LDL Lydall Inc

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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material under §240.14a-12

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LYDALL, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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No fee required.

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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

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(1)

Title of each class of securities to which transaction applies:

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Common stock, par value $0.01 per share

(2)

Aggregate number of securities to which transaction applies:

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18,612,509 shares of common stock, which consists of: (a) 18,033,012 shares of common stock issued and outstanding as of July 16, 2021, (b) 444,791 shares of common stock issuable upon the exercise of options to purchase shares of common stock outstanding as of July 16, 2021, and (c) 134,706 shares of common stock relating to outstanding restricted stock units and restricted stock awards as of July 16, 2021.

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

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In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.00010910 by the underlying value of the transaction of  $1,150,733,384, which has been calculated as the sum of: (a) (i) 18,033,012 issued and outstanding shares of common stock as of July 16, 2021 multiplied by (ii) the merger consideration of  $62.10 per share; plus (b) (i) 444,791 shares of common stock issuable upon the exercise of options to purchase shares of common stock outstanding as of July 16, 2021 multiplied by (ii) $41.30 per share (the difference between $62.10 per share and the weighted-average exercise price of such options of  $20.80 per share); plus (c) (i) 134,706 shares of common stock subject to restricted stock units and restricted stock awards as of July 16, 2021 multiplied by (ii) the merger consideration of  $62.10 per share; plus (d) 0 warrants outstanding as of July 16, 2021.

(4)

Proposed maximum aggregate value of transaction:

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$1,146,585,156

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Total fee paid:

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$125,092.44

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Fee paid previously with preliminary materials.

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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

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(1)

Amount Previously Paid:

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Form, Schedule or Registration Statement No.:

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Filing Party:

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Date Filed:

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PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION

DATED AS OF [•], 2021

LYDALL, INC.
One Colonial Road
Manchester, Connecticut 06042

[•], 2021​

Dear Stockholder:

On June 21, 2021, Lydall, Inc. (“Lydall”) entered into a definitive merger agreement with Unifrax Holding Co. (“Parent”), Outback Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Parent (“Merger Sub”) and solely with respect to certain payment obligations of Parent thereunder, Unifrax I LLC (“Unifrax”) (the “merger agreement”). Pursuant to the terms of the merger agreement, Merger Sub will be merged with and into Lydall, with Lydall surviving the merger as a wholly owned subsidiary of Parent (the “merger”).

If the merger is completed, Lydall stockholders will have the right to receive $62.10 in cash, without interest and less any applicable withholding taxes, for each share of common stock, par value $0.01 per share, of Lydall that they own immediately prior to the effective time of the merger unless they have properly demanded appraisal rights for such shares in accordance with Delaware law. The purchase price represents a premium of approximately 87% over Lydall’s closing share price on June 18, 2021, the last trading day prior to the announcement that Lydall had entered into the merger agreement and a premium of approximately 71% to Lydall’s thirty (30)-trading-day volume-weighted average stock price on the same date.

We will hold a virtual special meeting of our stockholders in connection with the proposed merger on [•], 2021 at [•], Eastern Time (the “special meeting”) (unless the special meeting is adjourned or postponed). The special meeting is scheduled to be held exclusively online via live webcast. There will not be a physical meeting location. You will be able to attend the Stockholder Meeting by first registering at https://viewproxy.com/Lydall/2021. You will receive a meeting invitation by e-mail with your unique join link along with a password prior to the meeting date. Stockholders will be able to listen, vote and submit questions during the virtual meeting. Please note you will not be able to attend the special meeting in person. We have chosen to hold a virtual meeting rather than an in-person meeting given the current public health implications of COVID-19 (novel coronavirus) and our desire to promote the health and welfare of our stockholders.

At the special meeting (or any adjournment or postponement thereof), stockholders will be asked to vote on the proposal to approve and adopt the merger agreement, as it may be amended from time to time. Under Delaware law, stockholders holding at least a majority of the shares of Lydall common stock outstanding at the close of business on the record date must vote “FOR” the merger proposal to approve and adopt the merger agreement. A failure to vote your shares of Lydall common stock or an abstention from voting will have the same effect as a vote against the merger proposal.

We cannot complete the merger unless Lydall stockholders approve and adopt the merger agreement. Your vote is very important, regardless of the number of shares you own. Whether or not you are able to attend the special meeting via the virtual meeting website, please complete, sign and date the enclosed proxy card and return it in the envelope provided or vote by telephone (at the toll-free number indicated on the proxy card) or via the internet (at the voting site indicated on the proxy card) as promptly as possible so that your shares may be represented and voted at the special meeting (or any adjournment or postponement thereof).

After careful consideration, the Lydall board of directors has unanimously determined that the merger and the other transactions contemplated by the merger agreement are advisable and fair to and in the best interests of Lydall stockholders and has approved the merger agreement. The Lydall board of directors recommends that Lydall stockholders vote “FOR” the proposal to approve and adopt the merger agreement.

In addition, the Securities and Exchange Commission (the “SEC”) has adopted rules that require us to seek a non-binding, advisory vote with respect to certain compensation that will or may be paid by Lydall to its named executive officers that is based on or otherwise relates to the merger. The Lydall board of directors recommends that Lydall stockholders vote “FOR” the named executive officer merger-related compensation proposal described in the accompanying proxy statement.

The proposal to approve an adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the proposal to adopt the merger agreement requires the affirmative vote of the holders of a majority of the shares of our common stock in attendance via the virtual meeting website or represented by proxy at the special meeting and entitled to vote and voting on such proposal. The Lydall board of directors recommends that Lydall stockholders vote “FOR” the proposal to approve an adjournment of the special meeting, including if necessary to solicit additional proxies in favor of the proposal to approve and adopt the merger agreement, if there are not sufficient votes at the time of such adjournment to approve and adopt the merger agreement.

The obligations of Lydall and Parent to complete the merger are subject to the satisfaction or waiver of certain conditions. The accompanying proxy statement contains detailed information about Lydall, the special meeting, the merger agreement, the merger and the other transactions contemplated by the merger agreement.

If you have any questions or need assistance voting your shares of our common stock, please contact Alliance Advisors, our proxy solicitor (“Alliance Advisors”), by calling toll-free at 855-973-0094.

Thank you for your consideration of this matter and your continued confidence in Lydall.

Sincerely,

Chad A. McDaniel
Executive Vice President, General Counsel &
Chief Administrative Officer

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE MERGER, PASSED UPON THE MERITS OF THE MERGER AGREEMENT, THE MERGER OR THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT OR DETERMINED IF THE ACCOMPANYING PROXY STATEMENT IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The accompanying proxy statement is dated [•], 2021 and, together with the enclosed form of proxy, is first being mailed to Lydall stockholders on or about [•], 2021.

LYDALL, INC.
One Colonial Road
Manchester, Connecticut 06042

YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING VIA THE VIRTUAL MEETING WEBSITE, PLEASE VOTE OVER THE INTERNET OR BY TELEPHONE PURSUANT TO THE INSTRUCTIONS CONTAINED IN THESE MATERIALS, OR BY MAIL BY COMPLETING, DATING, SIGNING AND RETURNING A PROXY CARD AS PROMPTLY AS POSSIBLE. IF YOU ATTEND THE SPECIAL MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY VIA THE VIRTUAL MEETING WEBSITE, YOU MAY DO SO.

Your proxy may be revoked at any time before the vote at the special meeting, or any adjournment or postponement thereof, by (i) giving the Office of the Secretary written notice of revocation, (ii) returning a later-dated proxy or (iii) attending the special meeting and voting via the virtual meeting website.

Please note that we intend to limit attendance at the special meeting to stockholders at the close of business on the record date (or their authorized representatives). If your shares are held by a broker, bank or other nominee, you must instruct the broker, bank or other nominee how to vote your shares or obtain a proxy, executed in your favor, from that record holder giving you the right to vote the shares at the special meeting.

The proxy statement of which this notice forms a part provides a detailed description of the merger agreement, the merger and the other transactions contemplated by the merger agreement. We urge you to read the proxy statement, including any documents incorporated by reference, and its annexes carefully and in their entirety. If you have any questions concerning the merger or the proxy statement, would like additional copies of the proxy statement or need help voting your shares of Lydall common stock, please contact Lydall’s proxy solicitor:

Alliance Advisors
200 Broadacres Drive
3rd Floor
Bloomfield, NJ 07003
Toll-Free: 855.973.0094
E-mail: LDL@allianceadvisors.com

Manchester, Connecticut

[•], 2021

 

Lydall, Inc.
One Colonial Road, Manchester, Connecticut 06042

LYDALL, INC.
PROXY STATEMENT

SPECIAL MEETING OF STOCKHOLDERS

TABLE OF CONTENTS

 

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SUMMARY

This summary highlights information contained elsewhere in this proxy statement and may not contain all the information that is important to you with respect to the merger. We urge you to read carefully the remainder of this proxy statement, including the attached annexes, and the other documents to which we have referred you. For additional information on Lydall included in documents incorporated by reference into this proxy statement, see the section entitled “Where You Can Find More Information” beginning on page 91 of this proxy statement. We have included page references in this summary to direct you to a more complete description of the topics presented below.

All references to “Lydall,” “we,” “us” or “our” in this proxy statement refer to Lydall, Inc., a Delaware corporation; all references to “Parent” refer to Unifrax Holding Co., a Delaware corporation; all references to “Merger Sub” refer to Outback Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Parent formed for the sole purpose of effecting the merger; all references to “Unifrax” refer to Unifrax I LLC, a Delaware limited liability company; all references to “Lydall common stock” refer to the common stock, par value $0.01 per share, of Lydall; all references to the “Lydall board” or “Lydall board of directors” refer to the board of directors of Lydall; all references to the “merger” refer to the merger of Merger Sub with and into Lydall with Lydall surviving as a wholly owned subsidiary of Parent; and, unless otherwise indicated or as the context requires, all references to the “merger agreement” refer to the Agreement and Plan of Merger, dated as of June 21, 2021, as may be amended from time to time, by and among Lydall, Parent, Merger Sub, and solely with respect to certain payment obligations of Parent thereunder, Unifrax, a copy of which is included as Annex A to this proxy statement. Lydall, following the completion of the merger, is sometimes referred to in this proxy statement as the “surviving corporation.”

THE COMPANIES

Lydall, Inc. (see page 22)

Lydall and its subsidiaries design, manufacture, and market specialty filtration and advanced materials solutions that contribute to a cleaner, quieter and safer world. Lydall operates in a variety of attractive end markets supported by global megatrends such as the demand for indoor air quality and lower emissions, near sourcing of supply chains, and vehicle electrification redefining safety and sound. Lydall solves our customers’ problems culminating in demanding applications, including: high performance air and liquid specialty filtration, molecular filtration, engineered fiber based materials and sealing solutions, specialty insulation including high temperature and ultra-low temperature (cryogenic) insulation, needle punch nonwoven materials for industrial, geosynthetic, medical and other specialty applications; and thermal management and acoustical products and solutions to assist in the reduction of noise, vibration, and harshness.

Lydall’s principal executive office is located at One Colonial Road, Manchester, Connecticut 06042. Lydall’s telephone number is (860) 646-1233. Lydall’s internet website address is www.lydall.com. The information provided on the Lydall website is not part of this proxy statement and is not incorporated in this proxy statement by reference by this or any other reference to its website provided in this proxy statement.

Shares of Lydall common stock are listed and trade on the New York Stock Exchange (the “NYSE”) under the symbol “LDL.”

Parent (see page 22)

Parent and its subsidiaries are a leading global supplier of high-performance specialty fibers and inorganic materials used in emission control, thermal management, filtration, battery and fire protection applications. Parent’s ceramic and microfine glass fiber products are sold worldwide, primarily to industrial, commercial and automotive customers. Parent’s portfolio of fiber products, technologies, proprietary chemistries and processes have been developed from more than 70 years of deep application knowledge and innovation. Parent’s products address mission critical energy efficiency, emission control, regulatory and fire safety requirements across the globe.

Parent’s principal executive office is located at 600 Riverwalk Parkway, Suite 120, Tonawanda, New York 14150. Parent’s telephone number is (716)768-6500. Parent’s internet website address is www.unifrax.com. The information provided on the Parent website is not part of this proxy statement and is not incorporated in this proxy statement by reference by this or any other reference to its website provided in this proxy statement.

Merger Sub (see page 22)

Merger Sub is a Delaware corporation and wholly owned subsidiary of Parent. Merger Sub exists for the sole purpose of entering into the merger agreement and, subject to the terms and conditions thereof, completing the

 

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transactions contemplated thereby and the related financing transactions. Merger Sub will cease to exist and Lydall will continue as the surviving company and as a wholly owned subsidiary of Parent.

THE MERGER

A copy of the merger agreement is attached as Annex A to this proxy statement. We encourage you to read the entire merger agreement carefully because it is the principal document governing the merger. For more information on the merger agreement, see the section entitled “The Merger Agreement” beginning on page 55 of this proxy statement.

Effects of the Merger (see page 29)

If the merger is completed, then, at the effective time of the merger, Merger Sub will be merged with and into Lydall in accordance with the DGCL. As a result of the merger, the separate existence of Merger Sub will cease, and Lydall will survive the merger as a wholly owned subsidiary of Parent.

Upon consummation of the merger, your shares of Lydall common stock will be converted into the right to receive the per share merger consideration described below unless you have properly demanded appraisal rights in accordance with Delaware law. As a result, you will not own any shares of the surviving corporation, and you will no longer have any interest in its future earnings or growth. As a result of the merger, Lydall will cease to be a publicly-traded company and will be wholly owned by Parent. Following consummation of the merger, the surviving corporation will terminate the registration of Lydall’s common stock on the NYSE and Lydall will no longer be subject to reporting obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Merger Consideration (see page [•])

Upon the terms and subject to the conditions of the merger agreement, at the effective time of the merger, Lydall stockholders will have the right to receive $62.10 in cash, without interest (the “merger consideration”), and less any applicable withholding taxes, for each share of Lydall common stock that they own immediately prior to the effective time of the merger.

Treatment of Lydall Equity Awards (see page 57)

The merger agreement provides that, at or immediately prior to the effective time of the merger, the outstanding equity awards of Lydall will be treated as follows:

Each award of  (or with respect to) Lydall common stock (including any restricted stock and restricted stock unit awards) that is subject to vesting or other forfeiture conditions (each, a “Lydall RSA”) that is outstanding under Lydall’s 2003 Stock Incentive Compensation Plan, Lydall’s Amended and Restated 2012 Stock Incentive Plan or any inducement share agreements with current or former service providers of Lydall (together, the “Lydall Stock Plans”), whether or not vested, will become fully vested and be automatically canceled in exchange for the right to receive an amount in cash equal to the product of the merger consideration and the number of shares of Lydall common stock underlying the Lydall RSA (including the value of any dividends accrued thereon). To the extent the number of shares of Lydall common stock underlying a Lydall RSA is based on the satisfaction of performance conditions (each, a “Lydall PSA”), such performance conditions will be deemed to have been earned at the greater of  (i) the target amount under the terms of the applicable award agreement relating to such Lydall PSA and (ii) the amount reasonably projected to be earned under the terms of the award agreement based on performance achievement through the effective time of the merger.

Each option to acquire shares of Lydall common stock (a “Lydall Stock Option”) that is outstanding under a Lydall Stock Plan, whether or not vested, will become fully vested and be automatically canceled in exchange for the right to receive an amount in cash (without interest) determined by multiplying (i) the excess, if any, of the merger consideration over the applicable exercise price of such Lydall Stock Option by (ii) the number of shares of Lydall common stock underlying the Lydall Stock Option. Any Lydall Stock Option for which the exercise price is equal to or greater than the merger consideration will be canceled without any consideration.

Each Lydall Stock Option that was intended to qualify as an “incentive stock option” ​(each, an “Incentive Stock Option”) within the meaning of Section 422 of the Internal Revenue Code will, at least ten (10) business days prior to the closing of the merger, automatically vest and be exercisable for Lydall common stock and each holder of Incentive

 

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Stock Options shall be provided with written notice that such holder will, during the period beginning on the date of such notice and ending on the business day immediately preceding the closing of the merger, have the right to exercise such Incentive Stock Option by providing Lydall with notice of exercise and a cash amount equal to the applicable exercise price (with each share of Lydall common stock acquired on exercise being converted into the right to receive the merger consideration at the effective time of the merger and each Incentive Stock Option not so exercised and that remains outstanding immediately prior to the effective time of the merger being treated as a Lydall Stock Option).

Recommendation of the Lydall Board of Directors (see page 40)

After careful consideration, the Lydall board of directors unanimously approved the merger agreement, the merger and the other transactions contemplated by the merger agreement. Certain factors considered by the Lydall board of directors in reaching its decision to approve and adopt the merger agreement, the merger and the other transactions contemplated by the merger agreement can be found in the section entitled “The Merger (Proposal 1) — Lydall’s Reasons for the Merger” beginning on page 37 of this proxy statement.

The Lydall board of directors recommends that Lydall stockholders vote:

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“FOR” the proposal to approve an adjournment of the special meeting, including if necessary to solicit additional proxies in favor of the proposal to approve and adopt the merger agreement, if there are not sufficient votes at the time of such adjournment to approve and adopt the merger agreement.

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Opinion of Lydall’s Financial Advisor (see page 40)

In connection with the merger, Lydall’s financial advisor, BofA Securities, Inc. (“BofA Securities”), delivered a written opinion, dated June 20, 2021, to the Lydall board of directors as to the fairness, from a financial point of view and as of that date, of the merger consideration to be received by holders of Lydall common stock (other than, as applicable, Parent, Unifrax, Merger Sub, their respective affiliates, including Clearlake Capital Group, L.P. (“Clearlake”) and its affiliates, and any subsidiary of Lydall). The full text of BofA Securities’ written opinion, dated June 20, 2021, which describes, among other things, the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, is attached as Annex B to this proxy statement and is incorporated by reference herein in its entirety. BofA Securities delivered its opinion for the benefit and use of the Lydall board of directors (in its capacity as such) in connection with and for purposes of its evaluation of the merger. BofA Securities expressed no opinion or view as to any terms or other aspects or implications of the merger (other than the merger consideration to the extent expressly specified in such opinion) and no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to Lydall or in which Lydall might engage or as to the underlying business decision of Lydall to proceed with or effect the merger. BofA Securities expresses no opinion or recommendation as to how any securityholder should vote or act in connection with the merger or any other matter.

Financing of the Merger (see page 52)

In connection with the transactions contemplated by the merger agreement, certain funds managed by affiliates of Parent (the “Investors”) have delivered an equity commitment letter (the “Equity Commitment Letter”) to Parent, dated as of June 21, 2021, pursuant to which, upon the terms and subject to the conditions set forth therein, such funds have committed to capitalize Parent at the closing of the merger in an aggregate amount of  $474 million in cash, in immediately available funds.

In addition, Parent has obtained debt financing commitments (pursuant to a debt commitment letter) for the transactions contemplated by the merger agreement, the aggregate proceeds of which, together with the cash on hand at Parent, will be used to consummate the merger and the other transactions contemplated by the merger agreement, including the payment of the per share merger consideration and all related fees and expenses, to repay certain existing indebtedness of Unifrax as required by the terms of such financing commitments, and to pay any other amounts required to be paid by Parent or Merger Sub in connection with the consummation of the transactions

 

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contemplated by the merger agreement. Pursuant to the terms of the debt commitment letter, J.P. Morgan Chase Bank, N.A., Credit Suisse AG, Cayman Islands Branch, Morgan Stanley Senior Funding, Inc. and Stifel Syndicated Credit, LLC have committed to provide, severally but not jointly upon the terms and subject to the conditions set forth in the debt commitment letter, debt financing in the aggregate amount of  $1.2 billion.

The total amount of funds required to complete the merger and related transactions, including payment of related fees and expenses, is anticipated to be approximately $1.674 billion, which will be funded with the net proceeds of the Financing.

In addition, the Investors entered into a Limited Guarantee dated June 21, 2021 (the “Limited Guarantee”) with Lydall to guarantee Parent’s obligation to pay the reverse termination fee to Lydall and certain other specified payments to Lydall, subject to the terms and obligations set forth in the merger agreement and the Limited Guarantee.

For additional information, see the section entitled “The Merger (Proposal 1) — Financing of the Merger” beginning on page 52 of this proxy statement.

Material U.S. Federal Income Tax Consequences of the Merger (see page 54)

The exchange of Lydall common stock for cash in the merger will be a taxable transaction for U.S. federal income tax purposes and may also be taxable under state and local and other tax laws. Accordingly, a stockholder that is a “U.S. holder” ​(as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 86 of this proxy statement) will generally recognize taxable gain or loss in an amount equal to the difference, if any, between (i) the merger consideration received by such U.S. holder in the merger and (ii) such U.S. holder’s adjusted tax basis in the shares of Lydall common stock exchanged therefor. With respect to a stockholder that is a “non-U.S. holder” ​(as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 86 of this proxy statement), the exchange of shares of Lydall common stock for the merger consideration pursuant to the merger generally will not result in U.S. federal income tax to such non-U.S. holder unless such non-U.S. holder has certain connections with the United States. Backup withholding may apply to the cash payment made pursuant to the merger unless the stockholder or other payee provides a valid taxpayer identification number and complies with certain certification procedures (generally, by providing a properly completed and executed U.S. Internal Revenue Service (“IRS”) Form W-9 or IRS Form W-8 or applicable successor form). You should read the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 86 of this proxy statement and consult your tax advisors regarding the U.S. federal income tax consequences of the merger to you in your particular circumstances, as well as tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.

Regulatory Clearances and Approvals Required for the Merger (see page 53)

The completion of the merger is conditioned on, among other things, certain specified regulatory approvals having been obtained and remaining in full force and effect (or, in the case of certain specified regulatory approvals that are statutory waiting periods, having expired or been terminated), including the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). Under the terms of the merger agreement, each of Lydall and Parent have agreed to use their respective reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable law to consummate the transactions contemplated by the merger agreement as soon as practicable, including preparing and filing as promptly as practicable with any government authority or other third party all documentation to effect all necessary filings and obtaining certain specified regulatory approvals.

Parent shall and shall cause its subsidiaries to take all actions needed in the event that a governmental authority or third party challenges any of the transactions contemplated by the merger agreement as violating the HSR Act or other competition laws to obtain such regulatory clearances, including divestitures, hold separate arrangements, the termination of any existing relationships and contractual rights and obligations, termination of any venture or other arrangement, effectuating any other change or restructuring of Parent, Lydall or any of their respective subsidiaries, and opposing, fully and vigorously, any administrative or judicial action, proceeding, or order that could threaten, restrain, prevent or delay the consummation of the transactions contemplated by the merger agreement. At the request of Parent, Lydall shall agree to divest, hold separate or otherwise take or commit to take any action that limits its freedom of action with respect to, or its ability to retain, any of the businesses, services, or assets of Lydall or any of

 

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its subsidiaries, provided that any such action shall be conditioned upon consummation of the merger and the other transactions contemplated by the merger agreement.

On July 6, 2021, both Lydall and Parent filed notification of the proposed merger with the United States Federal Trade Commission (“FTC”) and the Antitrust Division of the United States Department of Justice (the “Antitrust Division”) under the HSR Act.

In addition, prior to the effective time of the merger, Lydall and Parent are required to obtain regulatory approvals from the Austrian Federal Competition Authority, German Federal Cartel Office, German Federal Ministry for Economic Affairs and Energy, Turkish Competition Authority, and French Ministry of Economy and Finance. On July 16, 2021, Lydall and Parent notified the proposed merger with the above-mentioned regulatory authorities (including by way of draft filing in those jurisdictions where the pre-notification is the custom).

See the section entitled “The Merger Agreement — Regulatory Clearances and Approvals Required for the Merger” beginning on page 66 of this proxy statement for a more detailed discussion of the parties’ obligations with respect to obtaining regulatory approvals in connection with the merger.

Expected Timing of the Merger (see page 55)

We expect to complete the merger in the second half of 2021. The merger is subject to various conditions, however, and it is possible that factors outside the control of Lydall or Parent could result in the merger being completed at a later time, or not at all. There may be a substantial amount of time between the special meeting and the completion of the merger. We expect to complete the merger promptly following the satisfaction or, to the extent permitted, waiver of the other conditions to the consummation of the merger.

See the section entitled “The Merger Agreement — Conditions to Completion of the Merger” beginning on page 72 of this proxy statement.

Conditions to Completion of the Merger (see page 72)

As more fully described in this proxy statement and in the merger agreement, each party’s obligation to consummate the merger depends on a number of conditions being satisfied, including:

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Approval and adoption of the merger agreement by an affirmative vote of the holders of a majority of the shares of Lydall common stock outstanding at the close of business on the record date in accordance with Delaware law;

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The absence of any law or order issued by any court of competent jurisdiction or other legal restraint being in effect prohibiting, rendering illegal or enjoining the consummation of the merger, whether on a preliminary or permanent basis;

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Certain specified regulatory approvals having been obtained and remaining in full force and effect (or, in the case of certain specified regulatory approvals that are statutory waiting periods, such waiting periods having expired or been terminated);

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The other party having performed in all material respects all of its obligations under the merger agreement contemplated to be performed by it at or prior to the effective time of the merger;

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Subject to certain qualifications, the accuracy of representations and warranties made by the other party in the merger agreement (subject generally to a material adverse effect standard, with different standards applicable to certain representations and warranties); and

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There having not occurred a company material adverse effect (as described in the section entitled “The Merger Agreement — Definition of  ‘Company Material Adverse Effect’”) on Lydall.

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Restrictions on Solicitation of Acquisition Proposals (see page 62)

Subject to certain exceptions, Lydall has agreed that from the date of the merger agreement until the earlier of the receipt of stockholder approval or the termination of the merger agreement in accordance with its terms, except as otherwise set forth below, Lydall will not, and will cause its subsidiaries and each of its and their respective directors,

 

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officers, employees, investment bankers, attorneys, accountants and other advisors or representatives not to, and use reasonable best efforts to cause its subsidiaries and its subsidiaries’ respective representatives not to, directly or indirectly:

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Solicit or take any action to knowingly facilitate or encourage the submission of any “acquisition proposal” ​(as described in the section entitled “The Merger Agreement — Restrictions on Solicitation of Acquisition Proposals”);

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Initiate, solicit, facilitate, participate, engage with, enter into or knowingly encourage any discussions or negotiations with, furnish any information relating to Lydall or any of its subsidiaries or afford access to the business, properties, assets, personnel, books or records of Lydall or any of its subsidiaries to, otherwise knowingly cooperate with any third party relating to an acquisition proposal or any inquiry, proposal or request for information that would reasonably be expected to lead to an acquisition proposal (other than requesting the clarification of the terms and conditions thereof) (as described in the section entitled “The Merger Agreement — Restrictions on Solicitation of Acquisition Proposals”);

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Make an adverse recommendation change (as described in the section entitled “The Merger Agreement — Restrictions on Solicitation of Acquisition Proposals”) with regard to the merger;

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•

Grant a waiver, amendment or release under a standstill or confidentiality agreement, provided that Lydall or any of its subsidiaries shall not be prohibited from amending, modifying or granting any waiver or release of any standstill provision contained in a standstill, confidentiality or similar agreement of Lydall or any of its subsidiaries, in each case solely to the extent the Lydall board of directors determines, in consultation with its outside legal counsel, that the failure to do so would be reasonably likely to be inconsistent with its fiduciary duties; or

​

•

Allow, authorize or cause Lydall or any of its subsidiaries to enter into any agreement in principle, letter of intent, memorandum of understanding, acquisition agreement or contract providing for or relating to an acquisition proposal or any proposal or offer that would reasonably be expected to lead to an acquisition proposal (an “alternative acquisition agreement”).

​

Notwithstanding the restrictions described above, if at any time prior to obtaining the approval of Lydall stockholders, the Lydall board of directors receives an unsolicited acquisition proposal which has not resulted from a breach of the restrictions set forth above that the Lydall board of directors determines, after consultation with its financial advisor and outside legal counsel, (i) is or would reasonably be expected to lead to a superior proposal and (ii) the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law, then the Lydall board of directors may provide information to and engage in discussions or negotiations with a third party.

Changes in Board Recommendation (see page 65)

Under the merger agreement, under certain circumstances and subject to certain requirements described in the section entitled “The Merger Agreement — Changes in Board Recommendation” beginning on page 65 of this proxy statement, the Lydall board of directors is entitled to make an adverse recommendation change prior to obtaining stockholder approval, if the Lydall board of directors determines in good faith, after consultation with its outside legal counsel and financial advisors, that an acquisition proposal constitutes a superior proposal (as described in the section entitled “The Merger Agreement — Changes in Board Recommendation”), if the Lydall board of directors determines that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law; provided that:

•

Lydall notifies Parent in writing at least five (5) business days before taking such action, that Lydall intends to take such action, which notice specifies the reasons for the adverse recommendation change and attaches the most current version of any proposed transaction agreement;

​

•

If requested by Parent during such five (5) business day period, Lydall negotiates in good faith with Parent regarding any proposal by Parent to amend the terms of the merger agreement in response to such superior proposal; and

​

•

After such five (5) business day period, the Lydall board of directors determines in good faith, after consultation with its outside legal counsel and financial advisors, taking into account any proposal by Parent received during such period to amend the terms of the merger agreement, that such acquisition proposal continues to

​

 

6

 

constitute a superior proposal (provided that any material amendment of any such superior proposal requires a new written notification from Lydall and a new notice period of three (3) business days will commence, during which notice period Lydall will be required to comply with the foregoing requirements anew, except that such new notice period will be for three (3) business days (as opposed to five (5) business days)).

In the event that the Lydall board of directors is permitted to change its recommendation with respect to the merger agreement following the receipt of an acquisition proposal that it determines to be a superior proposal, Lydall may also terminate the merger agreement to enter into a definitive written agreement for such superior proposal if concurrently with such termination, Lydall pays to Parent the fee required to be paid to Parent as described in the section entitled “The Merger Agreement — Termination Fee Payable by Lydall and Reverse Termination Fee Payable by Parent” beginning on page 74 of this proxy statement.

In addition, at any time prior to obtaining the approval of Lydall’s stockholders, the Lydall board of directors is permitted to effect an adverse recommendation change involving or relating to an “intervening event” ​(as described in the section entitled “The Merger Agreement — Changes in Board Recommendation”) if the Lydall board of directors determines in good faith, after consultation with its outside legal counsel, that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law; provided that:

•

Lydall notifies Parent in writing of its intention to take such action and at least five (5) business days before taking such action, that Lydall intends to take such action, which notice specifies the reasons for the adverse recommendation change and attaches a reasonably detailed description of the intervening event;

​

•

If requested by Parent, during such five (5) business day period, Lydall negotiates in good faith with Parent regarding any proposal by Parent to amend the terms of the merger agreement; and

​

•

After such five (5) business day period described above, the Lydall board of directors determines in good faith, after consultation with its outside legal counsel and financial advisors, taking into account any proposal by Parent received during such period to amend the terms of the merger agreement, that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law.

​

In addition, if the Lydall board of directors changes its recommendation with respect to the merger agreement, Parent may terminate the merger agreement and collect a termination fee as described in the section entitled “The Merger Agreement — Termination Fee Payable by Lydall and Reverse Termination Fee Payable by Parent” beginning on page 74 of this proxy statement.

Termination of the Merger Agreement (see page 73)

•

The merger agreement may be terminated and the merger may be abandoned at any time prior to the effective time of the merger (notwithstanding any approval of the merger agreement by Lydall stockholders):

​

•

At any time prior to the effective time of the merger, by mutual written agreement of Lydall and Parent;

​

•

At any time prior to the effective time of the merger, by either Lydall or Parent if:

​

•

The merger has not been consummated on or before June 21, 2022 (the “end date”); provided that this termination right will not be available to any party whose breach (including, in the case of Parent, a breach by Merger Sub) of any provision of the merger agreement has been the primary cause of, or primarily resulted in, the failure to satisfy the conditions to the obligations of the terminating party to consummate the merger by such time;

​

•

There is in effect a permanent injunction or other order issued by a court of competent jurisdiction preventing the consummation of the merger and such injunction or other order shall have become final and non-appealable; provided that this termination right will not be available to any party whose breach of any provision of the merger agreement results in the existence of such permanent injunction or order; or

​

•

At the meeting of Lydall stockholders to approve and adopt the merger agreement (including any adjournment or postponement thereof), stockholder approval is not obtained.

​

•

At any time prior to the effective time of the merger, by Parent if:

​

•

An adverse recommendation change has occurred prior to the receipt of the stockholder approval; or

​

 

7

 

•

Lydall has breached any representation or warranty or failed to perform any covenant or agreement on the part of Lydall set forth in the merger agreement that would cause the closing conditions not to be satisfied and to be incapable of being satisfied by the end date, or if curable prior to the end date, Lydall shall not have cured such breach within thirty (30) calendar days after receipt of written notice thereof from Parent stating Parent’s intention to terminate the merger agreement pursuant to the terms set forth therein; provided that, at the time at which Parent would otherwise exercise such termination right, neither Parent nor Merger Sub shall be in material breach of its or their obligations under the merger agreement so as to cause any of the closing conditions not to be capable of being satisfied.

​

•

At any time prior to the effective time of the merger, by Lydall if:

​

•

Prior to the receipt of the stockholder approval, the Lydall board of directors authorizes Lydall to enter into a written agreement concerning a superior proposal, subject to compliance with the restrictions on solicitation of acquisition proposals; provided that concurrently with such termination, Lydall pays to Parent the termination fee required to be paid to Parent as described in the section entitled “The Merger Agreement — Termination Fee Payable by Lydall and Reverse Termination Fee Payable by Parent” beginning on page 74 of this proxy statement and enters into the alternative acquisition agreement with respect to such superior proposal;

​

•

Parent or Merger Sub has breached any representation or warranty or failed to perform any covenant or agreement on the part of Parent or Merger Sub set forth in the merger agreement that would cause the closing conditions not to be satisfied, and to be incapable of being satisfied by the end date, or if curable prior to the end date, Parent or Merger Sub shall not have cured such breach within thirty (30) calendar days after receipt of written notice thereof from Lydall stating Lydall’s intention to terminate the merger agreement pursuant to the terms set forth therein; provided that, at the time at which Lydall would otherwise exercise such termination right, Lydall shall not be in material breach of its obligations under this Agreement so as to cause any of the closing conditions not to be capable of being satisfied; or

​

•

(A) all of the conditions to Parent’s and Merger Sub’s obligations to consummate the merger have been satisfied (other than those conditions (x) the failure of which to be satisfied is attributable primarily to or results primarily from a breach by Parent or Merger Sub of its representations, warranties, covenants or agreements under the merger agreement and (y) that by their terms are to be satisfied at the closing of the merger, so long as such actions would then be capable of being satisfied), (B) Parent and Merger Sub have failed to consummate the merger by the time the closing of the merger should have occurred, (C) Lydall has notified Parent in writing that the conditions to the merger have been satisfied or, with respect to Lydall’s conditions, waived (or would be satisfied or waived if the Closing were to occur on the date of such notice) and that it is ready, willing and able to consummate the merger, (D) Lydall has given Parent at least three (3) business days written notice stating its intention to terminate and (E) Parent has failed to consummate the merger within three (3) business days of the delivery of Lydall’s notice of termination.

​

Termination Fee Payable by Lydall and Reverse Termination Fee Payable by Parent (see page 74)

•

Lydall has agreed to pay Parent a termination fee of  $31.5 million in immediately available funds (the “termination fee”) upon termination of the merger agreement if:

​

•

Lydall terminates the merger agreement because the Lydall board of directors authorizes Lydall to enter into a written agreement concerning a superior proposal, subject to compliance with the restrictions on solicitation of acquisition proposals;

​

•

Parent terminates the merger agreement because an adverse recommendation change occurred; or

​

•

Parent terminates the merger agreement because of any breach by Lydall that would cause or result in any closing conditions not being satisfied or being incapable of being satisfied by the end date or either Parent or Lydall terminates the merger agreement because Lydall’s stockholders did not approve the merger at the stockholder meeting and:

​

•

At or prior to the stockholder meeting, an acquisition proposal was made public; and

​

 

8

 

•

On or prior to twelve (12) months after the date of such termination an acquisition proposal (whether or not the same one) is consummated or Lydall or its subsidiaries has entered into a definitive agreement relating to an acquisition proposal (whether or not the same one) (provided that all references to “20%” in the definition of acquisition proposal will be deemed to be a reference to “50%”).

​

•

Parent has agreed to pay Lydall a reverse termination fee of  $91.7 million in immediately available funds (the “reverse termination fee”) upon termination of the merger agreement if  (i) Lydall terminates the merger agreement because of the breach of any covenant or agreement under the merger agreement by Parent or Merger Sub, which breach would give rise to the failure of any conditions to the obligations of Lydall to effect the merger; (ii) Lydall terminates the merger agreement because Parent failed to consummate the merger by the time the closing of the merger should have occurred, and Lydall has given Parent written notice at least three (3) business days prior to such termination stating Lydall’s intention to terminate the merger agreement; or (iii) either Lydall or Parent terminates if the merger is not consummated on or before 5:00 p.m. (New York City time) on June 21, 2022 and, at the time of such termination, Lydall would have been entitled to terminate the merger agreement pursuant to (i) or (ii) above.

​

Remedies; Maximum Liability (see page 75)

The merger agreement provides that, upon any termination of the merger agreement under circumstances where the termination fee is payable by Lydall and the termination fee is paid in full, except in the case of willful breach, Parent and Merger Sub will be precluded from any other remedy against Lydall, at law or in equity or otherwise and neither Parent nor Merger Sub will seek to obtain any recovery, judgment, or damages of any kind, including consequential, indirect, or punitive damages, against Lydall or any of Lydall’s subsidiaries or any of their respective directors, officers, employees, partners, managers, members, stockholders or affiliates or their respective representatives in connection with the merger agreement or the transactions contemplated thereby.

In addition, the merger agreement provides that, upon any termination of the merger agreement under circumstances where the reverse termination fee is payable by Parent and the reverse termination fee is paid in full, except in the case of willful breach, Lydall will be precluded from any other remedy against Parent or Merger Sub, at law or in equity or otherwise and Lydall will not seek to obtain any recovery, judgment, or damages of any kind, including consequential, indirect, or punitive damages, against Parent, Merger Sub, any debt financing sources or any of their respective directors, officers, employees, partners, managers, members, stockholders or affiliates or their respective representatives in connection with the merger agreement or the transactions contemplated thereby. The Investors have agreed to guarantee Parent’s obligation to pay the reverse termination fee to Lydall and certain other specified payments to Lydall pursuant to the Limited Guarantee, subject to the terms and obligations set forth therein.

If the merger agreement is terminated under circumstances where neither the termination fee is payable by Lydall nor the reverse termination fee is payable by Parent, the merger agreement will become void and of no effect without liability of any party (or any stockholder, director, officer, employee, agent, consultant or representative of such party), except in the case of willful breach of any provision of the merger agreement.

Specific Performance (see page 75)

The merger agreement provides that the parties will be entitled to an injunction to prevent breaches of the merger agreement and to specifically enforce the performance of the terms and provisions of the merger agreement.

Lydall is entitled to obtain specific performance or other equitable relief to cause Parent to effect the closing of the merger and fund the Equity Financing if and only if  (i) the conditions to the obligations of Parent and Merger Sub to consummate the merger (other than conditions to be satisfied at the closing of the merger, each of which is capable of being satisfied at the closing of the merger) have been satisfied at the time when the closing of the Merger would have occurred but for any breach by Parent or Merger Sub, (ii) the financing provided for by the Debt Commitment Letter or alternative financing has been funded in accordance with its terms or will be funded at the closing of the merger in accordance with its terms if the Equity Financing is funded at the closing of the merger, and (iii) Lydall has irrevocably confirmed in a written notice that if specific performance is granted and the Equity Financing and Debt Financing or alternative financing are funded, then Lydall will take any actions required of it so that the closing of the Merger will occur.

Appraisal Rights (page 54)

Under the DGCL, any record holder of Lydall common stock at the close of business on the record date who does not vote in favor of the merger, and who exercises its appraisal rights and fully complies with all of the provisions of

 

9

 

Section 262 of the DGCL (but not otherwise), will be entitled to demand and receive payment of the “fair value” as determined pursuant to Section 262 of the DGCL for all (but not less than all) of his or her shares of Lydall common stock if the merger is completed. See the section entitled “Appraisal Rights of Stockholders” beginning on page 79 of this proxy statement. The full text of Section 262 of the DGCL is attached to this proxy statement as Annex C.

The Special Meeting (see page 23)

The special meeting of Lydall’s stockholders is scheduled to be held exclusively online via live webcast on [•], 2021 at [•], Eastern Time. You will be able to attend the Special Meeting by first registering at https://viewproxy.com/Lydall/2021. You will receive a meeting invitation by e-mail with your unique join link along with a password prior to the meeting date. Stockholders will be able to listen, vote and submit questions during the virtual meeting. Instructions on how to attend and participate online are also posted online at https://viewproxy.com/Lydall/2021/VM. We elected to use a virtual meeting given the current public health implications of COVID-19 (novel coronavirus) and our desire to promote the health and welfare of our stockholders.

The special meeting is being held in order to consider and vote on the following:

•

A proposal to approve and adopt the merger agreement, which is further described in the sections entitled “The Merger (Proposal 1)” and “The Merger Agreement,” beginning on pages 29 and 55, respectively, of this proxy statement;

​

•

A proposal to approve, on a non-binding, advisory basis, certain compensation that will or may be paid by Lydall to its named executive officers that is based on or otherwise relates to the merger, discussed under the section entitled “The Merger (Proposal 1) — Interests of Lydall’s Directors and Executive Officers in the Merger” beginning on page 48 of this proxy statement; and

​

•

A proposal to approve an adjournment of the special meeting, including if necessary to solicit additional proxies in favor of the proposal to approve and adopt the merger agreement if there are not sufficient votes at the time of such adjournment to approve and adopt the merger agreement.

​

Only holders of record of Lydall common stock at the close of business on [•], 2021, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting or any adjournments or postponements thereof. At the close of business on the record date, [•] shares of Lydall common stock were issued and outstanding, approximately [•] of which were held by Lydall’s directors and executive officers. We currently expect that all of Lydall’s directors and executive officers will vote their shares in favor of the proposal to approve and adopt the merger agreement and the other proposals to be considered at the special meeting, although no director or executive officer is obligated to do so.

The presence at the special meeting, by attendance via the virtual meeting website or by proxy, of the holders of a majority of the shares of Lydall common stock issued and outstanding and entitled to vote at the close of business on the record date will constitute a quorum. There must be a quorum for business to be conducted at the special meeting. If you submit a properly executed proxy card, even if you abstain from voting, your shares will be counted for purposes of calculating whether a quorum is present at the special meeting. Failure of a quorum to be present at the special meeting will necessitate an adjournment or postponement and will subject Lydall to additional expense.

You may cast one vote for each share of Lydall common stock that you own at the close of business on the record date. Approval and adoption of the merger agreement requires the affirmative vote of the majority of the shares of Lydall common stock outstanding at the close of business on the record date in accordance with Delaware law. The proposal to approve, on a non-binding, advisory basis, certain compensation that will or may be paid by Lydall to its named executive officers that is based on or otherwise relates to the merger requires the affirmative vote of at least a majority of the outstanding shares of Lydall common stock present via the virtual meeting website or represented by proxy and entitled to vote and voting at the special meeting (provided that a quorum is present). The proposal to adjourn the special meeting, including if necessary to permit further solicitation of proxies, requires the affirmative vote of at least a majority of the outstanding shares of Lydall common stock present via the virtual meeting website or represented by proxy and entitled to vote and voting at the special meeting (whether or not a quorum is present).

An abstention occurs when a stockholder attends a meeting, either via the virtual meeting website or by proxy, but abstains from voting. At the special meeting, abstentions will be counted in determining whether a quorum is present. Because under Delaware law the approval and adoption of the merger agreement requires the affirmative vote of the majority of the shares of Lydall common stock outstanding at the close of business on the record date, abstentions and a complete failure to vote (including the failure of a record owner to execute and return a proxy card

 

10

 

and the failure of a beneficial owner of shares held in “street name” by a broker, bank or other nominee to give voting instructions to the broker, bank or other nominee) will have the same effect as a vote “AGAINST” the proposal to approve and adopt the merger agreement. Because the other two proposals require the affirmative vote of at least a majority of the outstanding shares of Lydall common stock present via the virtual meeting website or represented by proxy and entitled to vote and voting at the special meeting, abstentions and a failure to vote (including the failure of a record owner to execute and return a proxy card and the failure of a beneficial owner of shares held in “street name” by a broker, bank or other nominee to give voting instructions to the broker, bank or other nominee) will have no effect on the outcome of such proposals.

If no instruction as to how to vote is given (including an instruction to abstain) in an executed, duly returned and not revoked proxy, the proxy will be voted for (i) the proposal to approve and adopt the merger agreement; (ii) the proposal to approve, on a non-binding, advisory basis, certain compensation that will or may be paid by Lydall to its named executive officers that is based on or otherwise relates to the merger; and (iii) the proposal to approve the adjournment of the special meeting, including if necessary to solicit additional proxies, if there are not sufficient votes at the time of such adjournment to approve and adopt the merger agreement.

Interests of Lydall’s Directors and Executive Officers in the Merger (see page 48)

In considering the recommendation of the Lydall board of directors to approve and adopt the merger agreement, you should be aware that Lydall’s directors and executive officers have interests in the merger that are different from, or in addition to, those of Lydall’s stockholders generally. The Lydall board of directors was aware of these interests and considered them, among other matters, in evaluating the merger agreement, in reaching its decision to approve the merger agreement and in recommending to Lydall stockholders that the merger agreement be approved and adopted. These interests are described in further detail and quantified below under “The Merger (Proposal 1) — Interests of Lydall’s Directors and Executive Officers in the Merger” beginning on page 48 of this proxy statement.

Directors’ and Officers’ Indemnification and Insurance (see page 52)

For six (6) years after the effective time of the merger, Parent has agreed to cause the surviving corporation to indemnify and hold harmless the present and former directors and officers of Lydall, exclusively in their capacity as such (each, an “indemnified person”) in respect of acts or omissions occurring at or prior to the effective time of the merger to the fullest extent provided under Lydall’s certificate of incorporation and bylaws in effect on June 21, 2021.

Market Prices of Lydall Common Stock (see page 77)

The merger consideration of  $62.10 per share represents a premium of approximately 87% over Lydall’s closing share price on June 18, 2021, the last trading day prior to the announcement that Lydall had entered into the merger agreement and a premium of approximately 71% to Lydall’s thirty (30)-day volume-weighted average stock price on the same date. The closing price of Lydall common stock on the NYSE on [•], 2021, the most recent practicable date prior to the date of this proxy statement, was $[•] per share. You are encouraged to obtain current market prices of Lydall common stock in connection with voting your shares of Lydall common stock.

Litigation Related to the Merger (see page 54)

As of the date of this proxy statement, there are no pending lawsuits challenging the merger. However, potential plaintiffs may file lawsuits challenging the merger. The outcome of any future litigation is uncertain.

Such litigation, if not resolved, could prevent or delay consummation of the merger and result in substantial costs to Lydall, including any costs associated with the indemnification of directors and officers. One of the conditions to the consummation of the merger is that no applicable law or order issued by a court of competent jurisdiction or other legal restraint which is then in effect renders illegal or enjoins the consummation of the merger whether on a preliminary or permanent basis. Therefore, if a plaintiff were successful in obtaining an injunction prohibiting the consummation of the merger on the agreed-upon terms, then such injunction may prevent the merger from being consummated, or from being consummated within the expected time frame.

For additional information regarding the pending litigation, please see the section entitled “The Merger (Proposal 1) — Litigation Related to the Merger” beginning on page 54.

 

11

 

QUESTIONS AND ANSWERS

The following are some questions that you, as a stockholder of Lydall, may have regarding the merger and the special meeting and the answers to those questions. Lydall urges you to carefully read the remainder of this proxy statement because the information in this section does not provide all the information that might be important to you with respect to the merger and the special meeting. Additional important information is also contained in the annexes to and the documents incorporated by reference into this proxy statement.

Q:

What is the purpose of the special meeting?

​

A:

At the special meeting, stockholders will consider and act upon the matters outlined in the notice of meeting on the cover page of this proxy statement, namely:

​

•

A proposal to approve and adopt the merger agreement, which is further described in the sections entitled “The Merger (Proposal 1)” and “The Merger Agreement,” beginning on pages 29 and 55, respectively, of this proxy statement;

​

•

A proposal to approve, on a non-binding, advisory basis, certain compensation that will or may be paid by Lydall to its named executive officers that is based on or otherwise relates to the merger, discussed under the section entitled “The Merger (Proposal 1) — Interests of Lydall’s Directors and Executive Officers in the Merger” beginning on page 49 of this proxy statement; and

​

•

A proposal to approve an adjournment of the special meeting, including if necessary to solicit additional proxies in favor of the proposal to approve and adopt the merger agreement if there are not sufficient votes at the time of such adjournment to approve and adopt the merger agreement.

​

Q:

Where and when is the special meeting?

​

A:

The special meeting is scheduled to be held exclusively online via live webcast on [•], 2021 at [•], Eastern Time. There will not be a physical meeting location. You will be able to attend the Special Meeting by first registering at https://viewproxy.com/Lydall/2021. You will receive a meeting invitation by e-mail with your unique join link along with a password prior to the meeting date. Stockholders will be able to listen, vote and submit questions during the virtual meeting. Instructions on how to attend and participate online are also posted online at https://viewproxy.com/Lydall/2021/VM. We encourage you to allow ample time for online check-in, which will open at [•], Eastern Time. Please note that you will not be able to attend the special meeting in person. We elected to use a virtual meeting given the current public health implications of COVID-19 (novel coronavirus) and our desire to promote the health and welfare of our stockholders.

​

Q:

What do I need in order to be able to attend the special meeting online?

​

A:

The special meeting will be held via live webcast only. Any stockholder can attend the special meeting live by pre-registering online at https://viewproxy.com/Lydall/2021. The webcast will start at [•], Eastern Time on [•], 2021. Stockholders may vote and submit questions while attending the special meeting online. In order to be able to enter the special meeting, you will need to pre-register at https://viewproxy.com/Lydall/2021. You will receive a meeting invitation by e-mail with your unique join link along with a password prior to the meeting date. Stockholders will be able to listen, vote and submit questions during the virtual meeting. Instructions on how to attend and participate online are also posted online at https://viewproxy.com/Lydall/2021/VM.

​

Q:

How does the Lydall board of directors recommend that I vote on the proposals?

​

A:

The Lydall board of directors determined that the adoption of the merger agreement and consummation of the merger are in the best interests of Lydall and its shareholders and thus recommends that you vote as follows:

​

“FOR” the approval, on a non-binding, advisory basis, of certain compensation that will or may be paid by Lydall to its named executive officers that is based on or otherwise relates to the merger; and

​

•

“FOR” the approval of an adjournment of the special meeting, including if necessary to solicit additional proxies in favor of the proposal to approve and adopt the merger agreement, if there are not sufficient votes at the time of such adjournment to approve and adopt the merger agreement.

​

 

12

 

Q:

How does the per share merger consideration compare to the market price of Lydall common stock prior to announcement of the merger?

​

A:

The merger consideration of  $62.10 per share represents a premium of approximately 87% over Lydall’s closing share price on June 18, 2021, the last trading day prior to the announcement that Lydall had entered into the merger agreement. The closing price of Lydall common stock on the NYSE on [•], 2021, the most recent practicable date prior to the date of this proxy statement, was $[•] per share. You are encouraged to obtain current market prices of Lydall common stock in connection with voting your shares of Lydall common stock.

​

Q:

What will happen in the merger?

​

A:

If the merger is completed, Merger Sub will merge with and into Lydall, whereupon the separate existence of Merger Sub will cease and Lydall will be the surviving corporation and a wholly owned subsidiary of Parent. As a result of the merger, Lydall common stock will no longer be publicly traded, and you will no longer have any interest in Lydall’s future earnings or growth. In addition, Lydall common stock will be delisted from the NYSE and deregistered under the Exchange Act, and Lydall will no longer be required to file periodic reports with the SEC with respect to Lydall common stock, in each case in accordance with applicable law, rules and regulations.

​

Q:

Who will own Lydall after the merger?

​

A:

Immediately following the merger, Lydall will be a wholly owned subsidiary of Parent.

​

Q:

What will I receive in the merger?

​

A:

Upon the terms and subject to the conditions of the merger agreement, if the merger is completed, the holders of Lydall common stock will have the right to receive $62.10 in cash, without interest and less any applicable withholding taxes, for each share of Lydall common stock that they own immediately prior to the effective time of the merger.

​

Q:

What will happen in the merger to Lydall equity awards?

​

A:

The merger agreement provides that at or immediately prior to the effective time of the merger, the outstanding equity awards of Lydall will be treated as follows:

​

•

Each Lydall RSA that is outstanding under a Lydall Stock Plan, whether or not vested, will become fully vested and be automatically canceled in exchange for the right to receive an amount in cash equal to the product of the merger consideration and the number of shares of Lydall common stock underlying the Lydall RSA (including the value of any dividends accrued thereon). For each Lydall PSA, performance conditions will be deemed to have been earned at the greater of  (i) the target amount under the terms of the applicable award agreement relating to such Lydall PSA and (ii) the amount reasonably projected to be earned under the terms of the award agreement based on performance achievement through the effective time of the merger.

​

•

Each Lydall Stock Option that is outstanding under a Lydall Stock Plan, whether or not vested, will become fully vested and be automatically canceled in exchange for the right to receive an amount in cash (without interest) determined by multiplying (i) the excess, if any, of the merger consideration over the applicable exercise price of such Lydall Stock Option by (ii) the number of shares of Lydall common stock underlying the Lydall Stock Option. Any Lydall Stock Option for which the exercise price is equal to or greater than the merger consideration will be canceled without any consideration.

​

•

Each Incentive Stock Option will, at least ten (10) business days prior to the closing of the merger, automatically vest and be exercisable for Lydall common stock and each holder of Incentive Stock Options shall be provided with written notice that such holder will, during the period beginning on the date of such notice and ending on the business day immediately preceding the closing of the merger, have the right to exercise such Incentive Stock Option by providing Lydall with notice of exercise and a cash amount equal to the applicable exercise price (with each share of Lydall common stock acquired on exercise being converted into the right to receive the merger consideration at the effective time of the merger and each Incentive Stock Option not so exercised and that remains outstanding immediately prior to the effective time of the merger being treated as a Lydall Stock Option).

​

 

13

 

Q:

Am I entitled to exercise appraisal rights instead of receiving the merger consideration for my shares of Lydall common stock?

​

A:

If you comply with all the requirements of Section 262 of the DGCL (including not voting in favor of the adoption of the merger agreement), you are entitled to have the “fair value” ​(as defined pursuant to Section 262 of the DGCL) of your shares of Lydall common stock determined by the Court of Chancery of the State of Delaware and to receive payment based on that valuation instead of receiving the merger consideration. The ultimate amount you would receive in an appraisal proceeding may be more than, the same as or less than the amount you would have received under the merger agreement. To exercise your appraisal rights, you must comply with the requirements of the DGCL. See “Appraisal Rights of Stockholders” beginning on page 78 of this proxy statement and the text of the Delaware appraisal rights statute, Section 262 of the DGCL, which is reproduced in its entirety as Annex C to this proxy statement.

​

Q:

What vote is required to approve and adopt the merger agreement?

​

A:

The proposal to approve and adopt the merger agreement requires the affirmative vote of at least a majority of the shares of Lydall common stock outstanding at the close of business on the record date. In addition, under the merger agreement, the receipt of such required vote is a condition to the consummation of the merger. A failure to vote your shares of Lydall common stock or an abstention from voting will have the same effect as a vote against the merger proposal.

​

Q:

What vote is required to approve, on a non-binding, advisory basis, certain compensation that will or may be paid by Lydall to its named executive officers that is based on or otherwise relates to the merger?

​

A:

The named executive officer merger-related compensation proposal, approval of which is not required to complete the merger, requires the affirmative vote of at least a majority of the outstanding shares of Lydall common stock present via the virtual meeting website or represented by proxy and entitled to vote and voting at the special meeting (provided a quorum is present or represented by proxy).

​

Q:

What vote is required to approve the proposal to adjourn the special meeting, including if necessary to solicit additional proxies in favor of the proposal to approve and adopt the merger agreement if there are not sufficient votes at the time of such adjournment to approve and adopt the merger agreement?

​

A:

The proposal to adjourn the special meeting, the approval of which is not required to complete the merger, requires the affirmative vote of at least a majority of the outstanding shares of Lydall common stock present via the virtual meeting website or represented by proxy and entitled to vote and voting at the special meeting (whether or not a quorum is present). Notwithstanding the inclusion or approval of the proposal to adjourn the special meeting, whether or not a quorum is present at the special meeting, the chairperson of the special meeting may adjourn the special meeting to another place, if applicable, date or time, in accordance with Lydall’s Amended and Restated Bylaws, as amended and restated as of December 6, 2018 (the “Bylaws”).

​

Q:

Do any of Lydall’s directors or officers have interests in the merger that may differ from or be in addition to my interests as a stockholder?

​

A:

In considering the recommendation of the Lydall board of directors with respect to the merger proposal, you should be aware that our directors and executive officers have certain interests in the merger that may be different from, or in addition to, the interests of our Lydall stockholders generally. The Lydall board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be approved by the stockholders of Lydall. See “The Merger (Proposal 1) — Interests of Lydall’s Directors and Executive Officers in the Merger” beginning on page 48 and “Advisory Vote on Named Executive Officer Merger-Related Compensation (Proposal 2)” beginning on page 82.

​

Q:

When do you expect the merger to be completed?

​

A:

In order to complete the merger, Lydall must obtain the stockholder approval of the proposal to adopt the merger agreement described in this proxy statement and the other closing conditions under the merger agreement must

​

 

14

 

be satisfied or waived. The parties to the merger agreement currently expect to complete the merger in the second half of 2021, although Lydall cannot assure completion by any particular date, if at all. Because the merger is subject to a number of conditions, the exact timing of the merger cannot be determined at this time.

Q:

What conditions must be satisfied to complete the merger?

​

A:

There are several conditions which must be satisfied to complete the merger, including, among other things, the expiration or termination of any applicable waiting period under the HSR Act, compliance with certain other regulatory filings and obtaining certain other regulatory approvals. The obligation of each party to consummate the merger is also conditioned on the other party’s representations and warranties being true and correct (subject generally to a material adverse effect standard, with different standards applicable to certain representations and warranties) and the other party having performed in all material respects its obligations under the merger agreement (subject to certain qualifications). Consummation of the merger is not subject to any financing condition.

​

Q:

Why am I being asked to consider and act upon a proposal to approve, on a non-binding, advisory basis, certain compensation that will or may be paid by Lydall to its named executive officers that is based on or otherwise relates to the merger?

​

A:

SEC rules require Lydall to seek a non-binding, advisory vote to approve any agreements or understandings and compensation that will or may be paid by Lydall to its named executive officers that is based on or otherwise relates to in connection with the merger. Approval of this proposal by Lydall’s stockholders is not required to complete the merger.

​

Q:

Do you expect the merger to be taxable to Lydall stockholders?

​

A:

The exchange of Lydall common stock for cash in the merger will be a taxable transaction for U.S. federal income tax purposes and may also be taxable under state and local and other tax laws. In general, you will recognize gain or loss equal to the difference between (1) the merger consideration you receive and (2) the adjusted tax basis of the shares of common stock you surrender in the merger. Assuming you are a non-U.S. holder, your exchange of shares of Lydall common stock for the merger consideration generally will not result in U.S. federal income tax unless you have certain connections with the United States.You should read the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 86 of this proxy statement and consult your tax advisors regarding the U.S. federal income tax consequences of the merger to you in your particular circumstances, as well as tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.

​

Q:

Who is entitled to vote at the special meeting?

​

A:

The record date for the special meeting is [•], 2021. Only stockholders of record at the close of business on that date are entitled to attend and vote at the special meeting or any adjournment or postponement thereof. The only class of stock that can be voted at the meeting is Lydall common stock. Each outstanding share of Lydall common stock is entitled to one vote on all matters that come before the special meeting. At the close of business on the record date, there were [•] shares of Lydall common stock issued and outstanding, approximately [•]% of which were held by Lydall’s directors and executive officers. We currently expect that all of Lydall’s directors and executive officers will vote their shares in favor of the proposal to approve and adopt the merger agreement and the other proposals to be considered at the special meeting, although no director or executive officer is obligated to do so.

​

Q:

Who may attend the special meeting?

​

A:

Only stockholders as of the close of business on [•], 2021, or their duly appointed proxies, and invited guests of Lydall may attend the meeting via the virtual meeting website. “Street name” holders (those whose shares are held through a broker, bank or other nominee) who wish to vote at the special meeting must obtain a proxy, executed in your favor, from your broker, bank or other nominee giving you the right to vote your shares at the special meeting.

​

Q:

Who is soliciting my vote?

​

A:

The Lydall board of directors is soliciting your proxy, and Lydall will bear the cost of soliciting proxies. Alliance Advisors has been retained to assist with the solicitation of proxies. Alliance Advisors will be paid a solicitation

​

 

15

 

fee of approximately $25,000 and will be reimbursed for its reasonable out-of-pocket expenses for these and other advisory services in connection with the special meeting. Solicitation initially will be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, custodians, and other like parties to the beneficial owners of shares of Lydall common stock, in which case these parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail or other electronic medium by Alliance Advisors or, without additional compensation, by certain of Lydall’s directors, officers and employees.

Q:

What do I need to do now?

​

A:

Carefully read and consider the information contained in and incorporated by reference into this proxy statement, including its annexes. Whether or not you expect to attend the special meeting, please submit a proxy to vote your shares as promptly as possible so that your shares may be represented and voted at the special meeting.

​

Q:

How do I vote if my shares are registered directly in my name?

​

A:

If you are a stockholder of record, there are four methods by which you may vote at the special meeting:

​

•

Internet:   To vote over the internet, log on to the voting site indicated on your proxy card. If you vote over the internet, you do not have to mail in a proxy card.

​

•

Telephone:   To vote by telephone, call the toll-free number indicated on your proxy card. If you vote by telephone, you do not have to mail in a proxy card.

​

•

Mail:   To vote by mail, complete, sign and date a proxy card and return it promptly in the postage paid envelope provided. If you return your signed proxy card to us before the special meeting, we will vote your shares as you direct.

​

•

Virtually During Meeting:   To vote your shares during the special meeting, click on the vote button provided on the screen and follow the instructions provided. If you encounter any difficulties accessing the special meeting during the check-in or meeting time, please call the technical support number that will be posted on the log in page.

​

Whether or not you plan to attend the meeting, we urge you to vote by proxy, whether by internet, by telephone or by mail, to ensure your vote is counted. You may still attend the meeting and vote your shares via the virtual meeting website, even if you have already voted by proxy. If you later decide to vote at the special meeting, your proxy prior to the special meeting will be revoked. Please choose only one method to cast your vote by proxy. We encourage you to vote over the internet, which is a convenient, cost-effective and reliable alternative to returning a proxy card by mail.

Q:

How do I vote if my shares are held in the name of my broker (street name)?

​

A:

If your shares are held by your broker, bank or other nominee, often referred to as held in “street name,” you will receive a form from your broker, bank or other nominee seeking instruction as to how your shares should be voted. You should contact your broker, bank or other nominee with questions about how to provide or revoke your instructions.

​

Q:

Can I change my vote after I submit my proxy?

​

A:

Yes. You can change or revoke your proxy at any time before the final vote at the special meeting or any adjournment or postponement thereof. If you are the record holder of your shares, you may change or revoke your proxy in any one of three ways:

​

•

You may submit another properly completed proxy bearing a later date, whether over the internet, by telephone or by mail;

​

•

You may send a written notice prior to the special meeting (or any adjournment or postponement thereof) that you are revoking your proxy to the Office of the Secretary, Lydall, Inc., One Colonial Road, Manchester, Connecticut 06042; or

​

•

You may attend the special meeting (or any adjournment or postponement thereof) and vote via the virtual meeting website.

​

 

16

 

If your shares are held by your broker, bank or other nominee, you will have to follow the instructions provided by your broker, bank or other nominee to change or revoke your proxy.

If you have questions about how to vote or change your vote, please contact Alliance Advisors, the firm assisting us in the solicitation of proxies, toll-free at 855-973-0094.

Q:

What happens if I sell my shares of Lydall common stock before the special meeting?

​

A:

The record date for the special meeting is earlier than the expected date of the merger. If you own shares of common stock as of the close of business on the record date but transfer your shares prior to the date of the special meeting, you will retain your right to vote at the special meeting, but the right to receive the merger consideration will pass to the person who holds your shares immediately prior to the effective time of the merger.

​

Q:

What happens if I sell my shares of Lydall common stock after the special meeting but before the effective time?

​

A:

If you transfer your shares after the special meeting but before the effective time, you will have transferred the right to receive the merger consideration to the person to whom you transfer your shares. In order to receive the merger consideration, you must hold your shares of common stock through completion of the merger.

​

Q:

Should I send in my stock certificates now?

​

A:

No. If the merger is completed, the exchange agent for the merger will send you a letter of transmittal and instructions for exchanging your shares of Lydall common stock for the merger consideration. PLEASE DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY OR OTHERWISE SEND THEM TO LYDALL, PARENT OR THE PROXY SOLICITOR.

​

Q:

How many shares must be present to constitute a quorum for the meeting?

​

A:

The presence at the special meeting, by attendance via the virtual meeting website or by proxy, of the holders of a majority of the shares of Lydall common stock issued and outstanding and entitled to vote at the close of business on the record date will constitute a quorum. There must be a quorum for business to be conducted at the special meeting. Failure of a quorum to be present at the special meeting will necessitate an adjournment or postponement and will subject Lydall to additional expense.

​

Q:

What if I abstain from voting?

​

A:

If you attend the special meeting or send in your signed proxy card, but abstain from voting on any proposal, your shares will still be counted for purposes of determining whether a quorum exists. If you abstain from voting on the proposal to approve and adopt the merger agreement at the special meeting, it will have the same effect as a vote “AGAINST” such proposal. If you abstain from voting on the other two proposals, it will have no effect on the outcome of such proposals.

​

Q:

Will my shares be voted if I do not sign and return my proxy card or vote over the internet, by mail, by telephone or by attendance via the virtual meeting website?

​

A:

If you are a registered stockholder and you do not sign and return your proxy card or vote over the internet, by telephone, by mail or by attendance via the virtual meeting website, your shares will not be voted at the special meeting and will not be counted for purposes of determining whether a quorum exists.

​

If your shares are held in street name and you do not issue instructions to your broker, bank or other nominee, your broker, bank or other nominee may vote your shares at its discretion on routine matters, but may not vote your shares on non-routine matters. Under NYSE rules, all of the proposals in this proxy statement are non-routine matters. Accordingly, if your shares are held in “street name” and you do not issue instructions to your broker, bank or other nominee, your shares will not be voted at the special meeting and will not be counted for purposes of determining whether a quorum exists.

If you fail to complete, sign, date and return your proxy card by mail, or vote via the internet, by telephone or by attendance via the virtual meeting website, it will have the same effect as a vote “AGAINST” the proposal to approve and adopt the merger agreement, but will have no effect on the other proposals.

 

17

 

Q:

What is a broker non-vote?

​

A:

Broker non-votes are shares held by brokers and other record holders that are present or represented by proxy at the special meeting, but with respect to which the broker or other record holder is not instructed by the beneficial owner of such shares how to vote on a particular proposal and the broker does not have discretionary voting power on such proposal. Because brokers and other record holders do not have discretionary voting authority with respect to any of the three proposals described in this proxy statement, if a beneficial owner of shares of Lydall common stock held in “street name” does not give voting instructions to the broker or other holder of record, then those shares will not be present or represented by proxy at the special meeting. As a result, it is expected that there will not be any broker non-votes in connection with any of the three proposals described in this proxy statement.

​

If you do not instruct your broker, bank or other nominee to vote your shares, your shares will not be voted and the effect will be the same as a vote “AGAINST” the proposal to approve and adopt the merger agreement. However, a failure to instruct your broker, bank or other nominee to vote on the non-binding proposal regarding merger-related compensation for Lydall’s named executive officers (assuming a quorum is present) or the proposal to adjourn the special meeting, including if necessary to solicit additional proxies for the approval and adoption of the merger agreement, will have no effect on the outcome of such proposals.

Q:

Will my shares held in “street name” or another form of record ownership be combined for voting purposes with shares I hold of record?

​

A:

No. Because any shares you may hold in “street name” will be deemed to be held by a different stockholder than any shares you hold of record, any shares so held will not be combined for voting purposes with shares you hold of record. Similarly, if you own shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and will need to sign and return, a separate proxy card for those shares because they are held in a different form of record ownership. Shares held by a corporation or business entity must be voted by an authorized officer of the entity. Shares held in an individual retirement account must be voted under the rules governing the account.

​

Q:

What does it mean if I receive more than one set of proxy materials?

​

A:

This means you own shares of Lydall common stock that are registered under different names or are in more than one account. For example, you may own some shares directly as a stockholder of record and other shares through a broker or you may own shares through more than one broker. In these situations, you will receive multiple sets of proxy materials. You must vote, sign and return all of the proxy cards or follow the instructions for any alternative voting procedure on each of the proxy cards that you receive in order to vote all of the shares you own. Each proxy card you receive comes with its own prepaid return envelope. If you submit your proxy by mail, make sure you return each proxy card in the return envelope that accompanies that proxy card.

​

Q:

Who will count the votes?

​

A:

A representative from Alliance Advisors will serve as the inspector of election.

​

Q:

Can I participate if I am unable to attend the special meeting?

​

A:

If you are unable to attend the special meeting, we encourage you to complete, sign, date and return your proxy card or to vote over the internet or by telephone.

​

Q:

Where can I find the voting results of the special meeting?

​

A:

Lydall intends to announce preliminary voting results at the special meeting and publish final results in a Current Report on Form 8-K that will be filed with the SEC following the special meeting. All reports that Lydall files with the SEC are publicly available when filed.

​

Q:

What happens if the merger is not completed?

​

A:

If the merger agreement is not approved and adopted by Lydall stockholders or if the merger is not completed for any other reason, Lydall stockholders will not receive any payment for their shares of Lydall common stock in connection with the merger. Instead, Lydall will remain an independent public company and shares of Lydall common stock will continue to be listed and traded on the NYSE.

​

 

18

 

The merger agreement provides that, upon termination of the merger agreement under certain circumstances, Lydall will be required to pay to Parent a termination fee of  $31.5 million, or under specified circumstances, Lydall may be entitled to receive a reverse termination fee of  $91.7 million from Parent. If Parent commences an action or proceeding that results in a judgment against Lydall for the payment of the termination fee, Lydall shall pay to Parent its costs and expenses (including reasonable attorneys’ fees and expenses actually incurred by Parent in connection with such action or proceeding) in an amount not to exceed $5 million in the aggregate. If Lydall commences an action or proceeding that results in a judgment against Parent or Unifrax for the payment of the reverse termination fee, Parent or Unifrax shall pay to Lydall its costs and expenses (including reasonable attorneys’ fees and expenses actually incurred by Lydall in connection with such action or proceeding) in an amount not to exceed $5 million in the aggregate.

See the section entitled “The Merger Agreement — Termination Fee Payable by Lydall and Reverse Termination Fee Payable by Parent” beginning on page 74 of this proxy statement for a discussion of the circumstances under which such a termination fee or a reverse termination fee will be required to be paid.

Q:

How can I obtain additional information about Lydall?

​

A:

Lydall will provide copies of this proxy statement and its 2020 Annual Report to Stockholders, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2020, without charge to any stockholder who makes a written request to our Secretary at Lydall, Inc., One Colonial Road, Manchester, Connecticut 06042. Lydall’s Annual Report on Form 10-K and other SEC filings may also be accessed at www.sec.gov or on the Investor Relations section of Lydall’s website at www.lydall.com. Lydall’s website address is provided as an inactive textual reference only. The information provided on or accessible through our website is not part of this proxy statement and is not incorporated in this proxy statement by reference by this or any other reference to our website provided in this proxy statement.

​

Q:

How many copies of this proxy statement and related voting materials should I receive if I share an address with another stockholder?

​

A:

The SEC has adopted rules that permit companies and intermediaries, such as brokers, to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single annual report or proxy statement, as applicable, addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially provides extra convenience for stockholders and cost savings for companies.

​

Lydall and some brokers may be householding our proxy materials by delivering proxy materials to multiple stockholders who request a copy and share an address, unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker or us that they or we will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If at any time you no longer wish to participate in householding and would prefer to receive a separate proxy statement and annual report, please notify your broker if your shares are held in a brokerage account or Lydall if you are a stockholder of record. You can notify us by sending a written request to Lydall, Inc., One Colonial Road, Manchester, Connecticut 06042, Attn: Secretary, or calling (860) 646-1233. Stockholders who share a single address, but receive multiple copies of the proxy statement, may request that in the future they receive a single copy by notifying Lydall at the telephone and address set forth in the prior sentence. In addition, Lydall will promptly deliver, upon written or oral request to the address or telephone number above, a separate copy of the proxy statement to a stockholder at a shared address to which a single copy of the documents was delivered pursuant to a prior request.

Q:

Whom should I contact if I have any questions?

​

A:

If you have questions about the merger or the other matters to be voted on at the special meeting or desire additional copies of this proxy statement or additional proxy cards or otherwise need assistance voting, you should contact:

​

 

19

 

Alliance Advisors
200 Broadacres Drive
3rd Floor
Bloomfield, NJ 07003
Toll-Free: 855.973.0094
E-mail: LDL@allianceadvisors.com

 

20

 

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement, and the documents incorporated by reference or otherwise referred to in this proxy statement, contain “forward-looking statements” within the meaning of Section 21E of the Exchange Act. Any statements contained in this proxy statement, and the documents incorporated by reference or otherwise referred to in this proxy statement, that are not statements of historical fact may be deemed to be forward-looking statements. All such forward-looking statements are intended to provide management’s current expectations for the future operating and financial performance of Lydall based on current assumptions relating to Lydall’s business, the economy and future conditions. Forward-looking statements generally can be identified through the use of words such as “believes,” “anticipates,” “may,” “should,” “will,” “plans,” “projects,” “expects,” “expectations,” “estimates,” “forecasts,” “predicts,” “targets,” “prospects,” “strategy,” “signs” and other words of similar meaning in connection with the discussion of future operating or financial performance. Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash and other measures of financial performance. Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict. Accordingly, Lydall’s actual results may differ materially from those contemplated by the forward-looking statements. Investors, therefore, are cautioned against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Forward-looking statements in this proxy statement, and the documents incorporated by reference or otherwise referred to in this proxy statement, include, among others, statements relating to:

•

Expected impact of the COVID-19 on Lydall’s businesses;

​

•

The occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement, including a termination of the merger agreement under circumstances that could require Lydall to pay a termination fee;

​

•

The failure to receive, on a timely basis or otherwise, the required approvals by Lydall stockholders with regard to the merger agreement;

​

•

The risk that a closing condition to the merger agreement may not be satisfied;

​

•

Lydall’s and Parent’s ability to complete the proposed merger on a timely basis or at all;

​

•

The failure of the merger to be completed on a timely basis or at all for any other reason;

​

•

The risks that Lydall’s business may suffer as a result of uncertainties surrounding the merger;

​

•

The ability of Lydall to retain and hire key personnel and maintain relationships with customers, suppliers and other business partners pending the consummation of the merger;

​

•

The possibility of disruption to Lydall’s business from the proposed merger, including increased costs and diversion of management time and resources;

​

•

Limitations placed on Lydall’s ability to operate its business under the merger agreement;

​

•

General economic, business and political conditions;

​

•

The outcome of any legal proceedings that may be instituted against Lydall or others relating to the merger agreement or the merger; and

​

•

Other financial, operational and legal risks and uncertainties detailed from time to time in Lydall’s SEC reports.

​

All forward-looking statements are inherently subject to a number of risks and uncertainties that could cause the actual results of Lydall to differ materially from those reflected in forward-looking statements made in this proxy statement, and the documents incorporated by reference or otherwise referred to in this proxy statement, as well as in press releases and other statements made from time to time by Lydall’s authorized officers. Such risks and uncertainties include, among others, the risk factors included in Item 1A of Lydall’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and under Part II, Item 1A I Lydall’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2021. Lydall does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

21

 

THE COMPANIES

Lydall, Inc.

Lydall and its subsidiaries design, manufacture, and market specialty filtration and advanced materials solutions that contribute to a cleaner, quieter and safer world. Lydall operates in a variety of attractive end markets supported by global megatrends such as the demand for indoor air quality and lower emissions, near sourcing of supply chains, and vehicle electrification redefining safety and sound. Lydall solves our customers’ problems culminating in demanding applications, including: high performance air and liquid specialty filtration, molecular filtration, engineered fiber based materials and sealing solutions, specialty insulation including high temperature and ultra-low temperature (cryogenic) insulation, needle punch nonwoven materials for industrial, geosynthetic, medical and other specialty applications; and thermal management and acoustical products and solutions to assist in the reduction of noise, vibration, and harshness.

Lydall’s principal executive office is located at One Colonial Road, Manchester, Connecticut 06042. Lydall’s telephone number is (860) 646-1233. Lydall’s internet website address is www.lydall.com. The information provided on the Lydall website is not part of this proxy statement and is not incorporated in this proxy statement by reference by this or any other reference to its website provided in this proxy statement.

Shares of Lydall common stock are listed and trade on the NYSE under the symbol “LDL.”

Parent

Parent and its subsidiaries are a leading global supplier of high-performance specialty fibers and inorganic materials used in emission control, thermal management, filtration, battery and fire protection applications. Parent’s ceramic and microfine glass fiber products are sold worldwide, primarily to industrial, commercial and automotive customers. Parent’s portfolio of fiber products, technologies, proprietary chemistries and processes have been developed from more than 70 years of deep application knowledge and innovation. Parent’s products address mission critical energy efficiency, emission control, regulatory and fire safety requirements across the globe.

Parent’s principal executive office is located at 600 Riverwalk Parkway, Suite 120, Tonawanda, New York 14150. Parent’s telephone number is (716)768-6500. Parent’s internet website address is www.unifrax.com. The information provided on the Parent website is not part of this proxy statement and is not incorporated in this proxy statement by reference by this or any other reference to its website provided in this proxy statement.

Merger Sub

Merger Sub is a Delaware corporation and wholly owned subsidiary of Parent. Upon consummation of the transactions contemplated by the merger agreement, Merger Sub exists for the sole purpose of entering into the merger agreement and, subject to the terms and conditions thereof, completing the transactions contemplated thereby and the related financing transactions. Merger Sub will cease to exist and Lydall will continue as the surviving company and as a wholly owned subsidiary of Parent.

 

22

 

THE SPECIAL MEETING

This proxy statement is being provided to the stockholders of Lydall as part of a solicitation of proxies by the Lydall board of directors for use at the special meeting to be held at the time specified below, and at any properly convened meeting following an adjournment or postponement thereof. This proxy statement provides stockholders of Lydall with the information they need to know to be able to vote or instruct their vote to be cast at the special meeting or any adjournment or postponement thereof.

Date, Time and Place

The special meeting is scheduled to be held exclusively online via live webcast on [•], 2021 at [•], Eastern Time. You will be able to attend the special meeting by first registering at https://viewproxy.com/Lydall/2021. You will receive a meeting invitation by e-mail with your unique join link along with a password prior to the meeting date. Stockholders will be able to listen, vote and submit questions during the special meeting. We encourage you to allow ample time for online check-in, which will open at [•], Eastern Time. Please note that you will not be able to attend the special meeting in person. We elected to use a virtual meeting given the current public health implications of COVID-19 (novel coronavirus) and our desire to promote the health and welfare of our stockholders.

We have created and implemented the virtual format in order to facilitate stockholder attendance and participation by enabling stockholders to participate fully, and equally, from any location around the world, at no cost. However, you will bear any costs associated with your Internet access, such as usage charges from Internet access providers and telephone companies. A virtual special meeting makes it possible for more stockholders (regardless of size, resources or physical location) to have direct access to information more quickly, while saving Lydall and its stockholders time and money, especially as physical attendance at meetings has dwindled. We also believe that the online tools we have selected will increase stockholder communication. For example, the virtual format allows stockholders to communicate with us in advance of, and during, the special meeting so they can ask questions of our board of directors or management. During the live Q&A session of the special meeting, we may answer questions as they come in and address those asked in advance, to the extent relevant to the business of the special meeting, as time permits.

Both stockholders of record and street name stockholders will be able to attend the special meeting via live audio webcast, submit their questions during the meeting and vote their shares electronically at the special meeting.

If you are a registered holder, your virtual control number will be on your proxy card.

If you hold your shares beneficially through a bank or broker, you must provide a legal proxy from your bank or broker during registration and you will be assigned a virtual control number in order to vote your shares during the special meeting. If you are unable to obtain a legal proxy to vote your shares, you will still be able to attend the 2021 special meeting (but will not be able to vote your shares) so long as you demonstrate proof of stock ownership. Instructions on how to connect and participate via the Internet, including how to demonstrate proof of stock ownership, are posted at https://viewproxy.com/Lydall/2021. On the day of the special meeting, you may only vote during the meeting by e-mailing a copy of your legal proxy to virtualmeeting@viewproxy.com in advance of the meeting.

Technical Difficulties

There will be technicians ready to assist you with any technical difficulties you may have accessing the special meeting live audio webcast. Please be sure to check in by [•] Eastern Time on [•], 2021, (fifteen (15) minutes prior to the start of the meeting is recommended) the day of the meeting, so that any technical difficulties may be addressed before the special meeting live audio webcast begins. If you encounter any difficulties accessing the webcast during the check-in or meeting time, please email virtualmeeting@viewproxy.com or call 866-612-8937.

Purpose of the Special Meeting

At the special meeting, Lydall stockholders will be asked to consider and vote on the following:

•

A proposal to approve and adopt the merger agreement, which is further described in the sections entitled “The Merger (Proposal 1)” and “The Merger Agreement,” beginning on pages 29 and 55, respectively, of this proxy statement;

​

 

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•

A proposal to approve, on a non-binding, advisory basis, certain compensation that will or may be paid by Lydall to its named executive officers that is based on or otherwise relates to the merger, discussed under the section entitled “The Merger (Proposal 1) — Interests of Lydall’s Directors and Executive Officers in the Merger” beginning on page 48 of this proxy statement; and

​

•

A proposal to approve an adjournment of the special meeting, including if necessary to solicit additional proxies in favor of the proposal to approve and adopt the merger agreement, if there are not sufficient votes at the time of such adjournment to approve and adopt the merger agreement.

​

Lydall stockholders must approve and adopt the merger agreement for the merger to occur. If Lydall stockholders fail to approve and adopt the merger agreement, the merger will not occur. The vote on executive compensation payable in connection with the merger is a vote separate and apart from the vote to approve and adopt the merger agreement. Accordingly, a stockholder may vote to approve the executive compensation payable in connection with the merger and vote not to approve and adopt the merger agreement and vice versa. Because the vote on executive compensation is advisory in nature only, it will not be binding on either Lydall or Parent. Accordingly, because Lydall is contractually obligated to pay the compensation, the compensation will be payable, subject only to the conditions applicable thereto, if the merger agreement is approved and adopted and the merger is consummated, and regardless of the outcome of the advisory vote.

Lydall does not expect a vote to be taken on any other matters at the special meeting or any adjournment or postponement thereof. If any other matters are properly presented at the special meeting or any adjournment or postponement thereof for consideration, however, the holders of the proxies will have discretion to vote on these matters.

Recommendation of the Lydall Board of Directors

After careful consideration, the Lydall board of directors, by a unanimous vote, approved the merger agreement, the merger and the other transactions contemplated by the merger agreement. Certain factors considered by the Lydall board of directors in reaching its decision to authorize and approve the merger agreement and the merger can be found in the section entitled “The Merger (Proposal 1) — Lydall’s Reasons for the Merger” beginning on page 37 of this proxy statement.

The Lydall board of directors recommends that the Lydall stockholders vote “FOR” the proposal to approve and adopt the merger agreement, “FOR” the proposal to approve, on a non-binding, advisory basis, certain compensation that will or may be paid by Lydall to its named executive officers that is based on or otherwise relates to the merger and “FOR” the proposal to adjourn the special meeting, including if necessary to solicit additional proxies in favor of the proposal to approve and adopt the merger agreement, if there are not sufficient votes at the time of such adjournment to approve and adopt the merger agreement.

Record Date; Stockholders Entitled to Vote

Only holders of record of Lydall common stock at the close of business on [•], 2021, the record date for the special meeting, will be entitled to notice of, and to vote at, the special meeting or any adjournments or postponements of the special meeting. At the close of business on the record date, [•] shares of Lydall common stock were issued and outstanding and held by [•] holders of record.

Holders of record of Lydall common stock are entitled to one vote for each share of Lydall common stock they own at the close of business on the record date.

Quorum

The presence at the special meeting, by attendance via the virtual meeting website or by proxy, of the holders of a majority of the shares of Lydall common stock issued and outstanding and entitled to vote at the close of business on the record date will constitute a quorum. Any shares of Lydall common stock held by Lydall are not considered to be outstanding for purposes of determining a quorum. There must be a quorum for business to be conducted at the special meeting. Failure of a quorum to be represented at the special meeting will necessitate an adjournment or postponement and will subject Lydall to additional expense. Once a share is represented at the special meeting, it will be counted for the purpose of determining a quorum at the special meeting and any adjournment of the special

 

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meeting. However, if a new record date is set for the adjourned special meeting, then a new quorum will have to be established. If you submit a properly executed proxy card, even if you abstain from voting, your shares will be counted for purposes of calculating whether a quorum is present at the special meeting.

Required Vote

Approval and adoption of the merger agreement requires the affirmative vote of a majority of the shares of Lydall common stock outstanding at the close of business on the record date. The proposal to adjourn the special meeting, including if necessary to permit further solicitation of proxies, requires the affirmative vote of at least a majority of the outstanding shares of Lydall common stock present via the virtual meeting website or represented by proxy and entitled to vote and voting at the special meeting (whether or not a quorum is present). Notwithstanding the inclusion or approval of the proposal to adjourn the special meeting, whether or not a quorum is present at the special meeting, the chairperson of the special meeting may adjourn the special meeting to another place, if applicable, date or time in accordance with the Bylaws. The proposal to approve, on a non-binding, advisory basis, certain compensation that will or may be paid by Lydall to its named executive officers that is based on or otherwise relates to the merger requires the affirmative vote of at least a majority of the outstanding shares of Lydall common stock present via the virtual meeting website or represented by proxy and entitled to vote and voting at the special meeting (provided that a quorum is present).

Abstentions and Broker Non-Votes

An abstention occurs when a stockholder attends a meeting, either by attendance via the virtual meeting website or by proxy, but abstains from voting. At the special meeting, abstentions will be counted in determining whether a quorum is present, and will be counted as a vote “AGAINST” the proposal to approve and adopt the merger agreement. At the special meeting, abstentions will have no effect on the outcomes of the proposal to adjourn the special meeting, including if necessary to permit further solicitation of proxies, and the advisory vote on named executive officer merger-related compensation.

If no instruction as to how to vote is given (including an instruction to abstain) in an executed, duly returned and not revoked proxy, the proxy will be voted “FOR” ​(i) the proposal to approve and adopt the merger agreement; (ii) the proposal to approve, on a non-binding, advisory basis, certain compensation that will or may be paid by Lydall to its named executive officers that is based on or otherwise relates to the merger; and (iii) the proposal to approve the adjournment of the special meeting, including if necessary to solicit additional proxies, if there are not sufficient votes at the time of such adjournment to approve and adopt the merger agreement.

Broker non-votes are shares held by brokers and other record holders that are present or represented by proxy at the special meeting, but with respect to which the broker or other record holder is not instructed by the beneficial owner of such shares how to vote on a particular proposal and the broker does not have discretionary voting power on such proposal. Because brokers and other record holders do not have discretionary voting authority with respect to any of the three proposals described in this proxy statement, if a beneficial owner of shares of Lydall common stock held in “street name” does not give voting instructions to the broker or other holder of record, then those shares will not be present or represented by proxy at the special meeting. As a result, it is expected that there will not be any broker non-votes in connection with any of the three proposals described in this proxy statement. If you do not instruct your broker, bank or other nominee to vote your shares, your shares will not be voted and the effect will be the same as a vote “AGAINST” the proposal to approve and adopt the merger agreement. However, a failure to instruct your broker, bank or other nominee to vote on the proposal to adjourn the special meeting, including if necessary to solicit additional proxies for the approval and adoption of the merger agreement or, assuming a quorum is present, the proposal regarding the advisory vote on named executive officer merger-related compensation, will have no effect on the outcome of such proposals.

Failure to Vote

If you are a registered stockholder and you do not sign and return your proxy card or vote over the internet, by telephone or by attendance via the virtual meeting website, your shares will not be voted at the special meeting and will not be counted for purposes of determining whether a quorum exists. If you are the record owner of your shares and you fail to vote, it will have the same effect as a vote “AGAINST” the proposal to approve and adopt the merger agreement but will have no effect on the proposal to adjourn the special meeting (whether or not a quorum is present),

 

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including if necessary to permit further solicitation of proxies, and the advisory vote on named executive officer merger-related compensation (assuming a quorum is present).

Voting by Lydall’s Directors and Executive Officers

At the close of business on the record date, directors and executive officers of Lydall and their affiliates were entitled to vote [•] shares of Lydall common stock, or approximately [•]% of the shares of Lydall common stock issued and outstanding on that date.

Voting at the Special Meeting

To participate in the special meeting, visit please click on the voting link provided from your registration e-mail and enter the control number included on your proxy card or on the instructions that accompanied your proxy materials. If you wish to submit a question during the special meeting, type your question into the “Ask a Question” field, and click “Submit.” If your question is properly submitted during the relevant portion of the meeting agenda, we will respond to your question during the live webcast.

If we experience technical difficulties during the special meeting (e.g., a temporary or prolonged power outage), we will determine whether the meeting can be promptly reconvened (if the technical difficulty is temporary) or whether the meeting will need to be reconvened on a later day (if the technical difficulty is more prolonged). In any situation, we will promptly notify stockholders of the decision via [•]. If you encounter any difficulties accessing the webcast during the check-in or meeting time, please email VirtualMeeting@viewproxy.com or call 866-612-8937.

Please note that if your shares of Lydall common stock are held by a broker, bank or other nominee, and you wish to vote at the special meeting, you must obtain a proxy, executed in your favor, from your broker, bank or other nominee giving you the right to vote your shares at the special meeting.

You may also authorize the persons named as proxies on the proxy card to vote your shares by (i) signing, dating, completing and returning the proxy card by mail; (ii) over the internet; or (iii) by telephone. Lydall encourages you to vote over the internet as Lydall believes this is the most cost-effective method. We also recommend that you vote as soon as possible, even if you are planning to attend the special meeting, so that the vote count will not be delayed. The internet provides a convenient, cost-effective alternative to returning your proxy card by mail or voting by telephone. If you vote your shares over the internet, you may incur costs associated with electronic access, such as usage charges from internet access providers. If you choose to vote your shares over the internet, there is no need for you to mail back your proxy card.

To Vote Over the Internet:

To vote over the internet, log on to the voting site indicated on your proxy card. If you vote over the internet, you do not have to mail in a proxy card.

To Vote By Telephone:

To vote by telephone, call the toll-free number indicated on your proxy card. If you vote by telephone, you do not have to mail in a proxy card.

To Vote By Mail:

To vote by mail, complete, sign, date and return the enclosed proxy card and mail it to the address indicated on the proxy card.

If you return your signed proxy card without indicating how you want your shares of Lydall common stock to be voted with regard to a particular proposal, your shares of Lydall common stock will be voted in favor of each such proposal. Proxy cards that are returned without a signature will not be counted as present at the special meeting and cannot be voted.

If your shares are held by your broker, bank or other nominee, you will receive a form from your broker, bank or other nominee seeking instruction as to how your shares should be voted. You should contact your broker, bank or other nominee with questions about how to provide or revoke your instructions.

 

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If you hold shares in more than one account, you may receive more than one proxy or voting instruction card. To be sure that all of your shares are represented at the meeting, you must submit your proxy or voting instructions with respect to each proxy or voting instruction card you receive.

Revocation of Proxies

You can revoke your proxy at any time before the final vote at the special meeting or any adjournment or postponement thereof. If you are the record holder of your shares, you may revoke your proxy in any one of three ways:

•

You may submit another properly completed proxy bearing a later date, whether over the internet, by telephone or by mail;

​

•

You may send a written notice prior to the special meeting (or any adjournment or postponement thereof) that you are revoking your proxy to the Office of the Secretary, Lydall, Inc., One Colonial Road, Manchester, Connecticut 06042; or

​

•

You may attend the special meeting (or any adjournment or postponement thereof) and vote via the virtual meeting website.

​

If your shares are held by your broker, bank or other nominee, you will have to follow the instructions provided by your broker, bank or other nominee to revoke your proxy.

If you have questions about how to vote or change your vote, you should contact the firm assisting us with the solicitation of proxies, Alliance Advisors, toll-free at 855-973-0094.

Shares Held in Name of Broker

If your shares are held by your broker, bank or other nominee, often referred to as held in “street name,” you will receive a form from your broker, bank or other nominee seeking instruction as to how your shares should be voted. You should contact your broker, bank or other nominee with questions about how to provide or revoke your instructions.

Tabulation of Votes

A representative from Alliance Advisors will serve as the inspector of election.

Solicitation of Proxies

The Lydall board of directors is soliciting your proxy, and Lydall will bear the cost of soliciting proxies. Alliance Advisors has been retained to assist with the solicitation of proxies. Alliance Advisors will be paid a solicitation fee of approximately $25,000 and will be reimbursed for its reasonable out-of-pocket expenses for these and other advisory services in connection with the special meeting. Solicitation initially will be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, custodians and other like parties to the beneficial owners of shares of Lydall common stock, in which case these parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail, or other electronic medium by Alliance Advisors or, without additional compensation, by certain of Lydall’s directors, officers and employees.

Adjournment

In addition to the proposal to approve and adopt the merger agreement and the advisory vote on named executive officer merger-related compensation, Lydall stockholders are also being asked to approve a proposal to, as permitted under the terms of the merger agreement, adjourn the special meeting for the purpose of soliciting additional proxies in favor of the proposal to approve and adopt the merger agreement if there are not sufficient votes at the time of the special meeting to approve and adopt the merger agreement. The special meeting could be adjourned by Lydall as permitted under the terms of the merger agreement to any date. In addition, Lydall could postpone the meeting before it commences, whether for the purpose of soliciting additional proxies or for other reasons. If the special meeting is adjourned for the purpose of soliciting additional proxies, stockholders who have already submitted their proxies will

 

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be able to revoke them at any time prior to their use at the special meeting or any adjournment or postponement thereof. If you return a proxy and do not indicate how you wish to vote on any proposal, your shares will be voted in favor of such proposal.

Notwithstanding the inclusion or approval of the proposal to adjourn the special meeting, whether or not a quorum is present at the special meeting, the chairperson of the special meeting may adjourn the special meeting to another place, if applicable, date or time, in accordance with the Bylaws.

The Lydall board of directors recommends a vote “FOR” the proposal to adjourn the special meeting, including if necessary to solicit additional proxies in favor of the proposal to approve and adopt the merger agreement, if there are not sufficient votes at the time of such adjournment to approve and adopt the merger agreement.

Other Information

You should not send documents representing Lydall common stock with the proxy card. If the merger is completed, the exchange agent for the merger will send you a letter of transmittal and instructions for exchanging your shares of Lydall common stock for the merger consideration.

 

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will continue to be subject to the same risks and opportunities to which they are currently subject, including, without limitation, risks related to the industry in which Lydall operates, the servicing of Lydall’s debt, market volatility and adverse economic conditions.

Furthermore, if the merger is not completed, and depending on the circumstances that would have caused the merger not to be completed, it is likely that the price of Lydall common stock will decline significantly. If that were to occur, it is uncertain when, if ever, the price of Lydall common stock would return to the price at which it trades as of the date of this proxy statement.

Accordingly, if the merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of Lydall common stock. If the merger agreement is not approved and adopted by Lydall stockholders or if the merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to Lydall will be offered or that Lydall’s business, prospects or results of operation will not be adversely impacted.

In addition, the merger agreement provides that, upon termination of the merger agreement under certain circumstances, Lydall will be required to pay to Parent a termination fee of  $31.5 million, or under specified circumstances, Lydall may be entitled to receive a reverse termination fee of  $91.7 million from Parent, upon the terms of the merger agreement. If Parent commences an action or proceeding that results in a judgment against Lydall for the payment of the termination fee, Lydall shall pay to Parent its costs and expenses (including reasonable attorneys’ fees and expenses actually incurred by Parent in connection with such action or proceeding) in an amount not to exceed $5 million in the aggregate. If Lydall commences an action or proceeding that results in a judgment against Parent or Unifrax for the payment of the reverse termination fee, Parent or Unifrax shall pay to Lydall its costs and expenses (including reasonable attorneys’ fees and expenses actually incurred by Lydall in connection with such action or proceeding) in an amount not to exceed $5 million in the aggregate.

See the section entitled “The Merger Agreement — Termination Fee Payable by Lydall and Reverse Termination Fee Payable by Parent” beginning on page 74 of this proxy statement for a discussion of the circumstances under which such a termination fee will be required to be paid.

Background of the Merger

The Lydall board of directors, together with members of Lydall’s senior management team, regularly reviews and assesses Lydall’s operations, performance, prospects and strategic direction. In connection therewith, and with the assistance of legal and financial advisors, the Lydall board of directors and Lydall management have considered potential strategic alternatives for Lydall, including potential business combinations or other transactions, to strengthen Lydall’s business and maximize stockholder value. In addition, from time to time, and as noted below, Lydall has received unsolicited inquiries from third parties seeking to determine Lydall’s interest in a business combination transaction.

In late September 2019, the Chief Executive Officer of Parent, a portfolio company of Clearlake, contacted Lydall to express an interest in exploring the possibility of a transaction with Lydall if Lydall determined to pursue such a path, but no price and no specific terms were discussed.

In early October 2019, a potential strategic counterparty to a strategic transaction we refer to as Party A submitted to Lydall an unsolicited letter expressing interest in acquiring Lydall at a price per share range in the low $30s. The Lydall board of directors discussed Party A’s indication of interest with management during its October 7, 2019 meeting and decided more information was required to adequately assess the expressions of interest. In early November 2019, the Chairman of Lydall’s board of directors and an additional independent director met with the Chief Executive Officer and Chairman of Party A to discuss their interest in pursuing a transaction. The Lydall board of directors discussed Party A’s indication of interest with management during its November 18, 2019 meeting, and instructed Lydall management to convey to Party A that the Lydall board of directors believed Lydall could achieve more value for its stockholders by continuing to pursue its business plan.

On March 5, 2020, Sara A. Greenstein, Lydall’s President and Chief Executive Officer, was contacted by the Chief Executive Officer of a potential strategic counterparty to a strategic transaction we refer to as Party B regarding the possibility of a transaction with Lydall if Lydall determined to pursue such a path, but no price was proposed and no formal expression of interest was received. Additionally, on May 5, 2020, the Chief Executive Officer of Parent sent a

 

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letter to Lydall to reiterate its interest in exploring the possibility of a transaction with Lydall if Lydall were to determine to pursue such a path, but no price and no specific terms were discussed.

In addition to the specific inquiries noted above, from time to time in late 2019 and throughout 2020, Lydall received general unsolicited inquiries regarding whether Lydall would be interested in pursuing a strategic transaction, although none of these inquiries was sufficiently specific or credible as to be potentially actionable.

On April 9, 2020, Ms. Greenstein and John Dandolph, President and Chief Executive Officer of Parent, held a virtual meeting regarding Parent’s continued interest in pursuing a potential strategic transaction with Lydall and discussed their respective histories, businesses and strategies. The two executives communicated from time to time in the following months, but no specific transaction proposal was discussed.

In July 2020, the Lydall board of directors held a regularly scheduled meeting at which members of Lydall management and, at the invitation of Lydall, representatives of BofA Securities also were present. At this meeting, the Lydall board of directors discussed with Lydall management and BofA Securities, among other things, Lydall’s business model and potential growth, the current state of the industry, Lydall’s long-term growth and strategy, a five-year strategic plan and potential strategic alternatives for Lydall. Among other alternatives discussed were the continued execution by Lydall of its five-year strategic plan and initiatives, the potential sale of Lydall’s Thermal Acoustical Solutions segment and business combinations with potential third parties, including strategic and financial counterparties. After careful consideration, the Lydall board of directors directed Lydall management to undertake a long-term strategic review of Lydall and its business and potential strategic alternatives with the assistance of a financial advisor.

On February 18 and 19, 2021, the Lydall board of directors held a regularly scheduled meeting at which members of Lydall management and representatives of BofA Securities also were present. Lydall management and BofA Securities updated the Lydall board of directors regarding the ongoing strategic review of Lydall, challenges and opportunities for Lydall and its industry, Lydall’s historical and projected operational and financial performance and potential strategic alternatives to enhance stockholder value. Among the alternatives discussed were the continued execution by Lydall of its five-year strategic plan and initiatives, the potential sale of Lydall’s Thermal Acoustical Solutions segment and business combinations with potential counterparties, including strategic and financial counterparties. The Lydall board of directors discussed, among other things, prior contacts from third parties expressing an interest in pursuing a potential transaction with Lydall and, if such discussions were to be pursued, the timing of such discussions and certain strategic considerations. Based on such review, and following a full discussion, the Lydall board of directors directed Lydall management to begin preparing for a strategic process in which third parties would be contacted on a confidential basis to assess their interest in a potential business combination transaction with Lydall on terms acceptable to the Lydall board of directors. Representatives of BofA Securities were then excused from the meeting and the Lydall board of directors discussed the formal engagement of legal and financial advisors to assist Lydall in its strategic process. Given, among other things, BofA Securities’ ongoing assistance with Lydall’s strategic review and familiarity with Lydall’s business and industry, the Lydall board of directors authorized Lydall management to formally engage BofA Securities as Lydall’s financial advisor, subject to approval by the Lydall board of directors of the terms of BofA Securities’ engagement and the absence of material conflicts of interest that would prevent BofA Securities from serving as Lydall’s financial advisor in connection with a potential business combination transaction. Following the meeting, members of senior management met with a selection of top-tier law firms with suitable experience in significant strategic transactions and determined to appoint Davis Polk & Wardwell LLP (which we refer to as Davis Polk) as Lydall’s legal advisor in connection with Lydall’s strategic review.

On March 8, 2021, the Lydall board of directors held a meeting. At the invitation of the Lydall board of directors, members of management and representatives of Davis Polk also were present. Management discussed with the Lydall board of directors the results of their preliminary review of potential business combination transactions and other strategic alternatives, and various factors involved in a possible acquisition of Lydall by a financial or strategic buyer. Lydall management recommended contacting certain parties, including Parent (an affiliate of Clearlake), Party A, Party B and another potential strategic counterparty we refer to as Party C, that previously had expressed interest in a possible strategic transaction with Lydall and were viewed as capable of making a compelling and actionable proposal to acquire Lydall. In advance of such meeting, at the request of Lydall management, BofA Securities provided certain disclosures for the Lydall board of directors regarding BofA Securities’ material relationships with Lydall, Parent, Clearlake, Party A, Party B, Party C and certain of their respective affiliates during the prior two years. After discussion and consideration of these disclosures, the Lydall board of directors determined that BofA Securities had no material

 

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conflicts of interest that would prevent it from serving as Lydall’s financial advisor in connection with a potential business combination transaction. After further discussion, and taking into account certain factors such as confidentiality, the Lydall board of directors authorized Lydall management, with the assistance of BofA Securities, to conduct a targeted outreach to Parent, Party A, Party B and Party C to assess their level of interest in pursuing a potential strategic transaction with Lydall. Additionally, referring to materials provided to the Lydall board of directors in advance of the meeting, representatives of Davis Polk advised on fiduciary duties and disclosure obligations in connection with any such outreach and any potential business combination transaction.

On March 30, 2021, in accordance with the directives of the Lydall board of directors, BofA Securities contacted Parent, Party A, Party B and Party C to solicit their potential interest in a strategic transaction with Lydall. In order to facilitate the preliminary exploration of discussions regarding a potential business combination transaction with Lydall, each of Parent, Party A, Party B and Party C were provided with a summary overview regarding a potential business combination transaction with Lydall and entered into confidentiality agreements with Lydall. All of such confidentiality agreements contained customary standstill provisions, but none of those provisions currently would restrict any of those parties from making an unsolicited offer to participate in a potential business combination transaction with Lydall.

On April 5, 2021, the Lydall board of directors held a meeting. At the invitation of the Lydall board of directors, members of management and representatives of Davis Polk also were present. Lydall management updated the Lydall board of directors on the status of preliminary discussions to date with potential counterparties regarding a potential business combination transaction with Lydall. Following discussion, the Lydall board of directors determined that Lydall should continue to pursue such discussions, including broadening the group of selected third parties to be contacted to include an additional financial sponsor we refer to as Party D, and to prepare to support such potential counterparties’ non-public due diligence investigation. In advance of this meeting, the Lydall board of directors was provided with certain disclosures from BofA Securities regarding BofA Securities’ material relationships with Party D, including certain of its portfolio companies and affiliates, during the prior two years, and the Lydall board of directors determined that BofA Securities had no material conflicts of interest that would prevent it from serving as Lydall’s financial advisor in connection with a potential business combination transaction with Party D.

On April 8, 2021, Lydall entered into a confidentiality agreement with Party D with respect to a potential business combination transaction with Lydall, which contained a customary standstill provision, but such standstill provision currently would not restrict such party from making an unsolicited offer to participate in a potential business combination transaction with Lydall.

Also on April 8, 2021, in accordance with the instructions of the Lydall board of directors, Lydall’s first round process letter was sent to five potential counterparties (Parent, Party A, Party B, Party C and Party D) describing the initial phase of Lydall’s process and requesting initial written proposals by May 6, 2021.

Commencing the week of April 19, 2021 and continuing through the end of April, executive presentations were delivered to all five potential counterparties.

On April 20, 2021, the Lydall board of directors held a meeting. At the invitation of the Lydall board of directors, members of management and representatives of BofA Securities were also present. At such meeting, Lydall management and BofA Securities updated the Lydall board of directors regarding the strategic review process undertaken by Lydall to date, and potential strategic alternatives to enhance stockholder value. Among the alternatives discussed were the continued execution by Lydall of its five-year strategic plan and initiatives, potential strategic acquisitions by Lydall, the potential sale of Lydall’s Thermal Acoustical Solutions segment and business combinations with potential counterparties, including strategic and financial counterparties. Following discussion, the Lydall board of directors determined that Lydall should continue to pursue discussions with potential counterparties regarding a potential business combination transaction with Lydall.

On May 6, 2021, in response to Lydall’s first round process letter, Lydall received non-binding indications of interest from Parent, Party B, Party C and Party D. Party A did not provide an indication of interest, indicating that it was not in a position at that time to pursue a transaction given a recent material acquisition that it had undertaken. Parent submitted a non-binding indication of interest for an all-cash transaction at $47.00 to $50.00 per share. Party B submitted a non-binding indication of interest for a cash and stock transaction with an indicated value of  $42.50 to $45.00 per share. Party B also confirmed that the stock portion of the proposed transaction would likely require a vote

 

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of its stockholders. Additionally, Party C submitted a non-binding indication of interest for an all-cash transaction at $46.00 to $47.00 per share, and Party D submitted a non-binding indication of interest for an all-cash transaction at $46.00 to $48.00 per share.

On May 7, 2021, BofA Securities received an unsolicited inquiry from a strategic third party, which we refer to as Party E, through Party E’s financial advisor, regarding a potential business combination transaction with Lydall. BofA Securities thereafter informed Lydall management of Party E’s inquiry.

On May 11, 2021, in accordance with the instructions of Lydall management, BofA Securities contacted representatives of each of Parent, Party B, Party C and Party D regarding their respective non-binding indications of interest and expected timing for entering into a definitive transaction agreement.

On May 13, 2021, representatives of Parent provided BofA Securities with a proposed timetable to complete remaining due diligence and execute a definitive transaction agreement in early June 2021 and requested that Lydall negotiate exclusively with Parent.

On May 14, 2021, the Lydall board of directors held a meeting, at which it discussed Lydall’s strategic review process. At the invitation of the Lydall board of directors, members of management and representatives of Davis Polk and BofA Securities also were present. At such meeting, BofA Securities updated the Lydall board of directors regarding the process undertaken by Lydall to date (including the inbound inquiry from Party E) and reviewed with the Lydall board of directors the financial terms of the four indications of interest that had been received from Parent, Party B, Party C and Party D and certain related information. The Lydall board of directors noted that while there could be potential upside for Lydall’s stockholders in a transaction involving stock consideration as compared to all-cash consideration, the top end of Party B’s indication of interest was below the bottom end of the indications of interest of the other interested parties and determined that such proposal was not a basis on which to continue discussions with Party B. Additionally, the Lydall board of directors discussed with Lydall management and Lydall’s advisors whether to seek to engage with Party E and/or contact additional counterparties. The Lydall board of directors discussed, but determined not to grant, Parent’s request for exclusivity, authorized following up on Party E’s unsolicited inbound inquiry and directed BofA Securities to invite Parent, Party C and Party D to participate in the second phase of Lydall’s strategic review process and to provide Party E with Lydall’s first round process letter and a request for a written non-binding indication of interest.

On May 15, 2021, Lydall entered into a confidentiality agreement with Party E, which contained a customary standstill provision, but such standstill provision currently would not restrict such party from making an unsolicited offer to participate in a potential business combination transaction with Lydall.

Also on May 15, 2021, Parent, Party C and Party D were granted access to a virtual data room containing certain non-public information regarding Lydall.

On May 17, 2021, Ms. Greenstein had a meeting with a representative of Party E regarding Party E’s interest in exploring the possibility of a business combination transaction with Lydall.

Also on May 17, 2021, in accordance with the instructions of the Lydall board of directors, Lydall’s second round process letter was sent to Parent, Party C and Party D, requesting mark-ups of the draft merger agreement and disclosure schedules no later than June 11, 2021, and requesting definitive proposals no later than June 17, 2021.

On May 19, 2021, Lydall held an executive presentation with Party E and, in accordance with the instructions of the Lydall board of directors, Lydall’s first round process letter was provided to Party E.

On May 21, 2021, Party E submitted a non-binding indication of interest for an all-cash transaction at $50.00 per share.

On May 25, 2021, Lydall held a management presentation with Party C and Lydall’s second round process letter was provided to Party E.

On May 26, 2021, Lydall held a management presentation with Party D.

On May 27, 2021, Lydall held a management presentation with Parent.

On May 28, 2021, Lydall held a management presentation with Party E.

 

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Also on May 28, 2021, Lydall posted to the data room Lydall’s draft of a merger agreement.

On June 3, 2021, the Lydall board of directors held a meeting. At the invitation of the Lydall board of directors, members of senior management and representatives of Davis Polk and BofA Securities also were present. The Lydall board of directors discussed Lydall’s strategic review process, including that Parent, Party C, Party D and Party E had been invited into the next phase of the process at the direction of the Lydall board of directors, had been provided with Lydall’s second round process letter and a draft merger agreement and were informed of the date upon which they were to submit final proposals. The Lydall board of directors also discussed, among other things, the status of continuing due diligence by each of these parties and certain disclosures provided prior to such meeting by BofA Securities regarding BofA Securities’ material relationships with Party E and certain of its affiliates during the prior two years, and the Lydall board of directors determined that BofA Securities had no material conflicts of interest that would prevent it from serving as Lydall’s financial advisor in coonection with a potential business combination transaction with Party E.

From June 3, 2021 until June 9, 2021, at the direction of the Lydall board of directors, Lydall management participated in due diligence sessions with each of Parent, Party C, Party D and Party E. Lydall’s legal and financial advisors also attended these sessions.

On June 4, 2021, at the request of Party E and with the permission of the Lydall board of directors, Ms. Greenstein spoke via telephone with a representative of Party E in which Party E sought a better understanding of the existing management team.

Also on June 4, 2021, Lydall posted to the data room disclosure schedules to Lydall’s draft merger agreement posted on May 28, 2021.

On June 6, 2021, Party D withdrew its interest in a potential business combination transaction with Lydall, stating that it believed it would not be able to submit a definitive proposal that would be higher than its initial non-binding indication of interest.

On June 9, 2021, legal counsel representing Party C contacted a representative of Davis Polk via telephone and indicated that Party C’s final proposal would provide for a cash and stock transaction and that the stock component would be below the level at which approval by Party C’s stockholders would be required. In addition, Party C’s legal counsel stated that certain due diligence information regarding Party C would be provided the following week. Later that day, representatives of Party C’s legal counsel provided representatives of Davis Polk with a draft confidentiality agreement for Lydall’s reverse due diligence on Party C to be performed in light of Party C’s expected proposal for a cash and stock transaction.

On June 10, 2021, Lydall and Party C executed the confidentiality agreement to enable Lydall to perform reverse due diligence on Party C.

Also on June 10, 2021, Ms. Greenstein and representatives of Party D spoke by telephone regarding Party D’s decision not to proceed further in the process.

On June 11, 2021, Lydall received mark-ups to its draft merger agreement from each of Parent, Party C and Party E.

Between June 11, 2021 and June 14, 2021, representatives of Davis Polk reviewed with Lydall senior management and BofA Securities key outstanding points presented by the mark-ups to Lydall’s draft merger agreement and related disclosure schedules submitted by each of Parent, Party C and Party E, including among other things, (i) timing and certainty of financial arrangements, including that Parent was only offering a 4% reverse termination fee in the event of a debt financing failure, (ii) the level of termination fees proposed and applicable triggers, (iii) the fact that not all parties agreed to the same level of commitments relating to regulatory approvals and (iv) significant expansions to Lydall’s representations, warranties and covenants that could impose a scheduling burden and increase closing risk.

On June 15, 2021, in accordance with the instructions of Lydall management, BofA Securities sent Party C’s financial advisor an information request list to support Lydall’s reverse due diligence review of Party C.

Also on June 15, 2021, in accordance with the instructions of Lydall management, representatives of BofA Securities had a call with representatives of each of Parent, Party C and Party E, relaying Lydall’s views regarding key areas in which each bidder should improve its proposed mark-up of Lydall’s draft merger agreement.

 

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On June 16, 2021, the management of Lydall, together with representatives of BofA Securities, held a telephonic meeting with representatives of Party C as part of Lydall’s reverse due diligence on Party C.

Also on June 16, 2021, Ms. Greenstein and an executive from Party C held a virtual meeting during which Party C indicated its intention to include in its final bid a reference that it would like for Ms. Greenstein to consider joining Party C’s board post-closing.

On June 17, 2021, legal counsel representing Party C provided written responses to certain of Lydall’s reverse due diligence questions. Later that same day, the management of Lydall and representatives of Davis Polk held a telephonic meeting with Party C and representatives of its legal counsel as part of Lydall’s reverse due diligence on Party C.

Also on June 17, 2021, (i) Parent submitted a revised proposal, revised mark-ups of the merger agreement and initial drafts of commitment letters for Parent’s proposed debt and equity financings, (ii) Party C submitted a revised proposal, revised mark-ups of the merger agreement and related disclosure schedules and initial drafts of Party C’s debt commitment letter, and (iii) Party E submitted a revised proposal and revised mark-ups of the merger agreement and related disclosure schedules.

Parent’s June 17, 2021 proposal contemplated an all-cash transaction at $55.50 per share and stated that this proposal would expire on June 18, 2021 at 12:00 p.m., Eastern Time. Although Parent’s merger agreement mark-up made some improvements in key areas, such as an increased reverse termination fee of 8%, the terms still presented certain issues such as an extended closing date as a result of financing marketing periods and limits on its commitments to obtain regulatory approvals.

Party C’s June 17, 2021 proposal contemplated a cash and stock transaction with an indicated value of  $52.50 per share, consisting of  $45.49 in cash and the balance in shares of Party C common stock. Party C’s revised merger agreement improved in significant areas, including agreeing to strong commitments to obtain regulatory approvals and significantly reducing its likely timing for closing its financing; however, Party C maintained a higher termination fee of 3.5% than the fee proposed by other potential counterparties.

Party E’s June 17, 2021 proposal contemplated an all-cash transaction at $49.00 per share. Party E’s proposed draft of the merger agreement improved in certain areas, but Party E continued to place limits on its commitments to obtain regulatory approvals and significantly expanded the scope of Lydall’s representations and interim operating covenants. In addition, representatives of Party E indicated that Party E’s proposal was subject to additional due diligence on certain technical matters.

Later that day, in accordance with the instructions of Lydall management, representatives of BofA Securities, spoke with representatives of each of Parent, Party C and Party E to (i) convey that multiple proposals had been received and that an improvement in value would be necessary to remain competitive with other parties, (ii) identify key areas in which such parties could improve the legal terms of their proposals and (iii) encourage updated proposals in substantially executable form before the end of the following day.

On June 18, 2021, representatives of Davis Polk discussed with Parent’s legal counsel key outstanding points in Parent’s latest merger agreement mark-up, including with respect to closing certainty, financing contingencies, regulatory matters, termination rights, and the scope of representations and interim operating covenants. Representatives of Davis Polk, at the instruction of Lydall management, requested a revised merger agreement by the end of that day.

Also on June 18, 2021, Party C provided representatives of Lydall additional written responses to Lydall’s reverse due diligence requests.

Additionally, on June 18, 2021, representatives of Party E verbally indicated to representatives of BofA Securities that, subject to reviewing certain technical due diligence matters, it could increase its proposed all-cash purchase price from $49.00 to $53.00 per share, subject to its supervisory board approval.

Later that day, in accordance with the instructions of Lydall’s management, representatives of BofA Securities spoke with representatives of Party C regarding the terms of Party C’s proposal. Following that discussion, Party C submitted an updated proposal for a cash and stock transaction which reflected an indicated value of  $54.50 per share, consisting of  $47.47 in cash and the balance in shares of Party C common stock.

 

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Also later that day, Party E submitted an updated written proposal for $53.00 per share (subject to its supervisory board approval), which had been verbally communicated to representatives of BofA Securities by representatives of Party E’s financial advisor on a telephone call earlier in the day.

Later that day, Parent’s legal counsel submitted a revised draft of the merger agreement to representatives of Davis Polk. In the mark-up, Parent agreed to strong commitments to obtain regulatory approvals and additional closing certainty for the financing marketing period to a similar timing as contemplated for Party C’s financing marketing period.

Also later that day, Party C submitted a revised draft of the merger agreement in which Party C provided additional closing certainty for its financing marketing period.

On June 19, 2021, representatives of Davis Polk discussed with Party C’s legal counsel key outstanding points in Party C’s latest merger agreement mark-up, including with respect to closing certainty, regulatory matters, termination rights, definition of  “material adverse effect” and the scope of representations and interim operating covenants. Representatives of Davis Polk, at the instruction of Lydall management, requested a revised merger agreement by the end of the day.

Also on June 19, 2021, Parent submitted an updated proposal for an all-cash transaction at $56.25 per share.

Also on June 19, 2021, Party C submitted an updated proposal for a cash and stock transaction with an indicated value of  $56.50 per share, consisting of  $49.51 in cash and the balance in shares of Party C common stock. Representatives of Party C’s legal counsel also provided representatives of Davis Polk with a revised mark-up to the merger agreement, which improved the key points requested by Davis Polk.

Later that day, following discussions among representatives of Lydall and their respective legal and financial advisors, representatives of Davis Polk sent to Parent’s legal counsel revised drafts of the merger agreement, disclosure schedules, equity commitment letter and debt commitment letter.

Following receipt of the revised proposals, Lydall senior management met with representatives of Davis Polk and BofA Securities to discuss and review the revised proposals. Given that the headline prices proposed by Parent and Party C were very close, the stock component of Party C’s proposal provided less certainty as to value and Parent had indicated a willingness to consider a higher proposal, Lydall management instructed BofA Securities to revert to Parent, Party C and Party E for “best and final” offers.

Later that day, in accordance with the instructions of Lydall management, representatives of BofA Securities spoke with representatives of each of Parent, Party C and Party E requesting, on behalf of Lydall, “best and final” offers by 12:00 p.m., Eastern Time, on June 20, 2021.

On June 20, 2021, Parent submitted an updated proposal for an all-cash transaction at $59.25 per share. Parent’s legal counsel also sent representatives of Davis Polk an initial draft of a limited guarantee.

Also on June 20, 2021, Party C’s financial advisor submitted to representatives of BofA Securities an updated proposal for a cash and stock transaction with an indicated value of  $60.00 per share, consisting of  $53.19 in cash and the balance in Party C common stock. On such date, Party E confirmed its $53.00 per share all-cash proposal as its “best and final” offer (subject to its supervisory board approval).

Following receipt of further revised proposals from Parent and Party C, Lydall senior management met with representatives of Davis Polk and BofA Securities to discuss and review the proposals. Lydall senior management again concluded that the values of Parent’s and Party C’s proposals were too close to differentiate the two parties and therefore instructed BofA Securities to solicit further “best and final” offers.

Later that day, in accordance with the instructions of Lydall’s management, representatives of BofA Securities spoke with Party C’s financial advisor with respect to Lydall’s additional request for further revised “best and final” offers. Party C’s financial advisor indicated that Party C was not willing to further increase its offer price and that such offer would expire at 4:30 p.m., Eastern Time, that afternoon.

Also later that day, in accordance with the instructions of Lydall management, BofA Securities relayed to Parent Lydall’s additional request for further revised “best and final” offers. Parent thereafter submitted a further updated offer for an all-cash transaction at $62.10 per share.

 

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Promptly after receiving Parent’s further revised “best and final” offer, Lydall senior management reviewed and discussed the offers it had received with representatives of Davis Polk and BofA Securities. Given the higher value of Parent’s further revised “best and final” offer relative to Party C’s “best and final” offer and Party C’s indication that it was not willing to further increase its proposed purchase price, Lydall senior management instructed BofA Securities to inform Party C that Lydall senior management intended to recommend to the Lydall board of directors a different bidder whose proposal reflected a higher value. In accordance with Lydall senior management’s instructions, BofA Securities thereafter conveyed such message to Party C’s financial advisor.

On June 20, 2021, the Lydall board of directors held a meeting to review the terms of a proposed transaction with Parent. At the invitation of the Lydall board of directors, members of senior management and representatives of Davis Polk and BofA Securities also were present. Prior to the meeting, copies of the current drafts of the merger agreement and related transaction agreements were provided to the Lydall board of directors. At the meeting, representatives of Davis Polk reviewed the terms of the draft merger agreement and other transaction documents, and updated the Lydall board of directors as to the resolution of outstanding deal points. Representatives of Davis Polk also discussed with the Lydall board of directors the debt financing commitment letters and no-shop restrictions in the merger agreement, and also reviewed with the Lydall board of directors its fiduciary duties and public disclosure obligations. Also at this meeting, the Lydall board of directors considered the multiple rounds of proposals that had been received and the course of negotiations with the various counterparties. At the Lydall board of directors’ request, BofA Securities then reviewed its financial analysis of the merger consideration and rendered an oral opinion, confirmed by delivery of a written opinion dated June 20, 2021, to the Lydall board of directors to the effect that, as of that date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications described in the opinion, the merger consideration to be received by holders of Lydall common stock (other than, as applicable, Parent, Unifrax, Merger Sub, their respective affiliates, including Clearlake and its affiliates, and any subsidiary of Lydall) was fair, from a financial point of view, to such holders. The Lydall board of directors then engaged in further discussions with Lydall senior management and Lydall’s advisors regarding the proposed transaction. The Lydall board of directors unanimously determined that it was advisable, fair to and in the best interests of Lydall and its stockholders to enter into the merger agreement, substantially in the form presented (subject to finalization between Davis Polk and representatives of Parent), and to consummate the merger and the other transactions contemplated thereby, and unanimously approved, adopted and authorized the merger agreement and the transactions contemplated thereby, resolved, subject to the provisions of the merger agreement, that the merger agreement be submitted to Lydall’s stockholders and recommended that Lydall’s stockholders approve and adopt the merger agreement and the merger.

Throughout the evening of June 20, 2021 and into the early morning of June 21, 2021, Davis Polk and Parent’s legal counsel and legal counsel for its debt financing sources finalized the merger agreement, the equity commitment letter, the debt commitment letter and the limited guarantee.

Early in the morning on June 21, 2021, and prior to the commencement of trading on the NYSE, Lydall, Parent, Merger Sub and Unifrax executed the merger agreement, the equity commitment letter, the debt commitment letter, the fee letter and the limited guarantee, and Lydall issued a press release announcing the proposed transaction.

Lydall’s Reasons for the Merger

At a meeting duly called and held on June 20, 2021, the Lydall board of directors determined, by unanimous vote, that the merger and the other transactions contemplated by the merger agreement are fair to, and in the best interests of, Lydall and its stockholders and approved and declared advisable the merger agreement and the merger and the other transactions contemplated by the merger agreement. The Lydall board of directors also resolved that the merger agreement be submitted for consideration by the stockholders of Lydall at a special meeting of stockholders and to recommend that the stockholders of Lydall vote to adopt the merger agreement. The Lydall board of directors consulted with Lydall’s senior management and outside legal and financial advisors and considered a number of factors, including the following principal factors (not in any relative order of importance) that the Lydall board of directors believed to support its decision:

•

Lydall’s business, current and projected financial performance and condition and future prospects in relation to the merger consideration of  $62.10 per share,

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•

the Lydall board of directors’ belief that the merger was more favorable to Lydall’s stockholders than the alternative of remaining a standalone independent company, which belief was based on and informed by consideration of a number of factors, risks and uncertainties, including:

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•

general industry, economic and market conditions, both on a historical and on a prospective basis,

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•

the level of investments in Lydall’s systems, people, “game changing” technologies and continued portfolio realignment that would be required to execute the long-term strategy,

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•

Lydall’s scale being a limiting factor in the foreseeable future, which would necessitate substantial investments in inorganic growth to otherwise capture benefits of scale (e.g., access to capital, purchasing power, optimization of costs, etc.), and

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•

the uncertain returns to Lydall’s stockholders if Lydall were to remain independent, taking into account, in particular, management’s financial projections of the future financial performance and earnings of Lydall, including those set forth below under “The Merger (Proposal 1) — Projected Financial Information” and the risks involved in achieving those returns,

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•

the Lydall board of directors’ belief that the risks and challenges to Lydall’s business described above, and in Lydall’s SEC filings, create substantial execution risks relative to the $62.10 per share price in the merger,

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•

the fact that, during a more than one (1)-year period leading up to the execution of the merger agreement, the Lydall board of directors explored and evaluated various potential strategic alternatives, including a sale of the whole company and remaining as a standalone public company, none of which alternatives was deemed more favorable to Lydall’s stockholders than the merger,

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•

the fact that Lydall’s exploration of potential strategic alternatives involved a third-party solicitation process involving the group of potentially most interested parties that Lydall and its advisors believed were capable of delivering an executable proposal, in addition to Parent, which included both strategic and financial potential acquirors, five of which, in addition to Parent, entered into confidentiality agreements with Lydall and received information related to Lydall, and that Parent submitted the highest final offer to Lydall in connection with such process after active negotiations and multiple rounds of bidding,

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•

the fact that Lydall did not enter into any exclusivity arrangements with Parent and did not negotiate with Parent on a contractually exclusive basis,

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•

current and historical market prices of Lydall common stock, including the market performance of Lydall common stock relative to other participants in Lydall’s industry and general market indices, and the fact that the merger consideration represented an attractive premium of approximately 87% to Lydall’s closing stock price on June 18, 2021, the last trading day before the announcement of the merger,

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•

the fact that Lydall’s legal and financial advisors assisted Lydall throughout the process and negotiations and updated the Lydall board of directors directly and regularly, which provided the Lydall board of directors with additional perspectives on the negotiations in addition to those of Lydall’s management,

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•

the opinion, dated June 20, 2021, of BofA Securities to the Lydall board of directors as to the fairness, from a financial point of view and as of that date, of the merger consideration to be received by holders of Lydall common stock (other than, as applicable, Parent, Unifrax, Merger Sub, their respective affiliates, including Clearlake and its affiliates, and any subsidiary of Lydall), which opinion was based on and subject to the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, as more fully described under “The Merger (Proposal 1) — Opinion of Lydall’s Financial Advisor,”

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•

the fact that the merger consideration is all cash, so that the transaction will allow Lydall’s stockholders to realize a fair value, in cash, for their investment and provides such stockholders certainty of value for their shares, and

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•

the material terms and conditions of the merger agreement, including:

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•

the conditions to the consummation of the merger, including the requirement that the merger agreement be adopted by Lydall’s stockholders,

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•

the Lydall board of directors’ “fiduciary out” with respect to third-party acquisition proposals likely to result in superior proposals, the Lydall board of directors’ ability to negotiate with another party regarding

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a superior proposal and, subject to paying a termination fee to Parent in the amount of  $31.5 million, accept a superior proposal,

•

Parent’s and Unifrax’s obligation to pay a reverse termination fee to Lydall in the amount of  $91.7 million under certain circumstances,

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•

the Lydall board of directors’ belief that, if triggered, the termination fee payable by Lydall to Parent is consistent with fees payable in comparable transactions and would not be likely to preclude another party from making a competing proposal,

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•

the scope of the representations, warranties and covenants of Lydall, Parent and Merger Sub,

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•

the fact that the merger agreement is not subject to a financing condition and, in particular, that Parent represented, as of the signing of the merger agreement, that it had or would have at the effective time, sufficient funds to pay the merger consideration,

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Lydall’s ability to specifically enforce Parent’s obligation to cause the completion of the merger under certain circumstances,

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•

the fact that Lydall and Parent agreed to use their respective reasonable best efforts to consummate the merger, including preparing and filing as promptly as practicable all necessary filings and obtaining certain specified regulatory approvals in connection with the merger or the consummation of the merger, as well as the merger agreement’s significant protection against any regulatory impediments that could arise, as described in the section entitled “The Merger Agreement — Regulatory Clearances and Approvals Required for the Merger” below, and

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•

the fact that Lydall managed to successfully improve the terms of Parent’s merger agreement over several rounds of negotiation.

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The Lydall board of directors also considered various potentially countervailing factors in its deliberations related to the merger, including the following principal factors (not in any relative order of importance):

•

the fact that holders of Lydall common stock will not have an opportunity to participate in any future earnings or growth of the combined company following the merger,

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•

the possibility that the merger might not be completed and the effect the termination of the transaction may have on the trading price of Lydall common stock and Lydall’s business, operating results and prospects, which effect is likely to be exacerbated the longer the time period between the signing and any termination of the merger agreement,

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•

the fact that there was an improvement in Lydall’s operating results in 2021 (as compared to the same period in 2020), although the Lydall board of directors also considered the uncertainty as to whether such trend was sustainable over any significant period,

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that Lydall cannot solicit other acquisition proposals, and must pay Parent a termination fee in the amount of $31.5 million if the merger agreement is terminated under certain circumstances, including if the Lydall board of directors changes its recommendation to Lydall’s stockholders to adopt the merger agreement or exercises its right to enter into a transaction that constitutes a superior proposal, which although such termination fee is consistent with fees payable in comparable transactions could deter others from proposing an alternative transaction that may be more advantageous to Lydall’s stockholders,

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•

that the restrictions imposed by the merger agreement on the conduct of Lydall’s business prior to completion of the merger, requiring Lydall to conduct its business only in the ordinary course and imposing additional specific restrictions, may delay, limit or prevent Lydall from undertaking business opportunities that may arise during that period,

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•

the possible effects of the pendency (or termination) of the merger agreement on Lydall’s business, operating results, prospects, employees, customers and suppliers,

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•

the fact that if the merger is not consummated, Lydall will be required to pay its own expenses associated with the merger agreement,

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•

the fact that the receipt of cash in exchange for shares of Lydall common stock pursuant to the merger will generally be a taxable transaction for U.S. federal income tax purposes,

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•

the fact that Lydall is subject to various remedies available to Parent should it breach the merger agreement or fail to complete the merger, and

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•

that if Parent fails to complete the merger as a result of a breach of the merger agreement, depending upon the reason for not closing, Lydall’s rights and remedies may be expensive and difficult to enforce through litigation, and the success of any such action may be uncertain.

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The foregoing discussion of the information and factors considered by the Lydall board of directors is not intended to be exhaustive, but includes the material factors considered by the Lydall board of directors. The Lydall board of directors did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The Lydall board of directors based its recommendation on the totality of the information it considered.

In considering the recommendation of the Lydall board of directors with respect to the proposal to adopt the merger agreement, you should be aware that our directors and executive officers have interests in the merger that are different from, or in addition to, yours. The Lydall board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted by the stockholders of Lydall. See the section entitled “The Merger (Proposal 1) — Interests of Lydall’s Directors and Executive Officers in the Merger.”

Recommendation of the Lydall Board of Directors

After careful consideration, the Lydall board of directors, by a unanimous vote, approved the merger agreement, the merger and the other transactions contemplated by the merger agreement.

The Lydall board of directors recommends that the Lydall stockholders vote “FOR” the proposal to approve and adopt the merger agreement.

Opinion of Lydall’s Financial Advisor

Lydall engaged BofA Securities as its financial advisor in connection with the merger. BofA Securities is an internationally recognized investment banking firm which is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. Lydall selected BofA Securities to act as its financial advisor in connection with the merger on the basis of BofA Securities’ experience in similar transactions, its reputation in the investment community and its familiarity with Lydall and its business.

At the June 20, 2021 meeting of the Lydall board of directors held to evaluate the merger, BofA Securities rendered an oral opinion, confirmed by delivery of a written opinion dated June 20, 2021, to the Lydall board of directors to the effect that, as of that date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications described in the opinion, the merger consideration to be received by holders of Lydall common stock (other than, as applicable, Parent, Unifrax, Merger Sub, their respective affiliates, including Clearlake and its affiliates, and any subsidiary of Lydall) was fair, from a financial point of view, to such holders.

The full text of BofA Securities’ written opinion, dated June 20, 2021, delivered to the Lydall board of directors is attached as Annex B to this proxy statement and is incorporated by reference herein in its entirety. The written opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by BofA Securities in rendering its opinion. The following summary of BofA Securities’ opinion is qualified in its entirety by reference to the full text of the opinion. BofA Securities delivered its opinion for the benefit and use of the Lydall board of directors (in its capacity as such) in connection with and for purposes of its evaluation of the merger. BofA Securities expressed no opinion or view as to any terms or other aspects or implications of the merger (other than the merger consideration to the extent expressly specified in such opinion) and no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to Lydall or in which Lydall might engage or as to the underlying business decision of Lydall to proceed with or effect the merger. BofA Securities expresses no opinion or recommendation as to how any securityholder should vote or act in connection with the merger or any other matter.

 

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In connection with its opinion, BofA Securities, among other things:

(i)

reviewed certain publicly available business and financial information relating to Lydall;

​

(ii)

reviewed certain internal financial and operating information with respect to the business, operations and prospects of Lydall furnished to or discussed with BofA Securities by the management of Lydall, including certain financial forecasts and estimates relating to Lydall prepared by the management of Lydall based on Lydall’s strategic plan (the “Strategic Plan Case”) and certain sensitivities thereto reflecting varying financial performance for Lydall, and discussed with the management of Lydall its assessments as to the relative likelihood of achieving the future financial results reflected in the Strategic Plan Case and such sensitivities;

​

(iii)

discussed the past and current business, operations, financial condition and prospects of Lydall with members of the senior management of Lydall;

​

(iv)

reviewed the trading history for Lydall common stock and a comparison of that trading history with the trading histories of other companies BofA Securities deemed relevant;

​

(v)

compared certain financial and stock market information of Lydall with similar information of other companies BofA Securities deemed relevant;

​

(vi)

compared certain financial terms of the merger to financial terms, to the extent publicly available, of other transactions BofA Securities deemed relevant;

​

(vii)

considered the results of BofA Securities’ efforts on behalf of Lydall to solicit, at the direction of Lydall, indications of interest and definitive proposals from third parties with respect to a possible acquisition of Lydall;

​

(viii)

reviewed a draft, dated June 20, 2021, of the merger agreement; and

​

(ix)

performed such other analyses and studies and considered such other information and factors as BofA Securities deemed appropriate.

​

In arriving at its opinion, BofA Securities assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with BofA Securities and relied upon the assurances of the management of Lydall that they were not aware of any facts or circumstances that would make such information or data inaccurate or misleading in any material respect. With respect to the Strategic Plan Case and other estimates relating to Lydall that BofA Securities was directed to utilize in its analyses, BofA Securities was advised by Lydall and BofA Securities assumed that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of Lydall as to the future financial performance of Lydall and the other matters covered thereby and, based on the assessments of the management of Lydall as to the relative likelihood of achieving the future financial results reflected in the Strategic Plan Case and the sensitivities thereto, BofA Securities relied, at the direction of Lydall, on the Strategic Plan Case for purposes of its analyses and opinion.

At the direction of Lydall, BofA Securities relied upon the assessments of the management of Lydall as to, among other things, (i) the potential impact on Lydall of certain market, seasonal, competitive, geopolitical and macroeconomic and other trends and developments in and prospects for, and governmental, regulatory and legislative matters relating to or otherwise affecting, the engineered materials and specialty filtration solutions industries and the geographic regions in which Lydall operates, including as to future prices, supply and demand for raw materials and other commodities and currency exchange rates, which may be subject to significant volatility and which, if different than assumed could have a material impact on BofA Securities’ analyses or opinion, (ii) implications for Lydall of the global COVID-19 pandemic, (iii) the products, technology and intellectual property of Lydall and associated risks (including, without limitation, with respect to the validity and duration of patents) and (iv) existing and future agreements and arrangements involving, and the ability to attract, retain and/or replace, key employees, customers, suppliers, derivatives counterparties and other commercial relationships of Lydall, as well as agreements and arrangements involving certain labor unions. BofA Securities assumed, with the consent of Lydall, that there would be no developments with respect to any such matters or any modification to the transaction structure as permitted by the merger agreement that would be meaningful in any respect to BofA Securities’ analyses or opinion.

 

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BofA Securities did not make and was not provided with any independent evaluation or appraisal of the assets or liabilities (contingent, off-balance sheet, accrued, derivative or otherwise) of Lydall or any other entity, nor did BofA Securities make any physical inspection of the properties or assets of Lydall or any other entity. BofA Securities was not requested to make, and did not make, an independent evaluation of, and BofA Securities expressed no opinion or view as to, any pending or potential litigation, claims or governmental, regulatory or other proceedings, actions or investigations or possible unasserted claims or other contingent liabilities affecting Lydall or any other entity. BofA Securities did not evaluate the solvency or fair value of Lydall or any other entity under any state, federal, foreign or other laws relating to bankruptcy, insolvency or similar matters. BofA Securities assumed, at the direction of Lydall, that the merger will be consummated in accordance with its terms and in compliance with all applicable laws, documents and other requirements, without waiver, modification or amendment of any material term, condition or agreement, and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases, waivers and agreements for the merger or otherwise, no delay, limitation, restriction, condition or other action, including any divestiture or other requirements or amendments or modifications, will be imposed or occur that would have an adverse effect on Lydall or the merger (including the contemplated benefits of the merger) or that otherwise would be meaningful in any respect to BofA Securities’ analyses or opinion. BofA Securities also assumed, at the direction of Lydall, that the final executed merger agreement would not differ in any material respect from the draft reviewed by BofA Securities.

BofA Securities expressed no opinion or view as to any terms or other aspects or implications of the merger (other than the merger consideration to the extent expressly specified in its opinion), including, without limitation, the form or structure of the merger, any terms, aspects or implications of any guarantee or any other agreements, arrangements or understandings entered into in connection with, related to or contemplated by the merger or otherwise. BofA Securities’ opinion was limited to the fairness, from a financial point of view, of the merger consideration to holders of Lydall common stock (other than as specified in such opinion), without regard to individual circumstances of specific holders (whether by virtue of voting, control, liquidity, contractual arrangements or otherwise) that may distinguish such holders or the securities held by such holders, and BofA Securities’ opinion did not in any way address proportionate allocation or relative fairness. BofA Securities expressed no opinion or view with respect to any consideration received in connection with the merger by the holders of any class of securities, creditors or other constituencies of any party. In addition, BofA Securities expressed no opinion or view with respect to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation or other consideration to any of the officers, directors or employees of any party to the merger or any related entities, or class of such persons, relative to the merger consideration or otherwise. Furthermore, BofA Securities expressed no opinion or view as to the relative merits of the merger in comparison to other strategies or transactions that might be available to Lydall or in which Lydall might engage or as to the underlying business decision of Lydall to proceed with or effect the merger. BofA Securities also expressed no opinion or view with respect to accounting, tax, legal, regulatory or similar matters, including, without limitation, as to tax or other consequences of the merger or otherwise or changes in, or the impact of, accounting standards or tax and other laws, regulations and governmental and legislative policies affecting Lydall or any other entity or the merger, as to which BofA Securities understood such advice was obtained as deemed necessary from qualified professionals, and BofA Securities relied, at the direction of Lydall, upon the assessments of representatives of Lydall as to such matters. In addition, BofA Securities expressed no opinion or recommendation as to how any securityholder should vote or act in connection with the merger or any other matter.

BofA Securities’ opinion was necessarily based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to BofA Securities as of, the date of BofA Securities’ opinion. It should be understood that subsequent developments may affect BofA Securities’ opinion, and BofA Securities does not have any obligation to update, revise or reaffirm its opinion. The issuance of BofA Securities’ opinion was approved by a fairness opinion review committee of BofA Securities. Except as described in this summary, Lydall imposed no other instructions or limitations on the investigations made or procedures followed by BofA Securities in rendering its opinion.

In connection with its opinion, BofA Securities performed a variety of financial and comparative analyses, including those described below. The summary of the analyses below and certain factors considered is not a comprehensive description of all analyses undertaken or factors considered by BofA Securities. The preparation of a financial opinion or analysis is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion and analyses are not readily susceptible to summary description. BofA Securities believes that the analyses and factors summarized below must be considered as a whole and in context. BofA Securities further

 

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believes that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses and factors, could create a misleading or incomplete view of the processes underlying BofA Securities’ analyses and opinion.

In performing its financial analyses, BofA Securities considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of Lydall. The estimates of the future performance of Lydall and other estimates in or underlying BofA Securities’ analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by such analyses. These analyses were prepared solely as part of BofA Securities’ analysis of the fairness, from a financial point of view, of the merger consideration to be received by holders of Lydall common stock (other than, as applicable, Parent, Unifrax, Merger Sub, their respective affiliates, including Clearlake and its affiliates, and any subsidiary of Lydall) and were provided to the Lydall board of directors in connection with the delivery of BofA Securities’ opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the estimates used in, and the reference ranges resulting from, any particular analysis described below are inherently subject to substantial uncertainty and should not be taken as the views of BofA Securities regarding the actual value of Lydall or otherwise.

The type and amount of consideration payable in the merger was determined through negotiations between Lydall, on the one hand, and Parent and Clearlake, on the other hand, rather than by any financial advisor, and was approved by the Lydall board of directors. The decision of Lydall to enter into the merger agreement was solely that of the Lydall board of directors. BofA Securities’ opinion and analyses were only one of many factors considered by the Lydall board of directors in its evaluation of the merger and should not be viewed as determinative of the views of the Lydall board of directors, Lydall management or any other person with respect to the merger or the merger consideration.

Financial Analyses

The discussion set forth below under this heading “— Financial Analyses” is a summary of the material financial analyses provided by BofA Securities in connection with its opinion, dated June 20, 2021, to the Lydall board of directors. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by BofA Securities, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by BofA Securities. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by BofA Securities. Future results may differ from those described and such differences may be material. The order in which the financial analyses summarized below appear does not necessarily reflect the relative importance or weight given to such analyses. For purposes of the financial analyses described below, implied per share equity value reference ranges have been rounded to the nearest $0.05.

Selected Public Companies Analysis. BofA Securities reviewed publicly available financial and stock market information of Lydall and the following three (3) selected publicly traded companies in the filtration and specialty materials industry that BofA Securities considered generally relevant for purposes of analysis (collectively, the “selected companies”):

BofA Securities reviewed, among other information, enterprise values of the selected companies, calculated as fully diluted equity values based on closing stock prices on June 18, 2021 plus total debt less cash and cash equivalents, as a multiple of calendar year 2021 estimated earnings before interest, taxes, depreciation and amortization (“EBITDA”). Financial data of the selected companies were based on publicly available research analysts’ estimates, public filings and other publicly available information. Financial data of Lydall was based on financial forecasts and estimates of Lydall’s management and public filings.

 

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The overall low to high calendar year 2021 estimated EBITDA multiples observed for the selected companies were 7.7x to 8.0x (with a mean of 7.8x and a median of 7.7x). BofA Securities applied a selected range derived from the selected companies of calendar year 2021 estimated EBITDA multiples of 7.5x to 9.0x to the calendar year 2021 estimated EBITDA as adjusted for one-time non-recurring items (“adjusted EBITDA”) of Lydall.

This analysis indicated the following approximate implied per share equity value reference range for Lydall, as compared to the merger consideration:

No company used in this analysis is identical or directly comparable to Lydall. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies to which Lydall was compared.

Selected Precedent Transactions Analysis. BofA Securities reviewed publicly available financial information relating to the following 39 selected transactions, consisting of 24 transactions involving target companies or businesses in the filtration and specialty materials industry (collectively, the “selected filtration and specialty materials transactions”) and 15 transactions involving target companies or businesses in the automotive parts industry (collectively, the “selected automotive parts transactions”), that BofA Securities considered generally relevant for purposes of analysis (collectively, the “selected transactions”):

Selected Filtration and Specialty Materials Transactions

 

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Selected Automotive Parts Transactions

BofA Securities reviewed, among other information and to the extent publicly available, transaction values, calculated as the enterprise values implied for the target companies or businesses based on the consideration payable in the selected transactions, as a multiple of the latest twelve (12) months (“LTM”) EBITDA of the target company or business as of one (1) trading day prior to the applicable announcement dates of the selected transactions. Financial data for the selected transactions were based on public filings and other publicly available information. Financial data of Lydall was based on forecasts and estimates of Lydall’s management.

The overall low to high LTM EBITDA multiples observed for the selected filtration and specialty materials transactions were 8.3x to 20.4x (with a mean of 10.6x and a median of 11.5x) and for the selected automotive parts transactions were 5.5x to 10.3x (with a mean of 8.2x and a median of 8.0x). BofA Securities applied a selected range of LTM EBITDA multiples derived from the selected transactions of 8.5x to 11.0x to the LTM estimated adjusted EBITDA (as of June 30, 2021) of Lydall.

 

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This analysis indicated the following approximate implied per share equity value reference range for Lydall, as compared to the merger consideration:

No company, business or transaction used in this analysis is identical or directly comparable to Lydall or the merger. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the acquisition or other values of the companies, businesses or transactions to which Lydall and the merger were compared.

Discounted Cash Flow Analysis.   BofA Securities performed a discounted cash flow analysis of Lydall by calculating the estimated present value (as of March 31, 2021) of the standalone unlevered, after-tax free cash flows that Lydall was forecasted to generate during the last three (3) quarters of the fiscal year ending December 31, 2021 through the full fiscal year ending December 31, 2025 based on financial forecasts and estimates of Lydall’s management. BofA Securities calculated terminal values for Lydall by applying a selected range of EBITDA multiples of 7.0x to 9.0x to Lydall’s fiscal year 2025 estimated EBITDA. The cash flows and terminal values were then discounted to present value (as of March 31, 2021) using a selected range of discount rates of 9.0% to 12.0%. This analysis indicated the following approximate implied per share equity value reference range for Lydall, as compared to the merger consideration:

Certain Additional Information

BofA Securities observed certain additional information that was not considered part of its financial analyses for its opinion but was noted for informational purposes, including the following:

•

the historical trading performance of Lydall common stock during the 52-week period ended June 18, 2021, which indicated low and high closing prices during such period of  $11.59 per share and $40.93 per share, respectively; and

​

•

stock price targets for Lydall as reflected in selected publicly available Wall Street research analysts’ reports, which indicated stock price targets of  $41.00 per share on an undiscounted basis and approximately $36.55 per share (rounded to the nearest $0.05) on a discounted basis.

​

Miscellaneous

Lydall has agreed to pay BofA Securities for its services as financial advisor to Lydall in connection with the merger an aggregate fee currently estimated to be approximately $23 million, of which a portion was payable upon delivery of BofA Securities’ opinion and approximately $22 million is contingent upon consummation of the merger. Lydall also has agreed to reimburse BofA Securities for its expenses incurred in connection with BofA Securities’ engagement and to indemnify BofA Securities, any controlling person of BofA Securities and each of their respective directors, officers, employees, agents and affiliates against specified liabilities, including liabilities under U.S. federal securities laws.

BofA Securities and its affiliates comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and financial advisory services and other commercial services and products to a wide range of companies, governments and individuals. In the ordinary course of their businesses, BofA Securities and its affiliates may invest on a principal basis or on behalf of customers or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions in equity, debt or other securities or financial instruments (including derivatives, bank

 

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loans or other obligations) of  (i) Lydall and certain of its affiliates, and (ii) Parent, Unifrax and certain of their respective affiliates, including Clearlake and certain of its affiliates and portfolio companies.

BofA Securities and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to Lydall and certain of its affiliates and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as an administrative agent, collateral agent, book manager, bookrunner and/or arranger for, and/or as a lender under, certain term loans, letters of credit, credit facilities and other credit arrangements (including acquisition financing) of Lydall and/or certain of its affiliates, (ii) having provided or providing certain derivatives, foreign exchange and other trading services to Lydall and/or certain of its affiliates, and (iii) having provided or providing certain treasury management products and services to Lydall and/or certain of its affiliates. From June 1, 2019 through May 31, 2021, BofA Securities and its affiliates derived aggregate revenues from Lydall and certain of its affiliates of approximately $10 million for investment and corporate banking services.

In addition, BofA Securities and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to Parent, Unifrax and/or certain of their respective affiliates, including Clearlake and certain of its affiliates and portfolio companies, and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as financial advisor to Clearlake and certain of its affiliates and portfolio companies in connection with certain mergers and acquisition transactions, (ii) having acted or acting as a book-running manager and/or underwriter for certain debt offerings of certain affiliates and portfolio companies of Clearlake, (iii) having acted or acting as an administrative agent, collateral agent, bookrunner and/or arranger for, and/or as a lender under, certain term loans, letters of credit, credit facilities and other credit arrangements (including acquisition financing) of certain affiliates of Parent and/or Unifrax, including Clearlake and/or certain of its affiliates and portfolio companies, (iv) having provided or providing certain derivatives, foreign exchange and other trading services to certain affiliates of Parent and/or Unifrax, including Clearlake and/or certain of its affiliates and portfolio companies, and (v) having provided or providing certain treasury management products and services to certain affiliates of Parent and/or Unifrax, including Clearlake and/or certain of its affiliates and portfolio companies. From June 1, 2019 through May 31, 2021, BofA Securities and its affiliates derived aggregate revenues from Parent, Unifrax and/or certain of their respective affiliates, including Clearlake and certain of its affiliates and portfolio companies, of approximately $30 million for investment and corporate banking services.

Projected Financial Information

Lydall does not as a matter of course make public projections as to future performance or earnings beyond the current fiscal year and is especially wary of making projections for extended earnings periods given, among other reasons, the unpredictability and uncertainty of the underlying assumptions and estimates. However, in April 2021, Lydall management prepared certain financial projections in connection with the Lydall board of directors’ review of potential strategic alternatives, which we refer to as the “Strategic Plan Case,” to reflect Lydall’s full-year 2020 financial performance and Lydall management’s then-current expectations of Lydall’s financial performance for fiscal years 2021 through 2025. Also as part of Lydall management presentations provided to bidders invited to participate in Lydall’s strategic review process, Lydall management provided an “Aspirational Case,” as a sensitivity to the Strategic Plan Case (the “Aspirational Case” and, together with the Strategic Plan Case, the “Projections”), assuming generally a higher level of financial performance relative to the Strategic Plan Case. Although both the Strategic Plan Case and the Aspirational Case were also provided to Lydall’s financial advisor, BofA Securities, in connection with Lydall’s strategic review process, based on Lydall management’s assessments as to the relative likelihood of achieving the financial results reflected in the Strategic Plan Case and the Aspirational Case and such management’s judgment that the Strategic Plan Case best reflected the anticipated future financial performance of Lydall, the Lydall board of directors directed BofA Securities to utilize and rely upon the Strategic Plan Case for purposes of its financial analyses and opinion as described under “The Merger (Proposal 1) — Opinion of Lydall’s Financial Advisor.”

We have included a summary of the Projections to give stockholders access to certain nonpublic information prepared by Lydall management for the Lydall board of directors in connection with Lydall’s strategic review process, including the merger, and provided to Lydall’s financial advisor and bidders in connection with such process. The inclusion of the Projections should not be regarded as an indication that Lydall, Parent, Merger Sub or any of their respective affiliates, officers, directors, advisors or other representatives or any other recipient of this information considered, or now considers, it to be an assurance of the achievement of actual future results.

 

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The Projections and the underlying assumptions upon which the Projections were based are subjective in many respects. The Projections reflect numerous estimates and assumptions with respect to industry performance, general business, economic, market and financial conditions, changes to the business, financial condition or results of operations of Lydall and other matters, including those described under “Caution Regarding Forward-Looking Statements,” many of which are difficult to predict, subject to significant economic and competitive uncertainties, are beyond Lydall’s control and may cause the Projections or the underlying assumptions not to be realized. Since the Projections cover multiple years, such information by its nature becomes less predictive with each successive year. The Projections do not take into account any circumstances or events occurring after the date they were prepared. As a result, there can be no assurance that the Projections will be realized or that actual results will not be significantly higher or lower than projected. The Projections were not prepared with a view toward public disclosure or toward complying with GAAP, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. For example, certain metrics included in the Projections are non-GAAP measures, and the Projections do not include footnote disclosures as may be required by GAAP. Neither Lydall’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.

Readers of this proxy statement are cautioned not to place undue reliance on the specific portions of the Projections below. No one has made or makes any representation to any stockholder regarding the information included in the Projections.

For the foregoing reasons, as well as the basis and assumptions on which the Projections were compiled, the inclusion of specific portions of the Projections in this proxy statement should not be regarded as necessarily predictive of actual future events, and they should not be relied on as such. Except as required by applicable securities laws, Lydall does not intend to update or otherwise revise the Projections or the specific portions presented to reflect circumstances existing after the date on which they were prepared or to reflect the occurrence of future events, even in the event that any or all of the assumptions are shown not to be appropriate.

(1)

Net Sales means total revenue related to the sales of all products to Lydall’s end customers.

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(2)

Adjusted EBITDA means earnings before interest, taxes, depreciation and amortization adjusted for extraordinary expenses that are not reflective of Lydall’s core operating results over time (such as restructuring costs, impairment charges and other one-time and non-recurring items).

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(3)

Unlevered Free Cash Flow means Adjusted EBITDA, less depreciation and amortization, tax effected, plus depreciation and amortization, less net capital expenditures and less changes in net working capital. 2021E Unlevered Free Cash Flow reflects amount for last three (3) quarters of the fiscal year ending December 31, 2021.

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(1)

Unlevered Free Cash Flow was not calculated for the Aspirational Case.

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Interests of Lydall’s Directors and Executive Officers in the Merger

In considering the recommendation of the Lydall board of directors to approve and adopt the merger agreement, you should be aware that some of Lydall’s directors and executive officers have interests in the merger that are

 

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different from, or in addition to, those of Lydall’s stockholders generally. The Lydall board of directors was aware of these interests and considered them, among other matters, in evaluating the merger agreement, in reaching its decision to approve the merger agreement and in recommending to our stockholders that the merger agreement be approved. These interests are described and quantified below.

Certain Assumptions

Except as otherwise specifically noted, for purposes of quantifying the potential payments and benefits described in this section, the following assumptions were used:

•

The effective time is September 30, 2021, which is the assumed date of the closing of the merger solely for purposes of the disclosure in this section;

​

•

The employment of each executive officer of Lydall will have been terminated by Lydall without “cause” or due to the executive officer’s resignation for “good reason” ​(as such terms are defined in the relevant plans and agreements), in either case immediately following the assumed effective time of September 30, 2021; and

​

•

The performance metrics applicable to each Lydall PSA Award will have been achieved at the target level of performance.

​

As the amounts provided below are estimates based on multiple assumptions that may or may not actually occur or be accurate as of the date referenced, the actual amounts, if any, that may be paid or become payable may materially differ from the amounts set forth below. In addition, the amounts provided below are determined without regard to any potential “cutback” to avoid the “golden parachute” excise tax that may be imposed under Section 4999 of the Code.

Treatment and Quantification of Equity-Based Awards

Lydall’s executive officers currently hold vested and unvested Lydall RSAs, Lydall PSAs and Lydall Stock Options.

The merger agreement provides that at or immediately prior to the effective time of the merger, the outstanding equity awards of Lydall will be treated as follows:

•

Each Lydall RSA that is outstanding under a Lydall Stock Plan, whether or not vested, will become fully vested and be automatically canceled in exchange for the right to receive an amount in cash equal to the product of the merger consideration and the number of shares of Lydall common stock underlying the Lydall RSA (then adding, if applicable, the value of any dividends accrued thereon). For each Lydall PSA, performance conditions will be deemed to have been earned at the greater of  (i) the target amount under the terms of the applicable award agreement relating to such Lydall PSA and (ii) the amount reasonably projected to be earned under the terms of the award agreement based on performance achievement through the effective time of the merger.

​

•

Each Lydall Stock Option that is outstanding under a Lydall Stock Plan, whether or not vested, will become fully vested and be automatically canceled in exchange for the right to receive an amount in cash (without interest) determined by multiplying (i) the excess, if any, of the merger consideration over the applicable exercise price of such Lydall Stock Option by (ii) the number of shares of Lydall common stock underlying the Lydall Stock Option. Any Lydall Stock Option for which the exercise price is equal to or greater than the merger consideration will be automatically canceled without any consideration.

​

•

Each Incentive Stock Option will, at least ten (10) business days prior to the closing of the merger, automatically vest and be exercisable for Lydall common stock and each holder of Incentive Stock Options shall be provided with written notice that such holder will, during the period beginning on the date of such notice and ending on the business day immediately preceding the closing of the merger, have the right to exercise such Incentive Stock Option by providing Lydall with notice of exercise and a cash amount equal to the applicable exercise price (with each share of Lydall common stock acquired on exercise being converted into the right to receive the merger consideration at the effective time of the merger and each Incentive Stock Option (or portion thereof) not so exercised and that remains outstanding immediately prior to the effective time of the merger being treated as a Lydall Stock Option).

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See the section entitled “Golden Parachute Compensation” beginning on page 51 of this proxy statement for an estimate of the amounts that would become payable to each Lydall named executive officer in respect of his or her unvested Lydall RSA, Lydall PSA and Lydall Stock Option awards. Based on the assumptions described above under “Interests of Lydall’s Directors and Executive Officers in the Merger — Certain Assumptions,” the estimated aggregate

 

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amounts that would become payable to Lydall’s three (3) executive officers who are not named executive officers in respect of their unvested Lydall RSA, Lydall PSA and Lydall Stock Option awards are as follows: Robert Junker: $1,906,807; John J. Tedone: $1,462,524 and Anthony Justice: $739,686. Lydall’s non-employee directors do not hold any unvested Lydall equity awards; however, the directors will receive immediately prior to the closing, an equity grant representing the first 2021 installment award following the 2021 annual shareholder meeting with a value of  $50,000 pro-rated based on the number of days served as non-employee directors for the period between the annual shareholder meeting held on April 20, 2021 and the six-month installment date of October 20, 2021. The estimated aggregate amounts that would become payable to each of Lydall’s non-employee directors in respect of these equity grants will be [•], which assumes a share price of  $[•] for purposes of converting the equity grant value into a number of shares.

Employment Agreements

Lydall has entered into employment agreements (each, an “Employment Agreement”) with each of its executive officers. The Employment Agreements provide that each executive officer party to such an agreement will be eligible to receive the following severance benefits upon a termination of employment by Lydall without cause, or a resignation by the executive officer for good reason, in either case, within eighteen (18) months of the consummation of a change in control. The merger will constitute a change in control for purposes of the Employment Agreements.

The agreements with each of the executive officers provide that, if an executive’s employment is terminated by Lydall without “cause,” or by the executive for “good reason” within 18 months of a “change in control” ​(except that the agreement with Mr. Junker does not include a “good reason” trigger), Lydall shall pay to the executives the following severance benefits:

•

a lump sum payment equal to two (2) times the sum of  (i) the executive’s annual rate of base salary in effect immediately preceding the executive’s termination of employment, and (ii) the average of the executive’s last three (3) years highest annual bonuses earned under Lydall’s annual bonus plan for any of the five (5) calendar years preceding the executive’s termination of employment;

​

•

a pro rata portion of the executive’s target bonus opportunity for the year of termination;

​

•

continued healthcare coverage, and if reasonably commercially available through nationally reputable insurance carriers, executive life and executive long-term disability plan coverage for up to twenty-four (24) months (or less if COBRA coverage ends before such date or the employee becomes eligible for such benefits from another employer), but only if the executive timely pays the portion of the premium for such coverage that members of senior management of Lydall generally are required to pay for such coverage, if any;

​

•

outplacement services of up to $10,000 for a period of one (1) year;

​

•

a monthly automobile allowance for twenty-four (24) months following termination; and

​

•

the accelerated vesting of outstanding Lydall RSAs and Lydall Stock Options (in the case of Ms. Greenstein, her Employment Agreement also provides for the accelerated vesting of outstanding Lydall PSAs with performance conditions applicable to a Lydall PSA deemed to have been earned at the greater of  (i) the target amount under the terms of the applicable award agreement relating to such Lydall PSA and (ii) the amount reasonably projected to be earned under the terms of the award agreement based on performance achievement through termination date).

​

The provision of payments and benefits described above is conditioned upon the executive officer’s execution of a release of claims.

See “Interests of Lydall’s Directors and Executive Officers in the Merger — Golden Parachute Compensation” beginning on page 51 of this proxy statement for the estimated amounts that each of Lydall’s named executive officers would receive under his or her Employment Agreement upon a qualifying termination of employment. Based on the assumptions described above under “Interests of Lydall’s Directors and Executive Officers in the Merger — Certain Assumptions”, the estimated aggregate amounts of the severance payments (excluding amounts payable in respect of unvested Lydall RSA Awards, unvested Lydall PSA Awards and Lydall Stock Option Awards, which are discussed and quantified above under the section entitled “Treatment and Quantification of Lydall Equity Awards”) to be provided to Lydall’s three (3) executive officers who are not named executive officers under their Employment Agreements upon a qualifying termination of employment are as follows: Robert Junker: $1,263,449; John J. Tedone: $872,252 and Anthony Justice: $776,439.

 

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(1)

For the named executive officers, other than Mr. Abbruzzi, the amounts included in this column represent an amount equal to: (A) two (2) times the sum of the named executive officer’s (x) base salary plus (y) the average of the last three (3) years’ highest annual

​

 

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(a)

If applicable insurance coverage is not available for the named executive officer, Lydall must arrange alternate coverage at a cost not to exceed 125% of Lydall’s group coverage cost.

​

Directors’ and Officers’ Indemnification and Insurance

For information regarding indemnification of Lydall’s directors and executive officers, see the section entitled “The Merger Agreement — Directors’ and Officers’ Indemnification and Insurance” beginning on page 68 of this proxy statement.

Financing of the Merger

In connection with the transactions contemplated by the merger agreement, the Investors have delivered the Equity Commitment Letter to Parent, dated as of June 21, 2021, pursuant to which, upon the terms and subject to the conditions set forth therein, such funds have committed to capitalize Parent at the closing of the merger in an aggregate amount of  $474 million in cash, in immediately available funds.

 

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In addition, Parent has obtained debt financing commitments (pursuant to a debt commitment letter) for the transactions contemplated by the merger agreement, the aggregate proceeds of which, together with the cash on hand at Parent, will be used to consummate the merger and the other transactions contemplated by the merger agreement, including the payment of the per share merger consideration and all related fees and expenses, to repay certain existing indebtedness of Unifrax as required by the terms of such financing commitments, and to pay any other amounts required to be paid by Parent or Merger Sub in connection with the consummation of the transactions contemplated by the merger agreement. Pursuant to the debt commitment letter, J.P. Morgan Chase Bank, N.A., Credit Suisse AG, Cayman Islands Branch, Morgan Stanley Senior Funding, Inc. and Stifel Syndicated Credit, LLC have committed to provide, severally but not jointly upon the terms and subject to the conditions set forth in the debt commitment letter, debt financing in the aggregate amount of  $1.2 billion.

The total amount of funds required to complete the merger and related transactions, including payment of related fees and expenses, is anticipated to be approximately $1.674 billion, which will be funded with the net proceeds of the Financing.

In addition, the Investors entered into the Limited Guarantee with Lydall to guarantee Parent’s obligation to pay its reverse termination fee to Lydall if the merger agreement is terminated in certain circumstances, plus certain other specified payments to Lydall, subject to the terms and obligations set forth in the merger agreement and the Limited Guarantee.

For more information on Parent’s financing arrangements for the merger, see the sections entitled “The Merger Agreement — Financing of the Merger” beginning on page 69.

Regulatory Clearances and Approvals Required for the Merger

The completion of the merger is conditioned on, among other things, certain specified regulatory approvals having been obtained and remaining in full force and effect (or, in the case of certain specified regulatory approvals that are statutory waiting period, having expired or been terminated, including the expiration or termination of any applicable waiting period under the HSR Act). Under the terms of the merger agreement, each of Lydall and Parent agrees to use their respective reasonable best efforts (except where the merger agreement specifies a different standard) to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable law to consummate the transactions contemplated by the merger agreement, including preparing and filing as promptly as practicable with any government authority or other third party all documentation to effect all necessary filings and obtaining certain specified regulatory approvals.

Parent shall and shall cause its subsidiaries to take all actions needed in the event that a governmental authority or third party challenges any of the transactions contemplated by the merger agreement as violating the HSR Act or other competition laws to obtain such regulatory clearances, including divestitures, hold separate arrangements, the termination of any existing relationships and contractual rights and obligations, termination of any venture or other arrangement, effectuating any other change or restructuring of Parent, Lydall or any of their respective subsidiaries, and opposing, fully and vigorously, and administrative or judicial action, proceeding, or order that could threaten, restrain, prevent or delay the consummation of the transactions contemplated by the merger agreement. At the request of Parent, Lydall shall agree to divest, hold separate or otherwise take or commit to take any action that that limits its freedom of action with respect to, or its ability to retain, any of the businesses, services, or assets of Lydall or any of its subsidiaries, provided that any such action shall be conditioned upon consummation of the merger and the other transactions contemplated by the merger agreement.

On July 6, 2021, both Lydall and Parent filed notification of the proposed merger with the FTC and the Antitrust Division under the HSR Act.

In addition, prior to the effective time of the merger, Lydall and Parent are required to obtain regulatory approvals from the Austrian Federal Competition Authority, German Federal Cartel Office, German Federal Ministry for Economic Affairs and Energy, Turkish Competition Authority, and French Ministry of Economy and Finance. On July 16, 2021, Lydall and Parent notified the proposed merger with the above-mentioned regulatory bodies (including by way of draft filing in those jurisdictions where pre-notification is the custom).

See the section entitled “The Merger Agreement — Regulatory Clearances and Approvals Required for the Merger” beginning on page 66 of this proxy statement for a more detailed discussion of the parties’ obligations with respect to obtaining regulatory approvals in connection with the merger.

 

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Accounting Treatment

The merger will be accounted for as a “purchase transaction” for financial accounting purposes.

Material U.S. Federal Income Tax Consequences of the Merger

The exchange of Lydall common stock for cash in the merger will be a taxable transaction for U.S. federal income tax purposes and may also be taxable under state and local and other tax laws. In general, a U.S. holder (as described in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 86 of this proxy statement) whose shares of Lydall common stock are converted into the right to receive cash in the merger will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received with respect to such shares and the U.S. holder’s adjusted tax basis in such shares. With respect to a stockholder that is a “non-U.S. holder” ​(as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 86 of this proxy statement), the exchange of shares of Lydall common stock for the merger consideration pursuant to the merger generally will not result in U.S. federal income tax to such non-U.S. holder unless such non-U.S. holder has certain connections with the United States. Backup withholding may apply to the cash payment made pursuant to the merger unless the stockholder or other payee provides a valid taxpayer identification number and complies with certain certification procedures (generally, by providing a properly completed and executed U.S. Internal Revenue Service (“IRS”) Form W-9 or IRS Form W-8 or applicable successor form).

You should read the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 86 of this proxy statement and consult your tax advisors regarding the U.S. federal income tax consequences of the merger to you in your particular circumstances, as well as tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.

Delisting and Deregistration of Lydall Common Stock

Upon completion of the merger, the Lydall common stock currently listed on the NYSE will cease to be listed on the NYSE and will subsequently be deregistered under the Exchange Act.

Appraisal Rights

Under the DGCL, any record holder of Lydall common stock at the close of business on the record date who does not vote in favor of the merger, and who exercises its appraisal rights and fully complies with all of the provisions of Section 262 of the DGCL (but not otherwise), will be entitled to demand and receive payment of the “fair value” as determined pursuant to Section 262 of the DGCL for all (but not less than all) of his or her shares of Lydall common stock if the merger is completed. See the section entitled “Appraisal Rights of Stockholders” beginning on page 78 of this proxy statement. The full text of Section 262 of the DGCL is attached to this proxy statement as Annex C.

Litigation Related to the Merger

As of the date of this proxy statement, there are no pending lawsuits challenging the merger. However, potential plaintiffs may file lawsuits challenging the merger. The outcome of any future litigation is uncertain.

Such litigation, if not resolved, could prevent or delay consummation of the merger and result in substantial costs to Lydall, including any costs associated with the indemnification of directors and officers. One of the conditions to the consummation of the merger is that no applicable law or order issued by a court of competent jurisdiction or other legal restraint which is then in effect renders illegal or enjoins the consummation of the merger whether on a preliminary or permanent basis. Therefore, if a plaintiff were successful in obtaining an injunction prohibiting the consummation of the merger on the agreed-upon terms, then such injunction may prevent the merger from being consummated, or from being consummated within the expected time frame.

 

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THE MERGER AGREEMENT

The following is a summary of the material terms and conditions of the merger agreement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. This summary is qualified in its entirety by reference to the complete text of the Agreement and Plan of Merger, dated as of June 21, 2021, a copy of which is attached to this proxy statement as Annex A, and which is incorporated by reference into this proxy statement. We encourage you to read the merger agreement carefully and in its entirety because it is the legal document that governs the merger.

Explanatory Note Regarding the Merger Agreement

The following summary of the Agreement and Plan of Merger, dated as of June 21, 2021, a copy of which is attached hereto as Annex A to this proxy statement, is intended to provide information regarding the terms of the merger agreement and is not intended to modify or supplement any factual disclosures about Lydall in its public reports filed with the SEC. In particular, the merger agreement and the related summary are not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to Lydall or any of its subsidiaries or affiliates. The merger agreement contains representations and warranties by Lydall, Parent and Merger Sub which were made only for purposes of that agreement and as of specified dates. The representations, warranties and covenants in the merger agreement were made solely for the benefit of the parties to the merger agreement; may be subject to limitations agreed upon by the contracting parties, including being qualified by the disclosure schedules to the merger agreement; were made for the purposes of allocating contractual risk between the parties to the merger agreement instead of establishing these matters as facts; and may apply contractual standards of materiality or material adverse effect that generally differ from those applicable to investors. In addition, information concerning the subject matter of the representations, warranties and covenants may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in Lydall’s public disclosures.

Additional information about Lydall may be found elsewhere in this proxy statement and Lydall’s other public filings. See the section entitled “Where You Can Find More Information,” beginning on page 91 of this proxy statement.

Structure of the Merger

At the effective time of the merger, Merger Sub will be merged with and into Lydall in accordance with the DGCL. As a result of the merger, the separate existence of Merger Sub will cease, and Lydall will be the surviving corporation. At the effective time of the merger and by virtue of the merger, the certificate of incorporation of Lydall will be amended and restated in its entirety to be identical to the certificate of incorporation of Merger Sub in effect immediately prior to the effective time of the merger, except (a) to change the name of the surviving corporation to Lydall and (b) as otherwise required by the merger agreement to maintain in effect provisions regarding elimination of liability of directors and indemnification of officers, directors, employees, fiduciaries and agents described in the section entitled “The Merger Agreement — Directors’ and Officers’ Indemnification and Insurance” beginning on page 68 of this proxy statement, and as so amended will be the amended and restated certificate of incorporation of the surviving corporation. The bylaws of Merger Sub in effect at the effective time of the merger will be the bylaws of the surviving corporation. From and after the effective time of the merger, until successors are duly elected or appointed and qualified in accordance with applicable law, the directors of Merger Sub at the effective time of the merger will be the directors of the surviving corporation and the officers of Lydall will be the officers of the surviving corporation.

Closing and Effective Time of the Merger

Unless another time, date or place is mutually agreed in writing by Lydall and Parent, the closing of the merger will take place as soon as possible, but in any event no later than five (5) business days after the date the closing conditions set forth in the merger agreement and described in the section entitled “The Merger Agreement — Conditions to Completion of the Merger” beginning on page 72 of this proxy statement (other than conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or, to the extent permissible, waiver of those conditions) have been satisfied or, to the extent permissible, waived by the party or parties entitled to the benefit of such conditions, or, if the marketing period has not ended the earlier of  (a) any business day specified by Parent but with not less than two (2) business days’ prior notice to Lydall or (b) one (1) business day following the final day of the marketing period. The merger will become effective at such time as the

 

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certificate of merger is duly filed with the Delaware Secretary of State or at such later time as may be specified in the certificate of merger. As of the date of this proxy statement, we expect to complete the merger in the second half of 2021. However, completion of the merger is subject to the satisfaction or waiver of the conditions to the completion of the merger, which are described below, and it is possible that factors outside the control of Lydall or Parent could delay the completion of the merger, or prevent it from being completed at all. There may be a substantial amount of time between the special meeting and the completion of the merger. We expect to complete the merger promptly following the receipt of all required approvals.

Effect of the Merger on Lydall Common Stock

At the effective time of the merger, each share of Lydall common stock outstanding immediately prior to the effective time of the merger (other than shares owned by Lydall (as treasury stock), Parent or any of their respective subsidiaries, Merger Sub or any stockholder who has properly demanded appraisal rights in accordance with Delaware law, together, the “excluded shares”) will be converted into the right to receive $62.10 in cash, without interest. As of the effective time of the merger, all such shares of Lydall common stock will no longer be outstanding and will automatically be canceled and retired and cease to exist, and will thereafter represent only the right to receive the merger consideration to be paid in accordance with the terms of the merger agreement.

At the effective time of the merger, each share of Lydall common stock held by Lydall (as treasury stock) or owned by Parent, Merger Sub or any other subsidiary of Parent will be canceled without payment of any consideration. At the effective time of the merger, each share of Lydall common stock held by any subsidiary of Lydall or Parent will be canceled and retired and will cease to exist, and will thereafter be converted into such number of shares of stock of the surviving corporation such that each such subsidiary owns the same percentage of the outstanding capital stock in the surviving corporation immediately following the effective time of the merger as such subsidiary owned in Lydall immediately prior to the effective time of the merger. In addition, shares of Lydall common stock outstanding immediately prior to effective time of the merger and held by a stockholder who has not voted in favor of the merger or consented thereto in writing and who has properly demanded appraisal for such shares in accordance with Delaware law will not be converted into the right to receive the merger consideration, unless and until such holder fails to perfect, withdraws or otherwise loses the right to appraisal. If any holder of Lydall common stock that demands appraisal rights properly perfects such rights, such holder will be entitled to the fair value of such shares as determined by the Delaware Court of Chancery plus interest, if any, on the amount determined to be the fair value, as further described in the section entitled “Appraisal Rights of Stockholders” beginning on page 78 of this proxy statement.

Each share of common stock of Merger Sub outstanding immediately prior to the effective time of the merger will be converted into one share of common stock of the surviving corporation.

Procedures for Surrendering Shares for Payment

Prior to the effective time of the merger, Parent will appoint an exchange agent reasonably acceptable to Lydall for the purpose of exchanging for the merger consideration certificates representing shares of Lydall common stock or uncertificated shares of Lydall common stock. As promptly as practicable after the effective time of the merger, Parent will make available to the exchange agent the aggregate merger consideration to be paid in respect of the certificates representing shares of Lydall common stock or uncertificated shares of Lydall common stock.

As promptly as practicable after the effective time of the merger (but no later than two (2) business days thereafter), Parent will send, or cause the exchange agent to send, to each holder of shares of Lydall common stock at the effective time of the merger a letter of transmittal and instructions (which will be in a form reasonably acceptable to Lydall and finalized prior to the effective time of the merger and which will specify that the delivery will be effected, and risk of loss and title will pass, only upon proper delivery of certificates representing shares of Lydall common stock or transfer of uncertificated shares of Lydall common stock to the exchange agent) for use in such exchange.

Each holder of shares of Lydall common stock that have been converted into the right to receive the merger consideration will be entitled to receive, upon (i) surrender to the exchange agent of a certificate, together with a properly completed letter of transmittal in customary form reasonably acceptable to Parent, or (ii) receipt of an “agent’s message” by the exchange agent (or such other evidence, if any, of transfer as the exchange agent may reasonably request) in the case of a book-entry transfer of uncertificated shares, in each case (i) or (ii), the merger consideration in respect of Lydall common stock represented by a certificate or uncertificated share. Until so surrendered or

 

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transferred, as the case may be, each such certificate or uncertificated share will represent after the effective time of the merger for all purposes only the right to receive such merger consideration.

If any portion of the merger consideration is to be paid to a person other than the person in whose name the surrendered certificate or the transferred uncertificated share is registered, it will be a condition to such payment that (i) either such certificate be properly endorsed or otherwise be in proper form for transfer or such uncertificated share be properly transferred and (ii) the person requesting such payment must pay to the exchange agent any transfer or other taxes required as a result of such payment or establish to the satisfaction of the exchange agent that such tax has been paid or is not payable.

After the effective time of the merger, there will be no further registration of transfers of shares of Lydall common stock. If, after the effective time of the merger, certificates representing shares of Lydall common stock or uncertificated shares of Lydall common stock are presented to the surviving corporation or the exchange agent, they will be canceled and exchanged for the merger consideration.

Any portion of the merger consideration made available to the exchange agent for payment to the stockholders that remains unclaimed by the holders of Lydall common stock twelve (12) months after the effective time of the merger will be returned to Parent, upon demand, and any such holder who has not exchanged shares of Lydall common stock will thereafter look only to Parent for payment of the merger consideration in respect of such shares without any interest thereon.

Withholding

Parent, Merger Sub, the surviving corporation, the exchange agent and other applicable payors are entitled to deduct and withhold from the consideration otherwise payable to any person pursuant to the merger agreement such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of federal, state, local or foreign tax law. If the exchange agent, the surviving corporation, Parent or Merger Sub, as the case may be, so withholds amounts and pays over such amounts to the appropriate governmental authority, such amounts will be treated for all purposes of the merger agreement as having been paid to the person to whom such amounts would otherwise have been paid.

Treatment of Lydall Equity Awards

The merger agreement provides that at or immediately prior to the effective time of the merger, the outstanding equity awards of Lydall will be treated as follows:

•

Each Lydall RSA that is outstanding under a Lydall Stock Plan, whether or not vested, will become fully vested and be automatically canceled in exchange for the right to receive an amount in cash equal to the product of the merger consideration and the number of shares of Lydall common stock underlying the Lydall RSA (then adding, if applicable, the value of any dividends accrued thereon). For each Lydall PSA, performance conditions will be deemed to have been earned at the greater of  (i) the target amount under the terms of the applicable award agreement relating to such Lydall PSA and (ii) the amount reasonably projected to be earned under the terms of the award agreement based on performance achievement through the effective time of the merger.

​

•

Each Lydall Stock Option that is outstanding under a Lydall Stock Plan, whether or not vested, will become fully vested and be automatically canceled in exchange for the right to receive an amount in cash (without interest) determined by multiplying (i) the excess, if any, of the merger consideration over the applicable exercise price of such Lydall Stock Option by (ii) the number of shares of Lydall common stock underlying the Lydall Stock Option. Any Lydall Stock Option for which the exercise price is equal to or greater than the merger consideration will be automatically canceled without any consideration.

​

•

Each Incentive Stock Option will, at least ten (10) business days prior to the closing of the merger, automatically vest and be exercisable for Lydall common stock and each holder of Incentive Stock Options shall be provided with written notice that such holder will, during the period beginning on the date of such notice and ending on the business day immediately preceding the closing of the merger, have the right to exercise such Incentive Stock Option by providing Lydall with notice of exercise and a cash amount equal to the applicable exercise price (with each share of Lydall common stock acquired on exercise being converted into the right to receive the merger consideration at the effective time of the merger and each Incentive Stock Option (or portion

​

 

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thereof) not so exercised and that remains outstanding immediately prior to the effective time of the merger being treated as a Lydall Stock Option).

Representations and Warranties

Lydall’s representations and warranties to Parent in the merger agreement relate to, among other things:

•

The organization, good standing and qualification of Lydall and its subsidiaries;

​

•

The corporate power and authority to execute, deliver and perform the merger agreement and to consummate the transactions contemplated by the merger agreement;

​

•

Required regulatory filings and authorizations, consents or approvals of governmental entities;

​

•

The absence of certain breaches, violations, defaults or consent requirements under certain contracts, organizational documents and laws, in each case arising out of the execution, delivery and performance of, and consummation of the transactions contemplated by, the merger agreement and assuming approval of the shareholders;

​

•

The capitalization of Lydall and its subsidiaries, including the number of outstanding shares of Lydall common stock, Lydall RSAs, Lydall PSAs and Incentive Stock Options;

​

•

The reports, schedules, forms, statements and other documents required to be filed with the SEC and other regulatory agencies and the accuracy of the information contained in those documents;

​

•

The financial statements of Lydall and Lydall’s internal system of disclosure controls and procedures concerning financial reporting;

​

•

The disclosure documents required to be filed with the SEC in connection with the merger (including this proxy statement);

​

•

The absence of certain changes or events since March 31, 2021;

​

•

The absence of certain undisclosed liabilities;

​

•

Compliance with laws by Lydall and its subsidiaries during the last three years;

​

•

The absence of certain litigation, actions, suits, investigations or proceedings;

​

•

Real property owned or leased by Lydall and its subsidiaries;

​

•

Ownership of or rights with respect to the intellectual property of Lydall and its subsidiaries;

​

•

The payment of taxes, the filing of tax returns and other tax matters related to Lydall and its subsidiaries;

​

•

Compensation and benefits plans, agreements and arrangements with or concerning employees of Lydall and its subsidiaries;

​

•

Compliance with laws related to labor and employment by Lydall and its subsidiaries;

​

•

Compliance with environmental laws, permits and licenses by Lydall and its subsidiaries and other environmental matters;

​

•

Certain material contracts of Lydall and its subsidiaries;

​

•

Certain matters related to the insurance policies and arrangements of Lydall and its subsidiaries;

​

•

Brokers’ and finders’ fees and other expenses payable by Lydall;

​

•

Receipt of the opinion of Lydall’s financial advisor; and

​

•

The applicability of, and Lydall’s compliance with, certain state takeover statutes.

​

Parent’s representations and warranties to Lydall in the merger agreement relate to, among other things:

•

The corporate organization, good standing and qualification of each of Parent and Merger Sub;

​

•

The corporate power and authority to execute, deliver and perform the merger agreement and to consummate the transactions contemplated by the merger agreement;

​

 

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•

Required regulatory filings and authorizations, consents or approvals of governmental entities;

​

•

The absence of certain breaches, violations, defaults or consent requirements under certain contracts, organizational documents and laws, in each case arising out of the execution, delivery and performance of, and consummation of the transactions contemplated by, the merger agreement;

​

•

The accuracy of information supplied by Parent to be included in this proxy statement;

​

•

The absence of certain actions, suits, arbitrations or proceedings that would prevent, impair or materially delay the ability of Parent or Merger Sub to perform their respective obligations under the merger agreement or to consummate the merger;

​

•

The guarantee by Parent being delivered to Lydall;

​

•

The delivery of the financing arrangements by Parent including the equity commitment letter and debt commitment letter and with such arrangements, the adequacy of funds to consummate the merger and enforceability thereof;

​

•

Brokers’ and finders’ fees and other expenses payable by Parent;

​

•

The absence of knowledge by Parent of facts or circumstances causing Lydall’s representations to be untrue;

​

•

Beneficial ownership of shares of Lydall common stock by Parent, Merger Sub or any of their respective subsidiaries;

​

•

The solvency of the surviving corporation after the consummation of the merger; and

​

•

The acknowledgement that there are no further representations and warranties made by or on behalf of Lydall, other than in the merger agreement.

​

None of the representations and warranties in the merger agreement survive the effective time of the merger.

Definition of  “Company Material Adverse Effect”

Many of Lydall’s representations and warranties in the merger agreement are qualified by a “company material adverse effect” standard (that is, they will not be deemed to be untrue or incorrect unless their failure to be true or correct has had or would reasonably be expected to have, individually or in the aggregate, a company material adverse effect). For purposes of the merger agreement, a “company material adverse effect” means a material adverse effect on (i) the financial condition, assets, business or results of operations of Lydall and its subsidiaries, taken as a whole or (ii) the ability of Lydall and its subsidiaries to perform their obligations under or to consummate the merger, excluding, solely in the case of clause (i), any effect resulting directly or indirectly from the following:

•

Changes in GAAP or the official interpretation thereof;

​

•

General economic, political, regulatory, legal or tax conditions in the United States or any other country or region including changes in financial, credit, securities or currency markets (including changes in interest or exchange rates);

​

•

Conditions generally affecting any of the industries in which Lydall and its subsidiaries operate;

​

•

Changes in applicable law or the interpretation thereof;

​

•

Geopolitical conditions, the outbreak or escalation of hostilities, acts of war, sabotage, terrorism, cyberattacks, natural disasters, acts of god, demonstrations, public disaster, epidemics, pandemics or other diseases (including COVID-19 and any measures taken in relation to COVID-19) including any deterioration or worsening thereof;

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•

The announcement, pendency or consummation of the transactions contemplated by the merger agreement or the announcement of Parent’s plans or intentions with respect to the conduct of the business of Lydall following the closing, including the impact of any of the foregoing on the relationships, contractual or otherwise, of Lydall and any of its subsidiaries with customers, suppliers, service providers, employees, governmental authorities, or any other persons and any stockholder or derivative litigation relating to the execution, delivery and performance of the merger agreement or the announcement or consummation of the transactions contemplated by the merger agreement;

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Any failure by Lydall and its subsidiaries to meet any internal or published budgets, projections, forecasts or predictions of financial performance or integration synergies for any period (it being understood that any underlying facts giving rise or contributing to such failure that are not otherwise excluded from this definition of  “company material adverse effect” may be taken into account in determining whether there has been a company material adverse effect);

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Any action taken (or omitted to be taken) by Lydall or its subsidiaries in order to comply with its obligations to use reasonable best efforts to consummate the merger at the written request of Parent or Merger Sub;

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Changes in the price and/or trading volume of shares of Lydall common stock or any other securities of Lydall on the NYSE or any other market on which such securities are quoted for purchase and sale or changes in the credit ratings of Lydall (it being understood that any underlying facts giving rise or contributing to such changes that are not otherwise excluded from the definition of  “company material adverse effect” may be taken into account in determining whether there has been a company material adverse effect); or

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Any action taken (or omitted to be taken) by Lydall or any of its subsidiaries that is required to be take (or omitted to be taken) pursuant to the merger agreement, including any actions required under the merger agreement to obtain any approvals, consents, registrations, permits, authorizations and other confirmations under applicable antitrust laws and foreign investment laws for the consummation of the merger.

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Notwithstanding these exclusions, any event referred to in bullets one, two, three, and five will be taken account in determining whether a “company material adverse” effect has occurred or would reasonably be expected to occur to the extent that such event has a disproportional adverse effect on Lydall and its subsidiaries relative to other companies in the same industry or industries in which Lydall and its subsidiaries conducts business, in which case the incremental disproportionate adverse impact may be taken into account in determining whether there has occurred or would reasonably be expected to occur a company material adverse effect.

Certain of Parent’s representations and warranties in the merger agreement are qualified by a “parent material adverse effect” standard (that is, they will not be deemed to be untrue or incorrect unless their failure to be true or correct has had or would reasonably be expected to have, individually or in the aggregate, a parent material adverse effect). For purposes of the merger agreement, a “parent material adverse effect” means any event, change, effect, development or occurrence that would reasonably be expected to prevent, or materially delay the ability of Parent or Merger Sub to perform its obligations under the merger agreement or prevent, or materially delay the consummation of the merger or the other transactions contemplated by the merger agreement.

Conduct of the Business Pending the Merger

Lydall has agreed to certain covenants in the merger agreement restricting the conduct of its business between the date of the merger agreement and the effective time of the merger. In general, except as expressly required or contemplated by the merger agreement, as set forth on the disclosure schedules to the merger agreement, as required by applicable law, or with the prior written consent of Parent (not to be unreasonably withheld, conditioned or delayed), Lydall will, and will cause each of its subsidiaries to, use commercially reasonable efforts to conduct its business in the ordinary course consistent with past practice except in connection with any action taken, or omitted to be taken, in order to comply with any measures taken in relation to COVID-19 or such action which is otherwise taken, or omitted to be taken, as a necessary response to COVID-19, as determined by Lydall in its reasonable discretion.

In addition, without limiting the generality of the foregoing, except as expressly required or contemplated by the merger agreement, as set forth on the disclosure schedules to the merger agreement, as required by applicable law or with the prior written consent of Parent (not to be unreasonably withheld, conditioned or delayed), Lydall will not, nor will Lydall permit any of its subsidiaries to:

•

amend its certificate of incorporation, bylaws or other similar organizational documents, other than in immaterial respects and except as may be required by the rules and regulations of the SEC or NYSE;

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(A) split, combine or reclassify any shares of its capital stock, (B) declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, except for dividends or other such distributions by any of its wholly owned subsidiaries or (C) redeem, repurchase or otherwise acquire or offer to redeem, repurchase, or otherwise acquire any company securities or any company subsidiary securities, except as required by the terms of any company benefit plan in effect on the date of the merger agreement;

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(A) issue, deliver or sell, or authorize the issuance, delivery or sale of, any shares of any company securities or company subsidiary securities, other than the issuance of  (i) any shares of Lydall common stock upon the exercise of Lydall Stock Options or the vesting of Lydall RSAs or Lydall PSAs that are outstanding on the date of the merger agreement in accordance with their terms or (ii) any company subsidiary securities to Lydall or any of its subsidiaries or (B) amend any term of any company security or any company subsidiary security, except as required by the terms of any company stock plan in effect on the date of the merger agreement;

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acquire (by merger, consolidation, acquisition of stock or assets or otherwise), directly or indirectly, any material amount of assets, securities, properties, interests or businesses, other than pursuant to any material contract or the acquisition of inventory, supplies, or materials in the ordinary course of business;

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sell, lease, license or otherwise transfer any of its material assets (including any Lydall intellectual property), securities, properties, interests or businesses, other than (A) pursuant to any material contract, (B) sales of inventory for fair consideration in the ordinary course of business and (C) non-exclusive licenses of Lydall intellectual property granted in the ordinary course of business consistent with past practice;

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make any loans, advances or capital contributions to, or investments in, any other Person (other than (A) advances of business expenses to employees in the ordinary course of business, (B) accounts receivable from customers in the ordinary course of business and (C) loans or advances among Lydall and any of its wholly owned subsidiaries and capital contributions to or investments in its wholly owned subsidiaries);

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establish, adopt or amend (except as required by applicable law) any collective bargaining agreement;

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incur any indebtedness for borrowed money or guarantees thereof, other than, indebtedness incurred between Lydall and any of its wholly owned subsidiaries or between any of such wholly owned subsidiaries or guarantees by Lydall of indebtedness of any wholly owned subsidiary of Lydall;

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amend in any material respect or waive any of its material rights under any material contract, or enter into any contract that would, if entered into prior to the date hereof, constitute a material contract;

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settle any material litigation, arbitration, proceeding or other claim involving or against Lydall or any of its subsidiaries, other than settlements that (i) do not require monetary payments by Lydall or any of its subsidiaries in excess of  $1,000,000 individually or $3,000,000 in the aggregate and (ii) do not involve injunctive relief against Lydall or any of its subsidiaries, admission of guilt or wrongdoing or other restrictions on business activities that could be expected to limit Lydall or any of its subsidiaries in the conduct of their business;

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except as required under the terms of any company benefit plan in effect on the date hereof  (including, for the avoidance of doubt, any collective bargaining agreement), (A) increase or decrease the compensation or benefits to be paid or provided to any employee that holds a position of vice president or higher, (B) grant or award any bonus or incentive compensation (excluding equity or equity-based incentive compensation) severance payments to any current or former employee, officer, director or other individual service provider other than bonus or incentive compensation (excluding equity or equity-based incentive compensation) provided to new hires in the ordinary course of business consistent with past practice, (C) establish, adopt, enter into, terminate or materially amend any company benefit plan or any benefit or compensation plan or arrangement that would be a company benefit plan if in effect on the date hereof, or take any action to accelerate the vesting, funding or timing of payment of any compensation or benefits payable to or to become payable to any current or former employee, officer, director or other individual service provider, (D) hire or terminate (without “cause”) the employment of any employee that holds a position of vice president or higher, or (E) negotiate, modify, extend, or enter into any collective bargaining agreement or recognize or certify any labor union, labor organization, works council, or group of employees as the bargaining representative for any employees of Lydall;

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implement or announce any employee layoffs, plant closings, reductions in force, furloughs, temporary layoffs, salary or wage reductions, work schedule changes or other such actions that could implicate the WARN Act;

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waive or release any noncompetition, nonsolicitation, nondisclosure, noninterference, nondisparagement, or other restrictive covenant obligation of any employee that holds a position of vice president or higher;

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change Lydall’s methods of accounting, except as required by concurrent changes in GAAP or in Regulation S-X of the Exchange Act, as agreed to by its independent public accountants;

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(i) make, change, revoke, rescind, or otherwise modify any material tax election, (ii) file any amended or otherwise modify any income or other material tax return; (iii) prepare, file, or take any position on any income or other material tax return inconsistent with past practice in any material respect; (iv) adopt, change, or otherwise modify any tax accounting period or any material tax accounting method, principles, or practices, (v) settle, consent to, or compromise (in whole or in party) any claim, liability, assessment, audit, examination, proceeding, or other litigation related to income or other material taxes (including, without limitation, by entering into any closing or other settlement agreement with any taxing authority); (vi) surrender any right to claim a material tax refund, offset, or other reduction in liability; (vii) consent to any extension or waiver of the limitation period applicable to any income or other material tax claim or assessment (other than any routine extension granted in the ordinary course of business); (viii) participate in, initiate any discussion with respect to, or enter into any voluntary disclosure program (or similar program or agreement) with any taxing authority with respect to material taxes; or (ix) fail to pay any income or other material tax that becomes due and payable (other than any tax being contested in good faith and for which adequate reserves have been established on the financial statements of Lydall in accordance with GAAP);

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convene any special meeting of their stockholders (or any postponement or adjournment thereof), or propose any matters for consideration and a vote of its stockholders at the stockholder meeting other than as expressly permitted or required pursuant to the merger agreement;

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•

enter into or adopt any “poison pill” or similar stockholder rights plan;

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make, or enter into any new commitments to make, any capital expenditures, or acquisitions of real or personal property, that deviate by more than 10% from the annual capital expenditures budget for Lydall approved by the board of directors and provided to Parent prior to the date of the merger agreement; or

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•

agree or commit to do any of the foregoing, or announce an intention, enter into an agreement or otherwise make a commitment to do any of the foregoing.

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Board Obligation to Call a Stockholders’ Meeting

Lydall has agreed under the merger agreement to cause a meeting of Lydall stockholders as soon as reasonably practicable following the date on which the SEC staff advises that it has no further comments on this proxy statement or that Lydall may commence mailing this proxy statement, duly call and give notice of, and commence mailing of this proxy statement to the holders of Lydall common stock as of the record date established for, a meeting of holders of the shares of Lydall common stock to consider and vote upon the adoption of the merger agreement and as soon as reasonably practicable following the commencement of the first mailing of this proxy statement, and no later than the fortieth (40th) day following the first mailing of this proxy statement, convene and hold the stockholder meeting, provided that Lydall may (and if requested by Parent (on no more than two occasions), shall) adjourn or postpone the stockholder meeting to a later date with Parent’s consent or to the extent Lydall believes in good faith that such adjournment or postponement is reasonably necessary to ensure that any required supplement or amendment to this proxy statement is provided to the holders of shares of Lydall common stock within a reasonable amount of time in advance of the stockholder meeting, to allow reasonable additional time to solicit additional proxies necessary to obtain approval by Lydall stockholders, to ensure that there are sufficient shares of Lydall common stock represented (either in person or by proxy) and voting to constitute a quorum necessary to conduct the business of the stockholder meeting or otherwise where required to comply with applicable law. Subject to the restrictions on solicitation described below, the board of directors shall recommend that the holders of the shares of Lydall common stock adopt this Agreement, Lydall shall use its commercially reasonable efforts to obtain the approval by Lydall stockholders and Lydall shall otherwise comply in all material respects with all legal requirements applicable to the stockholder meeting.

Restrictions on Solicitation of Acquisition Proposals

Lydall has agreed that from the date of the merger agreement until the receipt of stockholder approval, or if earlier, the termination of the merger agreement in accordance with its terms, except as otherwise set forth below, Lydall will not, and will cause its subsidiaries and each of its and their respective directors, officers, employees, investment bankers, attorneys, accountants and other advisors (collectively, “representatives”) not to, and use reasonable best efforts to cause its and its subsidiaries’ respective representatives not to, directly or indirectly:

•

solicit or take any action to knowingly facilitate or encourage the submission of any “acquisition proposal” ​(as described below);

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initiate, solicit, facilitate, participate, engage with, enter into or knowingly encourage any discussions or negotiations with, furnish any information relating to Lydall or any of its subsidiaries or afford access to the business, properties, assets, personnel, books or records of Lydall or any of its subsidiaries to, otherwise knowingly cooperate with any third party relating to an acquisition proposal or any inquiry, proposal or request for information that would reasonably be expected to lead to an acquisition proposal (other than requesting the clarification of the terms and conditions thereof);

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•

make an adverse recommendation change (as described below) with regard to the merger;

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grant a waiver or amendment or release under a standstill or confidentiality agreement, provided that Lydall or any of its subsidiaries shall not be prohibited from amending, modifying or granting any waiver or release of any standstill provision contained in a standstill, confidentiality or similar agreement of Lydall or any of its subsidiaries, in each case solely to the extent the board of directors determines, in consultation with its outside legal counsel, that the failure to do so would be reasonably likely to be inconsistent with its fiduciary duties; or

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allow, authorize or cause Lydall or any of its subsidiaries to enter into any agreement in principle, letter of intent, memorandum of understanding, acquisition agreement or contract providing for or relating to an acquisition proposal or any proposal or offer that would reasonably be expected to lead to an acquisition proposal (an “alternative acquisition agreement”).

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If any representative of Lydall takes any action that Lydall is prohibited from taking by these restrictions, then Lydall will be deemed to have breached such restrictions.

Lydall also agreed in the merger agreement to (and agreed to cause its subsidiaries and direct its and their respective representatives to) cease immediately and cause to be terminated any and all existing activities, solicitations of discussions or negotiations, if any, with any third party and its representatives with respect to any acquisition proposal or any inquiry, discussion or request that would reasonably be expected to lead to an acquisition proposal and Lydall shall promptly (and in any event, within two (2) business days of the signing of the merger agreement) request in writing that each third party that has previously executed a confidentiality or similar agreement promptly return to Lydall or destroy all non-public information previously furnished or made available to such third party or any of its representatives by or on behalf of Lydall or its representatives in accordance with the terms of such confidentiality agreement.

Notwithstanding the restrictions described above, if at any time prior to obtaining the approval of Lydall stockholders, the Lydall board of directors receives an acquisition proposal which has not resulted from a breach of the restrictions set forth above that the Lydall board of directors determines, after consultation with its financial advisor and outside legal counsel, (i) is or is reasonably to lead to a superior proposal and (ii) the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law, then Lydall, directly or indirectly through its subsidiaries or representatives may:

•

engage in negotiations or discussions with such third party and its representatives; and

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•

furnish to such third party or its representatives non-public information relating to Lydall or any of its subsidiaries and afford access to the business, properties, assets, books or records of Lydall or any of its subsidiaries pursuant to a confidentiality agreement no less favorable in any material respect to Lydall than the confidentiality agreement with Parent, except that such confidentiality agreement need not include a standstill provision or prohibit the submission of any acquisition proposals or amendments thereto; provided that, to the extent that any nonpublic information relating to Lydall or its subsidiaries is provided to any such third party, such nonpublic information is provided or made available to Parent promptly (and in any event within twenty-four (24) hours) thereafter.

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The Lydall board of directors may, in response to its receipt of a bona fide unsolicited written acquisition proposal which did not result from a breach of the foregoing and that the board of directors has determined in good faith, after consultation with its outside legal counsel and financial advisor, constitutes a superior proposal, make an adverse recommendation change or terminate the merger agreement in order to enter into a definitive agreement for a superior proposal, or in response to an intervening event, make an adverse recommendation change, if and only if, in each case, the board of directors determines in good faith, after consultation with its outside legal counsel and financial advisors, that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties.

 

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In addition, prior to obtaining the approval of Lydall’s stockholders, Lydall is required to notify Parent in writing promptly (and in any event within forty-eight (48) hours) after receipt by Lydall of any acquisition proposal or any inquiry, proposal or request that would reasonably be expected to lead to any acquisition proposal, or any request for nonpublic information relating to Lydall or any of its subsidiaries or for access to the business, properties, personnel, assets, books or records of Lydall or any of its subsidiaries by any third party that could reasonably be expected to make, or has made, an acquisition proposal. Lydall is required to keep Parent reasonably informed, on a prompt basis, of the status and material terms and conditions (and amendments and modifications thereof) of any such acquisition proposal, inquiry or request, including promptly (but in no event later than forty-eight (48) hours after receipt) providing Parent copies of all material correspondence and written materials (including any such amendment or modifications) sent or provided to Lydall or any of its subsidiaries or any of their respective representatives in connection therewith.

For purposes of the merger agreement, “acquisition proposal” means, other than the transactions contemplated by the merger agreement, any third party offer or proposal relating to:

•

any acquisition or purchase, direct or indirect of 20% or more of the consolidated assets of Lydall and its subsidiaries, or 20% or more of any class of equity or voting securities of Lydall or any of its subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the consolidated assets of Lydall;

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any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in such third party beneficially owning 20% or more of any class of equity or voting securities of Lydall or any of its subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the consolidated assets of Lydall;

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a merger, consolidation, share exchange, business combination, sale of substantially all the assets, reorganization, recapitalization, liquidation, dissolution or similar transaction involving Lydall or any of its subsidiaries, whose assets, individually or in the aggregate, constitute 20% or more of the consolidated assets of Lydall; or

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any merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving Lydall pursuant to which Lydall’s stockholders immediately preceding such transaction hold less than 80% of the equity interests of the surviving or resulting entity of such transaction.

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For purposes of the merger agreement, “adverse recommendation change” means the Lydall board of directors (A) fail to make, withdraw, withhold, qualify or modify in a manner adverse to Parent, or propose publicly to withdraw, withhold, qualify or modify the Lydall board of directors’ recommendation of the merger (or recommend an acquisition proposal), (B) adopt, approve or recommend, or propose publicly to adopt, approve or recommend, or otherwise declare advisable, any acquisition proposal or proposal that would reasonably be excepted to lead to an acquisition proposal, (C) fail to publicly recommend against any publicly disclosed acquisition proposal (other than a tender offer or exchange offer) within five (5) business days after Parent so requests in writing, (D) fail to recommend against any acquisition proposal structured as a tender offer or exchange offer within ten (10) business days after the commencement thereof or take any public position in connection with a tender or exchange offer other than a recommendation against such offer or a “stop, look and listen” communication by Lydall’s board of directors, or (E) fail to include the recommendation of Lydall’s board of directors in favor of approval and adoption of the merger agreement and the merger in this proxy statement.

For purposes of the merger agreement, “superior proposal” means any bona fide, written acquisition proposal (but substituting “50%” for all references to “20%” in the definition of such term) on terms that the Lydall board of directors determines in good faith, after consultation with its outside legal counsel and financial advisors and considering all relevant legal, regulatory and financing aspects of such acquisition proposal, is reasonably likely to be consummated in accordance with its terms, and if consummated would be more favorable from a financial point of view to Lydall’s stockholders than the merger (taking into account any changes to the terms of the merger agreement proposed by Parent to Lydall in writing in response to such acquisition proposal taking into consideration (A) the identity of the counterparty, (B) the expected timing, conditionality and likelihood of consummation of the contemplated transaction(s), (C) any other legal, financial or regulatory aspects of such acquisition proposal and (D) any other factors determined by the Lydall board of directors to be relevant (including any changes to the merger agreement that may be proposed by Parent in response to such acquisition proposal).

 

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Changes in Board Recommendation

Under the merger agreement, under certain circumstances and subject to certain requirements described in this section, the Lydall board of directors is entitled to make an adverse recommendation change prior to obtaining stockholder approval, if the Lydall board of directors determines in good faith, after consultation with its outside legal counsel and financial advisors, that an acquisition proposal constitutes a superior proposal, if the Lydall board of directors determines that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law; provided that:

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Lydall notifies Parent in writing at least five (5) business days before taking such action, that Lydall intends to take such action, which notice specifies the reasons for the adverse recommendation change and attaches the most current version of any proposed transaction agreement;

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If requested by Parent during such five (5) business day period, Lydall negotiates in good faith with Parent regarding any proposal by Parent to amend the terms of the merger agreement in response to such superior proposal; and

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After such five (5) business day period, the Lydall board of directors determines in good faith, after consultation with its outside legal counsel and financial advisors, taking into account any proposal by Parent received during such period to amend the terms of the merger agreement, that such acquisition proposal continues to constitute a superior proposal (provided that any material amendment to the principal financial terms or other material terms of any such superior proposal requires a new written notification from Lydall and a new notice period of three (3) business days will commence, during which notice period Lydall will be required to comply with the foregoing requirements anew, except that such new notice period will be for three (3) business days (as opposed to five (5) business days)).

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In the event that the Lydall board of directors is permitted to change its recommendation with respect to the merger agreement following the receipt of an acquisition proposal that it determines to be a superior proposal, Lydall may also terminate the merger agreement to enter into a definitive written agreement for such superior proposal if concurrently with such termination, Lydall pays to Parent the fee required to be paid to Parent as described in the section entitled “The Merger Agreement — Termination Fee Payable by Lydall and Reverse Termination Fee Payable by Parent” beginning on page 74 of this proxy statement.

In addition, at any time prior to obtaining the approval of Lydall’s stockholders, the Lydall board of directors is permitted to effect an adverse recommendation change involving or relating to an “intervening event” if the Lydall board of directors determines in good faith, after consultation with its outside legal counsel, that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law; provided that:

•

Lydall notifies Parent in writing of its intention to take such action and at least five (5) business days before taking such action, that Lydall intends to take such action, which notice specifies the reasons for the adverse recommendation change and attaches a reasonably detailed description of the intervening event;

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If requested by Parent, during such five (5) business day period, Lydall negotiates in good faith with Parent regarding any proposal by Parent to amend the terms of the merger agreement; and

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After such five (5) business day period described above, the Lydall board of directors determines in good faith, after consultation with its outside legal counsel and financial advisors, taking into account any proposal by Parent received during such period to amend the terms of the merger agreement, that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law.

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Nothing in the merger agreement prevents Lydall or its board of directors (or any committee thereof) from:

•

taking and disclosing to Lydall’s stockholders a position contemplated by Rule 14d-9 and Rule 14e-2(a) promulgated under the Exchange Act or from making any legally required disclosure to stockholders with regard to the transactions contemplated by the merger agreement or an acquisition proposal provided that neither Lydall nor the Lydall board of directors may recommend any acquisition proposal unless permitted in accordance with the terms of the merger agreement;

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issuing a “stop, look and listen” disclosure or similar communication of the type contemplated by Rule 14d-9(f) under the Exchange Act will not be an adverse recommendation change; or

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contacting and engaging in discussions with any person who has made an acquisition proposal that was not solicited, and did not otherwise result from a breach of, the merger agreement solely for the purpose of clarifying the terms of such offer or proposal or informing such third party of the restrictions imposed by the merger agreement.

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For purposes of the merger agreement, “intervening event” means any material event, fact, circumstance, development or occurrence that was not known or reasonably foreseeable, or the material consequences of which were not known or reasonably foreseeable, to the Lydall board of directors as of the date of the merger agreement and does not relate to (x) an acquisition proposal or (y) any changes after the date hereof in the market price or trading volume of Lydall common stock (it being understood that the underlying cause of any of such changes may be considered and taken into account), and in any case, which event or circumstance becomes known to or by the Lydall board of directors prior to receipt of the stockholder approval.

Regulatory Clearances and Approvals Required for the Merger

The completion of the merger is conditioned on, among other things, certain specified regulatory approvals having been obtained and remaining in full force and effect (or, in the case of certain specified regulatory approvals that are statutory waiting periods, having expired or been terminated). Under the terms of the merger agreement, each of Lydall and Parent agrees to use their respective reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable law to consummate the transactions contemplated by the merger agreement, including preparing and filing as promptly as practicable with any government authority or other third party all documentation to effect all necessary filings and obtaining and maintaining all approvals, consents, registrations, permits, authorizations, orders, waivers, non-objections and other confirmations required to be obtained from (A) any governmental authority that are necessary, proper or advisable to consummate the transactions contemplated by the merger agreement including under the HSR Act and certain other specified regulatory approvals, and (B) any other third party that are necessary, proper or advisable to consummate the transactions contemplated by the merger agreement.

Parent shall and shall cause its subsidiaries to take all actions needed in the event that a governmental authority or third party challenges any of the transactions contemplated by the merger agreement as violating the HSR Act or other competition laws to obtain such regulatory clearances, including divestitures, hold separate arrangements, the termination of any existing relationships and contractual rights and obligations, termination of any venture or other arrangement, effectuating any other change or restructuring of Parent, Lydall or any of their respective subsidiaries, and opposing, fully and vigorously, any administrative or judicial action, proceeding, or order that could threaten, restrain, prevent or delay the consummation of the transactions contemplated by the merger agreement. At the request of Parent, Lydall shall agree to divest, hold separate or otherwise take or commit to take any action that that limits its freedom of action with respect to, or its ability to retain, any of the businesses, services, or assets of Lydall or any of its subsidiaries, provided that any such action shall be conditioned upon consummation of the merger and the other transactions contemplated by the merger agreement.

Parent and Lydall each will have the right to review in advance, and, to the extent practicable, each will consult the other on, in each case subject to applicable laws relating to the exchange of information and confidentiality restrictions, all the information relating to Parent and Lydall, as the case may be, and any of their respective subsidiaries, which appears in any filing made with, or written materials submitted to, any third party or any governmental authority. In exercising such right, each of Parent and Lydall will act reasonably and as promptly as practicable. Parent and Lydall agree that they will consult with each other with respect to the obtaining of all permits, consents, orders, approvals, waivers, non-objections and authorizations (including the requisite regulatory approvals) of all third parties and governmental authorities necessary or advisable to consummate the transactions contemplated by the merger agreement and each party will keep the other apprised of the status of matters relating to consummation of the transactions contemplated by the merger agreement, and each party will consult with the other in advance of any meeting or conference with any governmental authority in connection with the transactions contemplated by the merger agreement and, to the extent permitted by such governmental authority, give the other party and/or its counsel the opportunity to attend and participate in such meetings and conferences, in each case subject to applicable law. Parent shall control and lead all communications and strategy for (1) preparing and filing with any governmental authority or other third party any documentation to effect all necessary, proper or advisable filings, notices, petitions, statements, registrations, submissions of information, applications and other documents, (2) obtaining and maintaining any approvals, consents, registrations, permits, authorizations and other confirmations required or

 

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advisable to be obtained from any governmental authority, or (3) defending any action, suit or proceeding challenging any of the transactions contemplated by the merger agreement with respect to the HSR Act and any other applicable law.

In addition, each of Parent and Lydall will make an appropriate filing of a Notification and Report Form pursuant to the HSR Act with respect to the transactions contemplated by the merger agreement with the FTC and the Antitrust Division as promptly as practicable after the date of the merger agreement and in any event within ten (10) business days of the date of the merger agreement and the filings for any other applicable competition law as promptly as practicable. Each of Parent and Lydall will (i) make an appropriate response as promptly as reasonably practicable to any inquiries received from any governmental authority for additional information or documentary material that may be requested or required pursuant to the HSR Act or the equivalent period pursuant to any other applicable competition laws or foreign investment law and shall promptly take all other actions necessary, proper or advisable to cause the expiration or termination of the applicable waiting periods under the HSR Act and any equivalent period pursuant to any applicable competition laws or foreign investment laws in the jurisdictions identified below as promptly as practicable, and (ii) not extend any waiting period under the HSR Act or equivalent period under any other competition law or foreign investment laws or enter into any agreement with the FTC or the Antitrust Division or any other governmental authority not to consummate the transactions contemplated by the merger agreement, except with the prior written consent of the other parties hereto. Notwithstanding the foregoing, (I) each of Parent and Lydall may designate any non-public information provided to any governmental entity as restricted to “outside counsel” only and any such information shall not be shared with employees, officers, managers or directors or their equivalents of the other party without approval of the party providing the non-public information, and (II) materials may be redacted (x) to remove references concerning the valuation of Lydall, (y) as necessary to comply with contractual arrangements and (z) as necessary to address reasonable attorney-client or other privilege or confidentiality concerns.

On July 6, 2021, both Lydall and Parent filed notification of the proposed merger with the FTC and the Antitrust Division under the HSR Act.

Each of Parent and Lydall will (1) promptly notify the other party of any written communication to that party from the FTC, the Antitrust Division, any State Attorney General or any other governmental authority and, subject to applicable law, permit the other party to review in advance any proposed written communication to any of the foregoing, (2) not agree to participate in any substantive meeting or discussion with any governmental authority in respect of any filings, investigation or inquiry concerning any competition or antitrust matters in connection with the merger agreement or the merger and the other transactions contemplated by the merger agreement unless it consults with the other party in advance and, to the extent permitted by such governmental authority, gives the other party the opportunity to attend and participate thereat, and (3) furnish the other party with copies of all correspondence, filings, and communications (and memoranda setting forth the substance thereof) between them and their affiliates and their respective representatives on the one hand, and any governmental authority or members or their respective staffs on the other hand, with respect to any competition or antitrust matters in connection with the merger agreement.

In addition, prior to the effective time of the merger, Lydall and Parent are required to obtain regulatory approvals from the Austrian Federal Competition Authority, German Federal Cartel Office, German Federal Ministry for Economic Affairs and Energy, Turkish Competition Authority, and French Ministry of Economy and Finance. On July 16, 2021, Lydall and Parent notified the proposed merger with the above-mentioned regulatory authorities (including by way of draft filing in those jurisdictions where the pre-notification is the custom).

Litigation Related to the Merger

Under the terms of the merger agreement, Lydall will control the defense or settlement of any transaction litigation; provided that Lydall will (i) give Parent prompt written notice of any transaction litigation, including by providing copies of all pleadings with respect thereto, (ii) give Parent reasonable opportunity to participate, at Parent’s expense, in the defense, settlement or prosecution of any transaction litigation, and (iii) consult with Parent with respect to the defense, settlement and prosecution of any transaction litigation. In addition, Lydall has agreed that it will not (and will cause its subsidiaries not to) settle, or offer to settle, any such transaction litigation without the prior written consent of Parent, which shall not be unreasonably withheld, delayed or conditioned.

Employee Matters

For twelve (12) months following the closing of the merger, Parent shall cause its affiliates to provide each Lydall employee who continues to be employed by Parent, Lydall or any of their respective subsidiaries (each, a “Continuing

 

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Employee”) with (i) base compensation and an annual cash bonus opportunity that are no less favorable than the base compensation and annual cash bonus opportunity that such employee was entitled to immediately prior to the date of the merger agreement and (ii) employee benefits (other than defined benefit pension, nonqualified deferred compensation, one-time bonuses, or retiree or post-termination health or welfare benefits) that are substantially comparable in the aggregate to the employee benefits provided to such employee immediately prior to the closing of the merger. Additionally, for twelve (12) months following the closing of the merger, each Continuing Employee will remain entitled to receive severance benefits that are no less favorable than the greater of  (i) the severance compensation that would have been provided to such employee under Lydall’s severance policies set forth in the company disclosure schedule in effect immediately prior to the date of the merger agreement and (ii) the severance benefits maintained for similarly situated employees of Parent at the time of such employee’s termination of employment.

If the closing of the merger occurs before the date annual bonuses for the fiscal year 2021 are paid under any annual cash incentive compensation plan or arrangement set forth on the company disclosure schedule (each, a “2021 Bonus Plan”), Parent shall cause its affiliates to (i) pay, or cause to be paid, to Continuing Employees in the 2021 Bonus Plans a prorated bonus in an amount that is no less than the bonus amount accrued by Lydall under the applicable 2021 Bonus Plan for the period through the closing of the merger (the “Accrued Bonuses”) and (ii) (A) continue to operate the 2021 Bonus Plans in the ordinary course of business substantially consistent in all material respects with past practice, (B) after consulting with Lydall’s Chief Executive Officer (as of immediately prior to the closing of the merger), determine the amounts to be paid under the 2021 Bonus Plan for the period beginning on the date of the closing of the merger and ending on the last day of the applicable performance period (together with the Accrued Bonuses, the “Earned Bonuses”) in a manner that is consistent in all material respects with the terms of the applicable 2021 Bonus Plan and Lydall’s past practice, including with respect to maintaining accruals, and (C) pay Earned Bonuses in the ordinary course of business consistent in all material respects with Lydall’s past practice and at substantially the same time as annual bonuses have historically been paid (but in no event later than March 15, 2022).

Upon the closing of the merger, Parent will, or will cause its affiliates to, generally recognize the service of each Continuing Employee for all purposes (except for compensatory incentive awards vesting purposes and accruals under any defined benefit plan or equity-based compensation plan) under any benefit plan or arrangement of Parent, the surviving corporation or any of their respective subsidiaries providing benefits to such Continuing Employee after the completion of the merger to the same extent such service credit was granted under any benefit plan or arrangement of Lydall or any of its subsidiaries.

In addition, following the closing of the merger, the merger agreement provides that Parent will use commercially reasonable efforts to cause its affiliates to (i) waive any preexisting conditions, exclusions, limitations and waiting periods with respect to participation and coverage requirements applicable to Continuing Employees under any employee benefit plans maintained by Parent or its subsidiaries to the extent such limitations were waived or satisfied under the applicable Lydall employee benefit plans and (ii) provide Continuing Employees with credit under employee benefit plans maintained by Parent or its subsidiaries for any co-payments and deductibles paid during the calendar plan year in which the closing of the merger occurs to the same extent such credits were given under the applicable Lydall employee benefit plans in which the Continuing Employees previously participated.

Directors’ and Officers’ Indemnification and Insurance

For six (6) years after the effective time of the merger, Parent has agreed to, and to cause the surviving corporation to, indemnify and hold harmless the present and former directors, officers and employees, of Lydall and its subsidiaries and any individuals serving in such capacity at or with respect to other persons at Lydall’s or its subsidiaries request (each, an “indemnified person”), from and against any losses, damages, liabilities, costs, expenses (including attorneys’ fees), judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of any thereof) in respect of the indemnified persons’ having served in such capacity prior to the effective time of the merger, in each case to the fullest extent permitted by Delaware law or any other applicable law or provided under Lydall’s certificate of incorporation and bylaws in effect on the date of the merger agreement.

For six (6) years after the effective time of the merger, Parent has agreed to cause the surviving corporation to maintain in effect the provisions in its certificate of incorporation and bylaws (or in such documents of any successor to the business of the surviving corporation) regarding elimination of liability of directors, indemnification of officers,

 

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directors and employees and advancement of fees, costs and expenses that are no less advantageous to the intended beneficiaries than the corresponding provisions in existence on the date of the merger agreement.

From and after the effective time of the merger, Parent will and will cause the surviving corporation and its subsidiaries to honor and comply with their respective obligations under any indemnification agreement with any indemnified person, and not amend, repeal or otherwise modify any such agreement in any manner that would adversely affect any right of any indemnified person thereunder.

Prior to the effective time of the merger, Lydall will or, if Lydall is unable to, Parent will cause the surviving corporation as of the effective time of the merger to, obtain and fully pay the premium for the non-cancellable extension of the directors’ and officers’ liability coverage of Lydall’s existing directors’ and officers’ insurance policies and Lydall’s existing fiduciary liability insurance policies (collectively, “D&O insurance”), in each case (i) for a claims reporting or discovery period of at least six (6) years from and after the effective time of the merger with respect to any claim related to any period of time at or prior to the effective time of the merger, subject to certain minimum requirements and other conditions, (ii) from an insurance carrier with the same or better credit rating as Lydall’s current insurance carrier with respect to D&O insurance and have terms, conditions, retentions and (iii) limits of liability that are no less favorable than the coverage provided under Lydall’s existing policies with respect to any actual or alleged error, misstatement, misleading statement, act, omission, neglect, breach of duty or any matter claimed against an indemnified person by reason of his or her having served in such capacity that existed or occurred at or prior to the effective time of the merger (including in connection with the merger agreement or the transactions or actions contemplated thereby).

If Lydall or the surviving corporation for any reason fails to obtain such “tail” insurance policies as of the effective time of the merger, the surviving corporation shall continue to maintain in effect, for a period of at least six (6) years from and after the effective time of the merger, the D&O insurance in place as of the date of the merger agreement with Lydall’s current insurance carrier or with an insurance carrier with the same or better credit rating as Lydall’s current insurance carrier with respect to D&O insurance with terms, conditions, retentions and limits of liability that are no less favorable than the coverage provided under Lydall’s existing policies as of the date of the merger agreement, or the surviving corporation will purchase from Lydall’s current insurance carrier or from an insurance carrier with the same or better credit rating as Lydall’s current insurance carrier with respect to D&O insurance comparable D&O insurance for such six (6)-year period with terms, conditions, retentions and limits of liability that are no less favorable than as provided in Lydall’s existing policies as of the date of the merger agreement. In no event will Parent or the surviving corporation be required to (and Lydall shall not be permitted to) expend for the D&O insurance an annual premium amount in excess of 300% of the premium amount Lydall paid in its last full fiscal year for its existing policies; and provided that if the aggregate premiums of such insurance coverage exceed such amount, the surviving corporation will be obligated to obtain a policy with the greatest coverage available, with respect to matters occurring prior to the effective time of the merger, for a cost not exceeding such amount.

If Parent, the surviving corporation or any of its successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, to the extent necessary, proper provision will be made so that the successors and assigns of Parent or the surviving corporation, as the case may be, will assume the obligations described above.

Financing of the Merger

In connection with the transactions contemplated by the merger agreement, the Investors have delivered the Equity Commitment Letter to Parent, dated as of June 21, 2021, pursuant to which, upon the terms and subject to the conditions set forth therein, such funds have committed to capitalize Parent at the closing of the merger in an aggregate amount of  $474 million in cash, in immediately available funds.

In addition, Parent has obtained debt financing commitments (pursuant to a debt commitment letter) for the transactions contemplated by the merger agreement, the aggregate proceeds of which, together with the cash on hand at Parent, will be used to consummate the merger and the other transactions contemplated by the merger agreement, including the payment of the per share merger consideration and all related fees and expenses, to repay certain existing indebtedness of Unifrax as required by the terms of such financing commitments, and to pay any other amounts required to be paid by Parent or Merger Sub in connection with the consummation of the transactions contemplated by the merger agreement. Pursuant to the debt commitment letter, J.P. Morgan Chase Bank, N.A.,

 

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Credit Suisse AG, Cayman Islands Branch, Morgan Stanley Senior Funding, Inc. and Stifel Syndicated Credit, LLC have committed to provide, severally but not jointly upon the terms and subject to the conditions set forth in the debt commitment letter, debt financing in the aggregate amount of  $1.2 billion.

The total amount of funds required to complete the merger and related transactions, including payment of related fees and expenses, is anticipated to be approximately $1.674 billion, which will be funded with the net proceeds of the Financing.

The obligation of Parent and Merger Sub to consummate the Merger is not subject to any financing condition.

Financing Cooperation

Pursuant to the merger agreement, Parent shall use, and shall cause its affiliates to use, reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary to consummate and obtain the debt financing on the terms and conditions (including the market “flex” provisions) not materially less favorable than those set forth in the debt commitment letter. If funds in the amounts, together with cash on hand at Parent necessary to fund the amounts required by the merger agreement to be paid in connection with the consummation of the transactions contemplated by the merger agreement, to repay certain existing indebtedness of Unifrax as required by the terms of the debt commitment letter and to pay all related fees and expenses of Parent (collectively, the “Required Amount”) and on the terms and conditions (including any applicable “market flex” provisions) contemplated in the debt commitment letter become (or are reasonably expected to become) unavailable, and such funds are necessary to pay the Required Amount, Parent shall promptly notify Lydall and Parent shall use its reasonable best efforts to arrange and obtain in replacement thereof, and negotiate and enter into definitive agreements with respect to, alternative financing from the same or alternative sources in an amount (together with all other sources of cash that will be available to the Parent on the closing date of the merger) sufficient to pay the Required Amount with conditions not materially less favorable to Parent (or its affiliates) than the conditions set forth in the debt commitment letter.

In connection with the efforts of Parent to arrange the financing, prior to the closing of the merger, Lydall shall provide (and shall cause its affiliates to provide) to Parent, certain financial information, and shall use its reasonable best efforts to provide, and to cause its subsidiaries and will use its reasonable best efforts to cause its and their representatives to provide, to Parent, in each case at Parent’s sole cost and expense, such other reasonable cooperation as is customary for financings of the type contemplated by the debt commitment letter and reasonably requested by Parent in connection with the arrangement of the debt financing (and taking into account the timing of the marketing period).

No such requested cooperation shall be required if, in Lydall’s reasonable judgment, such cooperation would interfere with the ongoing business or operations of Lydall and any of its subsidiaries. In no event shall Lydall or any of its subsidiaries be required to bear any cost or expense, pay any commitment or other fee, enter into any definitive agreement, incur any other liability or obligation (including the imposition of any lien on any of their respective assets), make any other payment or agree to provide any indemnity in connection with the debt financing or any of the foregoing effective prior to the closing. In addition, nothing in the applicable terms of the merger agreement shall require any action that would (a) conflict with or violate Lydall’s or any of its subsidiaries’ organizational documents or any laws, rules or regulations or result in, prior to the closing, the contravention of, or that would reasonably be expected to result in, prior to the closing, a material violation or breach of, or default under, or require a waiver or amendment of the terms of, any material contract to which Lydall or any of its subsidiaries is a party, (b) require providing access to or providing disclosure of information that could result in the loss of privilege (provided that in such instances Lydall and its subsidiaries shall inform Parent and its debt financing sources of the general nature of the information being withheld and reasonably cooperate with Parent and its debt financing sources to provide such information, in whole or in part, in the manner that would not result in the loss of such privilege), (c) subject any person to any actual or potential personal liability, or (d) subject Lydall or any of its subsidiaries to actual or potential liability, require it to bear any cost or expense or to make any other payment or agree to provide any indemnity in connection with the commitment letters, the definitive documents related to the financing, the financing or any information utilized in connection therewith prior to the closing for which they are not expected to receive reimbursement or indemnity by or on behalf of Parent. For the avoidance of doubt, none of Lydall or its subsidiaries or their respective officers, directors or employees shall be required to execute or enter into or perform any agreement, certificate or other document with respect to the debt financing contemplated by the debt commitment letter (other than customary representation and authorization letters referred to in the merger agreement) that is not contingent upon the closing or that would be

 

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effective prior to the closing and no directors of Lydall or its subsidiaries that will not be continuing directors, acting in such capacity, shall be required to execute or enter into or perform any agreement, or to pass any resolutions or consents, with respect to the debt financing that would be effective prior to the closing. Parent shall, at the closing (or if the closing does not occur on or before the end date, promptly), upon written request by Lydall, reimburse Lydall for all reasonable and documented out-of-pocket costs and expenses (including reasonable and documented (A) attorneys’ fees and (B) fees and expenses of Lydall’s accounting firms engaged to assist in connection with the debt financing) incurred by Lydall or any of its subsidiaries or any of their respective representatives in connection with the debt financing, including the cooperation of Lydall or any of its subsidiaries or any of their respective representatives contemplated by the merger agreement and the compliance by Lydall or any of its subsidiaries or any of their respective representatives with its obligations under the merger agreement, and shall indemnify and hold harmless Lydall, its subsidiaries and their respective representatives from and against any and all losses, damages, claims, costs or expenses suffered or incurred by any of them in connection with the arrangement of the debt financing and any information used in connection therewith, including compliance by Lydall or any of its subsidiaries or any of their respective representatives with its obligations under the merger agreement, except (x) as a result of the bad faith, willful misconduct, gross negligence or material breach of the merger agreement by Lydall or any of its subsidiaries or any of their respective representatives or (y) to the extent arising from any material inaccuracy of any financial information furnished in writing by or on behalf of Lydall or any of its subsidiaries or any of their respective representatives, including financing statements. Nothing contained in the merger agreement or otherwise shall require Lydall or any of its subsidiaries to be an issuer or obligor with respect to the debt financing prior to the closing. Notwithstanding any other provision of the merger agreement, nothing in the merger agreement shall require (or be deemed to require) the delivery of any (1) pro forma financial statements; (2) description of all or any portion of the debt financing, including any “description of notes”, and other information customarily provided by financing sources or their counsel; (3) risk factors relating to all or any component of the debt financing; (4) “segment” financial information and (5) other information required by Rules 3-05 (with respect to acquisitions by the Company), 3-09, 3-10 or 3-16 of Regulation S-X under the Securities Act of 1933 (the “Securities Act”), any Compensation Discussion and Analysis or other information required by Item 402 of Regulation S-K under the Securities Act or any other information customarily excluded from an offering memorandum for private placements of nonconvertible high-yield debt securities under Rule 144A promulgated under the Securities Act.

Equity Commitment Letter

In connection with the financing of the merger, the Investors have delievered the Equity Commitment Letter to Parent, pursuant to which, on the terms and subject to the conditions set forth therein, such funds have committed to capitalize Parent at the closing of the merger in an aggregate amount of  $474 million in cash, in immediately available funds, solely for the purpose of permitting Parent to fund (together with the proceeds of the debt financing, and any cash, marketable securities, available lines of credit or other sources of immediately available funds) payment of, and will in the aggregate be sufficient for Parent to pay the merger consideration (and any repayment, redemption, satisfaction, discharge or refinancing of debt contemplated by, or required in connection with the transactions described in, the merger agreement or the debt commitment letter) and any other amounts required by the merger agreement to be paid in connection with the consummation of the transactions contemplated by the merger agreement and to pay all related fees and expenses of Parent.

Lydall is a third-party beneficiary of the Equity Commitment Letter and solely for the purposes of directly or indirectly specifically enforcing the Investors’ obligations to fund the equity commitment amount if Lydall is entitled to specific performance of the obligations of Parent to effect the closing in accordance with the terms and conditions of the merger agreement. The Equity Commitment Letter may not be amended or modified except by a written instrument signed by the Investors, Parent and Lydall (but for Lydall, only to the extent such amendment or modification would directly or indirectly adversely affect Lydall in its capacity as an express third-party beneficiary of the Equity Commitment Letter).

Limited Guarantee

Pursuant to the Limited Guarantee, the Investors absolutely, unconditionally and irrevocably guarantee to Lydall the payment obligations of Parent or Merger Sub of the reverse termination fee, interest and collection costs, if, when and to the extent such amounts become payable under the terms of the merger agreement (the “guaranteed obligations”).

 

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The guaranteed obligations of the Investors under the Limited Guarantee are subject to an aggregate cap equal to $91.7 million, plus up to $5 million of its costs and expenses (including reasonable attorneys’ fees and expenses) incurred by Lydall in connection with an action or proceeding that results in a judgment that Parent must pay the reverse termination fee.

Subject to specified exceptions, the Limited Guarantee will terminate upon the earliest of:

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the closing of the merger;

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the payment of the guaranteed obligations; and

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the date that is ninety (90) days after the termination of the merger agreement in accordance with its terms, unless prior to such date (i) Lydall shall have delivered a written notice with respect to non-payment of any of the guaranteed obligations, or (ii) Lydall shall have commenced an action or proceeding against the Investors or Parent alleging any of the guaranteed obligations are due and owing.

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Other Covenants

The merger agreement contains other covenants, including those relating to access to information, notices, and employee matters.

Conditions to Completion of the Merger

The obligations of Lydall, Parent and Merger Sub to consummate the merger are subject to the satisfaction of the following conditions:

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Approval and adoption of the merger agreement by an affirmative vote of the holders of a majority of the shares of Lydall common stock outstanding at the close of business on the record date in accordance with Delaware law;

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The absence of any law or order issued by any court of competent jurisdiction or other legal restraint being in effect prohibiting, rendering illegal or enjoining the consummation of the merger whether on a preliminary or permanent basis; and

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Certain specified regulatory approvals having been obtained and remaining in full force and effect (or, in the case of any certain specified regulatory approvals that are statutory waiting periods, having expired or been terminated).

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The obligations of Parent and Merger Sub to consummate the merger are also subject to the satisfaction or waiver at or prior to the effective time of the merger, of each of the following conditions:

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Lydall shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the effective time of the merger agreement;

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Certain of Lydall’s representations and warranties relating to corporate existence and power, corporate authorization, certain representations relating to capitalization of Lydall, and finders’ fees (disregarding all materiality, company material adverse effect or similar qualifications contained therein) shall be true in all material respects at and as of the effective time of the merger agreement as if made at and as of such time (other than representations and warranties that by their terms address matters only as of another specified time, which shall be so true only as of such time);

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Certain of Lydall’s representations and warranties relating to capitalization of Lydall (disregarding all materiality, company material adverse effect or similar qualifications contained therein) shall be true and correct at and as of the effective time of the merger agreement as if made at and as of such time (other than representations and warranties that by their terms address matters only as of another specified time, which shall be so true only as of such time), except where failure to be so true and correct would not reasonably be expected to result in additional cost, expense or liability to Lydall, Parent and their affiliates, individually or in the aggregate, that is more than $2,500,000;

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All other representations and warranties of Lydall set forth in the merger agreement, (disregarding all materiality, company material adverse effect or similar qualifications contained therein) shall be true in all respects at and as of the effective time of the merger agreement as if made at and as of such time (other than

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representations and warranties that by their terms address matters only as of another specified time, which shall be so true only as of such time), with only such exceptions as have not had and would not reasonably be expected to have, individually or in the aggregate, a company material adverse effect;

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Since the date of the merger agreement, there will not have occurred any event, occurrence, fact, condition, change, development or effect that has had or would reasonably be expected to have, individually or in the aggregate, a company material adverse effect; and

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Parent will have received a certificate signed by an executive officer of Lydall dated certifying that the above conditions have been satisfied.

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The obligation of Lydall to consummate the merger is also subject to the satisfaction or waiver at or prior to the effective time of the merger of each of the following conditions:

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Each of Parent and Merger Sub shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the effective time of the merger;

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the representations and warranties of Parent and Merger Sub contained in the merger agreement (disregarding all materiality and parent material adverse effect qualifications contained therein) shall be true in all respects at and as of the effective time of the merger as if made at and as of such time (other than representations and warranties that by their terms address matters only as of another specified time, which shall be so true only as of such time), with only such exceptions as have not had and would not reasonably be expected to have, individually or in the aggregate, a parent material adverse effect; and

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Lydall will have received a certificate signed by an executive officer of Parent certifying that the above conditions have been satisfied.

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Termination of the Merger Agreement

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The merger agreement may be terminated and the merger may be abandoned at any time prior to the effective time of the merger (notwithstanding any approval of the merger agreement by Lydall stockholders):

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by mutual written agreement of Lydall and Parent;

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by either Lydall or Parent if:

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The merger has not been consummated on or before June 21, 2022; provided that this termination right will not be available to any party whose breach (including, in the case of Parent, a breach by Merger Sub) of any provision of the merger agreement has been the primary cause of, or primarily resulted in, the failure to satisfy the conditions to the obligations of the terminating party to consummate the merger by such time;

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There is in effect a permanent injunction or other order issued by a court of competent jurisdiction preventing the consummation of the merger and, if such injunction or other order shall have become final and non-appealable; provided that this termination right will not be available to any party whose breach of any provision of the merger agreement results in the existence of such permanent injunction or order; or

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At the meeting of Lydall stockholders to approve and adopt the merger agreement (including any adjournment or postponement thereof), stockholder approval is not obtained.

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by Parent if:

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An adverse recommendation change has occurred prior to the receipt of the stockholder approval; or

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Lydall has breached any representation or warranty or failed to perform any covenant or agreement on the part of Lydall set forth in the merger agreement that would cause the applicable closing conditions not to be satisfied and to be incapable of being satisfied by the end date, or if curable prior to the end date, Lydall shall not have cured such breach within thirty (30) calendar days after receipt of written notice thereof from the Parent stating the Parent’s intention to terminate the merger agreement pursuant to the terms set forth therein; provided that, at the time at which Parent would otherwise exercise such termination right, neither Parent nor Merger Sub shall be in material breach of its or their obligations under the merger agreement so as to cause any of the closing conditions not to be capable of being satisfied.

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by Lydall if:

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Prior to the receipt of the stockholder approval, the Lydall board of directors authorizes Lydall to enter into a written agreement concerning a superior proposal, subject to compliance with the restrictions on solicitation of acquisition proposals; provided that concurrently with such termination, Lydall pays to Parent the termination fee required to be paid to Parent as described in the section entitled “The Merger Agreement — Termination Fee Payable by Lydall and Reverse Termination Fee Payable by Parent” beginning on page 74 of this proxy statement and enters into the alternative acquisition agreement with respect to such superior proposal;

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Parent or Merger Sub has breached any representation or warranty or failed to perform any covenant or agreement on the part of Parent or Merger Sub set forth in the merger agreement that would cause the closing conditions not to be satisfied, and to be incapable of being satisfied by the end date, or if curable prior to the end date, Parent or Merger Sub shall not have cured such breach within thirty (30) calendar days after receipt of written notice thereof from Lydall stating Lydall’s intention to terminate the merger agreement pursuant to the terms set forth therein; provided that, at the time at which Lydall would otherwise exercise such termination right, Lydall shall not be in material breach of its obligations under this Agreement so as to cause any of the closing conditions not to be capable of being satisfied; or

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(A) all of the conditions to Parent’s and Merger Sub’s obligations to consummate the merger have been satisfied (other than those conditions (x) the failure of which to be satisfied is attributable primarily to or results primarily from a breach by Parent or Merger Sub of its representations, warranties, covenants or agreements under the merger agreement and (y) that by their terms are to be satisfied at the closing of the merger, so long as such actions would then be capable of being satisfied), (B) Parent and Merger Sub have failed to consummate the merger by the time the closing of the merger should have occurred, (C) Lydall has notified Parent in writing that the conditions to the merger have been satisfied or, with respect to Lydall’s conditions, waived (or would be satisfied or waived if the Closing were to occur on the date of such notice) and that it is ready, willing and able to consummate the merger, (D) Lydall has given Parent at least three (3) business days written notice stating its intention to terminate and (E) Parent has failed to consummate the merger within three (3) business days of the delivery of Lydall’s notice of termination.

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Termination Fee Payable by Lydall and Reverse Termination Fee Payable by Parent

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Lydall has agreed to pay Parent a termination fee of  $31.5 million in immediately available funds upon termination of the merger agreement if: