-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Rcginu/rg5bwRpIKa+UDzMRgWeOFI8sWDH1MqNZf2ptzA1X2rP6x0YZP19LpmjLG pY7r5ZXOdwxP1MOD/AVoRQ== 0000950109-95-001717.txt : 19950511 0000950109-95-001717.hdr.sgml : 19950511 ACCESSION NUMBER: 0000950109-95-001717 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950509 SROS: NYSE 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07665 FILM NUMBER: 95535825 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-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 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 (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) ONE COLONIAL RD., P.O.B. 151, 06045-0151 MANCHESTER, CONNECTICUT (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (203) 646-1233 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NONE (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT.) ---------------- 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock $.10 par value per Share. Total shares outstanding May 2,1995 8,626,065
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LYDALL, INC. INDEX
PAGE NO. -------- Part I. Financial Information Item 1. Financial Statements........................................ Consolidated Condensed Balance Sheets............................. Consolidated Condensed Statements of Income....................... Consolidated Condensed Statements of Cash Flows................... Notes to Consolidated Condensed Financial Statements.............. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... Part II. Other Information Item 6. Exhibits and Reports on Form 8-K............................ Signature.............................................................
1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LYDALL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS)
MARCH DECEMBER 31, 31, 1995 1994 -------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents.............................. $ 14,862 $ 11,684 Short-term investments................................. 3,503 2,904 Accounts receivable, net............................... 34,539 31,825 Inventories: Finished goods....................................... 7,424 5,423 Work in process...................................... 2,983 2,941 Raw materials and supplies........................... 7,396 6,822 LIFO reserve......................................... (1,908) (1,659) -------- -------- Total inventories...................................... 15,895 13,527 Prepaid expenses....................................... 604 662 Deferred tax assets.................................... 3,496 3,485 -------- -------- Total current assets................................. 72,899 64,087 -------- -------- Property, plant and equipment, at cost................... 98,257 94,431 Less accumulated depreciation............................ (41,800) (39,660) -------- -------- 56,457 54,771 Other assets, at cost, less amortization................. 16,913 17,755 -------- -------- $146,269 $136,613 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt...................... $ 2,862 $ 2,843 Accounts payable....................................... 16,427 17,032 Accrued payroll and other compensation................. 3,961 5,420 Accrued taxes.......................................... 3,960 2,196 Other accrued liabilities.............................. 7,293 5,773 -------- -------- Total current liabilities............................ 34,503 33,264 Long-term debt........................................... 10,083 10,607 Deferred tax liabilities................................. 12,252 11,752 Pensions and other long-term liabilities................. 4,933 4,763 Stockholders' equity: Preferred stock........................................ -- -- Common stock........................................... 1,041 1,013 Capital in excess of par value......................... 33,081 31,419 Retained earnings...................................... 61,329 56,023 Pension liability adjustment........................... (486) (547) Foreign currency translation adjustment................ 2,352 1,138 -------- -------- 97,317 89,046 Less: treasury stock, at cost.......................... (12,819) (12,819) -------- -------- Total stockholders' equity........................... 84,498 76,227 -------- -------- $146,269 $136,613 ======== ========
See accompanying Notes to Consolidated Condensed Financial Statements. 2 LYDALL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (IN THOUSANDS EXCEPT PER-SHARE DATA)
THREE MONTHS ENDED MARCH 31, ---------------- 1995 1994 ------- ------- (UNAUDITED) Net sales...................................................... $62,736 $48,116 Cost of sales.................................................. 43,510 32,971 ------- ------- Gross margin................................................... 19,226 15,145 Selling, product development and administrative expenses....... 10,263 8,585 ------- ------- Operating income............................................... 8,963 6,560 Other (income) expense Investment (income) expense.................................. (232) 103 Interest expense............................................. 264 260 Other........................................................ 224 171 ------- ------- 256 534 ------- ------- Income before income taxes..................................... 8,707 6,026 Income tax expense............................................. 3,401 2,498 ------- ------- Net income..................................................... $ 5,306 $ 3,528 ======= ======= Per-share amounts: Net income per share........................................... $ .58 $ .40 ======= ======= Weighted average common stock and equivalents outstanding...... 9,072 8,892 ======= =======
See accompanying Notes to Consolidated Condensed Financial Statements. 3 LYDALL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ----------------- 1995 1994 ------- -------- (UNAUDITED) Cash flows from operating activities: Net income................................................ $ 5,306 $ 3,528 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation............................................ 1,826 1,483 Amortization............................................ 382 274 Changes in operating assets and liabilities: Accounts receivable................................... (2,254) (3,251) Inventories........................................... (2,078) (974) Other assets.......................................... 526 (177) Accounts payable...................................... (884) 3,366 Accrued taxes......................................... 1,690 2,276 Accrued payroll and other compensation................ (1,492) (1,207) Deferred income taxes................................. 190 203 Other long-term liabilities........................... 13 (245) Other accrued liabilities............................. 1,485 1,723 ------- -------- Total adjustments....................................... (596) 3,471 ------- -------- Net cash provided by operating activities................... 4,710 6,999 ------- -------- Cash flows from investing activities: Purchase of assets of Columbus Operation.................. -- (15,000) Additions of property, plant & equipment.................. (2,179) (565) Sale (purchase) of short-term investments, net............ (599) 412 Disposals of property, plant & equipment, net............. 4 38 ------- -------- Net cash used for investing activities...................... (2,774) (15,115) ------- -------- Cash flows from financing activities: Long-term debt repayments................................. (538) (29) Issuance of common stock.................................. 1,751 40 ------- -------- Net cash provided by financing activities................... 1,213 11 ------- -------- Effect of exchange rate changes on cash..................... 29 41 ------- -------- Increase (decrease) in cash and cash equivalents............ 3,178 (8,064) Cash and cash equivalents at beginning of period............ 11,684 13,820 ------- -------- Cash and cash equivalents at end of period.................. $14,862 $ 5,756 ======= ======== Supplemental Schedule of Cash Flow Information: Cash paid during the period for: Interest.................................................. $ 149 $ 7 Income taxes.............................................. 1,716 551 Non-cash transactions: Note issued to purchase assets of Columbus Operation...... -- 2,250 Reclassification of short-term investment to long-term, net...................................................... -- 538
See accompanying Notes to Consolidated Condensed Financial Statements. 4 LYDALL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. The accompanying consolidated condensed financial statements include the accounts of Lydall, Inc. and its wholly owned subsidiaries. All financial information is unaudited for interim periods reported. All significant intercompany transactions have been eliminated in the consolidated condensed financial statements. Management believes that all adjustments, which include only normal recurring accruals, necessary to present a fair statement of the financial position and results of the periods have been included. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. 2. Earnings per common share are based on the weighted average number of common shares outstanding during the period, including the effect of stock options, stock awards and warrants where such effect would be dilutive. Fully diluted earnings per share are not presented since the dilution is not material. 3. In the mid-1980's, 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 two sites have been combined and are viewed by the EPA as one site. 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. There are over 800 potentially responsible parties ("prp") which have been identified by the Site Steering Committee. Of these, 38, not including the Company's former subsidiary, are estimated to have contributed over 80 percent of the total waste volume at the site. These prp's include Fortune 500 companies, public utilities, and the State of Indiana. The Company believes that, in general, these parties are financially solvent and should be able to meet their obligations at the site. The Company has reviewed the financial statements and credit reports on several of these prp's, and based on these financial reports, does not believe the Company will have any material additional volume attributed to it for reparation of this site due to insolvency of other prp's. During the quarter ended September 30, 1994, the Company learned that the EPA recently completed its Record of Decision ("ROD") for the Michigan site and has estimated the total cost of remediation to be between $17 million and $22 million. Based on the alleged contribution of its former subsidiary to the site, the Company's alleged total exposure would be less than $100 thousand, which has been accrued. Management believes the ultimate disposition of this matter will not have a material adverse effect upon the Company's consolidated financial position or results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: For the first quarter ended March 31, 1995, sales were $62.7 million compared with $48.1 million for the same quarter last year, a 30-percent increase. Net income was $5.3 million compared with $3.5 million, an increase of 51 percent. On a per-share basis, the Company earned $.58 in the first quarter of 1995 compared with $.40 in the same period last year, representing a 45-percent increase in earnings per share. Demand was strong in most of the Company's markets. Although acquisitions were a positive factor in the quarter, two-thirds of the sales growth came from increased sales in established operations. Also, international sales grew by 28 percent in the quarter compared with the same period last year. There was 5 particularly strong growth in the materials-handling slipsheet business both domestically and overseas. The acquisition of a complementary slipsheet business in Jacksonville, Florida last year has expanded Lydall's position in this market. Sales of high-efficiency air filtration media continued to be robust both domestically and abroad. As planned, the manufacture of certain grades of these media at the French facility has proven to be advantageous to the Company in this strong market. Thermal barrier products also contributed to internal growth. New-product sales of all-metal automotive heat shields contributed significantly to the sales growth in the quarter, as did increased sales of cryogenic insulation products. The demand for cryogenic vessels is growing and Lydall is gaining market share as the insulating technology moves towards the Company's preferred lightweight, multilayered materials. Additionally, the Company will continue to see growth from the battery insulator product line, particularly in the second half of this year when 1996 models go into production. Sales and net income for the first quarter 1995 included a full quarter's results from both the Jacksonville, Florida and Columbus, Ohio Operations which were acquired during 1994. First quarter 1994 results included only one month of results from the Columbus Operation and no results from the Jacksonville Operation which was acquired in late June 1994. Gross margin in the first quarter of 1995 was $19.2 million, or 30.6 percent of sales, and return on sales was 8.5 percent. This compares with a gross margin in the first quarter of 1994 of $15.1 million or 31.5 percent of sales, and a return on sales of 7.3 percent. As reported in 1994, acquisitions continued to negatively affect gross margins. Gross margins for the quarter ended March 31, 1995 would have been 33.0 percent without the effect of the 1994 acquisitions. However, the Company made progress during the quarter in improving margins at the recently acquired operations and expects to continue to bring these margins in line with the company-wide average through 1995 and into 1996. Selling, product development and administrative expenses were 16.4 percent of sales for the quarter ended March 31, 1995 compared with 17.8 percent of sales for the quarter ended March 31, 1994. The Company anticipates that these expenses will remain at the 16 to 17 percent level through the end of the year. The Company's effective income tax rate decreased to 39.1 percent in the quarter versus 41.5 percent in 1994. This reduction in tax rates is due to several factors including stronger export sales resulting in a favorable Foreign Sales Corporation benefit and the settlement of Internal Revenue Service audits which were more favorable than expected. LIQUIDITY AND CAPITAL RESOURCES: Lydall generated operating cash flow of nearly $11 million in the first quarter of 1995. As of March 31, 1995, cash, cash equivalents and short-term investments were $18.4 million and working capital was $38.4 million. The current ratio increased to 2.11, and total debt to total capitalization decreased to 13 percent. Capital expenditures of approximately $2 million were funded during the quarter. Increased levels of accounts receivable and inventories are directly attributable to higher sales levels. The aging of accounts receivable has not deteriorated from December 1994 levels. During the month of April 1995, the Company repaid $2.2 million in long-term debt, made the semi-annual interest payment and funded quarterly federal and state income taxes and pension payments. The above payments were made with cash from operations. The Company expects to continue to finance its day-to-day operating needs from accumulated cash plus net cash from operations. 6 Lydall continues to actively seek strategic acquisitions and to reinvest in the Company with the primary focus on the ongoing comprehensive quality program. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 --Employment Agreement with John E. Hanley dated March 10, 1995, filed herewith. 10.2 --Employment Agreement with James P. Carolan dated March 10, 1995, filed herewith. 10.3 --Employment Agreement with Elliott F. Whitely dated March 10, 1995, filed herewith. 10.4 --Employment Agreement with Alan J. Gnann dated March 10, 1995, filed herewith. 10.5 --Employment Agreement with Raymond J. Lanzi dated March 10, 1995, filed herewith. 10.6 --Employment Agreement with Christopher R. Skomorowski dated March 10, 1995, filed herewith. 10.7 --Employment Agreement with William J. Rankin dated March 10, 1995, filed herewith. 10.8 --Employment Agreement with Carole F. Butenas dated March 10, 1995, filed herewith. 10.9 --Employment Agreement with Mona G. Estey dated March 10, 1995, filed herewith. 10.10 --Employment Agreement with Mary Adamowicz dated March 10, 1995, filed herewith. 11.1 --Schedule of Computation of Weighted Average Shares Outstanding, filed herewith.
(b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the three months ended March 31, 1995. 7 SIGNATURE PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. Lydall, Inc. (Registrant) By __________________________________ JOHN E. HANLEY Vice President-Finance and Treasurer (Principal Financial and Accounting Officer) May 9, 1995 8 LYDALL, INC. INDEX TO EXHIBITS
EXHIBIT NO. ------- 10.1 Employment Agreement with John E. Hanley dated March 10, 1995, filed herewith. 10.2 Employment Agreement with James P. Carolan dated March 10, 1995, filed herewith. 10.3 Employment Agreement with Elliott F. Whitely dated March 10, 1995, filed herewith. 10.4 Employment Agreement with Alan J. Gnann dated March 10, 1995, filed herewith. 10.5 Employment Agreement with Raymond J. Lanzi dated March 10, 1995, filed herewith. 10.6 Employment Agreement with Christopher R. Skomorowski dated March 10, 1995, filed herewith. 10.7 Employment Agreement with William J. Rankin dated March 10, 1995, filed herewith. 10.8 Employment Agreement with Carole F. Butenas dated March 10, 1995, filed herewith. 10.9 Employment Agreement with Mona G. Estey dated March 10, 1995, filed herewith. 10.10 Employment Agreement with Mary Adamowicz dated March 10, 1995, filed herewith. 11.1 Schedule of Computation of Weighted Average Shares Outstanding, filed herewith.
EX-10.1 2 HANLEY AGREEMENT AGREEMENT --------- THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC. and its subsidiaries (the "Company") and John E. Hanley (the "Executive"). W I T N E S S E T H : Recitals. - --------- Executive is employed by the Company as a Vice President-Finance and Treasurer. The Company and Executive have agreed that if Executive should cease to be Vice President-Finance and Treasurer under the circumstances set forth in this Agreement his employment will be continued in another capacity for a specified period; NOW, THEREFORE, the Company and Executive, in consideration of the mutual promises set forth below, agree as follows: 1. Executive to Serve as Vice President-Finance and Treasurer. The ----------------------------------------------------------- Executive shall continue to act as Vice President-Finance and Treasurer, subject to the direction of its Chairman, President and Chief Executive Officer. 2. Definitions. The phrase "Change of Control," as used in this ------------ Agreement, shall mean 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 of the Company (the "Board") 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 1 assets or (b) the stockholders of the Company acquire a right to receive, in exchange for or upon surrender a majority of their stock, cash or other securities or a combination of the two; and/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 of director of the Company on the date of this Agreement; and/or iii) the election or appointment to the Board of any director or directors whose appointment or election or nomination for election was not approved by a vote of at least a majority of the directors then still in office who were either directors on the date hereof or whose election, appointment or nomination for election was previously so approved. The word "person," as used in the preceding sentence, shall mean an individual, corporation, trust, or other legal or commercial entity and include 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. 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 2 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. The phrase "Fringe Benefits," as used in this Agreement, shall mean the benefits listed on Exhibit A hereto. 3. Termination After Change of Control. If a Change of Control occurs ----------------------------------- after the date of this Agreement and subsequent to such Change of Control (a) Executive shall resign as a Vice President-Finance and Treasurer of the Company within one year from the time such Change of Control occurs or (b) another shall be appointed or elected Vice President-Finance and Treasurer by the Company in place of Executive at any time prior to June 1, 2021, Executive's normal retirement date (such resignation or replacement of Executive being hereinafter referred to as a "Termination"), Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for cause or Executive is replaced for cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 4. Termination Prior to Change of Control. If prior to a Change of --------------------------------------- Control (a) the Executive shall resign as Vice 3 President-Finance and Treasurer of the Company at the request of the Company or because the duties and responsibilities of the Vice President-Finance and Treasurer have been significantly modified by the Company without his consent or (b) another is appointed Vice President-Finance and Treasurer in place of the Executive (such resignation or replacement of the Executive being hereinafter referred to a "Termination"), the Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for Cause or if Executive is replaced for Cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 5. Termination for Cause If Executive's employment is terminated for --------------------- cause prior to the beginning of the Employment Period, (either prior or subsequent to a Change of Control), earned but unpaid Base Salary will be paid on a prorated basis for the year in which the termination occurs, plus accrued vacation benefits, but all other Company obligations shall cease as of the date of termination for cause, unless otherwise provided in separate agreements. 6. Employment Period. In the event of a Termination pursuant to paragraph ----------------- 3b above, Executive shall continue to be an employee of the Company for a period of two years from the date of such Termination, and in the event of a Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive shall 4 continue to be an employee of the Company for a period of one year from the date of such Termination, such two year period or one year period, as the case may be, being hereinafter referred to as the "Employment Period"; provided, however, that (a) Executive may end the Employment Period at any time in his absolute discretion and the Employment Period may be ended by the Company at any time for cause, (b) the Employment Period shall not extend beyond June 1, 2021, Executive's normal retirement date, and (c) the Employment Period shall terminate if and when the Executive becomes employed on substantially a full time basis by another entity or as a partner or sole proprietor and with Executive's full recognition of his responsibilities under Paragraph 11 below (but such termination of the Employment Period under clause (a), (b) or (c) above shall not preclude the Executive from being paid for his obligation not to compete as provided in Paragraphs 11 and 12 below). 7. Title and Duties. During the Employment Period, the Executive shall ---------------- perform such duties and undertake such responsibilities as are assigned to him from time to time by the Chairman, President and Chief Executive Officer; provided, however, that such duties and responsibilities shall be commensurate with his status as a senior executive of the Company and bear a reasonable relationship to the business of the Company. 8. Compensation. The Company shall pay to Executive during the Employment ------------ Period an annual salary (the "Annual Salary") equal to one-third (1/3rd) of the aggregate of the base salary and bonuses paid to him during the period commencing three 5 (3) years prior to the date of Termination and ending on the date of Termination. Payment shall be made twice monthly and be appropriately prorated during the first and last month of the Employment Period. In addition, during the Employment Period Executive shall receive (a) the same Fringe Benefits that he would have been entitled to receive if he had continued to be Vice President- Finance and Treasurer during such period, (b) reimbursement for reasonable expenses incurred by him in the performance of his duties and (c) the use of an automobile on substantially the same basis as prior to his termination. If the Employment Period shall end, pursuant to Paragraph 6 above, prior to the end of the two year term provided for in Paragraph 3b above or the one year term provided for in Paragraph 3a or Paragraph 4 above, as the case may be, the Annual Salary (but, except to the extent provided in Paragraph 10 below, not fringe benefits and perquisites) shall continue to be payable until the end of the non-compete period provided for in Paragraph 11 below and shall be deemed payment for Executive's obligation not to compete as provided in said Paragraph 11, and such Annual Salary for the remainder of the non-compete period shall be paid to the Executive in a lump sum cash payment within ten days after the end of the Employment Period. 9. Tax Gross-up. Anything in this Agreement to the contrary ------------- notwithstanding, in the event it shall be determined that any payment or distribution made, or benefit provided, by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms 6 of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9 (a 'Payment') would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended and then in effect (the 'Code') (or any similar excise tax) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the ('Excise Tax'), then the Executive shall be entitled to receive an additional payment (a 'Gross-Up Payment') in an amount such that after payment by the Executive of all Federal, state, local or other taxes (including any interest or penalties imposed with respect to any such taxes), including, without limitation, any such income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. An Executive may receive Gross-Up Payments under this Section 9 whether or not the Executive actually receives other payments or benefits under the Agreement. (i) Subject to the provisions of paragraph (ii) of this Section 9, all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Coopers & Lybrand (the "Accounting Firm') which shall provide detailed supporting calculations both to the Company and the Executive within 20 calendar days of the receipt 7 of written notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall have the right by written notice to the Company to appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and shall be paid by the Company upon demand of the Executive as incurred or billed by the Accounting Firm. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an unqualified written opinion in form and substance satisfactory to the Executive that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ('Underpayment'), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies described in paragraph (ii) of this Section 9 and the Executive thereafter is 8 required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be paid by the Company to or for the benefit of the Executive within five days of the receipt of the Accounting Firm's determination. All determinations made by the Accounting Firm in connection with any Gross-Up Payment or Underpayment shall be final and binding upon the Company and the Executive. (ii) The Executive shall notify the Company in writing of any claim asserted in writing by the Internal Revenue Service to the Executive that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but not later than 60 days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall at the Company's expense: a. give the Company any information reasonably requested by the Company relating to such claim. b. take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal 9 representation with respect to such claim by an attorney reasonably selected by the Company. c. cooperate with the Company in good faith in order effectively to contest such claim, and d. permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly as incurred all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or any Federal, state, local or other income or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, 10 from any Excise Tax or Federal, state, local or other income or other tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the status of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iii) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 9, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of paragraph (ii) of this Section 9 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto) upon receipt thereof. If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 9, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not 11 be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Medical Insurance Coverage. Executive and his beneficiaries shall --------------------------- continue to participate in all life, health, disability and other welfare plans or programs existing at the time of a Change of Control in which they were participating at such time (or substantially similar plans or programs), to the extent that such continued participation is possible under the general terms and conditions of such plans and programs throughout the Employment Period. Company and Executive will continue to pay the same relative portion of the cost of each such plan or program as each were paying at the time of the Change of Control. Further, in the event that Executive's or his beneficiaries' continued participation in any group plan or program is not permitted, then in lieu thereof, Company shall acquire individual insurance policies providing substantially similar coverage for Executive and his beneficiaries, and Company and Executive will pay the same relative portion of the cost of such comparable coverage plans or programs or in the event that Company cannot acquire individual insurance policies providing substantially similiar coverage, the Company will self-insure the Executive, and the Executive in the case of self insurance will pay the COBRA rate then applicable to the Company's group plan. For purposes of COBRA, a qualifying event is not deemed to occur until the Employment Period, as defined in paragraph 6, has expired. 11. Non-Compete. During the Employment Period Executive ------------ 12 will not compete directly or indirectly with the Company or be directly or indirectly interested in any business competing with the business being conducted by the Company. Ownership of less than 1 percent of the issued and outstanding capital stock of any corporation the stock of which is listed upon a national exchange or regularly quoted by the National Association of Security Dealers Automated Quotation (NASDAQ) shall not be deemed to create a material conflict of interest as contemplated hereunder. For the purpose of this Paragraph 11, the Employment Period shall be deemed to extend two years from Termination if such Termination occurred pursuant to Paragraph 3b above or one year from Termination if such Termination occurred pursuant to Paragraph 3a or Paragraph 4 above, notwithstanding any prior ending of the Employment Period pursuant to Paragraph 6 above. 12. Trade Secrets. Executive shall regard and preserve as confidential -------------- and not use, communicate or disclose to any person, orally, in writing or by a publication, any secret or confidential information of the Company, regardless of where or when or how acquired by the Company, or of others which the Company is obligated to maintain in confidence. This obligation shall exist during the Employment Period and after the termination of the Employment Period until such information becomes a matter of public knowledge through no act of Executive. At the termination of employment by the Company, Executive agrees to return to employer all documents, writings, drawings and other property of the Company within his custody and control. 13. Indemnification. The parties agree to execute a separate --------------- Indemnification Agreement in the form attached as 13 Exhibit B. 14. Arbitration. The Company and Executive undertake to execute this ------------ Agreement in good faith. Any controversy or claim arising out of or relating to this Agreement other benefit plans or arrangements with the Company or breach of this Agreement, shall receive prompt attention by the other party and both parties agree to make good faith efforts to resolve any controversy or claim in an amicable way. If the Company and Executive fail to settle the controversy or claim in an amicable way, they agree to submit the matter to be settled by arbitration in accordance with the Arbitration Rules of the American Arbitration Association. This Agreement, its execution, interpretation and performance shall be governed by the laws of the state of Connecticut of the United States of America. The arbitration will be held in Hartford, Connecticut, or such other place as may be agreed at the time by the parties. The award of this arbitration shall be final and binding both for the Company and Executive and may be entered in any court with jurisdiction. 15. Litigation Expenses. In the event of any action, suit, proceeding, ------------------- arbitration or claim between or by or against the Company and/or the Executive with respect to this Agreement, other benefit plans or arrangements between the parties, and the assertion or enforcement of his rights hereunder, the Company shall promptly pay or reimburse the Executive upon such Executive's written demand therefor, for eighty (80) percent of his costs and expenses (including costs and fees of witnesses, evidence and attorney fees and expenses) relating to or arising 14 out of (directly or indirectly) such action, suit, proceeding, arbitration or claim, on a monthly basis, as such costs and expenses are incurred in investigating, prosecuting, defending or preparing to prosecute or defend, regardless of the outcome thereof. In no event shall the Executive be required to reimburse the Company for any of the costs and expenses relating to any such action, suit, proceeding, arbitration or claim. The obligation of the Company under this Section 15 shall survive the termination for any reason of this Agreement. This Section 15 cannot be amended or modified to affect the rights of the Executive without the prior written consent of such Executive which specifically refers to this Section 15. 16. Rabbi Trust. Within sixty (60) days of the date of this Agreement, the ------------ Company shall enter into a trust agreement (the "Trust Agreement") with a third party institutional trustee, substantially in the form set forth in Rev. Proc. 92-64, 1992-2 C.B. 422, to assist it in meeting its obligations to the Executive under the Company's Supplemental Executive Retirement Plan (the "SERP"). The trust established pursuant to the Trust Agreement (the "Trust") shall be irrevocable. The Trust Agreement shall provide that upon a Change of Control the Company shall, no later than 30 days following the Change of Control, make an irrevocable contribution of cash or cash equivalents to the Trust in an amount sufficient to pay each SERP participant or beneficiary the benefits to which they would be entitled pursuant to the terms of the SERP, and within 30 days following the end of each calendar year ending after the Change of Control the Company shall irrevocably contribute any additional cash to the Trust 15 necessary for the Trustee to pay each SERP participant or beneficiary the benefits payable pursuant to the terms of the SERP as of the close of the year. The Trust Agreement shall also provide (i) that all income received by the Trust shall be accumulated and reinvested, (ii) that the Company will be responsible for the payment of all fees and expenses related to the Trust, (iii) that after a Change of Control the Trustee may not be removed by the Company, and (iv) that, if the Trustee shall resign, any successor Trustee must be an independent institutional entity, such as a bank trust department or other party that has been granted corporate trustee powers under state law. The Trust Agreement shall also provide that the provisions of the Trust described in this Paragraph 16 may not be amended after a Change of Control. 17. Entire Agreement. This Agreement embodies the whole understanding ----------------- between the parties hereto with respect to the subject matter hereof and supersedes all earlier agreements. There are no inducements, promises, terms, conditions or obligations made or entered into by either party other than as contained herein. 18. Modification. This Agreement may not be changed orally, but only be ------------ means of an agreement in writing signed by the parties hereto. 19. Waiver. The waiver by any party of a breach of any provision of this ------- Agreement shall not operate as, or be construed as, a waiver of any subsequent breach. 20. Applicable Law. This Agreement shall be governed and construed in --------------- accordance with the laws of the State of 16 Connecticut, without reference to principles of conflict of laws. 21. Successors This Agreement is personal to the Executive and without the ---------- prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor (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 it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date first above written. LYDALL, INC. By__________________________ _______________________ Roger M. Widmann, Chairman, John E. Hanley Compensation and Stock Option Vice President-Finance Committee and Treasurer By____________________________ Leonard R. Jaskol Chairman, President and CEO 17 EXHIBIT A - FRINGE BENEFITS --------------------------- 1. Medical Benefits a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes dental benefits) b. Lydall, Inc. Health Care Expense Plan c. Lydall, Inc. Health Care Spending Reimbursement Plan 2. Disability Benefits a. Lydall, Inc. Short Term Disability Plan b. Lydall, Inc. Executive Group Long Term Disability Plan 3. Life Insurance a. Executive Life Insurance Plan b. Accidental Death and Dismemberment Plan c. Family Assistance Program d. Business Travel Accident Plan 4. Retirement Plans a. Lydall, Inc. Pension Plan No. 1A b. Lydall, Inc. Profit Sharing Plan No. 1 c. Lydall, Inc. 401(k) Plan d. Lydall, Inc. Supplemental Executive Retirement Plan 5. Stock Plans a. Lydall, Inc. Employee Stock Purchase Plan b. Lydall, Inc. 1992 Stock Incentive Compensation Plan c. Lydall, Inc. 1982 Stock Incentive Compensation Plan 6. Other a. Holidays, vacations b. Lydall, Inc. Dependent Care Assistance Plan 18 EX-10.2 3 CAROLAN AGREEMENT AGREEMENT --------- THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC. and its subsidiaries (the "Company") and James P. Carolan (the "Executive"). W I T N E S S E T H : Recitals. - --------- Executive is employed by the Company as a Division President. The Company and Executive have agreed that if Executive should cease to be Division President under the circumstances set forth in this Agreement his employment will be continued in another capacity for a specified period; NOW, THEREFORE, the Company and Executive, in consideration of the mutual promises set forth below, agree as follows: 1. Executive to Serve as Division President. The Executive shall continue ----------------------------------------- to act as Division President, subject to the direction of its Chairman, President and Chief Executive Officer. 2. Definitions. The phrase "Change of Control," as used in this ------------ Agreement, shall mean 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 of the Company (the "Board") 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 1 receive, in exchange for or upon surrender a majority of their stock, cash or other securities or a combination of the two; and/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 of director of the Company on the date of this Agreement; and/or iii) the election or appointment to the Board of any director or directors whose appointment or election or nomination for election was not approved by a vote of at least a majority of the directors then still in office who were either directors on the date hereof or whose election, appointment or nomination for election was previously so approved. The word "person," as used in the preceding sentence, shall mean an individual, corporation, trust, or other legal or commercial entity and include 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. 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 2 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. The phrase "Fringe Benefits," as used in this Agreement, shall mean the benefits listed on Exhibit A hereto. 3. Termination After Change of Control. If a Change of Control occurs ----------------------------------- after the date of this Agreement and subsequent to such Change of Control (a) Executive shall resign as a Division President of the Company within one year from the time such Change of Control occurs or (b) another shall be appointed or elected Division President by the Company in place of Executive at any time prior to April 1, 2008, Executive's normal retirement date (such resignation or replacement of Executive being hereinafter referred to as a "Termination"), Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for cause or Executive is replaced for cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 4. Termination Prior to Change of Control. If prior to a Change of --------------------------------------- Control (a) the Executive shall resign as Division President of the Company at the request of the Company or because the duties and responsibilities of the Division President have 3 been significantly modified by the Company without his consent or (b) another is appointed Division President in place of the Executive (such resignation or replacement of the Executive being hereinafter referred to a "Termination"), the Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for Cause or if Executive is replaced for Cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 5. Termination for Cause If Executive's employment is terminated for --------------------- cause prior to the beginning of the Employment Period, (either prior or subsequent to a Change of Control), earned but unpaid Base Salary will be paid on a prorated basis for the year in which the termination occurs, plus accrued vacation benefits, but all other Company obligations shall cease as of the date of termination for cause, unless otherwise provided in separate agreements. 6. Employment Period. In the event of a Termination pursuant to paragraph ----------------- 3b above, Executive shall continue to be an employee of the Company for a period of two years from the date of such Termination, and in the event of a Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive shall continue to be an employee of the Company for a period of one year from the date of such Termination, such two year period or one year period, as the case may be, being hereinafter referred 4 to as the "Employment Period"; provided, however, that (a) Executive may end the Employment Period at any time in his absolute discretion and the Employment Period may be ended by the Company at any time for cause, (b) the Employment Period shall not extend beyond April 1, 2008, Executive's normal retirement date, and (c) the Employment Period shall terminate if and when the Executive becomes employed on substantially a full time basis by another entity or as a partner or sole proprietor and with Executive's full recognition of his responsibilities under Paragraph 11 below (but such termination of the Employment Period under clause (a), (b) or (c) above shall not preclude the Executive from being paid for his obligation not to compete as provided in Paragraphs 11 and 12 below). 7. Title and Duties. During the Employment Period, the Executive shall ---------------- perform such duties and undertake such responsibilities as are assigned to him from time to time by the Chairman, President and Chief Executive Officer; provided, however, that such duties and responsibilities shall be commensurate with his status as a senior executive of the Company and bear a reasonable relationship to the business of the Company. 8. Compensation. The Company shall pay to Executive during the Employment ------------ Period an annual salary (the "Annual Salary") equal to one-third (1/3rd) of the aggregate of the base salary and bonuses paid to him during the period commencing three (3) years prior to the date of Termination and ending on the date of Termination. Payment shall be made twice monthly and be appropriately prorated during the first and last month of the 5 Employment Period. In addition, during the Employment Period Executive shall receive (a) the same Fringe Benefits that he would have been entitled to receive if he had continued to be Division President during such period, (b) reimbursement for reasonable expenses incurred by him in the performance of his duties and (c) the use of an automobile on substantially the same basis as prior to his termination. If the Employment Period shall end, pursuant to Paragraph 6 above, prior to the end of the two year term provided for in Paragraph 3b above or the one year term provided for in Paragraph 3a or Paragraph 4 above, as the case may be, the Annual Salary (but, except to the extent provided in Paragraph 10 below, not fringe benefits and perquisites) shall continue to be payable until the end of the non-compete period provided for in Paragraph 11 below and shall be deemed payment for Executive's obligation not to compete as provided in said Paragraph 11, and such Annual Salary for the remainder of the non-compete period shall be paid to the Executive in a lump sum cash payment within ten days after the end of the Employment Period. 9. Tax Gross-up. Anything in this Agreement to the contrary ------------- notwithstanding, in the event it shall be determined that any payment or distribution made, or benefit provided, by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9 (a 'Payment') would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended and then in 6 effect (the 'Code') (or any similar excise tax) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the ('Excise Tax'), then the Executive shall be entitled to receive an additional payment (a 'Gross-Up Payment') in an amount such that after payment by the Executive of all Federal, state, local or other taxes (including any interest or penalties imposed with respect to any such taxes), including, without limitation, any such income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. An Executive may receive Gross-Up Payments under this Section 9 whether or not the Executive actually receives other payments or benefits under the Agreement. (i) Subject to the provisions of paragraph (ii) of this Section 9, all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Coopers & Lybrand (the "Accounting Firm') which shall provide detailed supporting calculations both to the Company and the Executive within 20 calendar days of the receipt of written notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change 7 of Control, the Executive shall have the right by written notice to the Company to appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and shall be paid by the Company upon demand of the Executive as incurred or billed by the Accounting Firm. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an unqualified written opinion in form and substance satisfactory to the Executive that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ('Underpayment'), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies described in paragraph (ii) of this Section 9 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be paid by the Company to or for the benefit of the Executive within five days of the receipt of 8 the Accounting Firm's determination. All determinations made by the Accounting Firm in connection with any Gross-Up Payment or Underpayment shall be final and binding upon the Company and the Executive. (ii) The Executive shall notify the Company in writing of any claim asserted in writing by the Internal Revenue Service to the Executive that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but not later than 60 days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall at the Company's expense: a. give the Company any information reasonably requested by the Company relating to such claim. b. take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company. c. cooperate with the Company in good faith in order effectively to contest such claim, and 9 d. permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly as incurred all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or any Federal, state, local or other income or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or Federal, state, local or other income or other tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided 10 that any extension of the status of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iii) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 9, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of paragraph (ii) of this Section 9 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto) upon receipt thereof. If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 9, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Medical Insurance Coverage. Executive and his --------------------------- 11 beneficiaries shall continue to participate in all life, health, disability and other welfare plans or programs existing at the time of a Change of Control in which they were participating at such time (or substantially similar plans or programs), to the extent that such continued participation is possible under the general terms and conditions of such plans and programs throughout the Employment Period. Company and Executive will continue to pay the same relative portion of the cost of each such plan or program as each were paying at the time of the Change of Control. Further, in the event that Executive's or his beneficiaries' continued participation in any group plan or program is not permitted, then in lieu thereof, Company shall acquire individual insurance policies providing substantially similar coverage for Executive and his beneficiaries, and Company and Executive will pay the same relative portion of the cost of such comparable coverage plans or programs or in the event that Company cannot acquire individual insurance policies providing substantially similiar coverage, the Company will self-insure the Executive, and the Executive in the case of self insurance will pay the COBRA rate then applicable to the Company's group plan. For purposes of COBRA, a qualifying event is not deemed to occur until the Employment Period, as defined in paragraph 6, has expired. 11. Non-Compete. During the Employment Period Executive will not compete ------------ directly or indirectly with the Company or be directly or indirectly interested in any business competing with the business being conducted by the Company. Ownership of less than 1 percent of the issued and outstanding capital stock of any 12 corporation the stock of which is listed upon a national exchange or regularly quoted by the National Association of Security Dealers Automated Quotation (NASDAQ) shall not be deemed to create a material conflict of interest as contemplated hereunder. For the purpose of this Paragraph 11, the Employment Period shall be deemed to extend two years from Termination if such Termination occurred pursuant to Paragraph 3b above or one year from Termination if such Termination occurred pursuant to Paragraph 3a or Paragraph 4 above, notwithstanding any prior ending of the Employment Period pursuant to Paragraph 6 above. 12. Trade Secrets. Executive shall regard and preserve as confidential -------------- and not use, communicate or disclose to any person, orally, in writing or by a publication, any secret or confidential information of the Company, regardless of where or when or how acquired by the Company, or of others which the Company is obligated to maintain in confidence. This obligation shall exist during the Employment Period and after the termination of the Employment Period until such information becomes a matter of public knowledge through no act of Executive. At the termination of employment by the Company, Executive agrees to return to employer all documents, writings, drawings and other property of the Company within his custody and control. 13. Indemnification. The parties agree to execute a separate --------------- Indemnification Agreement in the form attached as Exhibit B. 14. Arbitration. The Company and Executive undertake to execute this ------------ Agreement in good faith. Any controversy or claim arising out of or relating to this Agreement other benefit plans 13 or arrangements with the Company or breach of this Agreement, shall receive prompt attention by the other party and both parties agree to make good faith efforts to resolve any controversy or claim in an amicable way. If the Company and Executive fail to settle the controversy or claim in an amicable way, they agree to submit the matter to be settled by arbitration in accordance with the Arbitration Rules of the American Arbitration Association. This Agreement, its execution, interpretation and performance shall be governed by the laws of the state of Connecticut of the United States of America. The arbitration will be held in Hartford, Connecticut, or such other place as may be agreed at the time by the parties. The award of this arbitration shall be final and binding both for the Company and Executive and may be entered in any court with jurisdiction. 15. Litigation Expenses. In the event of any action, suit, proceeding, ------------------- arbitration or claim between or by or against the Company and/or the Executive with respect to this Agreement, other benefit plans or arrangements between the parties, and the assertion or enforcement of his rights hereunder, the Company shall promptly pay or reimburse the Executive upon such Executive's written demand therefor, for eighty (80) percent of his costs and expenses (including costs and fees of witnesses, evidence and attorney fees and expenses) relating to or arising out of (directly or indirectly) such action, suit, proceeding, arbitration or claim, on a monthly basis, as such costs and expenses are incurred in investigating, prosecuting, defending or preparing to prosecute or defend, regardless of the outcome 14 thereof. In no event shall the Executive be required to reimburse the Company for any of the costs and expenses relating to any such action, suit, proceeding, arbitration or claim. The obligation of the Company under this Section 15 shall survive the termination for any reason of this Agreement. This Section 15 cannot be amended or modified to affect the rights of the Executive without the prior written consent of such Executive which specifically refers to this Section 15. 16. Rabbi Trust. Within sixty (60) days of the date of this Agreement, the ------------ Company shall enter into a trust agreement (the "Trust Agreement") with a third party institutional trustee, substantially in the form set forth in Rev. Proc. 92-64, 1992-2 C.B. 422, to assist it in meeting its obligations to the Executive under the Company's Supplemental Executive Retirement Plan (the "SERP"). The trust established pursuant to the Trust Agreement (the "Trust") shall be irrevocable. The Trust Agreement shall provide that upon a Change of Control the Company shall, no later than 30 days following the Change of Control, make an irrevocable contribution of cash or cash equivalents to the Trust in an amount sufficient to pay each SERP participant or beneficiary the benefits to which they would be entitled pursuant to the terms of the SERP, and within 30 days following the end of each calendar year ending after the Change of Control the Company shall irrevocably contribute any additional cash to the Trust necessary for the Trustee to pay each SERP participant or beneficiary the benefits payable pursuant to the terms of the SERP as of the close of the year. The Trust Agreement shall also provide (i) that all income received by the Trust shall be 15 accumulated and reinvested, (ii) that the Company will be responsible for the payment of all fees and expenses related to the Trust, (iii) that after a Change of Control the Trustee may not be removed by the Company, and (iv) that, if the Trustee shall resign, any successor Trustee must be an independent institutional entity, such as a bank trust department or other party that has been granted corporate trustee powers under state law. The Trust Agreement shall also provide that the provisions of the Trust described in this Paragraph 16 may not be amended after a Change of Control. 17. Entire Agreement. This Agreement embodies the whole understanding ----------------- between the parties hereto with respect to the subject matter hereof and supersedes all earlier agreements. There are no inducements, promises, terms, conditions or obligations made or entered into by either party other than as contained herein. 18. Modification. This Agreement may not be changed orally, but only be ------------ means of an agreement in writing signed by the parties hereto. 19. Waiver. The waiver by any party of a breach of any provision of this ------- Agreement shall not operate as, or be construed as, a waiver of any subsequent breach. 20. Applicable Law. This Agreement shall be governed and construed in --------------- accordance with the laws of the State of Connecticut, without reference to principles of conflict of laws. 21. Successors This Agreement is personal to the Executive and without the ---------- prior written consent of the Company shall not be 16 assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor (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 it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date first above written. LYDALL, INC. By__________________________ _______________________ Roger M. Widmann, Chairman, James P. Carolan Compensation and Stock Option Division President Committee By____________________________ Leonard R. Jaskol Chairman, President and CEO 17 EXHIBIT A - FRINGE BENEFITS --------------------------- 1. Medical Benefits a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes dental benefits) b. Lydall, Inc. Health Care Expense Plan c. Lydall, Inc. Health Care Spending Reimbursement Plan 2. Disability Benefits a. Lydall, Inc. Short Term Disability Plan b. Lydall, Inc. Executive Group Long Term Disability Plan 3. Life Insurance a. Executive Life Insurance Plan b. Accidental Death and Dismemberment Plan c. Family Assistance Program d. Business Travel Accident Plan 4. Retirement Plans a. Lydall, Inc. Pension Plan No. 1A b. Lydall, Inc. Profit Sharing Plan No. 1 c. Lydall, Inc. 401(k) Plan d. Lydall, Inc. Supplemental Executive Retirement Plan 5. Stock Plans a. Lydall, Inc. Employee Stock Purchase Plan b. Lydall, Inc. 1992 Stock Incentive Compensation Plan c. Lydall, Inc. 1982 Stock Incentive Compensation Plan 6. Other a. Holidays, vacations b. Lydall, Inc. Dependent Care Assistance Plan 18 EX-10.3 4 WHITELY AGREEMENT AGREEMENT --------- THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC. and its subsidiaries (the "Company") and Elliott F. Whitely (the "Executive"). W I T N E S S E T H : Recitals. - --------- Executive is employed by the Company as a Division President. The Company and Executive have agreed that if Executive should cease to be Division President under the circumstances set forth in this Agreement his employment will be continued in another capacity for a specified period; NOW, THEREFORE, the Company and Executive, in consideration of the mutual promises set forth below, agree as follows: 1. Executive to Serve as Division President. The Executive shall continue ----------------------------------------- to act as Division President, subject to the direction of its Chairman, President and Chief Executive Officer. 2. Definitions. The phrase "Change of Control," as used in this ------------ Agreement, shall mean 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 of the Company (the "Board") 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 1 receive, in exchange for or upon surrender a majority of their stock, cash or other securities or a combination of the two; and/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 of director of the Company on the date of this Agreement; and/or iii) the election or appointment to the Board of any director or directors whose appointment or election or nomination for election was not approved by a vote of at least a majority of the directors then still in office who were either directors on the date hereof or whose election, appointment or nomination for election was previously so approved. The word "person," as used in the preceding sentence, shall mean an individual, corporation, trust, or other legal or commercial entity and include 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. 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 2 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. The phrase "Fringe Benefits," as used in this Agreement, shall mean the benefits listed on Exhibit A hereto. 3. Termination After Change of Control. If a Change of Control occurs ----------------------------------- after the date of this Agreement and subsequent to such Change of Control (a) Executive shall resign as a Division President of the Company within one year from the time such Change of Control occurs or (b) another shall be appointed or elected Division President by the Company in place of Executive at any time prior to Marh 1, 2009, Executive's normal retirement date (such resignation or replacement of Executive being hereinafter referred to as a "Termination"), Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for cause or Executive is replaced for cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 4. Termination Prior to Change of Control. If prior to a Change of --------------------------------------- Control (a) the Executive shall resign as Division President of the Company at the request of the Company or because the duties and responsibilities of the Division President have 3 been significantly modified by the Company without his consent or (b) another is appointed Division President in place of the Executive (such resignation or replacement of the Executive being hereinafter referred to a "Termination"), the Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for Cause or if Executive is replaced for Cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 5. Termination for Cause If Executive's employment is terminated for --------------------- cause prior to the beginning of the Employment Period, (either prior or subsequent to a Change of Control), earned but unpaid Base Salary will be paid on a prorated basis for the year in which the termination occurs, plus accrued vacation benefits, but all other Company obligations shall cease as of the date of termination for cause, unless otherwise provided in separate agreements. 6. Employment Period. In the event of a Termination pursuant to paragraph ----------------- 3b above, Executive shall continue to be an employee of the Company for a period of two years from the date of such Termination, and in the event of a Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive shall continue to be an employee of the Company for a period of one year from the date of such Termination, such two year period or one year period, as the case may be, being hereinafter referred 4 to as the "Employment Period"; provided, however, that (a) Executive may end the Employment Period at any time in his absolute discretion and the Employment Period may be ended by the Company at any time for cause, (b) the Employment Period shall not extend beyond March 1, 2009, Executive's normal retirement date, and (c) the Employment Period shall terminate if and when the Executive becomes employed on substantially a full time basis by another entity or as a partner or sole proprietor and with Executive's full recognition of his responsibilities under Paragraph 11 below (but such termination of the Employment Period under clause (a), (b) or (c) above shall not preclude the Executive from being paid for his obligation not to compete as provided in Paragraphs 11 and 12 below). 7. Title and Duties. During the Employment Period, the Executive shall ---------------- perform such duties and undertake such responsibilities as are assigned to him from time to time by the Chairman, President and Chief Executive Officer; provided, however, that such duties and responsibilities shall be commensurate with his status as a senior executive of the Company and bear a reasonable relationship to the business of the Company. 8. Compensation. The Company shall pay to Executive during the Employment ------------ Period an annual salary (the "Annual Salary") equal to one-third (1/3rd) of the aggregate of the base salary and bonuses paid to him during the period commencing three (3) years prior to the date of Termination and ending on the date of Termination. Payment shall be made twice monthly and be appropriately prorated during the first and last month of the 5 Employment Period. In addition, during the Employment Period Executive shall receive (a) the same Fringe Benefits that he would have been entitled to receive if he had continued to be Division President during such period, (b) reimbursement for reasonable expenses incurred by him in the performance of his duties and (c) the use of an automobile on substantially the same basis as prior to his termination. If the Employment Period shall end, pursuant to Paragraph 6 above, prior to the end of the two year term provided for in Paragraph 3b above or the one year term provided for in Paragraph 3a or Paragraph 4 above, as the case may be, the Annual Salary (but, except to the extent provided in Paragraph 10 below, not fringe benefits and perquisites) shall continue to be payable until the end of the non-compete period provided for in Paragraph 11 below and shall be deemed payment for Executive's obligation not to compete as provided in said Paragraph 11, and such Annual Salary for the remainder of the non-compete period shall be paid to the Executive in a lump sum cash payment within ten days after the end of the Employment Period. 9. Tax Gross-up. Anything in this Agreement to the contrary ------------- notwithstanding, in the event it shall be determined that any payment or distribution made, or benefit provided, by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9 (a 'Payment') would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended and then in 6 effect (the 'Code') (or any similar excise tax) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the ('Excise Tax'), then the Executive shall be entitled to receive an additional payment (a 'Gross-Up Payment') in an amount such that after payment by the Executive of all Federal, state, local or other taxes (including any interest or penalties imposed with respect to any such taxes), including, without limitation, any such income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. An Executive may receive Gross-Up Payments under this Section 9 whether or not the Executive actually receives other payments or benefits under the Agreement. (i) Subject to the provisions of paragraph (ii) of this Section 9, all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Coopers & Lybrand (the "Accounting Firm') which shall provide detailed supporting calculations both to the Company and the Executive within 20 calendar days of the receipt of written notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change 7 of Control, the Executive shall have the right by written notice to the Company to appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and shall be paid by the Company upon demand of the Executive as incurred or billed by the Accounting Firm. Any Gross- Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an unqualified written opinion in form and substance satisfactory to the Executive that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ('Underpayment'), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies described in paragraph (ii) of this Section 9 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be paid by the Company to or for the benefit of the Executive within five days of the receipt of 8 the Accounting Firm's determination. All determinations made by the Accounting Firm in connection with any Gross-Up Payment or Underpayment shall be final and binding upon the Company and the Executive. (ii) The Executive shall notify the Company in writing of any claim asserted in writing by the Internal Revenue Service to the Executive that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but not later than 60 days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall at the Company's expense: a. give the Company any information reasonably requested by the Company relating to such claim. b. take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company. c. cooperate with the Company in good faith in order effectively to contest such claim, and 9 d. permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly as incurred all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or any Federal, state, local or other income or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or Federal, state, local or other income or other tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided 10 that any extension of the status of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iii) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 9, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of paragraph (ii) of this Section 9 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto) upon receipt thereof. If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 9, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Medical Insurance Coverage. Executive and his --------------------------- 11 beneficiaries shall continue to participate in all life, health, disability and other welfare plans or programs existing at the time of a Change of Control in which they were participating at such time (or substantially similar plans or programs), to the extent that such continued participation is possible under the general terms and conditions of such plans and programs throughout the Employment Period. Company and Executive will continue to pay the same relative portion of the cost of each such plan or program as each were paying at the time of the Change of Control. Further, in the event that Executive's or his beneficiaries' continued participation in any group plan or program is not permitted, then in lieu thereof, Company shall acquire individual insurance policies providing substantially similar coverage for Executive and his beneficiaries, and Company and Executive will pay the same relative portion of the cost of such comparable coverage plans or programs or in the event that Company cannot acquire individual insurance policies providing substantially similiar coverage, the Company will self-insure the Executive, and the Executive in the case of self insurance will pay the COBRA rate then applicable to the Company's group plan. For purposes of COBRA, a qualifying event is not deemed to occur until the Employment Period, as defined in paragraph 6, has expired. 11. Non-Compete. During the Employment Period Executive will not compete ------------ directly or indirectly with the Company or be directly or indirectly interested in any business competing with the business being conducted by the Company. Ownership of less than 1 percent of the issued and outstanding capital stock of any 12 corporation the stock of which is listed upon a national exchange or regularly quoted by the National Association of Security Dealers Automated Quotation (NASDAQ) shall not be deemed to create a material conflict of interest as contemplated hereunder. For the purpose of this Paragraph 11, the Employment Period shall be deemed to extend two years from Termination if such Termination occurred pursuant to Paragraph 3b above or one year from Termination if such Termination occurred pursuant to Paragraph 3a or Paragraph 4 above, notwithstanding any prior ending of the Employment Period pursuant to Paragraph 6 above. 12. Trade Secrets. Executive shall regard and preserve as confidential -------------- and not use, communicate or disclose to any person, orally, in writing or by a publication, any secret or confidential information of the Company, regardless of where or when or how acquired by the Company, or of others which the Company is obligated to maintain in confidence. This obligation shall exist during the Employment Period and after the termination of the Employment Period until such information becomes a matter of public knowledge through no act of Executive. At the termination of employment by the Company, Executive agrees to return to employer all documents, writings, drawings and other property of the Company within his custody and control. 13. Indemnification. The parties agree to execute a separate --------------- Indemnification Agreement in the form attached as Exhibit B. 14. Arbitration. The Company and Executive undertake to execute this ------------ Agreement in good faith. Any controversy or claim arising out of or relating to this Agreement other benefit plans 13 or arrangements with the Company or breach of this Agreement, shall receive prompt attention by the other party and both parties agree to make good faith efforts to resolve any controversy or claim in an amicable way. If the Company and Executive fail to settle the controversy or claim in an amicable way, they agree to submit the matter to be settled by arbitration in accordance with the Arbitration Rules of the American Arbitration Association. This Agreement, its execution, interpretation and performance shall be governed by the laws of the state of Connecticut of the United States of America. The arbitration will be held in Hartford, Connecticut, or such other place as may be agreed at the time by the parties. The award of this arbitration shall be final and binding both for the Company and Executive and may be entered in any court with jurisdiction. 15. Litigation Expenses. In the event of any action, suit, proceeding, ------------------- arbitration or claim between or by or against the Company and/or the Executive with respect to this Agreement, other benefit plans or arrangements between the parties, and the assertion or enforcement of his rights hereunder, the Company shall promptly pay or reimburse the Executive upon such Executive's written demand therefor, for eighty (80) percent of his costs and expenses (including costs and fees of witnesses, evidence and attorney fees and expenses) relating to or arising out of (directly or indirectly) such action, suit, proceeding, arbitration or claim, on a monthly basis, as such costs and expenses are incurred in investigating, prosecuting, defending or preparing to prosecute or defend, regardless of the outcome 14 thereof. In no event shall the Executive be required to reimburse the Company for any of the costs and expenses relating to any such action, suit, proceeding, arbitration or claim. The obligation of the Company under this Section 15 shall survive the termination for any reason of this Agreement. This Section 15 cannot be amended or modified to affect the rights of the Executive without the prior written consent of such Executive which specifically refers to this Section 15. 16. Rabbi Trust. Within sixty (60) days of the date of this Agreement, the ------------ Company shall enter into a trust agreement (the "Trust Agreement") with a third party institutional trustee, substantially in the form set forth in Rev. Proc. 92-64, 1992-2 C.B. 422, to assist it in meeting its obligations to the Executive under the Company's Supplemental Executive Retirement Plan (the "SERP"). The trust established pursuant to the Trust Agreement (the "Trust") shall be irrevocable. The Trust Agreement shall provide that upon a Change of Control the Company shall, no later than 30 days following the Change of Control, make an irrevocable contribution of cash or cash equivalents to the Trust in an amount sufficient to pay each SERP participant or beneficiary the benefits to which they would be entitled pursuant to the terms of the SERP, and within 30 days following the end of each calendar year ending after the Change of Control the Company shall irrevocably contribute any additional cash to the Trust necessary for the Trustee to pay each SERP participant or beneficiary the benefits payable pursuant to the terms of the SERP as of the close of the year. The Trust Agreement shall also provide (i) that all income received by the Trust shall be 15 accumulated and reinvested, (ii) that the Company will be responsible for the payment of all fees and expenses related to the Trust, (iii) that after a Change of Control the Trustee may not be removed by the Company, and (iv) that, if the Trustee shall resign, any successor Trustee must be an independent institutional entity, such as a bank trust department or other party that has been granted corporate trustee powers under state law. The Trust Agreement shall also provide that the provisions of the Trust described in this Paragraph 16 may not be amended after a Change of Control. 17. Entire Agreement. This Agreement embodies the whole understanding ----------------- between the parties hereto with respect to the subject matter hereof and supersedes all earlier agreements. There are no inducements, promises, terms, conditions or obligations made or entered into by either party other than as contained herein. 18. Modification. This Agreement may not be changed orally, but only be ------------ means of an agreement in writing signed by the parties hereto. 19. Waiver. The waiver by any party of a breach of any provision of this ------- Agreement shall not operate as, or be construed as, a waiver of any subsequent breach. 20. Applicable Law. This Agreement shall be governed and construed in --------------- accordance with the laws of the State of Connecticut, without reference to principles of conflict of laws. 21. Successors This Agreement is personal to the Executive and without the ---------- prior written consent of the Company shall not be 16 assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor (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 it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date first above written. LYDALL, INC. By__________________________ _______________________ Roger M. Widmann, Chairman, Elliott F. Whitely Compensation and Stock Option Division President Committee By____________________________ Leonard R. Jaskol Chairman, President and CEO 17 EXHIBIT A - FRINGE BENEFITS --------------------------- 1. Medical Benefits a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes dental benefits) b. Lydall, Inc. Health Care Expense Plan c. Lydall, Inc. Health Care Spending Reimbursement Plan 2. Disability Benefits a. Lydall, Inc. Short Term Disability Plan b. Lydall, Inc. Executive Group Long Term Disability Plan 3. Life Insurance a. Executive Life Insurance Plan b. Accidental Death and Dismemberment Plan c. Family Assistance Program d. Business Travel Accident Plan 4. Retirement Plans a. Lydall, Inc. Pension Plan No. 1A b. Lydall, Inc. Profit Sharing Plan No. 1 c. Lydall, Inc. 401(k) Plan d. Lydall, Inc. Supplemental Executive Retirement Plan 5. Stock Plans a. Lydall, Inc. Employee Stock Purchase Plan b. Lydall, Inc. 1992 Stock Incentive Compensation Plan c. Lydall, Inc. 1982 Stock Incentive Compensation Plan 6. Other a. Holidays, vacations b. Lydall, Inc. Dependent Care Assistance Plan 18 EX-10.4 5 GNANN AGREEMENT AGREEMENT --------- THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC. and its subsidiaries (the "Company") and Alan J. Gnann (the "Executive"). W I T N E S S E T H : Recitals. - --------- Executive is employed by the Company as a Vice President-Corporate Development. The Company and Executive have agreed that if Executive should cease to be Vice President-Corporate Development under the circumstances set forth in this Agreement his employment will be continued in another capacity for a specified period; NOW, THEREFORE, the Company and Executive, in consideration of the mutual promises set forth below, agree as follows: 1. Executive to Serve as Vice President-Corporate Development. The ----------------------------------------------------------- Executive shall continue to act as Vice President-Corporate Development, subject to the direction of its Chairman, President and Chief Executive Officer. 2. Definitions. The phrase "Change of Control," as used in this ------------ Agreement, shall mean 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 of the Company (the "Board") 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 1 assets or (b) the stockholders of the Company acquire a right to receive, in exchange for or upon surrender a majority of their stock, cash or other securities or a combination of the two; and/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 of director of the Company on the date of this Agreement; and/or iii) the election or appointment to the Board of any director or directors whose appointment or election or nomination for election was not approved by a vote of at least a majority of the directors then still in office who were either directors on the date hereof or whose election, appointment or nomination for election was previously so approved. The word "person," as used in the preceding sentence, shall mean an individual, corporation, trust, or other legal or commercial entity and include 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. 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 2 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. The phrase "Fringe Benefits," as used in this Agreement, shall mean the benefits listed on Exhibit A hereto. 3. Termination After Change of Control. If a Change of Control occurs ----------------------------------- after the date of this Agreement and subsequent to such Change of Control (a) Executive shall resign as a Vice President-Corporate Development of the Company within one year from the time such Change of Control occurs or (b) another shall be appointed or elected Vice President-Corporate Development by the Company in place of Executive at any time prior to July 1, 2014, Executive's normal retirement date (such resignation or replacement of Executive being hereinafter referred to as a "Termination"), Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for cause or Executive is replaced for cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 4. Termination Prior to Change of Control. If prior to a Change of --------------------------------------- Control (a) the Executive shall resign as Vice 3 President-Corporate Development of the Company at the request of the Company or because the duties and responsibilities of the Vice President-Corporate Development have been significantly modified by the Company without his consent or (b) another is appointed Vice President-Corporate Development in place of the Executive (such resignation or replacement of the Executive being hereinafter referred to a "Termination"), the Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for Cause or if Executive is replaced for Cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 5. Termination for Cause If Executive's employment is terminated for --------------------- cause prior to the beginning of the Employment Period, (either prior or subsequent to a Change of Control), earned but unpaid Base Salary will be paid on a prorated basis for the year in which the termination occurs, plus accrued vacation benefits, but all other Company obligations shall cease as of the date of termination for cause, unless otherwise provided in separate agreements. 6. Employment Period. In the event of a Termination pursuant to paragraph ----------------- 3b above, Executive shall continue to be an employee of the Company for a period of two years from the date of such Termination, and in the event of a Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive shall 4 continue to be an employee of the Company for a period of one year from the date of such Termination, such two year period or one year period, as the case may be, being hereinafter referred to as the "Employment Period"; provided, however, that (a) Executive may end the Employment Period at any time in his absolute discretion and the Employment Period may be ended by the Company at any time for cause, (b) the Employment Period shall not extend beyond July 1, 2014, Executive's normal retirement date, and (c) the Employment Period shall terminate if and when the Executive becomes employed on substantially a full time basis by another entity or as a partner or sole proprietor and with Executive's full recognition of his responsibilities under Paragraph 11 below (but such termination of the Employment Period under clause (a), (b) or (c) above shall not preclude the Executive from being paid for his obligation not to compete as provided in Paragraphs 11 and 12 below). 7. Title and Duties. During the Employment Period, the Executive shall ---------------- perform such duties and undertake such responsibilities as are assigned to him from time to time by the Chairman, President and Chief Executive Officer; provided, however, that such duties and responsibilities shall be commensurate with his status as a senior executive of the Company and bear a reasonable relationship to the business of the Company. 8. Compensation. The Company shall pay to Executive during the Employment ------------ Period an annual salary (the "Annual Salary") equal to one-third (1/3rd) of the aggregate of the base salary and bonuses paid to him during the period commencing three 5 (3) years prior to the date of Termination and ending on the date of Termination. Payment shall be made twice monthly and be appropriately prorated during the first and last month of the Employment Period. In addition, during the Employment Period Executive shall receive (a) the same Fringe Benefits that he would have been entitled to receive if he had continued to be Vice President- Corporate Development during such period, (b) reimbursement for reasonable expenses incurred by him in the performance of his duties and (c) the use of an automobile on substantially the same basis as prior to his termination. If the Employment Period shall end, pursuant to Paragraph 6 above, prior to the end of the two year term provided for in Paragraph 3b above or the one year term provided for in Paragraph 3a or Paragraph 4 above, as the case may be, the Annual Salary (but, except to the extent provided in Paragraph 10 below, not fringe benefits and perquisites) shall continue to be payable until the end of the non-compete period provided for in Paragraph 11 below and shall be deemed payment for Executive's obligation not to compete as provided in said Paragraph 11, and such Annual Salary for the remainder of the non-compete period shall be paid to the Executive in a lump sum cash payment within ten days after the end of the Employment Period. 9. Tax Gross-up. Anything in this Agreement to the contrary ------------- notwithstanding, in the event it shall be determined that any payment or distribution made, or benefit provided, by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms 6 of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9 (a 'Payment') would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended and then in effect (the 'Code') (or any similar excise tax) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the ('Excise Tax'), then the Executive shall be entitled to receive an additional payment (a 'Gross-Up Payment') in an amount such that after payment by the Executive of all Federal, state, local or other taxes (including any interest or penalties imposed with respect to any such taxes), including, without limitation, any such income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. An Executive may receive Gross-Up Payments under this Section 9 whether or not the Executive actually receives other payments or benefits under the Agreement. (i) Subject to the provisions of paragraph (ii) of this Section 9, all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Coopers & Lybrand (the "Accounting Firm') which shall provide detailed supporting calculations both to the Company and the Executive within 20 calendar days of the receipt 7 of written notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall have the right by written notice to the Company to appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and shall be paid by the Company upon demand of the Executive as incurred or billed by the Accounting Firm. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an unqualified written opinion in form and substance satisfactory to the Executive that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ('Underpayment'), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies described in paragraph (ii) of this Section 9 and the Executive thereafter is 8 required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be paid by the Company to or for the benefit of the Executive within five days of the receipt of the Accounting Firm's determination. All determinations made by the Accounting Firm in connection with any Gross-Up Payment or Underpayment shall be final and binding upon the Company and the Executive. (ii) The Executive shall notify the Company in writing of any claim asserted in writing by the Internal Revenue Service to the Executive that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but not later than 60 days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall at the Company's expense: a. give the Company any information reasonably requested by the Company relating to such claim. b. take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal 9 representation with respect to such claim by an attorney reasonably selected by the Company. c. cooperate with the Company in good faith in order effectively to contest such claim, and d. permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly as incurred all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or any Federal, state, local or other income or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, 10 from any Excise Tax or Federal, state, local or other income or other tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the status of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iii) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 9, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of paragraph (ii) of this Section 9 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto) upon receipt thereof. If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 9, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not 11 be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Medical Insurance Coverage. Executive and his beneficiaries shall --------------------------- continue to participate in all life, health, disability and other welfare plans or programs existing at the time of a Change of Control in which they were participating at such time (or substantially similar plans or programs), to the extent that such continued participation is possible under the general terms and conditions of such plans and programs throughout the Employment Period. Company and Executive will continue to pay the same relative portion of the cost of each such plan or program as each were paying at the time of the Change of Control. Further, in the event that Executive's or his beneficiaries' continued participation in any group plan or program is not permitted, then in lieu thereof, Company shall acquire individual insurance policies providing substantially similar coverage for Executive and his beneficiaries, and Company and Executive will pay the same relative portion of the cost of such comparable coverage plans or programs or in the event that Company cannot acquire individual insurance policies providing substantially similiar coverage, the Company will self-insure the Executive, and the Executive in the case of self insurance will pay the COBRA rate then applicable to the Company's group plan. For purposes of COBRA, a qualifying event is not deemed to occur until the Employment Period, as defined in paragraph 6, has expired. 11. Non-Compete. During the Employment Period Executive ------------ 12 will not compete directly or indirectly with the Company or be directly or indirectly interested in any business competing with the business being conducted by the Company. Ownership of less than 1 percent of the issued and outstanding capital stock of any corporation the stock of which is listed upon a national exchange or regularly quoted by the National Association of Security Dealers Automated Quotation (NASDAQ) shall not be deemed to create a material conflict of interest as contemplated hereunder. For the purpose of this Paragraph 11, the Employment Period shall be deemed to extend two years from Termination if such Termination occurred pursuant to Paragraph 3b above or one year from Termination if such Termination occurred pursuant to Paragraph 3a or Paragraph 4 above, notwithstanding any prior ending of the Employment Period pursuant to Paragraph 6 above. 12. Trade Secrets. Executive shall regard and preserve as confidential -------------- and not use, communicate or disclose to any person, orally, in writing or by a publication, any secret or confidential information of the Company, regardless of where or when or how acquired by the Company, or of others which the Company is obligated to maintain in confidence. This obligation shall exist during the Employment Period and after the termination of the Employment Period until such information becomes a matter of public knowledge through no act of Executive. At the termination of employment by the Company, Executive agrees to return to employer all documents, writings, drawings and other property of the Company within his custody and control. 13. Indemnification. The parties agree to execute a separate --------------- Indemnification Agreement in the form attached as 13 Exhibit B. 14. Arbitration. The Company and Executive undertake to execute this ------------ Agreement in good faith. Any controversy or claim arising out of or relating to this Agreement other benefit plans or arrangements with the Company or breach of this Agreement, shall receive prompt attention by the other party and both parties agree to make good faith efforts to resolve any controversy or claim in an amicable way. If the Company and Executive fail to settle the controversy or claim in an amicable way, they agree to submit the matter to be settled by arbitration in accordance with the Arbitration Rules of the American Arbitration Association. This Agreement, its execution, interpretation and performance shall be governed by the laws of the state of Connecticut of the United States of America. The arbitration will be held in Hartford, Connecticut, or such other place as may be agreed at the time by the parties. The award of this arbitration shall be final and binding both for the Company and Executive and may be entered in any court with jurisdiction. 15. Litigation Expenses. In the event of any action, suit, proceeding, ------------------- arbitration or claim between or by or against the Company and/or the Executive with respect to this Agreement, other benefit plans or arrangements between the parties, and the assertion or enforcement of his rights hereunder, the Company shall promptly pay or reimburse the Executive upon such Executive's written demand therefor, for eighty (80) percent of his costs and expenses (including costs and fees of witnesses, evidence and attorney fees and expenses) relating to or arising 14 out of (directly or indirectly) such action, suit, proceeding, arbitration or claim, on a monthly basis, as such costs and expenses are incurred in investigating, prosecuting, defending or preparing to prosecute or defend, regardless of the outcome thereof. In no event shall the Executive be required to reimburse the Company for any of the costs and expenses relating to any such action, suit, proceeding, arbitration or claim. The obligation of the Company under this Section 15 shall survive the termination for any reason of this Agreement. This Section 15 cannot be amended or modified to affect the rights of the Executive without the prior written consent of such Executive which specifically refers to this Section 15. 16. Rabbi Trust. Within sixty (60) days of the date of this Agreement, the ------------ Company shall enter into a trust agreement (the "Trust Agreement") with a third party institutional trustee, substantially in the form set forth in Rev. Proc. 92-64, 1992-2 C.B. 422, to assist it in meeting its obligations to the Executive under the Company's Supplemental Executive Retirement Plan (the "SERP"). The trust established pursuant to the Trust Agreement (the "Trust") shall be irrevocable. The Trust Agreement shall provide that upon a Change of Control the Company shall, no later than 30 days following the Change of Control, make an irrevocable contribution of cash or cash equivalents to the Trust in an amount sufficient to pay each SERP participant or beneficiary the benefits to which they would be entitled pursuant to the terms of the SERP, and within 30 days following the end of each calendar year ending after the Change of Control the Company shall irrevocably contribute any additional cash to the Trust 15 necessary for the Trustee to pay each SERP participant or beneficiary the benefits payable pursuant to the terms of the SERP as of the close of the year. The Trust Agreement shall also provide (i) that all income received by the Trust shall be accumulated and reinvested, (ii) that the Company will be responsible for the payment of all fees and expenses related to the Trust, (iii) that after a Change of Control the Trustee may not be removed by the Company, and (iv) that, if the Trustee shall resign, any successor Trustee must be an independent institutional entity, such as a bank trust department or other party that has been granted corporate trustee powers under state law. The Trust Agreement shall also provide that the provisions of the Trust described in this Paragraph 16 may not be amended after a Change of Control. 17. Entire Agreement. This Agreement embodies the whole understanding ----------------- between the parties hereto with respect to the subject matter hereof and supersedes all earlier agreements. There are no inducements, promises, terms, conditions or obligations made or entered into by either party other than as contained herein. 18. Modification. This Agreement may not be changed orally, but only be ------------ means of an agreement in writing signed by the parties hereto. 19. Waiver. The waiver by any party of a breach of any provision of this ------- Agreement shall not operate as, or be construed as, a waiver of any subsequent breach. 20. Applicable Law. This Agreement shall be governed and construed in --------------- accordance with the laws of the State of 16 Connecticut, without reference to principles of conflict of laws. 21. Successors This Agreement is personal to the Executive and without the ---------- prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor (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 it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date first above written. LYDALL, INC. By__________________________ _______________________ Roger M. Widmann, Chairman, Alan J. Gnann Compensation and Stock Option Vice President-Corporate Committee Development By____________________________ Leonard R. Jaskol Chairman, President and CEO 17 EXHIBIT A - FRINGE BENEFITS --------------------------- 1. Medical Benefits a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes dental benefits) b. Lydall, Inc. Health Care Expense Plan c. Lydall, Inc. Health Care Spending Reimbursement Plan 2. Disability Benefits a. Lydall, Inc. Short Term Disability Plan b. Lydall, Inc. Executive Group Long Term Disability Plan 3. Life Insurance a. Executive Life Insurance Plan b. Accidental Death and Dismemberment Plan c. Family Assistance Program d. Business Travel Accident Plan 4. Retirement Plans a. Lydall, Inc. Pension Plan No. 1A b. Lydall, Inc. Profit Sharing Plan No. 1 c. Lydall, Inc. 401(k) Plan d. Lydall, Inc. Supplemental Executive Retirement Plan 5. Stock Plans a. Lydall, Inc. Employee Stock Purchase Plan b. Lydall, Inc. 1992 Stock Incentive Compensation Plan c. Lydall, Inc. 1982 Stock Incentive Compensation Plan 6. Other a. Holidays, vacations b. Lydall, Inc. Dependent Care Assistance Plan 18 EX-10.5 6 LANZI AGREEMENT AGREEMENT --------- THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC. and its subsidiaries (the "Company") and Raymond J. Lanzi (the "Executive"). W I T N E S S E T H : Recitals. - --------- Executive is employed by the Company as a Division President. The Company and Executive have agreed that if Executive should cease to be Division President under the circumstances set forth in this Agreement his employment will be continued in another capacity for a specified period; NOW, THEREFORE, the Company and Executive, in consideration of the mutual promises set forth below, agree as follows: 1. Executive to Serve as Division President. The Executive shall continue ----------------------------------------- to act as Division President, subject to the direction of its Chairman, President and Chief Executive Officer. 2. Definitions. The phrase "Change of Control," as used in this ------------ Agreement, shall mean 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 of the Company (the "Board") 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 1 receive, in exchange for or upon surrender a majority of their stock, cash or other securities or a combination of the two; and/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 of director of the Company on the date of this Agreement; and/or iii) the election or appointment to the Board of any director or directors whose appointment or election or nomination for election was not approved by a vote of at least a majority of the directors then still in office who were either directors on the date hereof or whose election, appointment or nomination for election was previously so approved. The word "person," as used in the preceding sentence, shall mean an individual, corporation, trust, or other legal or commercial entity and include 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. 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 2 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. The phrase "Fringe Benefits," as used in this Agreement, shall mean the benefits listed on Exhibit A hereto. 3. Termination After Change of Control. If a Change of Control occurs ----------------------------------- after the date of this Agreement and subsequent to such Change of Control (a) Executive shall resign as a Division President of the Company within one year from the time such Change of Control occurs or (b) another shall be appointed or elected Division President by the Company in place of Executive at any time prior to November 1, 2003, Executive's normal retirement date (such resignation or replacement of Executive being hereinafter referred to as a "Termination"), Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for cause or Executive is replaced for cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 4. Termination Prior to Change of Control. If prior to a Change of --------------------------------------- Control (a) the Executive shall resign as Division President of the Company at the request of the Company or because 3 the duties and responsibilities of the Division President have been significantly modified by the Company without his consent or (b) another is appointed Division President in place of the Executive (such resignation or replacement of the Executive being hereinafter referred to a "Termination"), the Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for Cause or if Executive is replaced for Cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 5. Termination for Cause If Executive's employment is terminated for --------------------- cause prior to the beginning of the Employment Period, (either prior or subsequent to a Change of Control), earned but unpaid Base Salary will be paid on a prorated basis for the year in which the termination occurs, plus accrued vacation benefits, but all other Company obligations shall cease as of the date of termination for cause, unless otherwise provided in separate agreements. 6. Employment Period. In the event of a Termination pursuant to paragraph ----------------- 3b above, Executive shall continue to be an employee of the Company for a period of two years from the date of such Termination, and in the event of a Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive shall continue to be an employee of the Company for a period of one year from the date of such Termination, such two year period or 4 one year period, as the case may be, being hereinafter referred to as the "Employment Period"; provided, however, that (a) Executive may end the Employment Period at any time in his absolute discretion and the Employment Period may be ended by the Company at any time for cause, (b) the Employment Period shall not extend beyond November 1, 2003, Executive's normal retirement date, and (c) the Employment Period shall terminate if and when the Executive becomes employed on substantially a full time basis by another entity or as a partner or sole proprietor and with Executive's full recognition of his responsibilities under Paragraph 11 below (but such termination of the Employment Period under clause (a), (b) or (c) above shall not preclude the Executive from being paid for his obligation not to compete as provided in Paragraphs 11 and 12 below). 7. Title and Duties. During the Employment Period, the Executive shall ---------------- perform such duties and undertake such responsibilities as are assigned to him from time to time by the Chairman, President and Chief Executive Officer; provided, however, that such duties and responsibilities shall be commensurate with his status as a senior executive of the Company and bear a reasonable relationship to the business of the Company. 8. Compensation. The Company shall pay to Executive during the Employment ------------ Period an annual salary (the "Annual Salary") equal to one-third (1/3rd) of the aggregate of the base salary and bonuses paid to him during the period commencing three (3) years prior to the date of Termination and ending on the date of Termination. Payment shall be made twice monthly and be 5 appropriately prorated during the first and last month of the Employment Period. In addition, during the Employment Period Executive shall receive (a) the same Fringe Benefits that he would have been entitled to receive if he had continued to be Division President during such period, (b) reimbursement for reasonable expenses incurred by him in the performance of his duties and (c) the use of an automobile on substantially the same basis as prior to his termination. If the Employment Period shall end, pursuant to Paragraph 6 above, prior to the end of the two year term provided for in Paragraph 3b above or the one year term provided for in Paragraph 3a or Paragraph 4 above, as the case may be, the Annual Salary (but, except to the extent provided in Paragraph 10 below, not fringe benefits and perquisites) shall continue to be payable until the end of the non-compete period provided for in Paragraph 11 below and shall be deemed payment for Executive's obligation not to compete as provided in said Paragraph 11, and such Annual Salary for the remainder of the non-compete period shall be paid to the Executive in a lump sum cash payment within ten days after the end of the Employment Period. 9. Tax Gross-up. Anything in this Agreement to the contrary ------------- notwithstanding, in the event it shall be determined that any payment or distribution made, or benefit provided, by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9 (a 'Payment') would be subject to the excise tax imposed by Section 6 4999 of the Internal Revenue Code of 1986, as amended and then in effect (the 'Code') (or any similar excise tax) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the ('Excise Tax'), then the Executive shall be entitled to receive an additional payment (a 'Gross-Up Payment') in an amount such that after payment by the Executive of all Federal, state, local or other taxes (including any interest or penalties imposed with respect to any such taxes), including, without limitation, any such income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. An Executive may receive Gross-Up Payments under this Section 9 whether or not the Executive actually receives other payments or benefits under the Agreement. (i) Subject to the provisions of paragraph (ii) of this Section 9, all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Coopers & Lybrand (the "Accounting Firm') which shall provide detailed supporting calculations both to the Company and the Executive within 20 calendar days of the receipt of written notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or 7 auditor for the individual, entity or group effecting the change of Control, the Executive shall have the right by written notice to the Company to appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and shall be paid by the Company upon demand of the Executive as incurred or billed by the Accounting Firm. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an unqualified written opinion in form and substance satisfactory to the Executive that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ('Underpayment'), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies described in paragraph (ii) of this Section 9 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be paid by the Company to or for 8 the benefit of the Executive within five days of the receipt of the Accounting Firm's determination. All determinations made by the Accounting Firm in connection with any Gross-Up Payment or Underpayment shall be final and binding upon the Company and the Executive. (ii) The Executive shall notify the Company in writing of any claim asserted in writing by the Internal Revenue Service to the Executive that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but not later than 60 days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall at the Company's expense: a. give the Company any information reasonably requested by the Company relating to such claim. b. take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company. c. cooperate with the Company in good faith in order 9 effectively to contest such claim, and d. permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly as incurred all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or any Federal, state, local or other income or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or Federal, state, local or other income or other tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any 10 imputed income with respect to such advance; and further provided that any extension of the status of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iii) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 9, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of paragraph (ii) of this Section 9 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto) upon receipt thereof. If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 9, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 11 10. Medical Insurance Coverage. Executive and his beneficiaries shall --------------------------- continue to participate in all life, health, disability and other welfare plans or programs existing at the time of a Change of Control in which they were participating at such time (or substantially similar plans or programs), to the extent that such continued participation is possible under the general terms and conditions of such plans and programs throughout the Employment Period. Company and Executive will continue to pay the same relative portion of the cost of each such plan or program as each were paying at the time of the Change of Control. Further, in the event that Executive's or his beneficiaries' continued participation in any group plan or program is not permitted, then in lieu thereof, Company shall acquire individual insurance policies providing substantially similar coverage for Executive and his beneficiaries, and Company and Executive will pay the same relative portion of the cost of such comparable coverage plans or programs or in the event that Company cannot acquire individual insurance policies providing substantially similiar coverage, the Company will self-insure the Executive, and the Executive in the case of self insurance will pay the COBRA rate then applicable to the Company's group plan. For purposes of COBRA, a qualifying event is not deemed to occur until the Employment Period, as defined in paragraph 6, has expired. 11. Non-Compete. During the Employment Period Executive will not compete ------------ directly or indirectly with the Company or be directly or indirectly interested in any business competing with the business being conducted by the Company. Ownership of less 12 than 1 percent of the issued and outstanding capital stock of any corporation the stock of which is listed upon a national exchange or regularly quoted by the National Association of Security Dealers Automated Quotation (NASDAQ) shall not be deemed to create a material conflict of interest as contemplated hereunder. For the purpose of this Paragraph 11, the Employment Period shall be deemed to extend two years from Termination if such Termination occurred pursuant to Paragraph 3b above or one year from Termination if such Termination occurred pursuant to Paragraph 3a or Paragraph 4 above, notwithstanding any prior ending of the Employment Period pursuant to Paragraph 6 above. 12. Trade Secrets. Executive shall regard and preserve as confidential -------------- and not use, communicate or disclose to any person, orally, in writing or by a publication, any secret or confidential information of the Company, regardless of where or when or how acquired by the Company, or of others which the Company is obligated to maintain in confidence. This obligation shall exist during the Employment Period and after the termination of the Employment Period until such information becomes a matter of public knowledge through no act of Executive. At the termination of employment by the Company, Executive agrees to return to employer all documents, writings, drawings and other property of the Company within his custody and control. 13. Indemnification. The parties agree to execute a separate --------------- Indemnification Agreement in the form attached as Exhibit B. 14. Arbitration. The Company and Executive undertake to execute this ------------ Agreement in good faith. Any controversy or claim 13 arising out of or relating to this Agreement other benefit plans or arrangements with the Company or breach of this Agreement, shall receive prompt attention by the other party and both parties agree to make good faith efforts to resolve any controversy or claim in an amicable way. If the Company and Executive fail to settle the controversy or claim in an amicable way, they agree to submit the matter to be settled by arbitration in accordance with the Arbitration Rules of the American Arbitration Association. This Agreement, its execution, interpretation and performance shall be governed by the laws of the state of Connecticut of the United States of America. The arbitration will be held in Hartford, Connecticut, or such other place as may be agreed at the time by the parties. The award of this arbitration shall be final and binding both for the Company and Executive and may be entered in any court with jurisdiction. 15. Litigation Expenses. In the event of any action, suit, proceeding, ------------------- arbitration or claim between or by or against the Company and/or the Executive with respect to this Agreement, other benefit plans or arrangements between the parties, and the assertion or enforcement of his rights hereunder, the Company shall promptly pay or reimburse the Executive upon such Executive's written demand therefor, for eighty (80) percent of his costs and expenses (including costs and fees of witnesses, evidence and attorney fees and expenses) relating to or arising out of (directly or indirectly) such action, suit, proceeding, arbitration or claim, on a monthly basis, as such costs and expenses are incurred in investigating, prosecuting, defending or 14 preparing to prosecute or defend, regardless of the outcome thereof. In no event shall the Executive be required to reimburse the Company for any of the costs and expenses relating to any such action, suit, proceeding, arbitration or claim. The obligation of the Company under this Section 15 shall survive the termination for any reason of this Agreement. This Section 15 cannot be amended or modified to affect the rights of the Executive without the prior written consent of such Executive which specifically refers to this Section 15. 16. Rabbi Trust. Within sixty (60) days of the date of this Agreement, the ------------ Company shall enter into a trust agreement (the "Trust Agreement") with a third party institutional trustee, substantially in the form set forth in Rev. Proc. 92-64, 1992-2 C.B. 422, to assist it in meeting its obligations to the Executive under the Company's Supplemental Executive Retirement Plan (the "SERP"). The trust established pursuant to the Trust Agreement (the "Trust") shall be irrevocable. The Trust Agreement shall provide that upon a Change of Control the Company shall, no later than 30 days following the Change of Control, make an irrevocable contribution of cash or cash equivalents to the Trust in an amount sufficient to pay each SERP participant or beneficiary the benefits to which they would be entitled pursuant to the terms of the SERP, and within 30 days following the end of each calendar year ending after the Change of Control the Company shall irrevocably contribute any additional cash to the Trust necessary for the Trustee to pay each SERP participant or beneficiary the benefits payable pursuant to the terms of the SERP as of the close of the year. The Trust Agreement shall also 15 provide (i) that all income received by the Trust shall be accumulated and reinvested, (ii) that the Company will be responsible for the payment of all fees and expenses related to the Trust, (iii) that after a Change of Control the Trustee may not be removed by the Company, and (iv) that, if the Trustee shall resign, any successor Trustee must be an independent institutional entity, such as a bank trust department or other party that has been granted corporate trustee powers under state law. The Trust Agreement shall also provide that the provisions of the Trust described in this Paragraph 16 may not be amended after a Change of Control. 17. Entire Agreement. This Agreement embodies the whole understanding ----------------- between the parties hereto with respect to the subject matter hereof and supersedes all earlier agreements. There are no inducements, promises, terms, conditions or obligations made or entered into by either party other than as contained herein. 18. Modification. This Agreement may not be changed orally, but only be ------------ means of an agreement in writing signed by the parties hereto. 19. Waiver. The waiver by any party of a breach of any provision of this ------- Agreement shall not operate as, or be construed as, a waiver of any subsequent breach. 20. Applicable Law. This Agreement shall be governed and construed in --------------- accordance with the laws of the State of Connecticut, without reference to principles of conflict of laws. 21. Successors This Agreement is personal to the Executive and without the ---------- prior written consent of the Company shall not be 16 assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor (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 it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date first above written. LYDALL, INC. By__________________________ _______________________ Roger M. Widmann, Chairman, Raymond J. Lanzi Compensation and Stock Option Division President Committee By____________________________ Leonard R. Jaskol Chairman, President and CEO 17 EXHIBIT A - FRINGE BENEFITS --------------------------- 1. Medical Benefits a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes dental benefits) b. Lydall, Inc. Health Care Expense Plan c. Lydall, Inc. Health Care Spending Reimbursement Plan 2. Disability Benefits a. Lydall, Inc. Short Term Disability Plan b. Lydall, Inc. Executive Group Long Term Disability Plan 3. Life Insurance a. Executive Life Insurance Plan b. Accidental Death and Dismemberment Plan c. Family Assistance Program d. Business Travel Accident Plan 4. Retirement Plans a. Lydall, Inc. Pension Plan No. 1A b. Lydall, Inc. Profit Sharing Plan No. 1 c. Lydall, Inc. 401(k) Plan d. Lydall, Inc. Supplemental Executive Retirement Plan 5. Stock Plans a. Lydall, Inc. Employee Stock Purchase Plan b. Lydall, Inc. 1992 Stock Incentive Compensation Plan c. Lydall, Inc. 1982 Stock Incentive Compensation Plan 6. Other a. Holidays, vacations b. Lydall, Inc. Dependent Care Assistance Plan 18 EX-10.6 7 SKOMOROWSKI AGREEMENT AGREEMENT --------- THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC. and its subsidiaries (the "Company") and Christopher R. Skomorowski (the "Executive"). W I T N E S S E T H : Recitals. - --------- Executive is employed by the Company as a Division President. The Company and Executive have agreed that if Executive should cease to be Division President under the circumstances set forth in this Agreement his employment will be continued in another capacity for a specified period; NOW, THEREFORE, the Company and Executive, in consideration of the mutual promises set forth below, agree as follows: 1. Executive to Serve as Division President. The Executive shall continue ----------------------------------------- to act as Division President, subject to the direction of its Chairman, President and Chief Executive Officer. 2. Definitions. The phrase "Change of Control," as used in this ------------ Agreement, shall mean 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 of the Company (the "Board") 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 1 receive, in exchange for or upon surrender a majority of their stock, cash or other securities or a combination of the two; and/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 of director of the Company on the date of this Agreement; and/or iii) the election or appointment to the Board of any director or directors whose appointment or election or nomination for election was not approved by a vote of at least a majority of the directors then still in office who were either directors on the date hereof or whose election, appointment or nomination for election was previously so approved. The word "person," as used in the preceding sentence, shall mean an individual, corporation, trust, or other legal or commercial entity and include 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. 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 2 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. The phrase "Fringe Benefits," as used in this Agreement, shall mean the benefits listed on Exhibit A hereto. 3. Termination After Change of Control. If a Change of Control occurs ----------------------------------- after the date of this Agreement and subsequent to such Change of Control (a) Executive shall resign as a Division President of the Company within one year from the time such Change of Control occurs or (b) another shall be appointed or elected Division President by the Company in place of Executive at any time prior to June 1, 2018, Executive's normal retirement date (such resignation or replacement of Executive being hereinafter referred to as a "Termination"), Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for cause or Executive is replaced for cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 4. Termination Prior to Change of Control. If prior to a Change of --------------------------------------- Control (a) the Executive shall resign as Division President of the Company at the request of the Company or because the duties and responsibilities of the Division President have 3 been significantly modified by the Company without his consent or (b) another is appointed Division President in place of the Executive (such resignation or replacement of the Executive being hereinafter referred to a "Termination"), the Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for Cause or if Executive is replaced for Cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 5. Termination for Cause If Executive's employment is terminated for --------------------- cause prior to the beginning of the Employment Period, (either prior or subsequent to a Change of Control), earned but unpaid Base Salary will be paid on a prorated basis for the year in which the termination occurs, plus accrued vacation benefits, but all other Company obligations shall cease as of the date of termination for cause, unless otherwise provided in separate agreements. 6. Employment Period. In the event of a Termination pursuant to paragraph ----------------- 3b above, Executive shall continue to be an employee of the Company for a period of two years from the date of such Termination, and in the event of a Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive shall continue to be an employee of the Company for a period of one year from the date of such Termination, such two year period or one year period, as the case may be, being hereinafter referred 4 to as the "Employment Period"; provided, however, that (a) Executive may end the Employment Period at any time in his absolute discretion and the Employment Period may be ended by the Company at any time for cause, (b) the Employment Period shall not extend beyond June 1, 2018, Executive's normal retirement date, and (c) the Employment Period shall terminate if and when the Executive becomes employed on substantially a full time basis by another entity or as a partner or sole proprietor and with Executive's full recognition of his responsibilities under Paragraph 11 below (but such termination of the Employment Period under clause (a), (b) or (c) above shall not preclude the Executive from being paid for his obligation not to compete as provided in Paragraphs 11 and 12 below). 7. Title and Duties. During the Employment Period, the Executive shall ---------------- perform such duties and undertake such responsibilities as are assigned to him from time to time by the Chairman, President and Chief Executive Officer; provided, however, that such duties and responsibilities shall be commensurate with his status as a senior executive of the Company and bear a reasonable relationship to the business of the Company. 8. Compensation. The Company shall pay to Executive during the Employment ------------ Period an annual salary (the "Annual Salary") equal to one-third (1/3rd) of the aggregate of the base salary and bonuses paid to him during the period commencing three (3) years prior to the date of Termination and ending on the date of Termination. Payment shall be made twice monthly and be appropriately prorated during the first and last month of the 5 Employment Period. In addition, during the Employment Period Executive shall receive (a) the same Fringe Benefits that he would have been entitled to receive if he had continued to be Division President during such period, (b) reimbursement for reasonable expenses incurred by him in the performance of his duties and (c) the use of an automobile on substantially the same basis as prior to his termination. If the Employment Period shall end, pursuant to Paragraph 6 above, prior to the end of the two year term provided for in Paragraph 3b above or the one year term provided for in Paragraph 3a or Paragraph 4 above, as the case may be, the Annual Salary (but, except to the extent provided in Paragraph 10 below, not fringe benefits and perquisites) shall continue to be payable until the end of the non-compete period provided for in Paragraph 11 below and shall be deemed payment for Executive's obligation not to compete as provided in said Paragraph 11, and such Annual Salary for the remainder of the non-compete period shall be paid to the Executive in a lump sum cash payment within ten days after the end of the Employment Period. 9. Tax Gross-up. Anything in this Agreement to the contrary ------------- notwithstanding, in the event it shall be determined that any payment or distribution made, or benefit provided, by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9 (a 'Payment') would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended and then in 6 effect (the 'Code') (or any similar excise tax) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the ('Excise Tax'), then the Executive shall be entitled to receive an additional payment (a 'Gross-Up Payment') in an amount such that after payment by the Executive of all Federal, state, local or other taxes (including any interest or penalties imposed with respect to any such taxes), including, without limitation, any such income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. An Executive may receive Gross-Up Payments under this Section 9 whether or not the Executive actually receives other payments or benefits under the Agreement. (i) Subject to the provisions of paragraph (ii) of this Section 9, all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Coopers & Lybrand (the "Accounting Firm') which shall provide detailed supporting calculations both to the Company and the Executive within 20 calendar days of the receipt of written notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change 7 of Control, the Executive shall have the right by written notice to the Company to appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and shall be paid by the Company upon demand of the Executive as incurred or billed by the Accounting Firm. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an unqualified written opinion in form and substance satisfactory to the Executive that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ('Underpayment'), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies described in paragraph (ii) of this Section 9 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be paid by the Company to or for the benefit of the Executive within five days of the receipt of 8 the Accounting Firm's determination. All determinations made by the Accounting Firm in connection with any Gross-Up Payment or Underpayment shall be final and binding upon the Company and the Executive. (ii) The Executive shall notify the Company in writing of any claim asserted in writing by the Internal Revenue Service to the Executive that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but not later than 60 days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall at the Company's expense: a. give the Company any information reasonably requested by the Company relating to such claim. b. take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company. c. cooperate with the Company in good faith in order effectively to contest such claim, and 9 d. permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly as incurred all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or any Federal, state, local or other income or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or Federal, state, local or other income or other tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided 10 that any extension of the status of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iii) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 9, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of paragraph (ii) of this Section 9 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto) upon receipt thereof. If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 9, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Medical Insurance Coverage. Executive and his --------------------------- 11 beneficiaries shall continue to participate in all life, health, disability and other welfare plans or programs existing at the time of a Change of Control in which they were participating at such time (or substantially similar plans or programs), to the extent that such continued participation is possible under the general terms and conditions of such plans and programs throughout the Employment Period. Company and Executive will continue to pay the same relative portion of the cost of each such plan or program as each were paying at the time of the Change of Control. Further, in the event that Executive's or his beneficiaries' continued participation in any group plan or program is not permitted, then in lieu thereof, Company shall acquire individual insurance policies providing substantially similar coverage for Executive and his beneficiaries, and Company and Executive will pay the same relative portion of the cost of such comparable coverage plans or programs or in the event that Company cannot acquire individual insurance policies providing substantially similiar coverage, the Company will self-insure the Executive, and the Executive in the case of self insurance will pay the COBRA rate then applicable to the Company's group plan. For purposes of COBRA, a qualifying event is not deemed to occur until the Employment Period, as defined in paragraph 6, has expired. 11. Non-Compete. During the Employment Period Executive will not compete ------------ directly or indirectly with the Company or be directly or indirectly interested in any business competing with the business being conducted by the Company. Ownership of less than 1 percent of the issued and outstanding capital stock of any 12 corporation the stock of which is listed upon a national exchange or regularly quoted by the National Association of Security Dealers Automated Quotation (NASDAQ) shall not be deemed to create a material conflict of interest as contemplated hereunder. For the purpose of this Paragraph 11, the Employment Period shall be deemed to extend two years from Termination if such Termination occurred pursuant to Paragraph 3b above or one year from Termination if such Termination occurred pursuant to Paragraph 3a or Paragraph 4 above, notwithstanding any prior ending of the Employment Period pursuant to Paragraph 6 above. 12. Trade Secrets. Executive shall regard and preserve as confidential -------------- and not use, communicate or disclose to any person, orally, in writing or by a publication, any secret or confidential information of the Company, regardless of where or when or how acquired by the Company, or of others which the Company is obligated to maintain in confidence. This obligation shall exist during the Employment Period and after the termination of the Employment Period until such information becomes a matter of public knowledge through no act of Executive. At the termination of employment by the Company, Executive agrees to return to employer all documents, writings, drawings and other property of the Company within his custody and control. 13. Indemnification. The parties agree to execute a separate --------------- Indemnification Agreement in the form attached as Exhibit B. 14. Arbitration. The Company and Executive undertake to execute this ------------ Agreement in good faith. Any controversy or claim arising out of or relating to this Agreement other benefit plans 13 or arrangements with the Company or breach of this Agreement, shall receive prompt attention by the other party and both parties agree to make good faith efforts to resolve any controversy or claim in an amicable way. If the Company and Executive fail to settle the controversy or claim in an amicable way, they agree to submit the matter to be settled by arbitration in accordance with the Arbitration Rules of the American Arbitration Association. This Agreement, its execution, interpretation and performance shall be governed by the laws of the state of Connecticut of the United States of America. The arbitration will be held in Hartford, Connecticut, or such other place as may be agreed at the time by the parties. The award of this arbitration shall be final and binding both for the Company and Executive and may be entered in any court with jurisdiction. 15. Litigation Expenses. In the event of any action, suit, proceeding, ------------------- arbitration or claim between or by or against the Company and/or the Executive with respect to this Agreement, other benefit plans or arrangements between the parties, and the assertion or enforcement of his rights hereunder, the Company shall promptly pay or reimburse the Executive upon such Executive's written demand therefor, for eighty (80) percent of his costs and expenses (including costs and fees of witnesses, evidence and attorney fees and expenses) relating to or arising out of (directly or indirectly) such action, suit, proceeding, arbitration or claim, on a monthly basis, as such costs and expenses are incurred in investigating, prosecuting, defending or preparing to prosecute or defend, regardless of the outcome 14 thereof. In no event shall the Executive be required to reimburse the Company for any of the costs and expenses relating to any such action, suit, proceeding, arbitration or claim. The obligation of the Company under this Section 15 shall survive the termination for any reason of this Agreement. This Section 15 cannot be amended or modified to affect the rights of the Executive without the prior written consent of such Executive which specifically refers to this Section 15. 16. Rabbi Trust. Within sixty (60) days of the date of this Agreement, the ------------ Company shall enter into a trust agreement (the "Trust Agreement") with a third party institutional trustee, substantially in the form set forth in Rev. Proc. 92-64, 1992-2 C.B. 422, to assist it in meeting its obligations to the Executive under the Company's Supplemental Executive Retirement Plan (the "SERP"). The trust established pursuant to the Trust Agreement (the "Trust") shall be irrevocable. The Trust Agreement shall provide that upon a Change of Control the Company shall, no later than 30 days following the Change of Control, make an irrevocable contribution of cash or cash equivalents to the Trust in an amount sufficient to pay each SERP participant or beneficiary the benefits to which they would be entitled pursuant to the terms of the SERP, and within 30 days following the end of each calendar year ending after the Change of Control the Company shall irrevocably contribute any additional cash to the Trust necessary for the Trustee to pay each SERP participant or beneficiary the benefits payable pursuant to the terms of the SERP as of the close of the year. The Trust Agreement shall also provide (i) that all income received by the Trust shall be 15 accumulated and reinvested, (ii) that the Company will be responsible for the payment of all fees and expenses related to the Trust, (iii) that after a Change of Control the Trustee may not be removed by the Company, and (iv) that, if the Trustee shall resign, any successor Trustee must be an independent institutional entity, such as a bank trust department or other party that has been granted corporate trustee powers under state law. The Trust Agreement shall also provide that the provisions of the Trust described in this Paragraph 16 may not be amended after a Change of Control. 17. Entire Agreement. This Agreement embodies the whole understanding ----------------- between the parties hereto with respect to the subject matter hereof and supersedes all earlier agreements. There are no inducements, promises, terms, conditions or obligations made or entered into by either party other than as contained herein. 18. Modification. This Agreement may not be changed orally, but only be ------------ means of an agreement in writing signed by the parties hereto. 19. Waiver. The waiver by any party of a breach of any provision of this ------- Agreement shall not operate as, or be construed as, a waiver of any subsequent breach. 20. Applicable Law. This Agreement shall be governed and construed in --------------- accordance with the laws of the State of Connecticut, without reference to principles of conflict of laws. 21. Successors This Agreement is personal to the Executive and without the ---------- prior written consent of the Company shall not be 16 assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor (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 it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date first above written. LYDALL, INC. By__________________________ _______________________ Roger M. Widmann, Chairman, Christopher R. Skomorowski Compensation and Stock Option Division President Committee By____________________________ Leonard R. Jaskol Chairman, President and CEO 17 EXHIBIT A - FRINGE BENEFITS --------------------------- 1. Medical Benefits a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes dental benefits) b. Lydall, Inc. Health Care Expense Plan c. Lydall, Inc. Health Care Spending Reimbursement Plan 2. Disability Benefits a. Lydall, Inc. Short Term Disability Plan b. Lydall, Inc. Executive Group Long Term Disability Plan 3. Life Insurance a. Executive Life Insurance Plan b. Accidental Death and Dismemberment Plan c. Family Assistance Program d. Business Travel Accident Plan 4. Retirement Plans a. Lydall, Inc. Pension Plan No. 1A b. Lydall, Inc. Profit Sharing Plan No. 1 c. Lydall, Inc. 401(k) Plan d. Lydall, Inc. Supplemental Executive Retirement Plan 5. Stock Plans a. Lydall, Inc. Employee Stock Purchase Plan b. Lydall, Inc. 1992 Stock Incentive Compensation Plan c. Lydall, Inc. 1982 Stock Incentive Compensation Plan 6. Other a. Holidays, vacations b. Lydall, Inc. Dependent Care Assistance Plan 18 EX-10.7 8 RANKIN AGREEMENT AGREEMENT --------- THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC. and its subsidiaries (the "Company") and William J. Rankin (the "Executive"). W I T N E S S E T H : Recitals. - --------- Executive is employed by the Company as a Division President. The Company and Executive have agreed that if Executive should cease to be Division President under the circumstances set forth in this Agreement his employment will be continued in another capacity for a specified period; NOW, THEREFORE, the Company and Executive, in consideration of the mutual promises set forth below, agree as follows: 1. Executive to Serve as Division President. The Executive shall continue ----------------------------------------- to act as Division President, subject to the direction of its Chairman, President and Chief Executive Officer. 2. Definitions. The phrase "Change of Control," as used in this ------------ Agreement, shall mean 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 of the Company (the "Board") 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 1 receive, in exchange for or upon surrender a majority of their stock, cash or other securities or a combination of the two; and/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 of director of the Company on the date of this Agreement; and/or iii) the election or appointment to the Board of any director or directors whose appointment or election or nomination for election was not approved by a vote of at least a majority of the directors then still in office who were either directors on the date hereof or whose election, appointment or nomination for election was previously so approved. The word "person," as used in the preceding sentence, shall mean an individual, corporation, trust, or other legal or commercial entity and include 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. 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 2 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. The phrase "Fringe Benefits," as used in this Agreement, shall mean the benefits listed on Exhibit A hereto. 3. Termination After Change of Control. If a Change of Control occurs ----------------------------------- after the date of this Agreement and subsequent to such Change of Control (a) Executive shall resign as a Division President of the Company within one year from the time such Change of Control occurs or (b) another shall be appointed or elected Division President by the Company in place of Executive at any time prior to March 1, 2019, Executive's normal retirement date (such resignation or replacement of Executive being hereinafter referred to as a "Termination"), Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for cause or Executive is replaced for cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 4. Termination Prior to Change of Control. If prior to a Change of --------------------------------------- Control (a) the Executive shall resign as Division President of the Company at the request of the Company or because the duties and responsibilities of the Division President have 3 been significantly modified by the Company without his consent or (b) another is appointed Division President in place of the Executive (such resignation or replacement of the Executive being hereinafter referred to a "Termination"), the Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for Cause or if Executive is replaced for Cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 5. Termination for Cause If Executive's employment is terminated for --------------------- cause prior to the beginning of the Employment Period, (either prior or subsequent to a Change of Control), earned but unpaid Base Salary will be paid on a prorated basis for the year in which the termination occurs, plus accrued vacation benefits, but all other Company obligations shall cease as of the date of termination for cause, unless otherwise provided in separate agreements. 6. Employment Period. In the event of a Termination pursuant to paragraph ----------------- 3b above, Executive shall continue to be an employee of the Company for a period of two years from the date of such Termination, and in the event of a Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive shall continue to be an employee of the Company for a period of one year from the date of such Termination, such two year period or one year period, as the case may be, being hereinafter referred 4 one year period, as the case may be, being hereinafter referred to as the "Employment Period"; provided, however, that (a) Executive may end the Employment Period at any time in his absolute discretion and the Employment Period may be ended by the Company at any time for cause, (b) the Employment Period shall not extend beyond March 1, 2019, Executive's normal retirement date, and (c) the Employment Period shall terminate if and when the Executive becomes employed on substantially a full time basis by another entity or as a partner or sole proprietor and with Executive's full recognition of his responsibilities under Paragraph 11 below (but such termination of the Employment Period under clause (a), (b) or (c) above shall not preclude the Executive from being paid for his obligation not to compete as provided in Paragraphs 11 and 12 below). 7. Title and Duties. During the Employment Period, the Executive shall ---------------- perform such duties and undertake such responsibilities as are assigned to him from time to time by the Chairman, President and Chief Executive Officer; provided, however, that such duties and responsibilities shall be commensurate with his status as a senior executive of the Company and bear a reasonable relationship to the business of the Company. 8. Compensation. The Company shall pay to Executive during the Employment ------------ Period an annual salary (the "Annual Salary") equal to one-third (1/3rd) of the aggregate of the base salary and bonuses paid to him during the period commencing three (3) years prior to the date of Termination and ending on the date of Termination. Payment shall be made twice monthly and be appropriately prorated during the first and last month of the 5 Employment Period. In addition, during the Employment Period Executive shall receive (a) the same Fringe Benefits that he would have been entitled to receive if he had continued to be Division President during such period, (b) reimbursement for reasonable expenses incurred by him in the performance of his duties and (c) the use of an automobile on substantially the same basis as prior to his termination. If the Employment Period shall end, pursuant to Paragraph 6 above, prior to the end of the two year term provided for in Paragraph 3b above or the one year term provided for in Paragraph 3a or Paragraph 4 above, as the case may be, the Annual Salary (but, except to the extent provided in Paragraph 10 below, not fringe benefits and perquisites) shall continue to be payable until the end of the non-compete period provided for in Paragraph 11 below and shall be deemed payment for Executive's obligation not to compete as provided in said Paragraph 11, and such Annual Salary for the remainder of the non-compete period shall be paid to the Executive in a lump sum cash payment within ten days after the end of the Employment Period. 9. Tax Gross-up. Anything in this Agreement to the contrary ------------- notwithstanding, in the event it shall be determined that any payment or distribution made, or benefit provided, by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9 (a 'Payment') would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended and then in 6 effect (the 'Code') (or any similar excise tax) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the ('Excise Tax'), then the Executive shall be entitled to receive an additional payment (a 'Gross-Up Payment') in an amount such that after payment by the Executive of all Federal, state, local or other taxes (including any interest or penalties imposed with respect to any such taxes), including, without limitation, any such income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. An Executive may receive Gross-Up Payments under this Section 9 whether or not the Executive actually receives other payments or benefits under the Agreement. (i) Subject to the provisions of paragraph (ii) of this Section 9, all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Coopers & Lybrand (the "Accounting Firm') which shall provide detailed supporting calculations both to the Company and the Executive within 20 calendar days of the receipt of written notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change 7 of Control, the Executive shall have the right by written notice to the Company to appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and shall be paid by the Company upon demand of the Executive as incurred or billed by the Accounting Firm. Any Gross- Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an unqualified written opinion in form and substance satisfactory to the Executive that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ('Underpayment'), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies described in paragraph (ii) of this Section 9 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be paid by the Company to or for the benefit of the Executive within five days of the receipt of 8 the Accounting Firm's determination. All determinations made by the Accounting Firm in connection with any Gross-Up Payment or Underpayment shall be final and binding upon the Company and the Executive. (ii) The Executive shall notify the Company in writing of any claim asserted in writing by the Internal Revenue Service to the Executive that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but not later than 60 days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall at the Company's expense: a. give the Company any information reasonably requested by the Company relating to such claim. b. take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company. c. cooperate with the Company in good faith in order effectively to contest such claim, and 9 d. permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly as incurred all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or any Federal, state, local or other income or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or Federal, state, local or other income or other tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided 10 that any extension of the status of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iii) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 9, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of paragraph (ii) of this Section 9 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto) upon receipt thereof. If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 9, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Medical Insurance Coverage. Executive and his --------------------------- 11 beneficiaries shall continue to participate in all life, health, disability and other welfare plans or programs existing at the time of a Change of Control in which they were participating at such time (or substantially similar plans or programs), to the extent that such continued participation is possible under the general terms and conditions of such plans and programs throughout the Employment Period. Company and Executive will continue to pay the same relative portion of the cost of each such plan or program as each were paying at the time of the Change of Control. Further, in the event that Executive's or his beneficiaries' continued participation in any group plan or program is not permitted, then in lieu thereof, Company shall acquire individual insurance policies providing substantially similar coverage for Executive and his beneficiaries, and Company and Executive will pay the same relative portion of the cost of such comparable coverage plans or programs or in the event that Company cannot acquire individual insurance policies providing substantially similiar coverage, the Company will self-insure the Executive, and the Executive in the case of self insurance will pay the COBRA rate then applicable to the Company's group plan. For purposes of COBRA, a qualifying event is not deemed to occur until the Employment Period, as defined in paragraph 6, has expired. 11. Non-Compete. During the Employment Period Executive will not compete ------------ directly or indirectly with the Company or be directly or indirectly interested in any business competing with the business being conducted by the Company. Ownership of less than 1 percent of the issued and outstanding capital stock of any 12 corporation the stock of which is listed upon a national exchange or regularly quoted by the National Association of Security Dealers Automated Quotation (NASDAQ) shall not be deemed to create a material conflict of interest as contemplated hereunder. For the purpose of this Paragraph 11, the Employment Period shall be deemed to extend two years from Termination if such Termination occurred pursuant to Paragraph 3b above or one year from Termination if such Termination occurred pursuant to Paragraph 3a or Paragraph 4 above, notwithstanding any prior ending of the Employment Period pursuant to Paragraph 6 above. 12. Trade Secrets. Executive shall regard and preserve as confidential -------------- and not use, communicate or disclose to any person, orally, in writing or by a publication, any secret or confidential information of the Company, regardless of where or when or how acquired by the Company, or of others which the Company is obligated to maintain in confidence. This obligation shall exist during the Employment Period and after the termination of the Employment Period until such information becomes a matter of public knowledge through no act of Executive. At the termination of employment by the Company, Executive agrees to return to employer all documents, writings, drawings and other property of the Company within his custody and control. 13. Indemnification. The parties agree to execute a separate --------------- Indemnification Agreement in the form attached as Exhibit B. 14. Arbitration. The Company and Executive undertake to execute this ------------ Agreement in good faith. Any controversy or claim arising out of or relating to this Agreement other benefit plans 13 or arrangements with the Company or breach of this Agreement, shall receive prompt attention by the other party and both parties agree to make good faith efforts to resolve any controversy or claim in an amicable way. If the Company and Executive fail to settle the controversy or claim in an amicable way, they agree to submit the matter to be settled by arbitration in accordance with the Arbitration Rules of the American Arbitration Association. This Agreement, its execution, interpretation and performance shall be governed by the laws of the state of Connecticut of the United States of America. The arbitration will be held in Hartford, Connecticut, or such other place as may be agreed at the time by the parties. The award of this arbitration shall be final and binding both for the Company and Executive and may be entered in any court with jurisdiction. 15. Litigation Expenses. In the event of any action, suit, proceeding, ------------------- arbitration or claim between or by or against the Company and/or the Executive with respect to this Agreement, other benefit plans or arrangements between the parties, and the assertion or enforcement of his rights hereunder, the Company shall promptly pay or reimburse the Executive upon such Executive's written demand therefor, for eighty (80) percent of his costs and expenses (including costs and fees of witnesses, evidence and attorney fees and expenses) relating to or arising out of (directly or indirectly) such action, suit, proceeding, arbitration or claim, on a monthly basis, as such costs and expenses are incurred in investigating, prosecuting, defending or preparing to prosecute or defend, regardless of the outcome 14 thereof. In no event shall the Executive be required to reimburse the Company for any of the costs and expenses relating to any such action, suit, proceeding, arbitration or claim. The obligation of the Company under this Section 15 shall survive the termination for any reason of this Agreement. This Section 15 cannot be amended or modified to affect the rights of the Executive without the prior written consent of such Executive which specifically refers to this Section 15. 16. Rabbi Trust. Within sixty (60) days of the date of this Agreement, the ------------ Company shall enter into a trust agreement (the "Trust Agreement") with a third party institutional trustee, substantially in the form set forth in Rev. Proc. 92-64, 1992-2 C.B. 422, to assist it in meeting its obligations to the Executive under the Company's Supplemental Executive Retirement Plan (the "SERP"). The trust established pursuant to the Trust Agreement (the "Trust") shall be irrevocable. The Trust Agreement shall provide that upon a Change of Control the Company shall, no later than 30 days following the Change of Control, make an irrevocable contribution of cash or cash equivalents to the Trust in an amount sufficient to pay each SERP participant or beneficiary the benefits to which they would be entitled pursuant to the terms of the SERP, and within 30 days following the end of each calendar year ending after the Change of Control the Company shall irrevocably contribute any additional cash to the Trust necessary for the Trustee to pay each SERP participant or beneficiary the benefits payable pursuant to the terms of the SERP as of the close of the year. The Trust Agreement shall also provide (i) that all income received by the Trust shall be 15 accumulated and reinvested, (ii) that the Company will be responsible for the payment of all fees and expenses related to the Trust, (iii) that after a Change of Control the Trustee may not be removed by the Company, and (iv) that, if the Trustee shall resign, any successor Trustee must be an independent institutional entity, such as a bank trust department or other party that has been granted corporate trustee powers under state law. The Trust Agreement shall also provide that the provisions of the Trust described in this Paragraph 16 may not be amended after a Change of Control. 17. Entire Agreement. This Agreement embodies the whole understanding ----------------- between the parties hereto with respect to the subject matter hereof and supersedes all earlier agreements. There are no inducements, promises, terms, conditions or obligations made or entered into by either party other than as contained herein. 18. Modification. This Agreement may not be changed orally, but only be ------------ means of an agreement in writing signed by the parties hereto. 19. Waiver. The waiver by any party of a breach of any provision of this ------- Agreement shall not operate as, or be construed as, a waiver of any subsequent breach. 20. Applicable Law. This Agreement shall be governed and construed in --------------- accordance with the laws of the State of Connecticut, without reference to principles of conflict of laws. 21. Successors This Agreement is personal to the Executive and without the ---------- prior written consent of the Company shall not be 16 assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor (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 it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date first above written. LYDALL, INC. By__________________________ _______________________ Roger M. Widmann, Chairman, William J. Rankin Compensation and Stock Option Division President Committee By____________________________ Leonard R. Jaskol Chairman, President and CEO 17 EXHIBIT A - FRINGE BENEFITS --------------------------- 1. Medical Benefits a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes dental benefits) b. Lydall, Inc. Health Care Expense Plan c. Lydall, Inc. Health Care Spending Reimbursement Plan 2. Disability Benefits a. Lydall, Inc. Short Term Disability Plan b. Lydall, Inc. Executive Group Long Term Disability Plan 3. Life Insurance a. Executive Life Insurance Plan b. Accidental Death and Dismemberment Plan c. Family Assistance Program d. Business Travel Accident Plan 4. Retirement Plans a. Lydall, Inc. Pension Plan No. 1A b. Lydall, Inc. Profit Sharing Plan No. 1 c. Lydall, Inc. 401(k) Plan d. Lydall, Inc. Supplemental Executive Retirement Plan 5. Stock Plans a. Lydall, Inc. Employee Stock Purchase Plan b. Lydall, Inc. 1992 Stock Incentive Compensation Plan c. Lydall, Inc. 1982 Stock Incentive Compensation Plan 6. Other a. Holidays, vacations b. Lydall, Inc. Dependent Care Assistance Plan 18 EX-10.8 9 BURENAS AGREEMENT AGREEMENT --------- THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC. and its subsidiaries (the "Company") and Carole F. Butenas (the "Executive"). W I T N E S S E T H : Recitals. - --------- Executive is employed by the Company as Vice President-Communications. The Company and Executive have agreed that if Executive should cease to be Vice President-Communications under the circumstances set forth in this Agreement her employment will be continued in another capacity for a specified period; NOW, THEREFORE, the Company and Executive, in consideration of the mutual promises set forth below, agree as follows: 1. Executive to Serve as Vice President-Communications. The Executive ---------------------------------------------------- shall continue to act as Vice President-Communications, subject to the direction of its Chairman, President and Chief Executive Officer. 2. Definitions. The phrase "Change of Control," as used in this ------------ Agreement, shall mean 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 of the Company (the "Board") 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 1 receive, in exchange for or upon surrender a majority of their stock, cash or other securities or a combination of the two; and/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 of director of the Company on the date of this Agreement; and/or iii) the election or appointment to the Board of any director or directors whose appointment or election or nomination for election was not approved by a vote of at least a majority of the directors then still in office who were either directors on the date hereof or whose election, appointment or nomination for election was previously so approved. The word "person," as used in the preceding sentence, shall mean an individual, corporation, trust, or other legal or commercial entity and include 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. 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 her 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 2 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. The phrase "Fringe Benefits," as used in this Agreement, shall mean the benefits listed on Exhibit A hereto. 3. Termination After Change of Control. If a Change of Control occurs ----------------------------------- after the date of this Agreement and subsequent to such Change of Control (a) Executive shall resign as a Vice President-Communications of the Company within one year from the time such Change of Control occurs or (b) another shall be appointed or elected Vice President-Communications by the Company in place of Executive at any time prior to May 1, 2007, Executive's normal retirement date (such resignation or replacement of Executive being hereinafter referred to as a "Termination"), Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for cause or Executive is replaced for cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 4. Termination Prior to Change of Control. If prior to a Change of -------------------------------------- Control (a) the Executive shall resign as Vice President-Communications of the Company at the request of the 3 Company or because the duties and responsibilities of the Vice President- Communications have been significantly modified by the Company without her consent or (b) another is appointed Vice President-Communications in place of the Executive (such resignation or replacement of the Executive being hereinafter referred to as a "Termination"), the Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for Cause or if Executive is replaced for Cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 5. Termination for Cause If Executive's employment is terminated for --------------------- cause prior to the beginning of the Employment Period, (subsequent to a Change of Control),earned but unpaid Base Salary will be paid on a prorated basis for the year in which the termination occurs, plus accrued vacation benefits, but all other Company obligations shall cease as of the date of termination for cause, unless otherwise provided in separate agreements. 6. Employment Period. In the event of a Termination pursuant to paragraph ----------------- 3 above, Executive shall continue to be an employee of the Company for a period of one year from the date of such Termination, and in the event of a Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive shall continue to be an employee of the Company for a period six months 4 from the date of such Termination such one year period or six months period, as the case may be, being hereinafter referred to as the "Employment Period"; provided, however, that (a) Executive may end the Employment Period at any time in her absolute discretion and the Employment Period may be ended by the Company at any time for cause, (b) the Employment Period shall not extend beyond May 1, 2007, Executive's normal retirement date, and (c) the Employment Period shall terminate if and when the Executive becomes employed on substantially a full time basis by another entity or as a partner or sole proprietor and with Executive's full recognition of her responsibilities under Paragraph 11 below (but such termination of the Employment Period under clause (a), (b) or (c) above shall not preclude the Executive from being paid for her obligation not to compete as provided in Paragraphs 10 and 11 below). 7. Title and Duties. During the Employment Period, the Executive shall ---------------- perform such duties and undertake such responsibilities as are assigned to her from time to time by the Chairman, President and Chief Executive Officer; provided, however, that such duties and responsibilities shall be commensurate with her status as a senior executive of the Company and bear a reasonable relationship to the business of the Company. 8. Compensation. The Company shall pay to Executive during the Employment ------------ Period an annual salary (the "Annual Salary") equal to one-third (1/3rd) of the aggregate of the base salary and bonuses paid to her during the period commencing three (3) years prior to the date of Termination and ending on the date 5 of Termination. Payment shall be made twice monthly and be appropriately prorated during the first and last month of the Employment Period. In addition, during the Employment Period Executive shall receive (a) the same Fringe Benefits that she would have been entitled to receive if she had continued to be Vice President-Communications during such period and (b) reimbursement for reasonable expenses incurred by her in the performance of her duties. If the Employment Period shall end, pursuant to Paragraph 5 above, prior to the end of the one year term provided for in Paragraph 3 above or the six month term provided for in Paragraph 3a or Paragraph 4 above, as the case may be,the Annual Salary (but, except to the extent provided in Paragraph 9 below, not fringe benefits and perquisites) shall continue to be payable until the end of the non- compete period provided for in Paragraph 10 below and shall be deemed payment for Executive's obligation not to compete as provided in said Paragraph 10, and such Annual Salary for the remainder of the non-compete period shall be paid to the Executive in a lump sum cash payment within ten days after the end of the Employment Period. 9. Tax Gross-up. Anything in this Agreement to the contrary ------------- notwithstanding, in the event it shall be determined that any payment or distribution made, or benefit provided, by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8 (a 'Payment') would be subject to the excise tax imposed by Section 6 4999 of the Internal Revenue Code of 1986, as amended and then in effect (the 'Code') (or any similar excise tax) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the ('Excise Tax'), then the Executive shall be entitled to receive an additional payment (a 'Gross-Up Payment') in an amount such that after payment by the Executive of all Federal, state, local or other taxes (including any interest or penalties imposed with respect to any such taxes), including, without limitation, any such income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. An Executive may receive Gross-Up Payments under this Section 8 whether or not the Executive actually receives other payments or benefits under the Agreement. (i) Subject to the provisions of paragraph (ii) of this Section 8, all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Coopers & Lybrand (the "Accounting Firm') which shall provide detailed supporting calculations both to the Company and the Executive within 20 calendar days of the receipt of written notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or 7 auditor for the individual, entity or group effecting the Change of Control, the Executive shall have the right by written notice to the Company to appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and shall be paid by the Company upon demand of the Executive as incurred or billed by the Accounting Firm. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an unqualified written opinion in form and substance satisfactory to the Executive that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ('Underpayment'), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies described in paragraph (ii) of this Section 8 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be paid by the Company to or for 8 the benefit of the Executive within five days of the receipt of the Accounting Firm's determination. All determinations made by the Accounting Firm in connection with any Gross-Up Payment or Underpayment shall be final and binding upon the Company and the Executive. (ii) The Executive shall notify the Company in writing of any claim asserted in writing by the Internal Revenue Service to the Executive that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but not later than 60 days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall at the Company's expense: a. give the Company any information reasonably requested by the Company relating to such claim. b. take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company. 9 c. cooperate with the Company in good faith in order effectively to contest such claim, and d. permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly as incurred all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or any Federal, state, local or other income or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or Federal, state, local or other income or other tax (including interest or penalties with respect thereto) 10 imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the status of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iii) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 8, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of paragraph (ii) of this Section 8 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto) upon receipt thereof. If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 8, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment 11 required to be paid. 10. Medical Insurance Coverage. Executive and her beneficiaries shall --------------------------- continue to participate in all life, health, disability and other welfare plans or programs existing at the time of a Change of Control in which they were participating at such time (or substantially similar plans or programs), to the extent that such continued participation is possible under the general terms and conditions of such plans and programs throughout the Employment Period. Company and Executive will continue to pay the same relative portion of the cost of each such plan or program as each were paying at the time of the Change of Control. Further, in the event that Executive's or her beneficiaries' continued participation in any group plan or program is not permitted, then in lieu thereof, Company shall acquire individual insurance policies providing substantially similar coverage for Executive and her beneficiaries, and Company and Executive will pay the same relative portion of the cost of such comparable coverage plans or programs or in the event that Company cannot acquire individual insurance policies providing substantially similiar coverage, the Company will self-insure the Executive, and the Executive in the case of self insurance will pay the COBRA rate then applicable to the Company's group plan. For purposes of COBRA, a qualifying event is not deemed to occur until the Employment Period, as defined in paragraph 6, has expired. 11. Non-Compete. During the Employment Period Executive will not compete ------------ directly or indirectly with the Company or be directly or indirectly interested in any business competing with 12 the business being conducted by the Company. Ownership of less than 1 percent of the issued and outstanding capital stock of any corporation the stock of which is listed upon a national exchange or regularly quoted by the National Association of Security Dealers Automated Quotation (NASDAQ) shall not be deemed to create a material conflict of interest as contemplated hereunder. For the purpose of this Paragraph 10, the Employment Period shall be deemed to extend one year from Termination if such Termination occurred pursuant to Paragraph 3b above or six months from Termination if such Termination occurred pursuant to Paragraph 3a or Paragraph 4 above notwithstanding any prior ending of the Employment Period pursuant to Paragraph 5 above. 12. Trade Secrets. Executive shall regard and preserve as confidential -------------- and not use, communicate or disclose to any person, orally, in writing or by a publication, any secret or confidential information of the Company, regardless of where or when or how acquired by the Company, or of others which the Company is obligated to maintain in confidence. This obligation shall exist during the Employment Period and after the termination of the Employment Period until such information becomes a matter of public knowledge through no act of Executive. At the termination of employment by the Company, Executive agrees to return to employer all documents, writings, drawings and other property of the Company within her custody and control. 13. Indemnification. The parties agree to execute a separate --------------- Indemnification Agreement in the form attached as Exhibit B. 14. Arbitration. The Company and Executive undertake to ------------ 13 execute this Agreement in good faith. Any controversy or claim arising out of or relating to this Agreement other benefit plans or arrangements with the Company or breach of this Agreement, shall receive prompt attention by the other party and both parties agree to make good faith efforts to resolve any controversy or claim in an amicable way. If the Company and Executive fail to settle the controversy or claim in an amicable way, they agree to submit the matter to be settled by arbitration in accordance with the Arbitration Rules of the American Arbitration Association. This Agreement, its execution, interpretation and performance shall be governed by the laws of the state of Connecticut of the United States of America. The arbitration will be held in Hartford, Connecticut, or such other place as may be agreed at the time by the parties. The award of this arbitration shall be final and binding both for the Company and Executive and may be entered in any court with jurisdiction. 15. Litigation Expenses. In the event of any action, suit, proceeding, ------------------- arbitration or claim between or by or against the Company and/or the Executive with respect to this Agreement, other benefit plans or arrangements between the parties, and the assertion or enforcement of her rights hereunder, the Company shall promptly pay or reimburse the Executive upon such Executive's written demand therefor, for eighty (80) percent of her costs and expenses (including costs and fees of witnesses, evidence and attorney fees and expenses) relating to or arising out of (directly or indirectly) such action, suit, proceeding, arbitration or claim, on a monthly basis, as such costs and 14 expenses are incurred in investigating, prosecuting, defending or preparing to prosecute or defend, regardless of the outcome thereof. In no event shall the Executive be required to reimburse the Company for any of the costs and expenses relating to any such action, suit, proceeding, arbitration or claim. The obligation of the Company under this Section 14 shall survive the termination for any reason of this Agreement. This Section 14 cannot be amended or modified to affect the rights of the Executive without the prior written consent of such Executive which specifically refers to this Section 14. 16. Rabbi Trust. Within sixty (60) days of the date of this Agreement, the ------------ Company shall enter into a trust agreement (the "Trust Agreement") with a third party institutional trustee, substantially in the form set forth in Rev. Proc. 92-64, 1992-2 C.B. 422, to assist it in meeting its obligations to the Executive under the Company's Supplemental Executive Retirement Plan (the "SERP"). The trust established pursuant to the Trust Agreement (the "Trust") shall be irrevocable. The Trust Agreement shall provide that upon a Change of Control the Company shall, no later than 30 days following the Change of Control, make an irrevocable contribution of cash or cash equivalents to the Trust in an amount sufficient to pay each SERP participant or beneficiary the benefits to which they would be entitled pursuant to the terms of the SERP, and within 30 days following the end of each calendar year ending after the Change of Control the Company shall irrevocably contribute any additional cash to the Trust necessary for the Trustee to pay each SERP participant or beneficiary the benefits payable pursuant to the terms of the 15 SERP as of the close of the year. The Trust Agreement shall also provide (i) that all income received by the Trust shall be accumulated and reinvested, (ii) that the Company will be responsible for the payment of all fees and expenses related to the Trust, (iii) that after a Change of Control the Trustee may not be removed by the Company, and (iv) that, if the Trustee shall resign, any successor Trustee must be an independent institutional entity, such as a bank trust department or other party that has been granted corporate trustee powers under state law. The Trust Agreement shall also provide that the provisions of the Trust described in this Paragraph 15 may not be amended after a Change of Control. 17. Entire Agreement. This Agreement embodies the whole understanding ----------------- between the parties hereto with respect to the subject matter hereof and supersedes all earlier agreements. There are no inducements, promises, terms, conditions or obligations made or entered into by either party other than as contained herein. 18. Modification. This Agreement may not be changed orally, but only be ------------ means of an agreement in writing signed by the parties hereto. 19. Waiver. The waiver by any party of a breach of any provision of this ------- Agreement shall not operate as, or be construed as, a waiver of any subsequent breach. 20. Applicable Law. This Agreement shall be governed and construed in --------------- accordance with the laws of the State of Connecticut, without reference to principles of conflict of laws. 21. Successors This Agreement is personal to the Executive ---------- 16 and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor (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 it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date first above written. LYDALL, INC. By____________________________ _______________________ Roger M. Widmann, Chairman, Carole F. Butenas Compensation and Stock Option Vice President-Communications Committee By___________________________ Leonard R. Jaskol Chairman, President and CEO 17 CFB EXHIBIT A - FRINGE BENEFITS --------------------------- 1. Medical Benefits a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes dental benefits) b. Lydall, Inc. Executive Medical Reimbursement Plan 2. Disability Benefits a. Lydall, Inc. Short Term Disability Plan b. Lydall, Inc. Executive Group Long Term Disability Plan 3. Life Insurance a. Executive Life Insurance Plan b. Accidental Death and Dismemberment Plan c. Family Assistance Program d. Business Travel Accident Plan 4. Retirement Plans a. Lydall, Inc. Pension Plan No. 1A b. Lydall, Inc. Profit Sharing Plan No. 1 c. Lydall, Inc. 401(k) Plan d. Lydall, Inc. Supplemental Executive Retirement Plan 5. Stock Plans a. Lydall, Inc. Employee Stock Purchase Plan b. Lydall, Inc. 1992 Stock Incentive Compensation Plan c. Lydall, Inc. 1982 Stock Incentive Compensation Plan 6. Other a. Holidays, vacations b. Lydall, Inc. Dependent Care Assistance Plan 18 EX-10.9 10 ESTEY AGREEMENT AGREEMENT --------- THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC. and its subsidiaries (the "Company") and Mona G. Estey (the "Executive"). W I T N E S S E T H : Recitals. - --------- Executive is employed by the Company as Manager, Human Resources and Employee Benefits. The Company and Executive have agreed that if Executive should cease to be Manager, Human Resources and Employee Benefits under the circumstances set forth in this Agreement her employment will be continued in another capacity for a specified period; NOW, THEREFORE, the Company and Executive, in consideration of the mutual promises set forth below, agree as follows: 1. Executive to Serve as Manager, Human Resources and Employee Benefits. --------------------------------------------------------------------- The Executive shall continue to act as Manager, Human Resources and Employee Benefits, subject to the direction of its Chairman, President and Chief Executive Officer. 2. Definitions. The phrase "Change of Control," as used in this ------------ Agreement, shall mean 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 of the Company (the "Board") 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 1 assets or (b) the stockholders of the Company acquire a right to receive, in exchange for or upon surrender a majority of their stock, cash or other securities or a combination of the two; and/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 of director of the Company on the date of this Agreement; and/or iii) the election or appointment to the Board of any director or directors whose appointment or election or nomination for election was not approved by a vote of at least a majority of the directors then still in office who were either directors on the date hereof or whose election, appointment or nomination for election was previously so approved. The word "person," as used in the preceding sentence, shall mean an individual, corporation, trust, or other legal or commercial entity and include 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. 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 her 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 2 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. The phrase "Fringe Benefits," as used in this Agreement, shall mean the benefits listed on Exhibit A hereto. 3. Termination After Change of Control. If a Change of Control occurs ----------------------------------- after the date of this Agreement and subsequent to such Change of Control (a) Executive shall resign as a Manager, Human Resources and Employee Benefits of the Company within one year from the time such Change of Control occurs or (b) another shall be appointed or elected Manager, Human Resources and Employee Benefits by the Company in place of Executive at any time prior to August 1, 2019, Executive's normal retirement date (such resignation or replacement of Executive being hereinafter referred to as a "Termination"), Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for cause or Executive is replaced for cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 4. Termination Prior to Change of Control. If prior to a Change of -------------------------------------- Control (a) the Executive shall resign as Manager, 3 Human Resources and Employee Benefits of the Company at the request of the Company or because the duties and responsibilities of the Manager, Human Resources and Employee Benefits have been significantly modified by the Company without her consent or (b) another is appointed Manager, Human Resources and Employee Benefits in place of the Executive (such resignation or replacement of the Executive being hereinafter referred to as a "Termination"), the Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for Cause or if Executive is replaced for Cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 5. Termination for Cause If Executive's employment is terminated for --------------------- cause prior to the beginning of the Employment Period, (subsequent to a Change of Control),earned but unpaid Base Salary will be paid on a prorated basis for the year in which the termination occurs, plus accrued vacation benefits, but all other Company obligations shall cease as of the date of termination for cause, unless otherwise provided in separate agreements. 6. Employment Period. In the event of a Termination pursuant to paragraph ----------------- 3 above, Executive shall continue to be an employee of the Company for a period of one year from the date of such Termination, and in the event of a Termination pursuant to 4 either Paragraph 3a or Paragraph 4 above, Executive shall continue to be an employee of the Company for a period six months from the date of such Termination such one year period or six months period, as the case may be, being hereinafter referred to as the "Employment Period"; provided, however, that (a) Executive may end the Employment Period at any time in her absolute discretion and the Employment Period may be ended by the Company at any time for cause, (b) the Employment Period shall not extend beyond August 1, 2019, Executive's normal retirement date, and (c) the Employment Period shall terminate if and when the Executive becomes employed on substantially a full time basis by another entity or as a partner or sole proprietor and with Executive's full recognition of her responsibilities under Paragraph 11 below (but such termination of the Employment Period under clause (a), (b) or (c) above shall not preclude the Executive from being paid for her obligation not to compete as provided in Paragraphs 10 and 11 below). 7. Title and Duties. During the Employment Period, the Executive shall ---------------- perform such duties and undertake such responsibilities as are assigned to her from time to time by the Chairman, President and Chief Executive Officer; provided, however, that such duties and responsibilities shall be commensurate with her status as a senior executive of the Company and bear a reasonable relationship to the business of the Company. 8. Compensation. The Company shall pay to Executive during the Employment ------------ Period an annual salary (the "Annual Salary") equal to one-third (1/3rd) of the aggregate of the base 5 salary and bonuses paid to her during the period commencing three (3) years prior to the date of Termination and ending on the date of Termination. Payment shall be made twice monthly and be appropriately prorated during the first and last month of the Employment Period. In addition, during the Employment Period Executive shall receive (a) the same Fringe Benefits that she would have been entitled to receive if she had continued to be Manager, Human Resources and Employee Benefits during such period and (b) reimbursement for reasonable expenses incurred by her in the performance of her duties. If the Employment Period shall end, pursuant to Paragraph 5 above, prior to the end of the one year term provided for in Paragraph 3 above or the six month term provided for in Paragraph 3a or Paragraph 4 above, as the case may be,the Annual Salary (but, except to the extent provided in Paragraph 9 below, not fringe benefits and perquisites) shall continue to be payable until the end of the non-compete period provided for in Paragraph 10 below and shall be deemed payment for Executive's obligation not to compete as provided in said Paragraph 10, and such Annual Salary for the remainder of the non-compete period shall be paid to the Executive in a lump sum cash payment within ten days after the end of the Employment Period. 9. Tax Gross-up. Anything in this Agreement to the contrary ------------- notwithstanding, in the event it shall be determined that any payment or distribution made, or benefit provided, by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to 6 any additional payments required under this Section 8 (a 'Payment') would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended and then in effect (the 'Code') (or any similar excise tax) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the ('Excise Tax'), then the Executive shall be entitled to receive an additional payment (a 'Gross-Up Payment') in an amount such that after payment by the Executive of all Federal, state, local or other taxes (including any interest or penalties imposed with respect to any such taxes), including, without limitation, any such income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. An Executive may receive Gross-Up Payments under this Section 8 whether or not the Executive actually receives other payments or benefits under the Agreement. (i) Subject to the provisions of paragraph (ii) of this Section 8, all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Coopers & Lybrand (the "Accounting Firm') which shall provide detailed supporting calculations both to the Company and the Executive within 20 calendar days of the receipt of written notice from the Executive that there has been a 7 Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall have the right by written notice to the Company to appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and shall be paid by the Company upon demand of the Executive as incurred or billed by the Accounting Firm. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an unqualified written opinion in form and substance satisfactory to the Executive that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ('Underpayment'), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies described in paragraph (ii) of this Section 8 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm 8 shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be paid by the Company to or for the benefit of the Executive within five days of the receipt of the Accounting Firm's determination. All determinations made by the Accounting Firm in connection with any Gross-Up Payment or Underpayment shall be final and binding upon the Company and the Executive. (ii) The Executive shall notify the Company in writing of any claim asserted in writing by the Internal Revenue Service to the Executive that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but not later than 60 days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall at the Company's expense: a. give the Company any information reasonably requested by the Company relating to such claim. b. take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney 9 reasonably selected by the Company. c. cooperate with the Company in good faith in order effectively to contest such claim, and d. permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly as incurred all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or any Federal, state, local or other income or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, 10 from any Excise Tax or Federal, state, local or other income or other tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the status of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iii) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 8, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of paragraph (ii) of this Section 8 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto) upon receipt thereof. If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 8, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not 11 be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Medical Insurance Coverage. Executive and her beneficiaries shall --------------------------- continue to participate in all life, health, disability and other welfare plans or programs existing at the time of a Change of Control in which they were participating at such time (or substantially similar plans or programs), to the extent that such continued participation is possible under the general terms and conditions of such plans and programs throughout the Employment Period. Company and Executive will continue to pay the same relative portion of the cost of each such plan or program as each were paying at the time of the Change of Control. Further, in the event that Executive's or her beneficiaries' continued participation in any group plan or program is not permitted, then in lieu thereof, Company shall acquire individual insurance policies providing substantially similar coverage for Executive and her beneficiaries, and Company and Executive will pay the same relative portion of the cost of such comparable coverage plans or programs or in the event that Company cannot acquire individual insurance policies providing substantially similiar coverage, the Company will self-insure the Executive, and the Executive in the case of self insurance will pay the COBRA rate then applicable to the Company's group plan. For purposes of COBRA, a qualifying event is not deemed to occur until the Employment Period, as defined in paragraph 6, has expired. 11. Non-Compete. During the Employment Period Executive ------------ 12 will not compete directly or indirectly with the Company or be directly or indirectly interested in any business competing with the business being conducted by the Company. Ownership of less than 1 percent of the issued and outstanding capital stock of any corporation the stock of which is listed upon a national exchange or regularly quoted by the National Association of Security Dealers Automated Quotation (NASDAQ) shall not be deemed to create a material conflict of interest as contemplated hereunder. For the purpose of this Paragraph 10, the Employment Period shall be deemed to extend one year from Termination if such Termination occurred pursuant to Paragraph 3b above or six months from Termination if such Termination occurred pursuant to Paragraph 3a or Paragraph 4 above notwithstanding any prior ending of the Employment Period pursuant to Paragraph 5 above. 12. Trade Secrets. Executive shall regard and preserve as confidential -------------- and not use, communicate or disclose to any person, orally, in writing or by a publication, any secret or confidential information of the Company, regardless of where or when or how acquired by the Company, or of others which the Company is obligated to maintain in confidence. This obligation shall exist during the Employment Period and after the termination of the Employment Period until such information becomes a matter of public knowledge through no act of Executive. At the termination of employment by the Company, Executive agrees to return to employer all documents, writings, drawings and other property of the Company within her custody and control. 13. Indemnification. The parties agree to execute a separate --------------- Indemnification Agreement in the form attached as 13 Exhibit B. 14. Arbitration. The Company and Executive undertake to execute this ------------ Agreement in good faith. Any controversy or claim arising out of or relating to this Agreement other benefit plans or arrangements with the Company or breach of this Agreement, shall receive prompt attention by the other party and both parties agree to make good faith efforts to resolve any controversy or claim in an amicable way. If the Company and Executive fail to settle the controversy or claim in an amicable way, they agree to submit the matter to be settled by arbitration in accordance with the Arbitration Rules of the American Arbitration Association. This Agreement, its execution, interpretation and performance shall be governed by the laws of the state of Connecticut of the United States of America. The arbitration will be held in Hartford, Connecticut, or such other place as may be agreed at the time by the parties. The award of this arbitration shall be final and binding both for the Company and Executive and may be entered in any court with jurisdiction. 15. Litigation Expenses. In the event of any action, suit, proceeding, ------------------- arbitration or claim between or by or against the Company and/or the Executive with respect to this Agreement, other benefit plans or arrangements between the parties, and the assertion or enforcement of her rights hereunder, the Company shall promptly pay or reimburse the Executive upon such Executive's written demand therefor, for eighty (80) percent of her costs and expenses (including costs and fees of witnesses, 14 evidence and attorney fees and expenses) relating to or arising out of (directly or indirectly) such action, suit, proceeding, arbitration or claim, on a monthly basis, as such costs and expenses are incurred in investigating, prosecuting, defending or preparing to prosecute or defend, regardless of the outcome thereof. In no event shall the Executive be required to reimburse the Company for any of the costs and expenses relating to any such action, suit, proceeding, arbitration or claim. The obligation of the Company under this Section 14 shall survive the termination for any reason of this Agreement. This Section 14 cannot be amended or modified to affect the rights of the Executive without the prior written consent of such Executive which specifically refers to this Section 14. 16. Rabbi Trust. Within sixty (60) days of the date of this Agreement, the ------------ Company shall enter into a trust agreement (the "Trust Agreement") with a third party institutional trustee, substantially in the form set forth in Rev. Proc. 92-64, 1992-2 C.B. 422, to assist it in meeting its obligations to the Executive under the Company's Supplemental Executive Retirement Plan (the "SERP"). The trust established pursuant to the Trust Agreement (the "Trust") shall be irrevocable. The Trust Agreement shall provide that upon a Change of Control the Company shall, no later than 30 days following the Change of Control, make an irrevocable contribution of cash or cash equivalents to the Trust in an amount sufficient to pay each SERP participant or beneficiary the benefits to which they would be entitled pursuant to the terms of the SERP, and within 30 days following the end of each calendar year ending after the Change of Control the Company 15 shall irrevocably contribute any additional cash to the Trust necessary for the Trustee to pay each SERP participant or beneficiary the benefits payable pursuant to the terms of the SERP as of the close of the year. The Trust Agreement shall also provide (i) that all income received by the Trust shall be accumulated and reinvested, (ii) that the Company will be responsible for the payment of all fees and expenses related to the Trust, (iii) that after a Change of Control the Trustee may not be removed by the Company, and (iv) that, if the Trustee shall resign, any successor Trustee must be an independent institutional entity, such as a bank trust department or other party that has been granted corporate trustee powers under state law. The Trust Agreement shall also provide that the provisions of the Trust described in this Paragraph 15 may not be amended after a Change of Control. 17. Entire Agreement. This Agreement embodies the whole understanding ----------------- between the parties hereto with respect to the subject matter hereof and supersedes all earlier agreements. There are no inducements, promises, terms, conditions or obligations made or entered into by either party other than as contained herein. 18. Modification. This Agreement may not be changed orally, but only be ------------ means of an agreement in writing signed by the parties hereto. 19. Waiver. The waiver by any party of a breach of any provision of this ------- Agreement shall not operate as, or be construed as, a waiver of any subsequent breach. 20. Applicable Law. This Agreement shall be governed and --------------- 16 construed in accordance with the laws of the State of Connecticut, without reference to principles of conflict of laws. 21. Successors. This Agreement is personal to the Executive and without ----------- the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor (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 it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date first above written. LYDALL, INC. By____________________________ _______________________ Roger M. Widmann, Chairman, Mona G. Estey Compensation and Stock Option Manager, Human Resources and Committee Employee Benefits By___________________________ Leonard R. Jaskol Chairman, President and CEO 17 MA,MGE EXHIBIT A - FRINGE BENEFITS --------------------------- 1. Medical Benefits a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes dental benefits) b. Lydall, Inc. Health Care Expense Plan c. Lydall, Inc. Health Care Spending Reimbursement Plan 2. Disability Benefits a. Lydall, Inc. Short Term Disability Plan b. Lydall, Inc. Executive Group Long Term Disability Plan 3. Life Insurance a. Executive Life Insurance Plan b. Accidental Death and Dismemberment Plan c. Family Assistance Program d. Business Travel Accident Plan 4. Retirement Plans a. Lydall, Inc. Pension Plan No. 1A b. Lydall, Inc. Profit Sharing Plan No. 1 c. Lydall, Inc. 401(k) Plan d. Lydall, Inc. Supplemental Executive Retirement Plan 5. Stock Plans a. Lydall, Inc. Employee Stock Purchase Plan b. Lydall, Inc. 1992 Stock Incentive Compensation Plan c. Lydall, Inc. 1982 Stock Incentive Compensation Plan 6. Other a. Holidays, vacations b. Lydall, Inc. Dependent Care Assistance Plan 18 EX-10.10 11 ADAMOWICZ AGREEMEMT AGREEMENT --------- THIS AGREEMENT made this 10th day of March 1995 by and between LYDALL, INC. and its subsidiaries (the "Company") and Mary Adamowicz (the "Executive"). W I T N E S S E T H : Recitals. - --------- Executive is employed by the Company as General Counsel and Secretary. The Company and Executive have agreed that if Executive should cease to be General Counsel and Secretary under the circumstances set forth in this Agreement her employment will be continued in another capacity for a specified period; NOW, THEREFORE, the Company and Executive, in consideration of the mutual promises set forth below, agree as follows: 1. Executive to Serve as General Counsel and Secretary. The Executive ---------------------------------------------------- shall continue to act as General Counsel and Secretary, subject to the direction of its Chairman, President and Chief Executive Officer. 2. Definitions. The phrase "Change of Control," as used in this ------------ Agreement, shall mean 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 of the Company (the "Board") 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 1 receive, in exchange for or upon surrender a majority of their stock, cash or other securities or a combination of the two; and/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 of director of the Company on the date of this Agreement; and/or iii) the election or appointment to the Board of any director or directors whose appointment or election or nomination for election was not approved by a vote of at least a majority of the directors then still in office who were either directors on the date hereof or whose election, appointment or nomination for election was previously so approved. The word "person," as used in the preceding sentence, shall mean an individual, corporation, trust, or other legal or commercial entity and include 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. 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 her 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 2 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. The phrase "Fringe Benefits," as used in this Agreement, shall mean the benefits listed on Exhibit A hereto. 3. Termination After Change of Control. If a Change of Control occurs ----------------------------------- after the date of this Agreement and subsequent to such Change of Control (a) Executive shall resign as a General Counsel and Secretary of the Company within one year from the time such Change of Control occurs or (b) another shall be appointed or elected General Counsel and Secretary by the Company in place of Executive at any time prior to June 1, 2025, Executive's normal retirement date (such resignation or replacement of Executive being hereinafter referred to as a "Termination"), Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for cause or Executive is replaced for cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 4. Termination Prior to Change of Control. If prior to a Change of -------------------------------------- Control (a) the Executive shall resign as General Counsel and Secretary of the Company at the request of the 3 Company or because the duties and responsibilities of the General Counsel and Secretary have been significantly modified by the Company without her consent or (b) another is appointed General Counsel and Secretary in place of the Executive (such resignation or replacement of the Executive being hereinafter referred to as a "Termination"), the Executive shall continue to be an employee of the Company and be compensated and receive benefits in accordance with this Agreement; provided, however, that if Executive's resignation shall be requested by the Company for Cause or if Executive is replaced for Cause, such resignation or replacement shall not be deemed a Termination for the purpose of this Agreement and shall not entitle Executive to continue to be an employee of the Company and be compensated and receive the benefits provided for in this Agreement. 5. Termination for Cause If Executive's employment is terminated for --------------------- cause prior to the beginning of the Employment Period, (subsequent to a Change of Control),earned but unpaid Base Salary will be paid on a prorated basis for the year in which the termination occurs, plus accrued vacation benefits, but all other Company obligations shall cease as of the date of termination for cause, unless otherwise provided in separate agreements. 6. Employment Period. In the event of a Termination pursuant to paragraph ----------------- 3 above, Executive shall continue to be an employee of the Company for a period of one year from the date of such Termination, and in the event of a Termination pursuant to either Paragraph 3a or Paragraph 4 above, Executive shall continue to be an employee of the Company for a period six months 4 from the date of such Termination such one year period or six months period, as the case may be, being hereinafter referred to as the "Employment Period"; provided, however, that (a) Executive may end the Employment Period at any time in her absolute discretion and the Employment Period may be ended by the Company at any time for cause, (b) the Employment Period shall not extend beyond June 1, 2025, Executive's normal retirement date, and (c) the Employment Period shall terminate if and when the Executive becomes employed on substantially a full time basis by another entity or as a partner or sole proprietor and with Executive's full recognition of her responsibilities under Paragraph 11 below (but such termination of the Employment Period under clause (a), (b) or (c) above shall not preclude the Executive from being paid for her obligation not to compete as provided in Paragraphs 10 and 11 below). 7. Title and Duties. During the Employment Period, the Executive shall ---------------- perform such duties and undertake such responsibilities as are assigned to her from time to time by the Chairman, President and Chief Executive Officer; provided, however, that such duties and responsibilities shall be commensurate with her status as a senior executive of the Company and bear a reasonable relationship to the business of the Company. 8. Compensation. The Company shall pay to Executive during the Employment ------------ Period an annual salary (the "Annual Salary") equal to one-third (1/3rd) of the aggregate of the base salary and bonuses paid to her during the period commencing three (3) years prior to the date of Termination and ending on the date 5 of Termination. Payment shall be made twice monthly and be appropriately prorated during the first and last month of the Employment Period. In addition, during the Employment Period Executive shall receive (a) the same Fringe Benefits that she would have been entitled to receive if she had continued to be General Counsel and Secretary during such period and (b) reimbursement for reasonable expenses incurred by her in the performance of her duties. If the Employment Period shall end, pursuant to Paragraph 5 above, prior to the end of the one year term provided for in Paragraph 3 above or the six month term provided for in Paragraph 3a or Paragraph 4 above, as the case may be,the Annual Salary (but, except to the extent provided in Paragraph 9 below, not fringe benefits and perquisites) shall continue to be payable until the end of the non- compete period provided for in Paragraph 10 below and shall be deemed payment for Executive's obligation not to compete as provided in said Paragraph 10, and such Annual Salary for the remainder of the non-compete period shall be paid to the Executive in a lump sum cash payment within ten days after the end of the Employment Period. 9. Tax Gross-up. Anything in this Agreement to the contrary ------------- notwithstanding, in the event it shall be determined that any payment or distribution made, or benefit provided, by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8 (a 'Payment') would be subject to the excise tax imposed by Section 6 4999 of the Internal Revenue Code of 1986, as amended and then in effect (the 'Code') (or any similar excise tax) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the ('Excise Tax'), then the Executive shall be entitled to receive an additional payment (a 'Gross-Up Payment') in an amount such that after payment by the Executive of all Federal, state, local or other taxes (including any interest or penalties imposed with respect to any such taxes), including, without limitation, any such income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. An Executive may receive Gross-Up Payments under this Section 8 whether or not the Executive actually receives other payments or benefits under the Agreement. (i) Subject to the provisions of paragraph (ii) of this Section 8, all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Coopers & Lybrand (the "Accounting Firm') which shall provide detailed supporting calculations both to the Company and the Executive within 20 calendar days of the receipt of written notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or 7 auditor for the individual, entity or group effecting the Change of Control, the Executive shall have the right by written notice to the Company to appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and shall be paid by the Company upon demand of the Executive as incurred or billed by the Accounting Firm. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an unqualified written opinion in form and substance satisfactory to the Executive that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ('Underpayment'), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies described in paragraph (ii) of this Section 8 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be paid by the Company to or for 8 the benefit of the Executive within five days of the receipt of the Accounting Firm's determination. All determinations made by the Accounting Firm in connection with any Gross-Up Payment or Underpayment shall be final and binding upon the Company and the Executive. (ii) The Executive shall notify the Company in writing of any claim asserted in writing by the Internal Revenue Service to the Executive that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but not later than 60 days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall at the Company's expense: a. give the Company any information reasonably requested by the Company relating to such claim. b. take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company. 9 c. cooperate with the Company in good faith in order effectively to contest such claim, and d. permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly as incurred all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or any Federal, state, local or other income or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or Federal, state, local or other income or other tax (including interest or penalties with respect thereto) 10 imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the status of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iii) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 8, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of paragraph (ii) of this Section 8 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto) upon receipt thereof. If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (ii) of this Section 8, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment 11 required to be paid. 10. Medical Insurance Coverage. Executive and her beneficiaries shall --------------------------- continue to participate in all life, health, disability and other welfare plans or programs existing at the time of a Change of Control in which they were participating at such time (or substantially similar plans or programs), to the extent that such continued participation is possible under the general terms and conditions of such plans and programs throughout the Employment Period. Company and Executive will continue to pay the same relative portion of the cost of each such plan or program as each were paying at the time of the Change of Control. Further, in the event that Executive's or her beneficiaries' continued participation in any group plan or program is not permitted, then in lieu thereof, Company shall acquire individual insurance policies providing substantially similar coverage for Executive and her beneficiaries, and Company and Executive will pay the same relative portion of the cost of such comparable coverage plans or programs or in the event that Company cannot acquire individual insurance policies providing substantially similiar coverage, the Company will self-insure the Executive, and the Executive in the case of self insurance will pay the COBRA rate then applicable to the Company's group plan. For purposes of COBRA, a qualifying event is not deemed to occur until the Employment Period, as defined in paragraph 6, has expired. 11. Non-Compete. During the Employment Period Executive will not compete ------------ directly or indirectly with the Company or be directly or indirectly interested in any business competing with 12 the business being conducted by the Company. Ownership of less than 1 percent of the issued and outstanding capital stock of any corporation the stock of which is listed upon a national exchange or regularly quoted by the National Association of Security Dealers Automated Quotation (NASDAQ) shall not be deemed to create a material conflict of interest as contemplated hereunder. For the purpose of this Paragraph 10, the Employment Period shall be deemed to extend one year from Termination if such Termination occurred pursuant to Paragraph 3b above or six months from Termination if such Termination occurred pursuant to Paragraph 3a or Paragraph 4 above notwithstanding any prior ending of the Employment Period pursuant to Paragraph 5 above. 12. Trade Secrets. Executive shall regard and preserve as confidential -------------- and not use, communicate or disclose to any person, orally, in writing or by a publication, any secret or confidential information of the Company, regardless of where or when or how acquired by the Company, or of others which the Company is obligated to maintain in confidence. This obligation shall exist during the Employment Period and after the termination of the Employment Period until such information becomes a matter of public knowledge through no act of Executive. At the termination of employment by the Company, Executive agrees to return to employer all documents, writings, drawings and other property of the Company within her custody and control. 13. Indemnification. The parties agree to execute a separate --------------- Indemnification Agreement in the form attached as Exhibit B. 14. Arbitration. The Company and Executive undertake to ------------ 13 execute this Agreement in good faith. Any controversy or claim arising out of or relating to this Agreement other benefit plans or arrangements with the Company or breach of this Agreement, shall receive prompt attention by the other party and both parties agree to make good faith efforts to resolve any controversy or claim in an amicable way. If the Company and Executive fail to settle the controversy or claim in an amicable way, they agree to submit the matter to be settled by arbitration in accordance with the Arbitration Rules of the American Arbitration Association. This Agreement, its execution, interpretation and performance shall be governed by the laws of the state of Connecticut of the United States of America. The arbitration will be held in Hartford, Connecticut, or such other place as may be agreed at the time by the parties. The award of this arbitration shall be final and binding both for the Company and Executive and may be entered in any court with jurisdiction. 15. Litigation Expenses. In the event of any action, suit, proceeding, ------------------- arbitration or claim between or by or against the Company and/or the Executive with respect to this Agreement, other benefit plans or arrangements between the parties, and the assertion or enforcement of her rights hereunder, the Company shall promptly pay or reimburse the Executive upon such Executive's written demand therefor, for eighty (80) percent of her costs and expenses (including costs and fees of witnesses, evidence and attorney fees and expenses) relating to or arising out of (directly or indirectly) such action, suit, proceeding, arbitration or claim, on a monthly basis, as such costs and 14 expenses are incurred in investigating, prosecuting, defending or preparing to prosecute or defend, regardless of the outcome thereof. In no event shall the Executive be required to reimburse the Company for any of the costs and expenses relating to any such action, suit, proceeding, arbitration or claim. The obligation of the Company under this Section 14 shall survive the termination for any reason of this Agreement. This Section 14 cannot be amended or modified to affect the rights of the Executive without the prior written consent of such Executive which specifically refers to this Section 14. 16. Rabbi Trust. Within sixty (60) days of the date of this Agreement, the ------------ Company shall enter into a trust agreement (the "Trust Agreement") with a third party institutional trustee, substantially in the form set forth in Rev. Proc. 92-64, 1992-2 C.B. 422, to assist it in meeting its obligations to the Executive under the Company's Supplemental Executive Retirement Plan (the "SERP"). The trust established pursuant to the Trust Agreement (the "Trust") shall be irrevocable. The Trust Agreement shall provide that upon a Change of Control the Company shall, no later than 30 days following the Change of Control, make an irrevocable contribution of cash or cash equivalents to the Trust in an amount sufficient to pay each SERP participant or beneficiary the benefits to which they would be entitled pursuant to the terms of the SERP, and within 30 days following the end of each calendar year ending after the Change of Control the Company shall irrevocably contribute any additional cash to the Trust necessary for the Trustee to pay each SERP participant or beneficiary the benefits payable pursuant to the terms of the 15 SERP as of the close of the year. The Trust Agreement shall also provide (i) that all income received by the Trust shall be accumulated and reinvested, (ii) that the Company will be responsible for the payment of all fees and expenses related to the Trust, (iii) that after a Change of Control the Trustee may not be removed by the Company, and (iv) that, if the Trustee shall resign, any successor Trustee must be an independent institutional entity, such as a bank trust department or other party that has been granted corporate trustee powers under state law. The Trust Agreement shall also provide that the provisions of the Trust described in this Paragraph 15 may not be amended after a Change of Control. 17. Entire Agreement. This Agreement embodies the whole understanding ----------------- between the parties hereto with respect to the subject matter hereof and supersedes all earlier agreements. There are no inducements, promises, terms, conditions or obligations made or entered into by either party other than as contained herein. 18. Modification. This Agreement may not be changed orally, but only be ------------ means of an agreement in writing signed by the parties hereto. 19. Waiver. The waiver by any party of a breach of any provision of this ------- Agreement shall not operate as, or be construed as, a waiver of any subsequent breach. 20. Applicable Law. This Agreement shall be governed and construed in --------------- accordance with the laws of the State of Connecticut, without reference to principles of conflict of laws. 21. Successors. This Agreement is personal to the ----------- 16 Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor (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 it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date first above written. LYDALL, INC. By____________________________ _______________________ Roger M. Widmann, Chairman, Mary Adamowicz Compensation and Stock Option General Counsel and Secretary Committee By___________________________ Leonard R. Jaskol Chairman, President and CEO 17 MA,MGE EXHIBIT A - FRINGE BENEFITS --------------------------- 1. Medical Benefits a. Lydall, Inc. Health Care Payment Plan for Salaried Employees (includes dental benefits) b. Lydall, Inc. Health Care Expense Plan c. Lydall, Inc. Health Care Spending Reimbursement Plan 2. Disability Benefits a. Lydall, Inc. Short Term Disability Plan b. Lydall, Inc. Executive Group Long Term Disability Plan 3. Life Insurance a. Executive Life Insurance Plan b. Accidental Death and Dismemberment Plan c. Family Assistance Program d. Business Travel Accident Plan 4. Retirement Plans a. Lydall, Inc. Pension Plan No. 1A b. Lydall, Inc. Profit Sharing Plan No. 1 c. Lydall, Inc. 401(k) Plan d. Lydall, Inc. Supplemental Executive Retirement Plan 5. Stock Plans a. Lydall, Inc. Employee Stock Purchase Plan b. Lydall, Inc. 1992 Stock Incentive Compensation Plan c. Lydall, Inc. 1982 Stock Incentive Compensation Plan 6. Other a. Holidays, vacations b. Lydall, Inc. Dependent Care Assistance Plan 18 EX-11 12 SCHEDULE OF COMPUTATION EXHIBIT 11.1 LYDALL, INC. SCHEDULE OF COMPUTATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
THREE MONTHS ENDED MARCH 31, ----------- 1995 1994 ----- ----- (INTHOUSANDS) (UNAUDITED) Primary Weighted average number of common shares......................... 8,620 8,275 Additional shares assuming conversion of stock options and warrants........................................................ 452 617 ----- ----- Weighted average common shares and equivalents outstanding....... 9,072 8,892 ===== ===== Fully Diluted Weighted average number of common shares......................... 8,620 8,275 Additional shares assuming conversion of stock options and warrants........................................................ 455 641 ----- ----- Weighted average common shares and equivalents outstanding....... 9,075 8,916 ===== =====
EX-27 13 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1995 JAN-01-1995 MAR-31-1995 14,862 3,503 34,791 1,657 15,895 72,899 98,257 41,800 146,269 34,503 12,945 1,041 0 0 83,457 146,269 62,736 62,736 43,510 43,510 224 47 264 8,707 3,401 5,306 0 0 0 5,306 .58 .58
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