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                                                                    EXHIBIT 10.1



                                                     February 2, 2000



John E. Hanley
34 Joel Drive
Hebron, CT  06248

Dear John:

This letter states Lydall, Inc.'s ("Lydall") proposal to extend special
separation benefits to you in exchange for your execution of a release of
possible claims against Lydall. You would be entitled to the special benefits
after the attached Termination, Voluntary Release and Waiver of Rights Agreement
("Release") (see Exhibit A) has been negotiated between you and Lydall and is
executed and effective. The special benefits will be retroactive to February 1,
2000 (the day following your last day of active employment with Lydall) and any
payments will begin no later than seven (7) days after you have executed the
Release. This offer to extend special separation benefits is conditioned on your
execution of the Release.

From the date of this letter until your termination date of January 31, 2000,
you will report and take direction from the Acting Interim CFO.

In reviewing this proposal, you should be aware that Lydall's offer to extend
special separation benefits to you in consideration for your execution of a
Release does not involve an exchange or forfeiture of any benefits to which you
are presently or otherwise entitled, nor are you being asked to release any
rights arising out of future events. To the contrary, Lydall's extension of this
offer is contingent upon your execution of a mutually acceptable Release wherein
you agree to waive certain rights expressly set forth therein relating to your
past employment relationship with Lydall. Lydall encourages you to review the
attached Release, with your attorney if you choose, and to discuss any questions
or modifications you propose with Lydall. You should note that should you decide
to sign the Release, you are entitled to revoke it within seven (7) calendar
days after executing it, and the Release does not become effective or
enforceable until the revocation period has expired.

An immediate response to Lydall's separation benefit proposal is not required. A
reasonable period for your deliberation and review will be provided before a
final decision must be made. If, however, no communication at all is received by
the undersigned within twenty-one (21) days of your receipt of this
correspondence, your silence will constitute a rejection of this offer,
whereupon Lydall's proposal to extend the separation benefits discussed herein
shall be withdrawn.

The following special Separation Benefits Section is a summary of benefits
offered to you ONLY if you should sign the Termination, Voluntary Release and
Waiver of Rights Agreement.


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SEVERANCE PERIOD

You will receive your current base compensation, less applicable taxes and
deductions for a severance period of twelve (12) months beginning February 1,
2000 contingent upon the successful divestment of the Fort Washington facility.
Also, Lydall agrees to convert your Incentive Stock Options (ISO) to
Non-Qualified Options effective February 1, 2000 for a period of one-year ending
on January 31, 2001.

If the Fort Washington facility is not divested by January 31, 2000, you will
receive your current base compensation, less applicable taxes and deductions for
a severance period of ten (10) months beginning February 1, 2000. Under this
circumstance, you will not be extended the opportunity to convert your ISO to
Non-Qualified Options.


HEALTH COVERAGE

Lydall agrees to pay your medical and/or dental coverage under COBRA through the
earlier of; the end of your severance period, or until such time as you are
first afforded the opportunity to secure health care coverage provided through a
subsequent employer. You may extend coverage beyond that date at your expense if
you exercised your rights under COBRA (see "Health Coverage" under "Other
Benefits") and continue to qualify for COBRA coverage.


USE OF COMPANY CAR

You can continue use of the company car through January 31, 2000, or until you
have obtained employment, whichever is earlier. The monthly payments for your
options will continue to be deducted, but when the car is returned Lydall will
pay the balance owed for those options. Lydall agrees to pay you a car allowance
in the amount of $500.00/month through the end of your severance period.


EXECUTIVE LIFE AND DISABILITY INSURANCE

Lydall agrees to continue to pay your executive life and disability premiums
until the end of your severance period.


OTHER BENEFITS

All other benefits you have held as an employee will end as of your termination
date, January 29, 2000 according to the terms of the Plan Documents. Your
Personnel Department will contact you with specific information.


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It is our hope that this correspondence conveys clearly the special separation
benefits Lydall is proposing to extend to you in consideration for your
execution of a mutually acceptable Release. Acceptance of this proposal is your
own choice and is not required, but purely voluntary on your part.

If you have any questions regarding any aspect of this correspondence, or wish
to discuss these benefits or their possible modification further, please contact
me at your earliest convenience.

                                               Sincerely,



                                               Christopher R. Skomorowski
                                               President and CEO


_____________________________________________         Date: ___________________
Signature - Employee (Receipt of Letter)





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                                                                       EXHIBIT A


                       TERMINATION, VOLUNTARY RELEASE AND
                           WAIVER OF RIGHTS AGREEMENT


         I, John E. Hanley, unqualifiedly accept and agree to the relinquishment
of my title, responsibilities and obligations as an employee and specifically as
Vice President, Finance and Treasurer of Lydall, Inc. ("Lydall"), and
concurrently and unconditionally agree to sever my relationship as an employee
of Lydall effective January 31, 2000, in consideration for the voluntary payment
to me by Lydall of the monetary amount set forth in the attached cover letter
which is made a part hereof. I hereby accept the proposal as negotiated in the
attached cover letter.

         1. In exchange for the consideration described in the attached cover
letter, which I understand that Lydall is not otherwise obligated to provide to
me, I voluntarily agree to waive and forego any claims that I may have against
Lydall and to release Lydall and their respective affiliates, subsidiaries, past
and present officers, directors, employees, representatives, agents, successors
and assigns (hereinafter collectively referred to as "Releasees") from any
obligations any of them may owe to me, accepting the aforestated consideration
as full settlement of any monies or obligations owed to me by Releasees that may
have arisen at any time under and out of my employment relationship with Lydall,
except as specifically provided below in the following paragraph number 2.

         2. I do not waive, nor has Lydall asked me to waive, any rights arising
exclusively under the Fair Labor Standards Act, except as such waiver may
henceforth be made in a manner provided by law. I do not waive, nor has Lydall
asked me to waive, any vested benefits that I may have or that I may have
derived from the course of my prior employment with Lydall. I understand that
such vested benefits will be subject to and administered in accordance with the
established and usual terms governing same. I do not waive any rights which may
in the future arise exclusively from a substantial breach by Lydall of a
material obligation of Lydall expressly undertaken in consideration of my
entering into this Termination, Voluntary Release and Waiver of Rights
Agreement.

         3. I agree to release, remise and forever discharge, and by these
presents do, for myself, my heirs, executors and administrators, release, remise
and forever discharge Lydall, its past and present and future parent and
affiliate corporations and its past and present and future divisions,
subsidiaries and related companies and their successors and assigns and Lydall's
directors, officers, employees, agents and representatives, personally and as
directors, officers, employees, agents and representatives of and from all
manner of action and actions, causes and causes of action, sums of money,
covenants, contracts, controversies, agreements, promises, damages, claims and
demands whatsoever, in law or in equity, which I ever had, may have had, now
have or which my heirs, executors or administrators hereinafter can, shall or
may


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have as a result of my employment with or termination of employment with
Lydall, whether known or unknown, asserted or unasserted, suspected or
unsuspected, which I may have as a result of any act which has occurred at
any time up to and including the date of my execution of this Termination,
Voluntary Release and Waiver of Rights Agreement, including, without
limitation, any and all claims arising under the Agreement between Lydall,
Inc. and myself dated March 10, 1995 and any claims, demands and causes of
action under federal or state law, including without limitation, any rights
to bring any demands, complaints, causes of action, claims and charges under
the Federal Age Discrimination in Employment Act, 29 U.S.C. Sections 621-634,
including the Older Workers' Benefit Protection Act 29 U.S.C.  Section
626(f)(1), Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C.
Section 2000e-2000e-17, the Civil Rights Act of 1991, the Connecticut Fair
Employment Practices Act, Conn. Gen. Stat. Sections 46a-60-46a-62 (1995), the
Americans With Disabilities Act, 42 U.S.C. Sections 12101-12213, the Employee
Retirement Income Security Act ("ERISA"), the Fair Labor Standards Act, the
Equal Pay Act of 1963, Executive Order 11246, and the right to bring demands,
complaints, causes of action, claims and charges under any other federal,
state or local law, statute, regulation or decision, including laws that
prohibit discrimination on the basis of sex, age or any claims for invasion
of privacy, infliction of emotional distress, assault, battery or other
common law claims, and any claims, demands or causes of action for injunctive
and declaratory relief, breach of contract, wrongful discharge, compensation
for lost wages and benefits, emotional distress, compensatory and punitive
damages and costs including attorneys' fees, expenses and costs of
litigation, and such other and additional relief as may be appropriate.

         THIS MEANS THAT, BY SIGNING THIS AGREEMENT, I WILL HAVE WAIVED ANY
RIGHT I MAY HAVE HAD TO BRING A LAWSUIT OR MAKE ANY LEGAL CLAIMS AGAINST LYDALL
AND/OR THE RELEASEES INCLUDING, BUT NOT LIMITED TO, CLAIMS WHICH IN ANY WAY
ARISE FROM OR RELATE TO MY EMPLOYMENT RELATIONSHIP WITH AND/OR CESSATION OF
EMPLOYMENT WITH LYDALL UP TO THE DATE OF THE SIGNING OF THIS AGREEMENT.

         4. Nothing in this Agreement shall release, discharge or waive any
rights and obligations created by this Agreement.

         5. I further acknowledge that I have been specifically asked by Lydall
to review thoroughly the terms of this agreement and the concurrently executed
cover letter including, especially, the waiver of rights set forth herein, with
an attorney prior to my execution of this agreement. I understand that should I
decide to sign the Termination, Voluntary Release and Waiver of Rights
Agreement, I am entitled to revoke it within seven (7) calendar days after
executing it, and the Termination, Voluntary Release and Waiver of Rights
Agreement does not become effective or enforceable until the revocation period
has expired. I also understand that if I do not communicate a decision to Lydall
within twenty-one (21) calendar days of my receipt of this correspondence, my
silence shall constitute a rejection of this offer, whereupon Lydall's proposal
to extend the separation benefits discussed herein shall be withdrawn. I
acknowledge that I have been given sufficient time to freely consult with an
attorney or counselor of my own choosing and that I knowingly and voluntarily
execute this Termination, Voluntary Release and Waiver of Rights Agreement,
after bargaining over the terms hereof, with knowledge of the


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consequences made clear, and with the genuine intent to release claims without
threats, duress, or coercion on the part of Lydall. I do so understanding and
acknowledging the significance of such waiver.

         6. Further, in view of the above-referenced consideration voluntarily
provided to me by Lydall, after due deliberation, I agree to waive any right to
further litigation or claim against any or all of the Releasees except as
specifically provided in paragraph number 2 above. I hereby agree to indemnify
and hold harmless the Releasees and their respective agents or representatives
from and against any and all losses, costs, damages or expenses, including,
without limitation, attorneys fees incurred by said parties, or any of them,
arising out of any breach of this Agreement by me or by any person acting on my
behalf, or the fact that any representation made herein by the undersigned was
false when made.

         7. As a material inducement to Lydall to enter into this Termination,
Voluntary Release and Waiver of Rights Agreement, the undersigned understands
and agrees that if he/she should fail to comply with the conditions hereof or to
carry out the agreement set forth herein, all amounts paid to the undersigned
under this Agreement shall immediately be forfeited to Lydall and that the right
or claim to further payments and/or benefits hereunder would likewise be
forfeited.

         8. I agree to refrain from directly or indirectly interfering in any
manner with the operations, management or administration of the Releasees and I
further agree that I will not publicly disparage the Releasees, nor will I
discuss in any public forum or in the media any claims that have been made
against the Releasees arising from my employment relationship with Lydall. For
purposes of this paragraph, "disparage" shall mean any statements, actions or
insinuations, made either directly or through a third party, that would lessen
the standing or stature of an institution or individual in the eyes of an
ordinary citizen.

         9. Lydall agrees to refrain from publicly disparaging Hanley, nor will
LydalI discuss in any public forum or in the media any claims that have been
made against Hanley arising from his employment relationship with Lydall. For
purposes of this paragraph, "disparage" shall mean any statements, actions or
insinuations, made either directly or through a third party, that would lessen
the standing or stature of an institution or individual in the eyes of an
ordinary citizen.

         10. I acknowledge that (a) I may subsequently discover facts in
addition to or different from those that I now know or believe to be true with
respect to the claims described in Paragraph 1 above, and (b) that I may have
sustained or may yet sustain damages, costs or expenses that are presently
unknown and that relate to those claims. I acknowledge, however, that I have
negotiated, agreed upon and entered into this Termination, Voluntary Release and
Waiver of Rights Agreement with full knowledge of these possibilities and agree
that this Agreement shall not be affected in any manner whatsoever if any of
these possibilities come to pass.

         11. Except to enforce this Termination, Voluntary Release and Waiver of
Rights Agreement, Lydall and I agree that we will forever forbear from pursuing
any legal proceedings,


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administrative or judicial, and we will not in any other way make or continue to
make any demand or claims against each other with respect to any aspect of my
employment, and cessation of employment, with Lydall occurring at any time up to
and including the date of our execution of this Agreement.

         12. I hereby agree that I will not seek reinstatement or reemployment
at Lydall or any of its divisions or subsidiaries, and waive any right to seek
such positions. I further agree that I will not apply for any such position at
any time in the future and that the execution of this Termination, Voluntary
Release and Waiver of Rights Agreement is good and sufficient cause for Lydall
to reject any such applications or to terminate my employment if I obtain any
such future employment.

         13. As a further material inducement to Lydall to enter into this
agreement, the undersigned provides as follows:

         FIRST. The undersigned represents that he has not filed any complaints
or charges against Lydall, or any of the Releasees relating to the
relinquishment of his former titles and responsibilities at Lydall or the terms
of his former employment with Lydall and that if any agency or court assumes
jurisdiction of any complaint or charge against Lydall or any of the Releasees
on behalf of the undersigned concerning his former employment with Lydall, the
undersigned understands and agrees that he has, by his knowing and willing
execution of this Agreement waived his rights to any form of recovery or relief
against Lydall, or any of the Releasees, including but not limited to,
attorney's fees. Provided, however, that this provision shall not preclude the
undersigned from pursuing appropriate legal relief against Lydall for redress of
a substantial breach of a material obligation of Lydall expressly undertaken in
consideration of the undersigned's entering into this Termination, Voluntary
Release and Waiver of Rights Agreement.

         SECOND. The undersigned acknowledges and understands that the
consideration for this release shall not be in any way construed as an admission
by Lydall or any of the Releasees of any improper acts or any improper
employment decisions, and that Lydall, specifically disclaims any liability on
the part of themselves, their agents, employees, representatives, successors or
assigns in this regard.

         THIRD. The undersigned acknowledges and agrees that this Termination,
Voluntary Release and Waiver of Rights Agreement shall be binding upon the
undersigned, upon Lydall, and upon our respective administrators,
representatives, executives, successors, heirs and assigns and shall inure to
the benefit of said parties and each of them.

         FOURTH. The undersigned represents, understands, and agrees that this
is a voluntary agreement which may not be construed as binding precedent that
can be utilized or asserted by the undersigned or by others acting on his/her
behalf in any manner whatsoever against Lydall or any of the Releasees here, or
elsewhere, in the future. Provided, however, that this provision shall not
preclude the undersigned from utilizing or asserting this agreement to obtain
appropriate relief for redress of a substantial breach of a material obligation
of Lydall expressly


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undertaken in consideration of the undersigned's entering into this Termination,
Voluntary Release and Waiver of Rights Agreement.

         FIFTH. The undersigned represents, understands and agrees that this
Termination, Voluntary Release and Waiver of Rights Agreement sets forth the
entire agreement between the parties hereto, and fully supersedes any and all
prior agreements or understandings between the parties pertaining to the subject
matter hereof, EXCEPT for the Employee Agreement previously executed by the
undersigned, the terms of which retain their full force and effect, and which
are in no way limited or curtailed by this Termination, Voluntary Release and
Waiver of Rights Agreement. (A copy of that Employee Agreement is attached
hereto, made a part hereof, and designated as Exhibit B.)

         SIXTH. The undersigned represents, understands and agrees that for a
period of two (2) years from the date of termination, he will not 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 which manufactures and/or sells products competitive with
Lydall's products or products currently in development in any market in which
Lydall has sold or attempted to sell any of its product in the two (2) years
preceding such termination; or (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 his 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.

         SEVENTH. MODIFICATION. Neither this Agreement nor the cover letter may
be altered or changed orally, but only by an agreement in writing that has been
properly executed by the party against whom any waiver, change, modification or
discharge is sought.

         EIGHTH. SEVERABILITY. All provisions and terms of this Agreement are
severable. The invalidity or unenforceability of any particular provision(s) or
term(s) of this Agreement shall not affect the validity or enforceability of the
other provisions and such other provisions shall be enforceable in law or equity
in all respects as if such particular invalid or unenforceable provision(s) or
term(s) were omitted. Notwithstanding the foregoing, the language of all parts
of this Agreement shall, in all cases, be construed as a whole, according to its
fair meaning, and not strictly for or against any of the parties.

         NINTH. CONFIDENTIALITY. Lydall and the undersigned agree to refrain
from disclosing to third parties and to keep strictly confidential all details
of this Agreement and any and all information relating to its negotiation,
except as necessary to each party's accountants or attorneys.

         I agree and recognize that by reason of my employment and services to
the Releasees I have had access to certain confidential and proprietary
information relating to the Releasees' business, which may include, but is not
limited to, technical notebook records, technical reports, patent applications,
machine equipment, computer software, models, process and product


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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
procedures, policy manuals, flowcharts, computer printouts, computer programs,
software and financial information, reproductions and correspondence, trade
secrets, marketing and sales techniques, strategies and programs, (collectively
referred to as "Confidential Information"). I acknowledge that I will not,
unless expressly authorized in writing by the Releasees, directly or indirectly,
at any time, use any Confidential Information or divulge or disclose any
Confidential Information to any person, firm or corporation, unless such
information is in the public domain through no fault of me or except when
required to do so by a court of law, by any governmental agency having
supervisory authority over the business of Lydall or by any administrative or
legislative body (including a committee thereof) with apparent jurisdiction over
me to divulge, disclose or make accessible such information in which case I will
inform the Releasees in writing promptly of such required disclosure, but in any
event at least two days prior to disclosure. All written Confidential
Information (including, without limitation, in any computer or other electronic
format) which came into my possession during the course of my employment shall
remain the property of the Releasees. I agree that I will return all
Confidential Information of Lydall in my possession no later than the date on
which this Agreement is signed. I further agree to immediately deliver my laptop
computer, including all floppy disks, to Lydall for removal of all computer
programs, files and documents that are Confidential Information of Lydall.


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                             AFFIRMATION OF RELEASOR

         I, John E. Hanley, warrant that this Termination, Voluntary Release and
Waiver of Rights Agreement, the accompanying cover letter executed concurrently
herewith, and the Employee Agreement reflect the entire agreement between me and
Lydall.

         I, John E. Hanley, warrant that I am competent to execute this
Termination, Voluntary Release and Waiver of Rights Agreement and that I accept
full responsibility therefor.

         I, John E. Hanley, have read this Termination, Voluntary Release and
Waiver of Rights Agreement carefully and I fully understand its terms. I execute
this document voluntarily with full and complete knowledge of its significance.

         Executed this__________ day of _____________, 2000, at _______________.



                                                  ___________________________
                                                  John E. Hanley



STATE OF_____________________________ )
                                      )       SS:
COUNTY OF____________________________ )


        Subscribed and sworn to before me, a Notary Public in and for said
County and State, this_____________day of ____________, 2000, under the pains
and penalties of perjury.




                                                  ___________________________
                                                                 , Notary Public


My Commission Expires: _____________________

County of Residence: _______________________




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