-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UuVzZFwhNrqvOPLt+tbsyB7yGFXjGSfot4aWBaLi3X1xvfZHybgGbPx4YQ9JFnig 8yOJW1wyI/95Kc2HYf/cQg== 0000927016-01-001426.txt : 20010322 0000927016-01-001426.hdr.sgml : 20010322 ACCESSION NUMBER: 0000927016-01-001426 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LYDALL INC /DE/ CENTRAL INDEX KEY: 0000060977 STANDARD INDUSTRIAL CLASSIFICATION: TEXTILE MILL PRODUCTS [2200] IRS NUMBER: 060865505 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07665 FILM NUMBER: 1573461 BUSINESS ADDRESS: STREET 1: ONE COLONIAL RD STREET 2: P O BOX 151 CITY: MANCHESTER STATE: CT ZIP: 06045-0151 BUSINESS PHONE: 2036461233 FORMER COMPANY: FORMER CONFORMED NAME: COLONIAL BOARD CO DATE OF NAME CHANGE: 19700115 10-K 1 0001.txt FORM 10-K - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- Form 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the Fiscal Year Ended December 31, 2000 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 - ------------------------------------------------------------------------------- LYDALL, INC. (Exact name of registrant as specified in its charter) Delaware 06-0865505 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) One Colonial Road, Manchester, Connecticut 06045-0151 (Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (860) 646-1233 - ------------------------------------------------------------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, $.10 par value New York Stock Exchange
--------------------- 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. [_] On March 12, 2001, the aggregate market value of the Registrant's voting stock held by nonaffiliates was $174,964,088. On March 12, 2001, there were 15,865,137 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 9, 2001. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Index to Annual Report on Form 10-K Year Ended December 31, 2000
Page ---- PART I Item 1. Business...................................................... 1 Item 2. Properties.................................................... 4 Item 3. Legal Proceedings............................................. 4 Item 4. Submission of Matters to a Vote of Security Holders........... 5 Executive Officers and Other Significant Employees of the Registrant.................................................... 5 PART II Market for Registrant's Common Equity and Related Stockholder Item 5. Matters....................................................... 6 Item 6. Selected Financial Data....................................... 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ........................................ 8 Item 7a. Quantitative and Qualitative Disclosure about Market Risk..... 15 Item 8. Financial Statements and Supplementary Data................... 15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................................... 15 PART III Item 10. Directors and Executive Officers of the Registrant............ 16 Item 11. Executive Compensation........................................ 16 Security Ownership of Certain Beneficial Owners and Item 12. Management.................................................... 16 Item 13. Certain Relationships and Related Transactions................ 16 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 included under the captions "Election of Directors," "Common Stock Ownership of Management," "Directors' Compensation," and "Executive Compensation," in the Company's definitive Proxy Statement filed on March 23, 2001. PART IV Exhibits, Financial Statement Schedules, and Reports on Form Item 14. 8-K........................................................... 17 Signatures.................................................... 21
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I Item 1. BUSINESS Lydall, Inc. and its subsidiaries are hereafter referred to as "Lydall," the "Company," or the "Registrant." Lydall is a manufacturer of engineered products for demanding specialty applications. The Company develops and manufactures engineered specialty papers in roll and sheet form and fabricates automotive heat shields, thermal 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, 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 by 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, most of whom are either privately owned or divisions of larger companies, making it difficult to determine the Company's share of markets served. In 1999, the Company defined its core businesses as thermal/acoustical and filtration/separation and stated its long-term strategy to concentrate primarily on these businesses. In accordance with this strategic focus, Lydall stated its intention to divest businesses outside of these markets with the exception of Lydall Transport, Ltd., which provides total logistics packages as well as individual trucking and warehousing solutions. In August 2000, Lydall structured its organization into primarily two groups to concentrate on the thermal/acoustical and filtration/separation markets. Segments Lydall's two reportable segments are Thermal/Acoustical and Filtration/Separation. All other products are aggregated in Other Products and Services. In February 2001, Lydall announced the discontinuation of the Paperboard Segment. 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(degrees) F (-237(degrees) C) to +3000(degrees) F (+1649(degrees) C). The LyTherm(R) family of thermal products, including ManninGlas(R) products, are employed in a variety of industrial thermal applications. They are employed as linings for industrial ovens, kilns, furnaces, and in glass and metal manufacturing as well as in consumer appliances and heating, ventilation, and air-conditioning systems. Lydall's automotive heat shields and thermal and acoustical barriers include organic and inorganic fiber composites, fiber-and-metal combinations, and all- metal components which are used in trucks, vans, sport-utility vehicles, and cars. The Company holds patents on many of these products, which are employed both inside and outside of vehicle passenger and engine - ------------------------------------------------------------------------------- compartments and around such components as exhaust systems, gas tanks, heat and air-conditioning ducts, batteries, and electronic components. At the very coldest temperatures (approaching absolute zero), CryoTherm(R) 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, before elimination of inter-segment sales, represented 61 percent of the Company's net sales in 2000, 62 percent in 1999 and 45 percent in 1998. Filtration/Separation The Filtration/Separation Segment includes industrial air and liquid filtration products, vital fluids management systems sold to medical and biopharmaceutical markets, and separation and energy related products. LydAir(R) high-efficiency air-filtration media range in filtering efficiencies from 10 percent at 0.3-micron particle size to 99.999999 percent at 0.1-micron particle size. These products are used in commercial heating, ventilating and air-conditioning systems, clean-room applications, and consumer air-purifying units. Lydall also produces liquid filtration media, sold under the LyPore(R) trademark, that are used in high-efficiency hydraulic oil and lubrication oil elements for off-road vehicles, trucks, and heavy equipment and in industrial and residential water purification. The Company's vital fluids management systems are sold by its wholly owned subsidiary, Charter Medical, Ltd. ("Charter"). Charter's medical filter components are employed in blood filtration devices, such as cardiotomy reservoirs and autotransfusion filters. Charter also designs and manufactures BioPak(TM) sterile containers for use in biopharmaceutical processing, and specialty blood and cell therapy products. Sales from the Filtration/Separation Segment, before elimination of inter- segment sales, represented 26 percent of net sales in 2000 compared with 21 percent in 1999, and 31 percent in 1998. Other Products and Services The largest component of Other Products and Services is Lydall Transport, Ltd., a provider of total logistics packages as well as individual trucking and warehousing solutions. Other Products and Services also include pencil slats made from recycled newsprint and cardboard, electrical insulation, assorted specialty products, and battery separators. Sales of a gasket manufacturer sold on January 28, 2000 are also included through the date of sale. Other Products and Services sales, before elimination of inter-segment sales, were 15 percent of the Company's net sales in 2000 compared with 18 percent in 1999 and 26 percent in 1998. Paperboard In February 2001, the Company announced the discontinuation of this segment, which consisted primarily of the Southern Products and Lydall & Foulds Divisions. On February 1, 2001, Lydall announced that the Lydall & Foulds Division would cease operations, and on February 5, 2001, the Southern Products Division was sold. The results of the Paperboard Segment have been excluded from continuing operations for all years presented. See Note 5 in "Notes to Consolidated Financial Statements." 2 - ------------------------------------------------------------------------------- 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 that are normal within the industries it serves. The Company uses a wide range of raw materials in the manufacturing of its products. 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 51 percent of Lydall's total net sales in 2000 compared with 53 percent and 32 percent in 1999 and 1998, respectively. Lydall sells to both original equipment manufacturers and tier- one suppliers. Its products are used in a variety of models and applications. Sales to Ford Motor Co. were $34.1 million, or 13 percent of Lydall's net sales in 2000. No other single customer accounted for more than 10 percent of net sales in 2000. Lydall invested $8.3 million in 2000, $7.6 million in 1999, and $8.7 million in 1998 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 $26.3 million at December 31, 2000, $48.5 million at December 31, 1999, and $29.5 million at December 31, 1998. Backlog at February 28, 2001 was $27.5 million. The purchase of the Gerhardi operations at the end of 1998 and the subsequent sale of two of those operations in the third quarter of 2000 caused the majority of the fluctuations in backlog at the end of 1999 and 2000 when compared with previous years. There are minimal seasonal aspects to Lydall's backlog. No material portion of Lydall's business is subject to renegotiations 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 28, 2001, Lydall employed 1,288 people. Five unions under contracts expiring at various points through March 2005 represented approximately 111 of the Company's domestic employees. Lydall considers its employee relationships to be satisfactory and did not have any actual or threatened work stoppages due to union-related activities in 2000. All employees at the Company's facility in France are covered under a National Collective Bargaining Agreement. Hourly and certain salaried employees at the Company's German operation are also covered under a National Collective Bargaining Agreement. Foreign and export sales were 37 percent of total net sales in 2000, 42 percent in 1999, and 18 percent in 1998. Export sales are concentrated primarily in Europe, the Far East, Mexico, and Canada and were $27.7 million, $25.4 million, and $22.0 million in 2000, 1999, and 1998, 3 - ------------------------------------------------------------------------------- respectively. Foreign sales were $67.8 million, $89.1 million, and $10.8 million for the years ended December 31, 2000, 1999, and 1998, respectively. Foreign operations incurred after-tax losses of $19.8 million (including the loss from disposition of two unprofitable German operations of $19.3 million), $1.2 million, and $1.0 million (including the recognition of an impairment loss of $.9 million) for the years ended December 31, 2000, 1999, and 1998, respectively. Total foreign assets were $43.9 million at December 31, 2000 compared with $65.0 million at December 31, 1999 and $73.4 million at December 31, 1998. 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 foreign currency exchange transaction risk by completing transactions in their functional currencies whenever possible and through the use of foreign currency forward exchange contracts. Item 2. PROPERTIES The principal properties of the Company are situated at the following locations and have the following characteristics:
Approximate Area Land Buildings Location General Description (Acres) (Sq.Feet) - ------------------------------------------------------------------------------------------- 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 35.0 122,000 and Manufacturing 5 Columbus, Ohio Thermal/Acoustical Products Fabricating 9.0 80,000 6 St. Johnsbury, Vermont Thermal/Acoustical Products Fabricating 17.0 86,000 7 Meinerzhagen, Germany Thermal/Acoustical Products Fabricating 3.8 86,000 8 Lakewood, New Jersey Biomedical Products Fabricating -- 20,000 9 Winston-Salem, Biomedical Products Fabricating and -- 29,000 North Carolina Manufacturing 10 Covington, Tennessee Composite Materials Manufacturing 26.0 155,000 11 Manchester, Connecticut Paperboard Manufacturing 11.6 70,000 12 Manchester, Connecticut Warehouse and Office Facility 9.1 120,000 13 Manchester, Connecticut Corporate Office 4.5 20,000 - -------------------------------------------------------------------------------------------
Properties numbered 5, 6, 8 and 9 are leased; all others are owned. For information regarding lease obligations 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, except for numbers 11 and 12, which were used by the Lydall & Foulds Division of the discontinued Paperboard Segment. 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. Item 3. LEGAL PROCEEDINGS No significant legal proceedings were settled in the fourth quarter of 2000. See Note 14 in "Notes to Consolidated Financial Statements" for additional information on legal proceedings. 4 - ------------------------------------------------------------------------------- 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 2000. Executive Officers and Other Significant Employees of the Registrant: The executive officers and other significant employees of the Registrant, together with the offices presently held by them, their business experience since January 1, 1996, and their ages as of March 12, 2001, the record date of the Company's 2001 Annual Meeting, are as follows:
Other Business Name Age Title Experience Since 1996 - ------------------------------------------------------------------------------------------ Roger M. Widmann 61 Chairman of the Board Principal of Tanner and Co. Inc., Senior Managing Director, Corporate Finance of Chemical Securities, Inc. Christopher R. 47 President and Chief Executive Division President of Skomorowski Officer (since 1998), Director Lydall Westex (1998-present, 1994-1995) Walter A. Ruschmeyer 50 Executive Vice President- Interim Vice President of Finance and Administration, Finance and Treasurer, and Chief Financial Officer Lydall, Inc., Partner in (since March 2000) Bushavior, Controller of Carrier Corporation Raymond S. 39 Group President-Lydall Division President Lydall Grupinski, Jr. Thermal/Acoustical Group Westex, Director of (since August 2000) Operations of Lydall Westex Division and General Manager of Lydall Westex Columbus Operation Kevin G. Lynch 48 Group President-Lydall Division President Lydall Filtration/Separation Group Manning, Vice President of (since August 2000) Sales and Marketing of Lydall Technical Papers Bill W. Franks, Jr. 42 Division President-Lydall Vice President and Transport, Ltd. General Manager of (since August 2000) Lydall Logistics and Lydall & Foulds Management Thomas P. Smith 43 Vice President-Controller Assistant Controller of (since May 2000) Carrier Corporation James P. Carolan 58 Vice President-E-Commerce Division President of (since September 2000), Lydall Technical Papers Director (1994-1995, 1996-1998) Carole F. Butenas 58 Vice President-Investor Relations N/A (since 1991), Director (1995-1996) Mary A. Tremblay 40 General Counsel and Secretary N/A (since 1991) Richard H. Kopp 56 Chief Information Officer President of The Havens (since April 2000) Group, Inc., President of Havens System Solutions, LLC Mona G. Estey 46 Vice President-Human Resources Director of Human (since April 2000) Resources - ------------------------------------------------------------------------------------------
5 - ------------------------------------------------------------------------------- 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 7,514,500 and 9,316,600 were traded during 2000 and 1999, 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 12, 2001, the record date of the Company's 2001 Annual Meeting, 1,608 stockholders of record held 15,865,137 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. - ---------------------------------------------------------------------------------------------------- High Low Close - ---------------------------------------------------------------------------------------------------- 2000 First Quarter $8.94 $6.31 $8.75 Second Quarter 11.25 7.81 10.63 Third Quarter 13.00 10.31 11.44 Fourth Quarter 12.06 8.06 8.69 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 - ----------------------------------------------------------------------------------------------------
During 2000, 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. 6 - ------------------------------------------------------------------------------- Item 6. SELECTED FINANCIAL DATA Five-Year Statistical Review - -------------------------------------------------------------------------------
In thousands except per- share amounts 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------- Financial results from continuing operations Net sales $261,118 $274,984 $183,236 $193,520 $211,003 (Loss) income from continuing operations (3,616) 11,089 7,233 18,841 20,180 - ------------------------------------------------------------------------------- Common stock per-share data Diluted (loss) income from continuing operations ($ .23) $ .70 $ .45 $ 1.09 $ 1.12 Diluted net (loss) income ( .15) .68 .26 1.27 1.38 - ------------------------------------------------------------------------------- Financial position Total assets $194,964 $220,236 $226,848 $160,124 $182,119 Working capital (deficit) 54,550 64,630 (9,090) 39,203 53,358 Long-term debt, net of current maturities 24,927 38,334 -- 2,100 5,050 Total stockholders' equity 111,753 115,236 109,225 113,030 117,844 - ------------------------------------------------------------------------------- Property, plant, and equipment Net property, plant, and equipment $ 74,420 $ 80,556 $107,836 $ 68,860 $ 62,038 Capital expenditures 19,767 16,773 17,657 17,104 10,893 Depreciation 9,925 11,946 8,844 7,993 7,824 - ------------------------------------------------------------------------------- Performance and other ratios Gross margin 26.29% 24.87% 31.55% 34.87% 33.70% Operating margin 7.27% 6.45% 6.15% 14.37% 15.19% Current ratio 2.32 2.28 .91 2.39 2.24 Debt to total capitalization 22.3% 28.2% 33.4% 4.3% 12.9% - -------------------------------------------------------------------------------
The results of operations of the discontinued Paperboard and Wovens Segments have been excluded from the selected financial data schedule for all applicable periods. Paperboard and Wovens Segment balance sheet items have been excluded from calculations of the "Performance and other ratios" section for all periods presented, except for the current ratio. 7 - ------------------------------------------------------------------------------- Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSOLIDATED RESULTS OF OPERATIONS For the year ended December 31, 2000, the Company generated $261.1 million in net sales compared with $275.0 million for the year ended December 31, 1999. The divestment of a gasket business and two German operations during the year eliminated sales of $10.1 million and $18.1 million, respectively. In addition, the unfavorable impact of foreign currency translation reduced sales by $12.3 million in 2000. Growth within the Company's core businesses of $26.6 million partially offset the decrease in net sales. Sales of high- efficiency air-filtration media strengthened, sales to the automotive thermal/acoustical market were bolstered by new-product launches, and Lydall Transport, Ltd. sales also improved. In 1999, net sales increased by $91.7 million, a 50.1 percent increase over 1998. The acquisition of Gerhardi, included in the Thermal/Acoustical Segment, accounted for $75.3 million of the increase. An additional $9.0 million of the increase was generated by other acquisitions made in 1998. New-product introductions, primarily in the Thermal/Acoustical Segment, net of product discontinuances, contributed another $7.1 million in net sales for 1999. Gross Margin Gross margin for the year ended December 31, 2000 was 26.3 percent compared with 24.9 percent for the year ended December 31, 1999. Gross margin in 2000 was unfavorably impacted by the two unprofitable German operations sold at the end of the third quarter of 2000. Gross margin for 1999 declined significantly from the 1998 level of 31.5 percent. The increased sales volume resulting from the acquisition of Gerhardi in 1999 generated gross margins significantly below the Company's average. In addition, the Company experienced pricing pressures in its Thermal/Acoustical and Filtration/Separation Segments, specifically related to non-automotive thermal barriers and air-filtration media. Pricing adjustments associated with long-term contractual commitments also affected certain automotive products. Selling, Product Development, and Administrative Expenses Selling, product development, and administrative expenses were approximately $1.0 million or 1.9 percent lower in 2000 than in 1999. As a percentage of sales, these costs increased slightly to 19.0 percent in 2000 from 18.4 percent in 1999. Selling, product development, and administrative expenses increased by $6.0 million, or 13.5 percent, in 1999 compared to 1998. Incremental selling, product development, and administrative expenses totaling $9.4 million were incurred primarily related to the acquisition of Gerhardi. The Company reduced selling, product development, and administrative expenses at other operations during 1999 by $3.4 million. Other Income and Expense For the year ended December 31, 2000, other expense amounted to $25.0 million. The two major components of this amount were a $29.7 million loss on the disposition of two German operations and an offsetting gain of $6.1 million on the sale of the gasket business. 8 - ------------------------------------------------------------------------------- Interest expense was $1.2 million for 2000 compared with $2.6 million in 1999. The reduction in interest expense resulted from lower outstanding debt levels and the capitalization of interest associated with plant expansions and capital additions for new product platforms. For 1999, other expense amounted to $1.5 million and consisted primarily of interest expense of $2.6 million, offset by a foreign exchange transaction gain of $1.4 million resulting from the appreciation of the dollar in relation to the Euro on a Euro-denominated term loan. Interest expense in 1999 increased by $1.8 million as the Company maintained higher debt levels associated with the three acquisitions made in 1998. Other expense in 1998 amounted to $890 thousand and consisted primarily of interest expense of $820 thousand and investment losses of $287 thousand, partially offset by foreign currency transaction gains and miscellaneous income. Income Taxes The effective tax for the year ended December 31, 2000 was a benefit of 39.5 percent compared with a provision of 31.8 percent in 1999. The 2000 tax rate reflects a tax benefit on the consolidated loss for the year and additional benefits derived from exempt Foreign Sales Corporation income and state income tax credits. The effective tax rate increased 1.5 percent in 1999 compared to 1998. The increase is mainly a result of exempt Foreign Sales Corporation income, permanent book to tax differences, and credits representing a smaller proportionate share of taxable income in 1999. SEGMENT RESULTS Thermal/Acoustical Thermal/Acoustical sales for the year ended December 31, 2000 were $158.5 million, a decrease of $10.8 million, or 6.4 percent, from 1999. Operating income for the year ended December 31, 2000 was $16.8 million compared with $13.1 million in 1999, an increase of $3.7 million, or 28.3 percent. The disposition of two unprofitable German operations at the end of the third quarter 2000, and the unfavorable impact of foreign exchange translation reduced sales by $18.1 million and $8.4 million, respectively, for 2000 compared with 1999. Net sales, adjusted for the disposition of the German operations and the impact of unfavorable fluctuations in foreign currency exchange rates, increased by approximately $15.7 million, or 13.4 percent, for the year ended 2000 compared with 1999. The introduction of new automotive products supported sales growth, while industrial thermal/acoustical product sales were relatively flat in 2000 due to the rise in interest rates and the slowdown in the economy. Thermal/Acoustical sales for 1999 were $169.3 million compared with $81.8 million for 1998, an increase of $87.5 million. Operating income increased by $.8 million, or 6.8 percent, for 1999 compared with 1998. The acquisition of Gerhardi accounted for $75.3 million of the increase in sales. Also in 1999, the Company introduced several new automotive thermal/acoustical products. Product discontinuances, mostly related to the automotive thermal/acoustical market, somewhat offset the gains from new-product introductions. Filtration/Separation Sales for the Filtration/Separation Segment were $67.9 million for the year ended December 31, 2000. This compares to sales of $59.0 million for 1999, an increase of $8.9 million, or 15.1 percent. Operating income for the year ended December 31, 2000 totaled $10.2 million compared with $8.5 million in 1999, an increase of $1.7 million, or 20.6 percent. 9 - ------------------------------------------------------------------------------- This segment benefited from increased sales of high-efficiency air filtration media to the Far East and domestic markets and increased sales volume to the consumer products market. Strong sales of synthetic filtration media also contributed to the increase. Biomedical and pharmaceutical processing products achieved record sales for the year as additional customers qualified the Company's BioPak(TM) bioprocessing containers and the Company's blood and cell therapy products continued to gain market share. In 1999, sales increased by $3.1 million, or 5.5 percent, from $55.9 million in 1998. Operating income increased by $.9 million, or 11.8 percent. The majority of the growth stemmed from the Company's biomedical and pharmaceutical processing products. Also, sales of high-efficiency air filtration media to the Far East and Europe improved from 1998 sales levels as the Company gained market share. Other Products and Services Sales of Other Products and Services decreased by $11.7 million, or 23.2 percent, in 2000 to $38.8 million. Operating income was $3.8 million in 2000 compared to $7.3 million in 1999. The decreases in sales and operating income resulted primarily from the sale of the gasket operation in the first quarter of 2000. Excluding the gasket business, sales and operating income were $1.6 million and $2.2 million lower in 2000 than in 1999 mainly due to declining pencil-board sales. Sales in 1999 were $50.5 million compared with $47.5 million in 1998. The increase of $3.0 million, or 6.3 percent, stemmed primarily from market-share gains by Lydall Transport, Ltd. Operating income for 1999 increased $3.7 million from $3.6 million in 1998. Operating income in 1998 included an impairment charge of $.8 million related to fixed assets. After adjusting for the impairment charge, operating income increased $2.9 million primarily due to the market-share gains achieved by Lydall Transport, Ltd. and cost reduction efforts in the Company's non-core operations. Paperboard In February 2001, the Company announced the discontinuation of this segment, which consisted primarily of the Southern Products and Lydall & Foulds Divisions. On February 1, 2001, Lydall announced that the Lydall & Foulds Division would cease operations. On February 5, 2001, the Southern Products Division was sold. The results of the Paperboard Segment have been excluded from continuing operations for all years presented. See Note 5 in "Notes to Consolidated Financial Statements." 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 intended to provide management's current expectations for the future operating and financial performance of the Company based on assumptions believed to be valid at the time. Thus, such expectations are inherently subject to a number of risks and 10 - ------------------------------------------------------------------------------- uncertainties that could cause the actual results of the Company to differ materially from those reflected in 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. or European Automotive Markets. Although Lydall's automotive sales are not solely contingent on the strength of the automotive market, a significant downturn of the U.S. or European automotive industries 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 that contain the Company's products. Approximately 51 percent of Lydall's total sales in 2000 were to the automotive market. Lydall's automotive products are thermal and acoustical barriers and heat shields employed both inside and under the body of vehicles. Most of Lydall's products are supplied to meet unique, niche applications. Lydall may have a number of components on a particular vehicle. Also, applications range across all types of vehicles from sport-utility models to trucks and vans to cars. Thus, there is no direct correlation between the number of Lydall products sold and the number of vehicles being built by automotive manufacturers. 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. 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. 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. Lydall 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 2000 with $32.0 million of indebtedness outstanding under its various credit facilities, incurred primarily to fund acquisitions made during the past three years. The 2000 year-end balance represents a decrease of $13.2 million, or 29.1 percent, from the prior year. Debt was reduced in 2000 despite a $19.8 million capital investment program. Proceeds received from operations divested during the year contributed substantially toward overall debt reduction in 2000. Capital expenditures in 1999 and 1998 totaled $16.8 million and $17.7 million, respectively. The Company did not purchase any of its Common Stock in 2000. Purchases of Common Stock totaled $.8 million in 1999 and $10.3 million in 1998. Operating cash flow (earnings before interest, taxes, depreciation and amortization, and non-recurring transactions) in 2000 decreased by 10.3 percent to $32.0 million from 1999. Cash Flow Overview Cash flow from operating activities in 2000 was $17.3 million compared with $20.7 million in 1999 and $21.1 million in 1998. The decrease in cash flow was primarily attributable to changes in working capital items and aggregate cash flows associated with the gasket business divested in the first quarter of 2000. 11 - ------------------------------------------------------------------------------- Cash used for investing activities equaled $5.4 million in 2000 consisting primarily of capital expenditures of $19.8 million partially offset by proceeds from the divestment of businesses totaling $13.9 million. Investing activities in 1999 used $17.1 million in cash primarily for capital expenditures. In 1998, investing activities utilized $60.0 million in cash. Of this amount, $46.4 million related to acquisitions and $17.7 million to capital expenditures. Proceeds of $3.9 million from the sale of investments in 1998 partially offset these expenditures. In 2000, financing activities used $10.6 million compared with $4.6 million in 1999. Lydall used proceeds from divested operations during the year to accelerate the payment of its long-term debt. For the year, debt was reduced by $11.3 million before the effect of foreign exchange. Financing activities used $4.6 million in 1999 to reduce indebtedness. In 1998, Lydall generated $32.2 million in cash from financing activities. Net proceeds from bank credit lines of $44.6 million were used to fund acquisitions during the year and to purchase $10.3 million of Lydall Common Stock. 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 in 2000 equaled the same level achieved in 1999, or 5.4 times. Working capital turnover in 1998 was 5.9 times. Working capital turnover in 2000 and 1999 was negatively affected by the Gerhardi acquisition. Management expects working capital productivity will improve in 2001 as a result of better inventory and accounts receivable management and the sale of the two non-core German operations in 2000. Future Cash Requirements Cash requirements for 2001 will include the funding of ongoing operations, capital expenditures, and acquisitions, if completed. The 2001 capital budget is $17.0 million, down from actual expenditures of $19.8 million in 2000 and more in line with 1999 expenditures totaling $16.8 million. Management expects to finance capital expenditures and working capital needs from cash provided by operating activities in 2001. Acquisitions, if completed, would be financed under the credit facility described under "Credit Arrangements" below, or other forms of debt financing, as deemed appropriate. Currently, the Company has no plans to repurchase its Common Stock except to offset shares granted under Lydall's stock option award program, as deemed appropriate. Credit Arrangements Lydall, Inc. and certain subsidiaries entered into a credit facility on July 14, 1999 with a group of five banking institutions. At December 31, 2000, the facility was comprised of a $50 million domestic revolving credit facility, renewed every three years, of which $10.1 million was outstanding, and a Euro- denominated term loan, with an outstanding balance of $13.9 million, which is an obligation of one of Lydall's German subsidiaries. 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 facility. The facility also prohibits the Company 12 - ------------------------------------------------------------------------------- from incurring certain indebtedness, restricts asset sales and capital expenditures, and limits certain investments and dividends to the extent such activity reduces financial ratios below agreed upon levels. Certain foreign subsidiaries of the Company maintain additional lines of credit totaling $11.1 million, of which $8.0 million was outstanding at December 31, 2000. These credit facilities incur interest at rates ranging from 3.6 percent to 5.9 percent. Management believes that current credit arrangements provide sufficient capacity to meet working capital requirements and fund future capital expenditures. Capital Structure At the end of 2000, total indebtedness was $32.0 million, or 22.3 percent of Lydall's total capital structure. Cash from operating activities in conjunction with substantial debt financing sources are available to complete strategic acquisitions in Lydall's core business markets. The Company continually explores its core markets for suitable acquisitions. Given appropriate acquisition opportunities, the Company would consider increasing its debt to total capitalization percentage above current levels. Other Key Financial Items Cash and cash equivalents. Cash and cash equivalents increased to $2.2 million as of December 31, 2000 compared to $1.2 million as of December 31, 1999. Receivables. Receivables, net of the allowance for doubtful accounts, were $40.0 million at the end of 2000 compared to $45.5 million in 1999. Trade receivables (including receivables of operations whose assets are classified as held for sale, receivables classified as long-term, and net of receivables related to discontinued operations) were $40.1 million and $37.9 million for 2000 and 1999, respectively. Days sales outstanding for trade receivables were 54 days in 2000 compared to 42 days in 1999. Inventories. Inventories were $21.5 million at December 31, 2000, net of a LIFO reserve of $.6 million compared to $20.5 million, net of a $1.6 million LIFO reserve at December 31, 1999. The decrease in the LIFO reserve is primarily due to the reclassification of net assets related to the discontinued Paperboard Segment, which accounted for $.8 million of the decrease, and the reclassification of assets held for sale, which accounted for $.2 million of the decrease. Working capital. Working capital decreased to $54.6 million at December 31, 2000 compared to $64.6 million at December 31, 1999. The ratio of current assets to current liabilities in 2000 increased to 2.32 from 2.28 in 1999. The increase is primarily related to the discontinuation of the Paperboard Segment as the net assets of this segment were classified as current assets at December 31, 2000. Capital asset expenditures. Capital asset expenditures were $19.8 million in 2000, $16.8 million in 1999 and $17.7 million in 1998. The Company's capital budget for 2001 is $17.0 million, which is expected to be financed from operating cash flows. Debt to total capitalization. Debt to total capitalization has decreased to 22.3 percent in 2000 compared to 28.2 percent in 1999 as Lydall reduced its level of outstanding debt. 13 - ------------------------------------------------------------------------------- Common stockholders' equity. Common stockholders' equity decreased to $111.8 million at December 31, 2000 from $115.2 million at December 31, 1999. On a per-share basis, common stockholders' equity decreased to $7.04 at December 31, 2000 from $7.34 at December 31, 1999. 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 $8.3 million in 2000, $7.6 million in 1999, and $8.7 million in 1998. Recently issued accounting standards. See Note 1 in the "Notes to Consolidated Financial Statements." 14 - ------------------------------------------------------------------------------- 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, and to a lesser degree, with the Japanese Yen. Lydall's foreign and domestic operations limit foreign currency exchange transaction risk by completing transactions in their local currencies whenever possible. In addition, Lydall periodically enters into foreign currency forward exchange contracts to mitigate exposure to foreign currency volatility. At December 31, 2000 and 1999, the Company had no foreign currency forward exchange contracts outstanding. Lydall utilizes bank loans and other debt instruments throughout its operations. To mitigate foreign currency risk, such debt is denominated primarily in the local currency of the respective operation. Interest Rate Risk The Company's interest rate exposure is most sensitive to fluctuations in United States and European interest rates, which primarily impact interest paid on debt. At December 31, 2000, the Company had $13.7 million outstanding on various lines of credit with variable interest rates. The weighted average interest rate paid on this debt was 6.5 percent in 2000 and 5.4 in 1999. The Company also had $13.9 million outstanding on a five-year term loan with a variable interest rate. In July 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 4.3 percent for the year ended December 31, 2000 compared to 4.7 percent for 1999. 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. 15 - ------------------------------------------------------------------------------- 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 filed with the Securities and Exchange Commission (the "Commission") relating to its Annual Meeting of Stockholders to be held on May 9, 2001. Information regarding the executive officers and other significant employees of the Company is contained on page 5 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 filed with the Commission relating to its Annual Meeting of Stockholders to be held on May 9, 2001, including the Compensation and Stock Option Committee Report to Stockholders, found on pages 15 through 19, and the comparative performance graph located on page 20, 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 certain senior management of the Company is incorporated by reference to the definitive Proxy Statement of Lydall filed with the Commission relating to its Annual Meeting of Stockholders to be held on May 9, 2001. 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 filed with the Commission relating to its Annual Meeting of Stockholders to be held on May 9, 2001. 16 - ------------------------------------------------------------------------------- PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------------
Page - ------------------------------------------------------------------------------ a)1, Financial Statements: Statement of Management Responsibility F-1 Report of Independent Accountants F-2 Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the years ended December 31, 2000, 1999, and 1998 F-3 Consolidated Balance Sheets at December 31, 2000 and 1999 F-4 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2000, 1999, and 1998 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999, and 1998 F-7 Notes to Consolidated Financial Statements F-8 a)2, Financial Statement Schedules: Schedule II-Valuation and Qualifying Accounts for the years ended December 31, 2000, 1999, and 1998 S-1
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 the "Notes to Consolidated Financial Statements," and therefore have been omitted. 17 - -------------------------------------------------------------------------------- a)3, Exhibits Included Herein or Incorporated by Reference: 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 Form10-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* 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). 10.3* 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). 10.4* Employment Agreement with Carole F. Butenas dated March 1, 2000 (filed as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.5* Employment Agreement with Mona G. Estey dated March 1, 2000 (filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.6* Employment Agreement with Mary A. Tremblay dated March 1, 2000 (filed as Exhibit 10.10 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.7* 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). 10.8* 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). 10.9* Amended and restated, 1992 Stock Incentive Compensation Plan, dated May 14, 1992, amended through March 10, 1999, filed herewith. 10.10* Employment Agreement with James P. Carolan dated March 1, 2000, filed herewith. 10.11* Employment Agreement with Christopher R. Skomorowski dated March 1, 2000 (filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.12* Employment Agreement with Walter A. Ruschmeyer dated March 16, 2000 (filed as Exhibit 10.16 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.13* Employment Agreement with Kevin G. Lynch dated March 1, 2000 (filed as Exhibit 10.17 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference).
18 - -------------------------------------------------------------------------------- 10.14* Employment Agreement with Raymond S. Grupinski dated March 1, 2000 (filed as Exhibit 10.19 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.15* Employment Agreement with Bill W. Franks, Jr. dated March 1, 2000 (filed as Exhibit 10.20 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.16* Employment Agreement with Lisa Krallis-Nixon dated March 1, 2000 (filed as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.17* Agreement with Thomas P. Smith dated May 1, 2000, filed herewith. 10.18* Agreement with Richard H. Kopp dated April 1, 2000, filed herewith. 10.19 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). 10.20 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). 10.21 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). 10.22 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). 10.23 Agreement and General Release with John E. Hanley dated February 2, 2000 (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q dated May 12, 2000, and incorporated herein by this reference). 10.24 Amendment dated August 10, 2000 to 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 14, 2000, and incorporated herein by this reference). 10.25 Spin-off and Transfer Agreement (English translation) between Lydall Gerhardi GmbH and Co. KG and Gerhardi Kunststofftechnik GmbH dated September 29, 2000, effective September 30, 2000 (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed October 16, 2000, and incorporated herein by this reference). 10.26 Purchase and Transfer Agreement (English translation) between Lydall Gerhardi GmbH and Co. KG and the management buyout group as set forth in the agreement, dated September 29, 2000, effective September 30, 2000 (filed as Exhibit 2.2 to the Registrant's Current Report on Form 8-K filed October 16, 2000, and incorporated herein by this reference). 10.27 Asset Purchase and Sale Agreement between Lydall Eastern, Inc. and Ludlow Building Products, Inc., dated February 5, 2001, filed herewith. 10.28* Amendment dated August 1, 2000 to the Employment Agreement with Mona G. Estey dated March 1, 2000, filed herewith.
19 - -------------------------------------------------------------------------------- 10.29* Amendment dated August 1, 2000 to the Employment Agreement with Mary A. Tremblay dated March 1, 2000, filed herewith. 10.30* Amendment dated August 1, 2000 to the Employment Agreement with Christopher R. Skomorowski dated March 1, 2000, filed herewith. 10.31* Amendment dated August 1, 2000 to the Employment Agreement with Walter A. Ruschmeyer dated March 16, 2000, filed herewith. 10.32* Amendment dated August 1, 2000 to the Employment Agreement with James P. Carolan dated March 1, 2000, filed herewith. 10.33* Amendment dated August 1, 2000 to the Employment Agreement with Kevin G. Lynch dated March 1, 2000, filed herewith. 10.34* Amendment dated August 1, 2000 to the Employment Agreement with Raymond S. Grupinski dated March 1, 2000, filed herewith. 10.35* Amendment dated August 1, 2000, to the Employment Agreement with Bill W. Franks, Jr. dated March 1, 2000, filed herewith. 10.36* Amendment dated August 1, 2000 to the Employment Agreement with Lisa Krallia-Nixon dated March 1, 2000, filed herewith. 21.1 List of subsidiaries of the Registrant, filed herewith. 23.1 Consent of PricewaterhouseCoopers LLP, filed herewith. 24.1 Power of Attorney, dated February 27, 2001, 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. 99.1 Press release dated October 2, 2000 titled "Lydall Completes Sale of Chrome-Plating and Injection-Molding Operations in Germany" (filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed October 16, 2000, and incorporated herein by this reference). * Management contract or compensatory plan. b) Reports on Form 8-K: On October 16, 2000, a report on Form 8-K (File No. 1-7665) was filed to disclose a disposition of assets under Item 2, Acquisition or Disposition of Assets, pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934. This report contained a Pro Forma Consolidated Condensed Balance Sheet as of June 30, 2000, a Pro Forma Consolidated Condensed Statement of Net Income for the year ended December 31, 1999, and a Pro Forma Consolidated Condensed Statement of Net Income for the six months ended June 30, 2000.
20 - ------------------------------------------------------------------------------- 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. Lydall, Inc. Date March 21, 2001 By: /s/ Thomas P. Smith ---------------------------------- Thomas P. Smith Vice President-Controller (On behalf of the Registrant and asPrincipal Accounting Officer) 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.
Signature Title Date --------- ----- ---- /s/ Christopher R. Skomorowski President, and Chief March 21, 2001 ______________________________________ Executive Officer Christopher R. Skomorowski /s/ Walter A. Ruschmeyer Executive Vice President- ______________________________________ Finance and March 21, 2001 Walter A. Ruschmeyer Administration, and Chief Financial Officer /s/ Walter A. Ruschmeyer ______________________________________ March 21, 2001 Walter A. Ruschmeyer
Attorney-in-fact for: Christopher R. Skomorowski Director Lee A. Asseo Director Samuel P. Cooley Director (constituting in excess of a majority W. Leslie Duffy Director of the full Board of Directors) David Freeman Director Suzanne Hammett Director Robert E. Director McGill, III Elliott F. Director Whitely Roger M. Widmann Director Albert E. Wolf Director
21 - ------------------------------------------------------------------------------- Statement of Management Responsibility The consolidated financial statements of Lydall, Inc. and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America. 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 an internal control structure 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 internal control structure was effective throughout the year ended December 31, 2000. Each year, Lydall's Board of Directors appoints independent accountants who audit the Company's financial statements in accordance with auditing standards generally accepted in the United States of America. Their audit includes a review of the Company's internal control structure with respect to financial reporting. The Audit Review 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. Christopher R. Skomorowski Walter A. Ruschmeyer President, and Chief Executive Officer Executive Vice President--Finance and Administration, and Chief Financial Officer F-1 - ------------------------------------------------------------------------------- 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 17 present fairly, in all material respects, the financial position of Lydall, Inc. and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) on page 17 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 of America, 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. PricewaterhouseCoopers LLP Hartford, Connecticut February 15, 2001 F-2 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) - ---------------------------------------------------------------------------------
In thousands except per-share data For the years ended December 31, 2000 1999 1998 - --------------------------------------------------------------------------------- Net sales $261,118 $274,984 $183,236 Cost of sales 192,472 206,600 125,424 .............................................................................. Gross margin 68,646 68,384 57,812 Selling, product development, and administrative expenses 49,663 50,643 44,600 Impairment loss -- -- 1,948 .............................................................................. Operating income 18,983 17,741 11,264 Other expense: Investment (income) loss (185) (46) 287 Interest expense 1,223 2,612 820 Loss on sale of operations 23,579 -- -- Foreign currency transaction loss (gain) 331 (961) (87) Other 16 (128) (132) .............................................................................. 24,964 1,477 888 .............................................................................. (Loss) income from continuing operations before income taxes (5,981) 16,264 10,376 Income tax (benefit) expense (2,365) 5,175 3,143 .............................................................................. (Loss) income from continuing operations (3,616) 11,089 7,233 .............................................................................. Discontinued operations: Income (loss) from operations of the Paperboard and Wovens Segments, net of tax expense (benefit) of $660, $880, and ($1,961), respectively 1,124 1,516 (3,031) Gain (loss) on disposal of the Wovens Segment, including provision for operating losses during the phase- out period, net of tax expense (benefit) of $44 and ($1,133), respectively 71 (1,830) -- .............................................................................. Income (loss) from discontinued operations 1,195 (314) (3,031) .............................................................................. Net (loss) income ($ 2,421) $ 10,775 $ 4,202 - --------------------------------------------------------------------------------- Basic (loss) earnings per common share Continuing operations ($ .23) $ .70 $ .46 Discontinued operations .08 (.02) (.19) Net (loss) income ($ .15) $ .68 $ .27 Weighted average common stock outstanding 15,778 15,715 15,847 - --------------------------------------------------------------------------------- Diluted (loss) earnings per common share Continuing operations ($ .23) $ .70 $ .45 Discontinued operations .08 (.02) (.19) Net (loss) income ($ .15) $ .68 $ .26 Weighted average common stock and equivalents outstanding 15,778 15,784 16,163 - --------------------------------------------------------------------------------- Net (loss) income ($ 2,421) $ 10,775 $ 4,202 Other comprehensive (loss) income: Foreign currency translation adjustments, net of (1,933) (5,295) 637 $1,029, $2,563, and ($180), in tax effect, respectively Unrealized loss on securities: Unrealized holding losses arising during period, -- -- (366) net of $103 in tax effect Less: reclassification adjustment for losses -- -- (344) included in net income .............................................................................. Unrealized loss on securities, net of $6 in tax effect -- -- (22) Minimum pension liability adjustment, net of $167, ($422), and $281 in tax effect, respectively (285) 784 (522) .............................................................................. Other comprehensive (loss) income, net of tax (2,218) (4,511) 93 .............................................................................. Comprehensive (loss) income ($ 4,639) $ 6,264 $ 4,295 - ---------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. F-3 - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------
In thousands except share data December 31, 2000 1999 - ------------------------------------------------------------------------------ Assets Current assets: Cash and cash equivalents $ 2,220 $ 1,154 Accounts receivable (less allowance for doubtful receivables of $644 in 2000 and $1,511 in 1999) 39,993 45,517 Inventories: Finished goods 9,933 8,529 Work in process 5,820 5,044 Raw materials and supplies 6,272 8,576 LIFO reserve (555) (1,619) ........................................................................... Total inventories 21,470 20,530 Taxes receivable 2,705 4,022 Prepaid expenses 1,632 1,895 Net investment in discontinued operations (Note 5) 14,285 2,125 Assets held for sale (Note 6) 6,200 35,183 Deferred tax assets 7,290 4,807 ........................................................................... Total current assets 95,795 115,233 ........................................................................... Property, plant, and equipment, at cost: Land 1,295 1,410 Buildings and improvements 23,247 24,779 Machinery and equipment 74,041 91,761 Office equipment 20,370 22,471 Vehicles 537 943 Assets in progress 7,221 5,464 ........................................................................... 126,711 146,828 Less accumulated depreciation (52,291) (66,272) ........................................................................... 74,420 80,556 Other noncurrent assets: Goodwill, at cost (net of accumulated amortization of $5,830 in 2000 and $4,652 in 1999) 18,069 19,444 Other assets, at cost (net of accumulated amortization of $6,237 in 2000 and $6,038 in 1999) 6,680 5,003 ........................................................................... 24,749 24,447 ........................................................................... Total assets $194,964 $220,236 - ------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. F-4 - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (CONTINUED) - ------------------------------------------------------------------------------
In thousands except share data December 31, 2000 1999 - ------------------------------------------------------------------------------ Liabilities and stockholders' equity Current liabilities: Cash overdraft $ 2,502 $ 2,564 Current portion of long-term debt 7,101 6,849 Accounts payable 16,652 18,438 Accrued taxes 844 920 Accrued payroll and other compensation 7,244 4,021 Liabilities related to assets held for sale (Note 6) 421 6,945 Other accrued liabilities 6,481 10,866 ........................................................................... Total current liabilities 41,245 50,603 ........................................................................... Long-term debt 24,927 38,334 Deferred tax liabilities 11,183 11,306 Other long-term liabilities 5,856 4,757 Commitments and contingencies (Notes 4 and 14) Stockholders' equity: Preferred stock -- -- Common stock, par value $.10 per share, authorized 30,000,000 shares, issued 21,962,275 shares in 2000 and 21,797,164 shares in 1999 2,196 2,180 Capital in excess of par value 40,335 39,195 Retained earnings 137,664 140,085 Accumulated other comprehensive loss (6,800) (4,582) ........................................................................... 173,395 176,878 Less cost of 6,097,388 shares of common stock in treasury in 2000 and 1999 (61,642) (61,642) ........................................................................... Total stockholders' equity 111,753 115,236 ........................................................................... Total liabilities and stockholders' equity $194,964 $220,236 - ------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. F-5 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------
Accumulated Capital in Other Cost of Total Preferred Common Excess of Retained Comprehensive Stock in Stockholders' In thousands Stock Stock Par Value Earnings (Loss) Income Treasury Equity - ------------------------------------------------------------------------------------------------------ Balance at January 1, 1998 $ -- $2,143 $36,510 $125,108 ($164) ($50,567) $113,030 Stock options exercised 27 1,439 1,466 Stock issued to Directors 1 103 104 Tax benefit from stock- based compensation 645 645 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 7 377 384 Stock issued to Directors 2 119 121 Tax benefit from stock- based compensation 2 2 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 Stock options exercised 15 815 830 Stock issued to Directors 1 155 156 Tax benefit from stock- based compensation 170 170 Net loss (2,421) (2,421) Other comprehensive loss (2,218) (2,218) .................................................................................................. Balance at December 31, 2000 $ -- $2,196 $40,335 $137,664 ($6,800) ($61,642) $111,753 - ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. F-6 - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------
In thousands For the years ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------------- Cash flows from operating activities: Net (loss) income ($ 2,421) $ 10,775 $ 4,202 ............................................................................ Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 9,925 11,946 8,844 Amortization 1,554 1,775 2,052 (Gain) loss on disposal of Wovens Segment (71) 1,830 -- Loss on sale of operations, net 23,579 -- -- Impairment loss -- -- 8,467 Gain on sale of investments (136) -- -- Gain on receipt of common stock from demutualization of insurance companies (393) -- -- Loss on disposition of property, plant and equipment, net 294 303 403 Foreign currency transaction loss (gain) 331 (961) (87) Stock-based compensation 156 121 104 Changes in operating assets and liabilities, excluding effects from acquisitions: Accounts receivable (6,306) 100 2,132 Taxes receivable 2,820 (1,764) 421 Inventories (3,740) (1,527) 333 Prepaid expenses and other assets (1,654) (1,292) 5 Accounts payable 1,819 (2,798) (895) Accrued taxes (321) (348) 343 Accrued payroll and other accrued liabilities (5,193) (469) (2,294) Deferred income taxes (3,232) 3,954 (5,600) Other long-term liabilities 246 (904) 2,651 ............................................................................ Total adjustments 19,678 9,966 16,879 ............................................................................ Net cash provided by operating activities 17,257 20,741 21,081 ............................................................................ Cash flows from investing activities: Acquisitions -- (281) (46,447) Additions of property, plant and equipment (19,767) (16,773) (17,657) Proceeds from sale of the Wovens Segment 1,819 -- -- Proceeds from the sale of operations 12,037 -- -- Proceeds from the sale of property, plant and equipment -- -- 276 Sale of investments, net 529 -- 3,851 ............................................................................ Net cash used for investing activities (5,382) (17,054) (59,977) ............................................................................ Cash flows from financing activities: Cash overdraft (62) 2,564 -- Long-term debt payments (164,410) (75,444) (3,484) Long-term debt proceeds 153,077 108,840 -- Proceeds from short-term borrowings -- 92,902 110,820 Payments of short-term borrowings -- (133,087) (66,245) Proceeds from stock option exercises 830 384 1,466 Acquisition of common stock -- (760) (10,315) ............................................................................ Net cash (used for) provided by financing activities (10,565) (4,601) 32,242 ............................................................................ Effect of exchange rate changes on cash (244) (186) 17 ............................................................................ Increase (decrease) in cash and cash equivalents 1,066 (1,100) (6,637) Cash and cash equivalents at beginning of year 1,154 2,254 8,891 ............................................................................ Cash and cash equivalents at end of year $ 2,220 $ 1,154 $ 2,254 - ------------------------------------------------------------------------------- Supplemental Schedule of Cash Flow Information - ------------------------------------------------------------------------------- Cash paid during the year for: Interest $ 1,606 $ 2,689 $ 734 Income taxes 1,042 5,016 6,231 Noncash transactions: Amounts payable for acquired operations -- -- 240 Additional minimum pension liability 452 1,206 999 Unrealized losses on available-for-sale securities -- -- (22) 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 Sheets. - ------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. F-7 - ------------------------------------------------------------------------------- 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 accounting principles generally accepted in the United States of America 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 original maturities 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 51 percent of the Company's 2000 net sales compared with 53 percent in 1999 and 32 percent in 1998. Sales to Ford Motor Co. represented 13 percent, 13 percent, and 19 percent of Lydall's net sales in 2000, 1999, and 1998, respectively. No other single customer accounted for more than 10 percent of net sales in 2000, 1999, or 1998. As of December 31, 2000, the Company had no other significant concentrations of risk. Inventories. Approximately 44 percent in 2000 and 37 percent in 1999 of inventories were 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. Property, plant, and equipment and depreciation. 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 asset category are as follows: - ---------------------------------------
Category Useful Life - --------------------------------------- Buildings and improvements 10-35 years Machinery and equipment 5-25 years Office equipment 2-8 years Vehicles 3-6 years - ---------------------------------------
For the year ended December 31, 2000, the Company capitalized $.4 million in interest expense. The Company capitalized $.1 million of interest expense in both 1999 and 1998. F-8 - ------------------------------------------------------------------------------- Pre-production design and development costs. The Company recognizes expenses related to pre-production design and development costs as incurred, unless reimbursement of such costs is contractually guaranteed by the customer, in which case, revenue and expense are recognized upon customer acceptance. At December 31, 2000, $2.2 million in tooling costs were categorized as work-in- process inventory. The Company also capitalizes costs to produce customer owned tooling related to long-term supply arrangements. At December 31, 2000, $.4 million was capitalized as other long-term assets, and is being amortized over periods not exceeding three years. Intangibles. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired companies. Goodwill and other intangibles are being amortized on a straight-line basis over periods not exceeding 25 years. Valuation of long-lived assets. The Company periodically evaluates the recoverability of long-lived assets. Should such evaluations indicate that related 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 such evaluations, certain machinery and goodwill were adjusted to fair value in 1998. Revenue recognition. Lydall recognizes revenue when the earnings process is complete and the risks and rewards of ownership have transferred to the customer. Research and development. Costs are charged to expense as incurred. Earnings per share. Basic earnings per common share are equal to net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share are equal to net income divided by the weighted average number of common shares outstanding during the period, including the effect of stock options and stock awards if 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 Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," 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. 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 prior year components of the financial statements have been reclassified to be consistent with current year presentation. Recently issued accounting standards. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," (FAS 133). FAS 133, as amended, became effective January 1, 2001 for the Company and requires that all derivative instruments be recorded on the balance sheet at their fair value. The adoption of this standard and related transition adjustments will not have a material impact on the Company's consolidated financial position, results of operations or cash flows. F-9 - ------------------------------------------------------------------------------- 2. Financial Instruments The Company held no investment instruments at December 31, 2000 or 1999. Gains of $136 thousand from the sale of securities were realized in 2000. No gains or losses were realized in 1999. Gains and losses of $1.1 million and $1.5 million, respectively, were realized on sales of securities in 1998. 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 $2.7 million and $1.3 million as of December 31, 2000 and 1999, 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, 2000 and 1999 approximates fair value. 3. Long-term Debt and Credit Arrangements On July 14, 1999, Lydall, Inc. and certain subsidiaries entered into a credit facility with a group of five banking institutions. At December 31, 2000, the facility is comprised of a $50 million domestic revolving credit facility, renewed every three years, of which $10.1 million was outstanding, and a Euro- denominated term loan, with an outstanding balance of $13.9 million, which is an obligation of one of Lydall's German subsidiaries. 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 Euro-denominated term loan bears interest equal to Euro LIBOR plus a percentage based on negotiated ratios. 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 facility, as amended, requires the Company to maintain certain financial ratios and other financial conditions. The facility 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 activities would reduce financial ratios below agreed upon levels. At June 30, 2000, a financial covenant of the Company's main credit facility dated July 14, 1999, was not met as a result of the capital expenditures required to support the significant amount of new automotive business which began to phase in during the latter half of 2000. A waiver of such non- compliance was obtained. In addition, effective August 10, 2000, the Company and its lenders amended certain covenants and conditions of the credit facility. The amendment provides increased flexibility to the Company with regard to strategic and operational financing needs. As of December 31, 2000, the Company was in compliance with all loan covenants and conditions. Certain foreign subsidiaries of the Company maintain additional lines of credit totaling $11.1 million of which $8.0 million was outstanding as of December 31, 2000. These credit facilities incur interest at rates ranging from 3.6 percent to 5.9 percent. Total long-term debt maturing in 2001, 2002, 2003, and 2004 is $7.1 million, $18.4 million, $4.3 million, $2.2 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. F-10 - -------------------------------------------------------------------------------
In thousands December 31 2000 1999 - ------------------------------------------ Credit Agreement revolving credit facility, effective rate 7.48% due 2002 $10,130 $18,025 Credit Agreement term loan, effective rate 4.3% due quarterly, collateralized by German subsidiary stock 13,947 17,697 Deutsche Bank, line of credit, effective rate 3.6-- 5.9%, due 2006, collateralized by certain fixed assets in Meinerzhagen, Germany 7,951 8,560 IKB Deutsche Industriebank of Dusseldorf term loan, effective interest rate 4.5%, due semiannnually -- 901 ....................................... 32,028 45,183 Less portion due within one year (7,101) (6,849) ....................................... $24,927 $38,334 - ------------------------------------------
4. Long-term Operating Leases Lydall has operating leases that resulted in an expense of $2.5 million in 2000, $3.0 million in 1999, and $2.6 million in 1998. These contracts include building, office equipment, vehicle, and machinery leases, which require payment of property taxes, insurance, repairs, and other operating costs. Future net lease commitments under noncancelable operating leases are: - -------------------------------------------------------------------------
In thousands 2001 2002 2003 2004 2005 Thereafter Total - ------------------------------------------------------------------------- Net lease payments $2,361 $2,171 $1,919 $1,720 $1,599 $1,255 $11,025 - -------------------------------------------------------------------------
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 an 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 a producer of automotive thermal and acoustical components for $9.2 million. The acquisition was accounted for under the purchase method. The results of this operation have been included in the Company's consolidated results since the date of acquisition. F-11 - ------------------------------------------------------------------------------- In January of 1998, a Lydall subsidiary funded the capitalization of Charter Medical Ltd. On February 6, 1998, Charter Medical Ltd. acquired a privately held company, Charter Med Inc., for $6.6 million in cash and a note for $720 thousand. The note was paid in 1999. The acquisition was accounted for under the purchase method. The results of the operation have been included in the Company's consolidated results since the date of acquisition. Dispositions In February 2001, the Company's Board of Directors adopted a plan to discontinue the operations of the Paperboard Segment, consisting principally of the Southern Products and Lydall & Foulds Divisions. Accordingly, the operating results of this Segment have been segregated from continuing operations and reported as discontinued operations for all years presented. Sales from the Paperboard Segment were $42.6 million, $43.5 million, and $41.0 million for the years ended December 31, 2000, 1999, and 1998, respectively. On February 1, 2001, the Company announced that the Lydall & Foulds Division would cease operations. Additionally, on February 5, 2001, the Company announced the sale of the Southern Products Division for $15 million in cash. The Company expects that a gain will result from the disposition of the Segment, which will be recognized in the first quarter of 2001. Paperboard Segment net assets to be disposed of, consisting primarily of accounts receivable, inventory, property, plant and equipment, certain intangibles and accounts payable, with an estimated net realizable value of $14.3 million, have been classified in the Consolidated Balance Sheet at December 31, 2000 as "Net Investment in Discontinued Operations." Effective September 30, 2000, the Company sold substantially all of the assets and certain liabilities of its chrome-plating and injection-molding operations of Lydall Gerhardi GmbH and Co. KG to Gerhardi Kunststofftechnik GmbH. The pre-tax loss on the sale amounted to $29.7 million, or $1.22 per share after- tax. At December 31, 1999, the assets and liabilities related to these operations were $28.8 million and $6.1 million and were included as part of "Assets Held for Sale" and "Liabilities Related to Assets Held for Sale," respectively. On January 28, 2000, the Company sold substantially all of the assets, net of certain liabilities, of the Composite Materials, Hoosick Falls Operation for approximately $12.0 million in cash, plus $660 thousand of liabilities assumed, resulting in a pre-tax gain of $6.1 million, or $.24 per diluted share after-tax. For the years ended December 31, 2000, 1999, and 1998, sales and income (loss) from operations of the Hoosick Falls Operation included in income from continuing operations were $.6 million, $10.7 million, and $10.3 million and ($10 thousand), $1.1 million, and $.5 million, respectively. At December 31, 1999, the assets and liabilities of this operation were $6.4 million and $.8 million, respectively, and were included as part of "Assets Held for Sale" and "Liabilities Related to Assets Held for Sale." 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. Sales from the Wovens Segment were $3.9 and $5.7 million for the years ended December 31, 1999 and 1998, respectively. In 1999, the Company recorded an estimated net loss on disposal of $1.8 million, or $.12 per share, associated with the disposition of this Segment. Wovens Segment net assets to be disposed of, consisting primarily of inventory, property, plant and equipment, and certain intangibles with an estimated net realizable value of $2.1 million, were classified in the Consolidated Balance Sheet at December 31, 1999 as "Net Investment in Discontinued Operations." F-12 - ------------------------------------------------------------------------------- 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. 6. Assets and Related Liabilities Held for Sale In November 2000, Lydall's Board of Directors formalized a plan to dispose of certain assets and related liabilities of the Company. As a result, assets of $6.2 million and related liabilities of $.4 million have been reclassified as "Assets Held for Sale" and "Liabilities Related to Assets Held for Sale" in the Consolidated Balance Sheet at December 31, 2000. For the years ended December 31, 2000, 1999, and 1998, sales and income (loss) from operations related to these assets were $6.5 million, $11.0 million, and $11.4 million and ($.2 million), $.8 million, and $.4 million, respectively. 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 2000, 1,615 Lydall stockholders of record held 15,864,887 shares of Common Stock. Approximately 4 percent of the Company's Common Stock was owned by Lydall officers and directors and their immediate families. Other Lydall employees, their families, and Lydall associates owned an additional 10 percent either directly or through participation in the Lydall, Inc., 401(k) Plan Trust. Stockholder Rights Plan. In the second quarter of 1999, the Company's Board of Directors adopted a Stockholder 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 the related 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. F-13 - ------------------------------------------------------------------------------- The following table provides a reconciliation of the income (loss) amounts and shares used to determine basic and diluted earnings (loss) per share. - -------------------------------------------------------------------------------------------------------------
For the Year Ended 2000 For the Year Ended 1999 For the Year Ended 1998 --------------------------- --------------------------- --------------------------- Loss Income Income from from from Continuing Per-Share Continuing Per-Share Continuing Per-Share Operations Shares Amount Operations Shares Amount Operations Shares Amount ---------- ------ --------- ---------- ------ --------- ---------- ------ --------- Basic (loss) earnings per share ($3,616) 15,778 ($.23) $11,089 15,715 $.70 $7,233 15,847 $.46 Effect of dilutive stock options -- -- -- -- 69 (.00) -- 316 (.01) ............................................................................................................ Diluted (loss) earnings per share ($3,616) 15,778 ($.23) $11,089 15,784 $.70 $7,233 16,163 $.45 - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- For the Year Ended 2000 For the Year Ended 1999 For the Year Ended 1998 --------------------------- --------------------------- --------------------------- Per-Share Per-Share Per-Share Net Loss Shares Amount Net Income Shares Amount Net Income Shares Amount ---------- ------ --------- ---------- ------ --------- ---------- ------ --------- Basic (loss) earnings per share ($2,421) 15,778 ($.15) $10,775 15,715 $.68 $4,202 15,847 $.27 Effect of dilutive stock options -- -- -- -- 69 (.00) -- 316 (.01) ............................................................................................................ Diluted (loss) earnings per share ($2,421) 15,778 ($.15) $10,775 15,784 $.68 $4,202 16,163 $.26 - -------------------------------------------------------------------------------------------------------------
Options to purchase 1,640,917 shares of Lydall Common Stock were excluded from the 2000 computation of diluted earnings per share because the effect would be antidilutive. Options to purchase 974,467 and 593,700 shares of Lydall Common Stock were excluded from the 1999 and 1998 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. 8. Stock Option Plans At December 31, 2000, the Company maintained two plans under which employees and directors had options to purchase Lydall Common Stock. Under each plan -- 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, limit the total dollar amount that can vest in one year for an individual to $100,000. The 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. F-14 - ------------------------------------------------------------------------------- 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 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 (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below: - ----------------------------------------------------------------------
In thousands except per-share data For the years ended December 31, 2000 1999 1998 - ---------------------------------------------------------------------- Net (loss) income As reported ($2,421) $10,775 $4,202 Pro forma ( 3,657) 9,556 3,228 Basic (loss) earnings per share As reported ($ .15) $ .68 $ .27 Pro forma ( .23) .61 .20 Diluted (loss) earnings per share As reported ($ .15) $ .68 $ .26 Pro forma ( .23) .61 .20 - ----------------------------------------------------------------------
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 2000, 1999, and 1998, respectively: zero dividend yield for all years; expected volatility of 47 percent, 50 percent, and 40 percent; risk-free interest rates of 5.3 percent, 6.7 percent, and 4.7 percent; and an expected eight-year life for 2000 and 1999 and a six-year life for 1998. The following is a summary of the status of the Company's stock option plans as of December 31, 2000, 1999, and 1998, and changes during the years then ended: - ---------------------------------------------------------------------------------------------
In thousands except per-share data 2000 1999 1998 - ---------------------------------- ------------------------ ------------------------ ------ Weighted-Average Weighted-Average Fixed Options Shares Exercise Price Shares Exercise Price Shares - ---------------------------------- ------ ---------------- ------ ---------------- ------ Outstanding at beginning of year 1,329 $13.96 1,263 $14.38 1,592 Granted 556 8.77 243 10.88 21 Exercised (150) 5.62 (68) 5.64 (274) Forfeited (94) 14.17 (109) 17.16 (76) ......................................................................................... Outstanding at end of year 1,641 $12.95 1,329 $13.96 1,263 ......................................................................................... Options exercisable at year-end 921 1,002 1,037 Shares reserved for grants 678 1,140 1,274 Weighted-average fair value per option granted during the year $ 5.24 $ 6.16 $ 7.37 - ---------------------------------------------------------------------------------------------
For 1998, the weighted-average exercise price for options outstanding at the beginning and end of the year was $13.14 and $14.38, respectively. Options with weight-average exercise prices of $15.86, $5.35, and $21.28 were granted, exercised, and forfeited in 1998, respectively. F-15 - ------------------------------------------------------------------------------- The following table summarizes information about stock options outstanding at December 31, 2000: - ---------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable --------------------------------------------- ---------------------------- Number Weighted-Average Number Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average Exercise Prices at 12/31/00 Contractual Life Exercise Price at 12/31/00 Exercise Price ---------------- ----------- ---------------- ---------------- ----------- ---------------- $ 6.50 -- $10.08 795,950 7.2 $ 8.98 266,389 $ 9.26 10.38 -- 11.75 332,777 6.0 10.74 178,828 10.57 13.13 -- 19.81 300,606 5.2 17.77 264,690 17.60 22.63 -- 26.00 211,584 5.3 24.49 211,584 24.49 ........................................................................................... $ 6.50 -- $26.00 1,640,917 6.3 $12.95 921,491 $15.41 - ---------------------------------------------------------------------------------------------
9. Employer-Sponsored Benefit Plans As of December 31, 2000 the Company maintains three defined benefit pension plans which cover substantially all domestic Lydall employees. In connection with the sale of the Hoosick Falls Operation, the Company transferred one defined benefit plan to the purchaser. 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: - ----------------------------------------------------------------------------
In thousands For the years ended December 31, 2000 1999 1998 - ---------------------------------------------------------------------------- Service cost $ 993 $1,412 $1,184 Interest cost 1,710 1,717 1,530 Expected return on assets (1,997) (1,814) (1,623) Amortization of: Transition asset (100) (103) (103) Prior service cost 11 19 12 Actuarial (gain) loss (5) 186 81 Special termination benefit and curtailment charges -- -- 85 ........................................................................ Net periodic benefit cost $ 612 $1,417 $1,166 - ----------------------------------------------------------------------------
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 $24.0 million, $20.9 million, and $20.2 million, respectively, as of December 31, 2000 and $25.8 million, $21.4 million, and $19.5 million, respectively, as of December 31, 1998. At December 31, 1999, there were no plans with an accumulated benefit obligation in excess of plan assets. F-16 - ------------------------------------------------------------------------------- Plan assets include investments in bonds and equity securities. The Company determines the assumed discount rate, expected long-term rate of return on plan assets, and annual compensation increase rate for each year. The following presents the assumptions and a summary of funded status for all plans: - ------------------------------------------------------------------
December 31, 2000 1999 - ------------------------------------------------------------------ Weighted average assumption: Discount rate 7.50% 7.75% Expected return on plan assets 9.25% 9.25% Rate of compensation increase 5.00% 5.00% - ------------------------------------------------------------------ - ------------------------------------------------------------------ In thousands December 31, 2000 1999 - ------------------------------------------------------------------ Change in benefit obligation: Net benefit obligation at beginning of year $22,093 $25,827 Service cost 993 1,412 Interest cost 1,710 1,717 Plan amendments (62) 30 Actuarial loss (gain) 668 (5,842) Divestitures (373) -- Gross benefits paid (1,045) (1,051) ............................................................... Net benefit obligation at end of year $23,984 $22,093 - ------------------------------------------------------------------ - ------------------------------------------------------------------ In thousands December 31, 2000 1999 - ------------------------------------------------------------------ Change in plan assets: Fair value of plan assets at beginning of year $22,300 $19,456 Actual return on plan assets (691) 3,253 Employer contributions -- 642 Divestitures (373) -- Gross benefits paid (1,045) (1,051) ............................................................... Fair value of plan assets at end of year 20,191 $22,300 ............................................................... Funded status at end of year ($3,793) $ 207 Unrecognized net actuarial loss (gain) 1,959 (1,337) Unrecognized prior service cost 258 384 Unrecognized net transition asset (216) (322) ............................................................... Net amount recognized ($1,792) ($ 1,068) ............................................................... Amounts recognized in the consolidated balance sheets consist of: Prepaid benefit cost $ 512 $ 663 Accrued benefit liability (2,304) (1,731) Additional minimum liability (873) -- Intangible assets 421 -- Accumulated other comprehensive income 452 -- ............................................................... Net amount recognized ($1,792) ($ 1,068) - ------------------------------------------------------------------
The Company also sponsors a Stock Purchase Plan and a 401(k) Plan. Contributions are determined under various formulas. Employer contributions to these plans amounted to $1.1 million in 2000, $1.7 million in 1999, and $1.9 million in 1998. F-17 - ------------------------------------------------------------------------------- 10. Postemployment, Postretirement, and Deferred Compensation Lydall provides health care and life insurance benefits to certain groups of retired and hourly employees. The amount of expense reflected in the Company's results from operations for 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") that provides supplemental income payments after retirement to senior executives. The net deferred compensation expense related to these three plans was $257 thousand in 2000, $327 thousand in 1999, and $564 thousand in 1998. 11. Impairment Loss No impairment losses were recorded in 2000 or in 1999. 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 related to the Wovens Segment, which is reported in discontinued operations. The remaining impairment losses related to fiber processing equipment at the Axohm Operation and equipment at the Green Island Operation. 12. Segment Information Lydall's reportable segments are: Thermal/Acoustical and Filtration/Separation. All other products are aggregated in Other Products and Services. In February 2001, the Company announced the discontinuation of the Paperboard Segment. The Segment consisted primarily of the Company's Southern Products and Lydall & Foulds Divisions. On February 1, 2001, the Company announced the closure of its Lydall & Foulds Division. In addition, on February 5, 2001 the Company sold the Southern Products Division. The results of the Paperboard Segment have been excluded from continuing operations for all years presented. During the fourth quarter of 1999, the Company announced the discontinuation of the Wovens 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 all years presented. Lydall evaluates performance and allocates resources based on sales and operating income. 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. In 2000, the Company removed its corporate charge from the calculation of operating income and, as a result, reclassified the 1999 and 1998 operating income amounts to conform to the current year presentation. 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(degrees) F (-237(degrees) C) to +3000(degrees) F (+1649(degrees) C). F-18 - ------------------------------------------------------------------------------- Filtration/Separation The Filtration/Separation Segment includes industrial air and liquid filtration products, vital fluids management systems sold to medical and biopharmaceutical markets, and separation and energy-related products. Other Products and Services The largest component of Other Products and Services is Lydall Transport, Ltd., a provider of total logistics packages as well as individual trucking and warehousing solutions. Other Products and Services also includes pencil slats made from recycled newsprint and cardboard, electrical insulation, assorted specialty products, and battery separators. Sales of a gasket manufacturer sold on January 28, 2000 are also included through the date of sale. 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, 2000, 1999, and 1998. - -----------------------------------------------------------------------------
In thousands Other for the years Thermal/ Filtration/ Products Reconciling Consolidated ended Acoustical Separation & Services Items Totals - ----------------------------------------------------------------------------- December 31, 2000 Sales $158,472 $67,913 $38,799 ($ 4,066) $261,118 Operating income $ 16,768 $10,210 $ 3,826 ($11,821) $ 18,983 ............................................................................ December 31, 1999 Sales $169,283 $58,994 $50,489 ($ 3,782) $274,984 Operating income $ 13,065 $ 8,466 $ 7,347 ($11,137) $ 17,741 ............................................................................ December 31, 1998 Sales $ 81,831 $55,935 $47,506 ($ 2,036) $183,236 Operating income $ 12,230 $ 7,573 $ 3,613 ($12,152) $ 11,264 - -----------------------------------------------------------------------------
A reconciliation of total segment sales to consolidated net sales and of total segment operating income to consolidated operating income for the years ended December 31, 2000, 1999, and 1998 is as follows: - ------------------------------------------------------------------------
In thousands For the years ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------ Sales Total segment sales $265,184 $278,766 $185,272 Elimination of intersegment sales (4,066) (3,782) (2,036) .................................................................... Consolidated net sales $261,118 $274,984 $183,236 - ------------------------------------------------------------------------ Operating Income Total segment operating income $ 30,804 $ 28,878 $ 23,416 Elimination of intersegment and corporate expenses (11,821) (11,137) (12,152) .................................................................... Consolidated operating income $ 18,983 $ 17,741 $ 11,264 - ------------------------------------------------------------------------
Asset information by reportable segment is not reported since the chief operating decision-maker does not use such information internally. F-19 - ------------------------------------------------------------------------------- Net sales and long-lived assets information by geographic area as of and for the years ended December 31, 2000, 1999, and 1998 is as follows: - -------------------------------------------------------------------
Net Sales Long-Lived Assets - ----------------------------------------- ------------------------- In thousands 2000 1999 1998 2000 1999 1998 - ------------------------------------------------------------------- United States $193,339 $185,879 $172,415 $79,659 $ 87,901 $ 97,537 France 11,498 13,809 10,821 7,518 8,244 8,983 Germany 56,281 75,296 -- 11,992 8,858 29,509 .................................................................. Total $261,118 $274,984 $183,236 $99,169 $105,003 $136,029 - -------------------------------------------------------------------
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, Ford Motor Co., which accounted for sales of $34.1 million, $36.8 million, and $35.0 million in 2000, 1999, and 1998, respectively. These sales are reported in the Thermal/Acoustical Segment. 13. Income Taxes The (benefit) provision for income taxes from continuing operations consists of the following: - --------------------------------------------------------------
In thousands For the years ended December 31, 2000 1999 1998 - -------------------------------------------------------------- Current Federal $5,495 $2,163 $2,622 State 1,117 428 739 Foreign (2,769) 289 (187) .......................................................... Total current $3,843 $2,880 $3,174 .......................................................... Deferred Federal $ 2,329 $2,859 $ 731 State (778) (163) (154) Foreign (7,759) (401) (608) .......................................................... Total deferred ($6,208) $2,295 ($31) .......................................................... (Benefit)/provision for income taxes ($2,365) $5,175 $3,143 - --------------------------------------------------------------
The following is a reconciliation of the difference between the actual provision for income taxes from continuing operations and the provision computed by applying the federal statutory tax rate on earnings. - ---------------------------------------------------------------------
For the years ended December 31, 2000 1999 1998 - --------------------------------------------------------------------- Statutory federal income tax rates (35.0%) 35.0% 35.0% ................................................................ State income taxes, net of federal tax deduction 8.5 2.6 5.6 Exempt FSC and foreign income (14.0) (5.7) (6.8) Tax exempt income -- (.5) (.1) Other 1.0 .4 (3.4) ................................................................ Effective income tax rates (39.5%) 31.8% 30.3% - ---------------------------------------------------------------------
F-20 - ------------------------------------------------------------------------------- The following is a schedule of the net current deferred tax assets and long- term deferred tax liabilities by tax jurisdiction as of December 31: - -----------------------------------------------------------------------------------------
2000 1999 ------------------------------------- ------------------------------------- Current Long-term Current Long-term DeferredTax DeferredTax DeferredTax DeferredTax In thousands Assets/Liabilities Assets/Liabilities Assets/Liabilities Assets/Liabilities - ----------------------------------------------------------------------------------------- Federal ($ 220) ($ 9,308) $3,758 ($ 7,657) State 140 (741) 744 (1,822) Foreign 7,370 (1,134) 305 (1,827) ........................................................................................ Total $7,290 ($11,183) $4,807 ($11,306) - -----------------------------------------------------------------------------------------
- -----------------------------------------------
In thousands 2000 1999 - ----------------------------------------------- Deferred tax assets Accounts receivable $ 294 $ 598 Inventories 745 1,032 Other accrued expenses 1,407 2,960 Intangible assets -- 2,574 Retirement accounts 2,546 1,939 Tax credits 406 -- Net operating losses 22,576 2,170 Discontinued operations -- 1,133 Other, net 278 1,155 .............................................. Total deferred tax assets 28,252 13,561 Deferred tax liabilities Property, plant and equipment 15,365 17,538 Assets held for sale 1,017 418 Discontinued operations 1,111 -- Intangible assets 770 -- .............................................. Total deferred tax liabilities 18,263 17,956 Valuation reserve 13,882 2,104 .............................................. Net deferred tax liabilities $ 3,893 $ 6,499 - -----------------------------------------------
The Internal Revenue Service is currently examining the Company's federal income tax return for 1997. Lydall's management believes any potential adjustments resulting from this examination will not be significant to the consolidated financial position, results of operations, or cash flows of the Company. F-21 - ------------------------------------------------------------------------------- 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. The preliminary 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 ("PRPs") 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 PRPs 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 PRPs, 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 PRPs. 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 spent public funds to investigate and take action with respect to the site. The EPA likely will seek to recover the funds it spent at the site from potentially responsible parties, including Lydall Eastern. Lydall Eastern has received a "Request for Information" from the EPA dated September 25, 2000, and has responded. 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-22 - ------------------------------------------------------------------------------- 15. Comprehensive Income The following table discloses the balance by classification within accumulated other comprehensive loss. - -------------------------------------------------------------------------------
Minimum Accumulated Foreign Unrealized Pension Other Currency Gain/(Loss) Liability Comprehensive In thousands Adjustment on Securities Adjustment Loss - ------------------------------------------------------------------------------- Beginning Balance January 1, 2000 ($4,582) $ -- $ -- ($4,582) Change Year-to-Date ( 1,933) -- (285) ( 2,218) .............................................................................. Ending Balance December 31, 2000 ($6,515) $ -- ($285) ($6,800) - ------------------------------------------------------------------------------- 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) - -------------------------------------------------------------------------------
16. Quarterly Financial Information (Unaudited) The following table summarizes quarterly financial information for 2000 and 1999, restated to reflect the discontinuation of the Paperboard Segment. In management's opinion, all adjustments necessary to present fairly the information for such quarters have been reflected below: - ----------------------------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter In thousands Except per-share data 2000 1999 2000 1999 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------- Net Sales $69,733 $71,519 $68,265 $72,782 $ 65,966 $64,843 $57,154 $65,840 Gross margin 17,598 16,733 17,588 18,393 17,312 17,449 16,149 15,809 Income (loss) from continuing operations 6,519 3,357 2,814 3,065 ( 15,967) 3,017 3,018 1,651 Gain (loss) from discontinued operations 286 725 372 540 241 232 296 ( 1,811) Net income (loss) $ 6,805 $ 4,082 $ 3,186 $ 3,605 ($ 15,726) $ 3,249 $ 3,314 ($ 160) ........................................................................................... Basic EPS Continuing operations $ 0.42 $ 0.21 $ 0.18 $ 0.20 ($ 1.01) $ 0.19 $ 0.19 $ 0.11 Discontinued operations 0.01 0.05 0.02 0.03 0.02 0.01 0.02 ( 0.12) Net income (loss) $ 0.43 $ 0.26 $ 0.20 $ 0.23 ($ 0.99) $ 0.20 $ 0.21 ($ 0.01) ........................................................................................... Diluted EPS Continuing operations $ 0.42 $ 0.21 $ 0.18 $ 0.20 ($ 1.01) $ 0.19 $ 0.19 $ 0.11 Discontinued operations 0.01 0.05 0.02 0.03 0.02 0.01 0.02 ( 0.12) Net income (loss) $ 0.43 $ 0.26 $ 0.20 $ 0.23 ($ 0.99) $ 0.20 $ 0.21 ($ 0.01) - ----------------------------------------------------------------------------------------------
The sum of earnings per share for the four quarters in 2000 and 1999 does not equal the earnings per share as reported in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the entire year due to rounding. F-23 - -------------------------------------------------------------------------------- Schedule II LYDALL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 - --------------------------------------------------------------------------------------------
Additions - ---------------------------------- --------------------- ---------------------------------- Charged To Charged To Other Balance At Costs and Accounts Deductions Balance At $ thousands January 1, Expenses Describe Describe December 31, - ---------------------- ---------- ---------- ---------- ---------- ------------ 2000 Allowance for doubtful receivables $1,511 $358 $(36)/2/ ($1,189)/1/,/6/,/7/ $ 644 LIFO reserve 1,619 209 -- ( 1,273)/3/,/7/ 555 Inventory obsolescence reserve 641 309 -- ( 657)/4/,/6/ 293 - -------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------
/1 /Uncollected receivables written off and adjustments to allowance. /2 /Recorded foreign currency translation adjustments. /3 /Adjustment of LIFO reserve for changes in inventory levels and cost. /4 /Write-off of obsolete inventory and adjustment to reserve level. /5 /Allowance for uncollected receivables recorded on Gerhardi's completed opening balance sheet. /6 /Elimination of allowance for uncollectible receivables and inventory reserve due to disposition of operations. /7 /Reduction due to the reclassification of the reserve to "Net Investment in Discontinued Operations" and "Assets Held for Sale." S-1 EXHIBIT INDEX ------------- Exhibit No. Description - ------- ----------- 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 Form10-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* 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). 10.3* 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). 10.4* Employment Agreement with Carole F. Butenas dated March 1, 2000 (filed as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.5* Employment Agreement with Mona G. Estey dated March 1, 2000 (filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.6* Employment Agreement with Mary A. Tremblay dated March 1, 2000 (filed as Exhibit 10.10 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.7* 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). 10.8* 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). 10.9* Amended and restated, 1992 Stock Incentive Compensation Plan, dated May 14, 1992, amended through March 10, 1999, filed herewith. 10.10* Employment Agreement with James P. Carolan dated March 1, 2000, filed herewith. 10.11* Employment Agreement with Christopher R. Skomorowski dated March 1, 2000 (filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.12* Employment Agreement with Walter A. Ruschmeyer dated March 16, 2000 (filed as Exhibit 10.16 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.13* Employment Agreement with Kevin G. Lynch dated March 1, 2000 (filed as Exhibit 10.17 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). Exhibit No. Description - ------- ----------- 10.14* Employment Agreement with Raymond S. Grupinski dated March 1, 2000 (filed as Exhibit 10.19 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.15* Employment Agreement with Bill W. Franks, Jr. dated March 1, 2000 (filed as Exhibit 10.20 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.16* Employment Agreement with Lisa Krallis-Nixon dated March 1, 2000 (filed as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K dated March 30, 2000, and incorporated herein by this reference). 10.17* Agreement with Thomas P. Smith dated May 1, 2000, filed herewith. 10.18* Agreement with Richard H. Kopp dated April 1, 2000, filed herewith. 10.19 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). 10.20 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). 10.21 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). 10.22 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). 10.23 Agreement and General Release with John E. Hanley dated February 2, 2000 (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q dated May 12, 2000, and incorporated herein by this reference). 10.24 Amendment dated August 10, 2000 to 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 14, 2000, and incorporated herein by this reference). 10.25 Spin-off and Transfer Agreement (English translation) between Lydall Gerhardi GmbH and Co. KG and Gerhardi Kunststofftechnik GmbH dated September 29, 2000, effective September 30, 2000 (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed October 16, 2000, and incorporated herein by this reference). 10.26 Purchase and Transfer Agreement (English translation) between Lydall Gerhardi GmbH and Co. KG and the management buyout group as set forth in the agreement, dated September 29, 2000, effective September 30, 2000 (filed as Exhibit 2.2 to the Registrant's Current Report on Form 8-K filed October 16, 2000, and incorporated herein by this reference). 10.27 Asset Purchase and Sale Agreement between Lydall Eastern, Inc. and Ludlow Building Products, Inc., dated February 5, 2001, filed herewith. 10.28* Amendment dated August 1, 2000 to the Employment Agreement with Mona G. Estey dated March 1, 2000, filed herewith. Exhibit No. Description - ------- ----------- 10.29* Amendment dated August 1, 2000 to the Employment Agreement with Mary A. Tremblay dated March 1, 2000, filed herewith. 10.30* Amendment dated August 1, 2000 to the Employment Agreement with Christopher R. Skomorowski dated March 1, 2000, filed herewith. 10.31* Amendment dated August 1, 2000 to the Employment Agreement with Walter A. Ruschmeyer dated March 16, 2000, filed herewith. 10.32* Amendment dated August 1, 2000 to the Employment Agreement with James P. Carolan dated March 1, 2000, filed herewith. 10.33* Amendment dated August 1, 2000 to the Employment Agreement with Kevin G. Lynch dated March 1, 2000, filed herewith. 10.34* Amendment dated August 1, 2000 to the Employment Agreement with Raymond S. Grupinski dated March 1, 2000, filed herewith. 10.35* Amendment dated August 1, 2000, to the Employment Agreement with Bill W. Franks, Jr. dated March 1, 2000, filed herewith. 10.36* Amendment dated August 1, 2000 to the Employment Agreement with Lisa Krallia-Nixon dated March 1, 2000, filed herewith. 21.1 List of subsidiaries of the Registrant, filed herewith. 23.1 Consent of PricewaterhouseCoopers LLP, filed herewith. 24.1 Power of Attorney, dated February 27, 2001, 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. 99.1 Press release dated October 2, 2000 titled "Lydall Completes Sale of Chrome-Plating and Injection-Molding Operations in Germany" (filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed October 16, 2000, and incorporated herein by this reference). * Management contract or compensatory plan. EX-3.1 2 0002.txt CERTIFICATE OF INCORPORATION 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 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. 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 (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 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. EX-10.9 3 0003.txt AMENDED & RESTATED 1992 STOCK INCENTIVE COMPENSATI Exhibit 10.9 BENEFIT PLAN - LYDALL, INC. 1992 STOCK INCENTIVE COMPENSATION PLAN 1. Purpose ------- The purpose of the Plan is to further the growth and prosperity of the Company and its Subsidiaries through payment of incentive compensation in the form of Common Stock to officers, key employees and directors and by encouraging investment in the Company's Common Stock by officers, key employees and directors who are in a position to contribute materially to the Company's prosperity. 2. Definitions ----------- Unless the context clearly indicates otherwise, the following terms, when used in this Plan, shall have the meanings set forth in this Section 2. "Annual Retainer" means the annual retainer payable to each Outside --------------- Director of the Company for each full year of service as such, the amount of which for purposes of this Plan may not be changed more than once every 12 months. "Award Period" means for each Restricted Stock Award, the period beginning ------------ with the date on which such Award is granted and ending on a date specified by the Committee at the time of the granting of such Award. In no event shall the Award Period be greater than ten (10) years. "Board of Directors" or "Board" means the Board of Directors of the ------------------ ----- Company. "Change in Control of the Company" means (i) an acquisition of the Company -------------------------------- by means of a merger or consolidation or purchase of substantially all of its assets if and when incident thereto (a) the composition of the Board of Directors or its successor changes so that a majority of the Board is not comprised of individuals who were members of the Board immediately prior to such merger, consolidation or purchase of assets or (b) the stockholders of the Company acquire a right to receive, in exchange for or upon surrender of their stock, cash or other securities or a combination of the two, or (ii) the acquisition by a Person (as that term is hereafter defined) of the voting rights with respect to 25 percent or more of the outstanding Common Stock of the Company if such person was not an officer or director of the Company on May 13, 1992. "Code" means the Internal Revenue Code of 1986, as amended, and any ---- successor Code, related rules, regulations and interpretations. "Committee" means the committee of the Board of Directors that has been --------- designated to administer the Plan. The Committee shall consist of not less than two members of the Board of Directors as so designated and appointed from time to time by the Board. To be eligible to serve as a member of the Committee, a director must qualify as (i) a "Non-Employee Director" within the meaning of Rule 16b-3(b)(3) promulgated under the Securities Exchange Act of 1934, as amended, and any successor to such rule, and (ii) an "Outside Director" within the meaning of Section 162(m) of the code and any successor to such Section. "Common Stock" means the common stock of the Company with the par value set ------------ forth in the Certificate of Incorporation. "Company" means Lydall, Inc. ------- "Director" means a member of the Board of Directors. -------- "Fair Market Value" means the closing sale price per share on the New York ----------------- Stock Exchange (or if not traded on the New York Stock Exchange, then on whatever national exchange the shares of the Common Stock of the Company are traded) on the day before the award date or on the day before the exercise date, as appropriate. If no trade occurred on the Exchange on the day before the award date or on the day before the exercise date, the closing sale price per share on the most recent date on which sales were reported will be substituted for the closing sale price on that day. "Incentive Award" means an Option, a Restricted Stock Award, a Stock Bonus --------------- Award, or a combination of them. "Incentive Stock Option" means an Option which meets the requirements of ---------------------- Section 422A of the Code. "Nonqualified Option" means an Option not qualifying for Incentive Stock ------------------- Option treatment under the Code. "Option" means a Nonqualified Option or Incentive Stock Option. ------ "Outside Director" means a member of the Board of Directors who, as of the ---------------- close of business on the date of grant of any Incentive Award hereunder, is not an employee of the Company or any of its Subsidiaries. "Person" - for purposes of the definition of "Change in Control of the ------ Company," a "person" means an individual, corporation, trust or other legal or commercial entity and includes two or more persons acting as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding, or disposing of securities of the Company. "Plan" means the Lydall, Inc. 1992 Stock Incentive Compensation Plan. ---- "Restricted Stock Award" means the right to receive a specified number of ---------------------- shares of Common Stock in annual installments over a designated Award Period. "Stock Bonus Award" means an award of shares of Common Stock to an Outside ----------------- Director pursuant to Section 6 or to an employee of the Company pursuant to Section 11 hereof. "Subsidiary" or "Subsidiaries" means a corporation or other form of ---------- ------------ business entity, more than 50 percent of the voting interest of which is owned or controlled, directly or indirectly, by the Company. 3. Shares of Common Stock Subject to the Plan ------------------------------------------ (a) Subject to the provisions of paragraph (c) of this Section 3 and Section 12, the total number of shares of Common Stock which may be issued or transferred under this Plan 1) upon exercise of Options; 2) when an Outside Director or employee becomes entitled to receive shares of stock pursuant to a Stock Bonus Award; and 3) under the terms of a Restricted Stock Award, shall not exceed 2,420,000 shares. (b) Shares to be issued or transferred to employees will be made available, at the discretion of the Board of Directors, either from authorized but unissued shares of Common Stock, or from shares of Common Stock held by the Company as treasury shares, including shares purchased in the open market. (c) If any share of Common Stock issuable or transferable under an Incentive Award is not issued or transferred and ceases to be issuable or transferable because (i) of the lapse, in whole or in part, of such Incentive Award; (ii), it is subject to the provisions of paragraph (b) of Section 9 or paragraph (d) Section 10, or (iii) for any other reason, the shares not so issued or transferred shall no longer be charged against the limitation provided for in paragraph (a) of this Section 3 and may again be used for Incentive Awards. 4. Administration of the Plan -------------------------- The Plan shall be administered by the Committee. The Committee shall have authority, in its discretion and after receiving the recommendations of the Chairman of the Company, to determine the employees to whom Incentive Awards will be granted, the time or times at which Incentive Awards will be granted, and the number of shares to be subject to each Incentive Award. In making such determinations, the nature of the services rendered by the respective employees, their present and potential contributions to the Company's success and such other factors deemed to be relevant will be taken into account. Subject to the express provisions of the Plan, the Committee shall also have authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the respective Incentive Award Agreements (which need not be identical) including the determination of whether Options granted will be designated as Incentive Stock Options and to make all other determinations necessary or advisable for the administration of the Plan. The Committee will hold its meetings at such times and places as it may determine. A majority of its members will constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. 5. Participation ------------- (a) Except as set forth in Sections 6, 7 and 8 hereof, Incentive Awards may be granted to officers and other key employees of the Company and its Subsidiaries. (b) From time to time the Chairman of the Company will determine and recommend to the Committee those officers and key employees of the Company and of its Subsidiaries who should be granted Incentive Awards, the type of Incentive Awards to be granted, and the number of shares subject to each Incentive Award; provided, however, that no person may be granted in any calendar year Incentive Awards covering more than 100,000 shares of Common Stock. The Committee shall approve or disapprove such recommendations. (c) Incentive Awards may be granted in the following forms: (i) a Restricted Stock Award, in accordance with Section 9, (ii) an Option, in accordance with Section 10, which may be designated as an Incentive Stock Option as that term is defined in Section 422A of the Code, (iii) a Stock Bonus Award, in accordance with Section 11, or (iv) a combination of the foregoing. 6. Stock Bonus Awards To Outside Directors in Lieu of Annual Cash Retainers. ------------------------------------------------------------------------ On June 30 and December 31 of each year during the term of the Plan, each person then serving as an Outside Director of the Company shall be granted a Stock Bonus Award in respect of that number of whole shares of Common Stock obtained by dividing fifty percent (50%) of the Annual Retainer then in effect by the Fair Market Value of a share of Common Stock as of the date of grant, in each case rounded upward to the nearest number of whole shares. The Stock Bonus Awards contemplated by this Section 6 shall be granted in lieu of any future cash payments to Outside Directors in respect of the Annual Retainer. 7. Non-Qualified Option Awards to Directors in Lieu of Cash-Based Retirement ------------------------------------------------------------------------- Benefits. -------- a) On December 31 of each year during the term of the Plan, each person then serving as an Outside Director and the Chairman of the Company shall be granted a Non-Qualified Option covering three hundred twenty-five (325) shares of Common Stock. The Non-Qualified Options contemplated by this Section 7 shall be granted in lieu of any future accruals under the Lydall, Inc. Board of Directors Deferred Compensation Plan. b) The purchase price of each share of Common Stock under a Non- Qualified Option granted under this section 7 shall be Fair Market Value of a share of Common Stock as of the date each such Non-Qualified Option is granted. c) Each Non-Qualified Option granted under this Section 7 shall become exercisable in three equal annual installments commencing as of the first anniversary of the date of grant and shall be exercisable until the earlier of ten (10) years from the date of grant or the expiration of the three (3) year period provided in paragraph (d) below. d) Whenever a recipient of Non-Qualified Option granted under this Section 7 ceases to be a Director of the Company for any reason whatsoever, all outstanding Non-Qualified options granted under this Section 7 then held by such person shall continue to vest and be exercisable in whole or in part for a period of three (3) years from the date on which such person ceases to be a Director of the Company; provided, however, that, if the effective date of any such cessation of service occurs on or before March 31 of any given year, the Non- Qualified Option granted as of the previous December 31 (and only that Non-Qualified Option), if any, shall continue to vest and be exercisable in whole or in part until March 31 of the year that is three (3) years from the date on which such person ceases to be a Director of the Company; and provided further that, in no event, shall any such Non-Qualified Option be exercisable beyond the ten (10) year term of the Option specified in paragraph (c) above. e) Except as set forth above, the terms and conditions of each Non- Qualified Stock Option granted under this Section 7 shall be specified in Section 10 below. 8. Additional Automatic Awards to Directors ---------------------------------------- a) On each of May 7, 1999 and May 7, 2002, each person then serving as a Director of the Company shall be granted a Non- Qualified Option covering the lesser of 9,000 shares of Common Stock or a number of shares of Common Stock having an aggregate Fair Market Value on the date of grant equal to $100,000. Each person who is first elected a Director of the Company after May 13, 1992 shall be granted, automatically upon such election, a Non-Qualified Option covering the lesser of 9,000 shares of Common Stock or a number of shares of Common Stock having an aggregate Fair Market Value on the date of grant equal to $100,000. The Non-Qualified Options contemplated by this Section 8 represent a continuation of the automatic awards of Non-Qualified Options to Directors approved by the stockholders of the Company at the 1992 Annual Meeting of Stockholders. b) The purchase price of each share of Common Stock under a Non- Qualified Option granted under this Section 8 shall be the Fair Market Value of a share of Common Stock as of the date each such Non-Qualified Option is granted. c) Each Non-Qualified Option granted under this Section 8 shall become exercisable in four equal annual installments commencing as of the first anniversary of the date of grant, provided the holder of such Non-Qualified Option is a Director or employee of the Company on such anniversary, and shall be exercisable until the earlier of ten (10) years from the date of grant or the expiration of the applicable period specified in paragraph (d) or (e) below. d) Each Non-Qualified Option granted under this Section 8 to an Outside Director of the Company shall terminate if and when the optionee shall cease to serve as a Director of the Company, except as follows: (i) If the optionee has continuously served as a Director of the Company for at least one year from the date of grant of a Non- Qualified Option and dies (x) while serving as a Director of the Company or (y) during any period after having ceased to be a Director when the Non-Qualified Option would otherwise be exercisable under subparagraph (ii) below, the Non-Qualified Option theretofore granted to him/her may be exercised by a representative of his/her estate provided that such Non-Qualified Option may be exercised only within six months after the date of death and prior to the expiration date specified in such Non-Qualified Option. (ii) If the optionee ceases for any reason (other than death) to be a Director of the Company subsequent to one year from the date of grant, such Non-Qualified Option may be exercised within three months from the date of such cessation and prior to the expiration date specified in such Non-Qualified Option. (iii) No Non-Qualified Option may be exercised for more than the number of shares for which the optionee might have exercised his/her Option at the time he/she ceased for any reason to be Director of the Company. e) Each Non-Qualified Option granted under this Section 8 to a Director who is an employee of the Company shall terminate in accordance with Section 10(e) below. f) Except as set forth above, the terms and conditions of each Non-Qualified Stock Option granted under this Section 8 shall be as specified in Section 10 below. 9. Restricted Stock Awards ----------------------- An Incentive Award in the form of a Restricted Stock Award shall be subject to the following provisions: (a) The restricted stock agreement shall specify (i) the number of shares of Common Stock to be transferred to the recipient over the Award Period, and (ii) the times at which portions of those shares shall be transferred to the recipient. In no event may shares be transferred before one year after the date of the Award, or later than ten years from such date, except, however, that for persons who are not officers of the Company, the Committee may waive any part of the one-year period after the date of the Award during which the shares may not be transferred. (b) The Restricted Stock Award shall terminate if the holder, with or without cause, shall cease to be an employee of the Company or any of its Subsidiaries and any installments of shares of Common Stock which have not yet become transferable to such holder shall be forfeited upon cessation of employment; provided, however, in the event that an employee's employment shall terminate as a result of death or disability, the foregoing provision of this subparagraph (b) shall not apply and all shares of stock subject to Restricted Stock Awards shall immediately become vested. (c) At the time an installment of shares of Common Stock is transferred to the holder of a Restricted Stock Award, an additional payment shall be made to such holder, either in cash or shares of Common Stock as the Committee shall determine in its sole discretion, in an amount equal to the cash dividends which would have been payable to the holder of the Restricted Stock Award in respect to the shares transferred to the holder at the time the Restricted Stock Award was granted. (d) Each Restricted Stock Award shall be evidenced by a written instrument containing terms and conditions determined by the Committee, consistent with the terms of the Plan. 10. Options ------- An Incentive Award in the form of an Option shall be subject to the following provisions: (a) At the time of grant, the Option shall specify (i) the number of shares of Common Stock which may be purchased by the recipient over the term of the Option; (ii) the times at which portions of such shares may be purchased by the recipient; and (iii) whether the Option is an Incentive Stock Option. No Option shall be deemed to be an Incentive Stock Option unless the Committee has so designated such Option and the Option states that it is an Incentive Stock Option. (b) The purchase price of each share of Common Stock under each Option will be at least 100 percent of the Fair Market Value of a share of Common Stock at the time of grant. (c) The Option must provide that it is not transferable and may be exercised solely by the person to whom granted, except as provided in paragraph (e) of this Section 10 in the event of such person's death. (d) Each Option granted to an employee will be subject to the condition that it may be exercised only if the optionee remains in the employ of the Company and/or a Subsidiary for at least one year after the date of the granting of the Option. An Option may be exercised at the times and in the amounts determined by the Committee. In no event, however, shall an Option be exercisable after ten years from the granting of the Option. (e) An Option granted to an employee shall terminate if and when the optionee shall cease to be an employee of the Company and its Subsidiaries, except as follows: (i) If an optionee who has been continuously employed by the Company or any of its Subsidiaries for at least one year from the date of grant of an Option dies (x) while employed by the Company or a Subsidiary, or (y) during any period after retirement or the termination of his/her employment when the Option would otherwise be exercisable under subparagraph (ii) below, the Option theretofore granted to him/her may be exercised (x) by the beneficiary designated pursuant to paragraph (g) of Section 13 or (y) in the absence of such designation, or if no such beneficiary survives the optionee, by a representative of such optionee's estate, provided that such Option may be exercised only within six months from the date of death and within ten years from the date of grant of the Option. (ii) If an optionee retires or if his/her employment with the Company or a Subsidiary is terminated for any reason (other than death) subsequent to one year from the date of grant of any Option, such Option may be exercised within three years (or such lesser period as the Option Agreement shall specify) from the date of such retirement or termination of employment, but in no event after ten years from date of grant of the Option; provided, however, that if such Option is an Incentive Stock Option, it may be exercised only within ninety (90) days (or such lesser period as the Option Agreement shall specify) from the date of such retirement or termination of employment, but in no event after ten years from the date of grant of the Option. (iii) Notwithstanding (i) and (ii) above, if an optionee is dismissed for cause, of which the Committee shall be the sole judge, his/her Option shall expire immediately upon termination. (iv) The Committee may determine that, for the purpose of the Plan, an employee who is on a leave of absence will be considered as still in the employ of the Company, provided that such leave of absence meets the requirements of Treasury Regulation ss.1.421-7(h) promulgated under the Code and provided that an Option shall be exercisable during a leave of absence only as to the number of shares which were exercisable at the commencement of such leave of absence. (v) No Option may be exercised for more than the number of shares for which the optionee might have exercised his/her Option at the time he/she ceased for any reason to be an employee of the Company or a Subsidiary. (f) A person electing to exercise an Option will give written notice to the Company of such election and of the number of shares he/she has elected to purchase and the date on which he/she wishes to exercise the Option. Any person exercising an Option may tender the full purchase price plus taxes, if applicable, in cash of the shares he/she has elected to purchase on the date specified by him/her for completion of such purchase. If authorized by the Chairman, in his discretion, at or after the time of grant, payment in full or in part may also be made by an employee of the Company in the form of shares of Common Stock not then subject to restric- tion under any Company plan (but which may include shares the disposition of which constitutes a disqualifying disposition for purposes of obtaining incentive stock option treatment for federal tax purposes); provided, however, that shares of Common Stock may not be used to pay any of the purchase price of an Option unless such shares have been owned by the employee for at lease six months, or such longer period as the Chairman shall determine, prior to being surrendered as payment in full or in part of the purchase price of an Option. Such surrendered shares shall be valued at "Fair Market Value." (g) The Option agreements or Option grants authorized by the Plan may contain such other provisions, consistent with the terms of the Plan, as the Committee shall consider advisable. (h) Incentive Stock Options may not be issued to any person who at the time of grant owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries. (i) The aggregate Fair Market Value (determined at the time an option is granted) of stock of the Company (including Common Stock) granted an employee to which Incentive Stock Options are exercisable for the first time by such employee during any calendar year (under all incentive stock option plans of the Company or its Subsidiaries) shall not exceed $100,000. 11. Stock Bonus Awards ------------------ A Stock Bonus Award may be granted to any employee of the Company or its Subsidiaries whom the Committee determines, upon recommendation of the Chairman of the Company, should be rewarded for exemplary performance, subject to the following provisions: (a) The Committee shall determine, in its discretion, the number of shares of stock to be granted pursuant to a Stock Bonus Award and the time at which an Award shall be made. (b) A Stock Bonus Award shall be evidenced by the delivery to the employee of a stock certificate representing the shares awarded. (c) Shares of Common Stock transferred pursuant to a Stock Bonus Award shall be subject only to such conditions as are directed by the Board of Directors in accordance with Section 13(a) hereof. 12. Adjustment Provisions --------------------- Except as otherwise provided herein, the following provisions shall apply to all Common Stock authorized for issuance, and optioned, granted or awarded under the Plan: (a) Stock Dividends, Splits, etc. In the event of a stock dividend, stock split, or other subdivision or combination of the Common Stock, the number of shares of Common Stock authorized under the Plan will be adjusted proportionately. Similarly, in any such event there will be a proportionate adjustment in the number of shares of Common Stock subject to unexercised Options (but without adjustment to the aggregate option price) and in the number of shares of Common Stock then subject to Restricted Stock Awards. (b) Divisive Reorganization, Merger, Exchange or other Reorganization. In the event that the outstanding shares of Common Stock are changed or converted into, exchanged or exchangeable for, a different number or kind of shares or other securities of the Company or of another corporation, by reason of a reorganization, merger, consolidation, reclassification or combination, or in the event that the Company engages in a divisive reorganization, such as a spin-off of any significant portion of its business, the total number of shares of Common Stock which may be issued under the Plan shall be appropriately adjusted and appropriate adjustment shall be made by the Committee in the number of shares, kind of Common Stock and/or the Option price for which Incentive Awards may be or may have been awarded under the Plan, to the end that the proportionate interests of participants and inherent values of outstanding Incentive Awards shall be maintained as before the occurrence of such event. (c) Adjustments. Adjustments under this Section 12 shall be made by the Committee whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. No fractional shares of Common Stock shall be issued under the Plan on account of any such adjustments. (d) Change in control of the Company. If, and at such time as, a "change in control of the Company" (as defined in Section 2) shall have occurred, any and all provisions of any and all outstanding Incentive Awards which condition the right to exercise such Incentive Awards upon the holder of any such Incentive Award having been an employee of the Company or any of its Subsidiaries or a director of the Company for a period of time shall be deemed to have been rescinded, so that such holder, upon the occurrence of such change in control, shall have the right to exercise such Incentive Award in full, (including, in the case of Restricted Stock Awards, the right to be issued the stock awarded and any dividend accrued thereon), irrespective of whether such holder has been an employee or director for the period of time specified in the Incentive Award; provided, however, if any such recision would cause the maximum period during which an Option may be exercised or a Restricted Stock Award transferred to exceed nine years, such recision shall not occur with respect to such Option or Restricted Stock Award unless and until such Option or Restricted Stock Award is amended, with the consent of the holder, to reduce such maximum period to nine years or less. 13. General Provisions ------------------ (a) With respect to any shares of Common Stock issued or transferred under the provisions of this Plan, such shares may be issued or transferred subject to such conditions, in addition to those specifically provided in the Plan, as the Committee may direct. (b) Nothing in the Plan or in any instrument executed pursuant thereto will confer upon any employee any right to continue in the employ of the Company or a Subsidiary or will affect the right of the Company or of a Subsidiary to terminate the employment of any employee with or without cause. Nothing in the Plan or in any instrument executed pursuant thereto will confer upon any Director of the Company any right to continue in such capacity or will affect the right of stockholders to remove or not reelect such person as a Director of the Company with or without cause. (c) No shares of Common Stock will be issued or transferred pursuant to an Incentive Award unless and until all legal requirements applicable to the issuance or transfer of such shares have, in the opinion of counsel to the Company, been complied with. In connection with any such issuance or transfer, the person acquiring the shares will, if requested by the Company, give written assurances satisfactory to counsel to the Company that the shares are being acquired for investment and not with a view to resale or distribution thereof and assurances in respect of such other matters as the Company or a Subsidiary may consider desirable to assure compliance with all applicable legal requirements. (d) No employee (individually or as a member of a group), and no beneficiary or other person claiming under or through him/her, will have any right, title or interest in any shares of Common Stock allocated or reserved for the purposes of the Plan or subject to any Incentive Award except as to such shares of Common Stock, if any, as shall have been issued or transferred to him/her and except as otherwise provided in Section 14(a). (e) In the case of any employee of a Subsidiary, the Committee may direct the Company to issue the shares covered by the Incentive Award to the Subsidiary for such lawful consideration as the Committee may specify upon the condition that the Subsidiary will transfer the shares to the employee in accordance with the terms of the Incentive Award. Notwithstanding any other provision of this Plan, an Incentive Award, excluding an Incentive Stock Option, may be issued by and in the name of the Subsidiary and shall be considered granted on the date it is approved by the Committee, on the date it is delivered by the Subsidiary, or on such other date between such two dates as the Committee will specify. For options which are intended to qualify as Incentive Stock Options, the date of grant shall be determined in accordance with the applicable regulations under the Code. (f) The Company or a Subsidiary may make such provisions as it may consider appropriate for the withholding of any taxes which the Company or Subsidiary determines it is required to withhold in connection with any Incentive Award. (g) No Incentive Award and no rights under the Plan, contingent or otherwise, shall be assignable, transferable or subject to any encumbrance, pledge or charge of any nature, provided that, under such rules and regulations as the Committee may establish pursuant to the terms of the Plan, a beneficiary may be designated in respect of an Incentive Award in the event of the death of the holder of such Incentive Award and provided, also, that if such beneficiary shall be the executor or administrator of the estate of the holder of such Incentive Award, any rights in respect of such Incentive Award may be transferred to the person or persons or entity (including a trust) entitled thereto under the will of the holder of such Incentive Award or, in case of intestacy, under the laws relating to intestacy. (h) Nothing in the Plan is intended to be a substitute for, or shall preclude or limit the establishment or continuation of, any other plan, practice or arrangement for the payment of directors' fees or compensation or fringe benefits to employees generally, or to any class or group of employees, which the Company or any Subsidiary now has or may hereafter lawfully put into effect, including, with limitation, any retirement, pension, insurance, stock purchase, incentive compensation or bonus plan. (i) Except as the Delaware Corporation law otherwise may require, the place of administration of the Plan will conclusively be deemed to be within the State of Connecticut and the validity, construction, interpretation and administration of the Plan and of any rules and regulations or determinations or decisions made thereunder, will be governed by, and determined exclusively and solely in accordance with, the laws of the State of Connecticut. Without limiting the generality of the foregoing, the period within which any action arising under or in connection with the Plan, or any payment or Award made or purportedly made under or in connection therewith, must be commenced and will be governed by the laws of the State of Connecticut, irrespective of the place where the act or omission complained of took place and of the residence of any party to such action and irrespective of the place where the action may be brought. 14. Amendment, Suspension and Termination of Plan --------------------------------------------- (a) The Board of Directors may at any time terminate, suspend or amend the Plan, provided, however, that no such amendment will, without approval of the stockholders of the Company, except as provided in Section 12 hereof, (i) materially increase the aggregate number of shares which may be issued in connection with Incentive Awards; (ii) change the minimum Option exercise price; (iii) increase the maximum period during which Options may be exercised, or Restricted Stock Awards transferred; (iv) extend the effective period of this Plan; or (v) materially modify the requirements as to eligibility for participation in the Plan. (b) The Committee may, with the consent of the person by whom a Restricted Stock Award or an Option is held, modify or change the terms of any Option or Restricted Stock Award in a manner which does not conflict with the provisions of the Plan. 15. Effective Date and Duration of Plan ----------------------------------- This Plan becomes effective upon its approval by the stockholders of the Company on May 13, 1992. Any amendment to this Plan will become effective upon approval by Directors, unless stockholder approval is deemed necessary, in which case such amendment shall become effective upon approval by stockholders. Unless previously terminated by the Board of Directors, this Plan shall terminate at the close of business on May 12, 2002, and no Restricted Stock Award or Option may be granted under it thereafter, but such termination shall not affect any Incentive Award theretofore granted. As amended March 10, 1999. EX-10.10 4 0004.txt EMPLOYMENT AGREEMENT WITH JAMES P. CAROLAN 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 James P. Carolan (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, 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 the ------ Executive's employment under this Agreement, the Executive will serve as Executive Vice President of the Company and/or 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 -2- efforts to the affairs of the Company and its subsidiaries and his duties as Executive Vice President of the Company and/or Division President of a subsidiary of the Company. The Executive will have such duties as are appropriate to his position as Executive Vice President of the Company and/or Division President of a subsidiary of the Company, 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 Three Hundred Fifteen Thousand Dollars ($315,000). 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 -3- 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), 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, -4- 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) 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 -5- 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 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 -6- 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); 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 va- -7- cation 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 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 -8- 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 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 -9- 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 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 -10- 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 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 -11- 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 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. -12- (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. (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 -13- 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, 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 de- -14- scribed 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 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: James P. Carolan 11 Runnymede Drive North Hampton, NH 03862 -15- 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 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. -16- 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 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 -17- 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 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. -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 --------------------------------- ----------- James P. Carolan Date EX-10.17 5 0005.txt AGREEMENT WITH THOMAS P. SMITH Exhibit 10.17 SEVERANCE AGREEMENT ------------------- THIS AGREEMENT is made this 1st day of May 2000 by and between LYDALL, INC. (the "Company") and Thomas P. Smith (the "Employee"). WHEREAS, the Employee has been offered employment as Vice President - Controller of the Company, reporting to the Company's Executive Vice President - Finance and Administration, Chief Financial Officer, until or unless terminated; and WHEREAS, the Employee desires to accept the offer of employment upon receipt of certain promises of severance in the event of a change of control of the Company; NOW THEREFORE, the Company and Employee, in consideration of the mutual promises set forth below, agree as follows: 1. If the Employee is terminated by the Company other than for "Cause" (as defined in Section 2) and such termination of employment occurs within 12 months following a "Change of Control" of the Company (as defined in Section 2), the Employee shall be entitled to the following: a. The Company shall pay to the Employee his base salary earned through the date of such termination of employment, and any other compensation and benefits to the extent actually earned by the Employee 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 reimburse the Employee for any business expenses incurred prior to termination, in accordance with the Company's business expense reimbursement policy. c. The Company shall pay to the Employee 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 paid under the Company's annual incentive bonus plan for any of the five calendar years preceding his termination of employment (or, if the Employee 1 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 Employee was eligible). 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 Employee 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 Employee's maximum bonus opportunity under the Company's annual incentive bonus plan for the calendar year of termination of the Employee's employment or, if none, such portion of the bonus awarded to the Employee under the Company's annual incentive bonus plan for the calendar year immediately preceding the calendar year of the termination of his employment. Such portion shall be determined by dividing the number of days of the Employee'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 Employee shall have no right to any further bonuses under said plan. e. During the period of 24 months beginning on the date of the Employee's termination of employment, the Employee (and, if applicable, the Employee'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 Employee immediately prior to his termination of employment as if the Employee had remained in employment for such period; provided, however, that the coverage under any such plan is conditioned on the timely payment by the Employee (or his spouse or dependent children) of the portion of the premium for such coverage that actively employed Employees with the Company generally are required to pay for such coverage. In the event that the Employee's participation in any such plan is barred, the Company shall arrange to provide the Employee (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). 2 f. The Company shall supplement the benefits payable in respect of the Employee under the Company's Pension Plan (and any successor plans thereto)(collectively, the "Pension Plans") by paying the difference between (i) the benefits that the Employee 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 Employee's employment and (ii) the benefits that the Employee 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 Employee and outstanding immediately prior to termination of his employment shall be fully vested and immediately exercisable and may be exercised by the Employee (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). h. The Company will pay the Employee a car allowance of $500 per month for 24 months following termination of the Employee's employment to replace the Company-leased automobile. The leased automobile must be returned to the Company by the Employee on the date of termination of the Employee's employment. i. The Company will provide the Employee with out-placement services selected by the Employee, 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 Employee 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 Employee substantially prevails. 2. Definitions ----------- a. Change of Control. For the purposes of this 3 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. b. Cause. The word "cause", as used in this Agreement, shall mean (i) conviction of a crime involving moral turpitude, or (ii) material and unexcused breach by Executive of his obligations under this Agreement, which results in material harm to the Company and which is not cured within the period set forth below; provided, however, that a termination shall not be for "cause" hereunder unless, such conviction or breach is detailed in a written notice of intent to terminate by the Board, providing for sixty (60) days from receipt by Executive to cure the breach prior to termination of Executive; except that such notice would not be required if, in the Chairman, President and Chief Executive Officer's discretion, the Company would be immediately harmed. 4 3. Golden Parachute Excise Tax. --------------------------- a. In the event that any payment or benefit received or to be received by the Employee 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 Employee 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 Employee 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 Employee 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 Employee 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 3 shall be made by a nationally recognized independent accounting firm mutually agreeable to the Company and the Employee (the "Accounting Firm") which shall provide detailed supporting calculations to the Company and the Employee as requested by the Company or the Employee. 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 Employee as incurred or billed by the Accounting Firm. All determinations made by the Accounting Firm pursuant to this Section 3 shall be final and binding upon the Company and the Employee. c. To the extent any payment or benefit is to be 5 reduced pursuant to this Section 3, the severance payment described in Section 1(c) will first be reduced, then the bonus described in Section 1(d), and then the supplemental pension benefits described in Section 1(f), in each case only to the extent necessary. 4. 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 Employee or his spouse, dependents or beneficiaries may have pursuant to any other plan or program of the Company. 5. General Provisions. ------------------ 5.1 No Duty to Seek Employment. The Employee 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 Employee hereunder shall be reduced or suspended if the Employee accepts subsequent employment, except as expressly set forth herein. 5.2 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 Employee and any deductions and withholdings required by law. 5.3 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 or deposited in the United States mail, postage prepaid, addressed as follows: To the Company: Lydall, Inc. P.O. Box 151 One Colonial Road Manchester, CT 06045-0151 Attn: Executive Vice President - Finance and Administration Chief Financial Officer To the Employee: Thomas P. Smith 84 Stony Corners Road Avon, CT 06001 6 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. 5.4 No Disparagement. The Employee 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 Employee agrees that the terms of this Section 5.4 shall survive the term of this Agreement and the termination of the Employee's employment. 5.5 Proprietary Information and Inventions. The Lydall Employee Agreement -------------------------------------- previously executed by the Employee and attached hereto as Exhibit A is incorporated by reference in this Agreement, and the Employee agrees to continue to be bound thereby. 5.6 Covenant to Notify Management. The Employee agrees to abide by the ethics ----------------------------- policies of the Company as well as the Company's other rules, regulations, policies and procedures. The Employee agrees to comply in full with all governmental laws and regulations as well as ethics codes applicable. In the event that the Employee 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 Employee agrees to bring all such actual and suspected violations to the attention of the Board of Directors of the Company immediately so that the matter may be properly investigated and appropriate action taken. The Employee understands that the Employee is precluded from filing a complaint with any governmental agency or court having jurisdiction over wrongful conduct unless the Employee has first notified the Board of Directors of the Company of the facts and permits it to investigate and correct the concerns. 5.7 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 Employee 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 7 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. 5.8 Beneficial Interests. This Agreement shall inure to the benefit of and be -------------------- enforceable by a) the Company's successors and assigns and b) the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee 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 Employee's devisee, legatee, or other designee or, if there be no such designee, to the Employee's estate. 5.9 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 and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform. 5.10 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 5.10, 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. 5.11 Choice of Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Connecticut. 5.12 Statute of Limitations. The Employee 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 Employee's employment by the Company. If such a claim is filed more than one year subsequent to the Employee's last day 8 of employment it shall be precluded by this provision, regardless of whether or not the claim has accrued at that time. 5.13 Right to Injunctive and Equitable Relief. The Employee's obligations under ---------------------------------------- Sections 5.4 and 5.5 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 Employee breaches such obligations. Therefore, the Employee 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 Employee and the rights and remedies of the Company under this Agreement are cumulative and in addition to, and not in lieu of, any obligations, rights, or remedies as created by applicable law. 5.14 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. 5.15 Entire Agreement. This Agreement, along with the Lydall Employee Agreement ---------------- (Exhibit A) by and between the Employee 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. 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. 5.16 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. 9 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: ------------------------------------ ------------ Walter A. Ruschmeyer Date Executive Vice President - Finance and Administration Chief Financial Officer ------------------------------------ ------------ Thomas P. Smith Date 84 Stony Corners Road Avon, CT 06001 10 EX-10.18 6 0006.txt AGEEMENT WITH RICHARD H. KOPP Exhibit 10.18 SEVERANCE AGREEMENT ------------------- THIS AGREEMENT is made this 1st day of April 2000 by and between LYDALL, INC. (the "Company") and Richard H. Kopp (the "Employee"). WHEREAS, the Employee has been offered employment as Chief Information Officer of the Company, reporting to the Company's Chief Executive Officer, until or unless terminated; and WHEREAS, the Employee desires to accept the offer of employment upon receipt of certain promises of severance in the event of a change of control of the Company; NOW THEREFORE, the Company and Employee, in consideration of the mutual promises set forth below, agree as follows: 1. If the Employee is terminated by the Company other than for "Cause" (as defined in Section 2) and such termination of employment occurs within 12 months following a "Change of Control" of the Company (as defined in Section 2), the Employee shall be entitled to the following: a. The Company shall pay to the Employee his base salary earned through the date of such termination of employment; and any other compensation and benefits to the extent actually earned by the Employee 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 reimburse the Employee for any business expenses incurred prior to termination, in accordance with the Company's business expense reimbursement policy. c. The Company shall pay to the Employee 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 paid under the Company's annual incentive bonus plan for any of the five calendar years preceding his termination of employment (or, if the Employee was not eligible for a bonus for at least three calendar years 1 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 Employee was eligible). 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 Employee 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 Employee's maximum bonus opportunity under the Company's annual incentive bonus plan for the calendar year of termination of the Employee's employment or, if none, such portion of the bonus awarded to the Employee under the Company's annual incentive bonus plan for the calendar year immediately preceding the calendar year of the termination of his employment. Such portion shall be determined by dividing the number of days of the Employee'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 Employee shall have no right to any further bonuses under said plan. e. During the period of 24 months beginning on the date of the Employee's termination of employment, the Employee (and, if applicable, the Employee'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 Employee immediately prior to his termination of employment as if the Employee had remained in employment for such period; provided, however, that the coverage under any such plan is conditioned on the timely payment by the Employee (or his spouse or dependent children) of the portion of the premium for such coverage that actively employed Employees with the Company generally are required to pay for such coverage. In the event that the Employee's participation in any such plan is barred, the Company shall arrange to provide the Employee (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 Employee under the Company's Pension Plan (and 2 any successor plans thereto) (collectively, the "Pension Plans") by paying the difference between (i) the benefits that the Employee 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 Employee's employment and (ii) the benefits that the Employee 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 Employee and outstanding immediately prior to termination of his employment shall be fully vested and immediately exercisable and may be exercised by the Employee (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). h. The Company will pay the Employee a car allowance of $500 per month for 24 months following termination of the Employee's employment to replace the Company-leased automobile. The leased automobile must be returned to the Company by the Employee on the date of termination of the Employee's employment. i. The Company will provide the Employee with out-placement services selected by the Employee, 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 Employee 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 Employee substantially prevails. 2. Definitions ----------- a. 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 3 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. b. Cause. The word "cause", as used in this Agreement, shall mean (i) conviction of a crime involving moral turpitude, or (ii) material and unexcused breach by Executive of his obligations under this Agreement, which results in material harm to the Company and which is not cured within the period set forth below; provided, however, that a termination shall not be for "cause" hereunder unless, such conviction or breach is detailed in a written notice of intent to terminate by the Board, providing for sixty (60) days from receipt by Executive to cure the breach prior to termination of Executive; except that such notice would not be required if, in the Chairman, President and Chief Executive Officer's discretion, the Company would be immediately harmed. 4 3. Golden Parachute Excise Tax. --------------------------- a. In the event that any payment or benefit received or to be received by the Employee 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 Employee 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 Employee 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 Employee 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 Employee 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 3 shall be made by a nationally recognized independent accounting firm mutually agreeable to the Company and the Employee (the "Accounting Firm") which shall provide detailed supporting calculations to the Company and the Employee as requested by the Company or the Employee. 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 Employee as incurred or billed by the Accounting Firm. All determinations made by the Accounting Firm pursuant to this Section 3 shall be final and binding upon the Company and the Employee. c. To the extent any payment or benefit is to be reduced pursuant to this Section 3, the severance payment 5 described in Section 1(c) will first be reduced, then the bonus described in Section 1(d), and then the supplemental pension benefits described in Section 1(f), in each case only to the extent necessary. 4. 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 Employee or his spouse, dependents or beneficiaries may have pursuant to any other plan or program of the Company. 5. General Provisions. ------------------ 5.1 No Duty to Seek Employment. The Employee 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 Employee hereunder shall be reduced or suspended if the Employee accepts subsequent employment, except as expressly set forth herein. 5.2 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 Employee and any deductions and withholdings required by law. 5.3 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 or deposited in the United States mail, 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 Employee: Richard H. Kopp 759 Avery Street South Windsor, CT 06074 6 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. 5.4 No Disparagement. The Employee 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 Employee agrees that the terms of this Section 5.4 shall survive the term of this Agreement and the termination of the Employee's employment. 5.5 Proprietary Information and Inventions. The Lydall Employee Agreement -------------------------------------- previously executed by the Employee and attached hereto as Exhibit A is incorporated by reference in this Agreement, and the Employee agrees to continue to be bound thereby. 5.6 Covenant to Notify Management. The Employee agrees to abide by the ethics ----------------------------- policies of the Company as well as the Company's other rules, regulations, policies and procedures. The Employee agrees to comply in full with all governmental laws and regulations as well as ethics codes applicable. In the event that the Employee 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 Employee agrees to bring all such actual and suspected violations to the attention of the Board of Directors of the Company immediately so that the matter may be properly investigated and appropriate action taken. The Employee understands that the Employee is precluded from filing a complaint with any governmental agency or court having jurisdiction over wrongful conduct unless the Employee has first notified the Board of Directors of the Company of the facts and permits it to investigate and correct the concerns. 5.7 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 Employee 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 7 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. 5.8 Beneficial Interests. This Agreement shall inure to the benefit of and be -------------------- enforceable by a) the Company's successors and assigns and b) the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee 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 Employee's devisee, legatee, or other designee or, if there be no such designee, to the Employee's estate. 5.9 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 and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform. 5.10 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 5.10, 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. 5.11 Choice of Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Connecticut. 5.12 Statute of Limitations. The Employee 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 Employee's employment by the Company. If such a claim is filed more than one year subsequent to the Employee's last day 8 of employment it shall be precluded by this provision, regardless of whether or not the claim has accrued at that time. 5.13 Right to Injunctive and Equitable Relief. The Employee's obligations under ---------------------------------------- Sections 5.4 and 5.5 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 Employee breaches such obligations. Therefore, the Employee 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 Employee and the rights and remedies of the Company under this Agreement are cumulative and in addition to, and not in lieu of, any obligations, rights, or remedies as created by applicable law. 5.14 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. 5.15 Entire Agreement. This Agreement, along with the Lydall Employee Agreement ---------------- (Exhibit A) by and between the Employee 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. 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. 5.16 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. 9 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 --------------------------------- ---------------- Richard H. Kopp Date 759 Avery Street South Windsor, CT 06074 10 EX-10.27 7 0007.txt ASSET PURCHASE & SALE AGREEMENT EXHIBIT 10.27 ASSET PURCHASE AND SALE AGREEMENT Dated as of February 5, 2001 By and Between LUDLOW BUILDING PRODUCTS, INC. "Ludlow" and LYDALL EASTERN, INC. "Lydall" ASSET PURCHASE AND SALE AGREEMENT This ASSET PURCHASE AND SALE AGREEMENT ("Agreement") dated February 5, 2001 is by and between Ludlow Building Products, Inc., a corporation organized under the laws of the State of Virginia ("Ludlow"), and LYDALL EASTERN, INC., a corporation organized under the laws of the State of Connecticut ("Lydall"). WITNESSETH: WHEREAS, Lydall, through its Southern Products Division is engaged in the business of producing and selling solid fiber material handling and packaging products, at facilities located in Richmond, Virginia and Jacksonville, Florida, with a sales office location in Lodi, California and warehouse space in Stockton, California and Pomona, California, and WHEREAS, Lydall desires to sell to Ludlow, and Ludlow desires to purchase from Lydall, the Business (as defined in Article I) as a going concern and all of the property and assets relating to the Business, subject to certain liabilities, all upon the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants set forth below, the parties agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. ----------- As used in this Agreement, the following terms shall have the meanings set forth below: "Accounts Payable": as defined in Section 5.21. "Affiliate": any person directly or indirectly controlling or controlled by or under direct or indirect common control with, the person specified. "Assets": as defined in Section 2.1. "Assigned Contracts": as defined in Section 2.3(a). "Assumed Obligations": as defined in Section 2.3. "Balance Sheet": as defined in Section 5.4. 1 "Balance Sheet Date": as defined in Section 5.4. "Bill of Sale": as defined in Section 2.6. "Books and Records": all books, records, files, documents and data related solely to the conduct of the Business or the ownership of the Assets including but not limited to customer and supplier lists, certificates and other documents, computer tapes and files, customer proposals (including backup documentation and work papers), product bills of material and product labor estimates related to the Business; EXCEPT, that Books and Records shall not include any books, records, files and other data of Lydall which relate to any operation of Lydall other than the Business or to organizational and corporate governance proceedings of Lydall or to income tax matters of Lydall, or to personnel records and files. "Business": The Business is the production and sale of solid fiber material handling and packaging products presently undertaken and conducted at Lydall's facilities in Richmond, Virginia, Jacksonville, Florida, Lodi California, and Lydall's space in warehouses located in Stockton, California and Pomona, California. "Business Day": any day excluding Saturday, Sunday and any day on which banks in Hartford, Connecticut, Richmond Virginia, or Jacksonville, Florida are closed. "Closing": as defined in Section 2.7. "Closing Date": as defined in Section 2.7. "Encumbrances": liens, security interests, options, rights of first refusal, easements, mortgages, charges, debentures, indentures, deeds of trust, rights-of-way, restrictions, agreements, encroachments, licenses, leases, permits, security agreements, or any other encumbrances and other irregularities in title restrictions or limitations on use of real or personal property. "Excluded Assets": as defined in Section 2.2. "Excluded Liabilities": as defined in Section 2.4. "Facilities": the plants, offices, and warehouses where the Business is operated, located in Richmond, Virginia and Jacksonville, Florida, the sales office in Lodi, California, and the warehouse space in Stockton and Pomona, California. "Financial Statements": as defined in Section 5.4. "GAAP": United States generally accepted accounting principles "Intellectual Property": United States and foreign patents, patent applications, 2 patent licenses, registered and unregistered trademarks, trade names, service marks and logos and applications therefore, registered and unregistered copyrights and copyright applications, computer programs, software, data bases, trade secrets and proprietary information, excluding the use of the Lydall name as defined in Section 11.4. "Loss": as defined in Section 12.2(b). "Net Assets": as defined in Section 3.2(d)(iii). "Non-Competition Agreement": as defined in Section 9.5. "Non-Material Contract": any contract, commitment, lease, purchase order, contract to purchase raw materials, contract for services and supplies, contract to sell products or any other agreement (whether written or oral), in each case which involves less than $5,000 per year or can be cancelled without penalty within 30 days. "Permits": as defined in Section 5.9. "Permitted Encumbrances": as defined in Section 5.6. "Purchase Price": as defined in Section 3.1. "Returns": all returns, declarations, reports, statements and other documents required to be filed in respect of Taxes. "Taxes": all United States federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, value added, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever required to be filed by, or with respect to, Lydall, the Business or the Assets, together with any interest and any penalties, additions to tax or additional amounts. ARTICLE II THE TRANSACTION 2.1 Purchase and Sale of Assets. --------------------------- Subject to the terms and conditions of this Agreement, Ludlow agrees to purchase from Lydall, and Lydall agrees to sell, convey, transfer, assign and deliver to Ludlow, on the Closing Date, against the receipt by Lydall of the consideration specified in Section 3.1, the Assets of Lydall Eastern, Inc., Southern Products Division, free and clear of any Encumbrances of any kind whatsoever except Permitted Encumbrances. The term "Assets" shall mean all of the rights, title and interests of Lydall in and to the assets used in or relating to the conduct of the Business, tangible and intangible, real and personal 3 wheresoever situated and whether or not specifically referred to in this Agreement or in any instrument of conveyance delivered pursuant to this Agreement and whether or not any of such Assets have any value for accounting purposes or are carried or reflected on or referred to in the Financial Statements, except for the Excluded Assets listed in Section 2.2. The Assets shall include but are not limited to the following categories of assets: (a) All of Lydall's right, and interest in and to the land and buildings, improvements and fixtures located at Richmond, Virginia or Jacksonville, Florida, sales offices in Lodi, California and warehouse space in Stockton and Pomona, California in which facilities Lydall conducts the Business; (b) plant, machinery, equipment, tools, dies, product tooling, test equipment, supplies, furniture, furnishings, vehicles and other fixed assets owned or leased by Lydall and used or held for use in the conduct of the Business all of which fixed assets will be purchased on an "as is" basis, without warranty by Lydall; (c) all inventories, wherever located, including supplies, raw materials, spare parts, samples, work in process and finished goods and products, owned by Lydall and used or held for use in connection with the conduct of the Business; (d) all the contracts (other than insurance and other contracts to the extent that such other contracts relate solely to the Excluded Liabilities and Excluded Assets), commitments, leases, purchase orders, contracts to purchase raw materials, contracts for services and supplies, contracts to sell products and all the other agreements (whether written or oral) solely relating to the Business and set forth in Schedule 5.8 attached, and the full benefit of all Non-Material Contracts; (e) all Intellectual Property solely relating to the Business and all trade secrets, know-how, manufacturing, engineering and other drawings, technology, technical information, engineering data, design and engineering specifications and similar data in writing relating to the conduct of the Business; (f) Books and Records; (g) the Business as a going concern; (h) any rights of Lydall pertaining to any counterclaims, set-offs or defenses it may have with respect to any Assumed Obligations set forth in Section 2.3; (i) all computers and related software owned by or used exclusively in the Business; (j) all prepaid claims and other prepaid expense items and deferred charges, credits, advance payments, petty cash, security and other deposits made by Lydall to any third party relating to the conduct of the Business; 4 (k) all accounts receivable of the Business as of the Closing Date; (l) all transferable licenses, permits, registrations and authorizations with respect to the conduct of the Business; and (m) all claims, causes of action, rights of recovery and rights of set-off of any kind pertaining to, and arising out of, the Business prior to the Closing Date, to the extent that they offset the Assumed Obligations. 2.2 Excluded Assets. --------------- Notwithstanding anything stated to the contrary, the Assets shall not include, and Ludlow shall not purchase, any of the following whether owned by, held by or relating to Lydall or the Business (the "Excluded Assets"): (a) (i) general books of account and books of original entry that comprise Lydall's permanent or tax records and books and records that Lydall is required to retain pursuant to any statute, rule or regulation, (ii) books and records which do not relate to the Business or which relate exclusively to the Excluded Liabilities and/or the Excluded Assets and (iii) those materials excluded from the definition of Books and Records by the exception in the definition including the corporate minute book, stock records and corporate seal; (b) intercompany account balances between Lydall and any of its Affiliates, and deferred taxes; (c) All of Lydall's cash on hand, other than petty cash, and all cash contained in any account of Lydall; (d) third-party indemnities, policies of insurance, fidelity, surety or similar bonds and the coverage afforded thereby relating solely to the Excluded Liabilities and the Excluded Assets; (e) assets associated with any employee benefit plans of Lydall; (f) all insurance contracts or policies, third party indemnities, fidelity, surety or similar bonds and the coverages afforded thereby of Lydall; (g) all past, present and future claims, causes of action, rights of recovery and rights of set-off of any kind, including tax credits, refunds and prepayments arising with respect to the Business prior to Closing except to the extent that they offset the Assumed Obligations; and (h) all rights of Lydall under this Agreement and the agreements and instruments delivered to Lydall by Ludlow pursuant to this Agreement. 5 2.3 Assumption of Obligations. ------------------------- Upon the sale of the Assets by Lydall, Ludlow shall assume and, agree to pay, perform and discharge, in a timely manner and in accordance with the terms of this Agreement, the following liabilities and obligations of Lydall exclusively relating to the Business (the "Assumed Obligations"): (a) all liabilities and obligations of Lydall which arise on or after the Closing Date under the contracts, commitments, leases, purchase orders, contracts to purchase raw materials, contracts for services and supplies, contracts to sell products and all other agreements set forth in Schedule 5.8 attached which are being assigned to Ludlow (the "Assigned Contracts"), and the Non-Material Contracts, but excluding any liability of Lydall for breach or non- performance of any of the foregoing existing on or prior to the Closing Date; (b) all Accounts Payable on or after the Closing Date; (c) all liabilities and obligations resulting from product warranty claims with respect to any product produced by the Business subject to Section 12.2(b)(iii); (d) all liabilities and obligations arising out of the employment and/or termination of employment of any employee of Ludlow or the Business on or after the Closing Date; (e) except to the extent the same constitutes an Excluded Liability or arises from a breach of any representation, warranty, covenant or agreement of Lydall contained in this Agreement, all liabilities and obligations of Ludlow arising from the conduct of the Business subsequent to the Closing Date. 2.4 Excluded Obligations and Liabilities. ------------------------------------ Notwithstanding anything stated to the contrary, Ludlow does not and shall not assume, pay, perform or discharge any of the following liabilities and obligations (the "Excluded Liabilities"): (a) all liabilities and obligations relating to any contract, commitment, lease, purchase order, contract to purchase raw materials, contract for services and supplies, contract to sell products or any other agreement (whether written or oral) of Lydall which is not an Assigned Contract or a Non-Material Contract; (b) all liabilities and obligations of Lydall which may arise by reasons of or with respect to this Agreement or any of the transactions contemplated (including, without limitation, legal, accounting, brokerage, investment banking or finder's fees); (c) all liabilities and obligations which are intercompany accounts (between Lydall and any of its Affiliates); (d) all liabilities and obligations arising out of the employment and/or termination of employment of any employee of Lydall prior to the Closing Date; 6 (e) all liabilities and obligations of Lydall for Taxes attributable to the operations of the Business for any period ending prior to or on the Closing Date; (f) all liabilities and obligations under or with respect to any employee benefit plan, program (including accrued vacation benefits), contract or arrangement covering past or present employees of the Business and/or their beneficiaries as of the Closing Date; (g) all liabilities and obligations for infringement or misappropriation arising from the use of Intellectual Property by Lydall on or prior to the Closing Date; (h) all liabilities and obligations arising out of Lydall's Economic Value Added incentive compensation program; (i) all liabilities and obligations resulting from product liability claims for damage or injury to persons or property arising from ownership, possession or use of any product manufactured by the Business prior to Closing; (j) all liabilities and obligations resulting from environmental or safety practices or claims for damage or injury to persons or property relating to the conduct of the Business prior to Closing; (k) the goodwill from purchased assets; and (l) all liabilities and obligations of any nature relating to the Excluded Assets. 2.5 Nonassignable Contracts and Leases. ---------------------------------- In the case of any Assigned Contracts which are not by their terms assignable, Lydall agrees to use its reasonable efforts to obtain, or cause to be obtained, prior to the Closing Date, any written consents necessary to convey to Ludlow the benefit of those Contracts. Ludlow shall cooperate with Lydall in such manner as may be reasonably requested. If any such consent is not obtained, then Lydall shall cooperate with Ludlow in any reasonable arrangement requested by Ludlow designed to provide Ludlow the benefits of any such Assigned Contracts, including enforcement of any and all rights of Lydall, at Ludlow's expense, against the third party arising out of breach or cancellation thereof by the third party or otherwise. Nothing in this Agreement shall be construed as an attempt or an agreement to assign or cause the assignment of any Assigned Contract included in the Assets which is by law nonassignable without the consent of the other party or parties, unless such consent shall have been given. On and after the Closing Date, Ludlow shall, at the request of Lydall, use its reasonable efforts to enter into agreements to remove Lydall from all obligations and liabilities (whether primary or secondary) under all contracts with continuing obligations, which includes any Non-Material Contract and each contract, commitment, lease, purchase order, contract to purchase raw materials, contract for services and supplies, contract to sell products or other agreement set forth in Schedule 5.8 attached. 7 2.6 Instruments of Transfer and Conveyance. -------------------------------------- The sale, conveyance, transfer, assignment and delivery of the Assets shall be effected by delivery on the Closing Date by Lydall to Ludlow (i) of such instruments of transfer and conveyance, duly executed by Lydall, as Ludlow shall reasonably deem necessary to vest in Ludlow good and marketable title to such Assets free and clear of all Encumbrances except Permitted Encumbrances, and such other documents as Ludlow may reasonably request to demonstrate satisfaction of the conditions of and compliance with this Agreement by Lydall, including, without limitation, the Bill of Sale in substantially the form of Exhibit A attached (the "Bill of Sale") and (ii) such documents as Lydall may reasonably request to demonstrate satisfaction of the conditions and compliance with this Agreement by Ludlow. 2.7 Closing. ------- The closing of the transactions contemplated by this Agreement (the "Closing") shall be effected by facsimile to be effective at 12:01 a.m., on February 5, 2001. Such time and date of delivery are referred to as the "Closing Date". ARTICLE III PAYMENT OF PURCHASE PRICE ------------------------- 3.1 Amount; Delivery. ---------------- The aggregated consideration to be paid by Ludlow to Lydall for the Assets and the Business shall be Fifteen Million United States Dollars ($15,000,000) (the "Purchase Price"), plus the assumption of the Assumed Liabilities. The Purchase Price shall be paid by Ludlow to Lydall at the Closing as follows: Ludlow shall pay to Lydall Fifteen Million Dollars ($15,000,000) by wire transfer of immediately available funds to the account or accounts designated in writing by Lydall on the Closing Date. 3.2 Net Asset Adjustment. -------------------- (a) Within 60 days after the Closing Date, Ludlow shall prepare and deliver to Lydall a statement (the "Closing Date Statement") setting forth Net Assets (as defined in Section 3.2d(iii)) as of the Closing Date ("Closing Date Net Assets"). The Closing Date Statement shall also set forth a calculation of the amount by which the Closing Date Net Assets exceed or are less than $7,901,907, which is based on the September 30, 2000 balance sheet as detailed in Schedule 3.2. This difference is the Net Asset Adjustment. Within 120 days after the Closing Date, Lydall shall complete its examination of the Closing Date Statement and shall deliver to Ludlow either a written acknowledgment of Lydall accepting the Closing Date Statement and the Net Asset Adjustment or a written report ("Adjustment Report") setting forth in detail any proposed adjustments to the Closing Date Statement and the Net Asset Adjustment and the reasons and supporting data therefore. In the event that Lydall fails to deliver such acknowledgment or Adjustment Report within 8 such one hundred twenty (120) day period, the Closing Date Statement (and each of the Closing Date Net Assets and the Net Asset Adjustment set forth thereon) delivered by Ludlow to Lydall shall be deemed to be correct and to have been finally determined under Section 3.2 (b) below; (b) If Lydall shall deliver an Adjustment Report to Ludlow within the period set forth in Section 3.2 (a), Lydall and Ludlow shall attempt to resolve any differences and agree upon the Net Asset Adjustment. In the event that Ludlow and Lydall fail to agree on any or all of Lydall's proposed adjustments to the Closing Date Statement contained in the Adjustment Report within 15 days after Ludlow receives the Adjustment Report, then the parties shall select an independent certified public accounting firm of national reputation (who shall not be a firm previously or currently retained by Lydall or Ludlow) which is mutually agreeable to the parties (the "Independent Auditors") to resolve any dispute. The Independent Auditors, acting as independent auditors and not for the benefit of Lydall or Ludlow, shall make the final determination with respect to the calculation of the Closing Date Net Assets in light of the terms and provisions of this Agreement within a period of less than 30 days. The decision of the Independent Auditors shall be in writing and state the basis for the finding and shall be final and binding on Lydall and Ludlow. The costs and expenses of the Independent Auditors for their services rendered pursuant hereto shall be borne equally by Lydall and Ludlow; (c) The term "Final Closing Date Statement" shall mean the Closing Date Statement delivered pursuant to Section 3.2(a), as adjusted, if at all, pursuant to Section 3.2(a) or 3.2(b) and the "Settlement Date" shall mean the date on which the Final Closing Date Statement is agreed to by the parties or finally determined by the Independent Auditors, as the case may be. Until the Settlement Date, Ludlow agrees to provide Lydall, its representatives and advisors, and the Independent Auditors with access, during Ludlow's normal business hours and upon reasonable advance notice, to the books and records of the Business for the purpose of reviewing the Closing Date Statement and preparing any proposed adjustments set forth in the Adjustment Report; (d) (i) In the event that the Closing Date Net Assets set forth in the Final Closing Date Statement exceeds $7,901,907, Ludlow agrees to pay to Lydall within five (5) Business Days of the Settlement Date an amount equal to the excess of the Closing Date Net Assets set forth in the Final Closing Date Statement over $7,901,907 by wire transfer of immediately available funds to Lydall's bank account; (ii) In the event that the Closing Date Net Assets set forth in the Final Closing Date Statement are less than $7,901,907 , Lydall agrees to pay to Ludlow, within five (5) business days of the Settlement Date an amount equal to the difference between $7,901,907 and the Closing Date Net Assets set forth in the Final Closing Date Statement by wire transfer of immediately available funds to Ludlow's bank account. 9 (iii) For purposes of this Section 3.2, the term "Net Assets" shall mean an amount equal to the difference between (x) the Assets (excluding the impact of depreciation from 9/30/00 through Closing) and (y) the Assumed Obligations, all determined in accordance with GAAP and on a basis consistent with the way such amounts were determined for purposes of the 1999 Year End Statements. ARTICLE IV Employees; Employee Welfare and Benefit Plans --------------------------------------------- 4.1 Employment; Life Insurance and Medical Benefits. ----------------------------------------------- As of the Closing Date, Ludlow agrees to offer employment to each person listed on Schedule 4.1b. With respect to any employee who accepts employment with Ludlow, immediately after the Closing Ludlow shall provide the benefits listed on Schedule 4.1. 4.2 Employee Pension Plans and Benefits. ----------------------------------- Ludlow shall not assume any obligation for and shall have no liability to provide to any employee or former employee of the Business pension benefits earned or accrued prior to the Closing, if any, under any pension plan or any other employee benefit plan maintained by Lydall with respect to service with the Business or any other entity prior to the Closing. All such obligations and liabilities, if any, shall remain the sole and exclusive responsibility of Lydall. The 401(k) plan qualified under Section 401(a) of the Code maintained by Ludlow on or after the Closing Date shall recognize all service by employees of the Southern Products Division of Lydall or any affiliates thereof for eligibility and vesting purposes under such plan. 4.3 Other Employee Pension Plans and Benefits. ----------------------------------------- Ludlow shall not assume any obligation and shall have no liability whatsoever to Lydall, the Business or any employee or former employee thereof or any other person or entity with respect to the funding, payment or provision of pension or profit-sharing or 401(k) benefits earned or accrued prior to the Closing Date, if any, under any pension, profit-sharing or 401(k) plans sponsored by Lydall or the Business, whether or not any employees become employees of Ludlow. Lydall shall retain all such obligations, if any, and shall remain solely and exclusively liable for all benefits earned or accrued prior to the Closing Date, if any, under any such plans. Lydall agrees to vest all employees of the Southern Products Division in their accounts under the Lydall, Inc. 401(k) Plan and their accrued benefits under the Lydall, Inc. Pension Plan No. 1A. 4.4 Employee Welfare Plans, Worker's Compensation. --------------------------------------------- Except as provided in Section 4.5, Ludlow shall have no liability whatsoever to employees or former employees with respect to incurred worker's compensation claims or to benefits earned or accrued under any welfare benefit plan sponsored by either the Business or Lydall prior to the Closing Date. Ludlow shall not assume any obligation and shall have no liability whatsoever with respect to any welfare benefit claims, including without limitation medical claims incurred by an Employee or his family prior to the Closing Date or worker's 10 compensation claims incurred prior to the Closing Date. A medical claim shall be deemed to be incurred when the services relating to that event that is the subject of the claim were performed. A worker's compensation claim is deemed to have been incurred on the date of accident. The welfare plans maintained by Ludlow for the benefit of employees of the Southern Products Division shall not include a waiting or eligibility period or a preexisting condition restriction or limitation and, shall take into account, for purposes of any co-payment, deductible and limitation on benefits, the payments made under Lydall's comparable benefit plan for medical and dental services in the current calendar year through the Closing Date. 4.5 Flexible Spending Account ------------------------- Ludlow shall establish flexible spending accounts for health care expenses for the benefit of employees, and shall credit such accounts with the amount credited as of the Closing Date under comparable accounts maintained with Lydall from the beginning of the plan year to the Closing Date. As soon as practicable after the Closing Date, Lydall shall pay to Ludlow in cash the amount, if any, by which aggregate contributions made by employees to Lydall's flexible spending accounts exceeded the aggregate benefits provided to employees as of the Closing Date. To the extent that aggregate benefits exceed contributions made by employees, such amount shall be reflected as a prepaid asset on the Closing Date Statement. 4.6 COBRA ----- Lydall shall remain liable for the obligations under the current plans maintained by Lydall under the Consolidated Omnibus Budget Reconciliation Act (COBRA) under Section 4980B of the Code and the comparable provisions of ERISA for all employees or former employees of Southern Products Division who are not offered employment by Ludlow. Ludlow shall be responsible for the COBRA obligations under Section 4980B of the Code and the comparable provisions of ERISA for all employees of Southern Products Division who are offered employment by Ludlow. ARTICLE V REPRESENTATIONS AND WARRANTIES OF LYDALL Representations and Warranties of Lydall. Lydall represents, warrants and - ---------------------------------------- agrees as follows: 5.1 Existence and Good Standing. --------------------------- Lydall is a corporation duly organized, validly existing and in good standing under the laws of the State of Connecticut with full power and authority to own and operate the Assets and, to carry on the Business as it is now being conducted. 5.2 Authorization and Validity of Agreement. --------------------------------------- Lydall has full power and authority to execute and deliver, to perform its obligations under, and to consummate the transactions contemplated by this Agreement and the Bill of Sale. 11 The execution, delivery and performance of this Agreement and the Bill of Sale by Lydall, and the consummation by it of the transactions contemplated, have been duly and validly authorized and approved by all necessary corporate action of Lydall. Each of this Agreement and the Bill of Sale has been duly and validly executed and delivered by Lydall and is a valid and binding obligation of Lydall enforceable against Lydall in accordance with its terms, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors rights generally and by general equitable principles. 5.3 Consents and Approvals; No Violations. ------------------------------------- Except as set forth in Schedule 5.3 attached, the execution, delivery and performance of this Agreement and the Bill of Sale by Lydall and the consummation by Lydall of the transactions contemplated will not, with or without the giving of notice or the lapse of time or both: (a) violate, conflict with, or result in a breach or default under any provision of the organizational documents of Lydall; (b) to the knowledge of Lydall violate any statute, ordinance, rule, regulation, order, judgment or decree of any court or of any governmental or regulatory body, agency or authority applicable to Lydall or by which its properties or assets or the Assets of the Business may be bound; (c) to the knowledge of Lydall require any filing by Lydall with, or require Lydall to obtain any permit, consent or approval of, or require Lydall to give any notice to, any governmental or regulatory body, agency or authority or any other third party; or (d) to the knowledge of Lydall result in a violation or breach by Lydall of, conflict with, constitute (with or without due notice or lapse of time or both) a default by Lydall (or give rise to any right of termination, cancellation, payment or acceleration) under, or result in the creation of any Encumbrance upon any of the properties or assets of Lydall or the Assets under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, franchise, permit, agreement, lease, franchise agreement or other instrument or obligation to which Lydall is a party, or by which it or any of its properties or assets or the Assets may be bound. 5.4 Financial Statements; No Material Adverse Change. ------------------------------------------------ Lydall has furnished Ludlow with (i) the unaudited balance sheet of the Business as of September 30, 2000 (the "Balance Sheet") and the related statements of income for the nine (9) months then ended, (collectively "the Financial Statements"). The Financial Statements have been prepared from the Books and Records and in accordance with GAAP consistently followed throughout the periods indicated. The Financial Statements fairly present in all material respects the financial position of the Business as of September 30, 2000 and the results of operations of the Business for the period indicated. Except as set forth in Schedule 5.4 attached, since September 30, 2000 (the "Balance Sheet Date"), there has been no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations of the Business, or in any substantial portion of the Assets. Since the Balance Sheet Date, except as set forth in Schedule 5.4 attached, Lydall has conducted the Business only in the ordinary course and in a manner consistent with prior business practices. 12 5.5 Books and Records. ----------------- All accounts, books, ledgers, official and other records material to the Business have been fully, properly and accurately kept and completed in all material respects, and there are no material inaccuracies or discrepancies contained or reflected in them, and collectively they fairly present in all material respects the financial position of the Business. Except as set forth in Schedule 5.5 attached, Lydall does not have any of the Business' Books and Records recorded, stored, maintained, operated or otherwise wholly or partly dependent upon or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) which (including all means of access) are not under the exclusive ownership and direct control of Lydall. 5.6 Title to Assets; Encumbrances; Condition. ---------------------------------------- Except as set forth in Schedule 5.6 attached Lydall has good, valid and marketable title to each of the Assets free and clear of all Encumbrances of any kind except for (i) Encumbrances for current Taxes, and other assessments or governmental charges or levies on property not yet due and delinquent (Encumbrances of the type described in clause (i) above are sometimes referred to as "Permitted Encumbrances"). The Assets, together with the Excluded Assets, include all of the assets, properties or other rights which are used in or forming a part of the Business as presently conducted, and there are no other assets, properties or rights necessary to the operation of the Business as presently conducted. Except as set forth in Schedule 5.6 attached, all of the Assets are located at Lydall's place of business in Richmond, Virginia; Jacksonville, Florida; Lodi, California; Stockton, California and Pomona, California and Lydall does not operate any part of the Business at any other location. 5.7 Leases. ------ Schedule 5.7 attached contains an accurate and complete list of all leases to which Lydall is a party (as lessee or lessor) with respect to any real or personal property used in connection with the Business, a description of all such leases to which Lydall is a party and identification of the parties. Each lease set forth in Schedule 5.7 is in full force and effect; all rents and additional rents due to date on each such lease have been paid; in each case, except as set forth in Schedule 5.7, the lessee has been in peaceable possession since the commencement of the original term of the lease and is not in default and no waiver, indulgence of postponement of the lessee's obligations has been granted by the lessor; and there exists no default or event of default or event, occurrence, condition or act (including this sale of the Assets) which, with the giving of notice, the lapse of time or the happening of any further event or condition, would constitute a default or event of default under any such lease. To Lydall's knowledge, Lydall has not violated any of the terms or conditions of any such lease and, all of the covenants to be performed by any other party under any such lease have been fully performed. There are no rental payments required to be made under or in connection with any of the leases set forth to which Lydall is a party as lessee, other than as set forth in Schedule 5.7. As of the date of this Agreement, except as set forth in Schedule 5.7, to Lydall's knowledge, Lydall has fulfilled all of its obligations required under any of the leases set forth to which Lydall is a party as lessee. Except as set forth in Schedule 5.3 or Schedule 5.7 attached, each lease set forth is assignable by Lydall to Ludlow with notice and the consent of the Landlord. 13 5.8 Material Contracts. ------------------ Except as set forth in Schedule 5.8 attached, with respect to the Business, Lydall is not a party to and is not bound by (a) any written agreement, contract or commitment relating to the employment of any person by Lydall; (b) any agreement, indenture or other instrument which contains restrictions with respect to payment of profits, dividends or any other distribution in respect of its business or its capital stock, as the case may be; (c) any agreement, contract or commitment relating to capital expenditures in excess of $10,000; (d) any loan or advance to, or investment in, any Person or any agreement, contract or commitment relating to the making of any such loan, advance or investment; (e) any guarantee or other contingent liability in respect of any indebtedness or obligation of any Person involving obligations in excess of $10,000 individually or $30,000 in the aggregate (other than the endorsement of negotiable instruments for collection in the ordinary course of business); (f) any management service, consulting or any other similar type contract; (g) any agreement, contract or commitment limiting the freedom of Lydall to engage in any line of business or to compete with any Person; or (h) any other agreement, contract or commitment which might reasonably be expected to have a material adverse effect, in each case relating to the Assets or the Business. Each agreement, contract or commitment set forth in Schedule 5.8 is in full force and effect and there exists no default or event of default or event, occurrence, condition or act (including this sale of the Assets) which, with the giving of notice, the lapse of time or the happening of any other event or condition, would become a default or event of default. To the knowledge of Lydall, Lydall has not violated any of the terms or conditions of any contract or agreement set forth in Schedule 5.8 and, all of the covenants to be performed by any other party have been fully performed. Except as set forth in Schedule 5.3 or Schedule 5.8 attached, each agreement, contract or commitment set forth in Schedule 5.8 is assignable by Lydall to Ludlow without the consent of any other Person. 5.9 Permits. ------- Lydall holds all governmental and other third party permits (including occupancy permits), licenses, consents and authorizations ("Permits") required in connection with the use, operation or ownership of the Assets and the conduct of the Business as currently conducted, except to the extent that the failure to hold any such Permits would not have a material adverse affect on the Business. All such Permits are listed in Schedule 5.9 attached. Any application for the renewal of any Permit due prior to the Closing Date has been, or will be, timely filed prior to the Closing Date. All Permits are in full force and effect and no proceeding to modify, suspend, revoke, withdraw, terminate or otherwise limit any such Permit is pending or, to the best knowledge of Lydall, threatened. No administrative or governmental action has been taken or, to the knowledge of Lydall, threatened in connection with the expiration, continuance or renewal of any such Permit. Lydall is in compliance with all Permits in all material respects. 5.10 Restrictive Documents. --------------------- Except as set forth in Schedule 5.10 attached, Lydall is not subject to, or a party to, any charter, by-law, mortgage, lien, lease, license, permit, agreement, contract, instrument, law, rule, ordinance, regulation, order, judgment or decree, or any other restriction of any kind or 14 character which (i) would prevent consummation of the transactions contemplated by this Agreement, (ii) would prevent the continued operation of the Business after the Closing Date on substantially the same basis as operated to date or (iii) would or does materially and adversely affect the Business or the Assets. 5.11 Litigation. ---------- Except as set forth in Schedule 5.11 attached, there is no action, suit, proceeding at law or in equity, arbitration or administrative or other proceeding by or before (or to the knowledge of Lydall, any investigation by) any governmental or other instrumentality or agency, pending, or, to the knowledge of Lydall, threatened, against or affecting the Assets, Assumed Obligations or the Business; and Lydall does not know of any valid basis for any such action, proceeding or investigation. There are no such suits, actions, claims, proceedings or investigations pending or, to the best knowledge of Lydall, threatened, seeking to prevent or challenging the transactions contemplated by this Agreement. Lydall is not subject to any judgment, order or decree entered in any lawsuit or proceeding which may have a material adverse effect. 5.12 Returns; Taxes. -------------- (a) There have been properly completed and filed on a timely basis and in correct form all Returns required to be filed on or prior to the Closing Date. As of the time of filing, the foregoing Returns correctly reflected in all material respects the facts regarding the income, business, assets, operations, activities, status or other matters of Lydall or any other information required to be shown thereon. An extension of time within which to file any Return which has not been filed has not been requested or granted. (b) With regard to all amounts in respect of Taxes imposed upon Lydall or for which Lydall is or could be liable, whether to taxing authorities (as, for example, under law) or to other persons or entities (as, for example, under tax allocation agreements), with respect to all taxable periods or portion of periods ending on or before the Closing Date, all applicable tax laws and agreements have been fully complied with, and all such amounts required to be paid by Lydall to taxing authorities or others on or before the date of this Agreement have been paid in full or adequately disclosed and fully provided for in the books and financial statements of Lydall. (c) The representations and warranties set forth in subsections (a) and (b) of this Section 5.12 are not applicable to the extent neither the Assets nor the Business can be made subject to Tax liens and Ludlow cannot be made liable for Taxes relating to the matters constituting breaches of such representations and warranties. (d) Except as set forth in Schedule 5.12 attached, no examination of any Return is currently in progress. There are no liens for Taxes on the Assets or the Business and no tax authority or other governmental body or agency has or will have the right to proceed against, attach or in any other manner encumber or diminish Ludlow's use of the Assets. 15 5.13 Undisclosed Liabilities. ----------------------- Except as set forth in Schedule 5.13 attached or on the Financial Statements, to the knowledge of Lydall, Lydall does not have any outstanding claim, liability or indebtedness in excess of an aggregate of $10,000, contingent or otherwise, that are Assumed Liabilities. Except as set forth in Schedule 5.13 attached, Lydall is not in default in respect of the terms or conditions of any indebtedness. 5.14 Intellectual Properties. ----------------------- Schedule 5.14 attached sets forth all Intellectual Property used in the Business. Such Intellectual Property constitutes all Intellectual Property necessary to conduct the Business as presently conducted. Except as otherwise set forth in Schedule 5.14, Lydall owns all right, title and interest in and to the Intellectual Property listed in Schedule 5.14. Schedule 5.14 also sets forth all licenses, agreements and other rights granted by Lydall to any third party with respect to Intellectual Property used in connection with the Business and all licenses, agreements and other rights with respect to Intellectual Property used in connection with the Business granted by any third party to Lydall, in each case together with a description of the subject matter licensed. Except as set forth in Schedule 5.14, (a) Lydall owns and possesses all right, title and interest in and to, or has a written, enforceable license to use, all of the Intellectual Property used in the operation of the Business as presently conducted free and clear of all Encumbrances; (b) no claim by any third party contesting the validity, enforceability, use or ownership of any Intellectual Property owned or used by Lydall in connection with the Business has been made or to Lydall's knowledge is threatened; (c) Lydall has not received any notice of any infringement or misappropriation of, or other conflict with any third party with respect to, any Intellectual Property used by Lydall in connection with the Business, nor has Lydall received any claims of infringement or misappropriation of, or conflict with, any Intellectual Property of any third party in connection with the Business, nor is Lydall aware of any such infringement, misappropriation or conflict; (d) all Intellectual Property used in or forming a part of the Business prior to the Closing Date will be owned by or available for use by Ludlow on identical terms and conditions immediately subsequent to the Closing Date; and (e) Lydall has made all necessary filings and recordation and has paid all required fees and taxes to record and maintain its ownership of its patented or registered Intellectual Property in the United States Patent and Trademark Office, the United States Copyright Office and, where necessary to the conduct of the Business, all similar foreign agencies. 5.15 Compliance with Laws. -------------------- Lydall is in compliance in all material respects with all applicable laws, regulations, orders, judgments and decrees in connection with the Business or the Assets. 5.16 Compensation of Employees. ------------------------- Set forth in Schedule 5.16 attached is an accurate and complete list showing the names of all persons whose annual salaries from Lydall exceeds an annualized rate of $50,000 (excluding Raymond J. Lanzi), together with a statement of the full amount of such compensation per employee and any changes out of ordinary course since September 30, 2000. 16 5.17 Inventories. ----------- Set forth in Schedule 5.17 attached is a complete list and description (including book value, determined in accordance with GAAP) of all inventories of the Business, including, without limitation, supplies, raw materials, spare parts, samples, work in process and finished goods and products, as of December 31, 2000. Except for items which are in the possession or control of suppliers, or located in public warehouses or at customer locations the inventories included in the Assets are in the physical possession of Lydall at the Facilities, or are in transit from suppliers of Lydall. Except as set forth in Schedule 5.17 attached, to the knowledge of Lydall, the inventories of the Business consist of items which are good and merchantable, and are of a quality and quantity presently usable and salable in the ordinary course of business and were purchased in the ordinary course of business. 5.18 Disclosure. ---------- None of this Agreement, the Bill of Sale, the Financial Statements, any Schedule, Exhibit or certificate attached or delivered in accordance with the terms of those Agreements contains any untrue statement of a material fact, or, to the best knowledge of Lydall, omits any statement of a material fact necessary in order to make the statements contained in those documents not misleading. There is no fact known to Lydall which materially and adversely affects the assets, liabilities, business, condition (financial or otherwise), results of operations or prospects of Lydall or the Business, or any of the Assets, which has not been set forth in this Agreement, the Financial Statements, the Bill of Sale, any Schedule, Exhibit or certificate attached or delivered in accordance with the terms of those agreements or any document or statement in writing which has been supplied by or on behalf of Lydall in connection with the transactions contemplated by this Agreement. 5.19 Accounts Receivable. ------------------- The accounts receivable are reflected properly on its books and records, are valid and existing receivables which arose in the ordinary course of business and to the knowledge of Lydall are subject to no refunds or other adjustments and to no defenses, rights of setoff, assignments, restrictions, encumbrances, conditions enforceable by third parties, or counterclaims, to the knowledge of Lydall are current and collectable, in accordance with their terms at their recorded amounts subject to a reserve for bad debts as will be set forth in the Closing Date Statement. 5.20 Absence of Certain Changes. -------------------------- Except as set forth in Schedule 5.20 attached, during the period from September 30, 2000 to and including the Closing Date, except as expressly contemplated by this Agreement, Lydall has not and will not have (a) incurred any material liability or obligation of any nature relating to the Business or the Assets (whether accrued, absolute, contingent or otherwise), except in the ordinary course of its business, (b) permitted any of the Assets to be subjected to any Encumbrance, (c) sold, transferred or otherwise disposed of any of its assets, except in the ordinary course of business, (d) made any capital expenditure or commitment with respect to the Business or the Assets, except in the ordinary course of business, (e) granted any increase in the rate of wages, salaries, bonuses or other remuneration of any executive employee or any other employee of the Business, except in the ordinary course of business, (f) canceled or waived any claims or rights of substantial 17 value relating to or affecting the Business or the Assets (g) made any change in any method of accounting or auditing practice relating to or affecting the Business or the Assets, (h) conducted the Business or entered into any transaction relating to or affecting the Business or the Assets, except in the usual and ordinary manner and in the ordinary course of business, (i) other than in the ordinary course of business made any bonus or profit sharing distribution or payment of any kind which relates to or affects the Business or, (j) agreed, whether or not in writing, to do any of the foregoing. 5.21 Accounts Payable. ---------------- Set forth in Schedule 5.21 attached is a true and correct list and description (including due date) of all accounts payable and accrued liabilities of Lydall with respect to the Business (the "Accounts Payable") as of January 31, 2001.All Accounts Payable arose in the ordinary course of business. There are no material claims or disputes with respect to any of such Accounts Payable, except as set forth on Schedule 5.21. 5.22 Labor Matters ------------- (a) Except as set forth in Schedule 5.22 there are no (i) labor strikes, disputes, slowdowns, representation campaigns or work stoppages with respect to employees of the Business pending, or to the knowledge of Lydall, threatened against or affecting the Business, (ii) grievance or arbitration proceedings arising out of collective bargaining agreements to which Lydall is a party (other than informal grievances), (iii) unfair labor practice complaints pending or, to the knowledge of Lydall, threatened against the Business, or (iv) collective bargaining agreements or other labor union contracts applicable to persons employed by the Business and to the knowledge of Lydall, there are no activities or proceedings of any labor union to organize any such employees. (b) Except to the extent set forth in Schedule 5.22 hereto, Lydall is in material compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and is not engaged in any unfair labor practice. 5.23 Product Warranty ---------------- Except as set forth on Schedule 5.23, each product manufactured, sold, leased or delivered by the Business has been in conformity with all applicable contractual commitments and all express and implied warranties, and to the knowledge of Lydall, Lydall does not have any liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against any of them giving rise to any liability) for replacement or repair thereof or other damages in connection therewith, other than in the ordinary course of business. Except as set forth on Schedule 5.23, no product manufactured, sold, or delivered by the Business is subject to any guaranty, warranty, or other indemnity beyond the stated terms of the applicable contract and any additional terms implied by law. Schedule 5.23 includes copies of the standard terms and conditions of sale for the Business (containing applicable guaranty, warranty, and indemnity provisions). 18 5.24 Customers and Suppliers ----------------------- Schedule 5.24 contains a list setting forth the 10 largest customers of the Business, by dollar amount, over the 12 months ended December 31, 2000, and the 10 largest suppliers of the Business, by dollar amount, over the 12 months ended December 31, 2000. All purchase and sale orders and other commitments for purchases and sales made by Lydall in connection with the Business have been made in the ordinary course of business in accordance with past practices, and no payments have been made to any supplier or customers or any of their respective representatives other than payments to such suppliers or the payment of the invoiced price of supplies purchased or goods sold in the ordinary course of business. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF LUDLOW Representations and Warranties of Ludlow. Ludlow represents, warrants and agrees as follows: 6.1 Existence and Good Standing of Ludlow; Power and Authority. ---------------------------------------------------------- Ludlow is a corporation duly organized, validly existing and in good standing under the laws of the State of Virginia. Ludlow has full power and authority to execute and deliver this Agreement and the Non-Competition Agreement, to perform its obligations and to consummate the transactions contemplated by these Agreements. The execution, delivery and performance of this Agreement and the Non-Competition Agreement by Ludlow, and the consummation by it of the transactions contemplated, have been duly and validly authorized and approved by all necessary corporate action of Ludlow. Each of this Agreement and the Non- Competition Agreement has been duly and validly executed and delivered by Ludlow and is a valid and binding obligation of Ludlow enforceable against Ludlow in accordance with its terms, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. Ludlow has delivered to Lydall true, complete and correct copies of its certificate of incorporation and by-laws as currently in effect and, with the exception of the amendment to its certificate of incorporation to authorize the Preferred Stock, no action has been taken or authorized to amend any of such documents. 6.2 Consents and Approvals; No Violations. ------------------------------------- Except as set forth in Schedule 6.2 attached, the execution, delivery and performance of this Agreement and the Non-Competition Agreement by Ludlow and the consummation by Ludlow of the transactions contemplated will not, with or without the giving of notice or the lapse of time or both: (a) violate, conflict with, or result in a breach of default under any provision of the certificate of incorporation or by-laws of Ludlow; (b) violate any statute, ordinance, rule, regulation, order, judgment or decree of any court or of any governmental or regulatory body, agency or authority applicable to Ludlow or by which any of its properties or assets may be bound; (c) require any filing by Ludlow with, or require Ludlow 19 to obtain any permit, consent or approval of, or require Ludlow to give any notice to, any governmental or regulatory body, agency or authority or any other Person; or (d) result in a violation or breach by Ludlow of, conflict with, constitute (with or without due notice or lapse of time or both) a default by Ludlow (or give rise to any right of termination, cancellation, payment or acceleration)under, or result in the creation of any Encumbrance upon any of the properties or assets of Ludlow under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, franchise, permit, agreement, lease, franchise agreement or other instrument or obligation to which Ludlow is a party, or by which it or any of its properties or assets may be bound; except, in the case of clauses (b) and (d), for such violations, breaches, conflicts, defaults or Encumbrances which would not have a material adverse effect on Ludlow or on its ability to consummate the transactions contemplated. 6.3 Brokers. ------- There has been no broker or finder involved in any manner in the negotiations leading up to the execution of this Agreement, or the consummation of any transactions contemplated as a result of any agreements or understandings made by Ludlow; and 6.4 Financing. --------- Ludlow has funds available (including those to be provided to it pursuant to binding financing commitments) which are sufficient to pay the Purchase Price and to pay all other amounts owing by it in connection with the transaction contemplated by this Agreement. Ludlow has furnished reasonable substantiation of the foregoing to Lydall. 6.5 Financial Statements. -------------------- Attached as Schedule 6.5 are the unaudited financial statements of Ludlow for the fiscal year ended September 30, 2000, which have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied throughout the period indicated and fairly present in all respects the financial position of Ludlow at and as of September 30, 2000, and the results of operations for the fiscal year then ended. 6.6 Absence of Certain Changes or Events. ------------------------------------ Since December 31, 2000, except as disclosed to Lydall in Schedule 6.6, there has not been any adverse change in the financial condition or results of operations of Ludlow, and Ludlow has not engaged in any practice, taken any action, or entered into any transaction having an adverse impact on Ludlow's ability to consummate the transactions contemplated hereby; 6.7 Litigation or Claims. -------------------- There is no litigation, proceeding, arbitration, alternate dispute matter, assessment, governmental investigation or other claim pending, or so far as known to Ludlow threatened, against or relating to Ludlow with respect to the transactions contemplated by this Agreement or otherwise involving Ludlow that would have an adverse effect on Ludlow's ability to consummate the transactions contemplated hereby. 20 ARTICLE VII COVENANTS OF LYDALL Lydall covenants and agrees with Ludlow as follows: 7.1 Cooperation by Lydall. --------------------- Subject to Section 2.5, Lydall shall use its reasonable efforts, and shall cooperate with Ludlow, to secure all necessary consents, approvals, authorizations, exemptions and waivers from third parties as shall be required in order to enable Lydall to effect the transactions contemplated on its part, and Lydall shall otherwise use its reasonable efforts to cause the consummation of such transactions in accordance with the terms and conditions and to cause all conditions contained in this Agreement over which it has control to be satisfied. Lydall further agrees to deliver to Ludlow prompt written notice of any event or condition known to Lydall, which if it existed on the date of this Agreement, would result in any of the representations and warranties of Lydall contained in this Agreement being untrue in any material respect. 7.2 Insurance. --------- Lydall covenants that to the extent that the insurance policies owned by Lydall and covering the Business before the Closing attached (i) insure against losses, liabilities, damages or expenses relating to or arising out of occurrences/accidents prior to the Closing Date and (ii) permit claims to be made after the Closing Date with respect to such losses, liabilities, damages or expenses relating to or arising out of occurrences/accidents prior to the Closing Date, the parties will cooperate in submitting claims under such insurance policies with respect to such losses, liabilities, damages or expenses relating to occurrences/accidents prior to the Closing Date. ARTICLE VIII COVENANTS OF LUDLOW Ludlow covenants and agrees with Lydall as follows: 8.1 Cooperation by Ludlow. --------------------- (a) Ludlow shall use its reasonable efforts, and shall cooperate with Lydall, to secure all necessary consents, approvals, authorizations, exemptions and waivers from third parties as set forth in Schedule 6.2, if any, as shall be required in order to enable Ludlow to effect the transactions contemplated on its part, and Ludlow shall otherwise use its reasonable efforts to cause the consummation of such transactions in accordance with the terms and conditions and to cause all conditions contained in this Agreement over which it has control to be satisfied. Ludlow further agrees to deliver to Lydall prompt written notice of any event or condition known to Ludlow, which if it existed on the date of this Agreement, would result in any of the representations and warranties of Ludlow contained 21 in this Agreement being untrue in any material respect. (b) After the Closing Date, Ludlow shall use its reasonable efforts, and shall cooperate with Lydall and provide access to all necessary documents and information with respect to any tax, securities, insurance, personnel, medical, worker's compensation or long-term disability matters arising out of Lydall's ownership of the Business prior to the Closing Date. 8.2 Insurance. --------- Ludlow covenants that to the extent that the insurance policies owned by Ludlow and covering the Business after the Closing (i) insure against losses, liabilities, damages or expenses relating to or arising out of occurrences/accidents before the Closing Date and (ii) permit claims to be made after the Closing Date with respect to such losses, liabilities, damages or expenses relating to or arising out of occurrences/accidents after the Closing Date, the parties will cooperate in submitting claims under such insurance policies with respect to such losses, liabilities, damages or expenses relating to occurrences/accidents before the Closing Date. ARTICLE IX CONDITIONS TO LUDLOW'S OBLIGATIONS The obligations of Ludlow under this Agreement to purchase the Assets and to consummate the other transactions contemplated shall be subject to the satisfaction (or waiver by Ludlow) on or prior to the Closing Date of all of the following conditions: 9.1 Truth of Representations and Warranties. --------------------------------------- The representations and warranties of Lydall contained in this Agreement, in the Bill of Sale or in any Schedule or Exhibit delivered pursuant to such agreements shall be true and correct in all material respects (except to the extent that such representation or warranty is already qualified by reference to materiality in which case such representation or warranty shall be true and correct as written) on and as of the Closing Date. 9.2 No Litigation Threatened. ------------------------ No action or proceedings shall have been instituted before a court or other governmental body or by any public authority to restrain or prohibit any of the transactions contemplated. 9.3 Governmental Approvals. ---------------------- All governmental filings, notices, consents and approvals, if any, necessary to permit the consummation of the transactions contemplated by this Agreement shall have been made or received, as the case may be. 22 9.4 Consents. -------- Each of the consents listed in Schedule 5.3 attached, which shall include assignments of the Lease Agreements for the Richmond, Virginia and Jacksonville, Florida facilities, shall have been received. 9.5 Non-Competition Agreement. ------------------------- Lydall shall have executed and delivered to Ludlow a Non-Competition Agreement, in substantially the form of Exhibit B attached. 9.6 No Material Adverse Change. -------------------------- Prior to the Closing Date, there shall be no material adverse change in the assets or liabilities, or in the Business or condition, financial or otherwise, or in the results of operations or prospects of the Business, or in any substantial portion of the Assets. 9.7 Absence of Insolvency. --------------------- Immediately prior to, and immediately subsequent to, the consummation of the sale of the Assets pursuant to the provisions of this Agreement, Lydall will be solvent and have the ability to pay its debts (with respect to the Business or otherwise) as they become due. 9.8 Bill of Sale. ------------ Lydall shall have executed and delivered to Ludlow the Bill of Sale, attached as Exhibit A. 9.9 Proceedings. ----------- All proceedings to be taken in connection with the transactions contemplated by this Agreement and all related documents shall be reasonably satisfactory in form and substance to Ludlow and its counsel, and Ludlow shall have received copies of all such documents and other evidence as it or its counsel may reasonably request in order to establish the consummation of such transactions and the taking of all proceedings in connection therewith. ARTICLE X CONDITIONS TO LYDALL'S OBLIGATIONS The obligations of Lydall under this Agreement to sell the Assets and to consummate the other transactions contemplated herein shall be subject to the satisfaction (or waiver by Lydall) on or prior to the Closing Date of all of the following conditions: 10.1 Truth of Representations and Warranties. --------------------------------------- The representations and warranties of Ludlow contained in this Agreement, in any of the Non-Competition Agreement or in any Exhibit delivered pursuant to this Agreement shall be true and correct in all material respects on and as of the Closing Date. 23 10.2 Absence of Insolvency. --------------------- Immediately prior to, and immediately subsequent to, the consummation of the sale of the Assets pursuant to the provisions of this Agreement, Ludlow will be solvent and have the ability to pay its debts (with respect to the Business or otherwise) as they become due. 10.3 No Litigation Threatened. ------------------------ No action or proceedings shall have been instituted before a court or other governmental body or by any public authority to restrain or prohibit any of the transactions contemplated. 10.4 Governmental Approvals. ---------------------- All governmental filings, notices, consents and approvals, if any, necessary to permit the consummation of the transactions contemplated by this Agreement shall have been made or received, as the case may be. 10.5 Consents. -------- Any consents listed in Schedule 6.2 attached shall have been received. 10.6 Proceedings. ----------- All proceedings to be taken in connection with the transactions contemplated by this Agreement and all documents incident shall be reasonably satisfactory in form and substance to Lydall and its counsel, and Lydall shall have received copies of all such documents and other evidence as it or its counsel may reasonably request in order to establish the consummation of such transactions and the taking of all proceedings in connection therewith. ARTICLE XI OTHER AGREEMENTS 11.1 Further Assurances. ------------------ Each party shall, at the reasonable request of the other, at any time and from time to time following the Closing Date, execute and deliver to the requesting party all such further instruments as may be reasonably necessary or appropriate in order to more effectively (a) assign, transfer and convey to Ludlow, or to perfect or record Ludlow's title to or interest in the Assets, (b) evidence and confirm the assumption by Ludlow of the liabilities of Lydall to be assumed by Ludlow pursuant to this Agreement, or (c) otherwise confirm or carry out the provisions of this Agreement. 11.2 Books, Records and Information. ------------------------------ (a) Ludlow agrees that all Books and Records delivered to Ludlow by Lydall pursuant to this Agreement shall be open for inspection by representatives of Lydall at any time during regular business hours for a period of six years (or for such longer period as may be required by law or as may be reasonably necessary as a result of audits and Tax contests) following the Closing Date and that Lydall may during such period make such copies as it may reasonably request, all at Lydall's cost and expense. Lydall agrees that all 24 records, documents and other tangible items that are retained by Lydall and that are related to the Assets or the Business shall be open for inspection by representatives of Ludlow at any time during regular business hours for a period of six years (or for such longer period as may be required by law or governmental regulation or as may be reasonably necessary or desirable as a result of audits and Tax contests) following the Closing Date and that Ludlow may during such period make such copies as it may reasonable request, all at Ludlow's cost and expense. (b) Lydall and Ludlow shall (i) each provide the other with such assistance as may reasonably be requested by either of them in connection with the preparation of any Return, audit or other examination by a taxing authority or judicial or administrative proceedings relating to liability for Taxes, (ii) each retain and provide the other with any records or other information which may be relevant to such Return, audit or examination, proceeding or determination, and (iii) each provide the other with any final determination of any such audit or examination, proceeding or determination that affects any amount required to be shown on any Return of the other for any period. Without limiting the generality of the foregoing, Ludlow shall retain and Lydall shall retain, until the applicable statutes of limitations (including any extensions) have expired, copies of all Returns, supporting work schedules and other records or information which are relevant to such returns for all tax periods or portions of tax periods ending before or including the Closing Date. (c) Without limiting the generality of subsection (a) or (b) of this Section 11.2, neither Ludlow nor Lydall shall destroy or give up possession of any item referred to in subsection (a) or (b) without first offering to the other the opportunity, at such other's expense (but without any other payment), to obtain the same. Each party shall promptly notify the other when it shall have no further need for such other party to maintain any of the items referred to in subsection (a) or (b) and thereafter such other party shall be free to dispose of the same as it deems fit. (d) Lydall and Ludlow shall use their reasonable efforts to afford the other access to (i) in the case of Lydall, employees of Lydall who remain employees of Lydall following the Closing Date but are familiar with the Assets or the Business and (ii) in the case of Ludlow, employees who were previously employees of Lydall, in each case as such other shall reasonably request for its proper corporate purposes, including, without limitation, the defense of legal proceedings or the preparation and audit of tax returns. Such access may include interviews or attendance at depositions or legal proceedings; provided, --------- however, that in any event all out-of-pocket expenses (excluding wages and - ------- salaries) reasonably incurred by any party in connection with this Section 11.2(d) shall be paid or promptly reimbursed by the party requesting such services. (e) Each of Ludlow and Lydall shall maintain in confidence all documents and other information not otherwise public which they may respectively acquire as a consequence of the exercise of their respective rights pursuant to this Section 11.2. 25 11.3 Mail; Payments. -------------- Lydall authorizes and empowers Ludlow from and after the Closing Date to receive and open all mail and other communications received by Ludlow, and to act with respect to such communications in such manner as Ludlow may elect if such communications relate to the Business, or, if such communications do not relate to the Business, to forward the same promptly to Lydall. Lydall and Ludlow shall promptly deliver to the other any cash, checks or other instruments of payment to which the other is entitled and shall hold such cash, checks or other instruments of payment in trust for the other until such delivery. 11.4 Use of Name. ----------- Ludlow agrees that it will not use the name "Lydall": (a) at any time after the Closing Date on letterhead or business cards; (b) at any time after the Closing Date on packaging, boxes, skid tickets, purchase orders, acknowledgements, invoices or any other documents which are not preprinted; (c) after six (6) months following the Closing Date on brochures and samples, provided that during the six months following the Closing Date stickers will be applied to brochures and samples stating that Lydall Southern Products is now owned by Ludlow; and (d) directly on products, except that inventory existing on the Closing Date marked with the name "Lydall" may be sold without change. ARTICLE XII SURVIVAL AND INDEMNIFICATION 12.1 Survival of Representations, Covenants and Certain Indemnifications. ------------------------------------------------------------------- The respective representations and warranties of Lydall and Ludlow contained in this Agreement, the Bill of Sale or the Non-Competition Agreement, or in any Exhibit or Schedule to this Agreement and the respective indemnification obligations set forth in Sections 12.2 (b)(i) and 12.2(c)(i) shall survive the Closing Date, but shall expire on the eighteen month anniversary of the Closing Date except that Lydall's representations and warranties in Sections 5.6 (Title to Assets) and 5.12 (Tax Returns) shall expire sixty (60) days after the expiration of all statutes of limitation applicable, and except with respect to, and to the extent of, any claim of which written notice specifying, in reasonable detail, the nature and amount of the claim has been given by one party to the other prior to such expiration. The respective covenants and agreements of Lydall and Ludlow as of the Closing Date contained in this Agreement or in any Exhibit attached shall survive the consummation of the transactions contemplated by this Agreement including, without limitation, the respective indemnification obligations of Lydall and Ludlow set forth in Sections 12.2(b)(ii) and (c)(ii). 12.2 Indemnification. --------------- (a) The indemnifying party shall be obligated to indemnify the indemnified party only when the amount to which the indemnified party shall be entitled to receive as indemnification shall exceed $25,000 in the aggregate. 26 (b) Lydall shall indemnify, defend and hold harmless Ludlow and its parent from and against any and all claims by third parties and any costs, losses, damages or liabilities (including, without limitation, reasonable attorneys' fees, interest and any penalties) relating to such claims (collectively, "Losses" and individually, a "Loss") incurred or suffered by Ludlow with respect to or in connection with: (i) the failure of any representation or warranty, made in or pursuant to this Agreement, the Bill of Sale or in the Schedules or Exhibits attached by Lydall, to be true and correct in all respects as of the Closing Date or any breach or nonfulfillment of any covenant or obligation of Lydall under this Agreement, other than any Loss which is asserted as a claim under subparagraph (ii) of this Section 12.2(b); and (ii) any claim which is made against Ludlow with respect to any Excluded Assets or Excluded Liabilities and any suits, actions, proceedings and assessments against Ludlow and costs and expenses incurred by Ludlow in the defense, including reasonable attorneys' fees, incident to the matters referred to in this subparagraph (ii). (iii) any product warranty claim made against Ludlow with respect to any finished goods produced by the Business prior to Closing. Ludlow reserves the right to participate at its own expense in the defense of any such claims falling within this Section 12.2(b), without relieving Lydall of any of its obligations. (c) Ludlow shall indemnify, defend and hold harmless Lydall and its parent from and against any and all claims by third parties and any costs, losses, damages or liabilities (including, without limitation, reasonable 'attorneys' fees, interest and any penalties) relating to such claims (collectively, "Losses" and individually, a "Loss") incurred or suffered by Lydall or its parent with respect to or in connection with: (i) the failure of any representation or warranty made in or pursuant to this Agreement, the Non-Competition Agreement or in the Schedules and Exhibits attached by Ludlow to be true and correct in all respects as of the Closing Date or any breach of nonfulfillment of any covenant or obligation of Ludlow under this Agreement, other than any Loss which is asserted as a claim under subparagraph (ii) of this Section 12.2(c); (ii) any claim which is made against Lydall with respect to the Assumed Obligations and any suits, actions, proceedings and assessments against Lydall and costs and expenses incurred by Lydall in the defense, including reasonable attorneys' fees, incident to the matters referred to in this subparagraph (ii); and (iii) any claim which is made against Lydall with respect to product warranty matters related to products made and sold from the Facilities after Closing. Lydall reserves the right to participate at its own expense in the defense of any such claims falling within this Section 12.2(c), without relieving Ludlow of any of its obligations. 27 ARTICLE XIII MISCELLANEOUS 13.1 Entire Agreement. ---------------- This Agreement (including the Exhibits and Schedules which are incorporated herein by this reference) sets forth the entire understanding of the parties with respect to the subject matter hereof. Any previous agreements or understandings between the parties regarding the subject matter are superseded by this Agreement. 13.2 Successors and Assigns. ---------------------- The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors of the parties; provided however, that ---------------- this Agreement, including the representations and warranties, may not be assigned by either of the parties without the written consent of the other party, except to a parent, subsidiary or Affiliate company of a party. 13.3 Counterparts. ------------ This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument. 13.4 Headings. -------- The headings of the Articles, Sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction. 13.5 Modification and Waiver. ----------------------- No amendment, modification or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by the parties, except that any of the terms or provisions of this Agreement may be waived in writing at any time by the party which is entitled to the benefits of such waived terms or provisions. No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provision (whether or not similar). No delay on the part of either party in exercising any right, power or privilege shall operate as a waiver. 13.6 No Third Party Beneficiary Rights. --------------------------------- This Agreement is not intended to, and shall not be construed to, give any Person other than the parties signatory any interest or rights (including, without limitation, any third party beneficiary rights) with respect to or in connection with any agreement or provision contained or contemplated herein. 13.7 Expenses. -------- Lydall and Ludlow shall each pay all costs and expenses incurred by it or on its behalf in connection with this Agreement and the transactions contemplated, including, without 28 limiting the generality of the foregoing, fees and expenses of its own financial consultants, accountants and legal counsel. 13.8 Notices. ------- Any notice, request, instruction or other document to be given by any party to any other party shall be in writing and delivered in person, sent by facsimile, or sent by registered or certified mail, postage prepaid, as follows: if to Ludlow: Ludlow Building Products, Inc. 4058 Highway 79 Homer, LA 71040 Attention: Michael A. Paulsen w/cc to: General Counsel Tyco International, Inc. 1 Tyco Park Exeter, NH 03833 if to Lydall: Lydall Eastern, Inc. c/o Lydall, Inc. One Colonial Road P.O. Box 151 Manchester, CT 06045-0151 Attention: Mary Tremblay or at such other address for a party as shall be specified by like notice. Any notice which is delivered personally in the manner provided shall be deemed to have been duly given to the party to whom it is directed upon actual receipt by such party. Any notice which is faxed in the manner provided shall be conclusively presumed to have been given to the party to whom it is given upon confirmation of such facsimile. 13.9 Governing Law. ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut. 13.10 Publicity. --------- Except as otherwise required by applicable laws or regulations, neither Lydall nor Ludlow shall issue any press release or make any other public statement, in each case relating to or connected with or arising out of this Agreement or the matters contained herein, without obtaining the prior approval of the other party including of the contents and the manner of presentation and publication. 13.11 Consent to Jurisdiction. ----------------------- Any judicial proceeding brought against any of the parties to this Agreement on any dispute arising out of this Agreement or any matter related may be brought in any federal or state 29 court located in the State of Connecticut and, by execution and delivery of this Agreement, each of the parties to this Agreement accepts for itself the exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered in connection with this Agreement. 13.12 Severability. ------------ If any provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transaction contemplated is not affected in any manner adverse to any party. Upon such determination that any provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated are fulfilled. 13.13 Enforcement. ----------- The parties agree that the remedy at law for any breach of this Agreement is inadequate and that should any dispute arise concerning the sale of the Assets, the Business or any other matter, this Agreement shall be enforceable in a court of equity by an injunction or a decree of specific performance. Such remedies shall, however, be cumulative and nonexclusive, and shall be in addition to any other remedies which the parties may have. 13.14 Confidentiality. --------------- Except as agreed upon, as otherwise required by applicable laws or regulations, or as otherwise provided by the terms of this Agreement, each of Ludlow and Lydall agrees to keep confidential the transaction described in this Agreement and all non-public information relating to the other, the Assets and the Business as set forth in the Agreement dated as of this date between the parties attached as Exhibit C and incorporated herein by this reference. 30 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed on its behalf as a sealed instrument as of the date first written above. LYDALL EASTERN, INC. LUDLOW BUILDING PRODUCTS, INC. By:________________________ By:_______________________ Walter A. Ruschmeyer Michael A. Paulsen Executive Vice President Authorized Representative Finance and Administration, Chief Financial Officer Witness:___________________ Witness:__________________ Name:______________________ Name:_____________________ 31 List of Exhibits Exhibit A Bill of Sale (2.6)(9.8) Exhibit B Non-Competition Agreement (9.5) Exhibit C Confidentiality Agreement (13.14) 32 List of Schedules Schedule 3.2.............Net Asset Adjustment Schedule 4.1.............Employee Benefits Schedule 5.3.............Consents and Approvals; No Violations Schedule 5.4.............Financial Statements; No Material Adverse Change Schedule 5.5.............Books and Records Schedule 5.6.............Title To Assets; Encumbrances; Condition Schedule 5.7.............Leases Schedule 5.8.............Material Contracts Schedule 5.9.............Permits Schedule 5.10............Restrictive Documents Schedule 5.11............Litigation Schedule 5.12............Returns; Taxes Schedule 5.13............Undisclosed Liabilities Schedule 5.14............Intellectual Properties Schedule 5.16............Compensation of Employees Schedule 5.17............Inventories Schedule 5.20............Absence of Certain Changes Schedule 5.21............Accounts Payable Schedule 5.22............Labor Matters Schedule 5.23............Product Warranty Schedule 5.24............Customers and Suppliers Schedule 6.2.............Consents and Approvals; No Violations Schedule 6.5.............Financial Statements Schedule 6.6.............Absence of Changes 33 EX-10.28 8 0008.txt AMENDMENT TO EMPLOYMENT AGREEMENT, MONA ESTEY Exhibit 10.28 AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- BETWEEN LYDALL, INC. AND MONA ESTEY ----------------------------------- Dated March 1, 2000 ------------------- This is an Amendment of the Employment Agreement between Lydall, Inc. and Mona Estey dated March 1, 2000. This Amendment is made in consideration of the mutual agreements and promises hereinafter set forth and for other good and valuable consideration. All provisions of the Employment Agreement are reaffirmed and will remain in full force and effect except that the following new sections shall be added as noted: 3.5 Automobile. During the Employment Period, the Company will provide the ---------- Executive with an automobile in accordance with Company policy. and 9. Benefits Upon Termination Without Cause or For Good Reason (Change of --------------------------------------------------------------------- Control). --------- (h) The Company will pay the Executive a car allowance, in an amount equal to Executive's lease allowance at the time of termination, 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. This amendment will be effective as of August 1, 2000. IN WITNESS WHEREOF, Lydall, Inc. and Mona Estey have caused this Amendment to the Agreement to be executed in duplicate. LYDALL, INC. By ---------------------- --------------------- Walter A. Ruschmeyer Mona Estey Executive Vice President - Finance and Administration, Chief Financial Officer EX-10.29 9 0009.txt AMENDMENT TO EMPLOYMENT AGREEMENT, MARY TREMBLAY Exhibit 10.29 AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- BETWEEN LYDALL, INC. AND MARY TREMBLAY -------------------------------------- Dated March 1, 2000 ------------------- This is an Amendment of the Employment Agreement between Lydall, Inc. and Mary Tremblay dated March 1, 2000. This Amendment is made in consideration of the mutual agreements and promises hereinafter set forth and for other good and valuable consideration. All provisions of the Employment Agreement are reaffirmed and will remain in full force and effect except that the following new sections shall be added as noted: 3.5 Automobile. During the Employment Period, the Company will provide the ---------- Executive with an automobile in accordance with Company policy. and 9. Benefits Upon Termination Without Cause or For Good Reason (Change of --------------------------------------------------------------------- Control). --------- (h) The Company will pay the Executive a car allowance, in an amount equal to Executive's monthly lease allowance at the time of termination, 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. This amendment will be effective as of August 1, 2000. IN WITNESS WHEREOF, Lydall, Inc. and Mary Tremblay have caused this Amendment to the Agreement to be executed in duplicate. LYDALL, INC. By ---------------------- --------------------- Walter A. Ruschmeyer Mary Tremblay Executive Vice President - Finance and Administration, Chief Financial Officer EX-10.30 10 0010.txt AMENDMENT TO EMPLOYMENT AGREEMENT, C. SKOMOROWSKI Exhibit 10.30 AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- BETWEEN LYDALL, INC. AND CHRISTOPHER SKOMOROWSKI ------------------------------------------------ Dated March 1, 2000 ------------------- This is an Amendment of the Employment Agreement between Lydall, Inc. and Christopher Skomorowski dated March 1, 2000. This Amendment is made in consideration of the mutual agreements and promises hereinafter set forth and for other good and valuable consideration. All provisions of the Employment Agreement are reaffirmed and will remain in full force and effect except that the following new section shall be added as noted: 9. Benefits Upon Termination Without Cause or For Good Reason (Change of --------------------------------------------------------------------- Control). --------- (h) The Company will pay the Executive a car allowance, in an amount equal to Executive's monthly lease allowance at the time of termination, 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. This amendment will be effective as of August 1, 2000. IN WITNESS WHEREOF, Lydall, Inc. and Christopher Skomorowski have caused this Amendment to the Agreement to be executed in duplicate. LYDALL, INC. By ---------------------- --------------------- Roger M. Widmann Christopher Skomorowski Chairman of the Board EX-10.31 11 0011.txt AMENDMENT TO EMPLOYMENT AGREEMENT, W. RUSCHMEYER Exhibit 10.31 AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- BETWEEN LYDALL, INC. AND WALTER RUSCHMEYER ------------------------------------------ Dated March 1, 2000 ------------------- This is an Amendment of the Employment Agreement between Lydall, Inc. and Walter Ruschmeyer dated March 1, 2000. This Amendment is made in consideration of the mutual agreements and promises hereinafter set forth and for other good and valuable consideration. All provisions of the Employment Agreement are reaffirmed and will remain in full force and effect except that the following new section shall be added as noted: 9. Benefits Upon Termination Without Cause or For Good Reason (Change of --------------------------------------------------------------------- Control). --------- (h) The Company will pay the Executive a car allowance, in an amount equal to Executive's monthly lease allowance at the time of termination, 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. This amendment will be effective as of August 1, 2000. IN WITNESS WHEREOF, Lydall, Inc. and Walter Ruschmeyer have caused this Amendment to the Agreement to be executed in duplicate. LYDALL, INC. By ---------------------- --------------------- Christopher Skomorowski Walter Ruschmeyer President and Chief Executive Officer EX-10.32 12 0012.txt AMENDMENT TO EMPLOYMENT AGREEMENT, JAMES CAROLAN Exhibit 10.32 AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- BETWEEN LYDALL, INC. AND JAMES CAROLAN -------------------------------------- Dated March 1, 2000 ------------------- This is an Amendment of the Employment Agreement between Lydall, Inc. and James Carolan dated March 1, 2000. This Amendment is made in consideration of the mutual agreements and promises hereinafter set forth and for other good and valuable consideration. All provisions of the Employment Agreement are reaffirmed and will remain in full force and effect except that the following new section shall be added as noted: 9. Benefits Upon Termination Without Cause or For Good Reason (Change of --------------------------------------------------------------------- Control). --------- (h) The Company will pay the Executive a car allowance, in an amount equal to Executive's monthly lease allowance at the time of termination, 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. This amendment will be effective as of August 1, 2000. IN WITNESS WHEREOF, Lydall, Inc. and James Carolan have caused this Amendment to the Agreement to be executed in duplicate. LYDALL, INC. By ---------------------- --------------------- Walter A. Ruschmeyer James Carolan Executive Vice President - Finance and Administration, Chief Financial Officer EX-10.33 13 0013.txt AMENDMENT TO EMPLOYMENT AGREEMENT, KEVIN LYNCH Exhibit 10.33 AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- BETWEEN LYDALL, INC. AND KEVIN LYNCH ------------------------------------ Dated March 1, 2000 ------------------- This is an Amendment of the Employment Agreement between Lydall, Inc. and Kevin Lynch dated March 1, 2000. This Amendment is made in consideration of the mutual agreements and promises hereinafter set forth and for other good and valuable consideration. All provisions of the Employment Agreement are reaffirmed and will remain in full force and effect except that the following new section shall be added as noted: 9. Benefits Upon Termination Without Cause or For Good Reason (Change of --------------------------------------------------------------------- Control). --------- (h) The Company will pay the Executive a car allowance, in an amount equal to Executive's monthly lease allowance at the time of termination, 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. This amendment will be effective as of August 1, 2000. IN WITNESS WHEREOF, Lydall, Inc. and Kevin Lynch have caused this Amendment to the Agreement to be executed in duplicate. LYDALL, INC. By ---------------------- --------------------- Walter A. Ruschmeyer Kevin Lynch Executive Vice President - Finance and Administration, Chief Financial Officer EX-10.34 14 0014.txt AMENDMENT TO EMPLOYMENT AGREEMENT, R. GRUPINSKI Exhibit 10.34 AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- BETWEEN LYDALL, INC. AND RAYMOND GRUPINSKI ------------------------------------------ Dated March 1, 2000 ------------------- This is an Amendment of the Employment Agreement between Lydall, Inc. and Raymond Grupinski dated March 1, 2000. This Amendment is made in consideration of the mutual agreements and promises hereinafter set forth and for other good and valuable consideration. All provisions of the Employment Agreement are reaffirmed and will remain in full force and effect except that the following new section shall be added as noted: 9. Benefits Upon Termination Without Cause or For Good Reason (Change of --------------------------------------------------------------------- Control). --------- (h) The Company will pay the Executive a car allowance, in an amount equal to Executive's monthly lease allowance at the time of termination, 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. This amendment will be effective as of August 1, 2000. IN WITNESS WHEREOF, Lydall, Inc. and Raymond Grupinski have caused this Amendment to the Agreement to be executed in duplicate. LYDALL, INC. By ---------------------- --------------------- Walter A. Ruschmeyer Raymond Grupinski Executive Vice President - Finance and Administration, Chief Financial Officer EX-10.35 15 0015.txt AMENDMENT TO EMPLOYMENT AGREEMENT, BILL W. FRANKS Exhibit 10.35 AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- BETWEEN LYDALL, INC. AND BILL FRANKS ------------------------------------ Dated March 1, 2000 ------------------- This is an Amendment of the Employment Agreement between Lydall, Inc. and Bill Franks dated March 1, 2000. This Amendment is made in consideration of the mutual agreements and promises hereinafter set forth and for other good and valuable consideration. All provisions of the Employment Agreement are reaffirmed and will remain in full force and effect except that the following new section shall be added as noted: 9. Benefits Upon Termination Without Cause or For Good Reason (Change of --------------------------------------------------------------------- Control). --------- (h) The Company will pay the Executive a car allowance, in an amount equal to Executive's monthly lease allowance at the time of termination, 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. This amendment will be effective as of August 1, 2000. IN WITNESS WHEREOF, Lydall, Inc. and Bill Franks have caused this Amendment to the Agreement to be executed in duplicate. LYDALL, INC. By ---------------------- --------------------- Walter A. Ruschmeyer Bill Franks Executive Vice President - Finance and Administration, Chief Financial Officer EX-10.36 16 0016.txt AMENDMENT TO EMPLOYMENT AGREEMENT, L. KRALLIS-NIXON Exhibit 10.36 AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- BETWEEN LYDALL, INC. AND LISA KRALLIS-NIXON ------------------------------------------- Dated March 1, 2000 ------------------- This is an Amendment of the Employment Agreement between Lydall, Inc. and Lisa Krallis-Nixon dated March 1, 2000. This Amendment is made in consideration of the mutual agreements and promises hereinafter set forth and for other good and valuable consideration. All provisions of the Employment Agreement are reaffirmed and will remain in full force and effect except that the following new section shall be added as noted: 9. Benefits Upon Termination Without Cause or For Good Reason (Change of --------------------------------------------------------------------- Control). --------- (h) The Company will pay the Executive a car allowance, in an amount equal to Executive's monthly lease allowance at the time of termination, 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. This amendment will be effective as of August 1, 2000. IN WITNESS WHEREOF, Lydall, Inc. and Lisa Krallis-Nixon have caused this Amendment to the Agreement to be executed in duplicate. LYDALL, INC. By ---------------------- --------------------- Walter A. Ruschmeyer Lisa Krallis-Nixon Executive Vice President - Finance and Administration, Chief Financial Officer EX-21.1 17 0017.txt LIST OF SUBSIDIARIES OF THE REGISTRANT Exhibit 21.1 CURRENT LIST OF SUBSIDIARIES I. First tier Lydall New York, Inc. Lydall Eastern, Inc. Lydall Central, Inc. Lydall Transport, Ltd. Lydall International, Inc. Lydall FSC, Limited Lydall Finance, Inc. Sopatex, S.A. Lydall Deutschland Holding GmbH II. Second tier Charter Medical, Ltd. Lydall Thermal/Acoustical Sales, LLC Lydall Membership, Inc. Trident II, Inc. Lydall Filtration/Separation Sales, Inc. Lydall Distribution Services, Inc. Axohm Industries, S.A. Lydall Gerhardi GmbH & Co KG III. Third tier Axohm UK EX-23.1 18 0018.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP - ------------------------------------------------------------------------------- LYDALL, INC. Exhibit 23.1 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statement of Lydall, Inc. on Form S-8, as amended (File No. 33-93768) of our report dated February 15, 2001, 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 PricewaterhouseCoopers LLP Hartford, Connecticut March 21, 2001 EX-24.1 19 0019.txt POWER OF ATTORNEY 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, 2000, 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.
Signature Title Date --------- ----- ---- /s/ Roger M. Widmann Chairman of the Board and February 27, 2001 ______________________________________ Director Roger M. Widmann /s/ Christopher R. Skomorowski President, Chief Executive February 27, 2001 ______________________________________ Officer and Director Christopher R. Skomorowski /s/ Lee A. Asseo Director February 27, 2001 ______________________________________ Lee A. Asseo /s/ Samuel P. Cooley Director February 27, 2001 ______________________________________ Samuel P. Cooley /s/ W. Leslie Duffy Director February 27, 2001 ______________________________________ W. Leslie Duffy /s/ David Freeman Director February 27, 2001 ______________________________________ David Freeman /s/ Suzanne Hammett Director February 27, 2001 ______________________________________ Suzanne Hammett
-----END PRIVACY-ENHANCED MESSAGE-----