Exhibit 10.6

 

SEVERANCE AGREEMENT

 

THIS AGREEMENT is made and entered into as of the 21st day of January, 2005, by
and between LYDALL, INC., a Delaware corporation (the “Company”), and Thomas P.
Smith of 84 Stony Corners Road, Avon, CT 06001 (the “Executive”).

 

W I T N E S S E T H

 

WHEREAS, the Company and the Executive (the “Parties”) have agreed to enter into
this agreement (the “Agreement) relating to the severance of the employment of
the Executive by the Company; NOW, THEREFORE, in consideration of the premises
and mutual covenants contained herein and for other good and valuable
consideration, the Parties, intending to be legally bound, agree as follows:

 

1.0 Termination of Employment by the Company.

 

Involuntary Termination by the Company Other Than For Permanent and Total
Disability or Cause. The Company may terminate the Executive’s employment at any
time. If termination is for reasons other than (i) the Executive’s Permanent and
Total Disability (as defined in Section 1.2) or (ii) for Cause (as defined in
Section 1.3), termination shall be effective upon the Company giving the
Executive a written notice of termination at least 30 days before the date of
termination (or such lesser notice period as to which the Executive may agree).
In the event of such a termination of employment pursuant to this Section, the
Executive shall be entitled to receive (i) the benefits described in Section 3
if such termination of employment does not occur within 12 months following a
“Change of Control” (as defined in Section 5), or (ii) the benefits described in
Section 4 if such termination of employment occurs within 12 months following a
“Change of Control” (as defined in Section 5).

 

Termination Due to Permanent and Total Disability. If the Executive incurs a
Permanent and Total Disability, as defined below, the Company may terminate the
Executive’s employment by giving the Executive written notice of termination at
least 30 days before the date of such termination (or such lesser notice period
as the Executive may agree to). In the event of such termination of the
Executive’s employment because of Permanent and Total Disability, the Executive
shall be entitled to receive (i) his base salary through the date which is
twelve months following the date of such termination of employment, reduced by
any amounts paid to the Executive under any disability program maintained by the
Company, such base salary to be paid at the normal time for the payment of such
base salary, (ii) a bonus for the year of termination of employment and for the
next succeeding year (to be paid at the normal time for payment of such bonuses)
in an amount equal to the average of the three highest annual bonuses earned by
the Executive under the Company’s annual incentive bonus plan for any of the
five calendar years preceding the calendar year of his termination of employment
(or, if the Executive was not eligible for a bonus for at least three calendar
years in such five-year period, then the average of such bonuses for all of the
calendar years in such five-year period for which the Executive was eligible),
with any deferred bonuses counting for the year earned rather than the year
paid; (iii) any other compensation and benefits to the extent actually earned by
the Executive under any other benefit plan or program of the Company as of the
date of such termination of employment, such compensation and benefits to be
paid at the normal time for payment of such compensation and benefits, and (iv)
any reimbursement amounts owed for “Business Expenses” defined herein as:
reasonable, documented and necessary expenses incurred by the Executive in
performing his duties, provided the Executive properly accounts therefore in
accordance with the policies established by the company. In addition, if the
Executive elects to continue coverage under the Company’s health plan pursuant
to COBRA, the Company for a period of twelve months following termination of the
Executive’s employment by reason of Permanent and Total Disability will pay the
same percentage of the Executive’s premium for COBRA coverage for the Executive
and, if applicable, his spouse and dependent children, as the Company paid at
the applicable time for coverage under such plan for actively employed senior
executives generally. For the period of twelve months following the termination
of the Executive’s employment by reason of Permanent and Total Disability, the
Company will continue to provide the life insurance benefits that the Company
would have provided to the Executive if the Executive had continued in
employment with the Company for such period, but only if the Executive timely
pays the portion of the premium for such coverage that senior executives of the
Company generally are required to pay for such coverage, if any. For purposes of
this Agreement, the Executive shall be considered to have incurred a Permanent
and Total Disability if and only if the Executive has incurred a disability
entitling the Executive to disability benefits under the Company’s long-term
disability plan.

 

Termination for Cause. The Company may terminate the Executive’s employment
immediately for Cause for any of the following reasons: (i) an act or acts of
dishonesty or fraud on the part of the Executive resulting or intended to result

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directly or indirectly in substantial gain or personal enrichment to which the
Executive was not legally entitled at the expense of the Company or any of its
subsidiaries; (ii) a willful material breach by the Executive of his duties or
responsibilities under this Agreement resulting in demonstrably material injury
to the Company or any of its subsidiaries; (iii) the Executive’s conviction of a
felony or any crime involving moral turpitude, (iv) habitual neglect or
insubordination (defined as refusal to execute or carry out directions from the
Board or its duly appointed designees) where the Executive has been given
written notice of the acts or omissions constituting such neglect or
insubordination and the Executive has failed to cure such conduct, where
susceptible to cure, within thirty days following such notice, or (v) a material
breach by the Executive of any of his obligations under the Confidentiality and
Non-Compete Agreement executed by the Executive and attached hereto as Exhibit
A. The Company shall exercise its right to terminate the Executive’s employment
for Cause by giving the Executive written notice of termination specifying in
reasonable detail the circumstances constituting such Cause. In the event of
such termination of the Executive’s employment for Cause, the Executive shall be
entitled to receive only (i) his base salary earned through the date of such
termination of employment plus his base salary for the period of any vacation
time earned but not taken for the year of termination of employment, such base
salary to be paid at the normal time for payment of such base salary, (ii) any
other compensation and benefits to the extent actually earned by the Executive
under any other benefit plan or program of the Company as of the date of such
termination of employment, such compensation and benefits to be paid and at the
normal time for payment of such compensation and benefits and (iii) any
reimbursement of Business Expenses. The Executive will not be entitled to a
bonus payment.

 

2.0 Termination of Employment By Death.

 

In the event of the death of the Executive during the course of his employment
hereunder, the Executive’s estate (or other person or entity having such
entitlement pursuant to the terms of the applicable plan or program) shall be
entitled to receive (i) the Executive’s base salary earned through the date of
the Executive’s death plus the Executive’s base salary for the period of
vacation time earned but not taken for the year of the Executive’s death, such
base salary to be paid at the normal time for payment of such base salary, (ii)
if earned, a bonus for the year of the Executive’s death (to be paid within 90
days after the Executive’s death) in an amount equal to a pro rata portion of
the average of the three highest annual bonuses earned by the Executive under
the Company’s annual incentive bonus plan for any of the five calendar years
preceding the calendar year of the Executive’s death (or, if the Executive was
not eligible for a bonus for at least three calendar years in such five-year
period, then the average of such bonuses for all of the calendar years in such
five-year period for which the Executive was eligible), with any deferred
bonuses counting for the year earned rather than the year paid and with the pro
rata portion being determined by dividing the number of days of the Executive’s
employment during such calendar year up to his death by 365 (366 if a leap
year), (iii) any other compensation and benefits to the extent actually earned
by the Executive under any other benefit plan or program of the Company as of
the date of such termination of employment, such compensation and benefits to be
paid at the normal time for payment of such compensation and benefits, and (iv)
any reimbursement of Business Expenses. In addition, in the event of such death,
the Executive’s beneficiaries shall receive any death benefits owed to them
under the Company’s employee benefit plans. If the Executive’s spouse and/or
dependent children elect to continue coverage under the Company’s health plan
following the Executive’s death pursuant to COBRA, the Company for a period of
12 months following the Executive’s death will pay the same percentage of the
premium for COBRA coverage for the Executive’s spouse and/or dependent children,
as applicable, as the Company would have paid in respect of the Executive’s
coverage under such plan if the Executive had continued in employment with the
Company for such period.

 

3.0 Benefits Upon Termination Without Cause (No Change of Control).

 

If the Executive’s employment hereunder is terminated by the Company, other than
for Cause or Permanent and Total Disability, and such termination of employment
does not occur within 12 months following a “Change of Control” of the Company
(as defined in Section 5), the Executive shall be entitled to the following:

 

Salary. The Company shall pay to the Executive his base salary earned through
the date of such termination of employment and any other compensation and
benefits to the extent actually earned by the Executive under any benefit plan
or program of the Company as of the date of such termination of employment, such
base salary, compensation and benefits to be paid at the normal time for payment
of such base salary, compensation and benefits.

 

Expense Reimbursement. The Company shall reimburse the Executive for any
Business Expenses.

 

Severance Payment. The Company shall pay to the Executive 12 months’ severance,
at the Executive’s annual rate of base salary immediately preceding his
termination of employment, in equal installments spread over the period of 12
months beginning on the date of termination.

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Bonus. If the date of termination occurs after the first anniversary of the
Executive’s hire date, the Company shall pay to the Executive in addition, the
average of his annual bonuses earned under the Company’s annual incentive bonus
plan for the three calendar years preceding his termination of employment (or,
if the Executive was not eligible for a bonus in each of those three calendar
years, then the average of such bonuses for all of the calendar years in such
three-year period for which he was eligible), with any deferred bonuses counting
for the year earned rather than the year paid. Such installments shall be paid
at the times that salary payments are normally made by the Company.

 

Health Benefits. If the Executive elects to continue coverage under the
Company’s health plan pursuant to COBRA, then for the period beginning on the
date of the Executive’s termination of employment and ending on the earlier of
(i) the date which is 12 months after the date of such termination of employment
or (ii) the date on which the Executive commences substantially full-time
employment as an employee of an employer that offers health benefits, the
Company will pay the same percentage of the Executive’s premium for COBRA
coverage for the Executive and, if applicable, his spouse and dependent
children, as the Company paid at the applicable time for coverage under such
plan for actively employed senior executives generally. The Executive shall
notify the Company promptly if he, while eligible for benefits under this
subsection (d), commences substantially full-time employment as an employee of
an employer that offers health insurance benefits.

 

(f) Outplacement. The Company will provide the Executive with outplacement
services selected by the Executive, at the Company’s expense not to exceed
$10,000.

 

4.0 Benefits Upon Termination Without Cause (Change of Control).

 

If the Executive’s employment hereunder is terminated by the Company, other than
for Cause or Permanent and Total Disability, and such termination of employment
occurs within 12 months following a “Change of Control” of the Company (as
defined in Section 5), the Executive shall be entitled to the following:

 

(a) Salary. The Company shall pay to the Executive his base salary earned
through the date of such termination of employment and any other compensation
and benefits to the extent actually earned by the Executive under any benefit
plan or program of the Company as of the date of such termination of employment,
such base salary, compensation and benefits to be paid at the normal time for
payment of such base salary, compensation and benefits.

 

(b) Expense Reimbursement. The Company shall reimburse the Executive for any
Business Expenses.

 

(c) Severance. The Company shall pay to the Executive as a severance benefit an
amount equal to two (2) times the sum of (i) his annual rate of base salary
immediately preceding his termination of employment, and (ii) the average of his
three highest annual bonuses earned under the Company’s annual incentive bonus
plan for any of the five calendar years preceding his termination of employment
(or, if the Executive was not eligible for a bonus for at least three calendar
years in such five-year period, then the average of such bonuses for all of the
calendar years in such five-year period for which the Executive was eligible),
with any deferred bonuses counting for the year earned rather than the year
paid. Such severance benefit shall be paid in a lump sum within 30 days after
the date of such termination of employment.

 

(d) Bonus. The Company shall pay to the Executive as a bonus for the year of
termination of his employment an amount equal to a portion (determined as
provided in the next sentence) of the Executive’s expected bonus opportunity
under the Company’s annual incentive bonus plan for the calendar year of the
termination of the Executive’s employment or, if none, such portion of the bonus
awarded to the Executive under the Company’s annual incentive bonus plan for the
calendar year immediately preceding the calendar year of the termination of his
employment, with deferred bonuses counting for the year earned rather than the
year paid. Such portion shall be determined by the Company, in its sole
reasonable discretion, as of the time of the Executive’s termination by dividing
the number of days of the Executive’s employment during such calendar year up to
his termination of employment by 365 (366 if a leap year) and prorating
accordingly the expected bonus calculated by the Company, based on information
available on or about the date of termination of the Executive. Such payment
shall be made in a lump sum within 30 days after the date of such termination of
employment, and the Executive shall have no right to any further bonuses under
said plan.

 

(e) Health Benefit. During the period of 12 months beginning on the date of the
Executive’s termination of employment, the Executive (and, if applicable, the
Executive’s spouse and dependent children) shall remain covered by the medical
and dental, plans of the Company that covered the Executive immediately prior to
his termination of employment as if the Executive had remained in employment for
such period; provided, however, that the coverage under any such plan is
conditioned on the timely payment by the Executive (or his spouse or dependent
children) of the portion of the premium for such coverage that other employees
with the Company generally are required to pay for such coverage.

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(f) Pension Enhancement. The Company shall supplement the benefits payable in
respect of the Executive under the Company’s Pension Plan (and any successor
plans thereto) (collectively, the “Pension Plans”) by paying the difference
between (i) the benefits that the Executive would have been entitled to receive
under the Pension Plans if he had been credited with one additional year of
service (but no additional years of age) for purposes of the benefit accrual
formula under the Pension Plans as of the date of termination of the Executive’s
employment and (ii) the benefits that the Executive is entitled to receive under
the Pension Plans determined without regard to this subsection. Such benefits
shall be payable in the same form and at the same time as the benefits under the
respective Pension Plans.

 

(g) Car Allowance. The Company will pay the Executive a car allowance, in an
amount equal to Executive’s lease allowance at the time of termination, per
month for 12 months following termination of the Executive’s employment to
replace the Company-leased automobile, which leased automobile will be returned
to the Company by the Executive on the date of termination of the Executive’s
employment.

 

(h) Outplacement. The Company will provide the Executive with out-placement
services selected by the Executive, at the Company’s expense not to exceed
$10,000.

 

5.0 Change of Control.

 

For the purposes of this Agreement, a “Change of Control” shall be deemed to
have occurred if (a) any person or persons acting together which would
constitute a “group” for purposes of Section 13(d) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), (other than the Company or any
subsidiary of the Company) shall beneficially own (as defined in Rule 13d-3 of
the Exchange Act), directly or indirectly, at least 25% of the total voting
power of all classes of capital stock of the Company entitled to vote generally
in the election of the Board; (b) Current Directors (as herein defined) shall
cease for any reason to constitute at least a majority of the members of the
Board (for this purpose, a “Current Director” shall mean any member of the Board
as of the date hereof and any successor of a Current Director whose election, or
nomination for election by the Company’s shareholders, was approved by at least
a majority of the Current Directors then on the Board); (c) the shareholders of
the Company approve (i) a plan of complete liquidation of the Company or (ii) an
agreement providing for the merger or consolidation of the Company other than a
merger or consolidation in which (x) the holders of the common stock of the
Company immediately prior to the consolidation or merger have, directly or
indirectly, at least a majority of the common stock of the continuing or
surviving corporation immediately after such consolidation or merger or (y) the
Board immediately prior to the merger or consolidation would, immediately after
the merger or consolidation, constitute a majority of the board of directors of
the continuing or surviving corporation; or (d) the shareholders of the Company
approve an agreement (or agreements) providing for the sale or other disposition
(in one transaction or a series of transactions) of all or substantially all of
the assets of the Company.

 

6.0 Golden Parachute Excise Tax.

 

(a) In the event that any payment or benefit received or to be received by the
Executive pursuant to this Agreement or any other plan, program or arrangement
of the Company or any of its affiliates would constitute an “excess parachute
payment” within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the “Code”), then the payments under this Agreement shall be
reduced (by the minimum possible amounts) until no amount payable to the
Executive under this Agreement constitutes an “excess parachute payment” within
the meaning of Section 280G of the Code; provided, however, that no such
reduction shall be made if the net after-tax payment (after taking into account
Federal, state, local or other income and excise taxes) to which the Executive
would otherwise be entitled without such reduction would be greater than the net
after-tax payment (after taking into account Federal, state, local or other
income and excise taxes) to the Executive resulting from the receipt of such
payments with such reduction. If, as a result of subsequent events or conditions
(including a subsequent payment or absence of a subsequent payment under this
Agreement or other plan, program or arrangement of the Company or any of its
affiliates), it is determined that payments under this Agreement have been
reduced by more than the minimum amount required to prevent any payments from
constituting an “excess parachute payment”, then an additional payment shall be
promptly made to the Executive in an amount equal to the additional amount that
can be paid without causing any payment to constitute an excess parachute
payment.

 

(b) All determinations required to be made under this Section shall be made by
the Company and reviewed by a nationally recognized independent accounting firm
mutually agreeable to the Company and the Executive (the “Accounting Firm”)
which shall provide detailed supporting calculations to the Company and the
Executive as requested by the Company or the Executive. All fees and expenses of
the Accounting Firm shall be borne solely by the Company and shall be paid by
the Company upon demand of the Executive as incurred or billed by the Accounting
Firm. All determinations made by the Accounting Firm pursuant to this Section 11
shall be final and binding upon the Company and the Executive.

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(c) To the extent any payment or benefit is to be reduced pursuant to this
Section, the payments described in this Agreement will be reduced in the
following order: the severance payment, then the bonus payment, and then any
supplemental pension benefits, in each case only to the extent necessary.

 

7.0 Entitlement to Other Benefits.

 

Except as otherwise provided in this Agreement, this Agreement shall not be
construed as limiting in any way any rights or benefits that the Executive or
his spouse, dependents or beneficiaries may have pursuant to any other plan or
program of the Company.

 

8.0 General Provisions.

 

8.1 Deductions and Withholding. All amounts payable or which become payable
under any provision of this Agreement shall be subject to any deductions
authorized by the Executive and any deductions and withholdings required by law.

 

8.2 Notices. All notices, demands, requests, consents, approvals or other
communications (collectively “Notices”) required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be faxed with a copy deposited in the United
States mail, registered or certified, return receipt requested, postage prepaid,
addressed as follows:

 

To the Company: Lydall, Inc.

 

P.O. Box 151

One Colonial Road

Manchester, CT 06045-0151

Attn: General Counsel

To the Executive: Thomas P. Smith

84 Stony Corners Road

Avon, CT 06001

 

or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
fifth business day following the date so mailed or on the date of actual
receipt, whichever is earlier.

 

8.3 No Disparagement. The Executive shall not during the period of his
employment with the Company, nor during the two-year period beginning on the
date of termination of his employment for any reason, disparage the Company or
any of its subsidiaries or affiliates or any of their shareholders, directors,
officers, employees or agents. The Executive agrees that the terms of this
Section shall survive the term of this Agreement and the termination of the
Executive’s employment.

 

8.4 Proprietary Information and Inventions. The Confidentiality and Non-Compete
Agreement executed on March 31, 2000 by the Executive and attached hereto as
Exhibit A is incorporated by reference in this Agreement, and the Executive
agrees to continue to be bound thereby.

 

8.5 Covenant to Notify Management. The Executive agrees to abide by the ethics
policies of the Company as well as the Company’s other rules, regulations,
policies and procedures. The Executive agrees to comply in full with all
governmental laws and regulations as well as ethics codes applicable. In the
event that the Executive is aware or suspects the Company, or any of its
officers or agents, of violating any such laws, ethics, codes, rules,
regulations, policies or procedures, the Executive agrees to bring all such
actual and suspected violations to the attention of the Company immediately so
that the matter may be properly investigated and appropriate action taken. The
Executive understands that the Executive may be liable for failing to take
prompt steps to stop or eliminate violations of ethical standards, Company
policies and governmental laws and regulations once such matters become apparent
to the Executive. As a result, the Executive has an affirmative duty to report
such alleged violations to the Company without delay and is precluded from
filing a complaint with any court having jurisdiction over wrongful conduct
unless the Executive has first notified the Company of the facts and permits it
to investigate and correct the concerns.

 

8.6 Amendments and Waivers. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either Party
hereto at any time of any breach by the other Party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
Party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.

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8.7 Beneficial Interests. This Agreement shall inure to the benefit of and be
enforceable by a) the Company’s successors and assigns and b) the Executive’s
personal and legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If the Executive shall die while any
amounts are still payable to him hereunder, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the Executive’s devisee, legatee, or other designee or, if there be no such
designee, to the Executive’s estate.

 

8.8 Successors. The Company will require any successors (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform.

 

8.9 Assignment. This Agreement and the rights, duties, and obligations hereunder
may not be assigned or delegated by any Party without the prior written consent
of the other Party and any attempted assignment or delegation without such prior
written consent shall be void and be of no effect. Notwithstanding the foregoing
provisions of this Section, the Company may assign or delegate its rights,
duties and obligations hereunder to any affiliate or to any person or entity
which succeeds to all or substantially all of the business of the Company or one
of its subsidiaries through merger, consolation, reorganization, or other
business combination or by acquisition of all or substantially all of the assets
of the Company or one of its subsidiaries.

 

8.10 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.

 

8.11 Statute of Limitations. The Executive and the Company hereby agree that
there shall be a one year statute of limitations for the filing of any requests
for arbitration or any lawsuit relating to this Agreement or the terms or
conditions of Executive’s employment by the Company. If such a claim is filed
more than one year subsequent to the Executive’s last day of employment it shall
be precluded by this provision, regardless of whether or not the claim has
accrued at that time.

 

8.12 Right to Injunctive and Equitable Relief. The Executive’s obligations under
Section 8.3 are of a special and unique character, which gives them a peculiar
value. The Company cannot be reasonably or adequately compensated for damages in
an action at law in the event the Executive breaches such obligations.
Therefore, the Executive expressly agrees that the Company shall be entitled to
injunctive and other equitable relief without bond or other security in the
event of such breach in addition to any other rights or remedies which the
Company may possess or be entitled to pursue. Furthermore, the obligations of
the Executive and the rights and remedies of the Company under Section 8.3 and
this Section are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies as created by applicable law.

 

8.13 Severability or Partial Invalidity. The invalidity or unenforceability of
any provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.

 

8.14 Entire Agreement. This Agreement, along with the Confidentiality and
Non-Compete Agreement by and between the Executive and the Company, constitutes
the entire agreement of the Parties and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings, and negotiations between
the Parties with respect to the subject matter hereof. This Agreement may not be
changed orally and may only be modified in writing signed by both Parties. This
Agreement, along with the Confidentiality and Non-Compete Agreement, is intended
by the Parties as the final expression of their agreement with respect to such
terms as are included herein and therein and may not be contradicted by evidence
of any prior or contemporaneous agreement. The Parties further intend that this
Agreement, along with the Confidentiality and Non-Compete Agreement, constitutes
the complete and exclusive statement of their terms and that no extrinsic
evidence may be introduced in any judicial proceeding involving such agreements.

 

8.15 Counterparts. This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed an original but all of which
together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer and the Employee has hereunto set his hand as of the day
and year first above written.

 

LYDALL, INC.      By:  

/S/ DAVID FREEMAN

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       Date: January 21, 2005     David Freeman             
Chief Executive Officer and President             

/S/ THOMAS P. SMITH

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       Date: January 21, 2005     Thomas P. Smith              Vice President,  
           Chief Financial Officer and Treasurer         

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Attachment A

 

LYDALL EMPLOYEE AGREEMENT

 

In consideration of my employment by any subsidiary or affiliated company of
Lydall, Inc., (“Lydall”) and of the compensation and other benefits to be
received by me from Lydall, I, Thomas P. Smith agree that:

 

  1. The term “Confidential Information” as used in this Agreement includes all
business information and records which relate to Lydall and which are not known
to the public generally, including, but not limited to, technical notebook
records, technical reports, patent applications, machine equipment, computer
software, models, process and product designs including any drawings and
descriptions, unwritten knowledge and “know-how”, operating instructions,
training manuals, production and development processes, production or other
schedules, customer lists, customer buying records, product sales records, sales
requests, territory listings, market surveys, plans including marketing plans
and long-range plans, salary information, contracts, supplier lists, product
costs, policy statements, policy statements, policy procedures, policy manuals,
flowcharts, computer printouts, program listings, reproductions and
correspondence.

 

The term “Invention” as used in this Agreement includes any discovery,
improvement, design or idea, patentable or otherwise, which relates to any
activity or business in which Lydall is engaged or any process, equipment,
material, product or method (including computer software) in which Lydall has
any direct or indirect interest.

 

  2. I will disclose promptly to Lydall any Invention conceived, developed or
perfected by me, either alone or jointly with another or others, while I am a
Lydall employee, whether or not such conception, development or perfection
occurs during the hours of my employment.

 

  3. I grant to Lydall without further compensation, all my right, title and
interest in and to any such Invention for the sole use and benefit of Lydall,
together with all U.S. and foreign patents, trademarks or copyrights that may at
any time be granted, and all reissues, renewals and extensions of such patents,
trademarks or copyrights. At the request and expense of Lydall, I will at any
time do what Lydall reasonably believes to be necessary to assist Lydall to vest
full right and title to each such Invention in Lydall, Inc.; enable Lydall to
obtain and maintain full right and title in any country; prosecute applications
for and secure patents (including their reissue, renewal and extension),
trademarks, copyrights and any other form of protection for each such Invention;
and prosecute or defend any interference or opposition which may be declared
involving any such application or patent and any litigation in which Lydall may
be involved concerning any such Invention. This will include preparing,
executing and delivering any written document, drawings, flowcharts, or computer
printouts. The provision of this paragraph will continue after I stop working
for Lydall and shall be binding on my executors, administrators and assigns,
unless waived in writing by Lydall.

 

  4. I have not disclosed and will not disclose to Lydall, and I will not use,
in the discharge of my duties as an employee of Lydall, any trade secret or
confidential information belonging to a former employer or other person and
which has been classified by the former employer or other person as a trade
secret or confidential information. The limitation set forth in this paragraph 4
shall not apply to matters which (a) are or become public knowledge, (b) were
previously known to Lydall, (c) are subsequently received by Lydall from a third
party, or (d) are independently derived by Lydall.

 

  5. I will not, directly or indirectly, during or at any time after the period
of my employment by Lydall, use for myself or other, or disclose to others, any
Confidential Information, no matter how such information becomes known to me,
unless I first obtain Lydall’s written consent.

 

  6. When I leave Lydall’s employ, or at any other time upon request by Lydall,
I will promptly deliver to Lydall all documents and records, including but not
limited to those listed under the definition of Confidential Information, which
are in my possession or under my control and which pertain to Lydall, any of its
activities or any of my activities while in the course of my employment and all
copies thereof. I will not retain or deliver to any others copies of these
documents or records.

 

  7. I acknowledge and agree that Lydall’s business competes upon a nationwide
and worldwide basis, and that the degree of competition in that business is
high; I recognize that Lydall may assign me responsibilities in geographic
regions of Lydall’s selection. Accordingly, I agree that, unless I first obtain
Lydall’s written consent, I will not during my employment with Lydall and for a
period of two (2) years following the termination of my employment with Lydall
(provided, however, that if I am employed by Lydall for less than two (2) years,
the post-employment period to which this paragraph 7 applies shall be the
greater of six (s) months or a period of time equal to the duration of my
employment by Lydall in any capacity,1) directly or indirectly:

 

  (i) own, manage, operate, join, control or participate in the ownership,
management, operation or control of, or work for (as an employee, consultant or
independent contractor) or have any material financial interest in, any business
competitive with Lydall in (a) any market in which the Division(s) of Lydall for
which I have worked in the two (2) preceding years has sold or attempted to sell
any of its product in the two (2) years preceding such termination or (b) if
Lydall has assigned me a specific geographic area for responsibility, within two
hundred fifty (250) miles of any geographic location in which Lydall has
assigned me responsibilities in the two (2) years preceding such termination;

 

  (ii) induce or attempt to induce any person who is an employee of Lydall to
terminate his or her employment with Lydall; or

 

  (iii) induce or attempt to induce any person, business or entity which, as of
the date of the termination of my employment, is a supplier of, a purchaser from
, or a contracting party with Lydall to terminate any written or oral agreement,
order or understanding with Lydall.

 

  8. I further understand and agree that the remedy at law for any breach or
threatened breach of my agreement not to compete contained in paragraph 7 would
be inadequate and that any breach or attempted breach would result in
irreparable damage to Lydall, the monetary amount of which would be impossible
to ascertain. Thus, I agree that in the event of any breach or threatened breach
of my agreement not to compete contained in paragraph 7, in addition to any and
all other legal or equitable remedies which may be available, Lydall may obtain
preliminary injunctive relief to remedy damage caused by such breach or
threatened breach, and that Lydall shall be entitled to recover from me its
costs and expenses including reasonable attorney fees incurred in remedying such
breach or threatened breach.

 

  9. Should any claim or dispute relating to this agreement arise, I agree that
the claim will be settled by arbitration in the state of the Division of Lydall
for which I was last working, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment will be binding and
may be entered in any court with jurisdiction.

 

  10. I represent and agree that I have and will assume no obligations to others
inconsistent with any of my obligations to Lydall under this Agreement.

 

  11. In consideration of my employment, I agree to conform to the policies of
Lydall. I understand that my employment is for an indefinite period and can be
terminated at any time, with or without cause or prior notice by either Lydall
or me, and will remain so unless a written agreement for a specific term is
entered into and executed by me and Lydall’s CEO. No other representations or
agreements have been made regarding the term or termination of my employment. I
understand that no employee of Lydall other than its CEO has the authority to
enter into any agreement, commitment or guarantees binding on Lydall regarding
my employment and then only by a signed, written document.

 

  12. This Agreement, which is ancillary to any other agreement I may have with
Lydall, (a) is intended as the complete and exclusive statement of my agreement
with Lydall with respect to its subject matter; (b) shall be binding upon my
heirs, executors and administrators; (c) shall not be modified unless in writing
and signed by me and Lydall; and (d) shall be governed by and construed in
accordance with the law of the State of Connecticut, Lydall’s home office state.

 

  13. Should any part of this Employee Agreement be found invalid by any court,
the remainder shall be valid and enforceable in law and equity.

 

1 individually; or as a member, employee or agent of any partnership; or as an
officer, agent, employee, director, or investor of any other corporation or
entity; or as a stockholder (except of not more than two percent (2%) of the
outstanding stock of any company listed on a national securities exchange or
actively traded in the over-the-counter securities market) or investor of any
other corporation or entity;

 

Signed at  

Avon, CT

     

on

 

3/31/2000

       

(City/State)

         

    (Date)

    Employee’s Name:  

Thomas P. Smith

     

Lydall Corporate Division

       

  (Print or Type)

                By:  

/s/ Thomas P. Smith

     

By

 

/s/ Christopher R. Skomorowski

       

(Employee Signature)

         

(Division President)

    S.S.#  

###-##-####

     

Witness:

 

/s/ Nancy H. Pouli

   

 

Acknowledgement of Receipt              

I acknowledge receipt of a copy of this document on

  3/31/2000                   (date)          

 

Employee’s Signature   /s/ Thomas P. Smith