the total cost of
remediation to be between $17 million and $22 million. Based on the alleged
volumetric contribution of its former subsidiary to the site, and on the EPA's
estimated remediation costs, Lydall's alleged total exposure would be less than
$100 thousand, which has been accrued.
There are over 800 potentially responsible parties ("prp") which have been
identified by the Site Steering Committee. Of these, 38, not including the
Company's former subsidiary, are estimated to have contributed over 80 percent
of the total waste volume at the site. These prp's include Fortune 500
companies, public utilities, and the State of Indiana. The Company believes
that, in general, these parties are financially solvent and should be able to
meet their obligations at the site. The Company has reviewed Dun & Bradstreet
reports on several of these prp's, and based on these financial reports, does
not believe Lydall will have any material additional volume attributed to it for
reparation of this site due to insolvency of other prp's.
In June 1995, the Company and its former subsidiary were sued in the Northern
District of Indiana by the insurer of the current operator of the former
subsidiary's plant seeking contribution. In October 1997, the insurer made a
settlement demand of $150,591 to the Company in exchange for a release of the
Company's liability at the site and indemnification from the current operator
against site-related claims. The Company executed a settlement agreement with
the insurer and current operator for a full site release; however, the current
operator subsequently backed out of the agreement. In June, 1998, a Stipulation
for Dismissal signed by all parties was filed to end current litigation until
total liability at the site could be defined.
Management believes the ultimate disposition of this matter will not have a
material adverse effect upon the Company's consolidated financial position,
results of operations or cash flows.
By letter dated July 13, 1998, Lydall Eastern, Inc., a subsidiary of
Lydall, Inc. ("Lydall Eastern") was identified as a "potentially responsible
party" by the EPA in connection with the claimed release or threat of release of
hazardous substances at a site known as the Rogers Fibre Mill in Buxton, Maine
(the "site"). Lydall Eastern merged with the owner and operator of a fiberboard
mill at the site whose ownership dated back to approximately 1912. Lydall
Eastern ceased operation at the site in 1980. In 1982, Lydall Eastern conveyed
its interest in the site.
The EPA is spending public funds to investigate and take action with respect to
the site. The EPA likely will seek to recover the funds it has spent, and will
spend, at the site from potentially responsible parties, including Lydall
Eastern. At this time, it is not possible to predict what future liability or
costs might be incurred by Lydall Eastern in connection with the site.
In the normal course of business Lydall enters into long-term supply agreements
with customers. Losses, if any, on these agreements are provided for when
anticipated.
F-23
<PAGE>
- - --------------------------------------------------------------------------------
15. COMPREHENSIVE INCOME
The following tables disclose the balance by classification within accumulated
other comprehensive income (loss).
<TABLE>
- - ------------------------------------------------------------------------------------------------------------------
Minimum Accumulated
Foreign Unrealized Pension Other
Currency Gain (Loss) Liability Comprehensive
In thousands Adjustment on Securities Adjustment Income (Loss)
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BEGINNING BALANCE JANUARY 1, 1999 $713 $-- $(784) $(71)
CHANGE YEAR-TO-DATE (5,295) -- 784 (4,511)
..................................................................................................................
ENDING BALANCE DECEMBER 31, 1999 $(4,582) $-- $-- $(4,582)
- - ------------------------------------------------------------------------------------------------------------------
Beginning Balance January 1, 1998 $76 $22 $(262) $(164)
Change Year-to-Date 637 (22) (522) 93
..................................................................................................................
Ending Balance December 31, 1998 $713 $-- $(784) $(71)
- - ------------------------------------------------------------------------------------------------------------------
Beginning Balance January 1, 1997 $1,425 $77 $(38) $1,464
Change Year-to-Date (1,349) (55) (224) (1,628)
..................................................................................................................
Ending Balance December 31, 1997 $76 $22 $(262) $(164)
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
16. SUBSEQUENT EVENTS
On January 28, 2000, the Company sold substantially all of the assets, net of
certain liabilities of the Composite Materials, Hoosick Falls Operation for
$12.0 million subject to post-closing adjustments. The sale resulted in a gain
of approximately $3.7 million, or $.24 per share, which will be reflected in the
Company's results in the first quarter of 2000. The sale of this Operation is
part of the Company's restructuring plan to concentrate on the design and
manufacture of thermal and acoustical products and specialty filtration and
separation materials.
On February 29, 2000, the Company sold fixed assets, leasehold improvements,
inventory and certain intangibles of the Wovens segment for $1.8 million. The
realized loss was not significantly different from the loss recognized as of
December 31, 1999.
F-24
<PAGE>
- - --------------------------------------------------------------------------------
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table summarizes quarterly financial information for 1999 and
1998. In management's opinion, all adjustments necessary to present fairly the
information for such quarters have been reflected below:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1(st) Quarter 2(nd) Quarter 3(rd) Quarter 4(th) Quarter
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
In thousands
EXCEPT PER-SHARE DATA 1999 1998 1999 1998 1999 1998 1999 1998
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 82,934 $54,452 $ 83,054 $57,841 $ 75,786 $55,170 $ 76,731 $56,823
Gross margin 19,127 15,994 20,295 17,668 19,128 16,404 16,970 15,850
Income (loss) from
continuing
operations 4,181 3,735 3,717 4,133 3,353 3,413 1,701 (1,456)
Loss from discontinued
operations (99) (186) (112) (282) (105) (259) (1,861) (4,896)
Net income (loss) $ 4,082 $ 3,549 $ 3,605 $ 3,851 $ 3,248 $ 3,154 $ (160) $(6,352)
.....................................................................................................................
Basic EPS
Continuing
operations $ 0.27 $ 0.23 $ 0.24 $ 0.26 $ 0.21 $ 0.22 $ 0.11 $ (0.10)
Discontinued
operations (0.01) (0.01) (0.01) (0.02) (0.01) (0.02) (0.12) (0.31)
Net income (loss) $ 0.26 $ 0.22 $ 0.23 $ 0.24 $ 0.20 $ 0.20 $ (0.01) $ (0.41)
- - ---------------------------------------------------------------------------------------------------------------------
Diluted EPS
Continuing
operations $ 0.27 $ 0.23 $ 0.24 $ 0.25 $ 0.21 $ 0.21 $ 0.11 $ (0.10)
Discontinued
operations (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.12) (0.31)
Net income (loss) $ 0.26 $ 0.22 $ 0.23 $ 0.24 $ 0.20 $ 0.20 $ (0.01) $ (0.41)
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The sum of EPS for the four quarters in 1999 and 1998 do not agree to the EPS as
reported in the Consolidated Statements of Income and Comprehensive Income for
the entire year due to rounding.
F-25
<PAGE>
- - --------------------------------------------------------------------------------
SCHEDULE II
LYDALL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ADDITIONS
----------------------
CHARGED
TO ---------------------------
- - ------------------------------------------------------------ CHARGED TO OTHER BALANCE AT
BALANCE AT COSTS AND ACCOUNTS DEDUCTIONS DECEMBER
$ thousands JANUARY 1, EXPENSES DESCRIBE DESCRIBE 31,
- - ------------------------------------------------------------ ---------------------- ---------------------------
1999
ALLOWANCE FOR DOUBTFUL RECEIVABLES $ 1,504 $ 364 $ 553 (5) $ (910)(1) $ 1,511
LIFO RESERVE 1,216 428 -- (25)(3) 1,619
INVENTORY OBSOLESCENCE RESERVE 649 375 (22)(2) (361)(4) 641
- - ---------------------------------------------------------------------------------------------------------------------
1998
Allowance for doubtful receivables $ 1,381 $ 556 $ -- $ (433)(1) $ 1,504
LIFO reserve 1,172 173 -- (129)(3) 1,216
Inventory obsolescence reserve 577 511 10 (2) (449)(4) 649
- - ---------------------------------------------------------------------------------------------------------------------
1997
Allowance for doubtful receivables $ 1,727 $ 258 $ -- $ (604)(1) $ 1,381
LIFO reserve 1,740 -- -- (568)(3) 1,172
Inventory obsolescence reserve 519 254 (13)(2) (183)(4) 577
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Uncollected receivables written off and adjustments to allowance.
(2) Record foreign currency translation adjustments.
(3) Adjustment of LIFO reserve for inventory levels.
(4) Write-off of obsolete inventory and adjustment to reserve level.
(5) Allowance for uncollected receivables recorded on Gerhardi's completed
opening balance sheet.
S-1
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF LYDALL, INC.
- - --------------------------------------------------------------------------------
Article 1. The name of the corporation is Lydall, Inc. and is sometimes
hereinafter referred to as the "Company."
Article 2. The address of the Company's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle and the name of the Company's registered agent
at such address is The Corporation Trust Company.
Article 3. The nature of the business to be transacted and the purposes to
be promoted or carried out by the Company are as follows:
To do a general manufacturing business and to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
Article 4. The designation of each class of stock, the authorized number
of shares of each such class, and the par value of each share thereof, are as
follows:
- - --------------------------------------------------------------------------------
Authorized Number
Designation of Shares Par Value
- - --------------------------------------------------------------------------------
Common Stock 30,000,000 $ .10
Preferred Stock 500,000 $ 1.00
- - --------------------------------------------------------------------------------
Article 5. The terms, limitations and relative rights and preferences of
each class of shares and series thereof and an express grant of authority to the
Board of Directors pursuant to Section 151 of the General Corporation Law of
Delaware are as follows:
a) The holders of the Common Stock shall each be entitled to one vote per
share.
Last amended 5/10/95
1
<PAGE>
b) The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in series, and by filing a certificate pursuant to the applicable law of the
State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and any qualifications, limitations
or restrictions thereof. The number of authorized shares of Preferred Stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock, without a vote of the holders of the Preferred Stock, or of any series
thereof, unless a vote of any such holders is required pursuant to the
certificate or certificates establishing the series of Preferred Stock.
Article 6.
a) The Board of Directors shall consist of not less than three (3) nor
more than fifteen (15) Directorships; the exact number of such Directorships to
be determined by resolution of the Board of Directors. Each Director shall be
elected for a term of one (1) year or until the first annual meeting thereafter
and until another shall be elected in his stead. In the event the number of
members of the Board is increased, the newly created directorships shall be
filled by a vote of the holders of a majority of the shares of the capital stock
entitled to vote in elections of Directors.
b) The affirmative vote of the holders of two-thirds (2/3) of the voting
power of all classes of stock entitled to vote in elections of Directors voting
together as a single class, with each share of Common Stock having one vote and
other shares having the number of votes to which such shares are entitled, shall
be required for the removal, with or without cause, by stockholders, of any
Director from the Board of Directors. Such affirmative vote or consent of the
stockholders shall be in addition to the vote or consent of the holders of stock
of the Company otherwise required by law or any agreement between the Company
and any national securities exchange.
Article 7. Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Company (and notwithstanding that a lesser
percentage may be specified by law or the By-Laws of the Company), no provision
of this Certificate of Incorporation shall be repealed or amended in any
respect, nor shall any new provision be added to this Certificate of
Incorporation unless such action is approved by the affirmative vote of the
holders of not less than two-thirds (2/3) of the voting power of all classes of
stock entitled to vote in elections of Directors, voting together as a single
class with each share of Common Stock having one vote and other shares having
the number of votes to which such shares are entitled.
2
<PAGE>
Article 8. A Director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a Director, except for liability (i) for any breach of the Director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the Director derived any improper personal
benefit. If the Delaware General Corporation Law is amended after approval by
the stockholders of this article to authorize corporate action further
eliminating or limiting the personal liability of Directors, then the liability
of a Director of the Company shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Company shall not adversely affect any right or protection of a Director
of the Company existing at the time of such repeal or modification.
Article 9.
a) Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director, officer, employee or
agent of the Company or is or was serving at the request of the Company as a
Director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, officer,
employee or agent or in any other capacity where serving as a Director, officer,
employee or agent, shall be indemnified and held harmless by the Company to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Company to provide broader
indemnification rights than permitted prior thereto), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith and such indemnification
shall continue as to an indemnitee who has ceased to be a Director, officer,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof with respect to proceedings to enforce rights to
indemnification, the Company shall indemnify any such indemnitee in connection
with a proceeding
3
<PAGE>
(or part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Company. The right to
indemnification conferred in this Article shall be a contract right and shall
include the right to be paid by the Company the expenses incurred in defending
any such proceeding in advance of its final disposition (hereinafter an
"advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Company of an undertaking (hereinafter an "undertaking"), by or
on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Article or otherwise.
b) If a claim under paragraph (a) of this Article is not paid in full by
the Company within sixty days after a written claim has been received by the
Company, except in the case of a claim for an advancement of expenses, in which
case the applicable period shall be twenty days, the indemnitee may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim. If successful in whole or in part in any such suit, or in a suit brought
by the Company to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the indemnitee to
enforce a right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit by the Company to recover an advancement of
expenses pursuant to the terms of an undertaking the Company shall be entitled
to recover such expenses upon a final adjudication that, the indemnitee has not
met the applicable standard of conduct set forth in the Delaware General
Corporation Law. Neither the failure of the Company (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any
4
<PAGE>
suit brought by the indemnitee to enforce a right to indemnification or to any
advancement of expenses hereunder, or by the Company to recover an advancement
of expenses pursuant to the terms of an undertaking, the burden of proving that
the indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article or otherwise shall be on the Company.
c) The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, this certificate of
incorporation, by-law, agreement, vote of stockholders or disinterested
Directors or otherwise.
d) The Company may maintain insurance, at its expense, to protect itself
and any Director, officer, employee or agent of the Company or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Company would have the power to
indemnify such person against such person against such expense, liability or
loss under the Delaware General Corporation Law.
5
<PAGE>
Exhibit 10.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of March, 2000,
by and between LYDALL, INC., a Delaware corporation (the "Company"), and Carole
F. Butenas (the "Executive").
W I T N E S S E T H
WHEREAS, the Company and the Executive (the "Parties") have agreed to
enter into this agreement (the "Agreement) relating to the employment of the
Executive by the Company and/or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the Parties,
intending to be legally bound, agree as follows:
1. Term of Employment; Termination of Prior Agreement.
(a) The Company and/or one of its subsidiaries agrees to continue to
employ the Executive, and the Executive agrees to remain in the employment of
the Company and/or one of its subsidiaries, in accordance with the terms and
provisions of this Agreement.
(b) The Employment Period under this Agreement shall be the period
commencing as of the date of this Agreement and ending on the date of
termination of the Executive's employment pursuant to Section 5, 6 or 7 below,
whichever is applicable.
(c) Immediately upon the commencement of the Executive's employment
pursuant to the terms of this Agreement, that certain Agreements by and between
the Executive and the Company dated as of February 1, 2000 and March 10, 1995
shall terminate and shall be of no further force or effect.
2. Duties. It is the intention of the Parties that during the term of the
Executive's employment under this Agreement, the Executive will serve as Vice
President, Investor Relations of the Company or in such other senior management
position as the Company shall determine. During the Employment Period, the
Executive will devote her full business time and attention and best efforts to
the affairs of the Company and its
<PAGE>
-2-
subsidiaries and her duties as Vice President, Investor Relations. The Executive
will have such duties as are appropriate to her position as Vice President,
Investor Relations, and will have such authority as required to enable the
Executive to perform these duties. Consistent with the foregoing, the Executive
shall comply with all reasonable instructions of the Board of Directors of the
Company (the "Board").
3. Compensation and Benefits.
3.1 Salary. During the Employment Period, the Company will pay the
Executive a base salary at an initial annual rate of One Hundred Thirty Thousand
Dollars ($130,000). The Company may, in its sole and absolute discretion,
increase the Executive's base salary in light of the Executive's performance,
inflation, changes in the cost of living and other factors deemed relevant by
the Company. The Executive's base salary may not be decreased during the term of
this Agreement. The Chief Executive Officer of the Company shall meet with the
Executive annually to review the Executive's performance, objectives and
compensation, including salary, bonus and stock options, and the Chief Executive
Officer shall then meet with the Compensation and Stock Option Committee of the
Board (the "Compensation Committee") to discuss the same. If the Compensation
Committee determines that any adjustments thereto are appropriate, such
committee shall make a recommendation to the full Board and the Board shall make
such adjustments, if any, as the Board deems appropriate and consistent with
this Agreement. The Executive's base salary will be paid in accordance with the
standard practices for other corporate executives of the Company.
3.2 Bonuses. During the Employment Period, the Executive will be eligible
to receive annually or otherwise such bonus awards, if any, as shall be
determined by the Board in its sole and absolute discretion after receiving the
recommendation of the Compensation Committee.
3.3 Benefit Programs. During the Employment Period, the Executive will be
entitled to participate on substantially the same terms as other senior
executives of the Company in all employee benefit plans and programs of the
Company (subject to any restrictions or eligibility requirements under such
plans and programs) from time to time in effect for the benefit of senior
executives of the Company, including, but not limited to, pension and other
retirement plans, profit sharing plans, stock incentive and annual incentive
bonus plans, group life insurance, hospitalization and surgical and major
medical cov-
<PAGE>
-3-
erages (including the Lydall, Inc. Executive Medical Plan), short-term and
long-term disability, and such other benefits as are or may be made available
from time to time to senior executives of the Company.
3.4 Vacations and Holidays. During the Employment Period, the Executive
will be entitled to vacation leave of five (5) weeks per year at full pay or
such greater vacation benefits as may be provided for by the Company's vacation
policies applicable to senior executives. The Executive will be entitled to such
holidays as are established by the Company for all employees.
4. Business Expenses. The Executive will be entitled to prompt
reimbursement for all reasonable, documented and necessary expenses incurred by
the Executive in performing her services hereunder, provided the Executive
properly accounts therefor in accordance with the policies and procedures
established by the Company.
5. Termination of Employment by the Company.
5.1 Involuntary Termination by the Company Other Than For Permanent and
Total Disability or Cause. The Company may terminate the Executive's employment
at any time other than (i) by reason of the Executive's Permanent and Total
Disability (as defined in Section 5.2) or (ii) for Cause (as defined in Section
5.3), by giving the Executive a written notice of termination at least 30 days
before the date of termination (or such lesser notice period as the Executive
may agree to). In the event of such a termination of employment pursuant to this
Section 5.1, the Executive shall be entitled to receive (i) the benefits
described in Section 8 if such termination of employment does not occur within
12 months following a "Change of Control" (as defined in Section 10), or (ii)
the benefits described in Section 9 if such termination of employment occurs
within 12 months following a "Change of Control" (as defined in Section 10).
5.2 Termination Due to Permanent and Total Disability. If the Executive
incurs a Permanent and Total Disability, as defined below, the Company may
terminate the Executive's employment by giving the Executive written notice of
termination at least 30 days before the date of such termination (or such lesser
notice period as the Executive may agree to). In the event of such termination
of the Executive's employment because of Permanent and Total Disability, the
Executive shall be entitled to receive (i) her base salary pursuant to Section
3.1
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through the date which is twelve months following the date of such termination
of employment, reduced by any amounts paid to the Executive under any disability
program maintained by the Company, such base salary to be paid at the normal
time for the payment of such base salary, (ii) a bonus for the year of
termination of employment and for the next succeeding year (to be paid at the
normal time for payment of such bonuses) in an amount equal to the average of
the three highest annual bonuses earned by the Executive under the Company's
annual incentive bonus plan for any of the five calendar years preceding the
calendar year of her termination of employment (or, if the Executive was not
eligible for a bonus for at least three calendar years in such five-year period,
then the average of such bonuses for all of the calendar years in such five-year
period for which the Executive was eligible), with any deferred bonuses counting
for the year earned rather than the year paid; (iii) any other compensation and
benefits to the extent actually earned by the Executive under any other benefit
plan or program of the Company as of the date of such termination of employment,
such compensation and benefits to be paid at the normal time for payment of such
compensation and benefits, and (iv) any reimbursement amounts owing under
Section 4. In addition, if the Executive elects to continue coverage under the
Company's health plan pursuant to COBRA, the Company for a period of twelve
months following termination of the Executive's employment by reason of
Permanent and Total Disability will pay the same percentage of the Executive's
premium for COBRA coverage for the Executive and, if applicable, her spouse and
dependent children, as the Company paid at the applicable time for coverage
under such plan for actively employed senior executives generally. For the
period of twelve months following the termination of the Executive's employment
by reason of Permanent and Total Disability, the Company will continue to
provide the life insurance benefits that the Company would have provided to the
Executive if the Executive had continued in employment with the Company for such
period, but only if the Executive timely pays the portion of the premium for
such coverage that senior executives of the Company generally are required to
pay for such coverage, if any. For purposes of this Agreement, the Executive
shall be considered to have incurred a Permanent and Total Disability if and
only if the Executive has incurred a disability entitling the Executive to
disability benefits under the Company's long-term disability plan.
5.3 Termination for Cause. The Company may terminate the Executive's
employment immediately for Cause for any of the following reasons: (i) an act or
acts of dishonesty or fraud on the part of the Executive resulting or intended
to re-
<PAGE>
-5-
sult directly or indirectly in substantial gain or personal enrichment to which
the Executive was not legally entitled at the expense of the Company or any of
its subsidiaries; (ii) a willful material breach by the Executive of her duties
or responsibilities under this Agreement resulting in demonstrably material
injury to the Company or any of its subsidiaries; (iii) the Executive's
conviction of a felony or any crime involving moral turpitude, (iv) habitual
neglect or insubordination (defined as refusal to execute or carry out
directions from the Board or its duly appointed designees) where the Executive
has been given written notice of the acts or omissions constituting such neglect
or insubordination and the Executive has failed to cure such conduct, where
susceptible to cure, within thirty days following such notice, or (v) a material
breach by the Executive of any of his obligations under the Lydall Employee
Agreement executed by the Executive and attached hereto as Exhibit A. The
Company shall exercise its right to terminate the Executive's employment for
Cause by giving the Executive written notice of termination specifying in
reasonable detail the circumstances constituting such Cause. In the event of
such termination of the Executive's employment for Cause, the Executive shall be
entitled to receive only (i) her base salary pursuant to Section 3.1 earned
through the date of such termination of employment plus her base salary for the
period of any vacation time earned but not taken for the year of termination of
employment, such base salary to be paid at the normal time for payment of such
base salary, (ii) any other compensation and benefits to the extent actually
earned by the Executive under any other benefit plan or program of the Company
as of the date of such termination of employment, such compensation and benefits
to be paid and at the normal time for payment of such compensation and benefits
and (iii) any reimbursement amounts owing under Section 4.
6. Termination of Employment by the Executive.
(a) Good Reason. The Executive may terminate her employment for Good
Reason by giving the Company a written notice of termination at least 30 days
before the date of such termination (or such lesser notice period as the Company
may agree to) specifying in reasonable detail the circumstances constituting
such Good Reason. In the event of the Executive's termination of her employment
for Good Reason, the Executive shall be entitled to receive (i) the benefits
described in Section 8 if such termination of employment does not occur within
12 months following a "Change of Control" (as defined in Section 10), or (ii)
the benefits described in Section 9 if such termination of employment occurs
within 12 months following a
<PAGE>
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"Change of Control" (as defined in Section 10). For purposes of this Agreement,
Good Reason shall mean (i) a significant reduction in the scope of the
Executive's authority, functions, duties or responsibilities from that which is
contemplated by this Agreement, (ii) any reduction in the Executive's base
salary, (iii) a significant reduction in the employee benefits provided to the
Executive (including the Lydall, Inc. Executive Medical Plan) other than in
connection with an across-the-board reduction similarly affecting substantially
all senior executives of the Company, or (iv) any material breach by the Company
of any provision of this Agreement without the Executive having committed any
material breach of the Executive's obligations hereunder or under the Lydall
Employee Agreement which breach is not cured within thirty days following
written notice thereof to the Company of such breach. In addition, in the case
of a termination of employment within 12 months following a "Change of Control"
(as defined in Section 10), Good Reason shall also include the relocation of the
Executive's office location to a location more than 50 miles away from the
Executive's then current principal place of employment. If an event constituting
a ground for termination of employment for Good Reason occurs, and the Executive
fails to give notice of termination within 90 days after the occurrence of such
event, the Executive shall be deemed to have waived her right to terminate
employment for Good Reason in connection with such event (but not for any other
event for which the 90-day period has not expired).
(b) Other. The Executive may terminate her employment at any time and for
any reason, other than pursuant to subsection (a) above, by giving the Company a
written notice of termination to that effect at least 30 days before the date of
termination (or such lesser notice period as the Company may agree to);
provided, however, that the Company following receipt of such notice from the
Executive may elect to have the Executive's employment terminate immediately
following its receipt of such notice. In the event of the Executive's
termination of her employment pursuant to this subsection (b), the Executive
shall be entitled to receive only (i) her base salary pursuant to Section 3.1
earned through the date of such termination of employment plus her base salary
for the period of vacation time earned but not taken for the year of termination
of employment, such base salary to be paid at the normal time for payment of
such base salary, (ii) any other compensation and benefits to the extent
actually earned by the Executive under any other benefit plan or program of the
Company as of the date of such termination of employment, such compensation and
benefits to be paid at the normal time for payment of such compen-
<PAGE>
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sation and benefits, and (iii) any reimbursement amounts owing under Section 4.
7. Termination of Employment By Death. In the event of the death of the
Executive during the course of her employment hereunder, the Executive's estate
(or other person or entity having such entitlement pursuant to the terms of the
applicable plan or program) shall be entitled to receive (i) the Executive's
base salary pursuant to Section 3.1 earned through the date of the Executive's
death plus the Executive's base salary for the period of vacation time earned
but not taken for the year of the Executive's death, such base salary to be paid
at the normal time for payment of such base salary, (ii) a bonus for the year of
the Executive's death (to be paid within 90 days after the Executive's death) in
an amount equal to a pro rata portion of the average of the three highest annual
bonuses earned by the Executive under the Company's annual incentive bonus plan
for any of the five calendar years preceding the calendar year of the
Executive's death (or, if the Executive was not eligible for a bonus for at
least three calendar years in such five-year period, then the average of such
bonuses for all of the calendar years in such five-year period for which the
Executive was eligible), with any deferred bonuses counting for the year earned
rather than the year paid and with the pro rata portion being determined by
dividing the number of days of the Executive's employment during such calendar
year up to her death by 365 (366 if a leap year), (iii) any other compensation
and benefits to the extent actually earned by the Executive under any other
benefit plan or program of the Company as of the date of such termination of
employment, such compensation and benefits to be paid at the normal time for
payment of such compensation and benefits, and (iv) any reimbursement amounts
owing under Section 4. In addition, in the event of such death, the Executive's
beneficiaries shall receive any death benefits owed to them under the Company's
employee benefit plans. If the Executive's spouse and/or dependent children
elect to continue coverage under the Company's health plan following the
Executive's death pursuant to COBRA, the Company for a period of 12 months
following the Executive's death will pay the same percentage of the premium for
COBRA coverage for the Executive's spouse and/or dependent children, as
applicable, as the Company would have paid in respect of the Executive's
coverage under such plan if the Executive had continued in employment with the
Company for such period.
8. Benefits Upon Termination Without Cause or For Good Reason (No Change
of Control). If (a) the Executive's em-
<PAGE>
-8-
ployment hereunder shall terminate (i) because of termination by the Company
other than for Cause or Permanent and Total Disability pursuant to Section 5.1,
or (ii) because of termination by the Employee for Good Reason pursuant to
Section 6(a), and (b) such termination of employment does not occur within 12
months following a "Change of Control" of the Company (as defined in Section
10), the Executive shall be entitled to the following:
(a) The Company shall pay to the Executive her base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal time for payment of such base salary,
compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
(c) The Company shall pay to the Executive in equal installments
spread over the period of 12 months beginning on the date of the
Executive's termination of employment an amount equal in the aggregate to
the sum of (i) the Executive's annual rate of base salary immediately
preceding her termination of employment, and (ii) the average of her
annual bonuses earned under the Company's annual incentive bonus plan for
the three calendar years preceding her termination of employment (or, if
the Executive was not eligible for a bonus in each of those three calendar
years, then the average of such bonuses for all of the calendar years in
such three-year period for which she was eligible), with any deferred
bonuses counting for the year earned rather than the year paid. Such
installments shall be paid at the times that salary payments are normally
made by the Company.
(d) If the Executive elects to continue coverage under the Company's
health plan pursuant to COBRA, then for the period beginning on the date
of the Executive's termination of employment and ending on the earlier of
(i) the date which is 12 months after the date of such termination of
employment or (ii) the date on which the Executive commences substantially
full-time employment as an employee of an employer that offers health
benefits, the Company will pay the same percentage of the Executive's
premium
<PAGE>
-9-
for COBRA coverage for the Executive and, if applicable, her spouse and
dependent children, as the Company paid at the applicable time for
coverage under such plan for actively employed senior executives
generally. In addition, for the period beginning on the date of the
Executive's termination of employment and ending on the earlier of (i) the
date which is 12 months after the date of such termination of employment
or (ii) the date on which the Executive commences substantially full-time
employment as an employee of an employer that offers life insurance
benefits, the Company will continue to provide the life insurance benefits
that the Company would have provided to the Executive if the Executive had
continued in employment with the Company for such period, but only if the
Executive timely pays the portion of the premium for such coverage that
senior executives of the Company generally are required to pay for such
coverage, if any. The Executive shall notify the Company promptly if she,
while eligible for benefits under this subsection (d), commences
substantially full-time employment as an employee of an employer that
offers health and/or life insurance benefits.
(e) The Company will provide the Executive with outplacement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
9. Benefits Upon Termination Without Cause or For Good Reason (Change of
Control). If (a) the Executive's employment hereunder shall terminate (i)
because of termination by the Company other than for Cause or Permanent and
Total Disability pursuant to Section 5.1, or (ii) because of termination by the
Employee for Good Reason pursuant to Section 6(a), and (b) such termination of
employment occurs within 12 months following a "Change of Control" of the
Company (as defined in Section 10), the Executive shall be entitled to the
following:
(a) The Company shall pay to the Executive her base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal time for payment of such base salary,
compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
<PAGE>
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(c) The Company shall pay to the Executive as a severance benefit an
amount equal to two (2) times the sum of (i) her annual rate of base
salary immediately preceding her termination of employment, and (ii) the
average of her three highest annual bonuses earned under the Company's
annual incentive bonus plan for any of the five calendar years preceding
her termination of employment (or, if the Executive was not eligible for a
bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year
period for which the Executive was eligible), with any deferred bonuses
counting for the year earned rather than the year paid. Such severance
benefit shall be paid in a lump sum within 30 days after the date of such
termination of employment.
(d) The Company shall pay to the Executive as a bonus for the year
of termination of her employment an amount equal to a portion (determined
as provided in the next sentence) of the Executive's maximum bonus
opportunity under the Company's annual incentive bonus plan for the
calendar year of termination of the Executive's employment or, if none,
such portion of the bonus awarded to the Executive under the Company's
annual incentive bonus plan for the calendar year immediately preceding
the calendar year of the termination of her employment, with deferred
bonuses counting for the year earned rather than the year paid. Such
portion shall be determined by dividing the number of days of the
Executive's employment during such calendar year up to her termination of
employment by 365 (366 if a leap year). Such payment shall be made in a
lump sum within 30 days after the date of such termination of employment,
and the Executive shall have no right to any further bonuses under said
plan.
(e) During the period of 24 months beginning on the date of the
Executive's termination of employment, the Executive (and, if applicable,
the Executive's spouse and dependent children) shall remain covered by the
medical, dental, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability
plans of the Company that covered the Executive immediately prior to her
termination of employment as if the Executive had remained in employment
for such period; provided, however, that the coverage under any such plan
is conditioned on the timely payment by the Executive (or her spouse or
dependent children) of the portion of the premium for such coverage that
actively em-
<PAGE>
-11-
ployed senior executives with the Company generally are required to pay
for such coverage. In the event that the Executive's participation in any
such plan is barred, the Company shall arrange to provide the Executive
(and, if applicable, her spouse and dependent children) with substantially
similar benefits (but, in the case of long-term disability benefits, only
if reasonably commercially available).
(f) The Company shall supplement the benefits payable in respect of
the Executive under the Company's Pension Plan and Supplemental Executive
Retirement Plan (and any successor plans thereto) (collectively, the
"Pension Plans") by paying the difference between (i) the benefits that
the Executive would have been entitled to receive under the Pension Plans
if she had been credited with two additional years of service (but no
additional years of age) for purposes of the benefit accrual formula under
the Pension Plans as of the date of termination of the Executive's
employment and (ii) the benefits that the Executive is entitled to receive
under the Pension Plans determined without regard to this subsection (f).
Such benefits shall be payable in the same form and at the same time as
the benefits under the respective Pension Plans.
(g) Each stock option granted by the Company to the Executive and
outstanding immediately prior to termination of her employment shall be
fully vested and immediately exercisable and may be exercised by the
Executive (or, following her death, by the person or entity to which such
option passes) at any time prior to the expiration date of the applicable
option (determined without regard to any earlier termination of the option
that would otherwise occur by reason of termination of her employment).
Each restricted stock award granted by the Company to the Executive and
outstanding immediately prior to termination of the Executive's employment
shall be fully vested upon such termination of employment.
(h) The Company will provide the Executive with out-placement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
(i) The Company shall promptly pay all reasonable attorneys' fees
and related expenses incurred by the Executive in seeking to obtain or
enforce any right or benefit under this Agreement or to defend against any
claim or
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assertion in connection with this Agreement, but only to the extent the
Executive substantially prevails.
10. Change of Control. For the purposes of this Agreement, a "Change of
Control" shall be deemed to have occurred if (a) any person or persons acting
together which would constitute a "group" for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other than
the Company or any subsidiary of the Company) shall beneficially own (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, at least 25% of the
total voting power of all classes of capital stock of the Company entitled to
vote generally in the election of the Board; (b) Current Directors (as herein
defined) shall cease for any reason to constitute at least a majority of the
members of the Board (for this purpose, a "Current Director" shall mean any
member of the Board as of the date hereof and any successor of a Current
Director whose election, or nomination for election by the Company's
shareholders, was approved by at least a majority of the Current Directors then
on the Board); (c) the shareholders of the Company approve (i) a plan of
complete liquidation of the Company or (ii) an agreement providing for the
merger or consolidation of the Company other than a merger or consolidation in
which (x) the holders of the common stock of the Company immediately prior to
the consolidation or merger have, directly or indirectly, at least a majority of
the common stock of the continuing or surviving corporation immediately after
such consolidation or merger or (y) the Board immediately prior to the merger or
consolidation would, immediately after the merger or consolidation, constitute a
majority of the board of directors of the continuing or surviving corporation;
or (d) the shareholders of the Company approve an agreement (or agreements)
providing for the sale or other disposition (in one transaction or a series of
transactions) of all or substantially all of the assets of the Company.
11. Golden Parachute Excise Tax.
(a) In the event that any payment or benefit received or to be received by
the Executive pursuant to this Agreement or any other plan, program or
arrangement of the Company or any of its affiliates would constitute an "excess
parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), then the payments under this Agreement
shall be reduced (by the minimum possible amounts) until no amount payable to
the Executive under this Agreement constitutes an "excess parachute payment"
within the meaning of Section 280G of the Code; provided, how-
<PAGE>
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ever, that no such reduction shall be made if the net after-tax payment (after
taking into account Federal, state, local or other income and excise taxes) to
which the Executive would otherwise be entitled without such reduction would be
greater than the net after-tax payment (after taking into account Federal,
state, local or other income and excise taxes) to the Executive resulting from
the receipt of such payments with such reduction. If, as a result of subsequent
events or conditions (including a subsequent payment or absence of a subsequent
payment under this Agreement or other plan, program or arrangement of the
Company or any of its affiliates), it is determined that payments under this
Agreement have been reduced by more than the minimum amount required to prevent
any payments from constituting an "excess parachute payment", then an additional
payment shall be promptly made to the Executive in an amount equal to the
additional amount that can be paid without causing any payment to constitute an
excess parachute payment.
(b) All determinations required to be made under this Section 11 shall be
made by a nationally recognized independent accounting firm mutually agreeable
to the Company and the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations to the Company and the Executive as requested
by the Company or the Executive. All fees and expenses of the Accounting Firm
shall be borne solely by the Company and shall be paid by the Company upon
demand of the Executive as incurred or billed by the Accounting Firm. All
determinations made by the Accounting Firm pursuant to this Section 11 shall be
final and binding upon the Company and the Executive.
(c) To the extent any payment or benefit is to be reduced pursuant to this
Section 11, the severance payment described in Section 8(c) or 9(c) will first
be reduced, then the bonus described in Section 9(d), and then the supplemental
pension benefits described in Section 9(f), in each case only to the extent
necessary.
12. Entitlement to Other Benefits. Except as otherwise provided in this
Agreement, this Agreement shall not be construed as limiting in any way any
rights or benefits that the Executive or her spouse, dependents or beneficiaries
may have pursuant to any other plan or program of the Company.
13. Indemnification. The parties agree to execute a separate
Indemnification Agreement in the form attached as Exhibit B.
<PAGE>
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14. General Provisions.
14.1 No Duty to Seek Employment. The Executive shall not be under any duty
or obligation to seek or accept other employment following termination of
employment, and no amount, payment or benefits due to the Executive hereunder
shall be reduced or suspended if the Executive accepts subsequent employment,
except as expressly set forth herein.
14.2 Deductions and Withholding. All amounts payable or which become
payable under any provision of this Agreement shall be subject to any deductions
authorized by the Executive and any deductions and withholdings required by law.
14.3 Notices. All notices, demands, requests, consents, approvals or other
communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be faxed with a copy deposited in the United
States mail, registered or certified, return receipt requested, postage prepaid,
addressed as follows:
To the Company: Lydall, Inc.
P.O. Box 151
One Colonial Road
Manchester, CT 06045-0151
Attn: Chief Executive Officer
To the Executive: Carole F. Butenas
57 Highland Avenue
Broad Brook, CT 06016
or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
fifth business day following the date so mailed or on the date of actual
receipt, whichever is earlier.
14.4 No Disparagement. The Executive shall not during the period of her
employment with the Company, nor during the two-year period beginning on the
date of termination of her employment for any reason, disparage the Company or
any of its subsidiaries or affiliates or any of their shareholders, directors,
officers, employees or agents. The Executive agrees that the terms of this
Section 14.4 shall survive the term of this Agreement and the termination of the
Executive's employment.
<PAGE>
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14.5 Proprietary Information and Inventions. The Lydall Employee Agreement
previously executed by the Executive and attached hereto as Exhibit A is
incorporated by reference in this Agreement, and the Executive agrees to
continue to be bound thereby.
14.6 Covenant to Notify Management. The Executive agrees to abide by the
ethics policies of the Company as well as the Company's other rules,
regulations, policies and procedures. The Executive agrees to comply in full
with all governmental laws and regulations as well as ethics codes applicable.
In the event that the Executive is aware or suspects the Company, or any of its
officers or agents, of violating any such laws, ethics, codes, rules,
regulations, policies or procedures, the Executive agrees to bring all such
actual and suspected violations to the attention of the Company immediately so
that the matter may be properly investigated and appropriate action taken. The
Executive understands that the Executive is precluded from filing a complaint
with any governmental agency or court having jurisdiction over wrongful conduct
unless the Executive has first notified the Company of the facts and permits it
to investigate and correct the concerns.
14.7 Amendments and Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either Party hereto at any time of any breach by the other Party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other Party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
14.8 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by a) the Company's successors and assigns and b) the
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts are still payable to her hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.
14.9 Successors. The Company will require any successors (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and
<PAGE>
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agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform.
14.10 Assignment. This Agreement and the rights, duties, and obligations
hereunder may not be assigned or delegated by any Party without the prior
written consent of the other Party and any attempted assignment or delegation
without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 14.10, the Company may
assign or delegate its rights, duties and obligations hereunder to any affiliate
or to any person or entity which succeeds to all or substantially all of the
business of the Company or one of its subsidiaries through merger, consolation,
reorganization, or other business combination or by acquisition of all or
substantially all of the assets of the Company or one of its subsidiaries.
14.11 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
14.12 Statute of Limitations. The Executive and the Company hereby agree
that there shall be a one year statute of limitations for the filing of any
requests for arbitration or any lawsuit relating to this Agreement or the terms
or conditions of Executive's employment by the Company. If such a claim is filed
more than one year subsequent to the Executive's last day of employment it shall
be precluded by this provision, regardless of whether or not the claim has
accrued at that time.
14.13 Right to Injunctive and Equitable Relief. The Executive's
obligations under Section 14.4 are of a special and unique character, which
gives them a peculiar value. The Company cannot be reasonably or adequately
compensated for damages in an action at law in the event the Executive breaches
such obligations. Therefore, the Executive expressly agrees that the Company
shall be entitled to injunctive and other equitable relief without bond or other
security in the event of such breach in addition to any other rights or remedies
which the Company may possess or be entitled to pursue. Furthermore, the
obligations of the Executive and the rights and remedies of the Company under
Section 14.4 and this Section 14.13 are cumulative and in addition to, and not
in lieu of, any obligations, rights, or remedies as created by applicable law.
14.14 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agree-
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ment shall not affect the validity or enforceability of any other provision of
this Agreement, which shall remain in full force and effect.
14.15 Entire Agreement. This Agreement, along with the Lydall Employee
Agreement and the Indemnification Agreement by and between the Executive and the
Company, constitutes the entire agreement of the Parties and supersedes all
prior written or oral and all contemporaneous oral agreements, understandings,
and negotiations between the Parties with respect to the subject matter hereof.
This Agreement may not be changed orally and may only be modified in writing
signed by both Parties. This Agreement, along with the Lydall Employee Agreement
and the Indemnification Agreement, is intended by the Parties as the final
expression of their agreement with respect to such terms as are included herein
and therein and may not be contradicted by evidence of any prior or
contemporaneous agreement. The Parties further intend that this Agreement, along
with the Lydall Employee Agreement and the Indemnification Agreement,
constitutes the complete and exclusive statement of their terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving such
agreements.
14.16 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute one and the same instrument.
<PAGE>
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Employee has hereunto set her
hand as of the day and year first above written.
LYDALL, INC.
By:
---------------------------- -------------
Christopher R. Skomorowski Date
President and Chief
Executive Officer
---------------------------- -------------
Carole F. Butenas Date
<PAGE>
Exhibit 10.9
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of March,
2000, by and between LYDALL, INC., a Delaware corporation (the "Company"), and
Mona G. Estey (the "Executive").
W I T N E S S E T H
WHEREAS, the Company and the Executive (the "Parties") have agreed
to enter into this agreement (the "Agreement) relating to the employment of the
Executive by the Company and/or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:
1. Term of Employment; Termination of Prior Agreement.
(a) The Company and/or one of its subsidiaries agrees to continue to
employ the Executive, and the Executive agrees to remain in the employment of
the Company and/or one of its subsidiaries, in accordance with the terms and
provisions of this Agreement.
(b) The Employment Period under this Agreement shall be the period
commencing as of the date of this Agreement and, ending on the date of
termination of the Executive's employment pursuant to Section 5, 6 or 7 below,
whichever is applicable.
(c) Immediately upon the commencement of the Executive's employment
pursuant to the terms of this Agreement, that certain Agreements by and between
the Executive and the Company dated as of February 1, 2000 and March 10, 1995
and shall terminate and shall be of no further force or effect.
2. Duties. It is the intention of the Parties that during the term
of the Executive's employment under this Agreement, the Executive will serve as
Director, Human Resources of the Company or in such other senior management
position as the Company shall determine. During the Employment Period, the
Executive will devote her full business time and attention and best efforts to
the affairs of the Company and its subsidiaries
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and her duties as Director, Human Resources. The Executive will have such duties
as are appropriate to her position as Director, Human Resources, and will have
such authority as required to enable the Executive to perform these duties.
Consistent with the foregoing, the Executive shall comply with all reasonable
instructions of the Board of Directors of the Company (the "Board").
3. Compensation and Benefits.
3.1 Salary. During the Employment Period, the Company will pay the
Executive a base salary at an initial annual rate of One Hundred Fifteen
Thousand Dollars ($115,000). The Company may, in its sole and absolute
discretion, increase the Executive's base salary in light of the Executive's
performance, inflation, changes in the cost of living and other factors deemed
relevant by the Company. The Executive's base salary may not be decreased during
the term of this Agreement. The Chief Executive Officer of the Company shall
meet with the Executive annually to review the Executive's performance,
objectives and compensation, including salary, bonus and stock options, and the
Chief Executive Officer shall then meet with the Compensation and Stock Option
Committee of the Board (the "Compensation Committee") to discuss the same. If
the Compensation Committee determines that any adjustments thereto are
appropriate, such committee shall make a recommendation to the full Board and
the Board shall make such adjustments, if any, as the Board deems appropriate
and consistent with this Agreement. The Executive's base salary will be paid in
accordance with the standard practices for other corporate executives of the
Company.
3.2 Bonuses. During the Employment Period, the Executive will be
eligible to receive annually or otherwise such bonus awards, if any, as shall be
determined by the Board in its sole and absolute discretion after receiving the
recommendation of the Compensation Committee.
3.3 Benefit Programs. During the Employment Period, the Executive
will be entitled to participate on substantially the same terms as other senior
executives of the Company in all employee benefit plans and programs of the
Company (subject to any restrictions or eligibility requirements under such
plans and programs) from time to time in effect for the benefit of senior
executives of the Company, including, but not limited to, pension and other
retirement plans, profit sharing plans, stock incentive and annual incentive
bonus plans, group life insurance, hospitalization and surgical and major
medical cov-
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erages (excluding the Lydall, Inc. Executive Medical Plan), short-term and
long-term disability, and such other benefits as are or may be made available
from time to time to senior executives of the Company.
3.4 Vacations and Holidays. During the Employment Period, the
Executive will be entitled to vacation leave of five (5) weeks per year at full
pay or such greater vacation benefits as may be provided for by the Company's
vacation policies applicable to senior executives. The Executive will be
entitled to such holidays as are established by the Company for all employees.
4. Business Expenses. The Executive will be entitled to prompt
reimbursement for all reasonable, documented and necessary expenses incurred by
the Executive in performing her services hereunder, provided the Executive
properly accounts therefor in accordance with the policies and procedures
established by the Company.
5. Termination of Employment by the Company.
5.1 Involuntary Termination by the Company Other Than For Permanent
and Total Disability or Cause. The Company may terminate the Executive's
employment at any time other than (i) by reason of the Executive's Permanent and
Total Disability (as defined in Section 5.2) or (ii) for Cause (as defined in
Section 5.3), by giving the Executive a written notice of ter -mination at least
30 days before the date of termination (or such lesser notice period as the
Executive may agree to). In the event of such a termination of employment
pursuant to this Section 5.1, the Executive shall be entitled to receive (i) the
benefits described in Section 8 if such termination of employment does not occur
within 12 months following a "Change of Control" (as defined in Section 10), or
(ii) the benefits described in Section 9 if such termination of employment
occurs within 12 months following a "Change of Control" (as defined in Section
10).
5.2 Termination Due to Permanent and Total Disability. If the
Executive incurs a Permanent and Total Disability, as defined below, the Company
may terminate the Executive's employment by giving the Executive written notice
of termination at least 30 days before the date of such termination (or such
lesser notice period as the Executive may agree to). In the event of such
termination of the Executive's employment because of Permanent and Total
Disability, the Executive shall be entitled to receive (i) her base salary
pursuant to Section 3.1
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through the date which is twelve months following the date of such termination
of employment, reduced by any amounts paid to the Executive under any disability
program maintained by the Company, such base salary to be paid at the normal
time for the payment of such base salary, (ii) a bonus for the year of
termination of employment and for the next succeeding year (to be paid at the
normal time for payment of such bonuses) in an amount equal to the average of
the three highest annual bonuses earned by the Executive under the Company's
annual incentive bonus plan for any of the five calendar years preceding the
calendar year of her termination of employment (or, if the Executive was not
eligible for a bonus for at least three calendar years in such five-year period,
then the average of such bonuses for all of the calendar years in such five-year
period for which the Executive was eligible), with any deferred bonuses counting
for the year earned rather than the year paid; (iii) any other compensation and
benefits to the extent actually earned by the Executive under any other benefit
plan or program of the Company as of the date of such termination of employment,
such compensation and benefits to be paid at the normal time for payment of such
compensation and benefits, and (iv) any reimbursement amounts owing under
Section 4. In addition, if the Executive elects to continue coverage under the
Company's health plan pursuant to COBRA, the Company for a period of twelve
months following termination of the Executive's employment by reason of
Permanent and Total Disability will pay the same percentage of the Executive's
premium for COBRA coverage for the Executive and, if applicable, her spouse and
dependent children, as the Company paid at the applicable time for coverage
under such plan for actively employed senior executives generally. For the
period of twelve months following the termination of the Executive's employment
by reason of Permanent and Total Disability, the Company will continue to
provide the life insurance benefits that the Company would have provided to the
Executive if the Executive had continued in employment with the Company for such
period, but only if the Executive timely pays the portion of the premium for
such coverage that senior executives of the Company generally are required to
pay for such coverage, if any. For purposes of this Agreement, the Executive
shall be considered to have incurred a Permanent and Total Disability if and
only if the Executive has incurred a disability entitling the Executive to
disability benefits under the Company's long-term disability plan.
5.3 Termination for Cause. The Company may terminate the Executive's
employment immediately for Cause for any of the following reasons: (i) an act or
acts of dishonesty or fraud on the part of the Executive resulting or intended
to re-
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sult directly or indirectly in substantial gain or personal enrichment to which
the Executive was not legally entitled at the expense of the Company or any of
its subsidiaries; (ii) a willful material breach by the Executive of her duties
or responsibilities under this Agreement resulting in demonstrably material
injury to the Company or any of its subsidiaries; (iii) the Executive's
conviction of a felony or any crime involving moral turpitude, (iv) habitual
neglect or insubordination (defined as refusal to execute or carry out
directions from the Board or its duly appointed designees) where the Executive
has been given written notice of the acts or omissions constituting such neglect
or insubordination and the Executive has failed to cure such conduct, where
susceptible to cure, within thirty days following such notice, or (v) a material
breach by the Executive of any of his obligations under the Lydall Employee
Agreement executed by the Executive and attached hereto as Exhibit A. The
Company shall exercise its right to terminate the Executive's employment for
Cause by giving the Executive written notice of termination specifying in
reasonable detail the circumstances constituting such Cause. In the event of
such termination of the Executive's employment for Cause, the Executive shall be
entitled to receive only (i) her base salary pursuant to Section 3.1 earned
through the date of such termination of employment plus her base salary for the
period of any vacation time earned but not taken for the year of termination of
employment, such base salary to be paid at the normal time for payment of such
base salary, (ii) any other compensation and benefits to the extent actually
earned by the Executive under any other benefit plan or program of the Company
as of the date of such termination of employment, such compensation and benefits
to be paid and at the normal time for payment of such compensation and benefits
and (iii) any reimbursement amounts owing under Section 4.
6. Termination of Employment by the Executive.
(a) Good Reason. The Executive may terminate her employment for Good
Reason by giving the Company a written notice of termination at least 30 days
before the date of such termination (or such lesser notice period as the Company
may agree to) specifying in reasonable detail the circumstances constituting
such Good Reason. In the event of the Executive's termination of her employment
for Good Reason, the Executive shall be entitled to receive (i) the benefits
described in Section 8 if such termination of employment does not occur within
12 months following a "Change of Control" (as defined in Section 10), or (ii)
the benefits described in Section 9 if such termination of employment occurs
within 12 months following a
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"Change of Control" (as defined in Section 10). For purposes of this Agreement,
Good Reason shall mean (i) a significant reduction in the scope of the
Executive's authority, functions, duties or responsibilities from that which is
contemplated by this Agreement, (ii) any reduction in the Executive's base
salary, (iii) a significant reduction in the employee benefits provided to the
Executive (excluding the Lydall, Inc. Executive Medical Plan) other than in
connection with an across-the-board reduction similarly affecting substantially
all senior executives of the Company, or (iv) any material breach by the Company
of any provision of this Agreement without the Executive having committed any
material breach of the Executive's obligations hereunder or under the Lydall
Employee Agreement which breach is not cured within thirty days following
written notice thereof to the Company of such breach. In addition, in the case
of a termination of employment within 12 months following a "Change of Control"
(as defined in Section 10), Good Reason shall also include the relocation of the
Executive's office location to a location more than 50 miles away from the
Executive's then current principal place of employment. If an event constituting
a ground for termination of employment for Good Reason occurs, and the Executive
fails to give notice of termination within 90 days after the occurrence of such
event, the Executive shall be deemed to have waived her right to terminate
employment for Good Reason in connection with such event (but not for any other
event for which the 90-day period has not expired).
(b) Other. The Executive may terminate her employment at any time
and for any reason, other than pursuant to subsection (a) above, by giving the
Company a written notice of termination to that effect at least 30 days before
the date of termination (or such lesser notice period as the Company may agree
to); provided, however, that the Company following receipt of such notice from
the Executive may elect to have the Executive's employment terminate immediately
following its receipt of such notice. In the event of the Executive's
termination of her employment pursuant to this subsection (b), the Executive
shall be entitled to receive only (i) her base salary pursuant to Section 3.1
earned through the date of such termination of employment plus her base salary
for the period of vacation time earned but not taken for the year of termination
of employment, such base salary to be paid at the normal time for payment of
such base salary, (ii) any other compensation and benefits to the extent
actually earned by the Executive under any other benefit plan or program of the
Company as of the date of such termination of employment, such compensation and
benefits to be paid at the normal time for payment of such compen-
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sation and benefits, and (iii) any reimbursement amounts owing under Section 4.
7. Termination of Employment By Death. In the event of the death of
the Executive during the course of her employment hereunder, the Executive's
estate (or other person or entity having such entitlement pursuant to the terms
of the applicable plan or program) shall be entitled to receive (i) the
Executive's base salary pursuant to Section 3.1 earned through the date of the
Executive's death plus the Executive's base salary for the period of vacation
time earned but not taken for the year of the Executive's death, such base
salary to be paid at the normal time for payment of such base salary, (ii) a
bonus for the year of the Executive's death (to be paid within 90 days after the
Executive's death) in an amount equal to a pro rata portion of the average of
the three highest annual bonuses earned by the Executive under the Company's
annual incentive bonus plan for any of the five calendar years preceding the
calendar year of the Executive's death (or, if the Executive was not eligible
for a bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year period
for which the Executive was eligible), with any deferred bonuses counting for
the year earned rather than the year paid and with the pro rata portion being
determined by dividing the number of days of the Executive's employment during
such calendar year up to her death by 365 (366 if a leap year), (iii) any other
compensation and benefits to the extent actually earned by the Executive under
any other benefit plan or program of the Company as of the date of such
termination of employment, such compensation and benefits to be paid at the
normal time for payment of such compensation and benefits, and (iv) any
reimbursement amounts owing under Section 4. In addition, in the event of such
death, the Executive's beneficiaries shall receive any death benefits owed to
them under the Company's employee benefit plans. If the Executive's spouse
and/or dependent children elect to continue coverage under the Company's health
plan following the Executive's death pursuant to COBRA, the Company for a period
of 12 months following the Executive's death will pay the same percentage of the
premium for COBRA coverage for the Executive's spouse and/or dependent children,
as applicable, as the Company would have paid in respect of the Executive's
coverage under such plan if the Executive had continued in employment with the
Company for such period.
8. Benefits Upon Termination Without Cause or For Good Reason (No
Change of Control). If (a) the Executive's em-
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ployment hereunder shall terminate (i) because of termination by the Company
other than for Cause or Permanent and Total Disability pursuant to Section 5.1,
or (ii) because of termination by the Employee for Good Reason pursuant to
Section 6(a), and (b) such termination of employment does not occur within 12
months following a "Change of Control" of the Company (as defined in Section
10), the Executive shall be entitled to the following:
(a) The Company shall pay to the Executive her base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal time for payment of such base salary,
compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
(c) The Company shall pay to the Executive in equal installments
spread over the period of 12 months beginning on the date of the
Executive's termination of employment an amount equal in the aggregate to
the sum of (i) the Executive's annual rate of base salary immediately
preceding her termination of employment, and (ii) the average of her
annual bonuses earned under the Company's annual incentive bonus plan for
the three calendar years preceding her termination of employment (or, if
the Executive was not eligible for a bonus in each of those three calendar
years, then the average of such bonuses for all of the calendar years in
such three-year period for which she was eligible), with any deferred
bonuses counting for the year earned rather than the year paid. Such
installments shall be paid at the times that salary payments are normally
made by the Company.
(d) If the Executive elects to continue coverage under the Company's
health plan pursuant to COBRA, then for the period beginning on the date
of the Executive's termination of employment and ending on the earlier of
(i) the date which is 12 months after the date of such termination of
employment or (ii) the date on which the Executive commences substantially
full-time employment as an employee of an employer that offers health
benefits, the Company will pay the same percentage of the Executive's
premium
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for COBRA coverage for the Executive and, if applicable, her spouse and
dependent children, as the Company paid at the applicable time for
coverage under such plan for actively employed senior executives
generally. In addition, for the period beginning on the date of the
Executive's termination of employment and ending on the earlier of (i) the
date which is 12 months after the date of such termination of employment
or (ii) the date on which the Executive commences substantially full-time
employment as an employee of an employer that offers life insurance
benefits, the Company will continue to provide the life insurance benefits
that the Company would have provided to the Executive if the Executive had
continued in employment with the Company for such period, but only if the
Executive timely pays the portion of the premium for such coverage that
senior executives of the Company generally are required to pay for such
coverage, if any. The Executive shall notify the Company promptly if she,
while eligible for benefits under this subsection (d), commences
substantially full-time employment as an employee of an employer that
offers health and/or life insurance benefits.
(e) The Company will provide the Executive with outplacement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
9. Benefits Upon Termination Without Cause or For Good Reason
(Change of Control). If (a) the Executive's employment hereunder shall terminate
(i) because of termination by the Company other than for Cause or Permanent and
Total Disability pursuant to Section 5.1, or (ii) because of termination by the
Employee for Good Reason pursuant to Section 6(a), and (b) such termination of
employment occurs within 12 months following a "Change of Control" of the
Company (as defined in Section 10), the Executive shall be entitled to the
following:
(a) The Company shall pay to the Executive her base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal time for payment of such base salary,
compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
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(c) The Company shall pay to the Executive as a severance benefit an
amount equal to two (2) times the sum of (i) her annual rate of base
salary immediately preceding her termination of employment, and (ii) the
average of her three highest annual bonuses earned under the Company's
annual incentive bonus plan for any of the five calendar years preceding
her termination of employment (or, if the Executive was not eligible for a
bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year
period for which the Executive was eligible), with any deferred bonuses
counting for the year earned rather than the year paid. Such severance
benefit shall be paid in a lump sum within 30 days after the date of such
termination of employment.
(d) The Company shall pay to the Executive as a bonus for the year
of termination of her employment an amount equal to a portion (determined
as provided in the next sentence) of the Executive's maximum bonus
opportunity under the Company's annual incentive bonus plan for the
calendar year of termination of the Executive's employment or, if none,
such portion of the bonus awarded to the Executive under the Company's
annual incentive bonus plan for the calendar year immediately preceding
the calendar year of the termination of her employment, with deferred
bonuses counting for the year earned rather than the year paid. Such
portion shall be determined by dividing the number of days of the
Executive's employment during such calendar year up to her termination of
employment by 365 (366 if a leap year). Such payment shall be made in a
lump sum within 30 days after the date of such termination of employment,
and the Executive shall have no right to any further bonuses under said
plan.
(e) During the period of 24 months beginning on the date of the
Executive's termination of employment, the Executive (and, if applicable,
the Executive's spouse and dependent children) shall remain covered by the
medical, dental, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability
plans of the Company that covered the Executive immediately prior to her
termination of employment as if the Executive had remained in employment
for such period; provided, however, that the coverage under any such plan
is conditioned on the timely payment by the Executive (or her spouse or
dependent children) of the portion of the premium for such coverage that
actively em-
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ployed senior executives with the Company generally are required to pay
for such coverage. In the event that the Executive's participation in any
such plan is barred, the Company shall arrange to provide the Executive
(and, if applicable, her spouse and dependent children) with substantially
similar benefits (but, in the case of long-term disability benefits, only
if reasonably commercially available).
(f) The Company shall supplement the benefits payable in respect of
the Executive under the Company's Pension Plan and Supplemental Executive
Retirement Plan (and any successor plans thereto) (collectively, the
"Pension Plans") by paying the difference between (i) the benefits that
the Executive would have been entitled to receive under the Pension Plans
if she had been credited with two additional years of service (but no
additional years of age) for purposes of the benefit accrual formula under
the Pension Plans as of the date of termination of the Executive's
employment and (ii) the benefits that the Executive is entitled to receive
under the Pension Plans determined without regard to this subsection (f).
Such benefits shall be payable in the same form and at the same time as
the benefits under the respective Pension Plans.
(g) Each stock option granted by the Company to the Executive and
outstanding immediately prior to termination of her employment shall be
fully vested and immediately exercisable and may be exercised by the
Executive (or, following her death, by the person or entity to which such
option passes) at any time prior to the expiration date of the applicable
option (determined without regard to any earlier termination of the option
that would otherwise occur by reason of termination of her employment).
Each restricted stock award granted by the Company to the Executive and
outstanding immediately prior to termination of the Executive's employment
shall be fully vested upon such termination of employment.
(h) The Company will provide the Executive with out-placement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
(i) The Company shall promptly pay all reasonable attorneys' fees
and related expenses incurred by the Executive in seeking to obtain or
enforce any right or benefit under this Agreement or to defend against any
claim or
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assertion in connection with this Agreement, but only to the extent the
Executive substantially prevails.
10. Change of Control. For the purposes of this Agreement, a "Change
of Control" shall be deemed to have occurred if (a) any person or persons acting
together which would constitute a "group" for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other than
the Company or any subsidiary of the Company) shall beneficially own (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, at least 25% of the
total voting power of all classes of capital stock of the Company entitled to
vote generally in the election of the Board; (b) Current Directors (as herein
defined) shall cease for any reason to constitute at least a majority of the
members of the Board (for this purpose, a "Current Director" shall mean any
member of the Board as of the date hereof and any successor of a Current
Director whose election, or nomination for election by the Company's
shareholders, was approved by at least a majority of the Current Directors then
on the Board); (c) the shareholders of the Company approve (i) a plan of
complete liquidation of the Company or (ii) an agreement providing for the
merger or consolidation of the Company other than a merger or consolidation in
which (x) the holders of the common stock of the Company immediately prior to
the consolidation or merger have, directly or indirectly, at least a majority of
the common stock of the continuing or surviving corporation immediately after
such consolidation or merger or (y) the Board immediately prior to the merger or
consolidation would, immediately after the merger or consolidation, constitute a
majority of the board of directors of the continuing or surviving corporation;
or (d) the shareholders of the Company approve an agreement (or agreements)
providing for the sale or other disposition (in one transaction or a series of
transactions) of all or substantially all of the assets of the Company.
11. Golden Parachute Excise Tax.
(a) In the event that any payment or benefit received or to be
received by the Executive pursuant to this Agreement or any other plan, program
or arrangement of the Company or any of its affiliates would constitute an
"excess parachute payment" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), then the payments under this
Agreement shall be reduced (by the minimum possible amounts) until no amount
payable to the Executive under this Agreement constitutes an "excess parachute
payment" within the meaning of Section 280G of the Code; provided, how-
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ever, that no such reduction shall be made if the net after-tax payment (after
taking into account Federal, state, local or other income and excise taxes) to
which the Executive would otherwise be entitled without such reduction would be
greater than the net after-tax payment (after taking into account Federal,
state, local or other income and excise taxes) to the Executive resulting from
the receipt of such payments with such reduction. If, as a result of subsequent
events or conditions (including a subsequent payment or absence of a subsequent
payment under this Agreement or other plan, program or arrangement of the
Company or any of its affiliates), it is determined that payments under this
Agreement have been reduced by more than the minimum amount required to prevent
any payments from constituting an "excess parachute payment", then an additional
payment shall be promptly made to the Executive in an amount equal to the
additional amount that can be paid without causing any payment to constitute an
excess parachute payment.
(b) All determinations required to be made under this Section 11
shall be made by a nationally recognized independent accounting firm mutually
agreeable to the Company and the Executive (the "Accounting Firm") which shall
provide detailed supporting calculations to the Company and the Executive as
requested by the Company or the Executive. All fees and expenses of the
Accounting Firm shall be borne solely by the Company and shall be paid by the
Company upon demand of the Executive as incurred or billed by the Accounting
Firm. All determinations made by the Accounting Firm pursuant to this Section 11
shall be final and binding upon the Company and the Executive.
(c) To the extent any payment or benefit is to be reduced pursuant
to this Section 11, the severance payment described in Section 8(c) or 9(c) will
first be reduced, then the bonus described in Section 9(d), and then the
supplemental pension benefits described in Section 9(f), in each case only to
the extent necessary.
12. Entitlement to Other Benefits. Except as otherwise provided in
this Agreement, this Agreement shall not be construed as limiting in any way any
rights or benefits that the Executive or her spouse, dependents or beneficiaries
may have pursuant to any other plan or program of the Company.
13. Indemnification. The parties agree to execute a separate
Indemnification Agreement in the form attached as Exhibit B.
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14. General Provisions.
14.1 No Duty to Seek Employment. The Executive shall not be under
any duty or obligation to seek or accept other employment following termination
of employment, and no amount, payment or benefits due to the Executive hereunder
shall be reduced or suspended if the Executive accepts subsequent employment,
except as expressly set forth herein.
14.2 Deductions and Withholding. All amounts payable or which become
payable under any provision of this Agreement shall be subject to any deductions
authorized by the Executive and any deductions and withholdings required by law.
14.3 Notices. All notices, demands, requests, consents, approvals or
other communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be faxed with a copy deposited in the United
States mail, registered or certified, return receipt requested, postage prepaid,
addressed as follows:
To the Company: Lydall, Inc.
P.O. Box 151
One Colonial Road
Manchester, CT 06045-0151
Attn: Chief Executive Officer
To the Executive: Mona G. Estey
19 High Ridge Road
South Windsor, CT 06074
or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
fifth business day following the date so mailed or on the date of actual
receipt, whichever is earlier.
14.4 No Disparagement. The Executive shall not during the period of
her employment with the Company, nor during the two-year period beginning on the
date of termination of her employment for any reason, disparage the Company or
any of its subsidiaries or affiliates or any of their shareholders, directors,
officers, employees or agents. The Executive agrees that the terms of this
Section 14.4 shall survive the term of this Agreement and the termination of the
Executive's employment.
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14.5 Proprietary Information and Inventions. The Lydall Employee
Agreement previously executed by the Executive and attached hereto as Exhibit A
is incorporated by reference in this Agreement, and the Executive agrees to
continue to be bound thereby.
14.6 Covenant to Notify Management. The Executive agrees to abide by
the ethics policies of the Company as well as the Company's other rules,
regulations, policies and procedures. The Executive agrees to comply in full
with all governmental laws and regulations as well as ethics codes applicable.
In the event that the Executive is aware or suspects the Company, or any of its
officers or agents, of violating any such laws, ethics, codes, rules,
regulations, policies or procedures, the Executive agrees to bring all such
actual and suspected violations to the attention of the Company immediately so
that the matter may be properly investigated and appropriate action taken. The
Executive understands that the Executive is precluded from filing a complaint
with any governmental agency or court having jurisdiction over wrongful conduct
unless the Executive has first notified the Company of the facts and permits it
to investigate and correct the concerns.
14.7 Amendments and Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either Party hereto at any time of any breach by the other Party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other Party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
14.8 Beneficial Interests. This Agreement shall inure to the benefit
of and be enforceable by a) the Company's successors and assigns and b) the
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts are still payable to her hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.
14.9 Successors. The Company will require any successors (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and
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agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform.
14.10 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any Party without the
prior written consent of the other Party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 14.10, the Company may
assign or delegate its rights, duties and obligations hereunder to any affiliate
or to any person or entity which succeeds to all or substantially all of the
business of the Company or one of its subsidiaries through merger, consolation,
reorganization, or other business combination or by acquisition of all or
substantially all of the assets of the Company or one of its subsidiaries.
14.11 Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut.
14.12 Statute of Limitations. The Executive and the Company hereby
agree that there shall be a one year statute of limitations for the filing of
any requests for arbitration or any lawsuit relating to this Agreement or the
terms or conditions of Executive's employment by the Company. If such a claim is
filed more than one year subsequent to the Executive's last day of employment it
shall be precluded by this provision, regardless of whether or not the claim has
accrued at that time.
14.13 Right to Injunctive and Equitable Relief. The Executive's
obligations under Section 14.4 are of a special and unique character, which
gives them a peculiar value. The Company cannot be reasonably or adequately
compensated for damages in an action at law in the event the Executive breaches
such obligations. Therefore, the Executive expressly agrees that the Company
shall be entitled to injunctive and other equitable relief without bond or other
security in the event of such breach in addition to any other rights or remedies
which the Company may possess or be entitled to pursue. Furthermore, the
obligations of the Executive and the rights and remedies of the Company under
Section 14.4 and this Section 14.13 are cumulative and in addition to, and not
in lieu of, any obligations, rights, or remedies as created by applicable law.
14.14 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agree-
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ment shall not affect the validity or enforceability of any other provision of
this Agreement, which shall remain in full force and effect.
14.15 Entire Agreement. This Agreement, along with the Lydall
Employee Agreement and the Indemnification Agreement by and between the
Executive and the Company, constitutes the entire agreement of the Parties and
supersedes all prior written or oral and all contemporaneous oral agreements,
understandings, and negotiations between the Parties with respect to the subject
matter hereof. This Agreement may not be changed orally and may only be modified
in writing signed by both Parties. This Agreement, along with the Lydall
Employee Agreement and the Indemnification Agreement, is intended by the Parties
as the final expression of their agreement with respect to such terms as are
included herein and therein and may not be contradicted by evidence of any prior
or contemporaneous agreement. The Parties further intend that this Agreement,
along with the Lydall Employee Agreement and the Indemnification Agreement,
constitutes the complete and exclusive statement of their terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving such
agreements.
14.16 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Employee has hereunto set her
hand as of the day and year first above written.
LYDALL, INC.
By:
------------------------------- ---------
Christopher R. Skomorowski Date
President and Chief
Executive Officer
------------------------------- ---------
Mona G. Estey Date
<PAGE>
Exhibit 10.10
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of March,
2000, by and between LYDALL, INC., a Delaware corporation (the "Company"), and
Mary A. Tremblay (the "Executive").
W I T N E S S E T H
WHEREAS, the Company and the Executive (the "Parties") have agreed
to enter into this agreement (the "Agreement) relating to the employment of the
Executive by the Company and/or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:
1. Term of Employment; Termination of Prior Agreement.
(a) The Company and/or one of its subsidiaries agrees to continue to
employ the Executive, and the Executive agrees to remain in the employment of
the Company and/or one of its subsidiaries, in accordance with the terms and
provisions of this Agreement.
(b) The Employment Period under this Agreement shall be the period
commencing as of the date of this Agreement and ending on the date of
termination of the Executive's employment pursuant to Section 5, 6 or 7 below,
whichever is applicable.
(c) Immediately upon the commencement of the Executive's employment
pursuant to the terms of this Agreement, that certain Agreements by and between
the Executive and the Company dated as of February 1, 2000 and March 10, 1995
and shall terminate and shall be of no further force or effect.
2. Duties. It is the intention of the Parties that during the term
of the Executive's employment under this Agreement, the Executive will serve as
General Counsel/Corporate Secretary of the Company or in such other senior
management position as the Company shall determine. During the Employment
Period, the Executive will devote her full business time and attention and best
efforts to the affairs of the Company and
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its subsidiaries and her duties as General Counsel/Corporate Secretary. The
Executive will have such duties as are appropriate to her position as General
Counsel/Corporate Secretary, and will have such authority as required to enable
the Executive to perform these duties. Consistent with the foregoing, the
Executive shall comply with all reasonable instructions of the Board of
Directors of the Company (the "Board").
3. Compensation and Benefits.
3.1 Salary. During the Employment Period, the Company will pay the
Executive a base salary at an initial annual rate of One Hundred Twenty-Five
Thousand Dollars ($125,000). The Company may, in its sole and absolute
discretion, increase the Executive's base salary in light of the Executive's
performance, inflation, changes in the cost of living and other factors deemed
relevant by the Company. The Executive's base salary may not be decreased during
the term of this Agreement. The Chief Executive Officer of the Company shall
meet with the Executive annually to review the Executive's performance,
objectives and compensation, including salary, bonus and stock options, and the
Chief Executive Officer shall then meet with the Compensation and Stock Option
Committee of the Board (the "Compensation Committee") to discuss the same. If
the Compensation Committee determines that any adjustments thereto are
appropriate, such committee shall make a recommendation to the full Board and
the Board shall make such adjustments, if any, as the Board deems appropriate
and consistent with this Agreement. The Executive's base salary will be paid in
accordance with the standard practices for other corporate executives of the
Company.
3.2 Bonuses. During the Employment Period, the Executive will be
eligible to receive annually or otherwise such bonus awards, if any, as shall be
determined by the Board in its sole and absolute discretion after receiving the
recommendation of the Compensation Committee.
3.3 Benefit Programs. During the Employment Period, the Executive
will be entitled to participate on substantially the same terms as other senior
executives of the Company in all employee benefit plans and programs of the
Company (subject to any restrictions or eligibility requirements under such
plans and programs) from time to time in effect for the benefit of senior
executives of the Company, including, but not limited to, pension and other
retirement plans, profit sharing plans, stock incentive and annual incentive
bonus plans, group life insurance, hospitalization and surgical and major
medical cov-
<PAGE>
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erages (exluding the Lydall, Inc. Executive Medical Plan), short-term and
long-term disability, and such other benefits as are or may be made available
from time to time to senior executives of the Company.
3.4 Vacations and Holidays. During the Employment Period, the
Executive will be entitled to vacation leave of three (3) weeks per year at full
pay or such greater vacation benefits as may be provided for by the Company's
vacation policies applicable to senior executives. The Executive will be
entitled to such holidays as are established by the Company for all employees.
4. Business Expenses. The Executive will be entitled to prompt
reimbursement for all reasonable, documented and necessary expenses incurred by
the Executive in performing her services hereunder, provided the Executive
properly accounts therefor in accordance with the policies and procedures
established by the Company.
5. Termination of Employment by the Company.
5.1 Involuntary Termination by the Company Other Than For Permanent
and Total Disability or Cause. The Company may terminate the Executive's
employment at any time other than (i) by reason of the Executive's Permanent and
Total Disability (as defined in Section 5.2) or (ii) for Cause (as defined in
Section 5.3), by giving the Executive a written notice of termination at least
30 days before the date of termination (or such lesser notice period as the
Executive may agree to). In the event of such a termination of employment
pursuant to this Section 5.1, the Executive shall be entitled to receive (i) the
benefits described in Section 8 if such termination of employment does not occur
within 12 months following a "Change of Control" (as defined in Section 10), or
(ii) the benefits described in Section 9 if such termination of employment
occurs within 12 months following a "Change of Control" (as defined in Section
10).
5.2 Termination Due to Permanent and Total Disability. If the
Executive incurs a Permanent and Total Disability, as defined below, the Company
may terminate the Executive's employment by giving the Executive written notice
of termination at least 30 days before the date of such termination (or such
lesser notice period as the Executive may agree to). In the event of such
termination of the Executive's employment because of Permanent and Total
Disability, the Executive shall be entitled to receive (i) her base salary
pursuant to Section 3.1
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through the date which is twelve months following the date of such termination
of employment, reduced by any amounts paid to the Executive under any disability
program maintained by the Company, such base salary to be paid at the normal
time for the payment of such base salary, (ii) a bonus for the year of
termination of employment and for the next succeeding year (to be paid at the
normal time for payment of such bonuses) in an amount equal to the average of
the three highest annual bonuses earned by the Executive under the Company's
annual incentive bonus plan for any of the five calendar years preceding the
calendar year of her termination of employment (or, if the Executive was not
eligible for a bonus for at least three calendar years in such five-year period,
then the average of such bonuses for all of the calendar years in such five-year
period for which the Executive was eligible), with any deferred bonuses counting
for the year earned rather than the year paid; (iii) any other compensation and
benefits to the extent actually earned by the Executive under any other benefit
plan or program of the Company as of the date of such termination of employment,
such compensation and benefits to be paid at the normal time for payment of such
compensation and benefits, and (iv) any reimbursement amounts owing under
Section 4. In addition, if the Executive elects to continue coverage under the
Company's health plan pursuant to COBRA, the Company for a period of twelve
months following termination of the Executive's employment by reason of
Permanent and Total Disability will pay the same percentage of the Executive's
premium for COBRA coverage for the Executive and, if applicable, her spouse and
dependent children, as the Company paid at the applicable time for coverage
under such plan for actively employed senior executives generally. For the
period of twelve months following the termination of the Executive's employment
by reason of Permanent and Total Disability, the Company will continue to
provide the life insurance benefits that the Company would have provided to the
Executive if the Executive had continued in employment with the Company for such
period, but only if the Executive timely pays the portion of the premium for
such coverage that senior executives of the Company generally are required to
pay for such coverage, if any. For purposes of this Agreement, the Executive
shall be considered to have incurred a Permanent and Total Disability if and
only if the Executive has incurred a disability entitling the Executive to
disability benefits under the Company's long-term disability plan.
5.3 Termination for Cause. The Company may terminate the Executive's
employment immediately for Cause for any of the following reasons: (i) an act or
acts of dishonesty or fraud on the part of the Executive resulting or intended
to re-
<PAGE>
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sult directly or indirectly in substantial gain or personal enrichment to which
the Executive was not legally entitled at the expense of the Company or any of
its subsidiaries; (ii) a willful material breach by the Executive of her duties
or responsibilities under this Agreement resulting in demonstrably material
injury to the Company or any of its subsidiaries; (iii) the Executive's
conviction of a felony or any crime involving moral turpitude, (iv) habitual
neglect or insubordination (defined as refusal to execute or carry out
directions from the Board or its duly appointed designees) where the Executive
has been given written notice of the acts or omissions constituting such neglect
or insubordination and the Executive has failed to cure such conduct, where
susceptible to cure, within thirty days following such notice, or (v) a material
breach by the Executive of any of his obligations under the Lydall Employee
Agreement executed by the Executive and attached hereto as Exhibit A. The
Company shall exercise its right to terminate the Executive's employment for
Cause by giving the Executive written notice of termination specifying in
reasonable detail the circumstances constituting such Cause. In the event of
such termination of the Executive's employment for Cause, the Executive shall be
entitled to receive only (i) her base salary pursuant to Section 3.1 earned
through the date of such termination of employment plus her base salary for the
period of any vacation time earned but not taken for the year of termination of
employment, such base salary to be paid at the normal time for payment of such
base salary, (ii) any other compensation and benefits to the extent actually
earned by the Executive under any other benefit plan or program of the Company
as of the date of such termination of employment, such compensation and benefits
to be paid and at the normal time for payment of such compensation and benefits
and (iii) any reimbursement amounts owing under Section 4.
6. Termination of Employment by the Executive.
(a) Good Reason. The Executive may terminate her employment for Good
Reason by giving the Company a written notice of termination at least 30 days
before the date of such termination (or such lesser notice period as the Company
may agree to) specifying in reasonable detail the circumstances constituting
such Good Reason. In the event of the Executive's termination of her employment
for Good Reason, the Executive shall be entitled to receive (i) the benefits
described in Section 8 if such termination of employment does not occur within
12 months following a "Change of Control" (as defined in Section 10), or (ii)
the benefits described in Section 9 if such termination of employment occurs
within 12 months following a
<PAGE>
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"Change of Control" (as defined in Section 10). For purposes of this Agreement,
Good Reason shall mean (i) a significant reduction in the scope of the
Executive's authority, functions, duties or responsibilities from that which is
contemplated by this Agreement, (ii) any reduction in the Executive's base
salary, (iii) a significant reduction in the employee benefits provided to the
Executive (excluding the Lydall, Inc. Executive Medical Plan) other than in
connection with an across-the-board reduction similarly affecting substantially
all senior executives of the Company, or (iv) any material breach by the Company
of any provision of this Agreement without the Executive having committed any
material breach of the Executive's obligations hereunder or under the Lydall
Employee Agreement which breach is not cured within thirty days following
written notice thereof to the Company of such breach. In addition, in the case
of a termination of employment within 12 months following a "Change of Control"
(as defined in Section 10), Good Reason shall also include the relocation of the
Executive's office location to a location more than 50 miles away from the
Executive's then current principal place of employment. If an event constituting
a ground for termination of employment for Good Reason occurs, and the Executive
fails to give notice of termination within 90 days after the occurrence of such
event, the Executive shall be deemed to have waived her right to terminate
employment for Good Reason in connection with such event (but not for any other
event for which the 90-day period has not expired).
(b) Other. The Executive may terminate her employment at any time
and for any reason, other than pursuant to subsection (a) above, by giving the
Company a written notice of termination to that effect at least 30 days before
the date of termination (or such lesser notice period as the Company may agree
to); provided, however, that the Company following receipt of such notice from
the Executive may elect to have the Executive's employment terminate immediately
following its receipt of such notice. In the event of the Executive's
termination of her employment pursuant to this subsection (b), the Executive
shall be entitled to receive only (i) her base salary pursuant to Section 3.1
earned through the date of such termination of employment plus her base salary
for the period of vacation time earned but not taken for the year of termination
of employment, such base salary to be paid at the normal time for payment of
such base salary, (ii) any other compensation and benefits to the extent
actually earned by the Executive under any other benefit plan or program of the
Company as of the date of such termination of employment, such compensation and
benefits to be paid at the normal time for payment of such compen-
<PAGE>
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sation and benefits, and (iii) any reimbursement amounts owing under Section 4.
7. Termination of Employment By Death. In the event of the death of
the Executive during the course of her employment hereunder, the Executive's
estate (or other person or entity having such entitlement pursuant to the terms
of the applicable plan or program) shall be entitled to receive (i) the
Executive's base salary pursuant to Section 3.1 earned through the date of the
Executive's death plus the Executive's base salary for the period of vacation
time earned but not taken for the year of the Executive's death, such base
salary to be paid at the normal time for payment of such base salary, (ii) a
bonus for the year of the Executive's death (to be paid within 90 days after the
Executive's death) in an amount equal to a pro rata portion of the average of
the three highest annual bonuses earned by the Executive under the Company's
annual incentive bonus plan for any of the five calendar years preceding the
calendar year of the Executive's death (or, if the Executive was not eligible
for a bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year period
for which the Executive was eligible), with any deferred bonuses counting for
the year earned rather than the year paid and with the pro rata portion being
determined by dividing the number of days of the Executive's employment during
such calendar year up to her death by 365 (366 if a leap year), (iii) any other
compensation and benefits to the extent actually earned by the Executive under
any other benefit plan or program of the Company as of the date of such
termination of employment, such compensation and benefits to be paid at the
normal time for payment of such compensation and benefits, and (iv) any
reimbursement amounts owing under Section 4. In addition, in the event of such
death, the Executive's beneficiaries shall receive any death benefits owed to
them under the Company's employee benefit plans. If the Executive's spouse
and/or dependent children elect to continue coverage under the Company's health
plan following the Executive's death pursuant to COBRA, the Company for a period
of 12 months following the Executive's death will pay the same percentage of the
premium for COBRA coverage for the Executive's spouse and/or dependent children,
as applicable, as the Company would have paid in respect of the Executive's
coverage under such plan if the Executive had continued in employment with the
Company for such period.
8. Benefits Upon Termination Without Cause or For Good Reason (No
Change of Control). If (a) the Executive's em-
<PAGE>
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ployment hereunder shall terminate (i) because of termination by the Company
other than for Cause or Permanent and Total Disability pursuant to Section 5.1,
or (ii) because of termination by the Employee for Good Reason pursuant to
Section 6(a), and (b) such termination of employment does not occur within 12
months following a "Change of Control" of the Company (as defined in Section
10), the Executive shall be entitled to the following:
(a) The Company shall pay to the Executive her base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal time for payment of such base salary,
compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
(c) The Company shall pay to the Executive in equal installments
spread over the period of 12 months beginning on the date of the
Executive's termination of employment an amount equal in the aggregate to
the sum of (i) the Executive's annual rate of base salary immediately
preceding her termination of employment, and (ii) the average of her
annual bonuses earned under the Company's annual incentive bonus plan for
the three calendar years preceding her termination of employment (or, if
the Executive was not eligible for a bonus in each of those three calendar
years, then the average of such bonuses for all of the calendar years in
such three-year period for which she was eligible), with any deferred
bonuses counting for the year earned rather than the year paid. Such
installments shall be paid at the times that salary payments are normally
made by the Company.
(d) If the Executive elects to continue coverage under the Company's
health plan pursuant to COBRA, then for the period beginning on the date
of the Executive's termination of employment and ending on the earlier of
(i) the date which is 12 months after the date of such termination of
employment or (ii) the date on which the Executive commences substantially
full-time employment as an employee of an employer that offers health
benefits, the Company will pay the same percentage of the Executive's
premium
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for COBRA coverage for the Executive and, if applicable, her spouse and
dependent children, as the Company paid at the applicable time for
coverage under such plan for actively employed senior executives
generally. In addition, for the period beginning on the date of the
Executive's termination of employment and ending on the earlier of (i) the
date which is 12 months after the date of such termination of employment
or (ii) the date on which the Executive commences substantially full-time
employment as an employee of an employer that offers life insurance
benefits, the Company will continue to provide the life insurance benefits
that the Company would have provided to the Executive if the Executive had
continued in employment with the Company for such period, but only if the
Executive timely pays the portion of the premium for such coverage that
senior executives of the Company generally are required to pay for such
coverage, if any. The Executive shall notify the Company promptly if she,
while eligible for benefits under this subsection (d), commences
substantially full-time employment as an employee of an employer that
offers health and/or life insurance benefits.
(e) The Company will provide the Executive with outplacement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
9. Benefits Upon Termination Without Cause or For Good Reason
(Change of Control). If (a) the Executive's employment hereunder shall terminate
(i) because of termination by the Company other than for Cause or Permanent and
Total Disability pursuant to Section 5.1, or (ii) because of termination by the
Employee for Good Reason pursuant to Section 6(a), and (b) such termination of
employment occurs within 12 months following a "Change of Control" of the
Company (as defined in Section 10), the Executive shall be entitled to the
following:
(a) The Company shall pay to the Executive her base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal time for payment of such base salary,
compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
<PAGE>
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(c) The Company shall pay to the Executive as a severance benefit an
amount equal to two (2) times the sum of (i) her annual rate of base
salary immediately preceding her termination of employment, and (ii) the
average of her three highest annual bonuses earned under the Company's
annual incentive bonus plan for any of the five calendar years preceding
her termination of employment (or, if the Executive was not eligible for a
bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year
period for which the Executive was eligible), with any deferred bonuses
counting for the year earned rather than the year paid. Such severance
benefit shall be paid in a lump sum within 30 days after the date of such
termination of employment.
(d) The Company shall pay to the Executive as a bonus for the year
of termination of her employment an amount equal to a portion (determined
as provided in the next sentence) of the Executive's maximum bonus
opportunity under the Company's annual incentive bonus plan for the
calendar year of termination of the Executive's employment or, if none,
such portion of the bonus awarded to the Executive under the Company's
annual incentive bonus plan for the calendar year immediately preceding
the calendar year of the termination of her employment, with deferred
bonuses counting for the year earned rather than the year paid. Such
portion shall be determined by dividing the number of days of the
Executive's employment during such calendar year up to her termination of
employment by 365 (366 if a leap year). Such payment shall be made in a
lump sum within 30 days after the date of such termination of employment,
and the Executive shall have no right to any further bonuses under said
plan.
(e) During the period of 24 months beginning on the date of the
Executive's termination of employment, the Executive (and, if applicable,
the Executive's spouse and dependent children) shall remain covered by the
medical, dental, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability
plans of the Company that covered the Executive immediately prior to her
termination of employment as if the Executive had remained in employment
for such period; provided, however, that the coverage under any such plan
is conditioned on the timely payment by the Executive (or her spouse or
dependent children) of the portion of the premium for such coverage that
actively em-
<PAGE>
-11-
ployed senior executives with the Company generally are required to pay
for such coverage. In the event that the Executive's participation in any
such plan is barred, the Company shall arrange to provide the Executive
(and, if applicable, her spouse and dependent children) with substantially
similar benefits (but, in the case of long-term disability benefits, only
if reasonably commercially available).
(f) The Company shall supplement the benefits payable in respect of
the Executive under the Company's Pension Plan and Supplemental Executive
Retirement Plan (and any successor plans thereto) (collectively, the
"Pension Plans") by paying the difference between (i) the benefits that
the Executive would have been entitled to receive under the Pension Plans
if she had been credited with two additional years of service (but no
additional years of age) for purposes of the benefit accrual formula under
the Pension Plans as of the date of termination of the Executive's
employment and (ii) the benefits that the Executive is entitled to receive
under the Pension Plans determined without regard to this subsection (f).
Such benefits shall be payable in the same form and at the same time as
the benefits under the respective Pension Plans.
(g) Each stock option granted by the Company to the Executive and
outstanding immediately prior to termination of her employment shall be
fully vested and immediately exercisable and may be exercised by the
Executive (or, following her death, by the person or entity to which such
option passes) at any time prior to the expiration date of the applicable
option (determined without regard to any earlier termination of the option
that would otherwise occur by reason of termination of her employment).
Each restricted stock award granted by the Company to the Executive and
outstanding immediately prior to termination of the Executive's employment
shall be fully vested upon such termination of employment.
(h) The Company will provide the Executive with out-placement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
(i) The Company shall promptly pay all reasonable attorneys' fees
and related expenses incurred by the Executive in seeking to obtain or
enforce any right or benefit under this Agreement or to defend against any
claim or
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assertion in connection with this Agreement, but only to the extent the
Executive substantially prevails.
10. Change of Control. For the purposes of this Agreement, a "Change
of Control" shall be deemed to have occurred if (a) any person or persons acting
together which would constitute a "group" for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other than
the Company or any subsidiary of the Company) shall beneficially own (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, at least 25% of the
total voting power of all classes of capital stock of the Company entitled to
vote generally in the election of the Board; (b) Current Directors (as herein
defined) shall cease for any reason to constitute at least a majority of the
members of the Board (for this purpose, a "Current Director" shall mean any
member of the Board as of the date hereof and any successor of a Current
Director whose election, or nomination for election by the Company's
shareholders, was approved by at least a majority of the Current Directors then
on the Board); (c) the shareholders of the Company approve (i) a plan of
complete liquidation of the Company or (ii) an agreement providing for the
merger or consolidation of the Company other than a merger or consolidation in
which (x) the holders of the common stock of the Company immediately prior to
the consolidation or merger have, directly or indirectly, at least a majority of
the common stock of the continuing or surviving corporation immediately after
such consolidation or merger or (y) the Board immediately prior to the merger or
consolidation would, immediately after the merger or consolidation, constitute a
majority of the board of directors of the continuing or surviving corporation;
or (d) the shareholders of the Company approve an agreement (or agreements)
providing for the sale or other disposition (in one transaction or a series of
transactions) of all or substantially all of the assets of the Company.
11. Golden Parachute Excise Tax.
(a) In the event that any payment or benefit received or to be
received by the Executive pursuant to this Agreement or any other plan, program
or arrangement of the Company or any of its affiliates would constitute an
"excess parachute payment" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), then the payments under this
Agreement shall be reduced (by the minimum possible amounts) until no amount
payable to the Executive under this Agreement constitutes an "excess parachute
payment" within the meaning of Section 280G of the Code; provided, how-
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ever, that no such reduction shall be made if the net after-tax payment (after
taking into account Federal, state, local or other income and excise taxes) to
which the Executive would otherwise be entitled without such reduction would be
greater than the net after-tax payment (after taking into account Federal,
state, local or other income and excise taxes) to the Executive resulting from
the receipt of such payments with such reduction. If, as a result of subsequent
events or conditions (including a subsequent payment or absence of a subsequent
payment under this Agreement or other plan, program or arrangement of the
Company or any of its affiliates), it is determined that payments under this
Agreement have been reduced by more than the minimum amount required to prevent
any payments from constituting an "excess parachute payment", then an additional
payment shall be promptly made to the Executive in an amount equal to the
additional amount that can be paid without causing any payment to constitute an
excess parachute payment.
(b) All determinations required to be made under this Section 11
shall be made by a nationally recognized independent accounting firm mutually
agreeable to the Company and the Executive (the "Accounting Firm") which shall
provide detailed supporting calculations to the Company and the Executive as
requested by the Company or the Executive. All fees and expenses of the
Accounting Firm shall be borne solely by the Company and shall be paid by the
Company upon demand of the Executive as incurred or billed by the Accounting
Firm. All determinations made by the Accounting Firm pursuant to this Section 11
shall be final and binding upon the Company and the Executive.
(c) To the extent any payment or benefit is to be reduced pursuant
to this Section 11, the severance payment described in Section 8(c) or 9(c) will
first be reduced, then the bonus described in Section 9(d), and then the
supplemental pension benefits described in Section 9(f), in each case only to
the extent necessary.
12. Entitlement to Other Benefits. Except as otherwise provided in
this Agreement, this Agreement shall not be construed as limiting in any way any
rights or benefits that the Executive or her spouse, dependents or beneficiaries
may have pursuant to any other plan or program of the Company.
13. Indemnification. The parties agree to execute a separate
Indemnification Agreement in the form attached as Exhibit B.
<PAGE>
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14. General Provisions.
14.1 No Duty to Seek Employment. The Executive shall not be under
any duty or obligation to seek or accept other employment following termination
of employment, and no amount, payment or benefits due to the Executive hereunder
shall be reduced or suspended if the Executive accepts subsequent employment,
except as expressly set forth herein.
14.2 Deductions and Withholding. All amounts payable or which become
payable under any provision of this Agreement shall be subject to any deductions
authorized by the Executive and any deductions and withholdings required by law.
14.3 Notices. All notices, demands, requests, consents, approvals or
other communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be faxed with a copy deposited in the United
States mail, registered or certified, return receipt requested, postage prepaid,
addressed as follows:
To the Company: Lydall, Inc.
P.O. Box 151
One Colonial Road
Manchester, CT 06045-0151
Attn: Chief Executive Officer
To the Executive: Mary A. Tremblay
116 Prospect Hill Road
Colchester, CT 06415
or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
fifth business day following the date so mailed or on the date of actual
receipt, whichever is earlier.
14.4 No Disparagement. The Executive shall not during the period of
her employment with the Company, nor during the two-year period beginning on the
date of termination of her employment for any reason, disparage the Company or
any of its subsidiaries or affiliates or any of their shareholders, directors,
officers, employees or agents. The Executive agrees that the terms of this
Section 14.4 shall survive the term of this Agreement and the termination of the
Executive's employment.
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14.5 Proprietary Information and Inventions. The Lydall Employee
Agreement previously executed by the Executive and attached hereto as Exhibit A
is incorporated by reference in this Agreement, and the Executive agrees to
continue to be bound thereby.
14.6 Covenant to Notify Management. The Executive agrees to abide by
the ethics policies of the Company as well as the Company's other rules,
regulations, policies and procedures. The Executive agrees to comply in full
with all governmental laws and regulations as well as ethics codes applicable.
In the event that the Executive is aware or suspects the Company, or any of its
officers or agents, of violating any such laws, ethics, codes, rules,
regulations, policies or procedures, the Executive agrees to bring all such
actual and suspected violations to the attention of the Company immediately so
that the matter may be properly investigated and appropriate action taken. The
Executive understands that the Executive is precluded from filing a complaint
with any governmental agency or court having jurisdiction over wrongful conduct
unless the Executive has first notified the Company of the facts and permits it
to investigate and correct the concerns.
14.7 Amendments and Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either Party hereto at any time of any breach by the other Party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other Party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
14.8 Beneficial Interests. This Agreement shall inure to the benefit
of and be enforceable by a) the Company's successors and assigns and b) the
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts are still payable to her hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.
14.9 Successors. The Company will require any successors (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and
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agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform.
14.10 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any Party without the
prior written consent of the other Party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 14.10, the Company may
assign or delegate its rights, duties and obligations hereunder to any affiliate
or to any person or entity which succeeds to all or substantially all of the
business of the Company or one of its subsidiaries through merger, consolation,
reorganization, or other business combination or by acquisition of all or
substantially all of the assets of the Company or one of its subsidiaries.
14.11 Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut.
14.12 Statute of Limitations. The Executive and the Company hereby
agree that there shall be a one year statute of limitations for the filing of
any requests for arbitration or any lawsuit relating to this Agreement or the
terms or conditions of Executive's employment by the Company. If such a claim is
filed more than one year subsequent to the Executive's last day of employment it
shall be precluded by this provision, regardless of whether or not the claim has
accrued at that time.
14.13 Right to Injunctive and Equitable Relief. The Executive's
obligations under Section 14.4 are of a special and unique character, which
gives them a peculiar value. The Company cannot be reasonably or adequately
compensated for damages in an action at law in the event the Executive breaches
such obligations. Therefore, the Executive expressly agrees that the Company
shall be entitled to injunctive and other equitable relief without bond or other
security in the event of such breach in addition to any other rights or remedies
which the Company may possess or be entitled to pursue. Furthermore, the
obligations of the Executive and the rights and remedies of the Company under
Section 14.4 and this Section 14.13 are cumulative and in addition to, and not
in lieu of, any obligations, rights, or remedies as created by applicable law.
14.14 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agree-
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ment shall not affect the validity or enforceability of any other provision of
this Agreement, which shall remain in full force and effect.
14.15 Entire Agreement. This Agreement, along with the Lydall
Employee Agreement and the Indemnification Agreement by and between the
Executive and the Company, constitutes the entire agreement of the Parties and
supersedes all prior written or oral and all contemporaneous oral agreements,
understandings, and negotiations between the Parties with respect to the subject
matter hereof. This Agreement may not be changed orally and may only be modified
in writing signed by both Parties. This Agreement, along with the Lydall
Employee Agreement and the Indemnification Agreement, is intended by the Parties
as the final expression of their agreement with respect to such terms as are
included herein and therein and may not be contradicted by evidence of any prior
or contemporaneous agreement. The Parties further intend that this Agreement,
along with the Lydall Employee Agreement and the Indemnification Agreement,
constitutes the complete and exclusive statement of their terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving such
agreements.
14.16 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute one and the same instrument.
<PAGE>
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Employee has hereunto set her
hand as of the day and year first above written.
LYDALL, INC.
By:
-------------------------------- ----------
Christopher R. Skomorowski Date
President and Chief
Executive Officer
-------------------------------- ----------
Mary A. Tremblay Date
<PAGE>
Exhibit 10.15
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of March,
2000, by and between LYDALL, INC., a Delaware corporation (the "Company"), and
CHRISTOPHER R. SKOMOROWSKI (the "Executive").
W I T N E S S E T H
WHEREAS, the Company and the Executive (the "Parties") have agreed
to enter into this agreement (the "Agreement) relating to the employment of the
Executive by the Company;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:
1. Term of Employment; Termination of Prior Agreement.
(a) The Company agrees to continue to employ the Executive, and the
Executive agrees to remain in the employment of the Company, in accordance with
the terms and provisions of this Agreement.
(b) The Employment Period under this Agreement shall be the period
commencing as of the date of this Agreement and ending on the date of
termination of the Executive's employment pursuant to Section 5, 6 or 7 below,
whichever is applicable.
(c) Immediately upon the commencement of the Executive's employment
pursuant to the terms of this Agreement, that certain Agreements by and between
the Executive and the Company dated as of February 1, 2000 and February 1, 1999
shall terminate and shall be of no further force or effect.
2. Duties. It is the intention of the Parties that during the term
of his employment under this Agreement, the Executive will serve as Chief
Executive Officer of the Company. During the Employment Period, the Executive
will devote his full business time and attention and best efforts to the affairs
of the Company and his duties as its Chief Executive Officer. The Executive will
have such duties as are appropriate to his position as Chief Executive Officer,
and will have such
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authority as required to enable him to perform these duties. Consistent with the
foregoing, the Executive shall comply with all reasonable instructions of the
Board of Directors of the Company (the "Board").
3. Compensation and Benefits.
3.1 Salary. During the Employment Period, the Company will pay the
Executive a base salary at an initial annual rate of Three Hundred Fifty
Thousand Dollars ($350,000). The Board may, in its sole and absolute discretion,
increase the Executive's base salary in light of the Executive's performance,
inflation, changes in the cost of living and other factors deemed relevant by
the Board. The Executive's base salary may not be decreased during the term of
this Agreement. The Chairman of the Board of the Company shall meet with the
Executive annually to review the Executive's performance, objectives and
compensation, including salary, bonus and stock options, and the Chairman of the
Board shall then meet with the Compensation and Stock Option Committee of the
Board (the "Compensation Committee") to discuss the same. If the Compensation
Committee determines that any adjustments thereto are appropriate, such
committee shall make a recommendation to the full Board and the Board shall make
such adjustments, if any, as the Board deems appropriate and consistent with
this Agreement. The Executive's base salary will be paid in accordance with the
standard practices for other corporate executives of the Company.
3.2 Bonuses. During the Employment Period, the Executive will be
eligible to receive annually or otherwise such bonus awards, if any, as shall be
determined by the Board in its sole and absolute discretion after receiving the
recommendation of the Compensation Committee.
3.3 Benefit Programs. During the Employment Period, the Executive
will be entitled to participate on substantially the same terms as other senior
executives of the Company in all employee benefit plans and programs of the
Company from time to time in effect for the benefit of senior executives of the
Company, including, but not limited to, pension and other retirement plans,
profit sharing plans, stock incentive and individual performance award plans,
group life insurance, hospitalization and surgical and major medical coverages
(exluding the Lydall, Inc. Executive Medical Plan), short-term and long-term
disability, and such other benefits as are or may be made available from time to
time to senior executives of the Company.
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3.4 Vacations and Holidays. During the Employment Period, the
Executive will be entitled to vacation leave of five (5) weeks per year at full
pay or such greater vacation benefits as may be provided for by the Company's
vacation policies applicable to senior executives. The Executive will be
entitled to such holidays as are established by the Company for all employees.
3.5 Automobile. During the Employment Period, the Company will
provide the Executive with an automobile allowance of no less than $500 per
month.
4. Business Expenses. The Executive will be entitled to prompt
reimbursement for all reasonable, documented and necessary expenses incurred by
him in performing his services hereunder, provided he properly accounts therefor
in accordance with the policies and procedures established by the Company.
5. Termination of Employment by the Company.
5.1 Involuntary Termination by the Company Other Than For Permanent
and Total Disability, Cause, or Following Change of Control. The Company may
terminate the Executive's employment at any time other than (i) by reason of the
Executive's Permanent and Total Disability (as defined in Section 5.2) or (ii)
for Cause (as defined in Section 5.3), by giving him a written notice of
termination at least 30 days before the date of termination (or such lesser
notice period as the Executive may agree to). In the event of such a termination
of employment pursuant to this Section 5.1, the Executive shall be entitled to
receive (i) the benefits described in Section 8 if such termination of
employment does not occur within 12 months following a "Change of Control" (as
defined in Section 10), or (ii) the benefits described in Section 9 if such
termination of employment occurs within 12 months following a "Change of
Control" (as defined in Section 10).
5.2 Termination Due to Permanent and Total Disability. If the
Executive incurs a Permanent and Total Disability, as defined below, the Company
may terminate the Executive's employment by giving him written notice of
termination at least 30 days before the date of such termination (or such lesser
notice period as the Executive may agree to). In the event of such termination
of the Executive's employment because of Permanent and Total Disability, the
Executive shall be entitled to receive (i) his base salary pursuant to Section
3.1 through the date which is twenty-four months following the date of such
termination of employment, reduced by any amounts paid to the
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Executive under any disability program maintained by the Company, such base
salary to be paid at the normal time for the payment of such base salary, (ii) a
bonus for the year of termination of employment and for the next succeeding year
(to be paid at the normal time for payment of such bonuses) in an amount equal
to the average of the three highest annual bonuses earned by the Executive under
the Company's annual incentive bonus plan for any of the five calendar years
preceding the calendar year of his termination of employment (or, if he was not
eligible for a bonus for at least three calendar years in such five-year period,
then the average of such bonuses for all of the calendar years in such five-year
period for which he was eligible), with any deferred bonuses counting for the
year earned rather than the year paid; (iii) any other compensation and benefits
to the extent actually earned by the Executive under any other benefit plan or
program of the Company as of the date of such termination of employment, such
compensation and benefits to be paid at the normal time for payment of such
compensation and benefits, and (iv) any reimbursement amounts owing under
Section 4. In addition, if the Executive elects to continue coverage under the
Company's health plan pursuant to COBRA, the Company for a period of eighteen
months following termination of the Executive's employment by reason of
Permanent and Total Disability will pay the same percentage of the Executive's
premium for COBRA coverage for the Executive and, if applicable, his spouse and
dependent children, as the Company paid at the applicable time for coverage
under such plan for actively employed senior executives generally. For the
period of eighteen months following the termination of the Executive's
employment by reason of Permanent and Total Disability, the Company will
continue to provide the life insurance benefits that the Company would have
provided to the Executive if the Executive had continued in employment with the
Company for such period, but only if the Executive timely pays the portion of
the premium for such coverage that senior executives of the Company generally
are required to pay for such coverage. For purposes of this Agreement, the
Executive shall be considered to have incurred a Permanent and Total Disability
if he is unable to substantially carry out his duties under this Agreement by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months. The existence of such Permanent
and Total Disability shall be evidenced by such medical certification as the
Secretary of the Company shall require and shall be subject to the approval of
the Compensation Committee.
<PAGE>
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5.3 Termination for Cause. The Company may terminate the Executive's
employment immediately for Cause for any of the following reasons: (i) an act or
acts of dishonesty or fraud on the part of the Executive resulting or intended
to result directly or indirectly in substantial gain or personal enrichment to
which the Executive was not legally entitled at the expense of the Company; (ii)
a willful material breach by the Executive of his duties or responsibilities
under this Agreement resulting in demonstrably material injury to the Company;
(iii) the Executive's conviction of a felony or any crime involving moral
turpitude, (iv) habitual neglect or insubordination (defined as refusal to
execute or carry out directions from the Board or its duly appointed designees)
where the Executive has been given written notice of the acts or omissions
constituting such neglect or insubordination and the Executive has failed to
cure such conduct, where susceptible to cure, within thirty days following such
notice, or (v) a material breach by the Executive of any of his obligations
under the Lydall Employee Agreement executed by the Executive and attached
hereto as Exhibit A. Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to the Executive a written notice of termination from the Compensation
Committee after reasonable notice to the Executive and an opportunity for the
Executive, together with his counsel, to be heard before the Compensation
Committee, finding that, in the good faith opinion of the Compensation
Committee, the Executive was guilty of conduct set forth above in clause (i),
(ii), (iii), (iv) or (v) of the first sentence of this Section 5.3 and
specifying the particulars in detail. In the event of such termination of the
Executive's employment for Cause, the Executive shall be entitled to receive
only (i) his base salary pursuant to Section 3.1 earned through the date of such
termination of employment plus his base salary for the period of any vacation
time earned but not taken for the year of termination of employment, such base
salary to be paid at the normal time for payment of such base salary, (ii) any
other compensation and benefits to the extent actually earned by the Executive
under any other benefit plan or program of the Company as of the date of such
termination of employment, such compensation and benefits to be paid and at the
normal time for payment of such compensation and benefits and (iii) any
reimbursement amounts owing under Section 4.
6. Termination of Employment by the Executive.
(a) Good Reason. The Executive may terminate his employment for Good
Reason by giving the Company a written no-
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tice of termination at least 30 days before the date of such termination (or
such lesser notice period as the Company may agree to) specifying in reasonable
detail the circumstances constituting such Good Reason. In the event of the
Executive's termination of his employment for Good Reason, the Executive shall
be entitled to receive (i) the benefits described in Section 8 if such
termination of employment does not occur within 12 months following a "Change of
Control" (as defined in Section 10), or (ii) the benefits described in Section 9
if such termination of employment occurs within 12 months following a "Change of
Control" (as defined in Section 10). For purposes of this Agreement, Good Reason
shall mean (i) a significant reduction in the scope of the Executive's
authority, functions, duties or responsibilities from that which is contemplated
by this Agreement, (ii) any reduction in the Executive's base salary, (iii) a
significant reduction in the employee benefits provided to the Executive
(excluding the Lydall, Inc. Executive Medical Plan) other than in connection
with an across-the-board reduction similarly affecting substantially all senior
executives of the Company, or (iv) any material breach by the Company of any
provision of this Agreement without the Executive having committed any material
breach of the Executive's obligations hereunder or under the Lydall Employee
Agreement, which breach is not cured within thirty days following written notice
thereof to the Company of such breach. In addition, in the case of a termination
of employment within 12 months following a "Change of Control" (as defined in
Section 10), Good Reason shall also include the relocation of the Executive's
office location to a location more than 50 miles away from the Executive's then
current principal place of employment. If an event constituting a ground for
termination of employment for Good Reason occurs, and the Executive fails to
give notice of termination within 90 days after the occurrence of such event,
the Executive shall be deemed to have waived his right to terminate employment
for Good Reason in connection with such event (but not for any other event for
which the 90-day period has not expired).
(b) Other. The Executive may terminate his employment at any time
and for any reason, other than pursuant to subsection (a) above, by giving the
Company a written notice of termination to that effect at least 30 days before
the date of termination (or such lesser notice period as the Company may agree
to). In the event of the Executive's termination of his employment pursuant to
this subsection (b), the Executive shall be entitled to receive only (i) his
base salary pursuant to Section 3.1 earned through the date of such termination
of employment plus his base salary for the period of vacation time
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earned but not taken for the year of termination of employment, such base salary
to be paid at the normal time for payment of such base salary, (ii) any other
compensation and benefits to the extent actually earned by the Executive under
any other benefit plan or program of the Company as of the date of such
termination of employment, such compensation and benefits to be paid at the
normal time for payment of such compensation and benefits, and (iii) any
reimbursement amounts owing under Section 4.
7. Termination of Employment By Death. In the event of the death of
the Executive during the course of his employment hereunder, the Executive's
estate (or other person or entity having such entitlement pursuant to the terms
of the applicable plan or program) shall be entitled to receive (i) the
Executive's base salary pursuant to Section 3.1 earned through the date of the
Executive's death plus the Executive's base salary for the period of vacation
time earned but not taken for the year of the Executive's death, such base
salary to be paid at the normal time for payment of such base salary, (ii) a
bonus for the year of the Executive's death (to be paid within 90 days after the
Executive's death) in an amount equal to a pro rata portion of the average of
the three highest annual bonuses earned by the Executive under the Company's
annual incentive bonus plan for any of the five calendar years preceding the
calendar year of the Executive's death (or, if the Executive was not eligible
for a bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year period
for which the Executive was eligible), with any deferred bonuses counting for
the year earned rather than the year paid and with the pro rata portion being
determined by dividing the number of days of the Executive's employment during
such calendar year up to his death by 365 (366 if a leap year),(iii) any other
compensation and benefits to the extent actually earned by the Executive under
any other benefit plan or program of the Company as of the date of such
termination of employment, such compensation and benefits to be paid at the
normal time for payment of such compensation and benefits, and (iv) any
reimbursement amounts owing under Section 4. In addition, in the event of such
death, the Executive's beneficiaries shall receive any death benefits owed to
them under the Company's employee benefit plans. If the Executive's spouse
and/or dependent children elect to continue coverage under the Company's health
plan following the Executive's death pursuant to COBRA, the Company for a period
of 18 months following the Executive's death will pay the same percentage of the
premium for COBRA coverage for the Executive's spouse and/or dependent children,
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as applicable, as the Company would have paid in respect of the Executive's
coverage under such plan if the Executive had continued in employment with the
Company for such period.
8. Benefits Upon Termination Without Cause or For Good Reason (No
Change of Control). If (a) the Executive's employment with the Company shall
terminate (i) because of termination by the Company other than for Cause or
Permanent and Total Disability pursuant to Section 5.1, or (ii) because of
termination by the Employee for Good Reason pursuant to Section 6(a), and (b)
such termination of employment does not occur within 12 months following a
"Change of Control" of the Company (as defined in Section 10), the Executive
shall be entitled to the following:
(a) The Company shall pay to the Executive his base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefit to be paid at the normal time for payment of such base salary,
compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
(c) The Company shall pay to the Executive as a severance benefit an
amount equal to two (2) times the sum of (i) his annual rate of base
salary immediately preceding his termination of employment, and (ii) the
average of his annual bonuses earned under the Company's annual incentive
bonus plan for the three calendar years preceding his termination of
employment (or, if he was not eligible for a bonus in each of those three
calendar years, then the average of such bonuses for all of the calendar
years in such three-year period for which he was eligible), with any
deferred bonuses counting for the year earned rather than the year paid.
Such severance benefit shall be paid in a lump sum within 30 days after
the date of such termination of employment.
(d) During the period of 18 months beginning on the date of the
Executive's termination of employment, the Executive (and, if applicable,
the Executive's spouse and dependent children) shall remain covered by the
medical, dental, life insurance, and, if reasonably commercially
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available through nationally reputable insurance carriers, long-term
disability plans of the Company that covered him immediately prior to his
termination of employment as if he had remained in employment for such
period; provided, however, that the coverage under any such plan is
conditioned on the timely payment by the Executive (or his spouse or
dependent children) of the portion of the premium for such coverage that
actively employed senior executives with the Company generally are
required to pay for such coverage. In the event that the Executive's
participation in any such plan is barred, the Company shall arrange to
provide the Executive (and, if applicable, his spouse and dependent
children) with substantially similar benefits (but, in the case of
long-term disability benefits, only if reasonably commercially available).
(e) The Company shall supplement the benefits payable in respect of
the Executive under the Company's Pension Plan and Supplemental Executive
Retirement Plan (and any successor plans thereto) (collectively, the
"Pension Plans") by paying the difference between (i) the benefits that
the Executive would have been entitled to receive under the Pension Plans
if he had been credited with one and one-half additional years of service
(but no additional years of age) for purposes of the benefit accrual
formula under the Pension Plans as of the date of termination of the
Executive's employment and (ii) the benefits that the Executive is
entitled to receive under the Pension Plans determined without regard to
this subsection (e). Such benefits shall be payable in the same form and
at the same time as the benefits under the respective Pension Plans.
(f) The Company will pay the Executive a car allowance of $500 per
month for 24 months following termination of the Executive's employment to
replace the Company-leased automobile, which leased automobile will be
returned to the Company by the Executive on the date of termination of the
Executive's employment.
(g) The Company will provide the Executive with out-placement
services (which may include secretarial services and office space,
equipment and supplies) selected by the Executive, at the Company's
expense, up to a maximum of $20,000.
(h) The Executive shall be entitled to the Gross-up Payment, if any,
described in Section 11.
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(i) The Company shall promptly pay all reasonable attorneys' fees
and related expenses incurred by the Executive in seeking to obtain or
enforce any right or benefit under this Agreement or to defend against any
claim or assertion in connection with this Agreement, but only to the
extent the Executive substantially prevails.
9. Benefits Upon Termination Without Cause or For Good Reason
(Change of Control). If (a) the Executive's employment with the Company shall
terminate (i) because of termination by the Company other than for Cause or
Permanent and Total Disability pursuant to Section 5.1, or (ii) because of
termination by the Employee for Good Reason pursuant to Section 6(a), and (b)
such termination of employment occurs within 12 months following a "Change of
Control" of the Company (as defined in Section 10), the Executive shall be
entitled to the following:
(a) The Company shall pay to the Executive his base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal time for payment of such base salary,
compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
(c) The Company shall pay to the Executive as a severance benefit an
amount equal to three (3) times the sum of (i) his annual rate of base
salary immediately preceding his termination of employment, and (ii) the
average of his three highest annual bonuses earned under the Company's
annual incentive bonus plan for any of the five calendar years preceding
his termination of employment (or, if he was not eligible for a bonus for
at least three calendar years in such five-year period, then the average
of such bonuses for all of the calendar years in such five-year period for
which he was eligible), with any deferred bonuses counting for the year
earned rather than the year paid. Such severance benefit shall be paid in
a lump sum within 30 days after the date of such termination of
employment.
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(d) The Company shall pay to the Executive as a bonus for the year
of termination of his employment an amount equal to a portion (determined
as provided in the next sentence) of the Executive's maximum bonus
opportunity under the Company's annual incentive bonus plan for the
calendar year of termination of the Executive's employment or, if none,
such portion of the bonus awarded to him under the Company's annual
incentive bonus plan for the calendar year immediately preceding the
calendar year of the termination of his employment, with deferred bonuses
counting for the year earned rather than the year paid. Such portion shall
be determined by dividing the number of days of the Executive's employment
during such calendar year up to his termination of employment by 365 (366
if a leap year). Such payment shall be made in a lump sum within 30 days
after the date of such termination of employment, and the Executive shall
have no right to any further bonuses under said plan.
(e) During the period of 36 months beginning on the date of the
Executive's termination of employment, the Executive (and, if applicable,
the Executive's spouse and dependent children) shall remain covered by the
medical, dental, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability
plans of the Company that covered him immediately prior to his termination
of employment as if he had remained in employment for such period;
provided, however, that the coverage under any such plan is conditioned on
the timely payment by the Executive (or his spouse or dependent children)
of the portion of the premium for such coverage that actively employed
senior executives with the Company generally are required to pay for such
coverage. In the event that the Executive's participation in any such plan
is barred, the Company shall arrange to provide the Executive (and, if
applicable, his spouse and dependent children) with substantially similar
benefits (but, in the case of long-term disability benefits, only if
reasonably commercially available).
(f) The Company shall supplement the benefits payable in respect of
the Executive under the Company's Pension Plan and Supplemental Executive
Retirement Plan (and any successor plans thereto) (collectively, the
"Pension Plans") by paying the difference between (i) the benefits that
the Executive would have been entitled to receive under the Pension Plans
if he had been credited with three additional years of service (but no
additional years of
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age) for purposes of the benefit accrual formula under the Pension Plans
as of the date of termination of the Executive's employment and (ii) the
benefits that the Executive is entitled to receive under the Pension Plans
determined without regard to this subsection (f). Such benefits shall be
payable in the same form and at the same time as the benefits under the
respective Pension Plans.
(g) Each stock option granted by the Company to the Executive and
outstanding immediately prior to termination of his employment shall be
fully vested and immediately exercisable and may be exercised by the
Executive (or, following his death, by the person or entity to which such
option passes) at any time prior to the expiration date of the applicable
option (determined without regard to any earlier termination of the option
that would otherwise occur by reason of termination of his employment).
Each restricted stock award granted by the Company to the Executive and
outstanding immediately prior to termination of the Executive's employment
shall be fully vested upon such termination of employment.
(h) The Company will pay the Executive a car allowance of $500 per
month for 36 months following termination of the Executive's employment to
replace the Company-leased automobile, which leased automobile will be
returned to the Company by the Executive on the date of termination of the
Executive's employment.
(i) The Company will provide the Executive with out-placement
services (which may include secretarial services and office space,
equipment and supplies) selected by the Executive, at the Company's
expense, up to a maximum of $20,000.
(j) The Executive shall be entitled to the Gross-up Payment, if any,
described in Section 11.
(k) The Company shall promptly pay all reasonable attorneys' fees
and related expenses incurred by the Executive in seeking to obtain or
enforce any right or benefit under this Agreement or to defend against any
claim or assertion in connection with this Agreement, but only to the
extent the Executive substantially prevails.
10. Change of Control. For the purposes of this Agreement, a "Change
of Control" shall be deemed to have occurred if (a) any person or persons acting
together which would
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constitute a "group" for purposes of Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (other than the Company or any
subsidiary of the Company) shall beneficially own (as defined in Rule 13d-3 of
the Exchange Act), directly or indirectly, at least 25% of the total voting
power of all classes of capital stock of the Company entitled to vote generally
in the election of the Board; (b) Current Directors (as herein defined) shall
cease for any reason to constitute at least a majority of the members of the
Board (for this purpose, a "Current Director" shall mean any member of the Board
as of the date hereof and any successor of a Current Director whose election, or
nomination for election by the Company's shareholders, was approved by at least
a majority of the Current Directors then on the Board); (c) the shareholders of
the Company approve (i) a plan of complete liquidation of the Company or (ii) an
agreement providing for the merger or consolidation of the Company other than a
merger or consolidation in which (x) the holders of the common stock of the
Company immediately prior to the consolidation or merger have, directly or
indirectly, at least a majority of the common stock of the continuing or
surviving corporation immediately after such consolidation or merger or (y) the
Board immediately prior to the merger or consolidation would, immediately after
the merger or consolidation, constitute a majority of the board of directors of
the continuing or surviving corporation; or (d) the shareholders of the Company
approve an agreement (or agreements) providing for the sale or other disposition
(in one transaction or a series of transactions) of all or substantially all of
the assets of the Company.
11. Tax Gross-up.
(a) In the event that any payment or distribution made, or benefit
provided, by the Company or any of its affiliates to or for the benefit of the
Executive (whether paid or payable or distributed or distributable) pursuant to
the terms of this Agreement or any other plan, program or arrangement of the
Company or any of its affiliates but determined without regard to any additional
payments required under this Section 11 (collectively the "Payments") would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended and then in effect (the "Code") (or any similar excise tax)
or any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the
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Executive of all Federal, state, local or other taxes (including any interest or
penalties imposed with respect to any such taxes), including, without
limitation, any such income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments. The Executive may receive Gross-Up Payments under this Section 11
whether or not the Executive actually receives other payments or benefits under
this Agreement.
(b) Subject to the provisions of subsection (c) of this Section 11,
all determinations required to be made under this Section 11, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by a nationally recognized independent accounting firm mutually agreeable
to the Company and the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 20
calendar days of the receipt of written notice from the Executive that there has
been a Payment, or such earlier time as is requested by the Company. All fees
and expenses of the Accounting Firm shall be borne solely by the Company and
shall be paid by the Company upon demand of the Executive as incurred or billed
by the Accounting Firm. Any Gross-Up Payment, as determined pursuant to this
Section 11, shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with an unqualified written opinion in form and substance satisfactory
to the Executive that failure to report the Excise Tax on the Executive's
applicable federal income tax return would not result in the imposition of a
negligence or similar penalty. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies described in subsection (c) of this Section 11 and
the Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be paid by the Company to or for the benefit of
the Executive within five days of the receipt of the Accounting Firm's
determination. All determinations made by the Accounting Firm in connection with
any Gross-
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Up Payment or Underpayment shall be final and binding upon the Company and the
Executive.
(c) The Executive shall notify the Company in writing of any claim
asserted in writing by the Internal Revenue Service to the Executive that, if
successful, would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but not later than 60
days after the Executive is informed in writing of such claim and shall apprise
the Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the Executive
in writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall at the Company's expense:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating
to such claim; provided, however, that the Company shall bear and pay
directly as incurred all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis, for any
Excise Tax or any Federal, state, local or other income or other tax
(including interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 11, the Company
shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority
in respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a
<PAGE>
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refund or contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or Federal,
state, local or other income or other tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect
to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited
to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to subsection (c) of this Section 11, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of subsection (c) of
this Section 11) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto) upon
receipt thereof. If, after the receipt by the Executive of an amount advanced by
the Company pursuant to subsection (c) of this Section 11, a determination is
made that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
12. Entitlement to Other Benefits. Except as otherwise provided in
this Agreement, this Agreement shall not be construed as limiting in any way any
rights or benefits that
<PAGE>
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the Executive or his spouse, dependents or beneficiaries may have pursuant to
any other plan or program of the Company.
13. Indemnification. The parties agree to execute a separate
Indemnification Agreement in the form attached as Exhibit B.
14. General Provisions.
14.1 No Duty to Seek Employment. The Executive shall not be under
any duty or obligation to seek or accept other employment following termination
of employment, and no amount, payment or benefits due to the Executive hereunder
shall be reduced or suspended if the Executive accepts subsequent employment,
except as expressly set forth herein.
14.2 Deductions and Withholding. All amounts payable or which become
payable under any provision of this Agreement shall be subject to any deductions
authorized by the Executive and any deductions and withholdings required by law.
14.3 Notices. All notices, demands, requests, consents, approvals or
other communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be faxed with a copy deposited in the United
States mail, registered or certified, return receipt requested, postage prepaid,
addressed as follows:
To the Company: Lydall, Inc.
P.O. Box 151
One Colonial Road
Manchester, CT 06045-0151
Attn: Chairman of the Board
To the Executive: Christopher R. Skomorowski
48 Highwood Road
Simsbury, CT 06070
or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
fifth business day following the date so mailed or on the date of actual
receipt, whichever is earlier.
14.4 No Disparagement. The Executive shall not during the period of
his employment with the Company, nor during
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the two-year period beginning on the date of termination of his employment for
any reason, disparage the Company or any of its subsidiaries or affiliates or
any of their shareholders, directors, officers, employees or agents. The
Executive agrees that the terms of this Section 14.4 shall survive the term of
this Agreement and the termination of the Executive's employment.
14.5 Proprietary Information and Inventions. The Lydall Employee
Agreement previously executed by the Executive and attached hereto as Exhibit A
is incorporated by reference in this Agreement, and the Executive agrees to
continue to be bound thereby.
14.6 Covenant to Notify Management. The Executive agrees to abide by
the ethics policies of the Company as well as the Company's other rules,
regulations, policies and procedures. The Executive agrees to comply in full
with all governmental laws and regulations as well as ethics codes applicable.
In the event that the Executive is aware or suspects the Company, or any of its
officers or agents, of violating any such laws, ethics, codes, rules,
regulations, policies or procedures, the Executive agrees to bring all such
actual and suspected violations to the attention of the Company immediately so
that the matter may be properly investigated and appropriate action taken. The
Executive understands that the Executive is precluded from filing a complaint
with any governmental agency or court having jurisdiction over wrongful conduct
unless the Executive has first notified the Company of the facts and permits it
to investigate and correct the concerns.
14.7 Amendments and Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either Party hereto at any time of any breach by the other Party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other Party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
14.8 Beneficial Interests. This Agreement shall inure to the benefit
of and be enforceable by a) the Company's successors and assigns and b) the
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Ex-
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ecutive's devisee, legatee, or other designee or, if there be no such designee,
to the Executive's estate.
14.9 Successors. The Company will require any successors (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform.
14.10 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any Party without the
prior written consent of the other Party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 14.10, the Company may
assign or delegate its rights, duties and obligations hereunder to any affiliate
or to any person or entity which succeeds to all or substantially all of the
business of the Company or one of its subsidiaries through merger, consolation,
reorganization, or other business combination or by acquisition of all or
substantially all of the assets of the Company or one of its subsidiaries.
14.11 Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut.
14.12 Statute of Limitations. The Executive and the Company hereby
agree that there shall be a one year statute of limitations for the filing of
any requests for arbitration or any lawsuit relating to this Agreement or the
terms or conditions of Executive's employment by the Company. If such a claim is
filed more than one year subsequent to the Executive's last day of employment it
shall be precluded by this provision, regardless of whether or not the claim has
accrued at that time.
14.13 Right to Injunctive and Equitable Relief. The Executive's
obligations under Section 14.4 are of a special and unique character, which
gives them a peculiar value. The Company cannot be reasonably or adequately
compensated for damages in an action at law in the event the Executive breaches
such obligations. Therefore, the Executive expressly agrees that the Company
shall be entitled to injunctive and other equitable relief without bond or other
security in the event of such breach in addition to any other rights or remedies
which the Company may possess or be entitled to pursue. Furthermore,
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the obligations of the Executive and the rights and remedies of the Company
under Section 14.4 and this Section 14.13 are cumulative and in addition to, and
not in lieu of, any obligations, rights, or remedies as created by applicable
law.
14.14 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
14.15 Entire Agreement. This Agreement, along with the Lydall
Employee Agreement by and between the Executive and the Company, constitutes the
entire agreement of the Parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
Parties with respect to the subject matter hereof. This Agreement may not be
changed orally and may only be modified in writing signed by both Parties. This
Agreement, along with the Lydall Employee Agreement, is intended by the Parties
as the final expression of their agreement with respect to such terms as are
included herein and therein and may not be contradicted by evidence of any prior
or contemporaneous agreement. The Parties further intend that this Agreement,
along with the Lydall Employee Agreement, constitutes the complete and exclusive
statement of their terms and that no extrinsic evidence may be introduced in any
judicial proceeding involving such agreements.
14.16 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Employee has hereunto set his
hand as of the day and year first above written.
LYDALL, INC.
By:
------------------------------ -----------
Roger M. Widmann Date
Chairman of the Board
------------------------------ -----------
Christopher R. Skomorowski Date
<PAGE>
Exhibit 10.16
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 16th day of March,
2000, by and between LYDALL, INC., a Delaware corporation (the "Company"), and
Walter A. Ruschmeyer (the "Executive").
W I T N E S S E T H
WHEREAS, the Company and the Executive (the "Parties") have agreed
to enter into this agreement (the "Agreement) relating to the employment of the
Executive by the Company and/or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:
1. Term of Employment; Termination of Prior Agreement.
(a) The Company and/or one of its subsidiaries agrees to continue to
employ the Executive, and the Executive agrees to remain in the employment of
the Company and/or one of its subsidiaries, in accordance with the terms and
provisions of this Agreement.
(b) The Employment Period under this Agreement shall be the period
commencing as of the date of this Agreement and ending on the date of
termination of the Executive's employment pursuant to Section 5, 6 or 7 below,
whichever is applicable.
2. Duties. It is the intention of the Parties that during the term
of the Executive's employment under this Agreement, the Executive will serve as
Executive Vice President - Finance and Administration, Chief Financial Officer
of the Company or in such other senior management position as the Company shall
determine. During the Employment Period, the Executive will devote his full
business time and attention and best efforts to the affairs of the Company and
its subsidiaries and his duties as Executive Vice President - Finance and
Administration, Chief Financial Officer of the Company. The Executive will have
such duties as are appropriate to his position as Executive Vice President -
Finance and Administration, Chief Financial Officer of the Company, and will
have such authority
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as required to enable the Executive to perform these duties. Consistent with the
foregoing, the Executive shall comply with all reasonable instructions of the
Board of Directors of the Company (the "Board").
3. Compensation and Benefits.
3.1 Salary. During the Employment Period, the Company will pay the
Executive a base salary at an initial annual rate of Three Hundred Twenty-Five
Thousand Dollars ($325,000). The Company may, in its sole and absolute
discretion, increase the Executive's base salary in light of the Executive's
performance, inflation, changes in the cost of living and other factors deemed
relevant by the Company. The Executive's base salary may not be decreased during
the term of this Agreement. The Chief Executive Officer of the Company shall
meet with the Executive annually to review the Executive's performance,
objectives and compensation, including salary, bonus and stock options, and the
Chief Executive Officer shall then meet with the Compensation and Stock Option
Committee of the Board (the "Compensation Committee") to discuss the same. If
the Compensation Committee determines that any adjustments thereto are
appropriate, such committee shall make a recommendation to the full Board and
the Board shall make such adjustments, if any, as the Board deems appropriate
and consistent with this Agreement. The Executive's base salary will be paid in
accordance with the standard practices for other corporate executives of the
Company.
3.2 Bonuses. During the Employment Period, the Executive will be
eligible to receive annually or otherwise such bonus awards, if any, as shall be
determined by the Board in its sole and absolute discretion after receiving the
recommendation of the Compensation Committee.
3.3 Benefit Programs. During the Employment Period, the Executive
will be entitled to participate on substantially the same terms as other senior
executives of the Company in all employee benefit plans and programs of the
Company (subject to any restrictions or eligibility requirements under such
plans and programs) from time to time in effect for the benefit of senior
executives of the Company, including, but not limited to, pension and other
retirement plans, profit sharing plans, stock incentive and annual incentive
bonus plans, hospitalization and surgical and major medical coverages (excluding
the Lydall, Inc. Executive Medical Plan), short-term and executive long-term
disability, executive life insurance and Supplemental Executive Retirement Plan
and such other benefits as are or may
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be made available from time to time to senior executives of the Company.
3.4 Vacations and Holidays. During the Employment Period, the
Executive will be entitled to vacation leave of four (4) weeks per year at full
pay or such greater vacation benefits as may be provided for by the Company's
vacation policies applicable to senior executives. The Executive will be
entitled to such holidays as are established by the Company for all employees.
3.5 Automobile. During the Employment Period, the Company will
provide the Executive with an automobile in accordance with Company policy.
4. Business Expenses. The Executive will be entitled to prompt
reimbursement for all reasonable, documented and necessary expenses incurred by
the Executive in performing his services hereunder, provided the Executive
properly accounts therefor in accordance with the policies and procedures
established by the Company.
5. Termination of Employment by the Company.
5.1 Involuntary Termination by the Company Other Than For Permanent
and Total Disability or Cause. The Company may terminate the Executive's
employment at any time other than (i) by reason of the Executive's Permanent and
Total Disability (as defined in Section 5.2) or (ii) for Cause (as defined in
Section 5.3), by giving the Executive a written notice of termination at least
30 days before the date of termination (or such lesser notice period as the
Executive may agree to). In the event of such a termination of employment
pursuant to this Section 5.1, the Executive shall be entitled to receive (i) the
benefits described in Section 8 if such termination of employment does not occur
within 12 months following a "Change of Control" (as defined in Section 10), or
(ii) the benefits described in Section 9 if such termination of employment
occurs within 12 months following a "Change of Control" (as defined in Section
10).
5.2 Termination Due to Permanent and Total Disability. If the
Executive incurs a Permanent and Total Disability, as defined below, the Company
may terminate the Executive's employment by giving the Executive written notice
of termination at least 30 days before the date of such termination (or such
lesser notice period as the Executive may agree to). In the event of such
termination of the Executive's employment because
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of Permanent and Total Disability, the Executive shall be entitled to receive
(i) his base salary pursuant to Section 3.1 through the date which is twelve
months following the date of such termination of employment, reduced by any
amounts paid to the Executive under any disability program maintained by the
Company, such base salary to be paid at the normal time for the payment of such
base salary, (ii) a bonus for the year of termination of employment and for the
next succeeding year (to be paid at the normal time for payment of such bonuses)
in an amount equal to the average of the three highest annual bonuses earned by
the Executive under the Company's annual incentive bonus plan for any of the
five calendar years preceding the calendar year of his termination of employment
(or, if the Executive was not eligible for a bonus for at least three calendar
years in such five-year period, then the average of such bonuses for all of the
calendar years in such five-year period for which the Executive was eligible),
with any deferred bonuses counting for the year earned rather than the year
paid; (iii) any other compensation and benefits to the extent actually earned by
the Executive under any other benefit plan or program of the Company as of the
date of such termination of employment, such compensation and benefits to be
paid at the normal time for payment of such compensation and benefits, and (iv)
any reimbursement amounts owing under Section 4. In addition, if the Executive
elects to continue coverage under the Company's health plan pursuant to COBRA,
the Company for a period of twelve months following termination of the
Executive's employment by reason of Permanent and Total Disability will pay the
same percentage of the Executive's premium for COBRA coverage for the Executive
and, if applicable, his spouse and dependent children, as the Company paid at
the applicable time for coverage under such plan for actively employed senior
executives generally. For the period of twelve months following the termination
of the Executive's employment by reason of Permanent and Total Disability, the
Company will continue to provide the life insurance benefits that the Company
would have provided to the Executive if the Executive had continued in
employment with the Company for such period, but only if the Executive timely
pays the portion of the premium for such coverage that senior executives of the
Company generally are required to pay for such coverage, if any. For purposes of
this Agreement, the Executive shall be considered to have incurred a Permanent
and Total Disability if and only if the Executive has incurred a disability
entitling the Executive to disability benefits under the Company's long-term
disability plan.
5.3 Termination for Cause. The Company may terminate the Executive's
employment immediately for Cause for any
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of the following reasons: (i) an act or acts of dishonesty or fraud on the part
of the Executive resulting or intended to result directly or indirectly in
substantial gain or personal enrichment to which the Executive was not legally
entitled at the expense of the Company or any of its subsidiaries; (ii) a
willful material breach by the Executive of his duties or responsibilities under
this Agreement resulting in demonstrably material injury to the Company or any
of its subsidiaries; (iii) the Executive's conviction of a felony or any crime
involving moral turpitude, (iv) habitual neglect or insubordination (defined as
refusal to execute or carry out directions from the Board or its duly appointed
designees) where the Executive has been given written notice of the acts or
omissions constituting such neglect or insubordination and the Executive has
failed to cure such conduct, where susceptible to cure, within thirty days
following such notice, or (v) a material breach by the Executive of any of his
obligations under the Lydall Employee Agreement executed by the Executive and
attached hereto as Exhibit A. The Company shall exercise its right to terminate
the Executive's employment for Cause by giving the Executive written notice of
termination specifying in reasonable detail the circumstances constituting such
Cause. In the event of such termination of the Executive's employment for Cause,
the Executive shall be entitled to receive only (i) his base salary pursuant to
Section 3.1 earned through the date of such termination of employment plus his
base salary for the period of any vacation time earned but not taken for the
year of termination of employment, such base salary to be paid at the normal
time for payment of such base salary, (ii) any other compensation and benefits
to the extent actually earned by the Executive under any other benefit plan or
program of the Company as of the date of such termination of employment, such
compensation and benefits to be paid and at the normal time for payment of such
compensation and benefits and (iii) any reimbursement amounts owing under
Section 4.
6. Termination of Employment by the Executive.
(a) Good Reason. The Executive may terminate his employment for Good
Reason by giving the Company a written notice of termination at least 30 days
before the date of such termination (or such lesser notice period as the Company
may agree to) specifying in reasonable detail the circumstances constituting
such Good Reason. In the event of the Executive's termination of his employment
for Good Reason, the Executive shall be entitled to receive (i) the benefits
described in Section 8 if such termination of employment does not occur within
12 months following a "Change of Control" (as defined in Sec-
<PAGE>
-6-
tion 10), or (ii) the benefits described in Section 9 if such termination of
employment occurs within 12 months following a "Change of Control" (as defined
in Section 10). For purposes of this Agreement, Good Reason shall mean (i) a
significant reduction in the scope of the Executive's authority, functions,
duties or responsibilities from that which is contemplated by this Agreement,
(ii) any reduction in the Executive's base salary, (iii) a significant reduction
in the employee benefits provided to the Executive (excluding the Lydall, Inc.
Executive Medical Plan) other than in connection with an across-the-board
reduction similarly affecting substantially all senior executives of the
Company, or (iv) any material breach by the Company of any provision of this
Agreement without the Executive having committed any material breach of the
Executive's obligations hereunder or under the Lydall Employee Agreement which
breach is not cured within thirty days following written notice thereof to the
Company of such breach. In addition, in the case of a termination of employment
within 12 months following a "Change of Control" (as defined in Section 10),
Good Reason shall also include the relocation of the Executive's office location
to a location more than 50 miles away from the Executive's then current
principal place of employment. If an event constituting a ground for termination
of employment for Good Reason occurs, and the Executive fails to give notice of
termination within 90 days after the occurrence of such event, the Executive
shall be deemed to have waived his right to terminate employment for Good Reason
in connection with such event (but not for any other event for which the 90-day
period has not expired).
(b) Other. The Executive may terminate his employment at any time
and for any reason, other than pursuant to subsection (a) above, by giving the
Company a written notice of termination to that effect at least 30 days before
the date of termination (or such lesser notice period as the Company may agree
to); provided, however, that the Company following receipt of such notice from
the Executive may elect to have the Executive's employment terminate immediately
following its receipt of such notice. In the event of the Executive's
termination of his employment pursuant to this subsection (b), the Executive
shall be entitled to receive only (i) his base salary pursuant to Section 3.1
earned through the date of such termination of employment plus his base salary
for the period of vacation time earned but not taken for the year of termination
of employment, such base salary to be paid at the normal time for payment of
such base salary, (ii) any other compensation and benefits to the extent
actually earned by the Executive under any other benefit plan or program of the
Company as of the date
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-7-
of such termination of employment, such compensation and benefits to be paid at
the normal time for payment of such compensation and benefits, and (iii) any
reimbursement amounts owing under Section 4.
7. Termination of Employment By Death. In the event of the death of
the Executive during the course of his employment hereunder, the Executive's
estate (or other person or entity having such entitlement pursuant to the terms
of the applicable plan or program) shall be entitled to receive (i) the
Executive's base salary pursuant to Section 3.1 earned through the date of the
Executive's death plus the Executive's base salary for the period of vacation
time earned but not taken for the year of the Executive's death, such base
salary to be paid at the normal time for payment of such base salary, (ii) a
bonus for the year of the Executive's death (to be paid within 90 days after the
Executive's death) in an amount equal to a pro rata portion of the average of
the three highest annual bonuses earned by the Executive under the Company's
annual incentive bonus plan for any of the five calendar years preceding the
calendar year of the Executive's death (or, if the Executive was not eligible
for a bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year period
for which the Executive was eligible), with any deferred bonuses counting for
the year earned rather than the year paid and with the pro rata portion being
determined by dividing the number of days of the Executive's employment during
such calendar year up to his death by 365 (366 if a leap year), (iii) any other
compensation and benefits to the extent actually earned by the Executive under
any other benefit plan or program of the Company as of the date of such
termination of employment, such compensation and benefits to be paid at the
normal time for payment of such compensation and benefits, and (iv) any
reimbursement amounts owing under Section 4. In addition, in the event of such
death, the Executive's beneficiaries shall receive any death benefits owed to
them under the Company's employee benefit plans. If the Executive's spouse
and/or dependent children elect to continue coverage under the Company's health
plan following the Executive's death pursuant to COBRA, the Company for a period
of 12 months following the Executive's death will pay the same percentage of the
premium for COBRA coverage for the Executive's spouse and/or dependent children,
as applicable, as the Company would have paid in respect of the Executive's
coverage under such plan if the Executive had continued in employment with the
Company for such period.
<PAGE>
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8. Benefits Upon Termination Without Cause or For Good Reason (No
Change of Control). If (a) the Executive's employment hereunder shall terminate
(i) because of termination by the Company other than for Cause or Permanent and
Total Disability pursuant to Section 5.1, or (ii) because of termination by the
Employee for Good Reason pursuant to Section 6(a), and (b) such termination of
employment does not occur within 12 months following a "Change of Control" of
the Company (as defined in Section 10), the Executive shall be entitled to the
following:
(a) The Company shall pay to the Executive his base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal time for payment of such base salary,
compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
(c) The Company shall pay to the Executive in equal installments
spread over the period of 12 months beginning on the date of the
Executive's termination of employment an amount equal in the aggregate to
the sum of (i) the Executive's annual rate of base salary immediately
preceding his termination of employment, and (ii) the average of his
annual bonuses earned under the Company's annual incentive bonus plan for
the three calendar years preceding his termination of employment (or, if
the Executive was not eligible for a bonus in each of those three calendar
years, then the average of such bonuses for all of the calendar years in
such three-year period for which he was eligible), with any deferred
bonuses counting for the year earned rather than the year paid. Such
installments shall be paid at the times that salary payments are normally
made by the Company.
(d) If the Executive elects to continue coverage under the Company's
health plan pursuant to COBRA, then for the period beginning on the date
of the Executive's termination of employment and ending on the earlier of
(i) the date which is 12 months after the date of such termination of
employment or (ii) the date on which the Executive commences substantially
full-time employment as an employee
<PAGE>
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of an employer that offers health benefits, the Company will pay the same
percentage of the Executive's premium for COBRA coverage for the Executive
and, if applicable, his spouse and dependent children, as the Company paid
at the applicable time for coverage under such plan for actively employed
senior executives generally. In addition, for the period beginning on the
date of the Executive's termination of employment and ending on the
earlier of (i) the date which is 12 months after the date of such
termination of employment or (ii) the date on which the Executive
commences substantially full-time employment as an employee of an employer
that offers life insurance benefits, the Company will continue to provide
the life insurance benefits that the Company would have provided to the
Executive if the Executive had continued in employment with the Company
for such period, but only if the Executive timely pays the portion of the
premium for such coverage that senior executives of the Company generally
are required to pay for such coverage, if any. The Executive shall notify
the Company promptly if he, while eligible for benefits under this
subsection (d), commences substantially full-time employment as an
employee of an employer that offers health and/or life insurance benefits.
(e) The Company will provide the Executive with outplacement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
9. Benefits Upon Termination Without Cause or For Good Reason
(Change of Control). If (a) the Executive's employment hereunder shall terminate
(i) because of termination by the Company other than for Cause or Permanent and
Total Disability pursuant to Section 5.1, or (ii) because of termination by the
Employee for Good Reason pursuant to Section 6(a), and (b) such termination of
employment occurs within 12 months following a "Change of Control" of the
Company (as defined in Section 10), the Executive shall be entitled to the
following:
(a) The Company shall pay to the Executive his base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal time for payment of such base salary,
compensation and benefits.
<PAGE>
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(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
(c) The Company shall pay to the Executive as a severance benefit an
amount equal to two (2) times the sum of (i) his annual rate of base
salary immediately preceding his termination of employment, and (ii) the
average of his three highest annual bonuses earned under the Company's
annual incentive bonus plan for any of the five calendar years preceding
his termination of employment (or, if the Executive was not eligible for a
bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year
period for which the Executive was eligible), with any deferred bonuses
counting for the year earned rather than the year paid. Such severance
benefit shall be paid in a lump sum within 30 days after the date of such
termination of employment.
(d) The Company shall pay to the Executive as a bonus for the year
of termination of his employment an amount equal to a portion (determined
as provided in the next sentence) of the Executive's maximum bonus
opportunity under the Company's annual incentive bonus plan for the
calendar year of termination of the Executive's employment or, if none,
such portion of the bonus awarded to the Executive under the Company's
annual incentive bonus plan for the calendar year immediately preceding
the calendar year of the termination of his employment, with deferred
bonuses counting for the year earned rather than the year paid. Such
portion shall be determined by dividing the number of days of the
Executive's employment during such calendar year up to his termination of
employment by 365 (366 if a leap year). Such payment shall be made in a
lump sum within 30 days after the date of such termination of employment,
and the Executive shall have no right to any further bonuses under said
plan.
(e) During the period of 24 months beginning on the date of the
Executive's termination of employment, the Executive (and, if applicable,
the Executive's spouse and dependent children) shall remain covered by the
medical, dental, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability
plans of the Company that covered the Executive immediately prior to his
termination of employment as if the Executive had remained in employment
for such period; provided, however, that the coverage under
<PAGE>
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any such plan is conditioned on the timely payment by the Executive (or
his spouse or dependent children) of the portion of the premium for such
coverage that actively employed senior executives with the Company
generally are required to pay for such coverage. In the event that the
Executive's participation in any such plan is barred, the Company shall
arrange to provide the Executive (and, if applicable, his spouse and
dependent children) with substantially similar benefits (but, in the case
of long-term disability benefits, only if reasonably commercially
available).
(f) The Company shall supplement the benefits payable in respect of
the Executive under the Company's Pension Plan and Supplemental Executive
Retirement Plan (and any successor plans thereto) (collectively, the
"Pension Plans") by paying the difference between (i) the benefits that
the Executive would have been entitled to receive under the Pension Plans
if he had been credited with two additional years of service (but no
additional years of age) for purposes of the benefit accrual formula under
the Pension Plans as of the date of termination of the Executive's
employment and (ii) the benefits that the Executive is entitled to receive
under the Pension Plans determined without regard to this subsection (f).
Such benefits shall be payable in the same form and at the same time as
the benefits under the respective Pension Plans.
(g) Each stock option granted by the Company to the Executive and
outstanding immediately prior to termination of his employment shall be
fully vested and immediately exercisable and may be exercised by the
Executive (or, following his death, by the person or entity to which such
option passes) at any time prior to the expiration date of the applicable
option (determined without regard to any earlier termination of the option
that would otherwise occur by reason of termination of his employment).
Each restricted stock award granted by the Company to the Executive and
outstanding immediately prior to termination of the Executive's employment
shall be fully vested upon such termination of employment.
(h) The Company will pay the Executive a car allowance of $500 per
month for 24 months following termination of the Executive's employment to
replace the Company-leased automobile, which leased automobile will be
returned to the Company by the Executive on the date of termination of the
Executive's employment.
<PAGE>
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(i) The Company will provide the Executive with out-placement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
(j) The Company shall promptly pay all reasonable attorneys' fees
and related expenses incurred by the Executive in seeking to obtain or
enforce any right or benefit under this Agreement or to defend against any
claim or assertion in connection with this Agreement, but only to the
extent the Executive substantially prevails.
10. Change of Control. For the purposes of this Agreement, a "Change
of Control" shall be deemed to have occurred if (a) any person or persons acting
together which would constitute a "group" for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other than
the Company or any subsidiary of the Company) shall beneficially own (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, at least 25% of the
total voting power of all classes of capital stock of the Company entitled to
vote generally in the election of the Board; (b) Current Directors (as herein
defined) shall cease for any reason to constitute at least a majority of the
members of the Board (for this purpose, a "Current Director" shall mean any
member of the Board as of the date hereof and any successor of a Current
Director whose election, or nomination for election by the Company's
shareholders, was approved by at least a majority of the Current Directors then
on the Board); (c) the shareholders of the Company approve (i) a plan of
complete liquidation of the Company or (ii) an agreement providing for the
merger or consolidation of the Company other than a merger or consolidation in
which (x) the holders of the common stock of the Company immediately prior to
the consolidation or merger have, directly or indirectly, at least a majority of
the common stock of the continuing or surviving corporation immediately after
such consolidation or merger or (y) the Board immediately prior to the merger or
consolidation would, immediately after the merger or consolidation, constitute a
majority of the board of directors of the continuing or surviving corporation;
or (d) the shareholders of the Company approve an agreement (or agreements)
providing for the sale or other disposition (in one transaction or a series of
transactions) of all or substantially all of the assets of the Company.
11. Golden Parachute Excise Tax.
(a) In the event that any payment or benefit received or to be
received by the Executive pursuant to this
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Agreement or any other plan, program or arrangement of the Company or any of its
affiliates would constitute an "excess parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then
the payments under this Agreement shall be reduced (by the minimum possible
amounts) until no amount payable to the Executive under this Agreement
constitutes an "excess parachute payment" within the meaning of Section 280G of
the Code; provided, however, that no such reduction shall be made if the net
after-tax payment (after taking into account Federal, state, local or other
income and excise taxes) to which the Executive would otherwise be entitled
without such reduction would be greater than the net after-tax payment (after
taking into account Federal, state, local or other income and excise taxes) to
the Executive resulting from the receipt of such payments with such reduction.
If, as a result of subsequent events or conditions (including a subsequent
payment or absence of a subsequent payment under this Agreement or other plan,
program or arrangement of the Company or any of its affiliates), it is
determined that payments under this Agreement have been reduced by more than the
minimum amount required to prevent any payments from constituting an "excess
parachute payment", then an additional payment shall be promptly made to the
Executive in an amount equal to the additional amount that can be paid without
causing any payment to constitute an excess parachute payment.
(b) All determinations required to be made under this Section 12
shall be made by a nationally recognized independent accounting firm mutually
agreeable to the Company and the Executive (the "Accounting Firm") which shall
provide detailed supporting calculations to the Company and the Executive as
requested by the Company or the Executive. All fees and expenses of the
Accounting Firm shall be borne solely by the Company and shall be paid by the
Company upon demand of the Executive as incurred or billed by the Accounting
Firm. All determinations made by the Accounting Firm pursuant to this Section 12
shall be final and binding upon the Company and the Executive.
(c) To the extent any payment or benefit is to be reduced pursuant
to this Section 12, the severance payment described in Section 8(c) or 9(c) will
first be reduced, then the bonus described in Section 9(d), and then the
supplemental pension benefits described in Section 9(f), in each case only to
the extent necessary.
12. Entitlement to Other Benefits. Except as otherwise provided in
this Agreement, this Agreement shall not be
<PAGE>
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construed as limiting in any way any rights or benefits that the Executive or
his spouse, dependents or beneficiaries may have pursuant to any other plan or
program of the Company.
13. Indemnification. The parties agree to execute a separate
Indemnification Agreement in the form attached as Exhibit B.
14. General Provisions.
14.1 No Duty to Seek Employment. The Executive shall not be under
any duty or obligation to seek or accept other employment following termination
of employment, and no amount, payment or benefits due to the Executive hereunder
shall be reduced or suspended if the Executive accepts subsequent employment,
except as expressly set forth herein.
14.2 Deductions and Withholding. All amounts payable or which become
payable under any provision of this Agreement shall be subject to any deductions
authorized by the Executive and any deductions and withholdings required by law.
14.3 Notices. All notices, demands, requests, consents, approvals or
other communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be faxed with a copy deposited in the United
States mail, registered or certified, return receipt requested, postage prepaid,
addressed as follows:
To the Company: Lydall, Inc.
P.O. Box 151
One Colonial Road
Manchester, CT 06045-0151
Attn: Chief Executive Officer
To the Executive: Walter A. Ruschmeyer
126 Fairview Terrace
South Glastonbury, CT 06073
or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
fifth business day following the date so mailed or on the date of actual
receipt, whichever is earlier.
14.4 No Disparagement. The Executive shall not during the period of
his employment with the Company, nor during
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the two-year period beginning on the date of termination of his employment for
any reason, disparage the Company or any of its subsidiaries or affiliates or
any of their shareholders, directors, officers, employees or agents. The
Executive agrees that the terms of this Section 14.4 shall survive the term of
this Agreement and the termination of the Executive's employment.
14.5 Proprietary Information and Inventions. The Lydall Employee
Agreement previously executed by the Executive and attached hereto as Exhibit A
is incorporated by reference in this Agreement, and the Executive agrees to
continue to be bound thereby.
14.6 Covenant to Notify Management. The Executive agrees to abide by
the ethics policies of the Company as well as the Company's other rules,
regulations, policies and procedures. The Executive agrees to comply in full
with all governmental laws and regulations as well as ethics codes applicable.
In the event that the Executive is aware or suspects the Company, or any of its
officers or agents, of violating any such laws, ethics, codes, rules,
regulations, policies or procedures, the Executive agrees to bring all such
actual and suspected violations to the attention of the Company immediately so
that the matter may be properly investigated and appropriate action taken. The
Executive understands that the Executive is precluded from filing a complaint
with any governmental agency or court having jurisdiction over wrongful conduct
unless the Executive has first notified the Company of the facts and permits it
to investigate and correct the concerns.
14.7 Amendments and Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either Party hereto at any time of any breach by the other Party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other Party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
14.8 Beneficial Interests. This Agreement shall inure to the benefit
of and be enforceable by a) the Company's successors and assigns and b) the
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Ex-
<PAGE>
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ecutive's devisee, legatee, or other designee or, if there be no such designee,
to the Executive's estate.
14.9 Successors. The Company will require any successors (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform.
14.10 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any Party without the
prior written consent of the other Party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 14.10, the Company may
assign or delegate its rights, duties and obligations hereunder to any affiliate
or to any person or entity which succeeds to all or substantially all of the
business of the Company or one of its subsidiaries through merger, consolation,
reorganization, or other business combination or by acquisition of all or
substantially all of the assets of the Company or one of its subsidiaries.
14.11 Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut.
14.12 Statute of Limitations. The Executive and the Company hereby
agree that there shall be a one year statute of limitations for the filing of
any requests for arbitration or any lawsuit relating to this Agreement or the
terms or conditions of Executive's employment by the Company. If such a claim is
filed more than one year subsequent to the Executive's last day of employment it
shall be precluded by this provision, regardless of whether or not the claim has
accrued at that time.
14.13 Right to Injunctive and Equitable Relief. The Executive's
obligations under Section 14.4 are of a special and unique character, which
gives them a peculiar value. The Company cannot be reasonably or adequately
compensated for damages in an action at law in the event the Executive breaches
such obligations. Therefore, the Executive expressly agrees that the Company
shall be entitled to injunctive and other equitable relief without bond or other
security in the event of such breach in addition to any other rights or remedies
which the Company may possess or be entitled to pursue. Furthermore,
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the obligations of the Executive and the rights and remedies of the Company
under Section 14.4 and this Section 14.13 are cumulative and in addition to, and
not in lieu of, any obligations, rights, or remedies as created by applicable
law.
14.14 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
14.15 Entire Agreement. This Agreement, along with the Lydall
Employee Agreement and the Indemnification Agreement by and between the
Executive and the Company, constitutes the entire agreement of the Parties and
supersedes all prior written or oral and all contemporaneous oral agreements,
understandings, and negotiations between the Parties with respect to the subject
matter hereof. This Agreement may not be changed orally and may only be modified
in writing signed by both Parties. This Agreement, along with the Lydall
Employee Agreement and the Indemnification Agreement, is intended by the Parties
as the final expression of their agreement with respect to such terms as are
included herein and therein and may not be contradicted by evidence of any prior
or contemporaneous agreement. The Parties further intend that this Agreement,
along with the Lydall Employee Agreement and the Indemnification Agreement,
constitutes the complete and exclusive statement of their terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving such
agreements.
14.16 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute one and the same instrument.
<PAGE>
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Employee has hereunto set his
hand as of the day and year first above written.
LYDALL, INC.
By:
------------------------------- ----------
Christopher R. Skomorowski Date
President and Chief
Executive Officer
------------------------------- ----------
Walter A. Ruschmeyer Date
126 Fairview Terrace
South Glastonbury, CT 06033
<PAGE>
Exhibit 10.17
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of March,
2000, by and between LYDALL, INC., a Delaware corporation (the "Company"), and
Kevin G. Lynch (the "Executive").
W I T N E S S E T H
WHEREAS, the Company and the Executive (the "Parties") have agreed
to enter into this agreement (the "Agreement) relating to the employment of the
Executive by the Company and/or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:
1. Term of Employment; Termination of Prior Agreement.
(a) The Company and/or one of its subsidiaries agrees to continue to
employ the Executive, and the Executive agrees to remain in the employment of
the Company and/or one of its subsidiaries, in accordance with the terms and
provisions of this Agreement.
(b) The Employment Period under this Agreement shall be the period
commencing as of the date of this Agreement and ending on the date of
termination of the Executive's employment pursuant to Section 5, 6 or 7 below,
whichever is applicable.
(c) Immediately upon the commencement of the Executive's employment
pursuant to the terms of this Agreement, that certain Agreement by and between
the Executive and the Company dated as of February 1, 2000 shall terminate and
shall be of no further force or effect.
2. Duties. It is the intention of the Parties that during the term
of the Executive's employment under this Agreement, the Executive will serve as
Division President of a subsidiary of the Company or in such other senior
management position as the Company shall determine. During the Employment
Period, the Executive will devote his full business time and attention and best
efforts to the affairs of the Company and its
<PAGE>
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subsidiaries and his duties as Division President. The Executive will have such
duties as are appropriate to his position as Division President, and will have
such authority as required to enable the Executive to perform these duties.
Consistent with the foregoing, the Executive shall comply with all reasonable
instructions of the Board of Directors of the Company (the "Board").
3. Compensation and Benefits.
3.1 Salary. During the Employment Period, the Company will pay the
Executive a base salary at an initial annual rate of Two Hundred Twenty Thousand
Dollars ($220,000). The Company may, in its sole and absolute discretion,
increase the Executive's base salary in light of the Executive's performance,
inflation, changes in the cost of living and other factors deemed relevant by
the Company. The Executive's base salary may not be decreased during the term of
this Agreement. The Chief Executive Officer of the Company shall meet with the
Executive annually to review the Executive's performance, objectives and
compensation, including salary, bonus and stock options, and the Chief Executive
Officer shall then meet with the Compensation and Stock Option Committee of the
Board (the "Compensation Committee") to discuss the same. If the Compensation
Committee determines that any adjustments thereto are appropriate, such
committee shall make a recommendation to the full Board and the Board shall make
such adjustments, if any, as the Board deems appropriate and consistent with
this Agreement. The Executive's base salary will be paid in accordance with the
standard practices for other corporate executives of the Company.
3.2 Bonuses. During the Employment Period, the Executive will be
eligible to receive annually or otherwise such bonus awards, if any, as shall be
determined by the Board in its sole and absolute discretion after receiving the
recommendation of the Compensation Committee.
3.3 Benefit Programs. During the Employment Period, the Executive
will be entitled to participate on substantially the same terms as other senior
executives of the Company in all employee benefit plans and programs of the
Company (subject to any restrictions or eligibility requirements under such
plans and programs) from time to time in effect for the benefit of senior
executives of the Company, including, but not limited to, pension and other
retirement plans, profit sharing plans, stock incentive and annual incentive
bonus plans, group life insurance, hospitalization and surgical and major
medical cov-
<PAGE>
-3-
erages (excluding the Lydall, Inc. Executive Medical Plan), short-term and
long-term disability, and such other benefits as are or may be made available
from time to time to senior executives of the Company.
3.4 Vacations and Holidays. During the Employment Period, the
Executive will be entitled to vacation leave of three (3) weeks per year at full
pay or such greater vacation benefits as may be provided for by the Company's
vacation policies applicable to senior executives. The Executive will be
entitled to such holidays as are established by the Company for all employees.
3.5 Automobile. During the Employment Period, the Company will
provide the Executive with an automobile in accordance with Company policy.
4. Business Expenses. The Executive will be entitled to prompt
reimbursement for all reasonable, documented and necessary expenses incurred by
the Executive in performing his services hereunder, provided the Executive
properly accounts therefor in accordance with the policies and procedures
established by the Company.
5. Termination of Employment by the Company.
5.1 Involuntary Termination by the Company Other Than For Permanent
and Total Disability or Cause. The Company may terminate the Executive's
employment at any time other than (i) by reason of the Executive's Permanent and
Total Disability (as defined in Section 5.2) or (ii) for Cause (as defined in
Section 5.3), by giving the Executive a written notice of termination at least
30 days before the date of termination (or such lesser notice period as the
Executive may agree to). In the event of such a termination of employment
pursuant to this Section 5.1, the Executive shall be entitled to receive (i) the
benefits described in Section 8 if such termination of employment does not occur
within 12 months following a "Change of Control" (as defined in Section 10), or
(ii) the benefits described in Section 9 if such termination of employment
occurs within 12 months following a "Change of Control" (as defined in Section
10).
5.2 Termination Due to Permanent and Total Disability. If the
Executive incurs a Permanent and Total Disability, as defined below, the Company
may terminate the Executive's employment by giving the Executive written notice
of termination at least 30 days before the date of such termination (or such
<PAGE>
-4-
lesser notice period as the Executive may agree to). In the event of such
termination of the Executive's employment because of Permanent and Total
Disability, the Executive shall be entitled to receive (i) his base salary
pursuant to Section 3.1 through the date which is twelve months following the
date of such termination of employment, reduced by any amounts paid to the
Executive under any disability program maintained by the Company, such base
salary to be paid at the normal time for the payment of such base salary, (ii) a
bonus for the year of termination of employment and for the next succeeding year
(to be paid at the normal time for payment of such bonuses) in an amount equal
to the average of the three highest annual bonuses earned by the Executive under
the Company's annual incentive bonus plan for any of the five calendar years
preceding the calendar year of his termination of employment (or, if the
Executive was not eligible for a bonus for at least three calendar years in such
five-year period, then the average of such bonuses for all of the calendar years
in such five-year period for which the Executive was eligible), with any
deferred bonuses counting for the year earned rather than the year paid; (iii)
any other compensation and benefits to the extent actually earned by the
Executive under any other benefit plan or program of the Company as of the date
of such termination of employment, such compensation and benefits to be paid at
the normal time for payment of such compensation and benefits, and (iv) any
reimbursement amounts owing under Section 4. In addition, if the Executive
elects to continue coverage under the Company's health plan pursuant to COBRA,
the Company for a period of twelve months following termination of the
Executive's employment by reason of Permanent and Total Disability will pay the
same percentage of the Executive's premium for COBRA coverage for the Executive
and, if applicable, his spouse and dependent children, as the Company paid at
the applicable time for coverage under such plan for actively employed senior
executives generally. For the period of twelve months following the termination
of the Executive's employment by reason of Permanent and Total Disability, the
Company will continue to provide the life insurance benefits that the Company
would have provided to the Executive if the Executive had continued in
employment with the Company for such period, but only if the Executive timely
pays the portion of the premium for such coverage that senior executives of the
Company generally are required to pay for such coverage, if any. For purposes of
this Agreement, the Executive shall be considered to have incurred a Permanent
and Total Disability if and only if the Executive has incurred a disability
entitling the Executive to disability benefits under the Company's long-term
disability plan.
<PAGE>
-5-
5.3 Termination for Cause. The Company may terminate the Executive's
employment immediately for Cause for any of the following reasons: (i) an act or
acts of dishonesty or fraud on the part of the Executive resulting or intended
to result directly or indirectly in substantial gain or personal enrichment to
which the Executive was not legally entitled at the expense of the Company or
any of its subsidiaries; (ii) a willful material breach by the Executive of his
duties or responsibilities under this Agreement resulting in demonstrably
material injury to the Company or any of its subsidiaries; (iii) the Executive's
conviction of a felony or any crime involving moral turpitude, (iv) habitual
neglect or insubordination (defined as refusal to execute or carry out
directions from the Board or its duly appointed designees) where the Executive
has been given written notice of the acts or omissions constituting such neglect
or insubordination and the Executive has failed to cure such conduct, where
susceptible to cure, within thirty days following such notice, or (v) a material
breach by the Executive of any of his obligations under the Lydall Employee
Agreement executed by the Executive and attached hereto as Exhibit A. The
Company shall exercise its right to terminate the Executive's employment for
Cause by giving the Executive written notice of termination specifying in
reasonable detail the circumstances constituting such Cause. In the event of
such termination of the Executive's employment for Cause, the Executive shall be
entitled to receive only (i) his base salary pursuant to Section 3.1 earned
through the date of such termination of employment plus his base salary for the
period of any vacation time earned but not taken for the year of termination of
employment, such base salary to be paid at the normal time for payment of such
base salary, (ii) any other compensation and benefits to the extent actually
earned by the Executive under any other benefit plan or program of the Company
as of the date of such termination of employment, such compensation and benefits
to be paid and at the normal time for payment of such compensation and benefits
and (iii) any reimbursement amounts owing under Section 4.
6. Termination of Employment by the Executive.
(a) Good Reason. The Executive may terminate his employment for Good
Reason by giving the Company a written notice of termination at least 30 days
before the date of such termination (or such lesser notice period as the Company
may agree to) specifying in reasonable detail the circumstances constituting
such Good Reason. In the event of the Executive's termination of his employment
for Good Reason, the Executive shall be entitled to receive (i) the benefits
described in Sec-
<PAGE>
-6-
tion 8 if such termination of employment does not occur within 12 months
following a "Change of Control" (as defined in Section 10), or (ii) the benefits
described in Section 9 if such termination of employment occurs within 12 months
following a "Change of Control" (as defined in Section 10). For purposes of this
Agreement, Good Reason shall mean (i) a significant reduction in the scope of
the Executive's authority, functions, duties or responsibilities from that which
is contemplated by this Agreement, (ii) any reduction in the Executive's base
salary, (iii) a significant reduction in the employee benefits provided to the
Executive (excluding the Lydall, Inc. Executive Medical Plan) other than in
connection with an across-the-board reduction similarly affecting substantially
all senior executives of the Company, or (iv) any material breach by the Company
of any provision of this Agreement without the Executive having committed any
material breach of the Executive's obligations hereunder or under the Lydall
Employee Agreement which breach is not cured within thirty days following
written notice thereof to the Company of such breach. In addition, in the case
of a termination of employment within 12 months following a "Change of Control"
(as defined in Section 10), Good Reason shall also include the relocation of the
Executive's office location to a location more than 50 miles away from the
Executive's then current principal place of employment. If an event constituting
a ground for termination of employment for Good Reason occurs, and the Executive
fails to give notice of termination within 90 days after the occurrence of such
event, the Executive shall be deemed to have waived his right to terminate
employment for Good Reason in connection with such event (but not for any other
event for which the 90-day period has not expired).
(b) Other. The Executive may terminate his employment at any time
and for any reason, other than pursuant to subsection (a) above, by giving the
Company a written notice of termination to that effect at least 30 days before
the date of termination (or such lesser notice period as the Company may agree
to); provided, however, that the Company following receipt of such notice from
the Executive may elect to have the Executive's employment terminate immediately
following its receipt of such notice. In the event of the Executive's
termination of his employment pursuant to this subsection (b), the Executive
shall be entitled to receive only (i) his base salary pursuant to Section 3.1
earned through the date of such termination of employment plus his base salary
for the period of vacation time earned but not taken for the year of termination
of employment, such base salary to be paid at the normal time for payment of
such base salary, (ii) any other compensation and
<PAGE>
-7-
benefits to the extent actually earned by the Executive under any other benefit
plan or program of the Company as of the date of such termination of employment,
such compensation and benefits to be paid at the normal time for payment of such
compensation and benefits, and (iii) any reimbursement amounts owing under
Section 4.
7. Termination of Employment By Death. In the event of the death of
the Executive during the course of his employment hereunder, the Executive's
estate (or other person or entity having such entitlement pursuant to the terms
of the applicable plan or program) shall be entitled to receive (i) the
Executive's base salary pursuant to Section 3.1 earned through the date of the
Executive's death plus the Executive's base salary for the period of vacation
time earned but not taken for the year of the Executive's death, such base
salary to be paid at the normal time for payment of such base salary, (ii) a
bonus for the year of the Executive's death (to be paid within 90 days after the
Executive's death) in an amount equal to a pro rata portion of the average of
the three highest annual bonuses earned by the Executive under the Company's
annual incentive bonus plan for any of the five calendar years preceding the
calendar year of the Executive's death (or, if the Executive was not eligible
for a bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year period
for which the Executive was eligible), with any deferred bonuses counting for
the year earned rather than the year paid and with the pro rata portion being
determined by dividing the number of days of the Executive's employment during
such calendar year up to his death by 365 (366 if a leap year), (iii) any other
compensation and benefits to the extent actually earned by the Executive under
any other benefit plan or program of the Company as of the date of such
termination of employment, such compensation and benefits to be paid at the
normal time for payment of such compensation and benefits, and (iv) any
reimbursement amounts owing under Section 4. In addition, in the event of such
death, the Executive's beneficiaries shall receive any death benefits owed to
them under the Company's employee benefit plans. If the Executive's spouse
and/or dependent children elect to continue coverage under the Company's health
plan following the Executive's death pursuant to COBRA, the Company for a period
of 12 months following the Executive's death will pay the same percentage of the
premium for COBRA coverage for the Executive's spouse and/or dependent children,
as applicable, as the Company would have paid in respect of the
<PAGE>
-8-
Executive's coverage under such plan if the Executive had continued in
employment with the Company for such period.
8. Benefits Upon Termination Without Cause or For Good Reason (No
Change of Control). If (a) the Executive's employment hereunder shall terminate
(i) because of termination by the Company other than for Cause or Permanent and
Total Disability pursuant to Section 5.1, or (ii) because of termination by the
Employee for Good Reason pursuant to Section 6(a), and (b) such termination of
employment does not occur within 12 months following a "Change of Control" of
the Company (as defined in Section 10), the Executive shall be entitled to the
following:
(a) The Company shall pay to the Executive his base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal time for payment of such base salary,
compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
(c) The Company shall pay to the Executive in equal installments
spread over the period of 12 months beginning on the date of the
Executive's termination of employment an amount equal in the aggregate to
the sum of (i) the Executive's annual rate of base salary immediately
preceding his termination of employment, and (ii) the average of his
annual bonuses earned under the Company's annual incentive bonus plan for
the three calendar years preceding his termination of employment (or, if
the Executive was not eligible for a bonus in each of those three calendar
years, then the average of such bonuses for all of the calendar years in
such three-year period for which he was eligible), with any deferred
bonuses counting for the year earned rather than the year paid. Such
installments shall be paid at the times that salary payments are normally
made by the Company.
(d) If the Executive elects to continue coverage under the Company's
health plan pursuant to COBRA, then for the period beginning on the date
of the Executive's termination of employment and ending on the earlier of
(i) the
<PAGE>
-9-
date which is 12 months after the date of such termination of employment
or (ii) the date on which the Executive commences substantially full-time
employment as an employee of an employer that offers health benefits, the
Company will pay the same percentage of the Executive's premium for COBRA
coverage for the Executive and, if applicable, his spouse and dependent
children, as the Company paid at the applicable time for coverage under
such plan for actively employed senior executives generally. In addition,
for the period beginning on the date of the Executive's termination of
employment and ending on the earlier of (i) the date which is 12 months
after the date of such termination of employment or (ii) the date on which
the Executive commences substantially full-time employment as an employee
of an employer that offers life insurance benefits, the Company will
continue to provide the life insurance benefits that the Company would
have provided to the Executive if the Executive had continued in
employment with the Company for such period, but only if the Executive
timely pays the portion of the premium for such coverage that senior
executives of the Company generally are required to pay for such coverage,
if any. The Executive shall notify the Company promptly if he, while
eligible for benefits under this subsection (d), commences substantially
full-time employment as an employee of an employer that offers health
and/or life insurance benefits.
(e) The Company will provide the Executive with outplacement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
9. Benefits Upon Termination Without Cause or For Good Reason
(Change of Control). If (a) the Executive's employment hereunder shall terminate
(i) because of termination by the Company other than for Cause or Permanent and
Total Disability pursuant to Section 5.1, or (ii) because of termination by the
Employee for Good Reason pursuant to Section 6(a), and (b) such termination of
employment occurs within 12 months following a "Change of Control" of the
Company (as defined in Section 10), the Executive shall be entitled to the
following:
(a) The Company shall pay to the Executive his base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal
<PAGE>
-10-
time for payment of such base salary, compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
(c) The Company shall pay to the Executive as a severance benefit an
amount equal to two (2) times the sum of (i) his annual rate of base
salary immediately preceding his termination of employment, and (ii) the
average of his three highest annual bonuses earned under the Company's
annual incentive bonus plan for any of the five calendar years preceding
his termination of employment (or, if the Executive was not eligible for a
bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year
period for which the Executive was eligible), with any deferred bonuses
counting for the year earned rather than the year paid. Such severance
benefit shall be paid in a lump sum within 30 days after the date of such
termination of employment.
(d) The Company shall pay to the Executive as a bonus for the year
of termination of his employment an amount equal to a portion (determined
as provided in the next sentence) of the Executive's maximum bonus
opportunity under the Company's annual incentive bonus plan for the
calendar year of termination of the Executive's employment or, if none,
such portion of the bonus awarded to the Executive under the Company's
annual incentive bonus plan for the calendar year immediately preceding
the calendar year of the termination of his employment, with deferred
bonuses counting for the year earned rather than the year paid. Such
portion shall be determined by dividing the number of days of the
Executive's employment during such calendar year up to his termination of
employment by 365 (366 if a leap year). Such payment shall be made in a
lump sum within 30 days after the date of such termination of employment,
and the Executive shall have no right to any further bonuses under said
plan.
(e) During the period of 24 months beginning on the date of the
Executive's termination of employment, the Executive (and, if applicable,
the Executive's spouse and dependent children) shall remain covered by the
medical, dental, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability
plans of the Company that covered the
<PAGE>
-11-
Executive immediately prior to his termination of employment as if the
Executive had remained in employment for such period; provided, however,
that the coverage under any such plan is conditioned on the timely payment
by the Executive (or his spouse or dependent children) of the portion of
the premium for such coverage that actively employed senior executives
with the Company generally are required to pay for such coverage. In the
event that the Executive's participation in any such plan is barred, the
Company shall arrange to provide the Executive (and, if applicable, his
spouse and dependent children) with substantially similar benefits (but,
in the case of long-term disability benefits, only if reasonably
commercially available).
(f) The Company shall supplement the benefits payable in respect of
the Executive under the Company's Pension Plan and Supplemental Executive
Retirement Plan (and any successor plans thereto) (collectively, the
"Pension Plans") by paying the difference between (i) the benefits that
the Executive would have been entitled to receive under the Pension Plans
if he had been credited with two additional years of service (but no
additional years of age) for purposes of the benefit accrual formula under
the Pension Plans as of the date of termination of the Executive's
employment and (ii) the benefits that the Executive is entitled to receive
under the Pension Plans determined without regard to this subsection (f).
Such benefits shall be payable in the same form and at the same time as
the benefits under the respective Pension Plans.
(g) Each stock option granted by the Company to the Executive and
outstanding immediately prior to termination of his employment shall be
fully vested and immediately exercisable and may be exercised by the
Executive (or, following his death, by the person or entity to which such
option passes) at any time prior to the expiration date of the applicable
option (determined without regard to any earlier termination of the option
that would otherwise occur by reason of termination of his employment).
Each restricted stock award granted by the Company to the Executive and
outstanding immediately prior to termination of the Executive's employment
shall be fully vested upon such termination of employment.
(h) The Company will pay the Executive a car allowance of $500 per
month for 24 months following termination of the Executive's employment to
replace the Company-
<PAGE>
-12-
leased automobile, which leased automobile will be returned to the Company
by the Executive on the date of termination of the Executive's employment.
(i) The Company will provide the Executive with out-placement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
(j) The Company shall promptly pay all reasonable attorneys' fees
and related expenses incurred by the Executive in seeking to obtain or
enforce any right or benefit under this Agreement or to defend against any
claim or assertion in connection with this Agreement, but only to the
extent the Executive substantially prevails.
10. Change of Control. For the purposes of this Agreement, a "Change
of Control" shall be deemed to have occurred if (a) any person or persons acting
together which would constitute a "group" for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other than
the Company or any subsidiary of the Company) shall beneficially own (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, at least 25% of the
total voting power of all classes of capital stock of the Company entitled to
vote generally in the election of the Board; (b) Current Directors (as herein
defined) shall cease for any reason to constitute at least a majority of the
members of the Board (for this purpose, a "Current Director" shall mean any
member of the Board as of the date hereof and any successor of a Current
Director whose election, or nomination for election by the Company's
shareholders, was approved by at least a majority of the Current Directors then
on the Board); (c) the shareholders of the Company approve (i) a plan of
complete liquidation of the Company or (ii) an agreement providing for the
merger or consolidation of the Company other than a merger or consolidation in
which (x) the holders of the common stock of the Company immediately prior to
the consolidation or merger have, directly or indirectly, at least a majority of
the common stock of the continuing or surviving corporation immediately after
such consolidation or merger or (y) the Board immediately prior to the merger or
consolidation would, immediately after the merger or consolidation, constitute a
majority of the board of directors of the continuing or surviving corporation;
or (d) the shareholders of the Company approve an agreement (or agreements)
providing for the sale or other disposition (in one transaction or a series of
transactions) of all or substantially all of the assets of the Company.
<PAGE>
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11. Golden Parachute Excise Tax.
(a) In the event that any payment or benefit received or to be
received by the Executive pursuant to this Agreement or any other plan, program
or arrangement of the Company or any of its affiliates would constitute an
"excess parachute payment" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), then the payments under this
Agreement shall be reduced (by the minimum possible amounts) until no amount
payable to the Executive under this Agreement constitutes an "excess parachute
payment" within the meaning of Section 280G of the Code; provided, however, that
no such reduction shall be made if the net after-tax payment (after taking into
account Federal, state, local or other income and excise taxes) to which the
Executive would otherwise be entitled without such reduction would be greater
than the net after-tax payment (after taking into account Federal, state, local
or other income and excise taxes) to the Executive resulting from the receipt of
such payments with such reduction. If, as a result of subsequent events or
conditions (including a subsequent payment or absence of a subsequent payment
under this Agreement or other plan, program or arrangement of the Company or any
of its affiliates), it is determined that payments under this Agreement have
been reduced by more than the minimum amount required to prevent any payments
from constituting an "excess parachute payment", then an additional payment
shall be promptly made to the Executive in an amount equal to the additional
amount that can be paid without causing any payment to constitute an excess
parachute payment.
(b) All determinations required to be made under this Section 11
shall be made by a nationally recognized independent accounting firm mutually
agreeable to the Company and the Executive (the "Accounting Firm") which shall
provide detailed supporting calculations to the Company and the Executive as
requested by the Company or the Executive. All fees and expenses of the
Accounting Firm shall be borne solely by the Company and shall be paid by the
Company upon demand of the Executive as incurred or billed by the Accounting
Firm. All determinations made by the Accounting Firm pursuant to this Section 11
shall be final and binding upon the Company and the Executive.
(c) To the extent any payment or benefit is to be reduced pursuant
to this Section 11, the severance payment described in Section 8(c) or 9(c) will
first be reduced, then the bonus described in Section 9(d), and then the
supplemental pen-
<PAGE>
-14-
sion benefits described in Section 9(f), in each case only to the extent
necessary.
12. Entitlement to Other Benefits. Except as otherwise provided in
this Agreement, this Agreement shall not be construed as limiting in any way any
rights or benefits that the Executive or his spouse, dependents or beneficiaries
may have pursuant to any other plan or program of the Company.
13. Indemnification. The parties agree to execute a separate
Indemnification Agreement in the form attached as Exhibit B.
14. General Provisions.
14.1 No Duty to Seek Employment. The Executive shall not be under
any duty or obligation to seek or accept other employment following termination
of employment, and no amount, payment or benefits due to the Executive hereunder
shall be reduced or suspended if the Executive accepts subsequent employment,
except as expressly set forth herein.
14.2 Deductions and Withholding. All amounts payable or which become
payable under any provision of this Agreement shall be subject to any deductions
authorized by the Executive and any deductions and withholdings required by law.
14.3 Notices. All notices, demands, requests, consents, approvals or
other communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be faxed with a copy deposited in the United
States mail, registered or certified, return receipt requested, postage prepaid,
addressed as follows:
To the Company: Lydall, Inc.
P.O. Box 151
One Colonial Road
Manchester, CT 06045-0151
Attn: Chief Executive Officer
To the Executive: Kevin G. Lynch
3 East Ridge Road
Loudonville, NY 12211
or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
fifth business day following the
<PAGE>
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date so mailed or on the date of actual receipt, whichever is earlier.
14.4 No Disparagement. The Executive shall not during the period of
his employment with the Company, nor during the two-year period beginning on the
date of termination of his employment for any reason, disparage the Company or
any of its subsidiaries or affiliates or any of their shareholders, directors,
officers, employees or agents. The Executive agrees that the terms of this
Section 14.4 shall survive the term of this Agreement and the termination of the
Executive's employment.
14.5 Proprietary Information and Inventions. The Lydall Employee
Agreement previously executed by the Executive and attached hereto as Exhibit A
is incorporated by reference in this Agreement, and the Executive agrees to
continue to be bound thereby.
14.6 Covenant to Notify Management. The Executive agrees to abide by
the ethics policies of the Company as well as the Company's other rules,
regulations, policies and procedures. The Executive agrees to comply in full
with all governmental laws and regulations as well as ethics codes applicable.
In the event that the Executive is aware or suspects the Company, or any of its
officers or agents, of violating any such laws, ethics, codes, rules,
regulations, policies or procedures, the Executive agrees to bring all such
actual and suspected violations to the attention of the Company immediately so
that the matter may be properly investigated and appropriate action taken. The
Executive understands that the Executive is precluded from filing a complaint
with any governmental agency or court having jurisdiction over wrongful conduct
unless the Executive has first notified the Company of the facts and permits it
to investigate and correct the concerns.
14.7 Amendments and Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either Party hereto at any time of any breach by the other Party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other Party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
14.8 Beneficial Interests. This Agreement shall inure to the benefit
of and be enforceable by a) the Company's successors and assigns and b) the
Executive's personal and le-
<PAGE>
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gal representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amounts are still
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such designee, to the
Executive's estate.
14.9 Successors. The Company will require any successors (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform.
14.10 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any Party without the
prior written consent of the other Party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 14.10, the Company may
assign or delegate its rights, duties and obligations hereunder to any affiliate
or to any person or entity which succeeds to all or substantially all of the
business of the Company or one of its subsidiaries through merger, consolation,
reorganization, or other business combination or by acquisition of all or
substantially all of the assets of the Company or one of its subsidiaries.
14.11 Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut.
14.12 Statute of Limitations. The Executive and the Company hereby
agree that there shall be a one year statute of limitations for the filing of
any requests for arbitration or any lawsuit relating to this Agreement or the
terms or conditions of Executive's employment by the Company. If such a claim is
filed more than one year subsequent to the Executive's last day of employment it
shall be precluded by this provision, regardless of whether or not the claim has
accrued at that time.
14.13 Right to Injunctive and Equitable Relief. The Executive's
obligations under Section 14.4 are of a special and unique character, which
gives them a peculiar value. The Company cannot be reasonably or adequately
compensated for damages in an action at law in the event the Executive breaches
<PAGE>
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such obligations. Therefore, the Executive expressly agrees that the Company
shall be entitled to injunctive and other equitable relief without bond or other
security in the event of such breach in addition to any other rights or remedies
which the Company may possess or be entitled to pursue. Furthermore, the
obligations of the Executive and the rights and remedies of the Company under
Section 14.4 and this Section 14.13 are cumulative and in addition to, and not
in lieu of, any obligations, rights, or remedies as created by applicable law.
14.14 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
14.15 Entire Agreement. This Agreement, along with the Lydall
Employee Agreement and the Indemnification Agreement by and between the
Executive and the Company, constitutes the entire agreement of the Parties and
supersedes all prior written or oral and all contemporaneous oral agreements,
understandings, and negotiations between the Parties with respect to the subject
matter hereof. This Agreement may not be changed orally and may only be modified
in writing signed by both Parties. This Agreement, along with the Lydall
Employee Agreement and the Indemnification Agreement, is intended by the Parties
as the final expression of their agreement with respect to such terms as are
included herein and therein and may not be contradicted by evidence of any prior
or contemporaneous agreement. The Parties further intend that this Agreement,
along with the Lydall Employee Agreement and the Indemnification Agreement,
constitutes the complete and exclusive statement of their terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving such
agreements.
14.16 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Employee has hereunto set his
hand as of the day and year first above written.
LYDALL, INC.
By:
------------------------------- ----------
Christopher R. Skomorowski Date
President and Chief
Executive Officer
------------------------------- ----------
Kevin G. Lynch Date
<PAGE>
Exhibit 10.18
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of March,
2000, by and between LYDALL, INC., a Delaware corporation (the "Company"), and
Lisa Krallis-Nixon (the "Executive").
W I T N E S S E T H
WHEREAS, the Company and the Executive (the "Parties") have agreed
to enter into this agreement (the "Agreement) relating to the employment of the
Executive by the Company and/or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:
1. Term of Employment; Termination of Prior Agreement.
(a) The Company and/or one of its subsidiaries agrees to continue to
employ the Executive, and the Executive agrees to remain in the employment of
the Company and/or one of its subsidiaries, in accordance with the terms and
provisions of this Agreement.
(b) The Employment Period under this Agreement shall be the period
commencing as of the date of this Agreement and ending on the date of
termination of the Executive's employment pursuant to Section 5, 6 or 7 below,
whichever is applicable.
(c) Immediately upon the commencement of the Executive's employment
pursuant to the terms of this Agreement, that certain Agreement by and between
the Executive and the Company dated as of February 1, 2000 shall terminate and
shall be of no further force or effect.
2. Duties. It is the intention of the Parties that during the term
of the Executive's employment under this Agreement, the Executive will serve as
General Manager of a subsidiary of the Company or in such other senior
management position as the Company shall determine. During the Employment
Period, the Executive will devote her full business time and attention and best
efforts to the affairs of the Company and its subsidi-
<PAGE>
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aries and her duties as General Manager. The Executive will have such duties as
are appropriate to her position as General Manager, and will have such authority
as required to enable the Executive to perform these duties. Consistent with the
foregoing, the Executive shall comply with all reasonable instructions of the
Board of Directors of the Company (the "Board").
3. Compensation and Benefits.
3.1 Salary. During the Employment Period, the Company will pay the
Executive a base salary at an initial annual rate of One Hundred Twenty-Five
Thousand Dollars ($125,000). The Company may, in its sole and absolute
discretion, increase the Executive's base salary in light of the Executive's
performance, inflation, changes in the cost of living and other factors deemed
relevant by the Company. The Executive's base salary may not be decreased during
the term of this Agreement. The Chief Executive Officer of the Company shall
meet with the Executive annually to review the Executive's performance,
objectives and compensation, including salary, bonus and stock options, and the
Chief Executive Officer shall then meet with the Compensation and Stock Option
Committee of the Board (the "Compensation Committee") to discuss the same. If
the Compensation Committee determines that any adjustments thereto are
appropriate, such committee shall make a recommendation to the full Board and
the Board shall make such adjustments, if any, as the Board deems appropriate
and consistent with this Agreement. The Executive's base salary will be paid in
accordance with the standard practices for other corporate executives of the
Company.
3.2 Bonuses. During the Employment Period, the Executive will be
eligible to receive annually or otherwise such bonus awards, if any, as shall be
determined by the Board in its sole and absolute discretion after receiving the
recommendation of the Compensation Committee.
3.3 Benefit Programs. During the Employment Period, the Executive
will be entitled to participate on substantially the same terms as other senior
executives of the Company in all employee benefit plans and programs of the
Company (subject to any restrictions or eligibility requirements under such
plans and programs) from time to time in effect for the benefit of senior
executives of the Company, including, but not limited to, pension and other
retirement plans, profit sharing plans, stock incentive and annual incentive
bonus plans, group life insurance, hospitalization and surgical and major
medical coverages (excluding the Lydall, Inc. Executive Medical Plan),
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short-term and long-term disability, and such other benefits as are or may be
made available from time to time to senior executives of the Company.
3.4 Vacations and Holidays. During the Employment Period, the
Executive will be entitled to vacation leave of four (4) weeks per year at full
pay or such greater vacation benefits as may be provided for by the Company's
vacation policies applicable to senior executives. The Executive will be
entitled to such holidays as are established by the Company for all employees.
3.5 Automobile. During the Employment Period, the Company will
provide the Executive with an automobile in accordance with Company policy.
4. Business Expenses. The Executive will be entitled to prompt
reimbursement for all reasonable, documented and necessary expenses incurred by
the Executive in performing her services hereunder, provided the Executive
properly accounts therefor in accordance with the policies and procedures
established by the Company.
5. Termination of Employment by the Company.
5.1 Involuntary Termination by the Company Other Than For Permanent
and Total Disability or Cause. The Company may terminate the Executive's
employment at any time other than (i) by reason of the Executive's Permanent and
Total Disability (as defined in Section 5.2) or (ii) for Cause (as defined in
Section 5.3), by giving the Executive a written notice of termination at least
30 days before the date of termination (or such lesser notice period as the
Executive may agree to). In the event of such a termination of employment
pursuant to this Section 5.1, the Executive shall be entitled to receive (i) the
benefits described in Section 8 if such termination of employment does not occur
within 12 months following a "Change of Control" (as defined in Section 10), or
(ii) the benefits described in Section 9 if such termination of employment
occurs within 12 months following a "Change of Control" (as defined in Section
10).
5.2 Termination Due to Permanent and Total Disability. If the
Executive incurs a Permanent and Total Disability, as defined below, the Company
may terminate the Executive's employment by giving the Executive written notice
of termination at least 30 days before the date of such termination (or such
lesser notice period as the Executive may agree to). In the
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event of such termination of the Executive's employment because of Permanent and
Total Disability, the Executive shall be entitled to receive (i) her base salary
pursuant to Section 3.1 through the date which is twelve months following the
date of such termination of employment, reduced by any amounts paid to the
Executive under any disability program maintained by the Company, such base
salary to be paid at the normal time for the payment of such base salary, (ii) a
bonus for the year of termination of employment and for the next succeeding year
(to be paid at the normal time for payment of such bonuses) in an amount equal
to the average of the three highest annual bonuses earned by the Executive under
the Company's annual incentive bonus plan for any of the five calendar years
preceding the calendar year of her termination of employment (or, if the
Executive was not eligible for a bonus for at least three calendar years in such
five-year period, then the average of such bonuses for all of the calendar years
in such five-year period for which the Executive was eligible), with any
deferred bonuses counting for the year earned rather than the year paid; (iii)
any other compensation and benefits to the extent actually earned by the
Executive under any other benefit plan or program of the Company as of the date
of such termination of employment, such compensation and benefits to be paid at
the normal time for payment of such compensation and benefits, and (iv) any
reimbursement amounts owing under Section 4. In addition, if the Executive
elects to continue coverage under the Company's health plan pursuant to COBRA,
the Company for a period of twelve months following termination of the
Executive's employment by reason of Permanent and Total Disability will pay the
same percentage of the Executive's premium for COBRA coverage for the Executive
and, if applicable, her spouse and dependent children, as the Company paid at
the applicable time for coverage under such plan for actively employed senior
executives generally. For the period of twelve months following the termination
of the Executive's employment by reason of Permanent and Total Disability, the
Company will continue to provide the life insurance benefits that the Company
would have provided to the Executive if the Executive had continued in
employment with the Company for such period, but only if the Executive timely
pays the portion of the premium for such coverage that senior executives of the
Company generally are required to pay for such coverage, if any. For purposes of
this Agreement, the Executive shall be considered to have incurred a Permanent
and Total Disability if and only if the Executive has incurred a disability
entitling the Executive to disability benefits under the Company's long-term
disability plan.
<PAGE>
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5.3 Termination for Cause. The Company may terminate the Executive's
employment immediately for Cause for any of the following reasons: (i) an act or
acts of dishonesty or fraud on the part of the Executive resulting or intended
to result directly or indirectly in substantial gain or personal enrichment to
which the Executive was not legally entitled at the expense of the Company or
any of its subsidiaries; (ii) a willful material breach by the Executive of her
duties or responsibilities under this Agreement resulting in demonstrably
material injury to the Company or any of its subsidiaries; (iii) the Executive's
conviction of a felony or any crime involving moral turpitude, (iv) habitual
neglect or insubordination (defined as refusal to execute or carry out
directions from the Board or its duly appointed designees) where the Executive
has been given written notice of the acts or omissions constituting such neglect
or insubordination and the Executive has failed to cure such conduct, where
susceptible to cure, within thirty days following such notice, or (v) a material
breach by the Executive of any of his obligations under the Lydall Employee
Agreement executed by the Executive and attached hereto as Exhibit A. The
Company shall exercise its right to terminate the Executive's employment for
Cause by giving the Executive written notice of termination specifying in
reasonable detail the circumstances constituting such Cause. In the event of
such termination of the Executive's employment for Cause, the Executive shall be
entitled to receive only (i) her base salary pursuant to Section 3.1 earned
through the date of such termination of employment plus her base salary for the
period of any vacation time earned but not taken for the year of termination of
employment, such base salary to be paid at the normal time for payment of such
base salary, (ii) any other compensation and benefits to the extent actually
earned by the Executive under any other benefit plan or program of the Company
as of the date of such termination of employment, such compensation and benefits
to be paid and at the normal time for payment of such compensation and benefits
and (iii) any reimbursement amounts owing under Section 4.
6. Termination of Employment by the Executive.
(a) Good Reason. The Executive may terminate her employment for Good
Reason by giving the Company a written notice of termination at least 30 days
before the date of such termination (or such lesser notice period as the Company
may agree to) specifying in reasonable detail the circumstances constituting
such Good Reason. In the event of the Executive's termination of her employment
for Good Reason, the Executive shall be entitled to receive (i) the benefits
described in Sec-
<PAGE>
-6-
tion 8 if such termination of employment does not occur within 12 months
following a "Change of Control" (as defined in Section 10), or (ii) the benefits
described in Section 9 if such termination of employment occurs within 12 months
following a "Change of Control" (as defined in Section 10). For purposes of this
Agreement, Good Reason shall mean (i) a significant reduction in the scope of
the Executive's authority, functions, duties or responsibilities from that which
is contemplated by this Agreement, (ii) any reduction in the Executive's base
salary, (iii) a significant reduction in the employee benefits provided to the
Executive (excluding the Lydall, Inc. Executive Medical Plan) other than in
connection with an across-the-board reduction similarly affecting substantially
all senior executives of the Company, or (iv) any material breach by the Company
of any provision of this Agreement without the Executive having committed any
material breach of the Executive's obligations hereunder or under the Lydall
Employee Agreement which breach is not cured within thirty days following
written notice thereof to the Company of such breach. In addition, in the case
of a termination of employment within 12 months following a "Change of Control"
(as defined in Section 10), Good Reason shall also include the relocation of the
Executive's office location to a location more than 50 miles away from the
Executive's then current principal place of employment. If an event constituting
a ground for termination of employment for Good Reason occurs, and the Executive
fails to give notice of termination within 90 days after the occurrence of such
event, the Executive shall be deemed to have waived her right to terminate
employment for Good Reason in connection with such event (but not for any other
event for which the 90-day period has not expired).
(b) Other. The Executive may terminate her employment at any time
and for any reason, other than pursuant to subsection (a) above, by giving the
Company a written notice of termination to that effect at least 30 days before
the date of termination (or such lesser notice period as the Company may agree
to); provided, however, that the Company following receipt of such notice from
the Executive may elect to have the Executive's employment terminate immediately
following its receipt of such notice. In the event of the Executive's
termination of her employment pursuant to this subsection (b), the Executive
shall be entitled to receive only (i) her base salary pursuant to Section 3.1
earned through the date of such termination of employment plus her base salary
for the period of vacation time earned but not taken for the year of termination
of employment, such base salary to be paid at the normal time for payment of
such base salary, (ii) any other compensation and
<PAGE>
-7-
benefits to the extent actually earned by the Executive under any other benefit
plan or program of the Company as of the date of such termination of employment,
such compensation and benefits to be paid at the normal time for payment of such
compensation and benefits, and (iii) any reimbursement amounts owing under
Section 4.
7. Termination of Employment By Death. In the event of the death of
the Executive during the course of her employment hereunder, the Executive's
estate (or other person or entity having such entitlement pursuant to the terms
of the applicable plan or program) shall be entitled to receive (i) the
Executive's base salary pursuant to Section 3.1 earned through the date of the
Executive's death plus the Executive's base salary for the period of vacation
time earned but not taken for the year of the Executive's death, such base
salary to be paid at the normal time for payment of such base salary, (ii) a
bonus for the year of the Executive's death (to be paid within 90 days after the
Executive's death) in an amount equal to a pro rata portion of the average of
the three highest annual bonuses earned by the Executive under the Company's
annual incentive bonus plan for any of the five calendar years preceding the
calendar year of the Executive's death (or, if the Executive was not eligible
for a bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year period
for which the Executive was eligible), with any deferred bonuses counting for
the year earned rather than the year paid and with the pro rata portion being
determined by dividing the number of days of the Executive's employment during
such calendar year up to her death by 365 (366 if a leap year), (iii) any other
compensation and benefits to the extent actually earned by the Executive under
any other benefit plan or program of the Company as of the date of such
termination of employment, such compensation and benefits to be paid at the
normal time for payment of such compensation and benefits, and (iv) any
reimbursement amounts owing under Section 4. In addition, in the event of such
death, the Executive's beneficiaries shall receive any death benefits owed to
them under the Company's employee benefit plans. If the Executive's spouse
and/or dependent children elect to continue coverage under the Company's health
plan following the Executive's death pursuant to COBRA, the Company for a period
of 12 months following the Executive's death will pay the same percentage of the
premium for COBRA coverage for the Executive's spouse and/or dependent children,
as applicable, as the Company would have paid in respect of the
<PAGE>
-8-
Executive's coverage under such plan if the Executive had continued in
employment with the Company for such period.
8. Benefits Upon Termination Without Cause or For Good Reason (No
Change of Control). If (a) the Executive's employment hereunder shall terminate
(i) because of termination by the Company other than for Cause or Permanent and
Total Disability pursuant to Section 5.1, or (ii) because of termination by the
Employee for Good Reason pursuant to Section 6(a), and (b) such termination of
employment does not occur within 12 months following a "Change of Control" of
the Company (as defined in Section 10), the Executive shall be entitled to the
following:
(a) The Company shall pay to the Executive her base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal time for payment of such base salary,
compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
(c) The Company shall pay to the Executive in equal installments
spread over the period of 12 months beginning on the date of the
Executive's termination of employment an amount equal in the aggregate to
the sum of (i) the Executive's annual rate of base salary immediately
preceding her termination of employment, and (ii) the average of her
annual bonuses earned under the Company's annual incentive bonus plan for
the three calendar years preceding her termination of employment (or, if
the Executive was not eligible for a bonus in each of those three calendar
years, then the average of such bonuses for all of the calendar years in
such three-year period for which she was eligible), with any deferred
bonuses counting for the year earned rather than the year paid. Such
installments shall be paid at the times that salary payments are normally
made by the Company.
(d) If the Executive elects to continue coverage under the Company's
health plan pursuant to COBRA, then for the period beginning on the date
of the Executive's termination of employment and ending on the earlier of
(i) the
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date which is 12 months after the date of such termination of employment
or (ii) the date on which the Executive commences substantially full-time
employment as an employee of an employer that offers health benefits, the
Company will pay the same percentage of the Executive's premium for COBRA
coverage for the Executive and, if applicable, her spouse and dependent
children, as the Company paid at the applicable time for coverage under
such plan for actively employed senior executives generally. In addition,
for the period beginning on the date of the Executive's termination of
employment and ending on the earlier of (i) the date which is 12 months
after the date of such termination of employment or (ii) the date on which
the Executive commences substantially full-time employment as an employee
of an employer that offers life insurance benefits, the Company will
continue to provide the life insurance benefits that the Company would
have provided to the Executive if the Executive had continued in
employment with the Company for such period, but only if the Executive
timely pays the portion of the premium for such coverage that senior
executives of the Company generally are required to pay for such coverage,
if any. The Executive shall notify the Company promptly if she, while
eligible for benefits under this subsection (d), commences substantially
full-time employment as an employee of an employer that offers health
and/or life insurance benefits.
(e) The Company will provide the Executive with outplacement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
9. Benefits Upon Termination Without Cause or For Good Reason
(Change of Control). If (a) the Executive's employment hereunder shall terminate
(i) because of termination by the Company other than for Cause or Permanent and
Total Disability pursuant to Section 5.1, or (ii) because of termination by the
Employee for Good Reason pursuant to Section 6(a), and (b) such termination of
employment occurs within 12 months following a "Change of Control" of the
Company (as defined in Section 10), the Executive shall be entitled to the
following:
(a) The Company shall pay to the Executive her base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal
<PAGE>
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time for payment of such base salary, compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
(c) The Company shall pay to the Executive as a severance benefit an
amount equal to two (2) times the sum of (i) her annual rate of base
salary immediately preceding her termination of employment, and (ii) the
average of her three highest annual bonuses earned under the Company's
annual incentive bonus plan for any of the five calendar years preceding
her termination of employment (or, if the Executive was not eligible for a
bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year
period for which the Executive was eligible), with any deferred bonuses
counting for the year earned rather than the year paid. Such severance
benefit shall be paid in a lump sum within 30 days after the date of such
termination of employment.
(d) The Company shall pay to the Executive as a bonus for the year
of termination of her employment an amount equal to a portion (determined
as provided in the next sentence) of the Executive's maximum bonus
opportunity under the Company's annual incentive bonus plan for the
calendar year of termination of the Executive's employment or, if none,
such portion of the bonus awarded to the Executive under the Company's
annual incentive bonus plan for the calendar year immediately preceding
the calendar year of the termination of her employment, with deferred
bonuses counting for the year earned rather than the year paid. Such
portion shall be determined by dividing the number of days of the
Executive's employment during such calendar year up to her termination of
employment by 365 (366 if a leap year). Such payment shall be made in a
lump sum within 30 days after the date of such termination of employment,
and the Executive shall have no right to any further bonuses under said
plan.
(e) During the period of 24 months beginning on the date of the
Executive's termination of employment, the Executive (and, if applicable,
the Executive's spouse and dependent children) shall remain covered by the
medical, dental, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability
plans of the Company that covered the
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Executive immediately prior to her termination of employment as if the
Executive had remained in employment for such period; provided, however,
that the coverage under any such plan is conditioned on the timely payment
by the Executive (or her spouse or dependent children) of the portion of
the premium for such coverage that actively employed senior executives
with the Company generally are required to pay for such coverage. In the
event that the Executive's participation in any such plan is barred, the
Company shall arrange to provide the Executive (and, if applicable, her
spouse and dependent children) with substantially similar benefits (but,
in the case of long-term disability benefits, only if reasonably
commercially available).
(f) The Company shall supplement the benefits payable in respect of
the Executive under the Company's Pension Plan and Supplemental Executive
Retirement Plan (and any successor plans thereto) (collectively, the
"Pension Plans") by paying the difference between (i) the benefits that
the Executive would have been entitled to receive under the Pension Plans
if she had been credited with two additional years of service (but no
additional years of age) for purposes of the benefit accrual formula under
the Pension Plans as of the date of termination of the Executive's
employment and (ii) the benefits that the Executive is entitled to receive
under the Pension Plans determined without regard to this subsection (f).
Such benefits shall be payable in the same form and at the same time as
the benefits under the respective Pension Plans.
(g) Each stock option granted by the Company to the Executive and
outstanding immediately prior to termination of her employment shall be
fully vested and immediately exercisable and may be exercised by the
Executive (or, following her death, by the person or entity to which such
option passes) at any time prior to the expiration date of the applicable
option (determined without regard to any earlier termination of the option
that would otherwise occur by reason of termination of her employment).
Each restricted stock award granted by the Company to the Executive and
outstanding immediately prior to termination of the Executive's employment
shall be fully vested upon such termination of employment.
(h) The Company will pay the Executive a car allowance of $500 per
month for 24 months following termination of the Executive's employment to
replace the Company-
<PAGE>
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leased automobile, which leased automobile will be returned to the Company
by the Executive on the date of termination of the Executive's employment.
(i) The Company will provide the Executive with out-placement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
(j) The Company shall promptly pay all reasonable attorneys' fees
and related expenses incurred by the Executive in seeking to obtain or
enforce any right or benefit under this Agreement or to defend against any
claim or assertion in connection with this Agreement, but only to the
extent the Executive substantially prevails.
10. Change of Control. For the purposes of this Agreement, a "Change
of Control" shall be deemed to have occurred if (a) any person or persons acting
together which would constitute a "group" for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other than
the Company or any subsidiary of the Company) shall beneficially own (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, at least 25% of the
total voting power of all classes of capital stock of the Company entitled to
vote generally in the election of the Board; (b) Current Directors (as herein
defined) shall cease for any reason to constitute at least a majority of the
members of the Board (for this purpose, a "Current Director" shall mean any
member of the Board as of the date hereof and any successor of a Current
Director whose election, or nomination for election by the Company's
shareholders, was approved by at least a majority of the Current Directors then
on the Board); (c) the shareholders of the Company approve (i) a plan of
complete liquidation of the Company or (ii) an agreement providing for the
merger or consolidation of the Company other than a merger or consolidation in
which (x) the holders of the common stock of the Company immediately prior to
the consolidation or merger have, directly or indirectly, at least a majority of
the common stock of the continuing or surviving corporation immediately after
such consolidation or merger or (y) the Board immediately prior to the merger or
consolidation would, immediately after the merger or consolidation, constitute a
majority of the board of directors of the continuing or surviving corporation;
or (d) the shareholders of the Company approve an agreement (or agreements)
providing for the sale or other disposition (in one transaction or a series of
transactions) of all or substantially all of the assets of the Company.
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11. Golden Parachute Excise Tax.
(a) In the event that any payment or benefit received or to be
received by the Executive pursuant to this Agreement or any other plan, program
or arrangement of the Company or any of its affiliates would constitute an
"excess parachute payment" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), then the payments under this
Agreement shall be reduced (by the minimum possible amounts) until no amount
payable to the Executive under this Agreement constitutes an "excess parachute
payment" within the meaning of Section 280G of the Code; provided, however, that
no such reduction shall be made if the net after-tax payment (after taking into
account Federal, state, local or other income and excise taxes) to which the
Executive would otherwise be entitled without such reduction would be greater
than the net after-tax payment (after taking into account Federal, state, local
or other income and excise taxes) to the Executive resulting from the receipt of
such payments with such reduction. If, as a result of subsequent events or
conditions (including a subsequent payment or absence of a subsequent payment
under this Agreement or other plan, program or arrangement of the Company or any
of its affiliates), it is determined that payments under this Agreement have
been reduced by more than the minimum amount required to prevent any payments
from constituting an "excess parachute payment", then an additional payment
shall be promptly made to the Executive in an amount equal to the additional
amount that can be paid without causing any payment to constitute an excess
parachute payment.
(b) All determinations required to be made under this Section 11
shall be made by a nationally recognized independent accounting firm mutually
agreeable to the Company and the Executive (the "Accounting Firm") which shall
provide detailed supporting calculations to the Company and the Executive as
requested by the Company or the Executive. All fees and expenses of the
Accounting Firm shall be borne solely by the Company and shall be paid by the
Company upon demand of the Executive as incurred or billed by the Accounting
Firm. All determinations made by the Accounting Firm pursuant to this Section 11
shall be final and binding upon the Company and the Executive.
(c) To the extent any payment or benefit is to be reduced pursuant
to this Section 11, the severance payment described in Section 8(c) or 9(c) will
first be reduced, then the bonus described in Section 9(d), and then the
supplemental pen-
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sion benefits described in Section 9(f), in each case only to the extent
necessary.
12. Entitlement to Other Benefits. Except as otherwise provided in
this Agreement, this Agreement shall not be construed as limiting in any way any
rights or benefits that the Executive or her spouse, dependents or beneficiaries
may have pursuant to any other plan or program of the Company.
13. Indemnification. The parties agree to execute a separate
Indemnification Agreement in the form attached as Exhibit B.
14. General Provisions.
14.1 No Duty to Seek Employment. The Executive shall not be under
any duty or obligation to seek or accept other employment following termination
of employment, and no amount, payment or benefits due to the Executive hereunder
shall be reduced or suspended if the Executive accepts subsequent employment,
except as expressly set forth herein.
14.2 Deductions and Withholding. All amounts payable or which become
payable under any provision of this Agreement shall be subject to any deductions
authorized by the Executive and any deductions and withholdings required by law.
14.3 Notices. All notices, demands, requests, consents, approvals or
other communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be faxed with a copy deposited in the United
States mail, registered or certified, return receipt requested, postage prepaid,
addressed as follows:
To the Company: Lydall, Inc.
P.O. Box 151
One Colonial Road
Manchester, CT 06045-0151
Attn: Chief Executive Officer
To the Executive: Lisa Krallis-Nixon
2169 New Castle Drive
Winston-Salem, NC 27103
or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
fifth business day following the
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date so mailed or on the date of actual receipt, whichever is earlier.
14.4 No Disparagement. The Executive shall not during the period of
her employment with the Company, nor during the two-year period beginning on the
date of termination of her employment for any reason, disparage the Company or
any of its subsidiaries or affiliates or any of their shareholders, directors,
officers, employees or agents. The Executive agrees that the terms of this
Section 14.4 shall survive the term of this Agreement and the termination of the
Executive's employment.
14.5 Proprietary Information and Inventions. The Lydall Employee
Agreement previously executed by the Executive and attached hereto as Exhibit A
is incorporated by reference in this Agreement, and the Executive agrees to
continue to be bound thereby.
14.6 Covenant to Notify Management. The Executive agrees to abide by
the ethics policies of the Company as well as the Company's other rules,
regulations, policies and procedures. The Executive agrees to comply in full
with all governmental laws and regulations as well as ethics codes applicable.
In the event that the Executive is aware or suspects the Company, or any of its
officers or agents, of violating any such laws, ethics, codes, rules,
regulations, policies or procedures, the Executive agrees to bring all such
actual and suspected violations to the attention of the Company immediately so
that the matter may be properly investigated and appropriate action taken. The
Executive understands that the Executive is precluded from filing a complaint
with any governmental agency or court having jurisdiction over wrongful conduct
unless the Executive has first notified the Company of the facts and permits it
to investigate and correct the concerns.
14.7 Amendments and Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either Party hereto at any time of any breach by the other Party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other Party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
14.8 Beneficial Interests. This Agreement shall inure to the benefit
of and be enforceable by a) the Company's successors and assigns and b) the
Executive's personal and le-
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gal representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amounts are still
payable to her hereunder, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such designee, to the
Executive's estate.
14.9 Successors. The Company will require any successors (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform.
14.10 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any Party without the
prior written consent of the other Party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 14.10, the Company may
assign or delegate its rights, duties and obligations hereunder to any affiliate
or to any person or entity which succeeds to all or substantially all of the
business of the Company or one of its subsidiaries through merger, consolation,
reorganization, or other business combination or by acquisition of all or
substantially all of the assets of the Company or one of its subsidiaries.
14.11 Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut.
14.12 Statute of Limitations. The Executive and the Company hereby
agree that there shall be a one year statute of limitations for the filing of
any requests for arbitration or any lawsuit relating to this Agreement or the
terms or conditions of Executive's employment by the Company. If such a claim is
filed more than one year subsequent to the Executive's last day of employment it
shall be precluded by this provision, regardless of whether or not the claim has
accrued at that time.
14.13 Right to Injunctive and Equitable Relief. The Executive's
obligations under Section 14.4 are of a special and unique character, which
gives them a peculiar value. The Company cannot be reasonably or adequately
compensated for damages in an action at law in the event the Executive breaches
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such obligations. Therefore, the Executive expressly agrees that the Company
shall be entitled to injunctive and other equitable relief without bond or other
security in the event of such breach in addition to any other rights or remedies
which the Company may possess or be entitled to pursue. Furthermore, the
obligations of the Executive and the rights and remedies of the Company under
Section 14.4 and this Section 14.13 are cumulative and in addition to, and not
in lieu of, any obligations, rights, or remedies as created by applicable law.
14.14 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
14.15 Entire Agreement. This Agreement, along with the Lydall
Employee Agreement and the Indemnification Agreement by and between the
Executive and the Company, constitutes the entire agreement of the Parties and
supersedes all prior written or oral and all contemporaneous oral agreements,
understandings, and negotiations between the Parties with respect to the subject
matter hereof. This Agreement may not be changed orally and may only be modified
in writing signed by both Parties. This Agreement, along with the Lydall
Employee Agreement and the Indemnification Agreement, is intended by the Parties
as the final expression of their agreement with respect to such terms as are
included herein and therein and may not be contradicted by evidence of any prior
or contemporaneous agreement. The Parties further intend that this Agreement,
along with the Lydall Employee Agreement and the Indemnification Agreement,
constitutes the complete and exclusive statement of their terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving such
agreements.
14.16 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Employee has hereunto set her
hand as of the day and year first above written.
LYDALL, INC.
By:
------------------------------- ----------
Christopher R. Skomorowski Date
President and Chief
Executive Officer
------------------------------- ----------
Lisa Krallis-Nixon Date
<PAGE>
Exhibit 10.19
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of March,
2000, by and between LYDALL, INC., a Delaware corporation (the "Company"), and
Raymond S. Grupinski, Jr. (the "Executive").
W I T N E S S E T H
WHEREAS, the Company and the Executive (the "Parties") have agreed
to enter into this agreement (the "Agreement) relating to the employment of the
Executive by the Company and/or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:
1. Term of Employment; Termination of Prior Agreement.
(a) The Company and/or one of its subsidiaries agrees to continue to
employ the Executive, and the Executive agrees to remain in the employment of
the Company and/or one of its subsidiaries, in accordance with the terms and
provisions of this Agreement.
(b) The Employment Period under this Agreement shall be the period
commencing as of the date of this Agreement and ending on the date of
termination of the Executive's employment pursuant to Section 5, 6 or 7 below,
whichever is applicable.
(c) Immediately upon the commencement of the Executive's employment
pursuant to the terms of this Agreement, that certain Agreement by and between
the Executive and the Company dated as of February 1, 2000 shall terminate and
shall be of no further force or effect.
2. Duties. It is the intention of the Parties that during the term
of the Executive's employment under this Agreement, the Executive will serve as
Division President of a subsidiary of the Company or in such other senior
management position as the Company shall determine. During the Employment
Period, the Executive will devote his full business time and attention and best
efforts to the affairs of the Company and its
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subsidiaries and his duties as Division President. The Executive will have such
duties as are appropriate to his position as Division President, and will have
such authority as required to enable the Executive to perform these duties.
Consistent with the foregoing, the Executive shall comply with all reasonable
instructions of the Board of Directors of the Company (the "Board").
3. Compensation and Benefits.
3.1 Salary. During the Employment Period, the Company will pay the
Executive a base salary at an initial annual rate of Two Hundred Ten Thousand
Dollars ($210,000). The Company may, in its sole and absolute discretion,
increase the Executive's base salary in light of the Executive's performance,
inflation, changes in the cost of living and other factors deemed relevant by
the Company. The Executive's base salary may not be decreased during the term of
this Agreement. The Chief Executive Officer of the Company shall meet with the
Executive annually to review the Executive's performance, objectives and
compensation, including salary, bonus and stock options, and the Chief Executive
Officer shall then meet with the Compensation and Stock Option Committee of the
Board (the "Compensation Committee") to discuss the same. If the Compensation
Committee determines that any adjustments thereto are appropriate, such
committee shall make a recommendation to the full Board and the Board shall make
such adjustments, if any, as the Board deems appropriate and consistent with
this Agreement. The Executive's base salary will be paid in accordance with the
standard practices for other corporate executives of the Company.
3.2 Bonuses. During the Employment Period, the Executive will be
eligible to receive annually or otherwise such bonus awards, if any, as shall be
determined by the Board in its sole and absolute discretion after receiving the
recommendation of the Compensation Committee.
3.3 Benefit Programs. During the Employment Period, the Executive
will be entitled to participate on substantially the same terms as other senior
executives of the Company in all employee benefit plans and programs of the
Company (subject to any restrictions or eligibility requirements under such
plans and programs) from time to time in effect for the benefit of senior
executives of the Company, including, but not limited to, pension and other
retirement plans, profit sharing plans, stock incentive and annual incentive
bonus plans, group life insurance, hospitalization and surgical and major
medical cov-
<PAGE>
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erages (excluding the Lydall, Inc. Executive Medical Plan), short-term and
long-term disability, and such other benefits as are or may be made available
from time to time to senior executives of the Company.
3.4 Vacations and Holidays. During the Employment Period, the
Executive will be entitled to vacation leave of three (3) weeks per year at full
pay or such greater vacation benefits as may be provided for by the Company's
vacation policies applicable to senior executives. The Executive will be
entitled to such holidays as are established by the Company for all employees.
3.5 Automobile. During the Employment Period, the Company will
provide the Executive with an automobile in accordance with Company policy.
4. Business Expenses. The Executive will be entitled to prompt
reimbursement for all reasonable, documented and necessary expenses incurred by
the Executive in performing his services hereunder, provided the Executive
properly accounts therefor in accordance with the policies and procedures
established by the Company.
5. Termination of Employment by the Company.
5.1 Involuntary Termination by the Company Other Than For Permanent
and Total Disability or Cause. The Company may terminate the Executive's
employment at any time other than (i) by reason of the Executive's Permanent and
Total Disability (as defined in Section 5.2) or (ii) for Cause (as defined in
Section 5.3), by giving the Executive a written notice of termination at least
30 days before the date of termination (or such lesser notice period as the
Executive may agree to). In the event of such a termination of employment
pursuant to this Section 5.1, the Executive shall be entitled to receive (i) the
benefits described in Section 8 if such termination of employment does not occur
within 12 months following a "Change of Control" (as defined in Section 10), or
(ii) the benefits described in Section 9 if such termination of employment
occurs within 12 months following a "Change of Control" (as defined in Section
10).
5.2 Termination Due to Permanent and Total Disability. If the
Executive incurs a Permanent and Total Disability, as defined below, the Company
may terminate the Executive's employment by giving the Executive written notice
of termination at least 30 days before the date of such termination (or such
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lesser notice period as the Executive may agree to). In the event of such
termination of the Executive's employment because of Permanent and Total
Disability, the Executive shall be entitled to receive (i) his base salary
pursuant to Section 3.1 through the date which is twelve months following the
date of such termination of employment, reduced by any amounts paid to the
Executive under any disability program maintained by the Company, such base
salary to be paid at the normal time for the payment of such base salary, (ii) a
bonus for the year of termination of employment and for the next succeeding year
(to be paid at the normal time for payment of such bonuses) in an amount equal
to the average of the three highest annual bonuses earned by the Executive under
the Company's annual incentive bonus plan for any of the five calendar years
preceding the calendar year of his termination of employment (or, if the
Executive was not eligible for a bonus for at least three calendar years in such
five-year period, then the average of such bonuses for all of the calendar years
in such five-year period for which the Executive was eligible), with any
deferred bonuses counting for the year earned rather than the year paid; (iii)
any other compensation and benefits to the extent actually earned by the
Executive under any other benefit plan or program of the Company as of the date
of such termination of employment, such compensation and benefits to be paid at
the normal time for payment of such compensation and benefits, and (iv) any
reimbursement amounts owing under Section 4. In addition, if the Executive
elects to continue coverage under the Company's health plan pursuant to COBRA,
the Company for a period of twelve months following termination of the
Executive's employment by reason of Permanent and Total Disability will pay the
same percentage of the Executive's premium for COBRA coverage for the Executive
and, if applicable, his spouse and dependent children, as the Company paid at
the applicable time for coverage under such plan for actively employed senior
executives generally. For the period of twelve months following the termination
of the Executive's employment by reason of Permanent and Total Disability, the
Company will continue to provide the life insurance benefits that the Company
would have provided to the Executive if the Executive had continued in
employment with the Company for such period, but only if the Executive timely
pays the portion of the premium for such coverage that senior executives of the
Company generally are required to pay for such coverage, if any. For purposes of
this Agreement, the Executive shall be considered to have incurred a Permanent
and Total Disability if and only if the Executive has incurred a disability
entitling the Executive to disability benefits under the Company's long-term
disability plan.
<PAGE>
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5.3 Termination for Cause. The Company may terminate the Executive's
employment immediately for Cause for any of the following reasons: (i) an act or
acts of dishonesty or fraud on the part of the Executive resulting or intended
to result directly or indirectly in substantial gain or personal enrichment to
which the Executive was not legally entitled at the expense of the Company or
any of its subsidiaries; (ii) a willful material breach by the Executive of his
duties or responsibilities under this Agreement resulting in demonstrably
material injury to the Company or any of its subsidiaries; (iii) the Executive's
conviction of a felony or any crime involving moral turpitude, (iv) habitual
neglect or insubordination (defined as refusal to execute or carry out
directions from the Board or its duly appointed designees) where the Executive
has been given written notice of the acts or omissions constituting such neglect
or insubordination and the Executive has failed to cure such conduct, where
susceptible to cure, within thirty days following such notice, or (v) a material
breach by the Executive of any of his obligations under the Lydall Employee
Agreement executed by the Executive and attached hereto as Exhibit A. The
Company shall exercise its right to terminate the Executive's employment for
Cause by giving the Executive written notice of termination specifying in
reasonable detail the circumstances constituting such Cause. In the event of
such termination of the Executive's employment for Cause, the Executive shall be
entitled to receive only (i) his base salary pursuant to Section 3.1 earned
through the date of such termination of employment plus his base salary for the
period of any vacation time earned but not taken for the year of termination of
employment, such base salary to be paid at the normal time for payment of such
base salary, (ii) any other compensation and benefits to the extent actually
earned by the Executive under any other benefit plan or program of the Company
as of the date of such termination of employment, such compensation and benefits
to be paid and at the normal time for payment of such compensation and benefits
and (iii) any reimbursement amounts owing under Section 4.
6. Termination of Employment by the Executive.
(a) Good Reason. The Executive may terminate his employment for Good
Reason by giving the Company a written notice of termination at least 30 days
before the date of such termination (or such lesser notice period as the Company
may agree to) specifying in reasonable detail the circumstances constituting
such Good Reason. In the event of the Executive's termination of his employment
for Good Reason, the Executive shall be entitled to receive (i) the benefits
described in Sec-
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tion 8 if such termination of employment does not occur within 12 months
following a "Change of Control" (as defined in Section 10), or (ii) the benefits
described in Section 9 if such termination of employment occurs within 12 months
following a "Change of Control" (as defined in Section 10). For purposes of this
Agreement, Good Reason shall mean (i) a significant reduction in the scope of
the Executive's authority, functions, duties or responsibilities from that which
is contemplated by this Agreement, (ii) any reduction in the Executive's base
salary, (iii) a significant reduction in the employee benefits provided to the
Executive (excluding the Lydall, Inc. Executive Medical Plan) other than in
connection with an across-the-board reduction similarly affecting substantially
all senior executives of the Company, or (iv) any material breach by the Company
of any provision of this Agreement without the Executive having committed any
material breach of the Executive's obligations hereunder or under the Lydall
Employee Agreement which breach is not cured within thirty days following
written notice thereof to the Company of such breach. In addition, in the case
of a termination of employment within 12 months following a "Change of Control"
(as defined in Section 10), Good Reason shall also include the relocation of the
Executive's office location to a location more than 50 miles away from the
Executive's then current principal place of employment. If an event constituting
a ground for termination of employment for Good Reason occurs, and the Executive
fails to give notice of termination within 90 days after the occurrence of such
event, the Executive shall be deemed to have waived his right to terminate
employment for Good Reason in connection with such event (but not for any other
event for which the 90-day period has not expired).
(b) Other. The Executive may terminate his employment at any time
and for any reason, other than pursuant to subsection (a) above, by giving the
Company a written notice of termination to that effect at least 30 days before
the date of termination (or such lesser notice period as the Company may agree
to); provided, however, that the Company following receipt of such notice from
the Executive may elect to have the Executive's employment terminate immediately
following its receipt of such notice. In the event of the Executive's
termination of his employment pursuant to this subsection (b), the Executive
shall be entitled to receive only (i) his base salary pursuant to Section 3.1
earned through the date of such termination of employment plus his base salary
for the period of vacation time earned but not taken for the year of termination
of employment, such base salary to be paid at the normal time for payment of
such base salary, (ii) any other compensation and
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benefits to the extent actually earned by the Executive under any other benefit
plan or program of the Company as of the date of such termination of employment,
such compensation and benefits to be paid at the normal time for payment of such
compensation and benefits, and (iii) any reimbursement amounts owing under
Section 4.
7. Termination of Employment By Death. In the event of the death of
the Executive during the course of his employment hereunder, the Executive's
estate (or other person or entity having such entitlement pursuant to the terms
of the applicable plan or program) shall be entitled to receive (i) the
Executive's base salary pursuant to Section 3.1 earned through the date of the
Executive's death plus the Executive's base salary for the period of vacation
time earned but not taken for the year of the Executive's death, such base
salary to be paid at the normal time for payment of such base salary, (ii) a
bonus for the year of the Executive's death (to be paid within 90 days after the
Executive's death) in an amount equal to a pro rata portion of the average of
the three highest annual bonuses earned by the Executive under the Company's
annual incentive bonus plan for any of the five calendar years preceding the
calendar year of the Executive's death (or, if the Executive was not eligible
for a bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year period
for which the Executive was eligible), with any deferred bonuses counting for
the year earned rather than the year paid and with the pro rata portion being
determined by dividing the number of days of the Executive's employment during
such calendar year up to his death by 365 (366 if a leap year), (iii) any other
compensation and benefits to the extent actually earned by the Executive under
any other benefit plan or program of the Company as of the date of such
termination of employment, such compensation and benefits to be paid at the
normal time for payment of such compensation and benefits, and (iv) any
reimbursement amounts owing under Section 4. In addition, in the event of such
death, the Executive's beneficiaries shall receive any death benefits owed to
them under the Company's employee benefit plans. If the Executive's spouse
and/or dependent children elect to continue coverage under the Company's health
plan following the Executive's death pursuant to COBRA, the Company for a period
of 12 months following the Executive's death will pay the same percentage of the
premium for COBRA coverage for the Executive's spouse and/or dependent children,
as applicable, as the Company would have paid in respect of the
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Executive's coverage under such plan if the Executive had continued in
employment with the Company for such period.
8. Benefits Upon Termination Without Cause or For Good Reason (No
Change of Control). If (a) the Executive's employment hereunder shall terminate
(i) because of termination by the Company other than for Cause or Permanent and
Total Disability pursuant to Section 5.1, or (ii) because of termination by the
Employee for Good Reason pursuant to Section 6(a), and (b) such termination of
employment does not occur within 12 months following a "Change of Control" of
the Company (as defined in Section 10), the Executive shall be entitled to the
following:
(a) The Company shall pay to the Executive his base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal time for payment of such base salary,
compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
(c) The Company shall pay to the Executive in equal installments
spread over the period of 12 months beginning on the date of the
Executive's termination of employment an amount equal in the aggregate to
the sum of (i) the Executive's annual rate of base salary immediately
preceding his termination of employment, and (ii) the average of his
annual bonuses earned under the Company's annual incentive bonus plan for
the three calendar years preceding his termination of employment (or, if
the Executive was not eligible for a bonus in each of those three calendar
years, then the average of such bonuses for all of the calendar years in
such three-year period for which he was eligible), with any deferred
bonuses counting for the year earned rather than the year paid. Such
installments shall be paid at the times that salary payments are normally
made by the Company.
(d) If the Executive elects to continue coverage under the Company's
health plan pursuant to COBRA, then for the period beginning on the date
of the Executive's termination of employment and ending on the earlier of
(i) the
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date which is 12 months after the date of such termination of employment
or (ii) the date on which the Executive commences substantially full-time
employment as an employee of an employer that offers health benefits, the
Company will pay the same percentage of the Executive's premium for COBRA
coverage for the Executive and, if applicable, his spouse and dependent
children, as the Company paid at the applicable time for coverage under
such plan for actively employed senior executives generally. In addition,
for the period beginning on the date of the Executive's termination of
employment and ending on the earlier of (i) the date which is 12 months
after the date of such termination of employment or (ii) the date on which
the Executive commences substantially full-time employment as an employee
of an employer that offers life insurance benefits, the Company will
continue to provide the life insurance benefits that the Company would
have provided to the Executive if the Executive had continued in
employment with the Company for such period, but only if the Executive
timely pays the portion of the premium for such coverage that senior
executives of the Company generally are required to pay for such coverage,
if any. The Executive shall notify the Company promptly if he, while
eligible for benefits under this subsection (d), commences substantially
full-time employment as an employee of an employer that offers health
and/or life insurance benefits.
(e) The Company will provide the Executive with outplacement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
9. Benefits Upon Termination Without Cause or For Good Reason
(Change of Control). If (a) the Executive's employment hereunder shall terminate
(i) because of termination by the Company other than for Cause or Permanent and
Total Disability pursuant to Section 5.1, or (ii) because of termination by the
Employee for Good Reason pursuant to Section 6(a), and (b) such termination of
employment occurs within 12 months following a "Change of Control" of the
Company (as defined in Section 10), the Executive shall be entitled to the
following:
(a) The Company shall pay to the Executive his base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal
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time for payment of such base salary, compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
(c) The Company shall pay to the Executive as a severance benefit an
amount equal to two (2) times the sum of (i) his annual rate of base
salary immediately preceding his termination of employment, and (ii) the
average of his three highest annual bonuses earned under the Company's
annual incentive bonus plan for any of the five calendar years preceding
his termination of employment (or, if the Executive was not eligible for a
bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year
period for which the Executive was eligible), with any deferred bonuses
counting for the year earned rather than the year paid. Such severance
benefit shall be paid in a lump sum within 30 days after the date of such
termination of employment.
(d) The Company shall pay to the Executive as a bonus for the year
of termination of his employment an amount equal to a portion (determined
as provided in the next sentence) of the Executive's maximum bonus
opportunity under the Company's annual incentive bonus plan for the
calendar year of termination of the Executive's employment or, if none,
such portion of the bonus awarded to the Executive under the Company's
annual incentive bonus plan for the calendar year immediately preceding
the calendar year of the termination of his employment, with deferred
bonuses counting for the year earned rather than the year paid. Such
portion shall be determined by dividing the number of days of the
Executive's employment during such calendar year up to his termination of
employment by 365 (366 if a leap year). Such payment shall be made in a
lump sum within 30 days after the date of such termination of employment,
and the Executive shall have no right to any further bonuses under said
plan.
(e) During the period of 24 months beginning on the date of the
Executive's termination of employment, the Executive (and, if applicable,
the Executive's spouse and dependent children) shall remain covered by the
medical, dental, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability
plans of the Company that covered the
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Executive immediately prior to his termination of employment as if the
Executive had remained in employment for such period; provided, however,
that the coverage under any such plan is conditioned on the timely payment
by the Executive (or his spouse or dependent children) of the portion of
the premium for such coverage that actively employed senior executives
with the Company generally are required to pay for such coverage. In the
event that the Executive's participation in any such plan is barred, the
Company shall arrange to provide the Executive (and, if applicable, his
spouse and dependent children) with substantially similar benefits (but,
in the case of long-term disability benefits, only if reasonably
commercially available).
(f) The Company shall supplement the benefits payable in respect of
the Executive under the Company's Pension Plan and Supplemental Executive
Retirement Plan (and any successor plans thereto) (collectively, the
"Pension Plans") by paying the difference between (i) the benefits that
the Executive would have been entitled to receive under the Pension Plans
if he had been credited with two additional years of service (but no
additional years of age) for purposes of the benefit accrual formula under
the Pension Plans as of the date of termination of the Executive's
employment and (ii) the benefits that the Executive is entitled to receive
under the Pension Plans determined without regard to this subsection (f).
Such benefits shall be payable in the same form and at the same time as
the benefits under the respective Pension Plans.
(g) Each stock option granted by the Company to the Executive and
outstanding immediately prior to termination of his employment shall be
fully vested and immediately exercisable and may be exercised by the
Executive (or, following his death, by the person or entity to which such
option passes) at any time prior to the expiration date of the applicable
option (determined without regard to any earlier termination of the option
that would otherwise occur by reason of termination of his employment).
Each restricted stock award granted by the Company to the Executive and
outstanding immediately prior to termination of the Executive's employment
shall be fully vested upon such termination of employment.
(h) The Company will pay the Executive a car allowance of $500 per
month for 24 months following termination of the Executive's employment to
replace the Company-
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leased automobile, which leased automobile will be returned to the Company
by the Executive on the date of termination of the Executive's employment.
(i) The Company will provide the Executive with out-placement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
(j) The Company shall promptly pay all reasonable attorneys' fees
and related expenses incurred by the Executive in seeking to obtain or
enforce any right or benefit under this Agreement or to defend against any
claim or assertion in connection with this Agreement, but only to the
extent the Executive substantially prevails.
10. Change of Control. For the purposes of this Agreement, a "Change
of Control" shall be deemed to have occurred if (a) any person or persons acting
together which would constitute a "group" for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other than
the Company or any subsidiary of the Company) shall beneficially own (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, at least 25% of the
total voting power of all classes of capital stock of the Company entitled to
vote generally in the election of the Board; (b) Current Directors (as herein
defined) shall cease for any reason to constitute at least a majority of the
members of the Board (for this purpose, a "Current Director" shall mean any
member of the Board as of the date hereof and any successor of a Current
Director whose election, or nomination for election by the Company's
shareholders, was approved by at least a majority of the Current Directors then
on the Board); (c) the shareholders of the Company approve (i) a plan of
complete liquidation of the Company or (ii) an agreement providing for the
merger or consolidation of the Company other than a merger or consolidation in
which (x) the holders of the common stock of the Company immediately prior to
the consolidation or merger have, directly or indirectly, at least a majority of
the common stock of the continuing or surviving corporation immediately after
such consolidation or merger or (y) the Board immediately prior to the merger or
consolidation would, immediately after the merger or consolidation, constitute a
majority of the board of directors of the continuing or surviving corporation;
or (d) the shareholders of the Company approve an agreement (or agreements)
providing for the sale or other disposition (in one transaction or a series of
transactions) of all or substantially all of the assets of the Company.
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11. Golden Parachute Excise Tax.
(a) In the event that any payment or benefit received or to be
received by the Executive pursuant to this Agreement or any other plan, program
or arrangement of the Company or any of its affiliates would constitute an
"excess parachute payment" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), then the payments under this
Agreement shall be reduced (by the minimum possible amounts) until no amount
payable to the Executive under this Agreement constitutes an "excess parachute
payment" within the meaning of Section 280G of the Code; provided, however, that
no such reduction shall be made if the net after-tax payment (after taking into
account Federal, state, local or other income and excise taxes) to which the
Executive would otherwise be entitled without such reduction would be greater
than the net after-tax payment (after taking into account Federal, state, local
or other income and excise taxes) to the Executive resulting from the receipt of
such payments with such reduction. If, as a result of subsequent events or
conditions (including a subsequent payment or absence of a subsequent payment
under this Agreement or other plan, program or arrangement of the Company or any
of its affiliates), it is determined that payments under this Agreement have
been reduced by more than the minimum amount required to prevent any payments
from constituting an "excess parachute payment", then an additional payment
shall be promptly made to the Executive in an amount equal to the additional
amount that can be paid without causing any payment to constitute an excess
parachute payment.
(b) All determinations required to be made under this Section 11
shall be made by a nationally recognized independent accounting firm mutually
agreeable to the Company and the Executive (the "Accounting Firm") which shall
provide detailed supporting calculations to the Company and the Executive as
requested by the Company or the Executive. All fees and expenses of the
Accounting Firm shall be borne solely by the Company and shall be paid by the
Company upon demand of the Executive as incurred or billed by the Accounting
Firm. All determinations made by the Accounting Firm pursuant to this Section 11
shall be final and binding upon the Company and the Executive.
(c) To the extent any payment or benefit is to be reduced pursuant
to this Section 11, the severance payment described in Section 8(c) or 9(c) will
first be reduced, then the bonus described in Section 9(d), and then the
supplemental pen-
<PAGE>
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sion benefits described in Section 9(f), in each case only to the extent
necessary.
12. Entitlement to Other Benefits. Except as otherwise provided in
this Agreement, this Agreement shall not be construed as limiting in any way any
rights or benefits that the Executive or his spouse, dependents or beneficiaries
may have pursuant to any other plan or program of the Company.
13. Indemnification. The parties agree to execute a separate
Indemnification Agreement in the form attached as Exhibit B.
14. General Provisions.
14.1 No Duty to Seek Employment. The Executive shall not be under
any duty or obligation to seek or accept other employment following termination
of employment, and no amount, payment or benefits due to the Executive hereunder
shall be reduced or suspended if the Executive accepts subsequent employment,
except as expressly set forth herein.
14.2 Deductions and Withholding. All amounts payable or which become
payable under any provision of this Agreement shall be subject to any deductions
authorized by the Executive and any deductions and withholdings required by law.
14.3 Notices. All notices, demands, requests, consents, approvals or
other communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be faxed with a copy deposited in the United
States mail, registered or certified, return receipt requested, postage prepaid,
addressed as follows:
To the Company: Lydall, Inc.
P.O. Box 151
One Colonial Road
Manchester, CT 06045-0151
Attn: Chief Executive Officer
To the Executive: Raymond S. Grupinski, Jr.
159 Aviara Drive
Advance, NC 27006
or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
fifth business day following the
<PAGE>
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date so mailed or on the date of actual receipt, whichever is earlier.
14.4 No Disparagement. The Executive shall not during the period of
his employment with the Company, nor during the two-year period beginning on the
date of termination of his employment for any reason, disparage the Company or
any of its subsidiaries or affiliates or any of their shareholders, directors,
officers, employees or agents. The Executive agrees that the terms of this
Section 14.4 shall survive the term of this Agreement and the termination of the
Executive's employment.
14.5 Proprietary Information and Inventions. The Lydall Employee
Agreement previously executed by the Executive and attached hereto as Exhibit A
is incorporated by reference in this Agreement, and the Executive agrees to
continue to be bound thereby.
14.6 Covenant to Notify Management. The Executive agrees to abide by
the ethics policies of the Company as well as the Company's other rules,
regulations, policies and procedures. The Executive agrees to comply in full
with all governmental laws and regulations as well as ethics codes applicable.
In the event that the Executive is aware or suspects the Company, or any of its
officers or agents, of violating any such laws, ethics, codes, rules,
regulations, policies or procedures, the Executive agrees to bring all such
actual and suspected violations to the attention of the Company immediately so
that the matter may be properly investigated and appropriate action taken. The
Executive understands that the Executive is precluded from filing a complaint
with any governmental agency or court having jurisdiction over wrongful conduct
unless the Executive has first notified the Company of the facts and permits it
to investigate and correct the concerns.
14.7 Amendments and Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either Party hereto at any time of any breach by the other Party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other Party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
14.8 Beneficial Interests. This Agreement shall inure to the benefit
of and be enforceable by a) the Company's successors and assigns and b) the
Executive's personal and le-
<PAGE>
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gal representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amounts are still
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such designee, to the
Executive's estate.
14.9 Successors. The Company will require any successors (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform.
14.10 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any Party without the
prior written consent of the other Party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 14.10, the Company may
assign or delegate its rights, duties and obligations hereunder to any affiliate
or to any person or entity which succeeds to all or substantially all of the
business of the Company or one of its subsidiaries through merger, consolation,
reorganization, or other business combination or by acquisition of all or
substantially all of the assets of the Company or one of its subsidiaries.
14.11 Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut.
14.12 Statute of Limitations. The Executive and the Company hereby
agree that there shall be a one year statute of limitations for the filing of
any requests for arbitration or any lawsuit relating to this Agreement or the
terms or conditions of Executive's employment by the Company. If such a claim is
filed more than one year subsequent to the Executive's last day of employment it
shall be precluded by this provision, regardless of whether or not the claim has
accrued at that time.
14.13 Right to Injunctive and Equitable Relief. The Executive's
obligations under Section 14.4 are of a special and unique character, which
gives them a peculiar value. The Company cannot be reasonably or adequately
compensated for damages in an action at law in the event the Executive breaches
<PAGE>
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such obligations. Therefore, the Executive expressly agrees that the Company
shall be entitled to injunctive and other equitable relief without bond or other
security in the event of such breach in addition to any other rights or remedies
which the Company may possess or be entitled to pursue. Furthermore, the
obligations of the Executive and the rights and remedies of the Company under
Section 14.4 and this Section 14.13 are cumulative and in addition to, and not
in lieu of, any obligations, rights, or remedies as created by applicable law.
14.14 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
14.15 Entire Agreement. This Agreement, along with the Lydall
Employee Agreement and the Indemnification Agreement by and between the
Executive and the Company, constitutes the entire agreement of the Parties and
supersedes all prior written or oral and all contemporaneous oral agreements,
understandings, and negotiations between the Parties with respect to the subject
matter hereof. This Agreement may not be changed orally and may only be modified
in writing signed by both Parties. This Agreement, along with the Lydall
Employee Agreement and the Indemnification Agreement, is intended by the Parties
as the final expression of their agreement with respect to such terms as are
included herein and therein and may not be contradicted by evidence of any prior
or contemporaneous agreement. The Parties further intend that this Agreement,
along with the Lydall Employee Agreement and the Indemnification Agreement,
constitutes the complete and exclusive statement of their terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving such
agreements.
14.16 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute one and the same instrument.
<PAGE>
-18-
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Employee has hereunto set his
hand as of the day and year first above written.
LYDALL, INC.
By:
------------------------------ ---------
Christopher R. Skomorowski Date
President and Chief
Executive Officer
------------------------------ ---------
Raymond S. Grupinski, Jr. Date
<PAGE>
Exhibit 10.20
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of March,
2000, by and between LYDALL, INC., a Delaware corporation (the "Company"), and
Bill W. Franks (the "Executive").
W I T N E S S E T H
WHEREAS, the Company and the Executive (the "Parties") have agreed
to enter into this agreement (the "Agreement) relating to the employment of the
Executive by the Company and/or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:
1. Term of Employment; Termination of Prior Agreement.
(a) The Company and/or one of its subsidiaries agrees to continue to
employ the Executive, and the Executive agrees to remain in the employment of
the Company and/or one of its subsidiaries, in accordance with the terms and
provisions of this Agreement.
(b) The Employment Period under this Agreement shall be the period
commencing as of the date of this Agreement and ending on the date of
termination of the Executive's employment pursuant to Section 5, 6 or 7 below,
whichever is applicable.
(c) Immediately upon the commencement of the Executive's employment
pursuant to the terms of this Agreement, that certain Agreement by and between
the Executive and the Company dated as of February 1, 2000 shall terminate and
shall be of no further force or effect.
2. Duties. It is the intention of the Parties that during the term
of the Executive's employment under this Agreement, the Executive will serve as
Division President of a subsidiary of the Company or in such other senior
management position as the Company shall determine. During the Employment
Period, the Executive will devote his full business time and attention and best
efforts to the affairs of the Company and its
<PAGE>
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subsidiaries and his duties as Division President. The Executive will have such
duties as are appropriate to his position as Division President, and will have
such authority as required to enable the Executive to perform these duties.
Consistent with the foregoing, the Executive shall comply with all reasonable
instructions of the Board of Directors of the Company (the "Board").
3. Compensation and Benefits.
3.1 Salary. During the Employment Period, the Company will pay the
Executive a base salary at an initial annual rate of One Hundred Seventy-Five
Thousand Dollars ($175,000). The Company may, in its sole and absolute
discretion, increase the Executive's base salary in light of the Executive's
performance, inflation, changes in the cost of living and other factors deemed
relevant by the Company. The Executive's base salary may not be decreased during
the term of this Agreement. The Chief Executive Officer of the Company shall
meet with the Executive annually to review the Executive's performance,
objectives and compensation, including salary, bonus and stock options, and the
Chief Executive Officer shall then meet with the Compensation and Stock Option
Committee of the Board (the "Compensation Committee") to discuss the same. If
the Compensation Committee determines that any adjustments thereto are
appropriate, such committee shall make a recommendation to the full Board and
the Board shall make such adjustments, if any, as the Board deems appropriate
and consistent with this Agreement. The Executive's base salary will be paid in
accordance with the standard practices for other corporate executives of the
Company.
3.2 Bonuses. During the Employment Period, the Executive will be
eligible to receive annually or otherwise such bonus awards, if any, as shall be
determined by the Board in its sole and absolute discretion after receiving the
recommendation of the Compensation Committee.
3.3 Benefit Programs. During the Employment Period, the Executive
will be entitled to participate on substantially the same terms as other senior
executives of the Company in all employee benefit plans and programs of the
Company (subject to any restrictions or eligibility requirements under such
plans and programs) from time to time in effect for the benefit of senior
executives of the Company, including, but not limited to, pension and other
retirement plans, profit sharing plans, stock incentive and annual incentive
bonus plans, group life insurance, hospitalization and surgical and major
medical cov-
<PAGE>
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erages (excluding the Lydall, Inc. Executive Medical Plan), short-term and
long-term disability, and such other benefits as are or may be made available
from time to time to senior executives of the Company.
3.4 Vacations and Holidays. During the Employment Period, the
Executive will be entitled to vacation leave of five (5) weeks per year at full
pay or such greater vacation benefits as may be provided for by the Company's
vacation policies applicable to senior executives. The Executive will be
entitled to such holidays as are established by the Company for all employees.
3.5 Automobile. During the Employment Period, the Company will
provide the Executive with an automobile in accordance with Company policy.
4. Business Expenses. The Executive will be entitled to prompt
reimbursement for all reasonable, documented and necessary expenses incurred by
the Executive in performing his services hereunder, provided the Executive
properly accounts therefor in accordance with the policies and procedures
established by the Company.
5. Termination of Employment by the Company.
5.1 Involuntary Termination by the Company Other Than For Permanent
and Total Disability or Cause. The Company may terminate the Executive's
employment at any time other than (i) by reason of the Executive's Permanent and
Total Disability (as defined in Section 5.2) or (ii) for Cause (as defined in
Section 5.3), by giving the Executive a written notice of termination at least
30 days before the date of termination (or such lesser notice period as the
Executive may agree to). In the event of such a termination of employment
pursuant to this Section 5.1, the Executive shall be entitled to receive (i) the
benefits described in Section 8 if such termination of employment does not occur
within 12 months following a "Change of Control" (as defined in Section 10), or
(ii) the benefits described in Section 9 if such termination of employment
occurs within 12 months following a "Change of Control" (as defined in Section
10).
5.2 Termination Due to Permanent and Total Disability. If the
Executive incurs a Permanent and Total Disability, as defined below, the Company
may terminate the Executive's employment by giving the Executive written notice
of termination at least 30 days before the date of such termination (or such
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lesser notice period as the Executive may agree to). In the event of such
termination of the Executive's employment because of Permanent and Total
Disability, the Executive shall be entitled to receive (i) his base salary
pursuant to Section 3.1 through the date which is twelve months following the
date of such termination of employment, reduced by any amounts paid to the
Executive under any disability program maintained by the Company, such base
salary to be paid at the normal time for the payment of such base salary, (ii) a
bonus for the year of termination of employment and for the next succeeding year
(to be paid at the normal time for payment of such bonuses) in an amount equal
to the average of the three highest annual bonuses earned by the Executive under
the Company's annual incentive bonus plan for any of the five calendar years
preceding the calendar year of his termination of employment (or, if the
Executive was not eligible for a bonus for at least three calendar years in such
five-year period, then the average of such bonuses for all of the calendar years
in such five-year period for which the Executive was eligible), with any
deferred bonuses counting for the year earned rather than the year paid; (iii)
any other compensation and benefits to the extent actually earned by the
Executive under any other benefit plan or program of the Company as of the date
of such termination of employment, such compensation and benefits to be paid at
the normal time for payment of such compensation and benefits, and (iv) any
reimbursement amounts owing under Section 4. In addition, if the Executive
elects to continue coverage under the Company's health plan pursuant to COBRA,
the Company for a period of twelve months following termination of the
Executive's employment by reason of Permanent and Total Disability will pay the
same percentage of the Executive's premium for COBRA coverage for the Executive
and, if applicable, his spouse and dependent children, as the Company paid at
the applicable time for coverage under such plan for actively employed senior
executives generally. For the period of twelve months following the termination
of the Executive's employment by reason of Permanent and Total Disability, the
Company will continue to provide the life insurance benefits that the Company
would have provided to the Executive if the Executive had continued in
employment with the Company for such period, but only if the Executive timely
pays the portion of the premium for such coverage that senior executives of the
Company generally are required to pay for such coverage, if any. For purposes of
this Agreement, the Executive shall be considered to have incurred a Permanent
and Total Disability if and only if the Executive has incurred a disability
entitling the Executive to disability benefits under the Company's long-term
disability plan.
<PAGE>
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5.3 Termination for Cause. The Company may terminate the Executive's
employment immediately for Cause for any of the following reasons: (i) an act or
acts of dishonesty or fraud on the part of the Executive resulting or intended
to result directly or indirectly in substantial gain or personal enrichment to
which the Executive was not legally entitled at the expense of the Company or
any of its subsidiaries; (ii) a willful material breach by the Executive of his
duties or responsibilities under this Agreement resulting in demonstrably
material injury to the Company or any of its subsidiaries; (iii) the Executive's
conviction of a felony or any crime involving moral turpitude, (iv) habitual
neglect or insubordination (defined as refusal to execute or carry out
directions from the Board or its duly appointed designees) where the Executive
has been given written notice of the acts or omissions constituting such neglect
or insubordination and the Executive has failed to cure such conduct, where
susceptible to cure, within thirty days following such notice, or (v) a material
breach by the Executive of any of his obligations under the Lydall Employee
Agreement executed by the Executive and attached hereto as Exhibit A. The
Company shall exercise its right to terminate the Executive's employment for
Cause by giving the Executive written notice of termination specifying in
reasonable detail the circumstances constituting such Cause. In the event of
such termination of the Executive's employment for Cause, the Executive shall be
entitled to receive only (i) his base salary pursuant to Section 3.1 earned
through the date of such termination of employment plus his base salary for the
period of any vacation time earned but not taken for the year of termination of
employment, such base salary to be paid at the normal time for payment of such
base salary, (ii) any other compensation and benefits to the extent actually
earned by the Executive under any other benefit plan or program of the Company
as of the date of such termination of employment, such compensation and benefits
to be paid and at the normal time for payment of such compensation and benefits
and (iii) any reimbursement amounts owing under Section 4.
6. Termination of Employment by the Executive.
(a) Good Reason. The Executive may terminate his employment for Good
Reason by giving the Company a written notice of termination at least 30 days
before the date of such termination (or such lesser notice period as the Company
may agree to) specifying in reasonable detail the circumstances constituting
such Good Reason. In the event of the Executive's termination of his employment
for Good Reason, the Executive shall be entitled to receive (i) the benefits
described in Sec-
<PAGE>
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tion 8 if such termination of employment does not occur within 12 months
following a "Change of Control" (as defined in Section 10), or (ii) the benefits
described in Section 9 if such termination of employment occurs within 12 months
following a "Change of Control" (as defined in Section 10). For purposes of this
Agreement, Good Reason shall mean (i) a significant reduction in the scope of
the Executive's authority, functions, duties or responsibilities from that which
is contemplated by this Agreement, (ii) any reduction in the Executive's base
salary, (iii) a significant reduction in the employee benefits provided to the
Executive (excluding the Lydall, Inc. Executive Medical Plan) other than in
connection with an across-the-board reduction similarly affecting substantially
all senior executives of the Company, or (iv) any material breach by the Company
of any provision of this Agreement without the Executive having committed any
material breach of the Executive's obligations hereunder or under the Lydall
Employee Agreement which breach is not cured within thirty days following
written notice thereof to the Company of such breach. In addition, in the case
of a termination of employment within 12 months following a "Change of Control"
(as defined in Section 10), Good Reason shall also include the relocation of the
Executive's office location to a location more than 50 miles away from the
Executive's then current principal place of employment. If an event constituting
a ground for termination of employment for Good Reason occurs, and the Executive
fails to give notice of termination within 90 days after the occurrence of such
event, the Executive shall be deemed to have waived his right to terminate
employment for Good Reason in connection with such event (but not for any other
event for which the 90-day period has not expired).
(b) Other. The Executive may terminate his employment at any time
and for any reason, other than pursuant to subsection (a) above, by giving the
Company a written notice of termination to that effect at least 30 days before
the date of termination (or such lesser notice period as the Company may agree
to); provided, however, that the Company following receipt of such notice from
the Executive may elect to have the Executive's employment terminate immediately
following its receipt of such notice. In the event of the Executive's
termination of his employment pursuant to this subsection (b), the Executive
shall be entitled to receive only (i) his base salary pursuant to Section 3.1
earned through the date of such termination of employment plus his base salary
for the period of vacation time earned but not taken for the year of termination
of employment, such base salary to be paid at the normal time for payment of
such base salary, (ii) any other compensation and
<PAGE>
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benefits to the extent actually earned by the Executive under any other benefit
plan or program of the Company as of the date of such termination of employment,
such compensation and benefits to be paid at the normal time for payment of such
compensation and benefits, and (iii) any reimbursement amounts owing under
Section 4.
7. Termination of Employment By Death. In the event of the death of
the Executive during the course of his employment hereunder, the Executive's
estate (or other person or entity having such entitlement pursuant to the terms
of the applicable plan or program) shall be entitled to receive (i) the
Executive's base salary pursuant to Section 3.1 earned through the date of the
Executive's death plus the Executive's base salary for the period of vacation
time earned but not taken for the year of the Executive's death, such base
salary to be paid at the normal time for payment of such base salary, (ii) a
bonus for the year of the Executive's death (to be paid within 90 days after the
Executive's death) in an amount equal to a pro rata portion of the average of
the three highest annual bonuses earned by the Executive under the Company's
annual incentive bonus plan for any of the five calendar years preceding the
calendar year of the Executive's death (or, if the Executive was not eligible
for a bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year period
for which the Executive was eligible), with any deferred bonuses counting for
the year earned rather than the year paid and with the pro rata portion being
determined by dividing the number of days of the Executive's employment during
such calendar year up to his death by 365 (366 if a leap year), (iii) any other
compensation and benefits to the extent actually earned by the Executive under
any other benefit plan or program of the Company as of the date of such
termination of employment, such compensation and benefits to be paid at the
normal time for payment of such compensation and benefits, and (iv) any
reimbursement amounts owing under Section 4. In addition, in the event of such
death, the Executive's beneficiaries shall receive any death benefits owed to
them under the Company's employee benefit plans. If the Executive's spouse
and/or dependent children elect to continue coverage under the Company's health
plan following the Executive's death pursuant to COBRA, the Company for a period
of 12 months following the Executive's death will pay the same percentage of the
premium for COBRA coverage for the Executive's spouse and/or dependent children,
as applicable, as the Company would have paid in respect of the
<PAGE>
-8-
Executive's coverage under such plan if the Executive had continued in
employment with the Company for such period.
8. Benefits Upon Termination Without Cause or For Good Reason (No
Change of Control). If (a) the Executive's employment hereunder shall terminate
(i) because of termination by the Company other than for Cause or Permanent and
Total Disability pursuant to Section 5.1, or (ii) because of termination by the
Employee for Good Reason pursuant to Section 6(a), and (b) such termination of
employment does not occur within 12 months following a "Change of Control" of
the Company (as defined in Section 10), the Executive shall be entitled to the
following:
(a) The Company shall pay to the Executive his base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal time for payment of such base salary,
compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
(c) The Company shall pay to the Executive in equal installments
spread over the period of 12 months beginning on the date of the
Executive's termination of employment an amount equal in the aggregate to
the sum of (i) the Executive's annual rate of base salary immediately
preceding his termination of employment, and (ii) the average of his
annual bonuses earned under the Company's annual incentive bonus plan for
the three calendar years preceding his termination of employment (or, if
the Executive was not eligible for a bonus in each of those three calendar
years, then the average of such bonuses for all of the calendar years in
such three-year period for which he was eligible), with any deferred
bonuses counting for the year earned rather than the year paid. Such
installments shall be paid at the times that salary payments are normally
made by the Company.
(d) If the Executive elects to continue coverage under the Company's
health plan pursuant to COBRA, then for the period beginning on the date
of the Executive's termination of employment and ending on the earlier of
(i) the
<PAGE>
-9-
date which is 12 months after the date of such termination of employment
or (ii) the date on which the Executive commences substantially full-time
employment as an employee of an employer that offers health benefits, the
Company will pay the same percentage of the Executive's premium for COBRA
coverage for the Executive and, if applicable, his spouse and dependent
children, as the Company paid at the applicable time for coverage under
such plan for actively employed senior executives generally. In addition,
for the period beginning on the date of the Executive's termination of
employment and ending on the earlier of (i) the date which is 12 months
after the date of such termination of employment or (ii) the date on which
the Executive commences substantially full-time employment as an employee
of an employer that offers life insurance benefits, the Company will
continue to provide the life insurance benefits that the Company would
have provided to the Executive if the Executive had continued in
employment with the Company for such period, but only if the Executive
timely pays the portion of the premium for such coverage that senior
executives of the Company generally are required to pay for such coverage,
if any. The Executive shall notify the Company promptly if he, while
eligible for benefits under this subsection (d), commences substantially
full-time employment as an employee of an employer that offers health
and/or life insurance benefits.
(e) The Company will provide the Executive with outplacement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
9. Benefits Upon Termination Without Cause or For Good Reason
(Change of Control). If (a) the Executive's employment hereunder shall terminate
(i) because of termination by the Company other than for Cause or Permanent and
Total Disability pursuant to Section 5.1, or (ii) because of termination by the
Employee for Good Reason pursuant to Section 6(a), and (b) such termination of
employment occurs within 12 months following a "Change of Control" of the
Company (as defined in Section 10), the Executive shall be entitled to the
following:
(a) The Company shall pay to the Executive his base salary pursuant
to Section 3.1 earned through the date of such termination of employment
and any other compensation and benefits to the extent actually earned by
the Executive under any benefit plan or program of the Company as of the
date of such termination of employment, such base salary, compensation and
benefits to be paid at the normal
<PAGE>
-10-
time for payment of such base salary, compensation and benefits.
(b) The Company shall pay the Executive any reimbursement amounts
owing under Section 4.
(c) The Company shall pay to the Executive as a severance benefit an
amount equal to two (2) times the sum of (i) his annual rate of base
salary immediately preceding his termination of employment, and (ii) the
average of his three highest annual bonuses earned under the Company's
annual incentive bonus plan for any of the five calendar years preceding
his termination of employment (or, if the Executive was not eligible for a
bonus for at least three calendar years in such five-year period, then the
average of such bonuses for all of the calendar years in such five-year
period for which the Executive was eligible), with any deferred bonuses
counting for the year earned rather than the year paid. Such severance
benefit shall be paid in a lump sum within 30 days after the date of such
termination of employment.
(d) The Company shall pay to the Executive as a bonus for the year
of termination of his employment an amount equal to a portion (determined
as provided in the next sentence) of the Executive's maximum bonus
opportunity under the Company's annual incentive bonus plan for the
calendar year of termination of the Executive's employment or, if none,
such portion of the bonus awarded to the Executive under the Company's
annual incentive bonus plan for the calendar year immediately preceding
the calendar year of the termination of his employment, with deferred
bonuses counting for the year earned rather than the year paid. Such
portion shall be determined by dividing the number of days of the
Executive's employment during such calendar year up to his termination of
employment by 365 (366 if a leap year). Such payment shall be made in a
lump sum within 30 days after the date of such termination of employment,
and the Executive shall have no right to any further bonuses under said
plan.
(e) During the period of 24 months beginning on the date of the
Executive's termination of employment, the Executive (and, if applicable,
the Executive's spouse and dependent children) shall remain covered by the
medical, dental, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability
plans of the Company that covered the
<PAGE>
-11-
Executive immediately prior to his termination of employment as if the
Executive had remained in employment for such period; provided, however,
that the coverage under any such plan is conditioned on the timely payment
by the Executive (or his spouse or dependent children) of the portion of
the premium for such coverage that actively employed senior executives
with the Company generally are required to pay for such coverage. In the
event that the Executive's participation in any such plan is barred, the
Company shall arrange to provide the Executive (and, if applicable, his
spouse and dependent children) with substantially similar benefits (but,
in the case of long-term disability benefits, only if reasonably
commercially available).
(f) The Company shall supplement the benefits payable in respect of
the Executive under the Company's Pension Plan and Supplemental Executive
Retirement Plan (and any successor plans thereto) (collectively, the
"Pension Plans") by paying the difference between (i) the benefits that
the Executive would have been entitled to receive under the Pension Plans
if he had been credited with two additional years of service (but no
additional years of age) for purposes of the benefit accrual formula under
the Pension Plans as of the date of termination of the Executive's
employment and (ii) the benefits that the Executive is entitled to receive
under the Pension Plans determined without regard to this subsection (f).
Such benefits shall be payable in the same form and at the same time as
the benefits under the respective Pension Plans.
(g) Each stock option granted by the Company to the Executive and
outstanding immediately prior to termination of his employment shall be
fully vested and immediately exercisable and may be exercised by the
Executive (or, following his death, by the person or entity to which such
option passes) at any time prior to the expiration date of the applicable
option (determined without regard to any earlier termination of the option
that would otherwise occur by reason of termination of his employment).
Each restricted stock award granted by the Company to the Executive and
outstanding immediately prior to termination of the Executive's employment
shall be fully vested upon such termination of employment.
(h) The Company will pay the Executive a car allowance of $500 per
month for 24 months following termination of the Executive's employment to
replace the Company-
<PAGE>
-12-
leased automobile, which leased automobile will be returned to the Company
by the Executive on the date of termination of the Executive's employment.
(i) The Company will provide the Executive with out-placement
services selected by the Executive, at the Company's expense not to exceed
$10,000.
(j) The Company shall promptly pay all reasonable attorneys' fees
and related expenses incurred by the Executive in seeking to obtain or
enforce any right or benefit under this Agreement or to defend against any
claim or assertion in connection with this Agreement, but only to the
extent the Executive substantially prevails.
10. Change of Control. For the purposes of this Agreement, a "Change
of Control" shall be deemed to have occurred if (a) any person or persons acting
together which would constitute a "group" for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other than
the Company or any subsidiary of the Company) shall beneficially own (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, at least 25% of the
total voting power of all classes of capital stock of the Company entitled to
vote generally in the election of the Board; (b) Current Directors (as herein
defined) shall cease for any reason to constitute at least a majority of the
members of the Board (for this purpose, a "Current Director" shall mean any
member of the Board as of the date hereof and any successor of a Current
Director whose election, or nomination for election by the Company's
shareholders, was approved by at least a majority of the Current Directors then
on the Board); (c) the shareholders of the Company approve (i) a plan of
complete liquidation of the Company or (ii) an agreement providing for the
merger or consolidation of the Company other than a merger or consolidation in
which (x) the holders of the common stock of the Company immediately prior to
the consolidation or merger have, directly or indirectly, at least a majority of
the common stock of the continuing or surviving corporation immediately after
such consolidation or merger or (y) the Board immediately prior to the merger or
consolidation would, immediately after the merger or consolidation, constitute a
majority of the board of directors of the continuing or surviving corporation;
or (d) the shareholders of the Company approve an agreement (or agreements)
providing for the sale or other disposition (in one transaction or a series of
transactions) of all or substantially all of the assets of the Company.
<PAGE>
-13-
11. Golden Parachute Excise Tax.
(a) In the event that any payment or benefit received or to be
received by the Executive pursuant to this Agreement or any other plan, program
or arrangement of the Company or any of its affiliates would constitute an
"excess parachute payment" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), then the payments under this
Agreement shall be reduced (by the minimum possible amounts) until no amount
payable to the Executive under this Agreement constitutes an "excess parachute
payment" within the meaning of Section 280G of the Code; provided, however, that
no such reduction shall be made if the net after-tax payment (after taking into
account Federal, state, local or other income and excise taxes) to which the
Executive would otherwise be entitled without such reduction would be greater
than the net after-tax payment (after taking into account Federal, state, local
or other income and excise taxes) to the Executive resulting from the receipt of
such payments with such reduction. If, as a result of subsequent events or
conditions (including a subsequent payment or absence of a subsequent payment
under this Agreement or other plan, program or arrangement of the Company or any
of its affiliates), it is determined that payments under this Agreement have
been reduced by more than the minimum amount required to prevent any payments
from constituting an "excess parachute payment", then an additional payment
shall be promptly made to the Executive in an amount equal to the additional
amount that can be paid without causing any payment to constitute an excess
parachute payment.
(b) All determinations required to be made under this Section 11
shall be made by a nationally recognized independent accounting firm mutually
agreeable to the Company and the Executive (the "Accounting Firm") which shall
provide detailed supporting calculations to the Company and the Executive as
requested by the Company or the Executive. All fees and expenses of the
Accounting Firm shall be borne solely by the Company and shall be paid by the
Company upon demand of the Executive as incurred or billed by the Accounting
Firm. All determinations made by the Accounting Firm pursuant to this Section 11
shall be final and binding upon the Company and the Executive.
(c) To the extent any payment or benefit is to be reduced pursuant
to this Section 11, the severance payment described in Section 8(c) or 9(c) will
first be reduced, then the bonus described in Section 9(d), and then the
supplemental pen-
<PAGE>
-14-
sion benefits described in Section 9(f), in each case only to the extent
necessary.
12. Entitlement to Other Benefits. Except as otherwise provided in
this Agreement, this Agreement shall not be construed as limiting in any way any
rights or benefits that the Executive or his spouse, dependents or beneficiaries
may have pursuant to any other plan or program of the Company.
13. Indemnification. The parties agree to execute a separate
Indemnification Agreement in the form attached as Exhibit B.
14. General Provisions.
14.1 No Duty to Seek Employment. The Executive shall not be under
any duty or obligation to seek or accept other employment following termination
of employment, and no amount, payment or benefits due to the Executive hereunder
shall be reduced or suspended if the Executive accepts subsequent employment,
except as expressly set forth herein.
14.2 Deductions and Withholding. All amounts payable or which become
payable under any provision of this Agreement shall be subject to any deductions
authorized by the Executive and any deductions and withholdings required by law.
14.3 Notices. All notices, demands, requests, consents, approvals or
other communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be faxed with a copy deposited in the United
States mail, registered or certified, return receipt requested, postage prepaid,
addressed as follows:
To the Company: Lydall, Inc.
P.O. Box 151
One Colonial Road
Manchester, CT 06045-0151
Attn: Chief Executive Officer
To the Executive: Bill W. Franks
103 Southpond Road
South Glastonbury, CT 06073
or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
fifth business day following the
<PAGE>
-15-
date so mailed or on the date of actual receipt, whichever is earlier.
14.4 No Disparagement. The Executive shall not during the period of
his employment with the Company, nor during the two-year period beginning on the
date of termination of his employment for any reason, disparage the Company or
any of its subsidiaries or affiliates or any of their shareholders, directors,
officers, employees or agents. The Executive agrees that the terms of this
Section 14.4 shall survive the term of this Agreement and the termination of the
Executive's employment.
14.5 Proprietary Information and Inventions. The Lydall Employee
Agreement previously executed by the Executive and attached hereto as Exhibit A
is incorporated by reference in this Agreement, and the Executive agrees to
continue to be bound thereby.
14.6 Covenant to Notify Management. The Executive agrees to abide by
the ethics policies of the Company as well as the Company's other rules,
regulations, policies and procedures. The Executive agrees to comply in full
with all governmental laws and regulations as well as ethics codes applicable.
In the event that the Executive is aware or suspects the Company, or any of its
officers or agents, of violating any such laws, ethics, codes, rules,
regulations, policies or procedures, the Executive agrees to bring all such
actual and suspected violations to the attention of the Company immediately so
that the matter may be properly investigated and appropriate action taken. The
Executive understands that the Executive is precluded from filing a complaint
with any governmental agency or court having jurisdiction over wrongful conduct
unless the Executive has first notified the Company of the facts and permits it
to investigate and correct the concerns.
14.7 Amendments and Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either Party hereto at any time of any breach by the other Party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other Party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
14.8 Beneficial Interests. This Agreement shall inure to the benefit
of and be enforceable by a) the Company's successors and assigns and b) the
Executive's personal and le-
<PAGE>
-16-
gal representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amounts are still
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such designee, to the
Executive's estate.
14.9 Successors. The Company will require any successors (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform.
14.10 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any Party without the
prior written consent of the other Party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 14.10, the Company may
assign or delegate its rights, duties and obligations hereunder to any affiliate
or to any person or entity which succeeds to all or substantially all of the
business of the Company or one of its subsidiaries through merger, consolation,
reorganization, or other business combination or by acquisition of all or
substantially all of the assets of the Company or one of its subsidiaries.
14.11 Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut.
14.12 Statute of Limitations. The Executive and the Company hereby
agree that there shall be a one year statute of limitations for the filing of
any requests for arbitration or any lawsuit relating to this Agreement or the
terms or conditions of Executive's employment by the Company. If such a claim is
filed more than one year subsequent to the Executive's last day of employment it
shall be precluded by this provision, regardless of whether or not the claim has
accrued at that time.
14.13 Right to Injunctive and Equitable Relief. The Executive's
obligations under Section 14.4 are of a special and unique character, which
gives them a peculiar value. The Company cannot be reasonably or adequately
compensated for damages in an action at law in the event the Executive breaches
<PAGE>
-17-
such obligations. Therefore, the Executive expressly agrees that the Company
shall be entitled to injunctive and other equitable relief without bond or other
security in the event of such breach in addition to any other rights or remedies
which the Company may possess or be entitled to pursue. Furthermore, the
obligations of the Executive and the rights and remedies of the Company under
Section 14.4 and this Section 14.13 are cumulative and in addition to, and not
in lieu of, any obligations, rights, or remedies as created by applicable law.
14.14 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
14.15 Entire Agreement. This Agreement, along with the Lydall
Employee Agreement and the Indemnification Agreement by and between the
Executive and the Company, constitutes the entire agreement of the Parties and
supersedes all prior written or oral and all contemporaneous oral agreements,
understandings, and negotiations between the Parties with respect to the subject
matter hereof. This Agreement may not be changed orally and may only be modified
in writing signed by both Parties. This Agreement, along with the Lydall
Employee Agreement and the Indemnification Agreement, is intended by the Parties
as the final expression of their agreement with respect to such terms as are
included herein and therein and may not be contradicted by evidence of any prior
or contemporaneous agreement. The Parties further intend that this Agreement,
along with the Lydall Employee Agreement and the Indemnification Agreement,
constitutes the complete and exclusive statement of their terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving such
agreements.
14.16 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute one and the same instrument.
<PAGE>
-18-
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Employee has hereunto set his
hand as of the day and year first above written.
LYDALL, INC.
By:
-------------------------------- ----------
Christopher R. Skomorowski Date
President and Chief
Executive Officer
-------------------------------- ----------
Bill W. Franks, Jr. Date
<PAGE>
- - --------------------------------------------------------------------------------
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement of Lydall, Inc. on Forms S-8, as amended (File No. 33-93768) of our
report dated February 29, 2000, relating to the consolidated financial
statements and financial statement schedule of Lydall, Inc. which appear in this
Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Hartford, CT
March 30, 2000
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of Lydall, Inc. (the "Corporation"), does hereby constitute and appoint
Christopher R. Skomorowski and Walter A. Ruschmeyer, and each of them singly, as
his agent and attorney-in-fact to do any and all things and acts in his name and
in the capacities indicated below and to execute any and all instruments for him
and in his name in the capacities indicated below which said Christopher R.
Skomorowski and Walter A. Ruschmeyer, or either of them, may deem necessary or
advisable to enable the Corporation to comply with the Securities Exchange Act
of 1934, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with the preparation and
filing of the Corporation's Annual Report on Form 10-K (the "Annual Report")
respecting the fiscal year ended December 31, 1999, including specifically, but
not limited to, power and authority to sign for him in his name in the
capacities indicated below the Annual Report and any and all amendments thereto,
and each of the undersigned does hereby ratify and confirm all that said
Christopher R. Skomorowski and Walter A. Ruschmeyer, or either of them, shall do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated opposite his or her name.
/s/ROGER M. WIDMANN Chairman of the Board February 18, 2000
- - ------------------------------- and Director
Roger M. Widmann
/s/CHRISTOPHER R. SKOMOROWSKI President, Chief February 18, 2000
- - ------------------------------ Executive Officer
Christopher R. Skomorowski and Director
/s/LEE A. ASSEO Director February 18, 2000
- - ------------------------------
Lee A. Asseo
/s/SAMUEL P. COOLEY Director February 18, 2000
- - ------------------------------
Samuel P. Cooley
/s/W. LESLIE DUFFY Director February 18, 2000
- - ------------------------------
W. Leslie Duffy
<PAGE>
/s/DAVID FREEMAN Director February 18, 2000
- - ------------------------------
David Freeman
/s/SUZANNE HAMMETT Director February 18, 2000
- - ------------------------------
Suzanne Hammett
/s/ROBERT E. MCGILL, III Director February 18, 2000
- - ------------------------------
Robert E. McGill, III
/s/ELLIOTT F. WHITELY Director February 18, 2000
- - ------------------------------
Elliott F. Whitely
/s/ALBERT E. WOLF Director February 18, 2000
- - ------------------------------
Albert E. Wolf
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