Exhibit 10.1
 
AMENDED AND RESTATED
LYDALL
2003 STOCK INCENTIVE COMPENSATION PLAN
 
 
ARTICLE I
PURPOSE
 
1.1         Purpose.  The purpose of the Lydall 2003 Stock Incentive
Compensation Plan (the “Plan”) is to further the growth and prosperity of the
Company and its Subsidiaries by enabling the Company to offer incentive awards
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.  The various types of
long-term incentive awards that may be provided under the Plan are designed to
enable the Company to respond to changes in compensation practices, tax laws,
accounting regulations and the size and diversity of its businesses.
 
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 Exchange Act, and “Outside Directors” within
the meaning of Section 162(m) of the Code.  In addition, the members of the
Committee shall satisfy the independence requirements of the New York Stock
Exchange.
 
2.2         Powers of the Committee.  The Committee shall have full authority to
award, pursuant to the terms of the Plan: (i) Stock Options; (ii) Restricted
Stock; (iii) Performance Shares; and/or (iv) Stock 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, Restricted Stock,
Performance Shares, and/or Stock 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, the number of shares, exercise price or types of consideration paid upon
exercise of a Stock Option, such as other securities of the Company or other
property, any restrictions or limitations on an award, such as performance
criteria, and any vesting, exchange, surrender, cancellation, acceleration,
termination, exercise or forfeiture provisions, as the Committee shall
determine);
 
(c)           to determine the Performance Goals, Performance Objectives and
Performance Period for any grant of Performance Shares or the performance
criteria or other factors which need to be attained for the vesting of an award
granted hereunder, and to determine whether the Performance Objectives,
performance criteria or other factors have been satisfied; and
 
(d)           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 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.

 
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Notwithstanding the foregoing, the Committee shall not have the power or
authority to make or amend any award or interpret the Plan or any Agreement in
any manner that would violate the prohibition on repricing in Section 2.5 hereof
or the prohibition on extensions of credit in Section 2.6 hereof.
 
2.3         Interpretation of Plan.
 
(a)           Committee Authority.  Subject to Article IX 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.  No term or provision of the Plan
relating to 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.
 
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; provided, however, that the Committee shall not delegate its
responsibility with respect to: (i) any award to any Director or executive
officer of the Company; (ii) any award intended to constitute “qualified
performance-based compensation” under Section 162(m) of the Code; or (iii) the
certification as to the satisfaction of any performance criteria in accordance
with Section 162(m) of the Code. Any allocation or delegation of
responsibilities or powers may be revoked by the Committee at any time.
 
2.5         Prohibition Against Repricing.  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,
payment of cash, or grant of any other equity award, except as provided in
Section 3.3 hereof (relating to the adjustment of awards upon changes in the
capitalization of the Company).
 
2.6         Prohibition Against Loans.  Anything in the Plan to the contrary
notwithstanding, neither the Company nor any Subsidiary shall, directly or
indirectly, extend any credit, or arrange for the extension of any credit, in
the form of a personal loan to any officer, employee, Director or consultant of
the Company or any Subsidiary for the purpose of obtaining the benefits of any
award under the Plan.
 
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 is 2,500,000 shares of Common
Stock, subject to adjustment as provided in Section 3.3 below.  Shares of Common
Stock under the Plan may consist, in whole or in part, of authorized 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 Restricted Stock or Performance Shares are forfeited or any
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.
 
 
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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
2,000,000 shares;
 
(b)           The maximum number of shares of Common Stock that may be covered
by awards granted to any one individual under Article V (relating to Stock
Options) shall be 250,000 shares during any one calendar-year period; and
 
(c)           For any award of Restricted Stock or Performance Shares that are
intended to be “performance based compensation” (as that term is used for
purposes of §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.
 
(d)           The maximum number of shares of Common Stock that may be issued as
Restricted Stock, Performance Shares and Stock Awards combined shall be
1,300,000 shares.
 
3.3         Adjustment Upon Changes in Capitalization, Etc.  In the event of any
dividend payable in shares of Common Stock, or any stock split or reverse stock
split of the Common Stock, 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, or
permitted to be issued under various types of awards as provided in Section 3.2
hereof, shall be similarly adjusted. In the event of any merger, reorganization,
consolidation, 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
shall be made by the Committee, whose determination shall be final, binding and
conclusive.
 
ARTICLE IV
ELIGIBILITY
 
4.1         General.  Awards may be made or granted to 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, to give them an opportunity to acquire a proprietary
interest in 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.
 
 
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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 a Stock Option may be granted only within the
ten-year period commencing from the Effective Date and may only be exercised
within ten years of the date of grant (or five years in the case of an Incentive
Stock Option granted to an optionee who, at the time of grant, owns Common Stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company (a “10% 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% 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 in four equal
annual installments commencing as of the first anniversary of the date of grant
or 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 VIII, below.  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, on a case by case basis.
 
(d)           Method of Exercise.  Subject to whatever installment exercise and
vesting 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
 
 
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(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 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.  Unless
otherwise determined by the Committee at or after the time of grant, the Company
shall not issue any shares of Common Stock acquired upon the cashless exercise
of an Option until the Holder or the third-party broker-dealer shall deliver (or
cause to be delivered) to the Company the aggregate exercise price and any
applicable tax withholding amount.  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.  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.  Subject to the provisions of
Section 11.3, 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 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 or prior to 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 the shorter.
 
(g)           Termination by Reason of Disability.  Subject to the provisions of
Section 11.3, 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 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 or prior to 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 the shorter.
 
 
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(h)           Other Termination.  Subject to the provisions of Section 11.3,
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 or prior to
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 until the expiration of the stated term of such
Stock Option, whichever period is shorter.
 
(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) of the shares of Common Stock with respect to which Incentive Stock
Options become exercisable for the first time by a Holder during any calendar
year (under all plans of the Company and its Parent and Subsidiaries) shall not
exceed $100,000.
 
ARTICLE VI
RESTRICTED STOCK
 
6.1         Grant.  Shares of Restricted Stock may be awarded either alone or in
addition to other awards granted under the Plan and may be in the form of
Performance Shares.  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
duration of the Restriction Period, variances to the vesting schedule and rights
to acceleration thereof, performance criteria (if any) and all other terms and
conditions of the awards.
 
6.2         Terms and Conditions.  Each award of Restricted Stock 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 shall bear a legend to the effect that
ownership of 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.
 
(b)           Rights of Holder.  Shares of Restricted Stock shall constitute
issued and outstanding shares of Common Stock for all corporate purposes.  The
Holder shall have the right to vote such shares of Restricted Stock and to
exercise all other rights, powers and privileges of a holder of Common Stock
with respect to such shares of Restricted Stock, except that: (i) the Holder
shall not be entitled to delivery of the stock certificate or certificates
representing such Restricted Stock until the Restriction Period shall have
expired and all other vesting requirements with respect thereto shall have been
fulfilled; (ii) the Company shall retain custody of the stock certificate or
certificates representing the Restricted Stock during the Restriction Period;
(iii) the Company shall retain custody of all Retained Distributions made or
declared with respect to the Restricted Stock, subject to the same restrictions,
terms and conditions as are applicable to the Restricted Stock, until such time,
if ever, as the Restricted Stock shall have become vested and the Restriction
Period shall have expired; and (iv) a breach by the Holder 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 shall cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
 
 
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(c)           Vesting; Forfeiture.  Upon the expiration of the Restriction
Period with respect to any shares of Restricted Stock, and the satisfaction of
any other applicable restrictions, terms and conditions set forth in the
applicable Agreement: (i) such shares of Restricted Stock shall become vested
and (ii) any Retained Distributions with respect to such Restricted Stock shall
become vested.  Any shares of 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.  Subject to the terms of
Article VIII below, the Restriction Period shall not be less than three years,
unless otherwise determined by the Committee at or after the date of grant.
 
6.3         Performance Shares.  The Committee may, in its sole discretion,
grant Performance Shares which are restricted by corporate performance criteria
identified by the Committee and set forth in the Agreement.  If the Performance
Shares are intended to constitute “qualified performance-based compensation”
within the meaning of Section 162(m) of the Code:
 
(a)           The Committee shall determine the applicable Performance Period
and establish objective Performance Goals and Performance Objectives for such
Performance Period prior to, or reasonably promptly following, the inception of
a Performance Period but, to the extent required by Section 162(m) of the Code,
by no later than the date that is the earlier of ninety days after the
commencement of the Performance Period and the day prior to the date on which 25
percent of the Performance Period has elapsed; and
 
(b)           Following the completion of each Performance Period, the Committee
shall certify in writing, in accordance with the requirements of Section 162(m)
of the Code to the extent applicable, whether the Performance Objectives and
other material terms of the award of Performance Shares have been achieved or
not.  Unless the Committee otherwise determines, the Performance Shares shall
not vest until the Committee makes the certification specified in this Section
6.3 (b).
 
ARTICLE VII
AUTOMATIC AWARDS TO OUTSIDE DIRECTORS
 
7.1         Stock Awards to Outside Directors.  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 automatically receive a Stock Award consisting of
that number of whole shares of Common Stock obtained by dividing 50 percent of
the Annual Stock Retainer Amount by the Fair Market Value of a share of Common
Stock as of the grant date, in each case rounded upward to the nearest number of
whole shares.
 
7.2         Nonqualified Stock Options Granted to Outside Directors in Lieu of
Cash-Based Retirement Benefits.
 
(a)           On the date of the Annual Meeting of each year during the term of
the Plan, each person then serving as an Outside Director of the Company shall
automatically receive a Nonqualified Stock Option to purchase 325 shares of
Common Stock.*  No automatic awards, however, will be made prior to stockholder
approval of the Plan.
 
 
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(b)           The exercise price per share of Common Stock under a Nonqualified
Stock Option granted under this Section 7.2 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 7.2
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 years from the date of grant or the expiration of the three-year
period provided in paragraph (d) below.
 
(d)           Whenever a recipient of a Nonqualified Stock Option granted under
this Section 7.2 ceases to be a Director of the Company for any reason
whatsoever, all outstanding Nonqualified Stock Options granted under this
Section 7.2, then held by such person, shall continue to vest and be exercisable
in whole or in part for a period of three years from the date on which such
person ceases to be a Director of the Company; provided, however, that, in no
event, shall any such Nonqualified Stock Option be exercisable beyond the
ten-year term of the Option specified in paragraph (c) above.
 
(e)           Each Nonqualified Stock Option granted under this Section 7.2
shall be subject to the provisions of Section 5.2(d) and (e) hereof.

 
*By resolution dated February 24, 2011, the Board suspended the automatic award
to Outside Directors of a nonqualified stock option to purchase 325 shares of
Common Stock effective as of the date of such resolution.
 
 
7.3         .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, each person then serving
as an Outside Director of the Company shall automatically receive a Nonqualified
Stock Option covering the lesser of 3,000 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 $33,333.*  Each person who is first elected a Director of the
Company after February 25, 2011, and who qualifies as an Outside Director, also
shall be granted, automatically upon such election, a restricted stock award
covering 6,000 shares of common stock which shall vest in three (3) equal annual
installments commencing as of the first anniversary of the date of grant,
provided the Holder of such restricted stock award is a Director of the Company
on such anniversary.
 
(b)           The exercise price per share of Common Stock under a Nonqualified
Stock Option granted under this Section 7.3 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 7.3
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 years from the date of grant or the
expiration of the applicable period specified in paragraph (d) or (e) below.
 
 
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(d)           Each Nonqualified Stock Option granted under this Section 7.3 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 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 year from the date of grant, such
Nonqualified Stock Option may be exercised within three months from the date of
such cessation and prior to the expiration date specified in such Nonqualified
Stock Option; and
 
(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)           Each Nonqualified Stock Option granted under this Section 7.3
shall be subject to the provisions of Section 5.2(d) and (e) hereof.

 
*By resolution dated February 24, 2011, the Board suspended the automatic award
to Outside Directors of a nonqualified stock option covering the lesser of 3,000
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 $33,333 effective as of the date
of such resolution.
 
 
ARTICLE VIII
ACCELERATED VESTING & BUYOUT OF AWARDS
UPON A CHANGE IN CONTROL
 
8.1         Accelerated Vesting and Exercisability.  Upon the occurrence of a
Change in Control 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 shall immediately and entirely
vest, and (except as provided in Section 8.2 below) the respective Holders
thereof shall 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.
 
8.2         Buyout of Awards in Connection with Certain Transactions.  Upon the
occurrence of a Change in Control 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.
 
 
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8.3         Definition of “Change in Control.”  For purposes of this Article
VIII, 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)           a report on Schedule 13D or Schedule 14D-1 (or any successor
schedule, form or report) shall be filed with the Securities and Exchange
Commission pursuant to the Exchange Act and that report discloses that 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
regulation promulgated under the Exchange Act), directly or indirectly, of 50
percent or more of the outstanding voting stock of the Company;
 
(b)           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), shall purchase securities pursuant to a tender offer or
exchange offer to acquire any voting stock of the Company (or any securities
convertible into voting stock of the Company) and, immediately after
consummation of that purchase, that person is the beneficial owner (as that term
is defined in Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act), directly or indirectly, of 50 percent or more of the
outstanding voting stock of the Company;
 
(c)           the consummation of: (i) a merger, consolidation or reorganization
of the Company with or into any other person if, as a result of such merger,
consolidation or reorganization, 50 percent or less of the combined voting power
of the then outstanding securities of such other person immediately after such
merger, consolidation or reorganization is held in the aggregate by the holders
of voting stock of the Company immediately prior to such merger, consolidation
or reorganization; (ii) any sale, lease, exchange or other transfer of all or
substantially all of the assets of the Company and its consolidated subsidiaries
to any other person if, as a result of such sale, lease, exchange or other
transfer, 50 percent or less of the combined voting power of the then
outstanding securities of such other person immediately after such sale, lease,
exchange or other transfer is held in the aggregate by the holders of voting
stock of the Company immediately prior to such sale, lease, exchange or other
transfer; or (iii) a transaction immediately after the consummation of which any
person (within the meaning of Section 13(d) or Section 14(d)(2) of the Exchange
Act) would be the beneficial owner (as that term is defined in Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act), directly or
indirectly, of more than 50 percent of the outstanding voting stock of the
Company;
 
(d)           the stockholders of the Company approve the dissolution of the
Company; or
 
(e)           during any period of twelve consecutive months, the individuals
who at the beginning of that period constituted the Board shall cease to
constitute a majority of the Board, unless the election, or the nomination for
election by the Company’s stockholders, of each director of the Company first
elected during such period was approved by a vote of at least a majority of the
Directors of the Company then still in office who were Directors of the Company
at the beginning of any such period; or
 
 
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(f)           the consummation of any other transaction which a majority of the
Board determines to constitute a change in control of the Company.
 
ARTICLE IX
AMENDMENT AND TERMINATION
 
9.1         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 that 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 X
TERM OF PLAN
 
10.1         Effective Date.  The Plan shall be effective as of October 24, 2002
(the “Effective Date”), subject to the approval of the Plan by the Company’s
stockholders within one 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.
 
10.2         Termination Date.  Unless earlier terminated by the Board, this
Plan shall continue to remain in effect for a period of ten years from the
Effective Date; provided that the Plan shall continue to govern all outstanding
awards until the awards themselves terminate in accordance with their terms.
 
ARTICLE XI
GENERAL PROVISIONS
 
11.1         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.  All Agreements shall be in writing and may be
executed in any legally enforceable manner, including by electronic means.  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 days after the
Agreement has been delivered to the Holder for his or her execution.
 
11.2         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.
 
 
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11.3         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, the Committee, in
its sole discretion, may require such Holder to return to the Company the
Economic Value of any award that was realized or obtained by such Holder at any
time during the period beginning on the date that is six months prior to the
date such Holder’s employment with the Company is terminated. The “Economic
Value” shall mean the amount reportable by the Holder as taxable compensation
for federal income tax purposes with respect to such award (for awards other
than Incentive Stock Options) and, in the case of an Incentive Stock Option, the
amount that would have been reportable by the Holder as taxable compensation for
federal income tax purposes with respect to such award if such Incentive Stock
Option had been a Nonqualified Stock Option.
 
(b)           Termination for Cause.  The Committee may, if a Holder’s
employment with the Company or a Subsidiary is terminated for cause, annul any
award granted under this Plan to such employee and, in such event, the
Committee, in its sole discretion, may require such Holder to return to the
Company the Economic Value of any award that was realized or obtained by such
Holder at any time during the period beginning on the date that is six months
prior to the date such Holder’s employment with the Company is terminated.
 
(c)           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.
 
11.4         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.
 
11.5         Additional Incentive Arrangements.  Nothing contained in the Plan
shall prevent the Board from adopting such other or additional incentive
arrangements as it 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.
 
 
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11.6         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.
 
11.7         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.
 
11.8         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).
 
11.9         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.
 
11.10       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.
 
11.11       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.
 
11.12        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.
 
 
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11.13       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.
 
ARTICLE XII
DEFINITIONS
 
12.1         Definitions.  For purposes of the Plan, the following terms shall
be defined as set forth below:
 
(a)           “Agreement” shall mean the agreement between the Company and a
Holder setting forth the terms and conditions of an award under the Plan.
 
(b)           “Annual Stock Retainer Amount”  shall mean the annual stock
retainer  equivalent to $36,000, subject to adjustment from time-to-time by the
Board, that is paid to each Outside Director.  “Board” shall mean the Board of
Directors of the Company.
 
(c)           “Change in Control” shall have the meaning set forth in Section
8.3 hereof.
 
(d)           “Code” shall mean the Internal Revenue Code of 1986, as amended
from time to time.
 
(e)           “Committee” shall mean 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.
 
(f)           “Common Stock” means the Common Stock of the Company, par value
$.10 per share.
 
(g)           “Company” shall mean Lydall, Inc., a corporation organized and
existing under the laws of the State of Delaware.
 
(h)           “Director” shall mean a member of the Board.
 
(i)           “Disability” shall mean physical or mental impairment as
determined under procedures established by the Committee for purposes of the
Plan.
 
(j)           “Economic Value” shall have the meaning set forth in Section
11.3(a) hereof.
 
(k)           “Effective Date” shall have the meaning set forth in Section 10.1
hereof.
 
 
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(l)           “Exchange Act” shall mean the Securities Exchange Act of 1934, as
amended from time to time.
 
(m)           “Fair Market Value,” when used in reference to a share of 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 per share of 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 per share of the Common Stock shall be the last sale price per share 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 per share of the
Common Stock shall be the closing bid price per share 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 per share of the Common Stock cannot be
determined pursuant to clause (i) or (ii) above, then the fair value per share
of the Common Stock shall be determined by the Committee in good faith.
 
(n)           “Holder” shall mean a person who has received an award under the
Plan.
 
(o)           “Incentive Stock Option” shall mean 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” shall mean shares of Common Stock that have been
held by the Holder for at least six months.
 
(q)           “Nonqualified Stock Option” shall mean 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” shall mean retirement from active employment
with the Company or any Subsidiary on or after age 65.
 
(s)           “Outside Director” shall mean 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” shall mean any present or future “parent corporation” of
the Company, as such term is defined in Section 424(e) of the Code.
 
 
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(u)           “Performance Goals” shall mean (and may be expressed in terms of)
any of the following business criteria: (i) net income; (ii) earnings per share;
(iii) operating income; (iv) operating cash flow; (v) earnings before income
taxes and depreciation; (vi) earnings before interest, taxes, depreciation and
amortization; (vii) increases in operating margins; (viii) reductions in
operating expenses; (ix) earnings on sales growth; (x) total stockholder return;
(xi) return on equity; (xii) return on total capital; (xiii) return on invested
capital; (xiv) return on assets; (xv) economic value added; (xvi) cost
reductions and savings; (xvii) increase in surplus; (xviii) productivity
improvements; or (xix) an executive’s attainment of personal objectives with
respect to any of the foregoing criteria or such other criteria as the Committee
deems appropriate such as growth and profitability, customer satisfaction,
quality, safety, business development, negotiating transactions or developing
long-term business goals. A Performance Goal may be measured over a Performance
Period on a periodic, annual, cumulative or average basis and may be established
on a corporate-wide basis or established with respect to one or more operating
units, divisions, subsidiaries, acquired businesses, minority investments,
partnerships or joint ventures.  Unless otherwise determined by the Committee,
the Performance Goals will be determined using generally accepted accounting
principles consistently applied during a Performance Period.
 
(v)           “Performance Objective” means the level or levels of performance
required to be attained with respect to specified Performance Goals in order for
any award of Performance Shares to vest.
 
(w)          “Performance Period” means the calendar year, or such other shorter
or longer period designated by the Committee, during which performance will be
measured in order to determine a Holder’s entitlement to vesting of any
Performance Shares.
 
(x)           “Performance Shares” shall mean shares of Restricted Stock that
are subject to restriction based on achievement of pre-defined corporate
performance criteria.
 
(y)           “Plan” shall mean the Lydall 2003 Stock Incentive Compensation
Plan, as amended from time to time.
 
(z)            “Restricted Stock” shall mean shares of Common Stock, received
under an award made pursuant to Article VI hereof, that are subject to
restrictions under Article VI.
 
(aa)         “Restriction Period” shall mean the period of time during which an
award of Restricted Stock is subject to forfeiture.
 
(bb)         “Retained Distributions” shall mean all distributions, including
regular cash dividends and other cash equivalent distributions, made or declared
with respect to an award of Restricted Stock.
 
(cc)         “Stock Award” shall mean an award of shares of Common Stock to an
Outside Director pursuant to Section 7.1 hereof.
 
(dd)         “Stock Option” or “Option” shall mean an option to purchase shares
of Common Stock which is granted pursuant to the Plan.
 
(ee)         “Subsidiary” shall mean any present or future “subsidiary
corporation” of the Company, as such term is defined in Section 424(f) of the
Code.
 
 
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(ff)           “Transaction Value” shall mean the Fair Market Value of a share
of Common Stock as of the date of repurchase, in the event the award to be
repurchased under Section 8.2 hereof is comprised of shares of Common Stock, and
the difference between Fair Market Value per share and the exercise price (if
lower than Fair Market Value) in the event the award is a Stock Option; in each
case, multiplied by the number of shares subject to the award.

 
#  #  #  #  #  #  #
 
 
 
 
 
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