SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934 (Amendment No. )
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[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
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(Name of Registrant as Specified In Its Charter)
Lydall, Inc.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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One Colonial Road
P.O. Box 151
Manchester, Connecticut 06045-0151
(860) 646-1233
Christopher R. Skomorowski
President and Chief Executive Officer
[LOGO] LYDALL
March 25, 2002
Dear Lydall Stockholders:
I am pleased to enclose Lydall's Annual Report describing the Company's
operations and results for the past year. We appreciate your continuing
interest in Lydall and invite you to attend the Company's Annual Meeting to be
held on Wednesday, May 8, 2002 at 11:00 a.m. at The Fleet Bank Building located
at 777 Main Street in Hartford, Connecticut. For the convenience of
stockholders attending the meeting, free parking will be available in the
parking garage in the Gold Building at 55 Pearl Street across from The Fleet
Bank Building. Your parking ticket will be validated at the sign-in table at
the meeting.
The following pages contain the formal notice of the Annual Meeting and the
Proxy Statement. Please be sure to complete, date, sign and return the enclosed
proxy card, or to vote by telephone or over the Internet, promptly to ensure
that your shares will be voted.
Sincerely,
/s/ CHRISTOPHER R. SKOMOROWSKI
[LOGO] LYDALL
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NOTICE OF ANNUAL MEETING
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To Be Held May 8, 2002
To: The Owners of Common Stock
The Annual Meeting of Stockholders of Lydall, Inc. will be held at The Fleet
Bank Building, 777 Main Street, Hartford, Connecticut, on Wednesday, May 8,
2002, at 11:00 a.m. E.D.T. for the following purposes:
1. To elect ten Directors to serve until the next Annual Meeting of
Stockholders to be held in 2003;
2. To consider and vote upon a proposal to approve the Lydall 2002 Stock
Incentive Compensation Plan; and
3. To transact any other business which may properly come before the
meeting.
The Board of Directors urges you to vote promptly. All stockholders are invited
to attend the meeting, and your right to vote in person will not be affected if
you mail your proxy.
YOUR VOTE IS IMPORTANT.
Sincerely,
/s/ MARY A. TREMBLEY
Mary A. Tremblay
General Counsel and
Secretary
Manchester, CT
March 25, 2002
[LOGO] LYDALL
Proxy Statement
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GENERAL
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This Proxy Statement of Lydall, Inc. ("Lydall" or the "Company"), a Delaware
corporation, is being mailed or otherwise furnished to stockholders on or about
March 25, 2002 in connection with the solicitation by the Board of Directors of
Lydall of proxies to be voted at the Annual Meeting of Stockholders. The Annual
Meeting will be held on Wednesday, May 8, 2002 at 11:00 a.m. at The Fleet Bank
Building located at 777 Main Street in Hartford, Connecticut.
Enclosed with this Proxy Statement and Notice of Annual Meeting is a proxy
card on which the Board of Directors requests that you vote in favor of (i) the
election of all nominees for Director of the Company to serve until the next
Annual Meeting of Stockholders to be held in 2003 and (ii) the proposal to
approve the Lydall 2002 Stock Incentive Compensation Plan.
You may vote by mail, by telephone, over the Internet or in person. To vote
by mail, please complete, sign and mail the proxy card in the enclosed, prepaid
envelope. To vote by telephone or over the Internet, please follow the
instructions on the enclosed proxy card. If you vote by telephone or over the
Internet, it is not necessary to mail your proxy card. If you wish to vote in
person, written ballots will be available at the meeting. However, if your
shares are held in street name (i.e., in a brokerage account), you must request
a proxy from your broker in order to vote at the meeting.
We would appreciate the return of your completed proxy card, or your vote by
telephone or over the Internet, as soon as possible for use at the Annual
Meeting or at any adjournments of the Annual Meeting. Properly executed proxies
received by Lydall's Secretary before the meeting will be voted as directed
unless revoked. A proxy may be revoked at any time before it is exercised by:
(a) notifying Lydall's Secretary in writing, (b) delivering a proxy with a
later date or (c) attending the meeting and voting in person.
Unless you indicate on your proxy otherwise, shares represented by proxies
properly signed and returned to the Company will be voted "FOR" the nominees
for the Board of Directors named in the proxy and "FOR" the approval of the
Lydall 2002 Stock Incentive Compensation Plan.
Under the applicable provisions of the Company's By-laws, the presence,
either in person or by proxy, of the holders of a majority of the shares
entitled to vote is necessary to constitute a quorum for the transaction of
business at the Annual Meeting.
The election of Directors requires the affirmative vote of a plurality of
the votes cast by the holders of shares who are present in person or
represented by proxy at the Annual Meeting and are
entitled to vote on the matter. The ap-proval of the Lydall 2002
Stock Incentive Compensation Plan requires the affirmative vote of a majority
of the votes cast by the holders of shares who are present in person or
represented by proxy at the Annual Meeting and are entitled to vote on the
matter. With respect to all other matters, the affirmative vote of a majority
of the shares present in person or represented by proxy at the Annual Meeting
and entitled to vote and voting thereon shall be the act of the stockholders.
If, however, the question is one upon which, by express provision of an
applicable statute, the Certificate of Incorporation or the By-laws of the
Company, a different vote is required, such express provision shall govern.
For purposes of determining the number of votes cast with respect to the
election of Directors, only those votes cast "FOR all nominees," "WITHHELD for
all nominees," specifying that votes be withheld from one or more designated
nominees or providing the designated proxies with the right to vote in their
discretion are counted. For purposes of determining the number of votes cast
with respect to the approval of the Lydall 2002 Stock Incentive Compensation
Plan or any other matter submitted to stockholders, only those votes cast "FOR"
or "AGAINST" the matter, or providing the designated proxies with the right to
vote in their discretion, are counted. Abstentions will be treated as shares
present and entitled to vote for purposes of determining the presence of a
quorum, but will not be considered as votes cast in determining whether a
matter has been approved by stockholders. Abstentions, therefore, will not have
any effect on the outcome of the voting. If a broker, other holder of record or
nominee indicates on a proxy that it does not have authority, as to certain
shares, to vote on a particular matter, those shares will not be considered as
present and entitled to vote with respect to that matter. As a result, these
so-called "broker non-votes" will not have any effect on the outcome of the
voting.
All costs of solicitation of proxies will be borne by the Company. Lydall
has engaged the services of the outside proxy solicitation firm of Morrow & Co.
Inc., in the interest of increasing the number of shares represented at the
meeting. The anticipated cost of the engagement is approximately $5,000. The
contract provides for consultation regarding the written solicitation
materials, as well as written and other personal solicitation of proxies. Other
costs anticipated are those ordinarily incurred in connection with the
preparation and mailing of proxy material. In addition to solicitations by mail
and by the outside soliciting firm, the Company's Directors, officers and other
employees, without additional remuneration, may solicit proxies by telephone
and in person.
Only holders of record of Lydall's common stock, par value $.10 per share
("Common Stock"), at the close of business on March 11, 2002 (the "Record
Date") are entitled to vote at the meeting. On that date there were 15,986,181
shares of Common Stock outstanding, the holders of which are entitled to one
vote per share.
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ELECTION OF LYDALL DIRECTORS
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The Board of Directors has nominated Ms. Suzanne Hammett
and Messrs. Lee A. Asseo, Samuel P. Cooley, W. Leslie Duffy, David Freeman,
Robert E. McGill, III, Christopher R. Skomorowski, Elliott F. Whitely, Roger M.
Widmann, and Albert E. Wolf for re-election as Directors of the Company for a
term of one year.
The only nominee for Director who is a current employee of the Company is
the President and Chief Executive Officer, Christopher R. Skomorowski. The
Company intends to maintain its Board with a majority of outside Directors.
Under the Certificate of Incor-poration of the Company, the Board of
Directors is empowered to establish the number of directorships between 3 and
15. The Board of Directors has currently fixed the number of directorships at
10. As of the Record Date, there were no vacancies.
Additional nominations for Directors may be made from the floor by
stockholders who have complied fully with the advance notice procedures set
forth in the By-laws of the Company. See "Stockholder Proposals and Nominations
for Director" below. It is the intention of the proxy committee to vote only
for the Director nominees described on pages 11 through 12 of this Proxy
Statement. Proxies cannot be voted for a greater number of persons than the
number of nominees named.
All nominees have indicated that they are willing and able to serve
as Directors if elected. Should any of such nominees become unable or unwilling
to serve, the proxy committee intends to vote for the replacement or
replacements nominated by the Board of Directors.
Vote Required for Adoption
In order to be elected, the nominees must be approved by the affirmative
vote of a plurality of the votes cast by the holders of shares of Common Stock
represented and entitled to vote at the Annual Meeting.
The Board of Directors recommends that stockholders vote FOR the election of
nominees referred to in this section.
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APPROVAL OF LYDALL 2002 STOCK INCENTIVE COMPENSATION PLAN
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Background
On May 13, 1992 the Company's stockholders approved the Lydall, Inc. 1992
Stock Incentive Compensation Plan (the "1992 Plan"). As amended, the 1992 Plan
currently provides for the issuance of up to 2,420,000 shares of Common Stock
to Directors, salaried officers and other key employees of the Company and its
subsidiaries. Awards under the 1992 Plan may be in the form of nonqualified
stock options, incentive stock options, restricted stock awards and stock bonus
awards. As of March 11, 2002, 226,855 shares of Common Stock remained available
for option awards under the 1992 Plan, a portion of which will be used for the
May 7, 2002 automatic award to Directors. As of the Rec-ord Date, a significant
percentage of awarded options held no value because the exercise prices were
higher than the market price of the stock on that date. The 1992 Plan expires
on May 12, 2002.
The Proposal
The Board of Directors believes that the 1992 Plan and its predecessor plans
have proved to be of substantial value in inducing the continued service of
participants, in stimulating their efforts toward the continued success of the
Company and its subsidiaries, and in assisting in the recruitment of
individuals of outstanding ability. Accordingly, on February 27, 2002, the
Board of Directors approved a new equity compensation plan, the Lydall 2002
Stock Incentive Compensation Plan (the "2002 Plan"), subject to the approval of
the Company's stockholders at the Annual Meeting.
The Board of Directors believes that the adoption of the 2002 Plan is in the
best interests of the Company and its stockholders and recommends that
stockholders vote for this proposal. It is the intention of the proxy committee
to vote all shares to which valid proxies relate to approve the proposal,
unless instructed to the contrary. This proposal is expressly subject to
stockholder approval and will not take effect unless it is approved by the
affirmative vote of a majority of the votes cast by the holders of shares of
Common Stock who are present in person or represented by proxy at the Annual
Meeting and are entitled to vote on the proposal.
Summary of the 2002 Plan
The following summarizes the material features of the 2002 Plan. The full
text of the 2002 Plan is set forth as Exhibit A to this Proxy Statement, and
the following discussion is qualified in its entirety by reference to Exhibit A.
General. The purpose of the 2002 Plan is to further the growth and
prosperity of the Company and its subsidiaries through the grant of incentive
awards to those officers, employees, Directors and consultants whose past,
present and potential contributions to the Company and/or its subsidiaries are
or
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will be important to the success of the Company. The 2002 Plan provides for the
grant of the following types of incentive awards: (i) nonqualified stock
options; (ii) incentive stock options; (iii) restricted stock awards; (iv)
stock bonus awards; (v) stock appreciation rights; and (vi) deferred stock
awards.
Shares Available for Issuance Under the 2002 Plan. The Company has reserved
1,500,000 shares of Common Stock for issuance under the 2002 Plan. The number
of shares that can be issued and the number of shares subject to outstanding
options will be adjusted in the event of a stock split, stock dividends,
recapitalization or other similar event affecting the number of shares of
outstanding Common Stock. If shares subject to an option are not issued before
the expiration or termination of such option, or if shares subject to a
restricted or deferred stock award are forfeited, those shares would become
available for inclusion in future grants or awards.
Administration. The 2002 Plan will be administered by the Compensation and
Stock Option Committee of the Board of Directors or such other committee of the
Board of Directors that the Board of Directors may designate (the "Committee").
All of the members of the Committee shall be "non-employee directors," as
defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended, and "outside directors" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). Among the powers
granted to the Committee are the authority to interpret the 2002 Plan,
establish rules and regulations for its operation, select the officers and
employees of the Company and its subsidiaries to receive incentive awards and
determine the form and amount and other terms and conditions of an incentive
award.
Eligibility. All officers, Directors, employees and consultants of the
Company and any of its 50 percent or more owned subsidiaries are eligible to be
selected to receive incentive awards under the 2002 Plan. The selection of who
will receive awards is within the discretion of the Committee. Outside
Directors and consultants of the Company may not be selected to receive
incentive stock options. Incentive stock options may only be granted to
employees of the Company and 50 percent or more owned subsidiaries.
Incentive Awards. The Committee determines which of those eligible
individuals should be granted incentive awards, the type of incentive awards to
be granted, and the number of the shares subject to each incentive award. Set
forth below is a brief description of each type of award that could be granted
under the 2002 Plan.
Stock Options. The 2002 Plan authorizes the Committee to grant incentive
awards in the form of options to purchase shares of Common Stock. The
Committee, with respect to each stock option, determines the number of shares
of Common Stock that may be purchased by the recipient over the term of
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the option, the times at which portions of those shares may be purchased by the
recipient, and whether the option is intended to be an incentive stock option
or a nonqualified stock option. Any stock option that is granted as an
incentive stock option is intended to satisfy the applicable requirements of
Section 422A of the Code. The exercise price of all stock options must be at
least 100 percent of the fair market value of the Common Stock on the date of
grant.
Options may be exercised by giving written notice of such election to the
Company specifying the number of shares of Common Stock the participant has
elected to purchase and the date on which the participant wishes to exercise
the option, together with payment of the full purchase price plus taxes, if
applicable, in cash or in unrestricted shares of the Company's Common Stock
that have been held by the participant for at least six months or in another
form of payment approved by the Committee. The participant may elect to engage
in a cashless exercise through a registered broker/dealer if desired. Upon
exercise, the Committee has the authority to award a new stock reload option
entitling the participant to purchase a number of shares of Common Stock equal
to the number of shares tendered to pay the exercise price and withholding
taxes.
Restricted Stock Awards. The 2002 Plan also authorizes the Committee to
grant incentive awards in the form of a restricted stock award, which consists
of a grant of shares of Common Stock, subject to such terms, conditions and re
strictions as the Committee deems appropriate, including restrictions on
transferability and continued employment.
Stock Bonus Awards. The 2002 Plan also authorizes the Committee to grant
stock bonus awards consisting of outright grants of shares of Common Stock.
Stock Appreciation Rights. The Committee is also authorized under the 2002
Plan to grant stock appreciation rights to participants who are granted stock
options under the plan, as a means to allow the participant to exercise options
without the need to pay the exercise price in cash. Upon the surrender of all
or a part of a related stock option, stock appreciation rights granted under
the 2002 Plan will entitle a participant to receive the difference between the
exercise price of the related stock option and the fair market value of the
Common Stock, subject to the stock appreciation right as of the date of
exercise in cash or Common Stock.
Deferred Stock. The 2002 Plan authorizes the Committee to grant deferred
stock awards, consisting of nontransferable awards entitling the participant to
receive shares of Common Stock without any payment, in one or more
installments, at the end of a specified deferral period determined by the
Committee. Receipt of such deferred stock may be conditioned on such matters as
the Committee may determine, including continued employment or the attainment
of specified performance goals.
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Awards to Outside Directors. On June 30 and December 31 of each year during
the term of the 2002 Plan, each person then serving as an Outside Director will
be granted a stock bonus award equal in value to 50 percent of the annual cash
retainer otherwise payable to Outside Directors. In addition, on December 31 of
each year during the term of the 2002 Plan, each Outside Director will receive
a nonqualified stock option covering 325 shares of Common Stock in lieu of any
cash-based retirement benefits attributable to his or her service on the Board.
Finally, the 2002 Plan provides for the automatic grant, to each person then
serving as an Outside Director of the Company as of the close of business on
the date of the Annual Meetings of Stockholders in each of the years 2005, 2008
and 2011, of a nonqualified stock option covering the lesser of 9,000 shares of
Common Stock or a number of shares of Common Stock having an aggregate fair
market value on the date of grant equal to $100,000.
Other Terms of Incentive Awards. Generally, an incentive award may not be
sold, assigned, or otherwise transferred during its holder's lifetime, except
by will or the laws of descent and distribution. Upon the grant of any
incentive award, the Committee may, in its discretion, establish such other
terms, conditions, restrictions and/or limitations governing the grant of such
incentive award that are not inconsistent with the 2002 Plan.
Termination of Employment. Unless otherwise determined by the Committee and
set forth in the agreement evidencing an incentive award, all stock options
granted to persons who are employees of the Company shall automatically
terminate upon the termination of the participant's employment; except that, in
the event of the death or disability of the participant, the portion of any
such stock option that has vested as of the date of death or termination of
employment due to disability may thereafter be exercised by the participant or
the legal representatives of the participant for a period of one year (or such
lesser period as the Committee may specify at the time of grant) from the date
of such death or termination of employment, or until the expiration of the
stated term of the stock option, whichever period is shorter. If a
participant's employment is terminated by the Company without cause or due to
normal retirement, then the portion of the stock option that has vested on the
date of termination of employment may be exercised for the lesser of three
months (or, in the case of a nonqualified stock option, one year) after
termination of employment or the balance of such stock option's term.
If a participant's employment with the Company is terminated for any reason
whatsoever and, subsequent thereto, such participant accepts employment with a
competitor of, or otherwise engages in competition with, the Company in
violation of any agreement between the participant and the Company or otherwise
engages in specified conduct detrimental to the Company, all options or other
awards then held by such participant shall automatically terminate.
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Prohibition Against Repricing. The 2002 Plan expressly provides that the
exercise price of an outstanding stock option under the 2002 Plan may not be
decreased after the date of grant, nor may it be surrendered to the Company as
consideration for the grant of a new stock option with a lower exercise price.
Amendment or Termination. The 2002 Plan generally provides that it may be
amended, altered, suspended or discontinued by action of the Board of
Directors. However, no amendment or alteration that would impair the rights of
a participant under any agreement evidencing an outstanding award may be made
without the participant's consent. In addition, no amendment or alteration that
would (i) repeal the prohibition against repricing, (ii) increase the overall
number of shares reserved and available for issuance under the 2002 Plan, (iii)
increase the limitations specifying the maximum number of awards that may be
granted to any one person, or (iv) decrease the minimum exercise price of stock
options, may be made without stockholder approval. The 2002 Plan will remain in
effect, unless earlier terminated, until no further awards may be granted and
all awards granted are no longer outstanding. However, grants of incentive
stock options may be made only during the ten-year period following the
effective date of the 2002 Plan.
Change in Control Provisions. If the Company consummates a Change in
Control, as defined under the 2002 Plan, the vesting periods of any and all
stock options and other awards granted and outstanding under the 2002 Plan
shall be accelerated, all such Stock Options and awards will immediately and
entirely vest, and the respective holders thereof will have the immediate right
to purchase and/or receive any and all Common Stock subject to such Stock
Options and awards. Under the 2002 Plan, a "Change in Control" occurs if: (i)
the Company consummates a merger, consolidation or reorganization with or into
any other person; a sale, lease, exchange or other transfer of all of its
assets to any other person; or any other transaction or series of related
transactions immediately after the consummation of which, any person becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing 50 percent or more of the combined voting power of the Company's
then outstanding securities, (ii) the stockholders approve a dissolution of the
Company, or (iii) a majority of the Board of Directors is replaced in any
twelve-month period without the approval of a majority of the persons who were
either serving as Directors at the beginning of the twelve-month period or
whose election as Directors was approved by such persons.
Federal Tax Treatment. Under current federal tax law, the following are the
significant federal tax consequences generally arising with respect to
incentive awards granted under the 2002 Plan. The rules governing incentive
awards under the 2002 Plan are complex. Therefore, the description of the
significant federal income tax consequences set forth below is necessarily
general in nature and does not purport to be
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complete. Statutory provisions governing the incentive awards granted under the
2002 Plan, and the interpretations of statutory provisions, are subject to
change and applications of the provisions may vary in individual circumstances.
Finally, the tax consequences under applicable state and local income tax laws
may not be the same as under the federal income tax laws.
A participant who is granted an incentive stock option does not realize any
taxable income at the time of the grant or at the time of exercise. Similarly,
the Company is not entitled to any deduction at the time of grant or at the
time of exercise. If the participant holds the shares acquired pursuant to an
incentive stock option for the later of: (a) two years from the date of grant
of such option or (b) one year from the date of the transfer of such shares to
him or her, any gain or loss realized on a subsequent disposition of the shares
will be treated as a long-term capital gain or loss. Under such circumstances,
the Company will not be entitled to any deduction for federal income
tax purposes.
Although neither the grant nor exercise of an incentive stock option results
in taxable income, the exercise of the incentive stock option may result in the
imposition of the alternative minimum tax. An optionee generally must include
in alternative minimum taxable income, in the first tax year in which
the optionee's rights to the stock are freely transferable or are not subject
to a substantial risk of forfeiture, the amount by which the stock's fair
market value exceeds the option price. The same approach must be used to
determine the stock's basis for minimum tax computations.
A participant who was granted a nonqualified stock option does not have
taxable income at the time of grant, but does have taxable income at the time
of exercise equal to the difference between the exercise price of the shares
and the fair market value of shares on the date of exercise. The Company is
entitled to a corresponding deduction for the same amount.
A participant who has been granted an incentive award consisting of
restricted shares of Common Stock will not realize taxable income at the time
of grant, and the Company will not be entitled to a deduction at the time of
grant, assuming the restrictions constitute a substantial risk of forfeiture
for federal income tax purposes. When such restrictions lapse, the participant
will receive taxable income in an amount equal to the excess of the fair market
value of the shares at such time over the amount, if any, paid for the shares.
The Company will be entitled to a corresponding deduction.
The award of an outright grant of Common Stock in the form of a stock bonus
award will produce immediate tax consequences for both the participant and the
Company. The participant will be treated as having received taxable
compensation in an amount equal to the then fair market value of the Common
Stock distributed to him or her. The Company
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will receive a corresponding deduction for the same amount. The award of
deferred stock will result in similar tax consequences at the end of the
specified deferral period.
A participant who has been granted stock appreciation rights will not
realize taxable income at the time of grant, and the Company will not be
entitled to a deduction at the time of grant. When the stock appreciation
rights are exercised and result in the holder receiving cash or stock, or both,
the amount of cash and the fair market value of any stock received are included
in the taxable compensation of the recipient. The Company will be entitled to a
corresponding deduction.
New Plan Benefits. No awards will be granted under the 2002 Plan prior to
its approval by the stockholders of the Company at the Annual Meeting. Except
for automatic grants to Outside Directors described above, all future grants
under the 2002 Plan will be made at the discretion of the Committee and,
accordingly, are not yet determinable. The value of any benefits awarded under
the 2002 Plan will depend on a number of factors, including the fair market
value of the Common Stock on future dates and the exercise decisions made by
the recipients of incentive awards. As a result, it is not possible to
determine the benefits that might be received by participants receiving
discretionary awards under the 2002 Plan.
Other Information. The closing price of the Company's Common Stock reported
on the New York Stock Exchange for March 11, 2002 was $13.37 per share.
Vote Required for Approval
Approval of the 2002 Plan will require the affirmative vote of a majority of
the votes cast by the holders of shares of Common Stock who are present in
person or represented by proxy at the Annual Meeting and are entitled to vote
on the proposal.
The Board of Directors recommends that stockholders vote FOR approval of the
2002 Plan.
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BOARD OF DIRECTORS
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Nominees for election at the next Annual Meeting to serve until 2003, a term
of one year:
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Lee A. Asseo, 64, is a retired Chairman of the Board and Chief Executive
Officer of The Whiting Company, a manufacturer of synthetic fibers for the
brush industry, which he joined in 1983. Mr. Asseo retired from The Whiting
Company in 1996. He has been a Lydall Director since 1985. During 2001, Mr.
Asseo served as a member of the Compensation and Stock Option Committee.
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Samuel P. Cooley, 70, is a retired Executive Vice President and Senior Credit
Approval Officer of Shawmut Bank Connecticut, N.A., now FleetBoston Financial,
which he joined in 1955. Mr. Cooley retired from Shawmut Bank in 1993. He
currently serves as a member of the Board of HPSC, Inc., a financial services
company. He has been a Lydall Director since 1966. During 2001, Mr. Cooley
served as Chairman of the Audit Review Committee and as a member of the Pension
Committee.
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W. Leslie Duffy, 62, is a partner in the law firm of Cahill Gordon & Reindel.
He has been with that firm since 1965. He has been a Lydall Director since
1992. During 2001,
Mr. Duffy served as Chairman of the Pension Committee and as a member of the
Executive Committee.
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David Freeman, 57, is a Professor of International Business at Central
Connecticut State University. He is a retired Chairman and Chief Executive
Officer of Loctite Corporation, which he joined in 1974. He became a member of
Loctite's Board of Directors in 1990, President of Loctite in 1991, and Chief
Executive Officer in 1993. He was appointed Chairman of Loctite in April 1996.
Mr. Freeman retired from Loctite in 2000. He became a Lydall Director in 1998.
During 2001, Mr. Freeman served as a member of the Executive, Nominating and
Pension Committees.
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Suzanne Hammett, 46, is a Managing Director and head of Credit Risk Policy for
J.P. Morgan Chase & Co. She has been with the firm since 1977. During her
career she has held positions within the Investment Bank, most recently as
Chief of Staff for JPMorgan. Prior responsibilities included head of the
Lending and Portfolio management group.
Ms. Hammett is a member of the Investment Bank Operating Committee and is a
Trustee of the JP Morgan Chase Trust Foundation. She became a Lydall Director
in 2000. During 2001, Ms. Hammett served as a member of the Nominating
Committee.
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Robert E. McGill, III, 70, is a retired Executive Vice President - Finance and
Administration of Dexter Corporation, which he joined in 1975. Mr. McGill
retired from Dexter in 1994. He was elected to Dexter's Board of Directors in
1983, from which he retired in 1995. He serves as a Trustee of the Travelers
Variable Annuities Mutual Funds. He became a Lydall Director in August 1999.
During 2001, Mr. McGill served as a member of the Audit Review Committee.
--------------------------------------------------------------------------------
Christopher R. Skomorowski, 48, is the President and Chief Executive Officer of
Lydall, a position he has held since December 1998. He has held a variety of
management positions in both finance and marketing since joining Lydall in
1978. Prior to becoming CEO, Mr. Skomorowski was President of Lydall Westex, a
position he had held since 1991. He served as a rotating senior management
Director from 1994 to 1995 and then became a member in 1998. During 2001, Mr.
Skomorowski served as Chairman of the Nominating Committee and as a member of
the Executive Committee.
--------------------------------------------------------------------------------
Elliott F. Whitely, 58, is a retired President of Lydall Technical Papers, a
position he held from 1987 through 1997. He joined Lydall Technical Papers in
1974 and later served as its Vice President of Development and Technology until
he became its President. He served as a rotating senior management Director
from 1993 to 1994 and 1996 to 1997. He joined the Board in 1998. During 2001,
Mr. Whitely served as a member of the Nominating Committee.
--------------------------------------------------------------------------------
Roger M. Widmann, 62, was elected Chairman of the Board on December 29, 1998
and is a Principal of Tanner & Co., Inc., an investment banking firm, a
position he has held since 1997. Formerly, Mr. Widmann was Senior Managing
Director, Corporate Finance, of Chemical Securities, Inc. He joined Chemical
Bank (now J.P. Morgan Chase & Co.) in May 1986. Prior to that, he had been a
founder and Managing Director of First Reserve Corporation, an energy
investment and finance firm, since 1981. Mr. Widmann has served as a Director
of Weatherford Enterra, Inc. and has been a Lydall Director since 1974. During
2001, Mr. Widmann served as Chairman of the Compensation and Stock Option
Committee and the Executive Committee.
--------------------------------------------------------------------------------
Albert E. Wolf, 72, is a former Chairman of the Board of Checkpoint Systems,
Inc., which manufactures and markets electronic security systems. Mr. Wolf was
Chairman and Chief Executive Officer of Checkpoint Systems from 1972 until 1999
when he retired. He has been a Lydall Director since 1977. During 2001, Mr.
Wolf served as a member of the Compensation and Stock Option Committee and the
Audit Review Committee.
--------------------------------------------------------------------------------
12
ACTIVITIES OF THE BOARD OF DIRECTORS AND CERTAIN COMMITTEES OF THE BOARD
The Board of Directors held six meetings during 2001 and acted by unanimous
consent on two occasions. During 2001, each of the Directors attended at least
75 percent of the aggregate of all meetings of the Board and of all committees
of which he or she was a member, except Mr. Wolf who attended 73 percent of the
meetings of the Board and committees on which he served.
The Company's Board of Directors has five standing committees: Audit Review,
Compensation and Stock Option, Pension, Nominating and Executive. The Audit
Review Committee considers and reviews all matters connected with internal and
external audit reports, the external auditor's management report, and similar
matters. See "Report of the Audit Review Committee" below. The Compensation and
Stock Option Committee: (i) reviews the executive compensation of senior
officers of the Company; (ii) approves various contracts with officers; and
(iii) approves the granting of restricted stock awards, stock options and stock
bonus awards to key employees pursuant to the 1992 Plan. The Pension Committee
considers matters concerning the retirement plans of the Company. The
Nominating Committee recommends persons to be nominated as Directors and
considers nominees recommended by stockholders. See "Stockholder Proposals and
Nominations for Director" below. The Executive Committee acts on behalf of the
Board of Directors in the intervals between its meetings on all matters other
than those that are specifically reserved to the full Board under the
applicable provisions of the Delaware General Corporation Law and those
specifically assigned by the Board of Directors to its other committees.
During 2001, the Audit Review Committee held three meetings; the
Compensation and Stock Option Committee held two meetings; the Pension
Committee held one meeting; the Nominating Committee held no meetings,
and the Executive Committee held two meetings.
DIRECTOR COMPENSATION
During 2001, outside Directors were paid $1,000 for each meeting of the
Board of Directors attended, as well as $500 for any committee meeting held on
a day other than the day on which a Board meeting was held. In addition, the
1992 Plan provides for the automatic grant of nonqualified stock options
covering the lesser of 9,000 shares of Common Stock, or a number of shares of
Common Stock having an aggregate fair market value on the date of grant equal
to $100,000, to each person serving as a Director on May 7, 2002. New
Directors, upon joining the Board, receive an automatic grant of nonqualified
stock options covering the lesser of (i) 9,000 shares of Common Stock, (ii) a
number of shares of Common Stock having an aggregate fair market value on the
date of grant equal to $100,000 or (iii) the number of shares then available
for such purpose under the 1992 Plan.
13
From 1991 through 1996, the Company maintained a Deferred Compensation Plan
for outside Directors and the Chairman (the "Deferred Compensation Plan"). The
Deferred Compensation Plan was discontinued in 1996, and no further benefits
will accrue thereunder. All Directors who participated in this plan will
receive a lump-sum cash payment upon the later of the date they cease to serve
as a Director or their attaining 62 years of age. For each of those Directors,
the total amount of the payment will be equal to $3,000 for each full or
partial calendar year of service as a Director completed prior to January 1,
1991, plus $6,000 for each full or partial calendar year of service as a
Director completed after December 31, 1990 through December 31, 1996. All
benefits are fully vested.
In addition to the foregoing, each outside Director currently receives a
$16,000 annual retainer paid in the form of unrestricted shares of Common
Stock. There is also an automatic grant each year of a nonqualified stock
option covering 325 shares of Common Stock to each outside Director of the
Company in lieu of any further accruals under the Deferred Compensation Plan.
TRANSACTIONS WITH DIRECTORS
During 2001, Cahill Gordon & Reindel, of which Director W. Leslie Duffy is a
partner, was engaged by the Company as special counsel for limited matters.
During 2001, Director Roger M. Widmann received $120,000 in compensation for
his services as Chairman of the Board.
14
--------------------------------------------------------------------------------
REPORT OF THE AUDIT REVIEW COMMITTEE
--------------------------------------------------------------------------------
The Audit Review Committee focuses on three primary areas:
. the performance of the Company's internal auditors and the independence
and performance of the Company's independent auditors;
. the Company's compliance with applicable legal and regulatory
requirements; and
. the Company's internal controls, financial reporting process and financial
statements.
Periodically, we meet with management to consider the adequacy of the Company's
internal controls and the objectivity of its financial reporting. We discuss
these matters with the Company's independent auditors, appropriate Company
financial personnel and internal auditors. We meet with each privately.
Independent and internal auditors of the Company have unrestricted access to
the Audit Review Committee.
The Audit Review Committee also recommends to the Board the appointment of
the independent auditors and reviews the performance and independence from
management of the independent auditors.
The Directors who serve on the committee are all "independent" for purposes
of the New York Stock Exchange listing standards. The Board of Directors has
determined that none of the Committee members have a relationship with the
Company that may interfere with their independence from the Company and its
management.
The Board has adopted a written charter setting out the functions the
Committee is to perform.
Management has primary responsibility for the Company's financial statements
and the overall reporting process, including the Company's system of internal
controls.
The independent auditors audit the annual financial statements prepared by
management, express an opinion as to whether those financial statements fairly
present the financial position, results of operations and cash flows of the
Company in conformity with accounting principles generally accepted in the
United States of America and discuss with us the Company's significant
accounting policies, accounting estimates and management judgments reflected in
the financial statements, audit adjustments arising from the audit, and other
matters in accordance with Statement on Auditing Standards No. 61,
"Communication with Audit Committees."
This year, the Audit Review Committee reviewed the Company's audited
financial statements for the fiscal year ended December 31, 2001 and met with
both management and PricewaterhouseCoopers LLP, the Company's independent
auditors, to discuss those financial statements. Management has represented to
us that the financial statements were prepared in accordance with accounting
principles generally accepted in the United States of America.
15
We have received from, and discussed with, PricewaterhouseCoopers LLP the
written disclosure and the letter required by Independence Standards Board
Standard No. 1 "Independence Discussions with Audit Committees," relating to
that firm's independence from the Company.
Based on these reviews and discussions, we have recommended to the Board
that the Company's audited financial statements be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2001.
Samuel P. Cooley, Chairman
Robert E. McGill, III
Albert E. Wolf
AUDIT FEES
The aggregate fees paid to PricewaterhouseCoopers LLP for professional
services rendered for the audit of the Company's annual financial statements
for 2001 and for the Company's unaudited financial statements included in its
quarterly filings on Form 10-Q for 2001 were $398,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
The aggregate fees billed for certain information technology services of the
type described in Rule 2-01(c) (4)(ii)(B) of Regulation S-X rendered by
PricewaterhouseCoopers LLP during fiscal year 2001 were $0.
ALL OTHER FEES
The total fees billed for all other non-audit services rendered by
PricewaterhouseCoopers LLP during 2001, primarily including audits of the
Company's benefit plans and tax compliance services, were $507,000. The Audit
Review Committee has considered whether the provision of these non-audit
services is compatible with maintaining the independence of
PricewaterhouseCoopers LLP and believes that the provision of such services
does not compromise the independence of PricewaterhouseCoopers LLP.
16
--------------------------------------------------------------------------------
SECURITIES OWNERSHIP OF DIRECTORS, CERTAIN
OFFICERS AND 5 PERCENT BENEFICIAL OWNERS
--------------------------------------------------------------------------------
The following table lists, to the Company's knowledge, the ownership of
Common Stock and the nature of such ownership for: (a) each Director and
nominee for Director, (b) each officer named in the Summary Compensation Table
who is not reported in column a, (c) all executive officers and Directors of
Lydall as a group, and (d) each person who beneficially owns in excess of
5 percent of the outstanding shares of Common Stock. Unless otherwise noted,
each holder has sole voting and dispositive power with respect to the shares
listed. All information is given as of March 1, 2002.
Common Stock Beneficially Owned
----------------------------------------------- Percent of
Name Direct Indirect Exercisable/(1)/ Total Class/(2)/
-------------------------------------------------------------------------------------------------
(a)
L. A. Asseo 43,106 1,000 18,752 62,858 *
S. P. Cooley 10,106 18,752 28,858 *
W. L. Duffy 12,106 18,752 30,858 *
D. Freeman 5,753 10,863 16,616 *
S. Hammett 3,145 4,608 7,753 *
R. E. McGill, III 5,376 4,719 10,095 *
C. R. Skomorowski 76,707 7,500 145,013 229,220 1.4
E. F. Whitely 78,623 18,243 96,866 *
R. M. Widmann 91,942 450 63,752 156,144 1.0
A. E. Wolf 30,216 2,000 18,752 50,968 *
(b)
W. A. Ruschmeyer 402 3,500 16,875 20,777 *
J. P. Carolan 63,503 8,953 95,544 168,000 1.1
R. S. Grupinski, Jr. 4,375 36,000 40,375 *
K. G. Lynch 6,085 43,675 49,760 *
T. P. Smith 884 4,125 5,009 *
(c)
Directors and Executive Officers as a
Group
(16 persons) 424,737 14,450 491,945 931,132 5.8
(d)
T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, MD 21202 1,301,600/(3)/ 8.1
-------------------------------------------------------------------------------------------------
/(1)/ Exercisable under the Company's stock incentive compensation plans.
/(2)/ * Indicates that the Director/Officer owns less than 1 percent of the
outstanding shares of Common Stock.
/(3)/ As reported in Schedule 13G filed with the Securities and Exchange
Commission on February 14, 2002.
17
Common Stock Beneficially Owned
--------------------------------------------- Percent of
Name Direct Indirect Exercisable/(1)/ Total Class/(2)/
---------------------------------------------------------------------------------------------
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401 1,260,380/(4)/ 7.9
---------------------------------------------------------------------------------------------
Westport Asset Management, Inc.
253 Riverside Avenue
Westport, CT 06880 1,145,300/(5)/ 7.2
---------------------------------------------------------------------------------------------
Credit Suisse Asset Management, LLC
466 Lexington Avenue, 12th Floor
New York, NY 10017 903,962/(6)/ 5.7
---------------------------------------------------------------------------------------------
Wellington Management Company, LLP
75 State Street
Boston, MA 02109 863,400/(7)/ 5.4
---------------------------------------------------------------------------------------------
/(1)/ Exercisable under the Company's stock incentive compensation plans.
/(2)/ * Indicates that the Director/Officer owns less than 1 percent of the
outstanding shares of Common Stock.
/(3)/ As reported in Schedule 13G filed with the Securities and Exchange
Commission on February 14, 2002.
/(4)/ As reported in Schedule 13G filed with the Securities and Exchange
Commission on January 30, 2002.
/(5)/ As reported in Schedule 13G filed with the Securities and Exchange
Commission on February 15, 2002.
/(6)/ As reported in Schedule 13G filed with the Securities and Exchange
Commission on February 5, 2002.
/(7)/ As reported in Schedule 13G filed with the Securities and Exchange
Commission on February 14, 2002.
18
--------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
COMPENSATION AND STOCK OPTION COMMITTEE REPORT TO STOCKHOLDERS
Based on proposals by management, the Compensation and Stock Option
Committee (the "Committee") approves the compensation levels of
Lydall's senior executives, subject to ratification by the Board of Directors.
The Committee also administers the Company's Economic Value Added ("EVA") cash
bonus program and the Company's stock incentive compensation plans. Each of the
three members of the Committee is an outside Director. All decisions by the
Committee relating to the compensation of the Company's senior executives are
reviewed by the full Board of Directors including decisions about awards under
the Company's stock-based compensation plans.
The Committee has been guided by the following principles in determining the
compensation levels of the senior executives, including those named in the
Summary Compensation Table--Messrs. Skomorowski, Ruschmeyer, Carolan, Grupinski
and Lynch. Mr. Smith is not one of the senior executives whose salary is
reviewed by the Committee.
PHILOSOPHY
Lydall relates its executive compensation to the long-term goals and
strategy of the Company, which are to improve the strength and profitability of
Lydall and to protect and increase stockholder value through above-average,
consistent performance.
The Committee's executive compensation policies are designed to provide
competitive levels of compensation that are closely integrated with the
Company's annual and long-term strategic goals. Lydall seeks to attract and
retain the highest qualified executives by offering competitive levels of base
compensation as well as cash and stock-based incentive plans closely tied to
the interests of its stockholders.
Senior executive compensation packages are intended to be consistent with
those of executives in comparable positions with diversified manufacturers
similar in size to Lydall. However, since Lydall directly ties a large portion
of its executive compensation to corporate performance, executives may be paid
more in a particular year of good results and less in a year of disappointing
results.
The Committee believes that stock ownership by management serves to align
management and stockholder interests. Therefore, the Company's stock-based
incentive plans are an important component of its executive compensation and
are intended to retain and motivate executives to improve the long-term
performance of the Company. The Committee also believes in aligning the cash
bonus plan of the Company directly with the creation of stockholder value.
19
ELEMENTS OF COMPENSATION
The following describes each of the three components of Lydall's executive
compensation packages.
Base Salary. Base salary is compared with the competitive median for
diversified manufacturers of similar size, as determined by independently
published compensation surveys. Annual salaries for senior executives are
reviewed by the Committee every two years. Adjustments are based on changes in
competitive pay levels and the Committee's assessment of the senior executive's
overall performance.
Effective January 1, 2001, the
salaries of Mr. Skomorowski, Mr. Grupinski and Mr. Lynch were increased by
14.3, 14.3 and 20.5 percent, respectively. Effective January 1, 2002,
Mr. Ruschmeyer's salary was increased by 15.4 percent.
Bonus Compensation. The bonus portion of Lydall's executive compensation is
a key component of its total compensation packages.
Lydall has adopted an EVA concept as the framework for its financial
management and incentive compensation system. EVA is a measure of financial
performance that is closely correlated with changes in stock market value. EVA
equals the profit achieved after subtracting a charge for the use of capital
(including debt and equity) from the Company's net operating profit after taxes.
Lydall's EVA Incentive Bonus Program (the "Program"), is based
on incremental EVA improvements year over year. It rewards sound
decision-making based on long-term sustainable growth. The objective of the
Program is to create a strong incentive for Lydall's employees to increase
stockholder value by allowing them to share a portion of the increase.
Most full-time salaried and hourly employees of the Company are eligible to
participate in the Program. Salaried employees of EVA Centers, which are either
individual operations or groups of related businesses of Lydall, receive
bonuses based 70 percent on the performance of their specific EVA Center and 30
percent on the performance of Lydall on a consolidated basis. Hourly employees
receive bonuses based entirely on the performance of their specific EVA Center.
Bonuses for employees of the Lydall World Headquarters are based solely on the
performance of Lydall on a consolidated basis.
Companywide, the amounts for individual awards range from 5 percent to 70
percent of base salary ("target percentage") if pre-determined targets are met.
The amount of the award, however, can be more or less if targets are exceeded
or not met, respectively. In 2001, the senior executives named in the Summary
Compensation Table, other than Mr. Skomorowski, Mr. Ruschmeyer and Mr. Smith,
had target percentages of 50 percent. Mr. Skomorowski, Mr. Ruschmeyer and Mr.
Smith had target percentages of 70, 60 and 40 percent,
20
respectively. As a result of the performance of his specific EVA center during
2001, Mr. Grupinski received a bonus equal to 23 percent of his base salary.
Based on performance in 2001, none of the other named senior executives
received a bonus for 2001.
Stock Option Awards. The Committee has granted stock options for the
purpose of further linking executive compensation to long-term performance by
facilitating appropriate levels of stock ownership by its executives. Option
grants are based on comparison studies of executive stock ownership in other
public companies similar in size to Lydall and individual performance. In
addition to the senior executives named in the Summary Compensation Table, a
significant number of Lydall's managers participate in the Company's stock
option program.
Stock options are granted at the prevailing market price on the grant date
and will only appreciate in value if the Company's stock price increases above
the grant price. Generally, option grants vest over four years and individuals
must be employed by the Company at the time of vesting in order to exercise the
options.
Mr. Skomorowski received one option grant covering 90,000 shares of Common
Stock in 2001. Mr. Skomorowski's option holdings are reviewed annually by the
Committee.
In 2001, Messrs. Ruschmeyer, Carolan, Grupinski, Lynch and Smith each
received one option grant covering a total of 80,000, 9,000, 50,000, 40,000 and
25,000 shares, respectively.
LIMITATION ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
denies a publicly held corporation, such as the Company, a federal income tax
deduction for compensation in excess of $1 million per year paid or accrued for
its chief executive officer or any of its four other most highly compensated
executive officers. Certain "performance-based" compensation is not subject to
the limitation on deductibility provided that certain stockholder approval and
independent director requirements are met.
As no Company executive officer's compensation exceeded $1 million per year,
the Committee does not believe that the deductibility limitation is applicable.
The Committee will continue to review the situation in light of the regulations
and future events with the objective of achieving deductibility to the extent
appropriate.
Roger M. Widmann, Chairman
Lee A. Asseo
Albert E. Wolf
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the Compensation and Stock Option Committee members have
interlocking relationships with the Company, and all are outside Directors.
21
--------------------------------------------------------------------------------
PERFORMANCE GRAPH
--------------------------------------------------------------------------------
The following graph compares the cumulative total return on the Company's
shares over the past five years with the cumulative total return on shares of
companies comprising the Standard & Poor's SmallCap 600 Index and the Russell
2000 Index. Cumulative total return is measured assuming an initial investment
of $100 on December 31, 1996, including reinvestment of dividends.
Due to the diversity of niche businesses that Lydall participates in, it is
difficult to identify a reasonable peer group or one line-of-business index for
comparison purposes. Thus, Lydall has chosen to compare its performance to the
Standard & Poor's SmallCap 600 Index and the Russell 2000 Index, both of which
include Lydall as a constituent.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG LYDALL, INC., THE S&P SMALLCAP 600 INDEX
AND THE RUSSELL 2000 INDEX
[CHART]
LYDALL, Inc S&P SMALLCAP 600 RUSSELL 2000
----------- ---------------- ------------
12/96 100 100 100
12/97 87 126 122
12/98 53 129 119
12/99 29 145 145
12/00 39 162 140
12/01 44 195 144
22
--------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------
The following table shows the compensation either paid or awarded by the
Company for each of the three years ended December 31, 1999, 2000 and 2001 to
the Chief Executive Officer of the Company, each of the four other most highly
compensated executive officers who were serving as executive officers as of
December 31, 2001 and one officer who served as an executive officer for a
portion of 2001.
Annual Compensation Long-Term Compensation
Awards Payouts
--------------------- ---------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Annual Restricted Underlying Other
Compen- Stock Options/ LTIP Compen--
Name And Salary Bonus sation Awards SARs Payout sation
Principal Position Year ($) ($) ($)/(1)/ ($) (#) ($) ($)/(2)/
-------------------------------------------------------------------------------------------------
C.R. Skomorowski 2001 400,000 0 9,750 0 90,000/0 0 17,835
President , CEO 2000 350,000 212,100 8,175 0 80,000/0 0 24,471
and Director 1999 350,000 0 7,786 0 29,000/0 0 49,670
-------------------------------------------------------------------------------------------------
W.A. Ruschmeyer 2001 325,000 0 14,377 0 80,000/0 0 23,595
Executive VP-Finance 2000 308,892/(3)/ 164,125 11,646 0 67,500/0 0 18,549
and Administration, CFO 1999 0 0 0 0 0/0 0 0
-------------------------------------------------------------------------------------------------
J.P. Carolan 2001 315,000 0 44,949 0 9,000/0 0 24,700
VP E-Commerce 2000 315,000 176,715 13,231 0 17,500/0 0 27,475
1999 315,000 120,826 10,406 0 5,000/0 0 142,800
-------------------------------------------------------------------------------------------------
R.S. Grupinski, Jr. 2001 240,000 55,400 5,496 0 50,000/0 0 11,642
Group President 2000 210,000 97,965 5,019 0 35,000/0 0 10,913
1999 186,667 0 1,200 0 10,000/0 0 11,370
-------------------------------------------------------------------------------------------------
K.G. Lynch 2001 265,000 0 10,141 0 40,000/0 0 17,113
Group President 2000 220,000 129,580 8,797 0 35,000/0 0 48,619
1999 180,000 75,463 1,692 0 7,500/0 0 94,654
-------------------------------------------------------------------------------------------------
T.P. Smith 2001 166,400 0 3,975 0 25,000/0 0 10,647
V.P.-Controller 2000 106,667 43,093 2,029 0 16,500/0 0 2,800
1999 0 0 0 0 0/0 0 0
-------------------------------------------------------------------------------------------------
/(1)/ None of the named executive officers received perquisites or other
personal benefits worth an aggregate dollar value that was greater than
either $50,000 or 10 percent of his total annual salary and bonus, as
reported above.
/(2)/ The items reported in column (i) for 2001 include amounts paid on behalf
of the named individuals by the Company for:
Defined Contribution Plan (401(k) Plan includes Profit Sharing Component):
C.R. Skomorowski ($5,100); W.A. Ruschmeyer ($5,100); J.P. Carolan
($5,100); R.S. Grupinski, Jr. ($5,100); K.G. Lynch ($5,100); and T.P.
Smith ($5,100).
The Employee Stock Purchase Plan:
C.R. Skomorowski ($600); W.A. Ruschmeyer ($600); J.P. Carolan ($600); R.S.
Grupinski, Jr. ($600); K.G. Lynch ($600); and T.P. Smith ($600).
Life Insurance Premiums:
C.R. Skomorowski ($12,135); W.A. Ruschmeyer ($17,895); J.P. Carolan
($19,000); R.S. Grupinski, Jr. ($5,942); K.G. Lynch ($11,413); and T.P.
Smith ($4,947).
/(3)/ In 2000, $51,600 of $308,892 reported as salary was paid to Mr.
Ruschmeyer as consulting fees prior to his becoming an employee on March
16, 2000.
23
--------------------------------------------------------------------------------
PLAN DESCRIPTIONS
--------------------------------------------------------------------------------
DEFINED BENEFIT PENSION PLAN
The Company provides a noncontributory, "career average" defined benefit
pension plan (the "Pension Plan") to most salaried employees. The Pension Plan
provides that benefits, in the amount of 2 percent of the participant's annual
eligible earnings (subject to limitations imposed by the Internal Revenue
Code), will accrue annually. The Pension Plan benefits are not determined
primarily by final or average final compensation. The Company pays the entire
cost of the Pension Plan, which is administered by a committee appointed by the
Board of Directors.
A participant's compensation, for purposes of determining pension benefits,
is the participant's W-2 compensation (less bonus and other similar
compensation payments) plus pretax employee contributions to the pretax plans
of Lydall.
The normal retirement age under the Pension Plan is 65 and actuarially
reduced benefits are available at age 55 if the participant has ten years of
service. Messrs. Skomorowski, Ruschmeyer, Carolan, Grupinski, Lynch and Smith
are expected to receive annual benefits upon retirement at normal retirement
age (assuming they work until age 65 and receive salary increases of 4.5
percent per year) in the amounts of $131,550, $76,600, $71,076, $176,545,
$109,078 and $126,573, respectively. The aforementioned amounts are not subject
to any further reductions for Social Security benefits or for any other offset
amounts.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company has a supplemental retirement plan intended to provide
retirement benefits supplementing those provided under other Company-related
retirement plans to certain officers. Messrs. Skomorowski, Ruschmeyer and
Carolan are participants. Upon retirement, and for a period of up to 15 years,
a participant is entitled to receive a monthly retirement benefit.
That benefit is limited to a maximum of 60 percent of the participant's
final average pay, less the participant's benefits (attributable to Company
contributions) under all of the Company's qualified plans.
A participant is deemed vested in the supplemental benefits when they have
attained age 55 and the sum of their age and service equals or exceeds 70. Mr.
Carolan is the only participant named in the Summary Compensation Table who is
vested. Messrs. Skomorowski, Ruschmeyer and Carolan are estimated to receive
annual benefits upon retirement at normal retirement age in the amount of
$320,636, $238,619 and $110,712, respectively.
24
--------------------------------------------------------------------------------
STOCK OPTION TABLES
--------------------------------------------------------------------------------
The following table provides information regarding stock options granted
during 2001 to the officers named in the Summary Compensation Table. In
accordance with Securities and Exchange Commission rules, the values assigned
to each reported option are shown using gains based on assumed rates of annual
compound stock price appreciation of 5 percent and 10 percent from the date the
options were granted over the full option term.
In assessing these values, it should be kept in mind that no matter what
theoretical value is placed on a stock option on the date of grant, its
ultimate value will be dependent on the market value of the Company's stock at
a future date, and that value will depend on the efforts of such executives to
foster the future success of the Company for the benefit of not only the
executives, but all stockholders.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (*)
--------------------------------------------- ----------------------
(a) (b) (c) (d) (e) (f) (g)
% of
Total
Number of Options/
Securities SARs
Underlying Granted to Exercise
Options/SARs Employees or Base Expira-
Granted in Fiscal Price tion
(#) Year ($/Sh) Date 5%($) 10%($)
----------------------------------------------------------------------------------------
C.R. Skomorowski 90,000/(1)//0 16.01/0 9.85 12/11/11 557,515 1,412,853
----------------------------------------------------------------------------------------
W.A. Ruschmeyer 80,000/(1)//0 14.23/0 9.85 12/11/11 495,569 1,255,869
----------------------------------------------------------------------------------------
J.P. Carolan 9,000/(1)//0 1.60/0 9.85 12/11/11 55,752 141,825
----------------------------------------------------------------------------------------
R.S. Grupinski, Jr. 50,000/(1)//0 8.89/0 9.85 12/11/11 309,731 784,918
----------------------------------------------------------------------------------------
K.G. Lynch 40,000/(1)//0 7.11/0 9.85 12/11/11 247,784 627,935
----------------------------------------------------------------------------------------
T.P. Smith 25,000/(1)//0 4.45/0 9.85 12/11/11 154,865 392,459
----------------------------------------------------------------------------------------
/(* ) These amounts represent certain assumed rates of appreciation only.
Actual gains, if any, on stock option exercises and Common Stock holdings
are dependent on the future performance of the Common Stock and overall
stock market conditions. /
/(1)/ Exercisable 25% on 12/12/02; 50% on 12/12/03; 75% on 12/12/04; 100% on
12/12/05.
25
The following table shows stock option exercises by the named officers
during 2001, including the aggregate value of gains on the date of exercise. In
addition, this table includes the number of shares covered by both exercisable
and unexercisable stock options as of December 31, 2001. Also reported are the
values for "in-the-money" options, which represent the positive spread between
the exercise price of any such existing stock options and the market price of
Lydall's Common Stock at December 31, 2001.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
at FY-End FY-End
--------------- ---------------
(a) (b) (c) (d) (e)
Shares
Acquired on Value Exercisable/ Exercisable/
Exercise Realized Unexercisable Unexercisable
Name (#) ($) (#) ($)
-------------------------------------------------------------------------------------
C.R. Skomorowski................ 15,200 44,338 132,513/165,838 26,176/84,469
W.A. Ruschmeyer................. 0 0 16,875/130,625 13,658/54,573
J.P. Carolan.................... 18,000 32,256 91,794/24,625 8,913/23,589
R.S. Grupinski, Jr.............. 0 0 31,000/81,250 8,201/32,463
K.G. Lynch...................... 0 0 39,300/70,000 8,799/30,763
T.P. Smith...................... 0 0 4,125/37,375 723/6,419
-------------------------------------------------------------------------------------
26
TRANSACTIONS WITH MANAGEMENT
The Company has entered into employment agreements with Messrs.
Skomorowski, Ruschmeyer, Carolan, Grupinski, and Lynch. All agreements, with
the exception of that belonging to Mr. Ruschmeyer, are dated March 1, 2000 and
were amended on August 1, 2000. Mr. Ruschmeyer's agreement is dated March 16,
2000 and was amended on August 1, 2000. These agreements provide, among other
things, for benefits in the event of termination of the employee's employment
by the Company other than for "cause" (as defined in the agreements) or by the
employee for "good reason" (as defined in the agreements).
For all agreements except Mr.Skomorowski's, if such a termination without
"cause" or for "good reason" does not occur within 12 months following a
"Change of Control" of the Company, such termination benefits would include (i)
a severance benefit equal to one times the sum of the employee's annual base
salary rate and average annual incentive bonus, paid over 12 months; (ii)
continued coverage under the Company's medical, dental and life insurance plans
for up to 12 months, subject to any required employee contributions; and (iii)
certain other benefits.
Mr. Skomorowski's agreement provides that termination under the same
circumstances would include the following benefits: (i) a severance benefit
equal to two times the sum of his annual base salary rate and average annual
incentive bonus, payable in a lump sum; (ii) continued coverage under the
Company's medical, dental, life insurance, and long-term disability plans, if
commercially available, for 18 months; (iii) supplemental benefits under the
Company's tax-qualified pension plan and supplemental executive retirement plan
as if he had 18 additional months of service; and (iv) certain other benefits.
If such a termination without "cause" or for "good reason" occurs within 12
months following a "Change of Control" of the Company, such termination
benefits would include for all those with agreements other than Mr.
Skomorowski: (i) a severance benefit equal to two times the sum of the
employee's annual base salary rate and average annual incentive bonus, payable
in a lump sum; (ii) a pro-rata portion of the employee's maximum bonus
opportunity for the year of termination of employment; (iii) continued coverage
under the Company's medical, dental, life insurance and (if reasonably
commercially available) long-term disability plans for up to 24 months, subject
to any required employee contributions; (iv) supplemental benefits under the
Company's tax-qualified pension plan and supplemental executive retirement plan
as if the employee had two additional years of service; (v) vesting in stock
options and restricted stock; and (vi) certain other benefits.
Mr. Skomorowski's agreement provides that, if such a termination were to
occur within 12 months following a "Change of Control" of the Company, such
termination benefits would include: (i) a severance benefit equal to
27
three times the sum of his annual base salary rate and average annual incentive
bonus, payable in a lump sum; (ii) a pro-rata portion of his maximum bonus
opportunity for the year of termination of employment; (iii) continued coverage
under the Company's medical, dental, life insurance and, if commercially
available, long-term disability plans for up
to 36 months, subject to any required employee contributions; (iv) supplemental
benefits under the Company's tax-qualified pension plan and supplemental
executive retirement plan as if he had three additional years of service; (v)
vesting in stock options and restricted stock; and (vi) certain other benefits.
If any payments or benefits for Mr. Skomorowski are subject to the federal
excise tax on "excess parachute payments," Mr. Skomorowski will receive under
his employment agreement an additional payment in an amount designed to put him
in the same after-tax position as if the excise tax had not been imposed.
The employment agreements define a "Change of Control" to mean (i) the
acquisition by a third party of at least 25 percent of the total voting power
of all classes of the Company's stock; (ii) the election to the Board of a
majority of Directors who were not approved by a majority of current Directors;
or (iii) a shareholder approved plan of complete liquidation, an agreement for
the sale or other disposition of substantially all of the assets of the
Company, or an agreement for the merger or consolidation of the Company
resulting in substantially new ownership.
The Company has also entered into an agreement with Mr. Smith dated May 1,
2000. The agreement is intended to provide for continuity of management, in the
event of a change in control of the Company. The agreement generally provides
for severance benefits in the event that Mr. Smith is terminated within 12
months following a Change in Control, unless the termination is for "cause," as
defined in the agreement. The agreement defines change of control of the
Company as: (a) beneficial ownership by a third party of at least 25 percent of
total voting power of all classes of stock of the Company; or (b) the election
to the Board of a majority of Directors who were not approved by a majority of
current Directors; or (c) a shareholder approved liquidation of the Company; or
(d) a merger or consolidation of the Company; or (e) a sale or disposition of
the assets of the Company. The benefits which Mr. Smith would receive under the
agreement include severance equal to two times the sum of his base salary and
the average of the three highest annual bonuses in the previous five years; the
maximum bonus for which he was eligible in the year of termination, and two
years of medical, dental, life and long-term disability insurance coverage.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors, executive officers and persons who beneficially own more than 10
percent of the Company's stock to file certain reports with the Securities and
28
Exchange Commission ("SEC") and the New York Stock Exchange concerning their
beneficial ownership of the Company's equity securities. Applicable SEC
regulations also require such persons to furnish the Company with copies of all
such reports. Based solely on a review of the copies of such reports furnished
to the Company as of the date of this Proxy Statement, or written
representations that no reports were required, the Company believes that,
during 2001, all filing requirements applicable to its Directors, officers and
greater than 10 percent stockholders were satisfied.
APPOINTMENT OF AUDITORS
The Board of Directors approved, upon recommendation of the Audit Review
Committee, the retention of PricewaterhouseCoopers LLP as independent auditors
for the Company for the year ended December 31, 2001. It is expected that the
Board of Directors will reappoint PricewaterhouseCoopers LLP as the Company's
independent auditors for the current year. Representatives of
PricewaterhouseCoopers LLP will be present at the Annual Meeting, will have the
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR DIRECTOR
Proposals of stockholders of the Company that are intended to be presented
at the Annual Meeting to be held in 2003, and which stockholders desire to have
included in the Company's proxy materials relating to such meeting, must be
received by the Company no later than November 25, 2002, which is 120 calendar
days prior to the first anniversary of the mailing date for this year's Proxy
Statement, and must be in compliance with applicable laws and regulations in
order to be considered for possible inclusion in the Proxy Statement and form
of proxy for that meeting.
Under the Company's By-laws, no business, including the nomination of
persons for election to the Board of Directors of the Company, may be brought
before an Annual Meeting of Stockholders, except as set forth in the notice of
the meeting or as otherwise brought before the meeting by, or at the direction
of, the Board of Directors or by a stockholder who has delivered a written
notice to the Company containing certain specified information. The notice must
contain certain specified information about each item of business that the
stockholder proposes for consideration or with respect to each person whom the
stockholder proposes to nominate for election or reelection as a Director,
whichever the case may be. These requirements are separate and distinct from,
and are in addition to, the SEC requirements (described above) that a
stockholder must meet in order to have a stockholder proposal included in the
Company's Proxy Statement. To be timely under the Company's By-laws, a
stockholder's notice must be received by the Company on or before March 9,
2003, but no earlier than February 8, 2003 (the "By-law Deadline"), which is
the period not less than 60 days, nor more than 90 days prior to the first
anniversary of this year's Annual Meeting.
29
Any stockholder proposal or nomination which does not comply with the
procedures set forth in the By-laws (including the By-law Deadline) will be
disregarded and the stockholder will not be permitted to present the proposal
at the Annual Meeting to be held in 2003. A copy of the By-law provisions
discussed in this paragraph have previously been filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q dated November 12, 1999, and may be
obtained by writing to the Company at its principal executive offices located
at One Colonial Road, P.O. Box 151, Manchester, Connecticut 06045-0151,
Attention: Corporate Secretary.
OTHER MATTERS
The Board of Directors does not know of other matters, which may come before
the meeting. However, if other matters are properly presented at the meeting,
it is the intention of the proxy committee to vote or otherwise to act in
accordance with their judgment on such matters.
Copies of the Company's Annual Report on Form 10-K for the fiscal year 2001
will be provided without charge, upon request. Requests may be directed
to: Vice President-Investor Relations, Lydall, Inc., One Colonial Road, P.O.
Box 151, Manchester, Connecticut 06045-0151.
30
EXHIBIT A
LYDALL
2002 STOCK INCENTIVE COMPENSATION PLAN
ARTICLE I
PURPOSE; DEFINITIONS
1.1 Purpose. The purpose of the Lydall 2002 Stock Incentive Compensation
Plan (the "Plan") is to enable the Company to offer to its employees, officers,
directors and consultants, whose past, present and/or potential contributions
to the Company and its Subsidiaries have been, are or will be important to the
success of the Company, an opportunity to acquire a proprietary interest in the
Company. The various types of long-term incentive awards that may be provided
under the Plan will enable the Company to respond to changes in compensation
practices, tax laws, accounting regulations and the size and diversity of its
businesses.
1.2 Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below:
(a) "Agreement" means the agreement between the Company and a Holder
setting forth the terms and conditions of an award under the Plan.
(b) "Annual Cash Retainer Amount" means the annual cash retainer
otherwise payable to each Outside Director for each full year of service as
such (but
for the provisions of Section 10.1 hereof), the exact amount of which shall
be determined by the Board; provided, however, that for purposes of the Plan
the Annual Cash Retainer Amount may not be increased more than once every
twelve (12) months.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" shall have the meaning set forth in Section 11.3,
below.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(f) "Committee" means the Compensation and Stock Option Committee of the
Board or any other committee of the Board that the Board may designate to
administer the Plan or any portion thereof. If no Committee is so
designated, then all references in this Plan to "Committee" shall mean the
Board.
(g) "Common Stock" means the Common Stock of the Company, par value $.10
per share, also referred to as "Shares."
(h) "Company" means Lydall, Inc., a corporation organized and existing
under the laws of the State of Delaware.
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(i) "Deferred Stock" means Common Stock to be received, under an award
made pursuant to Article VIII, below, at the end of a specified deferral
period.
(j) "Director" means a member of the Board.
(k) "Disability" means physical or mental impairment as determined under
procedures established by the Committee for purposes of the Plan.
(l) "Effective Date" means the date set forth in Section 13.1, below.
(m) "Fair Market Value," when used in reference to the Common Stock as of
a particular date (such as the date of grant or the date of exercise of an
award under the Plan), means the fair value of the Common Stock as of such
date, determined in accordance with the following procedures:
(i) if the Common Stock is listed on a national securities exchange
or quoted on the NASDAQ National Market or NASDAQ SmallCap Market, then
the fair value of the Common Stock shall be the last sale price of the
Common Stock in the principal trading market for the Common Stock on
such date, as reported by the exchange or NASDAQ, as the case may be;
(ii) if the Common Stock is not listed on a national securities
exchange or quoted on the NASDAQ National Market or NASDAQ SmallCap
Market, but is traded in the over-the-counter market, then the fair
value of the Common Stock shall be the closing bid price for the Common
Stock on such date, as reported by the OTC Bulletin Board or the
National Quotation Bureau, Incorporated or similar publisher of such
quotations; and
(iii) if the fair value of the Common Stock cannot be determined
pursuant to clause (i) or (ii) above, then the fair value of the Common
Stock shall be determined by the Committee in good faith.
(n) "Holder" means a person who has received an award under the Plan.
(o) "Incentive Stock Option" means any Stock Option intended to be,
designated as, and meeting the requirements of an "incentive stock option,"
within the meaning of Section 422 of the Code.
(p) "Mature Shares" means shares of Common Stock that have been held by
the Holder for at least six months.
(q) "Nonqualified Stock Option" means any Stock Option that is not an
Incentive Stock Option, including, from and after the date an Incentive
Stock Option ceases to qualify as such, any Incentive Stock Option that
ceases to qualify as an Incentive Stock Option.
(r) "Normal Retirement" means retirement from active employment with the
Company or any Subsidiary on or after age 65.
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(s) "Outside Director" means a Director who, as of the close of business
on the date of grant of any award hereunder, is not an employee of the
Company or any Subsidiary.
(t) "Parent" means any present or future "parent corporation" of the
Company, as such term is defined in Section 424(e) of the Code.
(u) "Plan" means the Lydall 2002 Stock Incentive Compensation Plan, as
amended from time to time.
(v) "Restricted Stock" means Common Stock, received under an award made
pursuant to Article VII, below, that is subject to restrictions under said
Article VII.
(w) "SAR Value" means the excess of the Fair Market Value (on the
exercise date) over the exercise price that the participant would have
otherwise had to pay to exercise the related Stock Option, multiplied by the
number of shares for which the Stock Appreciation Right is exercised.
(x) "Stock Appreciation Right" means the right to receive from the
Company, on surrender of all or part of the related Stock Option, without a
cash payment to the Company, either a cash payment equal to the SAR Value or
a number of shares of Common Stock equal to the SAR Value divided by the
Fair Market Value (on the exercise date), as determined by the Committee on
or after the date of grant.
(y) "Stock Bonus Award" means an award of shares of Common Stock to an
eligible participant pursuant to Article IX hereof or an Outside Director
pursuant to Section 10.1 hereof.
(z) "Stock Option" or "Option" means an option to purchase shares of
Common Stock which is granted pursuant to the Plan.
(aa) "Stock Reload Option" means a new Stock Option granted, at the
discretion of the Committee under Section 5.3 of the Plan, to any Holder who
tenders shares of Common Stock to pay the exercise price of a Stock Option
and/or arranges to have a portion of the shares otherwise issuable upon
exercise of a Stock Option withheld to pay the applicable withholding taxes
due and payable upon such exercise.
(bb) "Subsidiary" means any present or future "subsidiary corporation" of
the Company, as such term is defined in Section 424(f) of the Code.
(cc) "Transaction Value" shall mean the Fair Market Value in the event
the award to be repurchased under Section 11.2 is comprised of shares of
Common Stock and the difference between Fair Market Value and the Exercise
Price (if lower than Fair Market Value) in the event the award is a Stock
Option or a Stock Appreciation Right; in each case, multiplied by the number
of shares subject to the award.
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ARTICLE II
ADMINISTRATION
2.1 Committee Membership. The Plan shall be administered by the Committee,
the members of which shall be "non-employee directors" as defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and "outside directors" within the meaning of Section 162(m)
of the Code.
2.2 Powers of Committee. The Committee shall have full authority to award,
pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock Appreciation
Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock Reload Options
and/or (vi) Stock Bonus Awards. For purposes of illustration and not of
limitation, the Committee shall have the authority (subject to the express
provisions of this Plan):
(a) to select the officers, employees, directors and consultants of the
Company, or any Subsidiary to whom Stock Options, Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Stock Reload Options and/or Stock Bonus
Awards may from time to time be awarded hereunder;
(b) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not
limited to, number of shares, share exercise price or types of consideration
paid upon exercise of such options, such as other securities of the Company
or other property, any restrictions or limitations, and any vesting,
exchange, surrender, cancellation, acceleration, termination, exercise or
forfeiture provisions, as the Committee shall determine);
(c) to determine any specified performance goals or such other factors or
criteria, which need to be attained for the vesting of an award, granted
hereunder;
(d) to determine the terms and conditions under which awards granted
hereunder are to operate on a tandem basis and/or in conjunction with or
apart from other equity awarded under this Plan and cash awards made by the
Company or any Subsidiary outside of this Plan;
(e) to permit a Holder to elect to defer a payment under the Plan under
such rules and procedures as the Committee may establish, including the
crediting of interest on deferred amounts denominated in cash and of
dividend equivalents on deferred amounts denominated in Common Stock;
(f) to determine the extent and circumstances under which Common Stock
and other amounts payable with respect to an award hereunder shall be
deferred that may be either automatic or at the election of the Holder; and
(g) to alter or amend the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not
limited to, any such alteration or amendment that would alter the terms and
conditions of an Incentive
A-4
Stock Option so as to convert it into a Nonqualified Stock Option);
provided, however, that no such alteration or amendment that would impair
the rights of a Holder under any Agreement theretofore entered into
hereunder may be made by the Committee without the Holder's consent.
2.3 Interpretation of Plan.
(a) Committee Authority. Subject to Article XII, below, the Committee
shall have the authority to adopt, alter and repeal such administrative
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable, to interpret the terms and provisions of the Plan and
any award issued under the Plan (and to determine the form and substance of
all Agreements relating thereto), and to otherwise supervise the
administration of the Plan.
(b) Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term or provision of the Plan relating to Incentive
Stock Options (including but not limited to Stock Reload Options or Stock
Appreciation Rights granted in conjunction with an Incentive Stock Option)
or any Agreement providing for Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the
Plan be so exercised, so as to disqualify the Plan under Section 422 of the
Code, or, without the consent of the Holder(s) affected, to disqualify any
Incentive Stock Option under such Section 422.
2.4 Delegation by Committee. Except to the extent prohibited by applicable
law or the applicable rules of any stock exchange on which the Common Stock is
listed, the Committee may allocate all or any portion of its responsibilities
and powers to any one or more of its members and may delegate all or any part
of its responsibilities and powers to any person or persons selected by it. Any
such allocation or delegation may be revoked by the Committee at any time.
2.5 Prohibition Against Repricing. Except for any adjustments made
pursuant to the authority set forth in Section 3.3 (relating to the adjustment
of awards upon changes in the capitalization of the Company), the exercise
price of an outstanding Option granted under the Plan may not be decreased
after the date of grant nor may an outstanding Option granted under the Plan be
surrendered to the Company as consideration for the grant of a new Option with
a lower exercise price.
ARTICLE III
STOCK SUBJECT TO PLAN
3.1 Number of Shares. The total number of shares of Common Stock reserved
and available for issuance under the Plan shall be 1,500,000 shares of Common
Stock. Shares of Common Stock under the Plan may consist, in whole or in part,
of authorized
A-5
and unissued shares or treasury shares. If any shares of Common Stock that have
been granted pursuant to a Stock Option cease to be subject to a Stock Option,
or if any shares of Common Stock that are subject to any Stock Appreciation
Right, Restricted Stock, Deferred Stock award or Reload Stock Option granted
hereunder are forfeited or any such award otherwise terminates without a
payment being made to the Holder in the form of Common Stock, such shares shall
again be available for distribution in connection with future grants and awards
under the Plan. If a Holder pays the exercise price of a Stock Option by
surrendering any previously owned shares and/or arranges to have the
appropriate number of shares otherwise issuable upon exercise withheld to cover
the withholding tax liability associated with the Stock Option exercise, then
the number of shares available under the Plan shall be increased by the number
of such surrendered shares and shares used to pay such taxes.
3.2 Additional Restrictions. Subject to the provisions of Section 3.3
below, the following additional maximums are imposed under the Plan:
(a) The maximum number of shares of Common Stock that may be issued
pursuant to Options that are intended to be Incentive Stock Options shall be
1,000,000 shares.
(b) The maximum number of shares of Common Stock that may be covered by
awards granted to any one individual under Articles V and VI (relating to
Stock Options and Stock Appreciation Rights) shall be 250,000 shares during
any one calendar-year period. If an Option is in tandem with a Stock
Appreciation Right, such that the exercise of the Option or Stock
Appreciation Right with respect to a share of Common Stock cancels the
tandem Stock Appreciation Right or Option, respectively, with respect to
such share, the tandem Option and Stock Appreciation Rights with respect to
each share of Common Stock shall be counted as covering but one share of
Common Stock for purposes of applying the limitation set forth in this
paragraph.
(c) For any Restricted Stock awards, Deferred Stock awards and Stock
Bonus Awards that are intended to be "performance based compensation" (as
that term is used for purposes of (S)162(m) of the Code), no more than
250,000 shares of Common Stock may be subject to such awards granted to any
one individual during any one calendar-year period.
3.3 Adjustment Upon Changes in Capitalization, Etc. In the event of any
dividend payable in shares of Common Stock, stock split or reverse stock split
which results in a change in the shares of Common Stock of the Company as a
whole, any then outstanding awards granted under the Plan shall be
appropriately adjusted in such a manner as to preserve the economic benefits or
potential economic benefits of such awards and the aggregate number of shares
of Common Stock then reserved for issuance under the Plan shall be similarly
adjusted. In the event of any merger, reorganization, consolidation,
A-6
dividend (other than a cash dividend or a stock dividend covered by the
preceding sentence) payable on shares of Common Stock, combination or exchange
of shares, or other extraordinary or unusual event which results in a change in
the shares of Common Stock of the Company as a whole, the Committee shall
determine, in its sole discretion, whether such change equitably requires an
adjustment in the terms of any award or the aggregate number of shares of
Common Stock then reserved for issuance under the Plan. Any such adjustments
will be made by the Committee, whose determination will be final, binding and
conclusive.
ARTICLE IV
ELIGIBILITY
4.1 General. Awards may be made or granted to employees, officers,
directors and consultants who are deemed to have rendered or to be able to
render significant services to the Company or its Subsidiaries and who are
deemed to have contributed or to have the potential to contribute to the
success of the Company.
4.2 Incentive Stock Options. No Incentive Stock Option shall be granted to
any person who is not an employee of the Company or a Subsidiary at the time of
grant.
ARTICLE V
STOCK OPTIONS
5.1 Grant and Exercise. Stock Options granted under the Plan may be of two
types: (i) Incentive Stock Options and (ii) Nonqualified Stock Options. Any
Stock Option granted under the Plan shall contain such terms, not inconsistent
with this Plan, or with respect to Incentive Stock Options, not inconsistent
with the Plan and the Code, as the Committee may from time to time approve. The
Committee shall have the authority to grant Incentive Stock Options or
Nonqualified Stock Options, or both types of Stock Options, which may be
granted alone or in addition to other awards granted under the Plan. To the
extent that any Stock Option intended to qualify as an Incentive Stock Option
does not so qualify, it shall constitute a separate Nonqualified Stock Option.
5.2 Terms and Conditions. Stock Options granted under the Plan shall be
subject to the following terms and conditions:
(a) Option Term. The term of each Stock Option shall be fixed by the
Committee; provided, however, that an Incentive Stock Option may be granted
only within the ten (10) year period commencing from the Effective Date and
may only be exercised within ten (10) years of the date of grant (or five
(5) years in the case of an Incentive Stock Option granted to an optionee
who, at the time of grant, owns
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Common Stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company (a "10 percent Stockholder")).
(b) Exercise Price. The exercise price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant and may not be less than 100 percent of the Fair Market Value
on the day of grant; provided, however, that the exercise price of an
Incentive Stock Option granted to a 10 percent Stockholder shall not be less
than 110 percent of the Fair Market Value on the date of grant.
(c) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee and as set forth in Article XI, below. If the Committee provides,
in its discretion, that any Stock Option is exercisable only in
installments, i.e., that it vests over time, the Committee may waive such
installment exercise provisions at any time at or after the time of grant in
whole or in part, based upon such factors as the Committee shall determine.
(d) Method of Exercise. Subject to whatever installment, exercise and
waiting period provisions are applicable in a particular case, Stock Options
may be exercised in whole or in part at any time during the term of the
Option, by giving written notice of exercise to the Company specifying the
number of shares of Common Stock to be purchased. Such notice shall be
accompanied by:
(i) a cash payment equal to the aggregate exercise price,
(ii) Mature Shares having a Fair Market Value equal to the aggregate
exercise price,
(iii) an election to make a cashless exercise through a registered
broker-dealer, and/or
(iv) any other form of payment which is acceptable to the Committee.
Cash payments shall be made by wire transfer, certified or bank check or
personal check, in each case payable to the order of the Company; provided,
however, that the Company shall not be required to deliver certificates for
shares of Common Stock with respect to which an Option is exercised until
the Company has confirmed the receipt of good and available funds in payment
of the purchase price thereof. Payments in the form of Mature Shares shall
be valued at the Fair Market Value of the Common Stock on the date prior to
the date of exercise. Such payments shall be made by physical delivery of
stock certificates in negotiable form (or, in the discretion of the
Committee, by electronic delivery in any manner acceptable to the Committee)
that is effective to transfer good and valid title thereto to the Company,
free of any liens or encumbrances. Payments in the form of a cashless
exercise shall be made by authorizing a third-party broker-dealer to sell
all or a portion of the shares of Common Stock acquired upon exercise of the
Option and to
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remit to the Company a sufficient portion of the sale proceeds to pay the
aggregate exercise price and any applicable tax withholding resulting from
such exercise. Subject to the terms of the Agreement, the Committee may, in
its sole discretion, at the request of the Holder, deliver upon the exercise
of a Nonqualified Stock Option a combination of shares of Deferred Stock and
Common Stock; provided that, notwithstanding the provisions of Article VIII
of the Plan, such Deferred Stock shall be fully vested and not subject to
forfeiture. A Holder shall have none of the rights of a Stockholder with
respect to the shares subject to the Option until such shares shall be
transferred to the Holder upon the exercise of the Option.
(e) Transferability. Except as may be set forth in the Agreement, no
Stock Option shall be transferable by the Holder other than by will or by
the laws of descent and distribution, and all Stock Options shall be
exercisable, during the Holder's lifetime, only by the Holder (or, to the
extent of legal incapacity or incompetency, the Holder's guardian or legal
representative).
(f) Termination by Reason of Death. If a Holder's employment by the
Company or a Subsidiary terminates by reason of death, any Stock Option held
by such Holder, unless otherwise determined by the Committee and set forth
in the Agreement, shall thereupon automatically terminate, except that the
portion of such Stock Option that has vested on the date of death may
thereafter be exercised by the legal representative of the estate or by the
legatee of the Holder under the will of the Holder, for a period of one year
(or such other greater or lesser period as the Committee may specify at
grant) from the date of such death or until the expiration of the stated
term of such Stock Option, whichever period is shorter.
(g) Termination by Reason of Disability. If a Holder's employment by the
Company or any Subsidiary terminates by reason of Disability, any Stock
Option held by such Holder, unless otherwise determined by the Committee and
set forth in the Agreement, shall thereupon automatically terminate, except
that the portion of such Stock Option that has vested on the date of
termination may thereafter be exercised by the Holder for a period of one
year (or such other greater or lesser period as the Committee may specify at
the time of grant) from the date of such termination of employment or until
the expiration of the stated term of such Stock Option, whichever period is
shorter.
(h) Other Termination. Subject to the provisions of Section 14.3, below,
and unless otherwise determined by the Committee and set forth in the
Agreement, if a Holder is an employee of the Company or a Subsidiary at the
time of grant and if such Holder's employment by the Company or any
Subsidiary terminates for any reason other than death or Disability, the
Stock Option shall thereupon automatically terminate, except that if the
Holder's employment is terminated by the Company or a Subsidiary without
cause or due to Normal Retirement, then the portion of such Stock Option
that has vested on the date of termination of employment may be exercised
for the lesser of three months (or, in the case of a Nonqualified Stock
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Option, one (1) year) after termination of employment or the balance of such
Stock Option's term.
(i) Additional Incentive Stock Option Limitation. In the case of an
Incentive Stock Option, the aggregate Fair Market Value (on the date of
grant of the Option) with respect to which Incentive Stock Options become
exercisable for the first time by a Holder during any calendar year (under
all such plans of the Company and its Parent and Subsidiary) shall not
exceed $100,000.
(j) Buyout and Settlement Provisions. The Committee may at any time, in
its sole discretion, offer to repurchase a Stock Option previously granted,
based upon such terms and conditions as the Committee shall establish and
communicate to the Holder at the time that such offer is made.
5.3 Stock Reload Option. If a Holder tenders shares of Common Stock to pay
the exercise price of a Stock Option (the "Underlying Option"), and/or arranges
to have a portion of the shares otherwise issuable upon exercise withheld to
pay the applicable withholding taxes, the Holder may receive, at the discretion
of the Committee, a new Stock Reload Option to purchase that number of shares
of Common Stock equal to the number of shares tendered to pay the exercise
price and the withholding taxes (but only if such shares were held by the
Holder for at least six (6) months). Stock Reload Options may be any type of
option permitted under the Code and will be granted subject to such terms,
conditions, restrictions and limitations as may be determined by the Committee,
from time to time. Such Stock Reload Option shall have an exercise price equal
to the Fair Market Value as of the date of exercise of the Underlying Option.
Unless the Committee determines otherwise, a Stock Reload Option may be
exercised commencing one (1) year after it is granted and shall expire on the
date of expiration of the Underlying Option to which the Reload Option is
related.
ARTICLE VI
STOCK APPRECIATION RIGHTS
6.1 Grant and Exercise. The Committee may grant Stock Appreciation Rights
to participants who have been, or are being granted, Stock Options under the
Plan as a means of allowing such participants to exercise their Stock Options
without the need to pay the exercise price in cash. In the case of a
Nonqualified Stock Option, a Stock Appreciation Right may be granted either at
or after the time of the grant of such Nonqualified Stock Option. In the case
of an Incentive Stock Option, a Stock Appreciation Right may be granted only at
the time of the grant of such Incentive Stock Option.
6.2 Terms and Conditions. Stock Appreciation Rights shall be subject to
the following terms and conditions:
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(a) Exercisability. Stock Appreciation Rights shall be exercisable as
shall be determined by the Committee and set forth in the Agreement, subject
to the limitations, if any, imposed by the Code, with respect to related
Incentive Stock Options.
(b) Termination. A Stock Appreciation Right shall terminate and shall no
longer be exercisable upon the termination or exercise of the related Stock
Option.
(c) Method of Exercise. Stock Appreciation Rights shall be exercisable
upon such terms and conditions as shall be determined by the Committee and
set forth in the Agreement and by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the Holder shall be
entitled to receive either a cash payment equal to the SAR Value or a number
of shares of Common Stock equal to the SAR Value divided by the Fair Market
Value of the Common Stock on the date the Stock Appreciation Right is
exercised.
(d) Shares Affected Upon Plan. The granting of a Stock Appreciation
Right shall not affect the number of shares of Common Stock available for
awards under the Plan. The number of shares available for awards under the
Plan will, however, be reduced by the number of shares of Common Stock
issued upon exercise of such Stock Appreciation Right. In the event that a
Stock Appreciation Right is settled in cash, the shares of Common Stock
theretofore issuable upon exercise of the Stock Appreciation Right and the
underlying Stock Option shall again be available for distribution in
connection with future grants and awards under the Plan.
ARTICLE VII
RESTRICTED STOCK
7.1 Grant. Shares of Restricted Stock may be awarded either alone or
in addition to other awards granted under the Plan. The Committee shall
determine the eligible persons to whom, and the time or times at which, grants
of Restricted Stock will be awarded, the number of shares to be awarded, the
price (if any) to be paid by the Holder, the time or times within which such
awards may be subject to forfeiture (the "Restriction Period"), the vesting
schedule and rights to acceleration thereof, and all other terms and conditions
of the awards.
7.2 Terms and Conditions. Each Restricted Stock award shall be subject to
the following terms and conditions:
(a) Certificates. Restricted Stock, when issued, will be represented by
a stock certificate or certificates registered in the name of the Holder to
whom such Restricted Stock shall have been awarded. During the Restriction
Period, certificates representing the Restricted Stock and any securities
constituting Retained Distributions (as defined below) shall bear a legend
to the effect that ownership of
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the Restricted Stock (and such Retained Distributions), and the enjoyment of
all rights appurtenant thereto, are subject to the restrictions, terms and
conditions provided in the Plan and the Agreement. Such certificates shall
be deposited by the Holder with the Company, together with stock powers or
other instruments of assignment, each endorsed in blank, which will permit
transfer to the Company of all or any portion of the Restricted Stock and
any securities constituting Retained Distributions that shall be forfeited
or that shall not become vested in accordance with the Plan and the
Agreement.
(b) Rights of Holder. Restricted Stock shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. The Holder
will have the right to vote such Restricted Stock and to exercise all other
rights, powers and privileges of a holder of Common Stock with respect to
such Restricted Stock, with the exceptions that (i) the Holder will not be
entitled to delivery of the stock certificate or certificates representing
such Restricted Stock until the Restriction Period shall have expired and
unless all other vesting requirements with respect thereto shall have been
fulfilled; (ii) the Company will retain custody of the stock certificate or
certificates representing the Restricted Stock during the Restriction
Period; (iii) the Company will retain custody of all distributions,
including regular cash dividends and other cash equivalent distributions
("Retained Distributions"), made or declared with respect to the Restricted
Stock (and such Retained Distributions will be subject to the same
restrictions, terms and conditions as are applicable to the Restricted
Stock) until such time, if ever, as the Restricted Stock with respect to
which such Retained Distributions shall have been made, paid or declared
shall have become vested and with respect to which the Restriction Period
shall have expired; (iv) a breach of any of the restrictions, terms or
conditions contained in this Plan or the Agreement or otherwise established
by the Committee with respect to any Restricted Stock or Retained
Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
(c) Vesting; Forfeiture. Upon the expiration of the Restriction Period
with respect to each award of Restricted Stock and the satisfaction of any
other applicable restrictions, terms and conditions (i) all or part of such
Restricted Stock shall become vested in accordance with the terms of the
Agreement, subject to Article XI, below, and (ii) any Retained Distributions
with respect to such Restricted Stock shall become vested to the extent that
the Restricted Stock related thereto shall have become vested, subject to
Article XI, below. Any such Restricted Stock and Retained Distributions that
do not vest shall be forfeited to the Company and the Holder shall not
thereafter have any rights with respect to such Restricted Stock and
Retained Distributions that shall have been so forfeited.
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ARTICLE VIII
DEFERRED STOCK
8.1 Grant. Shares of Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom and the time or times at which grants of Deferred
Stock will be awarded, the number of shares of Deferred Stock to be awarded to
any person, the duration of the period (the "Deferral Period") during which,
and the conditions under which, receipt of the shares will be deferred, and all
the other terms and conditions of the awards.
8.2 Terms and Conditions. Each Deferred Stock award shall be subject to
the following terms and conditions:
(a) Certificates. At the expiration of the Deferral Period (or the
Additional Deferral Period referred to in Section 8.2(d) below, where
applicable), share certificates shall be issued and delivered to the Holder,
or his legal representative, representing the number equal to the shares
covered by the Deferred Stock award.
(b) Rights of Holder. A person entitled to receive Deferred Stock shall
not have any rights of a Stockholder by virtue of such award until the
expiration of the applicable Deferral Period and the issuance and delivery
of the certificates representing such Common Stock. The shares of Common
Stock issuable upon expiration of the Deferral Period shall not be deemed
outstanding by the Company until the expiration of such Deferral Period and
the issuance and delivery of such Common Stock to the Holder.
(c) Vesting; Forfeiture. Upon the expiration of the Deferral Period with
respect to each award of Deferred Stock and the satisfaction of any other
applicable restrictions, terms and conditions, all or part of such Deferred
Stock shall become vested in accordance with the terms of the Agreement,
subject to Article XI, below. Any such Deferred Stock that does not vest
shall be forfeited to the Company and the Holder shall not thereafter have
any rights with respect to such Deferred Stock.
(d) Additional Deferral Period. A Holder may request to, and the
Committee may at any time, defer the receipt of an award (or an installment
of an award) for an additional specified period or until a specified event
(an "Additional Deferral Period"). Subject to any exceptions adopted by the
Committee, such request must generally be made at least one (1) year prior
to expiration of the Deferral Period for such Deferred Stock award (or such
installment).
ARTICLE IX
STOCK BONUS AWARDS
9.1 Grant. Shares of Common Stock may be awarded either alone or
in addition to other awards granted under the Plan. The Committee shall
determine the eligible persons to whom and the time or times at which such
Stock Bonus Awards will be
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awarded, the number of shares of Common Stock to be awarded to any person, and
all the other terms and conditions of the awards.
9.2 Terms and Conditions. Each Stock Bonus Award shall be subject to the
following terms and conditions:
(a) Certificates. As soon as practicable after the grant of a Stock
Bonus Award, share certificates shall be issued and delivered to the Holder,
or his legal representative, representing the number equal to the shares
covered by the Stock Bonus Award.
(b) Rights of Holder. A person entitled to receive a Stock Bonus Award
shall not have any rights of a Stockholder by virtue of such award until the
issuance and delivery of the certificate or certificates representing such
award. The shares of Common Stock issuable with respect to a Stock Bonus
Award shall not be deemed outstanding by the Company until the issuance and
delivery of such certificate or certificates to the Holder.
(c) Vesting; Forfeiture. Each Stock Bonus Award shall be fully vested as
of the date of grant and shall not be subject to any risk of forfeiture.
ARTICLE X
AUTOMATIC AWARDS TO OUTSIDE DIRECTORS
10.1 Stock Bonus Awards to Outside Directors in Lieu of Annual Cash
Retainers. On June 30 and December 31 of each year during the term of the
Plan, each person then serving as an Outside Director of the Company shall be
granted a Stock Bonus Award with respect to that number of whole shares of
Common Stock obtained by dividing 50 percent of the Annual Cash Retainer Amount
then in effect by the Fair Market Value of a share of Common Stock as of the
date of grant, in each case rounded upward to the nearest number of whole
shares. The Stock Bonus Awards contemplated by this Section 10.1 shall be
granted in lieu of any annual cash retainer otherwise payable to Outside
Directors.
10.2 Nonqualified Stock Options Granted to Outside Directors in Lieu of
Cash-Based Retirement Benefits.
(a) On December 31 of each year during the term of the Plan, each person
then serving as an Outside Director of the Company also shall be granted a
Nonqualified Stock Option covering three hundred twenty-five (325) shares of
Common Stock. The Nonqualified Stock Options contemplated by this Section
10.2 shall be granted in lieu of any accruals under the Lydall, Inc. Board
of Directors Deferred Compensation Plan previously maintained by the Company.
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(b) The exercise price of each share of Common Stock under a Nonqualified
Stock Option granted under this Section 10.2 shall be the Fair Market Value
of a share of Common Stock as of the date each such Nonqualified Stock
Option is granted.
(c) Each Nonqualified Stock Option granted under this Section 10.2 shall
become exercisable in three equal annual installments commencing as of the
first anniversary of the date of grant and shall be exercisable until the
earlier of ten (10) years from the date of grant or the expiration of the
three (3) year period provided in paragraph (d) below.
(d) Whenever a recipient of a Nonqualified Stock Option granted under
this Section 10.2 ceases to be a Director of the Company for any reason
whatsoever, all outstanding Nonqualified Stock Options granted under this
Section 10.2 then held by such person shall continue to vest and be
exercisable in whole or in part for a period of three (3) years from the
date on which such person ceases to be a Director of the Company; provided,
however, that, if the effective date of any such cessation of service occurs
on or before March 31 of any given year, the Nonqualified Stock Option
granted as of the previous December 31 (and only that Nonqualified Stock
Option), if any, shall continue to vest and be exercisable in whole or in
part until March 31 of the year that is three (3) years from the date on
which such person ceases to be a Director of the Company; and provided
further that, in no event, shall any such Nonqualified Stock Option be
exercisable beyond the ten (10) year term of the Option specified in
paragraph (c) above.
(e) Except as set forth above, the terms and conditions of each
Nonqualified Stock Option granted under this Section 10.2 shall be as
specified in Article V, above.
10.3 Additional Automatic Awards to Directors.
(a) Effective as of the close of business on the day on which the Annual
Meeting of Stockholders of the Company is held during each of the years
2005, 2008, and 2011, each person then serving as an Outside Director of the
Company shall be granted a Nonqualified Stock Option covering the lesser of
9,000 shares of Common Stock or a number of shares of Common Stock having an
aggregate Fair Market Value on the date of grant equal to $100,000. Each
person who is first elected a Director of the Company after the effective
date of the Plan and who qualifies as an Outside Director also shall be
granted, automatically upon such election, a Nonqualified Stock Option
covering the lesser of 9,000 shares of Common Stock or a number of shares of
Common Stock having an aggregate Fair Market Value on the date of grant
equal to $100,000; provided, however, that no Stock Option shall be granted
under this sentence to any person who is first elected a Director of the
Company at the Annual Meeting of Stockholders of the Company held during
2005, 2008 or 2011. The Nonqualified Stock Options contemplated by
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this Section 10.3 represent a continuation of the automatic awards of
Nonqualified Stock Options to Directors first approved by the stockholders
of the Company at the 1992 Annual Meeting of Stockholders.
(b) The exercise price of each share of Common Stock under a Nonqualified
Stock Option granted under this Section 10.3 shall be the Fair Market Value
of a share of Common Stock as of the date each such Nonqualified Stock
Option is granted.
(c) Each Nonqualified Stock Option granted under this Section 10.3 shall
become exercisable in four equal annual installments commencing as of the
first anniversary of the date of grant, provided the holder of such
Nonqualified Stock Option is a Director of the Company on such anniversary,
and shall be exercisable until the earlier of ten (10) years from the date
of grant or the expiration of the applicable period specified in paragraph
(d) or (e) below.
(d) Each Nonqualified Stock Option granted under this Section 10.3 to an
Outside Director of the Company shall terminate if and when the optionee
shall cease to serve as a Director of the Company, except as follows:
(i) If the optionee has continuously served as a Director of the
Company for at least one year from the date of grant of a Nonqualified
Stock Option and dies (x) while serving as a Director of the Company or
(y) during any period after having ceased to be a Director when the
Nonqualified Stock Option would otherwise be exercisable under
subparagraph (ii) below, the Nonqualified Stock Option theretofore
granted to such person may be exercised by a representative of such
person's estate provided that such Nonqualified Stock Option may be
exercised only within six (6) months after the date of death and prior
to the expiration date specified in such Nonqualified Stock Option.
(ii) If the optionee ceases for any reason (other than death) to be
a Director of the Company subsequent to one (1) year from the date of
grant, such Nonqualified Stock Option may be exercised within three (3)
months from the date of such cessation and prior to the expiration date
specified in such Nonqualified Stock Option.
(iii) No Nonqualified Stock Option may be exercised for more than the
number of shares for which the optionee might have exercised such Option
at the time such optionee ceased for any reason to be a Director of the
Company.
(e) Except as set forth above, the terms and conditions of each
Nonqualified Stock Option granted under this Section 10.3 shall be as
specified in Article V, above.
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ARTICLE XI
ACCELERATED VESTING & BUYOUT OF AWARDS UPON A CHANGE IN CONTROL
11.1 Accelerated Vesting and Exercisability. Upon the occurrence of a
Change in Control (as defined below) of the Company, the vesting periods of any
and all Stock Options and other awards granted and outstanding under the Plan
shall be accelerated and all such Stock Options and awards will immediately and
entirely vest, and the respective holders thereof will have the immediate right
to purchase and/or receive any and all Common Stock subject to such Stock
Options and awards on the terms set forth in this Plan and the respective
agreements respecting such Stock Options and awards.
11.2 Buyout of Awards in Connection with Certain Transactions. Upon the
occurrence of a Change in Control (as defined below) of the Company, the
Committee may require a Holder of any award granted under this Plan to
relinquish such award to the Company upon the tender by the Company to Holder
of cash in an amount equal to the Transaction Value of such award.
11.3 Definition of "Change in Control." For purposes of this Article XI, a
"Change in Control" of the Company shall mean the occurrence, after the
Effective Date of the Plan, of any of the following events:
(a) the consummation of: (i) a merger, consolidation or reorganization of
the Company with or into any other person, (ii) a sale, lease, exchange or
other transfer of all or substantially all the assets of the Company and its
consolidated subsidiaries to any other person, or (iii) any other
transaction or series of related transactions immediately after the
consummation of which any person (within the meaning of Section 13(d) or
Section 14(d)(2) of the Exchange Act), other than the Company (or one of its
subsidiaries) or any employee benefit plan sponsored by the Company (or one
of its subsidiaries), is the beneficial owner (as that term is defined in
Rule 13d-3 or any successor rule or regulations promulgated under the
Exchange Act), directly or indirectly, of more than 50 percent of the
outstanding voting stock of the Company, if as a result of any transaction
described in clauses (i) through (iii), 50 percent or less of the combined
voting power of the then out standing securities of such other person
immediately after such transaction or series of related transactions is held
in the aggregate by the holders of voting stock of the Company immediately
prior to such transaction or series of related transactions;
(b) the stockholders of the Company approve the dissolution of the
Company; or
(c) during any period of twelve (12) consecutive months, the individuals
who at the beginning of that period constituted the Board (the "Incumbent
Directors") shall cease to constitute a majority of the Board, provided that
a Director who was not a Director at the beginning of such twelve (12) month
period shall be deemed to be an Incumbent Director if such Director was
elected by, or with the approval of, at least a majority of the Incumbent
Directors.
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ARTICLE XII
AMENDMENT AND TERMINATION
The Board may at any time, and from time to time, alter, amend, suspend or
discontinue the Plan or any provision of the Plan; provided, however, that (a)
no alteration, amendment, suspension or discontinuance that would impair the
rights of a Holder under any Agreement theretofore entered into hereunder shall
be made without the Holder's consent and (b) no alteration or amendment, which
would (i) repeal the prohibition against repricing set forth in Section 2.5,
(ii) increase the overall number of shares reserved and available for issuance
under the Plan set forth in Section 3.1, (iii) increase the maximum share
limitations set forth in Section 3.2, or (iv) decrease the minimum exercise
price of Stock Options set forth in Section 5.2(b), shall be made without the
approval of the Company's stockholders.
ARTICLE XIII
TERM OF PLAN
13.1 Effective Date. The Plan shall be effective as of February 27, 2002
(the "Effective Date"), subject to the approval of the Plan by the Company's
stockholders within one (1) year after the Effective Date. Any awards granted
under the Plan prior to such approval shall be effective when made (unless
otherwise specified by the Committee at the time of grant), but shall be
conditioned upon, and subject to, such approval of the Plan by the Company's
stockholders and no awards shall vest or otherwise
become free of restrictions prior to such approval.
13.2 Termination Date. Unless terminated by the Board, this Plan shall
continue to remain effective until such time as no further awards may be
granted and all awards granted under the Plan are no longer outstanding.
Notwithstanding the foregoing, grants of Incentive Stock Options may be made
only during the ten (10) year period following the Effective Date.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Written Agreements. Each award granted under the Plan shall be
confirmed by, and shall be subject to the terms, of the Agreement executed by
the Company and the Holder. The Committee may terminate any award made under
the Plan if the Agreement relating thereto is not executed and returned to the
Company within ten (10) days after the Agreement has been delivered to the
Holder for his or her execution.
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14.2 Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Holder by the Company, nothing contained herein
shall give any such Holder any rights that are greater than those of a general
creditor of the Company.
14.3 Employees.
(a) Competition; Interference; Solicitation; Disclosure of Confidential
Information. If a Holder's employment with the Company or a Subsidiary is
terminated for any reason whatsoever and, subsequent thereto, such Holder
(i) accepts employment with a competitor of, or otherwise engages in
competition with, the Company in violation of any agreement between the
Holder and the Company, (ii) induces or encourages any employee of the
Company to terminate his or her employment with the Company in violation of
any agreement between the Holder and the Company, (iii) solicits, induces,
or encourages any person or entity which is a supplier of, a purchaser from,
or a contracting party with, the Company to terminate any written or oral
agreement, order or understanding with the Company or to conduct business in
a way that results in an adverse impact on the Company in violation of any
agreement between the Holder and the Company, or (iv) discloses to anyone
outside the Company or uses any confidential information or other property
(including, but not limited to, intellectual property) of the Company in
violation of the Company's written policies or any agreement between the
Holder and the Company, all options or other awards then held by such Holder
shall automatically terminate.
(b) No Right of Employment. Nothing contained in the Plan or in any
award hereunder shall be deemed to confer upon any Holder who is an employee
of the Company or any Subsidiary any right to continued employment with the
Company or any Subsidiary, nor shall it interfere in any way with the right
of the Company or any Subsidiary to terminate the employment of any Holder
who is an employee at any time.
14.4 Investment Representations; Company Policy. The Committee may require
each person acquiring shares of Common Stock pursuant to a Stock Option or
other award under the Plan to represent to and agree with the Company in
writing that the Holder is acquiring the shares for investment without a view
to distribution thereof. Each person acquiring shares of Common Stock pursuant
to a Stock Option or other award under the Plan shall be required to abide by
all policies of the Company in effect at the time of such acquisition and
thereafter with respect to the ownership and trading of the Company's
securities.
14.5 Additional Incentive Arrangements. Nothing contained in the Plan
shall prevent the Board from adopting such other or additional incentive
arrangements as it
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may deem desirable, including, but not limited to, the granting of Stock
Options and the awarding of Common Stock and cash otherwise than under the
Plan; and such arrangements may be either generally applicable or applicable
only in specific cases.
14.6 Withholding Taxes. Not later than the date as of which an amount must
first be included in the gross income of the Holder for Federal income tax
purposes with respect to any option or other award under the Plan, the Holder
shall pay to the Company, or make arrangements satisfactory to the Committee
regarding the payment of, any Federal, state and local taxes of any kind
required by law to be withheld or paid with respect to such amount. If
permitted by the Committee, tax withholding or payment obligations may be
settled with Common Stock, including Common Stock that is part of the award
that gives rise to the withholding requirement. The obligations of the Company
under the Plan shall be conditioned upon such payment or arrangements and the
Company or the Holder's employer (if not the Company) shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the Holder from the Company or any Subsidiary.
14.7 Governing Law. The Plan and all awards made and actions
taken thereunder shall be governed by and construed in accordance with the laws
of the State of Connecticut (without regard to choice of law provisions);
provided, however, that all matters relating to or involving corporate law
shall be governed by the laws of the State of Delaware.
14.8 Other Benefit Plans. Any award granted under the Plan shall not be
deemed compensation for purposes of computing benefits under any retirement
plan of the Company or any Subsidiary and shall not affect any benefits under
any other benefit plan now or subsequently in effect under which the
availability or amount of benefits is related to the level of compensation
(unless required by specific reference in any such other plan to awards under
this Plan).
14.9 Non-Transferability. Except as otherwise expressly provided in the
Plan or the Agreement, no right or benefit under the Plan may be alienated,
sold, assigned, hypothecated, pledged, exchanged, transferred, encumbered or
charged, and any attempt to alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the same shall be void.
14.10 Applicable Laws. The obligations of the Company with respect to all
Stock Options and awards under the Plan shall be subject to (i) all applicable
laws, rules and regulations and such approvals by any governmental agencies as
may be required, including, without limitation, the Securities Act of 1933, as
amended, and (ii) the rules and regulations of any securities exchange on which
the Common Stock may be listed.
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14.11 Conflicts. If any of the terms or provisions of the Plan or an
Agreement conflict with the requirements of Section 422 of the Code, then such
terms or provisions shall be deemed inoperative to the extent they so conflict
with such requirements. Additionally, if this Plan or any Agreement does not
contain any provision required to be
included herein under Section 422 of the Code, such provision shall be deemed
to be incorporated herein and therein with the same force and effect as if such
provision had been set out at length herein and therein. If any of the terms or
provisions of any Agreement conflict with any terms or provisions of the Plan,
then such terms or provisions shall be deemed inoperative to the extent they so
conflict with the requirements of the Plan. Additionally, if any Agreement does
not contain any provision required to be included therein under the Plan, such
provision shall be deemed to be incorporated therein with the same force and
effect as if such provision had been set out at length therein.
14.12 Non-Registered Stock. The shares of Common Stock to be distributed
under this Plan have not been, as of the Effective Date, registered under the
Securities Act of 1933, as amended, or any applicable state or foreign
securities laws and the Company has no obligation to any Holder to register the
Common Stock or to assist
the Holder in obtaining an exemption from the various registration
requirements, or to list the Common Stock on a national securities exchange or
any other trading or quotation system, including the NASDAQ National Market and
NASDAQ SmallCap Market.
14.13 Right of Off-Set. To the extent permitted by law, the Company or the
Holder's employer (if not the Company) shall have the right to deduct, from any
payment of any kind otherwise due to the Holder from the Company or any
Subsidiary under the Plan or any Agreement entered into hereunder, any amounts
due and owing to the Company or the Holder's employer, as the case may be, from
the Holder.
A-21
PROXY
LYDALL, INC.
The undersigned hereby appoints Samuel P. Cooley, Roger M. Widmann and
Christopher R. Skomorowski, or any one of them, with full power of substitution,
as attorneys and proxies, to vote all shares of stock of Lydall, Inc. which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of the
Company to be held at The Fleet Bank Building, 777 Main Street, Hartford,
Connecticut on May 8, 2002 at 11:00 a.m. E.D.T. and at any adjournments thereof.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
and the Proxy Statement dated March 25, 2002 and instructs its attorneys and
proxies to vote as set forth on this Proxy.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
(To be Signed on Reverse Side)
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
LYDALL, INC.
MAY 8, 2002
Please Detach and Mail in the Envelope Provided
[X] Please mark your votes
as in this example.
1. ELECTION OF FOR WITHHELD NOMINEES:
DIRECTORS
(Proposal 1) [_] [_] Leo A. Asseo
Samuel P. Cooley
W. Leslie Duffy
FOR, EXCEPT vote withheld from the David Freeman
following nominee(s) Suzanne Hammett
Robert E. McGill, III
Christopher R. Skomorowski
______________________________________ Elliott F. Whitely
Roger M. Widmann
Albert E. Wolf
2. Approval of 2002 Stock FOR AGAINST ABSTAIN
Incentive Compensation Plan.
(Proposal 2) [_] [_] [_]
3. In their discretion, such other business as may properly
come before the meeting.
The shares represented by this Proxy will be voted as specified. IF NO CHOICE
IS SPECIFIED, THE PROXY WILL BE VOTED IN FAVOR OF THE SPECIFIED NOMINEES AND OF
THE 2002 STOCK INCENTIVE COMPENSATION PLAN. THIS PROXY CARD MUST BE PROPERLY
COMPLETED, SIGNED, DATED AND RETURNED IN ORDER TO HAVE YOUR SHARES VOTED.
PLEASE NOTE ANY CHANGE OF ADDRESS.
Signature __________________________________________ Date _____________________
Signature __________________________________________ Date _____________________
NOTE: Please sign exactly as name appears above. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee, etc.,
indicate title. If the signer is a corporation, sign in the corporate
name by a duly authorized officer.