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LYDALL, INC.
ANNUAL INCENTIVE PERFORMANCE PROGRAM
(Approved on February 21, 2021; Effective January 1, 2021)

This Annual Incentive Performance Program (this “AIP Program”) sets forth the terms and conditions under which designated employees of Lydall, Inc. and its subsidiaries (collectively, “Lydall” or the “Company”) may receive cash incentive payments based on the annual financial performance of the Company.

1.    Purpose.  The purpose of this AIP Program is to retain and incentivize Participating Employees (as defined below) by providing annual cash bonus opportunities to reward them when specified performance metrics are achieved.

2.    Effective Date.  This AIP Program was approved by the Compensation Committee (the “Compensation Committee”) of the Board of Directors (the “Board”) of Lydall on February 21, 2021, is effective as of January 1, 2021 and shall continue indefinitely until terminated or otherwise amended by the Compensation Committee.

3.    Eligibility.  Only Participating Employees are eligible to participate in this AIP Program.  “Participating Employees” are officers of Lydall and Vice Presidents / Senior Vice Presidents of Lydall subsidiaries as approved by the Compensation Committee (“Group A Participating Employees”) and other employees of Lydall who are designated by the Chief Executive Officer (“Group B Participating Employees”).

4.    Program Elements. The following elements and defined terms apply to this AIP Program:

a.    Program Year.  A “Program Year” is the calendar year.

b.    Base Salary.  “Base Salary” is the Participating Employee’s regular earnings as indicated on his or her final paycheck of the Program Year, plus any separately recorded holiday and vacation pay.  Base Salary is reduced by earnings attributed to any leave of absence.

c.    Target Bonus Percentage. “Target Bonus Percentage” is a specified percentage of a Participating Employee’s Base Salary that is assigned as part of his or her compensation package.  Target Bonus Percentages may change  based upon approval of the Chief Executive Officer or, in the case of the Chief Executive Officer and his/her direct reports, based upon approval by the Compensation Committee.

d.    Target Bonus Amount. “Target Bonus Amount” for each Participating Employee is the product obtained by multiplying his or her Base Salary by his or her Target Bonus Percentage.

e.    Performance Metrics.  “Performance Metrics” are the following designated measures of financial performance for any given Program Year for Lydall on a consolidated basis or for a Business Unit (as defined below):

(i)    Earnings before income, taxes, depreciation and amortization, as adjusted (or “EBITDA”) — defined as

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(A)for Consolidated Lydall, the sum of (a) consolidated net income from continuing operations plus (b) consolidated interest expenses, plus (c) the provision for federal, state, local and foreign income taxes, plus (d) depreciation and amortization expense, and subject to such other adjustments as determined by the Committee; and 

(B)for each Business Unit, the sum of (a) consolidated operating income from continuing operations of the relevant Business Unit plus (b) depreciation and amortization expense, plus (c) equity income; and subject to such other adjustments as determined by the Committee.

(ii)    Working Capital as a % of Sales (or “WC%S”) — defined as a ratio calculated by dividing:  (A) the average of twelve months working capital (defined as trade accounts receivable, including other tooling receivables, plus inventory minus accounts payable); by (B) the twelve months net sales from continuing operations.

f.    Performance Targets.  “Performance Targets” are the specific measures of financial performance (expressed with reference to consolidated and Business Unit Performance Metrics) that are established and approved by the Compensation Committee for each Program Year.

g.    Personal Achievement Multiplier.  “Personal Achievement Multiplier” is a multiplier between 0.85 and 1.15 that reflects a Group B Participant’s achievement of individual performance objectives for the Program Year, pursuant to the Company’s performance management system. 

h.    Consolidated Lydall and Business Units.  Performance Targets may be established on a consolidated basis (“Consolidated Lydall”) for such business units of the Company as may be determined by the Compensation Committee from time-to-time (each, a “Business Unit” or “BU” and, collectively, the “Business Units”). For Participating Employees in Corporate Headquarters, the Performance Metrics and Performance Metric Weight will be set based 100% on Consolidated Lydall performance.  For Participating Employees within each Business Unit, the Performance Metrics and Performance Metric Weight will be set based on 25% of their respective Business Unit performance and 75% on Consolidated Lydall performance.

i.    Applicability and Relative Weight of Performance Metrics.  The applicable Performance Metrics and the relative weight of each such Performance Metric (the “Performance Metric Weight”) for the respective Participating Employees shall be established by the Compensation Committee at the same time it establishes the consolidated and Business Unit Performance Targets for each Program Year.  

5.    AIP Program Operation. This AIP Program shall operate as set forth below: 

a.    Establishment of Performance Targets.  No later than March 31 of each Program Year, the Compensation Committee shall establish the consolidated and Business Unit Performance Targets, Performance Metrics and Performance Metric Weight for such Program Year.  All Performance Targets and actual performance with respect to those targets are subject to adjustment by the Compensation Committee, in its 
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discretion, if determined necessary or appropriate to adjust for the effects of extraordinary items, unusual or non-recurring events, changes in accounting principles, realized investment gains or losses, discontinued operations, acquisitions, divestitures, material restructuring or impairment charges and other similar items.

b.    Determination of Cash Bonus Factors for EBITDA Achieved.  Cash bonus awards with respect to the EBITDA Performance Metric are determined based upon the achievement of the Performance Targets with reference to the applicable cash bonus factor set forth in the table below (hereinafter, the “EBITDA Cash Bonus Factor”) compared to the target (the “Target”), the threshold (the “Threshold”) and the maximum (the “Maximum”), each as established by the Compensation Committee.  Straight line interpolation will be used to calculate the Cash Bonus Factor for actual performance between the achieved performance levels for each performance metric.  In determining the overall Cash Bonus Factor, this metric will have a relative Performance Metric Weight of 75%.

									
	Performance Target
Achieved for
EBITDA
	EBITDA Cash Bonus Factor
(Group A)
	EBITDA Cash Bonus Factor
(Group B)

	Threshold	0.50	0.50
	Target	1.00	1.00
	Maximum	2.00	1.50

c.    Determination of Cash Bonus Factor for WC%S Achieved.  Cash bonus awards with respect to the WC%S Performance Metric for performance achieved are determined based upon the achievement of the Performance Targets with reference to the applicable cash bonus factor set forth in the table below (hereinafter, the “WC%S Cash Bonus Factor”) compared to the Target, the Threshold and the Maximum, each as established by the Compensation Committee.  Straight line interpolation will be used to calculate the WC%S Cash Bonus Factor for actual performance between the achieved performance levels.  In determining the overall Cash Bonus Factor, this metric will have a Performance Metric Weight of 25%

									
	Basis Points (bps) Relative to WC Target	WC%S Cash Bonus Factor
(Group A)
	WC%S Cash Bonus Factor
(Group B)

	Threshold	0.50	0.50
	Target	1.00	1.00
	Maximum	2.00	1.50

d.    Determination of Actual Financial Performance.  As soon as practicable following the completion of each Program Year and the availability of Lydall’s audited consolidated financial statements for such Program Year, the Compensation Committee shall: (i) determine the Consolidated Lydall and Business Unit EBITDA and Working Capital achieved for the Program Year (each “Performance Metric Achieved”); and (ii) certify in writing the extent to which the Performance Target for each has been achieved, if at all (such certification is referred to as the “Committee 
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Certification”).  If, in determining and certifying the achievement of any Performance Targets for the Program Year, the Compensation Committee determines that it is necessary or appropriate to make adjustments by virtue of the authority set forth in paragraph (a) above, the Committee Certification shall include a brief statement setting forth the amount of the adjustment and the reasons therefor; such adjustments shall primarily be governed by the Company’s policy on  the use of non-GAAP adjustments.

e.    Determination of Cash Bonus Amount.  Each Participating Employee shall be entitled to receive a cash bonus equal to the product of his or her:  (i) Target Bonus Amount, (ii) Performance Metric Weight for the applicable Performance Metric, (iii) Cash Bonus Factor for the applicable Performance Metric Achieved (as set forth in Committee Certification) for the applicable Program Year, and (iv) for Group B Participating Employees only, a Personal Achievement Multiplier to reflect achievement of personal objectives and individual performance for the period.  

f.    Limitation on Payments. Notwithstanding any other provision of the AIP Program, the following limitations shall apply with respect to the total bonus amount paid to any Participating Employee:  (i) the total amount paid to any Group A Participating Employee shall not exceed 200% of their Target Bonus Amount; and (ii) subject to the application of the Personal Achievement Multiplier, the total amount paid to any Group B Participating Employee shall not exceed 150% of their Target Bonus Amount.

6.    General Terms and Conditions

a.    Plan Administration. The Compensation Committee shall be responsible for overseeing the administration and interpretation of this AIP Program and for overseeing the implementation of its provisions.  The Compensation Committee reserves the right, in its sole discretion, to modify, amend or terminate this AIP Program at any time.  All decisions of the Compensation Committee regarding the interpretation, construction, implementation and administration of this AIP Program shall be final and binding.

b.    Repayment of Bonus.  The following shall apply with respect to the repayment of bonuses paid under this AIP Program: 

(i)    To the extent not required to be repaid by the other provisions to this Section 6 (b), if, at any time, the Compensation Committee, in its sole discretion, determines that any action or omission by a Participating Employee constituted (i) wrongdoing that contributed to any material misstatement in or omission from any report or statement filed by the Company with the U.S. Securities and Exchange Commission; (ii) intentional misconduct or gross misconduct; (iii) a breach of a fiduciary duty to the Company or its shareholders; or (iv) fraud, then in each such case, commencing with the first Program Year during which such action or omission occurred, the Participating Employee committing such act or omission shall be terminated from participation in this AIP Program and such Participating Employee shall immediately repay to the Company, upon notice to the Participating Employee by the Company, up to 100% (as determined by the Company) of the gross 
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amount paid to the Participating Employee pursuant to this AIP Program during and after such Program Year.  

(ii)    To the extent not required to be repaid by the other provisions to this Section 6(b), any bonus paid pursuant to this AIP Program also shall be subject to recoupment in accordance with the applicable provisions of any law, government regulation or stock exchange listing requirement (and any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement).

Additionally, at the discretion of the Compensation Committee, if the Company is required to restate any of its financial statements filed with the U.S. Securities and Exchange Commission, other than restatements due solely to facts external to the Company and its affiliates such as a change in accounting principles or a change in securities laws or regulations with retroactive effect, Participating Employees may be required to disgorge and repay to the Company any bonus paid pursuant to this AIP Program to the extent such bonus exceeded the amount that would have been paid for such Program Year if it had been based upon the restated financial statements.  

c.    Payment.  All cash bonuses shall be paid after issuance of the Committee Certification.   

d.    Active Employment Condition.  To be eligible to receive a bonus payout under this AIP Program, a Participating Employee must be an employee in good standing as of the date the cash bonus is actually paid by Lydall, except as otherwise specifically agreed to by the Board or the Compensation Committee.

e.    No Guarantee That Cash Bonuses Will Be Paid. Lydall and the Compensation Committee reserve the right to withhold, reduce or deny payment of a cash bonus otherwise payable under the AIP Program, subject to any limitations that may be imposed by applicable law.  

f.    Not an ERISA Regulated Program.  This is not an ERISA regulated program.

g.    No Assignability. No rights of any Participating Employee may be sold, exchanged, transferred, assigned, pledged or otherwise disposed of (including through the use of any cash-settled instrument), either voluntarily or involuntarily by operation of law, other than by will or by the laws of descent and distribution.

h.    Program Creates No Employment Rights.  Nothing in this AIP Program shall confer upon any Participating Employee a right to continue in the employ of Lydall or affect any right which Lydall may have to terminate such employment.

i.    Program Unfunded.  This AIP Program is unfunded and nothing in the program shall be construed to create a trust or to establish or evidence any Participating Employee’s claim of any right to payment of a cash bonus other than as a general unsecured creditor.

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j.    Governing Law.  All rights and obligations under this AIP Program shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflict of laws.

k.    Tax Withholding.  All payments hereunder shall be subject to applicable income, employment and other tax withholding as may be required by law.  

l.    Section 409A of the Code.  Lydall intends that cash payments under this AIP Program shall be exempt from Section 409A of the U.S. Internal Revenue Code, as amended (the “Code”), as short-term deferrals and shall not constitute “deferred compensation” within the meaning of Section 409A of the Code (absent a valid deferral election under the terms of another plan or arrangement maintained by Lydall). This AIP Program shall be interpreted, construed and administered in accordance with the foregoing intent.  Notwithstanding the foregoing, Lydall shall have no liability to any Participating Employee or otherwise if this AIP Program or any cash bonus award paid or payable hereunder is subject to the additional tax and penalties under Section 409A of the Code.

m.    No Effect on Benefits.  Awards and payments under this AIP Program shall constitute special incentive payments to the Participating Employee and shall not be required to be taken into account in computing the amount of salary or compensation of the Participating Employee for the purpose of determining any contributions to or any benefits under any pension,  retirement, profit-sharing, bonus, life insurance, severance or other benefit plan of Lydall or under any agreement with a Participating Employee, unless Lydall has elected to implement a different arrangement or practice.
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LYDALL, INC.
PERFORMANCE SHARE AWARD AGREEMENT
(Three-Year Period)

THIS PERFORMANCE SHARE AWARD AGREEMENT (this “Agreement”) is made between Lydall, Inc., a Delaware corporation (“Lydall”), and the recipient (the “Recipient”) with respect to an Award under Lydall’s Amended and Restated 2012 Stock Incentive Plan (the “Plan”) pursuant to the award letter (the “Award Letter”), dated _________ __ 202__, from Lydall to the Recipient. All capitalized terms used but not defined in this Agreement shall have the same meanings that have been ascribed to them in the Plan, unless the context clearly requires otherwise. 
1.Grant of Performance Shares.  On the Date of Grant (as defined in the Award Letter), the Recipient has been granted the number of shares of Restricted Stock as set forth in the Award Letter (the “Performance Shares”). The Performance Shares are subject to the terms and conditions set forth in the Award Letter, this Agreement and the Plan. By accepting this Agreement, Recipient understands that the Performance Shares shall vest (a) solely to the extent the Plan Administrator certifies the achievement of the Performance Objectives (as defined below) and (b) provided that the Recipient remains in employment by the Company through the date of the Certification (as defined below). Performance Shares that do not vest will be forfeited.
2.Acceptance of Award.  The Recipient shall have no rights with respect to the Performance Shares unless the Recipient accepts this Agreement no later than the close of business on the date that is sixty (60) days after the Date of Grant. Such acceptance shall be effected by accessing the website of Lydall’s administrative agent (the “Administrative Agent”), referenced in the Award Letter and completing the required on-line grant acknowledgment process. 
3.Ownership of Performance Shares; No Rights to Dividends on Performance Shares That Do Not Vest.  As soon as practicable after the acceptance of the Award by the Recipient, Lydall will cause the Performance Shares to be issued in book entry form in the name of the Recipient, whereupon they will be held for the benefit of the Recipient by the Administrative Agent until the Performance Shares vest or are forfeited in accordance with the terms and conditions of the Plan and this Agreement. Upon such issuance, the Recipient shall be the holder of record of the Performance Shares granted hereunder and will have, subject to the terms and conditions of the Plan and this Agreement, voting rights of a stockholder with respect to such Shares. Lydall shall retain custody of all Unvested Dividends made or declared with respect to the Performance Shares, subject to the same restrictions, terms and conditions as are applicable to the Performance Shares, until such time, if ever, as the Performance Shares shall vest.
4.Performance Condition.
(a)Period.  The Performance Period for the Performance Shares is defined in the Award Letter.
(b)Performance Objectives.  The actual number of Shares eligible for vesting will depend upon satisfaction of the Performance Objectives, which consist of the following two 
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equally-weighted objectives:  (i) Lydall’s Relative TSR Percentile Rank for the Performance Period, as set forth in Section 4(c), below; and (ii) the Average ROIC, as set forth in Section 4(c), below, each as determined by the Plan Administrator in accordance with this Agreement. 
(c)Relative TSR Percentile Rank Objective.  The number of Shares that shall vest in connection with this objective shall be equal to fifty percent (50%) of the total number of Performance Shares granted multiplied by the Relative TSR Vesting Percentage as set forth in the following table:
						
	

Relative TSR Percentile Rank
	“Relative TSR Vesting Percentage”

	75th or higher
	200%
	50th
	100%
	25th
	50%
	Lower than 25th
	0%

To determine the Relative TSR Percentile Rank for the Performance Period, the Plan Administrator will rank the TSR of the companies in the Peer Group including Lydall from highest to lowest, with the highest being ranked number 1, and apply the following formula, where N is the total number of companies in the Peer Group including Lydall and R is the ranking of Lydall’s TSR within the Peer Group: 

N - R
N -1 

The result will be rounded to the nearest whole percentile, rounding up for any value of 0.50 or higher.  If the Relative TSR Percentile Rank for the Performance Period falls between the 25th percentile rank and the 75th percentile rank, the Relative TSR Vesting Percentage shall be determined using straight line linear interpolation.

(d)Average ROIC Objective.  The number of Shares that shall vest in connection with this objective shall be equal to fifty percent (50%) of the total number of Performance Shares granted multiplied by the Average ROIC Vesting Percentage based on the Average ROIC Achievement for the Performance Period compared to the target (the “Target”), the threshold (the “Threshold”) and the maximum (the “Maximum”), each as established by the Plan Administrator, as stated in the Award Letter and calculated as set forth in the following table:
						
	

Average ROIC Achievement
	“Average ROIC Vesting Percentage”

	Maximum	200%
	Target	100%
	Threshold	50%
	Below Threshold	0%

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For purposes of the foregoing, “Average ROIC” shall be determined by taking the average of each fiscal year within the Performance Period, of the Company’s after-tax Earnings Before Interest, Tax and Amortization (“EBITA”), divided by the Average Invested Capital, based on a predetermined effective tax rate and non-GAAP adjustments approved, from time-to-time, by the Company’s Audit Review Committee and such other adjustments as determined by the Plan Administrator. 
The Average ROIC Vesting Percentage of the Performance Shares where performance achievement is between Threshold and Target will be scaled on a linear basis from 50% to 100%, and the Vesting Percentage of the Performance Shares where performance achievement is between Target and Maximum will be scaled on a linear basis from 100% to 200%.
(e)Certain Definitions.
i)“Average Invested Capital” means the average of the net of property, plant & equipment, Operating Leases/right of use assets and Current Assets less Current Liabilities.
ii)“Beginning Stock Price” with respect to Lydall or any other company in the Peer Group, means the average of the closing sales prices for a share of common stock of the applicable company on the U.S. national securities exchange on which such stock principally trades for the month immediately preceding the beginning of the Performance Period, as reported in the Wall Street Journal or such other source as the Plan Administrator deems reliable.  If a member of the Peer Group has been publicly traded for less than the full month immediately preceding the beginning of the Performance Period, such company’s Beginning Stock Price shall equal the average of the closing sales prices for a share of common stock of the applicable company on the U.S. national securities exchange on which such stock principally trades over the period during which the company’s common stock has been publicly traded.  
iii)“Ending Stock Price” with respect to Lydall or any other company in the Peer Group means the average of the closing sales prices for a share of common stock of the applicable company on the U.S. national securities exchange on which such stock principally trades for the last month of the Performance Period, as reported in the Wall Street Journal or such other source as the Plan Administrator deems reliable.
iv)“Peer Group” means those companies that are included in the S&P 600 Industrials index on both (i) the first day of the Performance Period and (ii) the last day of the Performance Period. 
v)“Plan Administrator” means the Compensation Committee, or such other committee designated by the Board of Directors, in its capacity as the administrator of this Plan.
vi)“Relative TSR Percentile Rank” means the percentile rank of Lydall’s TSR for the Performance Period relative to the TSR of the companies in the Peer Group.
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vii)“Total Shareholder Return” or “TSR” means with respect to Lydall and each of the companies in the Peer Group, the difference of (A) the quotient of (i)(1) the applicable Ending Stock Price plus (2) dividends paid with respect to a record date occurring during the period over which the Beginning Stock Price is calculated and during the remainder of the Performance Period (assuming dividend reinvestment on the ex-dividend date), divided by (ii)(1) the applicable Beginning Stock Price plus (2) dividends paid with respect to a record date occurring during the period over which the Beginning Stock Price is calculated (assuming dividend reinvestment on the ex-dividend date); minus (B) 1.00. For purposes of this definition, any dividend paid in cash will be valued at its cash amount and any dividend paid in securities with a readily ascertainable fair market value shall be valued at the market value of the securities as of the dividend record date.
(f)Determination of Level of Performance Objectives Achieved.  As soon as practicable (and no later than the 15th day of the third month) following the completion of the Performance Period, the Plan Administrator shall (a) determine the satisfaction of the Performance Objectives and (b) certify in writing, the extent to which the Performance Objectives have been achieved, if at all, and the Relative TSR Vesting Percentage and the Average ROIC Vesting Percentage as defined in Sections 4(c) and 4(d), respectively, resulting therefrom (such certification being hereinafter referred to as the “Certification”). 
(g)Delivery of Vested Shares. Following the Certification, the Recipient shall be entitled to receive that number of Shares calculated by multiplying the number of Performance Shares set forth in the Award Letter by the Vesting Percentages set forth in the Certification, together with any Unvested Dividends relating thereto, provided the Recipient has settled all applicable tax withholding obligations arising from the vesting of the Award, as set forth in Section 6 below.  All such vested Shares to which the Recipient is entitled, together with any Unvested Dividends, if any, relating thereto and any additional Performance Shares, if any, to which the Recipient is entitled by virtue of the Vesting Percentages being in excess of 100%, shall be released or delivered, as applicable, to the Recipient as soon as reasonably practical after the date of the Certification.  Delivery of Shares will be made electronically via book entry to an account in the name of the Recipient maintained with Lydall’s transfer agent or Administrative Agent. In connection therewith, the Recipient agrees to execute any documents reasonably requested by Lydall or the Administrative Agent.
5.Forfeiture; Transfer Restrictions. 
(a)All Performance Shares that do not vest pursuant to Section 4, as well as any Unvested Dividends relating to the Performance Shares that do not vest, shall be forfeited, effective as of the date of the Certification.
(b)If the Recipient’s employment with the Company terminates for any reason whatsoever prior to the date on which the Certification is made, then, effective upon the date of such termination, all of the Performance Shares, as well as any Unvested Dividends relating thereto, shall be forfeited.
(c)Neither the Performance Shares, nor the Recipient’s interest in any of the Performance Shares or Unvested Dividends, may be encumbered, sold, assigned, transferred, pledged or otherwise disposed of at any time prior to the date of the Certification. In the event 
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any such action is taken, all of the Performance Shares evidenced by this Agreement, as well as any Unvested Dividends relating thereto, shall thereupon automatically be forfeited, effective as of the date of such event. 
(d)All forfeited Performance Shares shall be delivered promptly to Lydall by the Administrative Agent, and Lydall shall direct the transfer agent and registrar of the Common Stock to make appropriate entries upon its or their records.
(e)The Plan Administrator shall make all determinations as to whether an event has occurred resulting in the forfeiture of Performance Shares and any related Unvested Dividends, and all such determinations of the Plan Administrator shall be final and conclusive.
(f)The Performance Shares shall be subject to the forfeiture and recoupment provisions of Section 10(a) of the Plan.
6.Taxation.
i.The Recipient recognizes and agrees that there may be certain tax issues that affect the Recipient arising from the grant and/or vesting of the Performance Shares and that the Recipient is solely responsible for payment of all federal, state and local taxes resulting therefrom.  The Company expressly provides no tax advice to the Recipient and recommends that the Recipient seek personal tax advice.  In general, the Recipient will have taxable income in any year during which Performance Shares vest, in an amount equal to the number of Shares that vest multiplied by the fair market value of the Common Stock on the vesting date.  This amount will be included in Recipient’s taxable income reported on Form W-2 for that year.  
ii.Any applicable income and employment tax withholding obligations associated with the vesting of the Performance Shares must be satisfied in accordance with the Plan and sub-section (c) below, prior to the delivery of vested Shares to the Recipient.
iii.Unless otherwise determined by the Plan Administrator, Recipient’s tax withholding liability will be satisfied through “net withholding” whereby the number of vested Shares actually delivered to the Recipient is reduced by a number of Shares with a fair market value of the Common Stock on the vesting date equal to the Company’s minimum statutory withholding tax liability outlined in (b) above.
iv.Section 83(b) of the Code permits the Recipient to recognize income in the year in which the Performance Shares are granted, rather than in the subsequent year in which they vest.  This election must be filed with the Internal Revenue Service within 30 days of the Date of Grant.  The Recipient is encouraged to discuss this alternative with his or her own tax advisor.  In the event that the Recipient desires to make an election under Section 83(b) of the Code, the Recipient first shall make appropriate arrangements with the Company for the payment of all applicable withholding taxes associated with such election.
7.No Employment Rights.  Nothing in this Agreement shall be deemed to:  (a) confer or be deemed to confer upon the Recipient any right to continue in the employ of the Company or in any way affect the right of the Company to dismiss or otherwise terminate the Recipient’s employment at any time for any reason with or without cause, (b) impose upon the Company any liability for any forfeiture of Performance Shares which may result if the 
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Recipient’s employment is terminated, or (c) affect the Company’s right to terminate or modify any contractual relationship with a Recipient who is not an employee of the Company.
8.Changes in Capitalization.  Neither this Agreement nor the grant of the Performance Shares shall affect in any way the right or power of Lydall or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in Lydall’s capital structure or its business, or any merger or consolidation of Lydall or any Lydall Affiliate, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of Lydall or any Lydall Affiliate, or any sale or transfer of all or any part of Lydall’s assets or business, or any other corporate act or proceedings, whether of a similar character or otherwise.
9.Change in Control.  Upon a Change in Control Event or other Reorganization Event, the Performance Shares shall be subject to the terms of the Plan.  Notwithstanding anything to the contrary herein, as a result of a Change in Control Event, the Performance Objectives no longer apply to the Performance Shares following the Change in Control Event, shall deem the Vesting Percentage to be 100%.  
10.Plan Terms and Plan Administrator Authority.  This Agreement and the rights of the Recipient hereunder are subject to all of the terms and conditions of the Plan, as it may be amended from time to time, as well as to such rules and regulations as the Plan Administrator may adopt for the administration of the Plan.  It is expressly understood that the Plan Administrator is authorized to administer, construe and make, in its sole and absolute discretion, all determinations necessary or appropriate for the administration of the Plan and this Agreement, all of which shall be binding upon the Recipient.  This Agreement shall be interpreted and applied in a manner consistent with the provisions of the Plan, and in the event of any inconsistency between this Agreement and the Plan, the terms of the Plan shall control.
11.Miscellaneous 
v.Amendment; Modification; Waiver.  No provision of this Agreement may be amended, modified or waived unless authorized by the Plan Administrator, and no amendment or modification of this Agreement may be made without Recipient’s consent except as permitted by Section 9(e) of the Plan.
vi.Notices.  Except as otherwise provided herein, every notice or other communication relating to this Agreement shall be in writing, and shall be mailed or delivered to the party for whom it is intended at such address as may from time to time be designated by such party in a notice mailed or delivered to the other party as herein provided; provided, that, unless and until some other address be so designated, all notices or communications to the Company shall be mailed to or delivered to Lydall’s Vice President, General Counsel and Secretary, with a copy to its Vice President of Human Resources, both at Lydall, Inc., One Colonial Road, P. O. Box 151, Manchester, Connecticut, 06045-0151, and all notices by the Company to the Recipient may be given to the Recipient personally or may be mailed to him or her at the last address designated for the Recipient on the employment records of the Company.  For purposes of this section, the term “mailed” includes electronic delivery methods.
vii.Appointment of Agent.  By accepting the Performance Shares evidenced by this Agreement, the Recipient hereby irrevocably nominates, constitutes and appoints each of 
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Lydall’s Vice President of Human Resources and the Administrative Agent as his or her agent and attorney-in-fact to take any and all actions and to execute any and all documents, in the name and on behalf of the Recipient, for any purpose necessary or convenient for the administration of the Plan and this Agreement.  This power is intended as a power coupled with an interest and shall survive the Recipient’s death.  In addition, it is intended as a durable power and shall survive the Recipient’s incapacity.  Lydall has the right to change the appointed transfer agent or Administrative Agent from time to time.
viii.Governing Law; Jurisdiction.  This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware, excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than the State of Delaware, and the Recipient agrees to the exclusive jurisdiction of Connecticut courts. 
ix.Compliance with Laws. The issuance or delivery of Shares pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act and the Exchange Act, and any rules and regulations promulgated thereunder) and any other law or regulation applicable thereto.  Lydall shall not be obligated to issue or deliver to Recipient any Shares pursuant to this Agreement if such issuance or delivery would violate any such requirements.
x.Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity, legality or enforceability of the remainder of this Agreement, it being intended that all rights and obligations of the Company and the Recipient shall be enforceable to the fullest extent permitted by law.
12.Statute of Limitations.  The Recipient hereby agrees that there shall be a one-year statute of limitations for the filing of any claim relating to this Agreement or the terms or conditions of the Performance Shares.  If such a claim is filed more than one year subsequent to the earlier of the date on which the vesting of the Performance Shares is scheduled to occur or termination of the Recipient’s employment, it shall be precluded by this provision, whether or not the claim has accrued at that time.
IN WITNESS WHEREOF, the undersigned officer of Lydall has executed this Agreement.
    LYDALL, INC.

    By:      /s/ Sara A. Greenstein        
        Sara A. Greenstein
        President and Chief Executive Officer

    7

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