XERIUM TECHNOLOGIES INC (Form: 10-Q, Received: 05/14/2010 16:02:20)

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the Quarterly Period Ended March 31, 2010

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the Transition Period from to

Commission File Number 001-32498

Xerium Technologies, Inc.

(Exact name of registrant as specified in its charter)

DELAWARE

42-1558674

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

8537 Six Forks Road

Suite 300

Raleigh, North Carolina

27615

(Address of principal executive offices)

(Zip Code)

(919) 526-1400

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of May 12, 2010 was 50,982,204.

TABLE OF CONTENTS


			Page

Part I. Financial Information

	Item 1.	Financial Statements	3 - 34

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35 - 57

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58 - 59

	Item 4T.	Controls and Procedures	59

Part II. Other Information

	Item 1.	Legal Proceedings	59 - 60

	Item 1A.	Risk Factors	60

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60

	Item 3.	Defaults Upon Senior Securities	60

	Item 4.	(Removed and Reserved)	60

	Item 5.	Other Information	61

	Item 6.	Exhibits	61

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Condensed Consolidated Balance Sheets—(Unaudited)

(dollars in thousands, except per share data)


	March 31, 2010			December 31, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	21,892		$	23,039
Accounts receivable (net of allowance for doubtful accounts of $6,295 at March 31, 2010 and $7,370 at December 31, 2009)		88,475			83,602
Inventories		75,583			78,174
Prepaid expenses		5,167			5,771
Other current assets		12,542			25,828

Total current assets		203,659			216,414
Property and equipment, net		368,871			385,549
Goodwill		67,165			72,304
Intangible assets		11,511			12,091
Other assets		7,331			7,153

Total assets	$	658,537		$	693,511


LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Notes payable	$	1,124		$	49,801
Accounts payable		30,488			32,124
Accrued expenses		57,061			46,264
Current maturities of long-term debt		1,820			1,826
Long-term debt classified as current		—			583,564

Total current liabilities		90,493			713,579
Liabilities subject to compromise		621,860			—
Long-term debt, net of current maturities and long-term debt classified as current		4,500			4,930
Deferred and long-term taxes		15,222			16,147
Pension, other postretirement and postemployment obligations		67,240			70,652
Other long-term liabilities		7,710			7,860
Commitments and contingencies
Stockholders’ deficit
Preferred stock, $0.01 par value, 1,000,000 shares authorized; no shares outstanding as of March 31, 2010 and December 31, 2009		—			—
Common stock, $0.01 par value, 150,000,000 shares authorized; 50,105,131 and 48,935,720 shares outstanding as of March 31, 2010 and December 31, 2009, respectively		501			489
Paid-in capital		223,505			221,879
Accumulated deficit		(361,065	)		(330,908	)
Accumulated other comprehensive loss		(11,429	)		(11,117	)

Total stockholders’ deficit		(148,488	)		(119,657	)

Total liabilities and stockholders’ deficit	$	658,537		$	693,511

See accompanying notes.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Condensed Consolidated Statements of Operations—(Unaudited)

(dollars in thousands, except per share data)


	Three Months Ended March 31,
	2010			2009

Net sales	$	135,015		$	116,503
Costs and expenses:
Cost of products sold		83,304			72,211
Selling		18,042			16,508
General and administrative		26,850			13,208
Restructuring and impairments		1,567			114
Research and development		2,868			2,720

		132,631			104,761

Income from operations		2,384			11,742
Interest expense		(15,895	)		(16,314	)
Interest income		251			357
Foreign exchange loss		(378	)		(1,341	)

Loss before reorganization items and provision for income taxes		(13,638	)		(5,556	)
Reorganization items		(14,383	)		—
Provision for income taxes		2,136			3,892

Net loss	$	(30,157	)	$	(9,448	)

Net loss per share:
Basic and diluted	$	(0.60	)	$	(0.19	)

Shares used in computing net loss per share:
Basic and diluted		50,040,164			48,863,512

See accompanying notes.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Condensed Consolidated Statements of Cash Flows—(Unaudited)

(dollars in thousands)


	Three Months Ended March 31,
	2010			2009
Operating activities
Net loss	$	(30,157	)	$	(9,448	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation		2,103			161
Depreciation		9,871			9,205
Amortization of intangibles		580			583
Deferred financing cost amortization		1,575			1,536
Unrealized foreign exchange (gain) loss on revaluation of debt		149			(482	)
Deferred taxes		558			633
Loss (gain) on disposition of property and equipment		86			(1,233	)
Noncash interest expense related to interest rate swaps		3,211			398
Provision for doubtful accounts		(799	)		(1,634	)
Non-cash reorganization items		14,283			—
Change in assets and liabilities which provided (used) cash:
Accounts receivable		(6,267	)		16,354
Inventories		541			(1,909	)
Prepaid expenses		499			567
Other current assets		(601	)		(34	)
Accounts payable and accrued expenses		9,946			(21,292	)
Deferred and other long term liabilities		(744	)		(1,247	)

Net cash provided by (used in) operating activities		4,834			(7,842	)

Investing activities
Capital expenditures, gross		(2,513	)		(6,983	)
Proceeds from disposals of property and equipment		57			1,924

Net cash used in investing activities		(2,456	)		(5,059	)

Financing activities
Net increase in borrowings (maturities of 90 days or less)		—			28,000
Net increase in borrowings (maturities of 90 days or longer)		314
Principal payments on debt		(1,273	)		(21,547	)
Other		(2,304	)		—

Net cash (used in) provided by financing activities		(3,263	)		6,453

Effect of exchange rate changes on cash flows		(262	)		(787	)

Net decrease in cash		(1,147	)		(7,235	)
Cash and cash equivalents at beginning of period		23,039			34,733

Cash and cash equivalents at end of period	$	21,892		$	27,498


Supplemental disclosure of cash flow information
Cash reorganization items	$	100		$	—

See accompanying notes.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

1. Company History

Xerium Technologies, Inc. (the “Company”) is a leading global manufacturer and supplier of two types of consumable products used primarily in the production of paper – clothing and roll covers. Operations are strategically located in the major paper-making regions of the world, including North America, Europe, South America and Asia-Pacific.

Chapter 11 Filing

On March 30, 2010 (the “Commencement Date”), the Company and certain of its subsidiaries (the “Debtors”) filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101-1532 (as amended, the “Bankruptcy Code”), in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The chapter 11 cases are being jointly administered under the caption “In re Xerium Technologies, Inc., et al.”, Case No. 10-11031 (KJC). The Company and its subsidiaries that filed for chapter 11 protection continue to operate their businesses and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court, and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. On the Commencement Date, the Company requested, and thereafter the Bankruptcy Court entered, a series of orders designed to minimize any disruption of business operations, including a request for authorization to, among other things, satisfy certain prepetition obligations that may be outstanding, including wages and benefits that may be due to employees, as well as obligations to certain vendors, customers and suppliers. The Bankruptcy Court also entered certain orders permitting the Company to continue, on an uninterrupted basis, its centralized cash management systems and customer service programs.

On the Commencement Date, the Company also sought authorization from the Bankruptcy Court to enter into a debtor-in-possession financing facility consisting of a $20,000 revolving credit facility and $60,000 term loan (the “DIP Facility”). The DIP Facility is intended to be used to pay related transaction costs, fees and expenses associated with the DIP Facility, fund working capital and general corporate purposes of the Company and its subsidiaries during the pendency of the chapter 11 cases, make adequate protection payments approved by the Bankruptcy Court, and fund costs, fees and expenses incurred in connection with the administration and prosecution of the chapter 11 cases. The Bankruptcy Court approved the DIP Facility on an interim basis on March 31, 2010, authorizing the Company to use a portion of the total DIP Facility, and on April 1, 2010, the Company entered into the DIP Facility. On April 28, 2010, the Bankruptcy Court approved the DIP Facility on a final basis, granting the Company access to the full amount of the DIP Facility.

On May 12, 2010, the Bankruptcy Court held a hearing to consider confirmation of the Company’s joint prepackaged plan of reorganization (the “Plan”) and entered an order (the “Confirmation Order”) confirming the Plan. The Company anticipates the Plan to become effective by the end of May 2010 (such date, the “Effective Date”), at which time the Company would emerge from chapter 11. However, the Company can give no assurance as to when, or ultimately if, the Plan will become effective. It is also possible that amendments could be made to the Plan in accordance with the Bankruptcy Code prior to the Plan becoming effective. Pursuant to the Plan, on the Effective Date, the Company expects to enter into an amendment and restatement of its credit facility pursuant to which, among other things, the total outstanding debt obligations under the credit facility, which at March 31, 2010 are $621,316, will be reduced to approximately $410,000. Also on the Effective Date, pursuant to the Plan, the DIP Facility will be converted into an exit facility consisting of a $20,000 revolving credit facility and a $60,000 term loan that will be used to fund the Company’s emergence from chapter 11 and ongoing working capital requirements.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

During the pendency of the chapter 11 cases, the Company may pay all debts and honor all obligations arising in the ordinary course of business after the Commencement Date. However, until the Company emerges from bankruptcy, the Company may not pay creditors on account of obligations arising before the Commencement Date or engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. In addition, directors in certain foreign subsidiaries may be required by local law to initiate insolvency proceedings, and creditors in certain foreign jurisdictions may take action under foreign law to seek available remedies.

Plan of Reorganization

The Plan provides that on the Effective Date:

•

The Company will enter into a revolving loan of up to $20,000 and a term loan of $60,000 (collectively, the “Exit Facility”) to be used to satisfy its outstanding obligations under the DIP Facility on the Effective Date and for its ongoing working capital (including letters of credit) requirements. The terms of the Exit Facility are described below;

•

20 million shares of new common stock will be authorized. All of the Company’s existing common stock will be cancelled and replaced with shares representing 17.4% of the expected newly issued and outstanding shares, which is equivalent to a 20 to 1 reverse split of the Company’s common stock;

•

The Company’s existing credit facility will be amended and restated (the “Amended and Restated Credit Facility”). The terms of the Amended and Restated Credit Facility are described below;

•

The Company’s lenders and the interest rate swap termination counterparties will receive, among other things, their ratable shares of (a) $10,000 in cash, (b) $410,000 in principal amount of term notes, to be issued pursuant to the Amended and Restated Credit Facility, and (c) 82.6% of the shares of new common stock to be issued on the Effective Date prior to dilution;

•

The holders of the Company’s existing common stock will receive (a) approximately 17.4% of the shares of new common stock to be issued on the Effective Date, and (b) warrants to purchase up to 10% of the number of issued and outstanding shares of new common stock as of the Effective Date. The warrants will be exercisable for a term of four years from the issue date, and the exercise price per share of common stock will be determined in accordance with a formula based on the final amount of allowed claims of the lenders under the Amended and Restated Credit Facility and the swap termination counterparties in the chapter 11 proceeding; and

•

The Company’s Board of Directors will be reconstituted, and will consist of seven directors as follows: (i) the Company’s Chief Executive Officer, (ii) one director nominated by the Company’s current Board of Directors, and (iii) five directors nominated by certain of the Company’s lenders.

The Plan also contemplates that the Company will adopt a new equity incentive plan for compensation of its management and a shareholder rights plan. The Company will also enter into registration rights and director nomination agreements with certain of its lenders.

The Plan was confirmed by the Bankruptcy Court on May 12, 2010. On the Effective Date, the provisions of the Plan are binding on the Company and its subsidiaries that filed for chapter 11 protection, any entity issuing securities under the Plan, any entity acquiring property under the Plan, and any creditor or equity interest holder of the Company and its subsidiaries that filed for chapter 11 protection. Also on the Effective Date, the Confirmation Order discharges the Company and its subsidiaries that filed for chapter 11 protection from any and all debts, claims, and interests that arose before entry of the Confirmation Order and substitutes for such debt the obligations specified under the Confirmed Plan.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

Amended and Restated Credit Facility

As discussed above, the Plan provides that the Company will enter into the Amended and Restated Credit Facility on the Effective Date that will replace its existing credit facility. The Amended and Restated Credit Facility provides for a term loan that has a principal amount of $410,000, and that matures on a date that is five years following the closing date of the Amended and Restated Credit Facility. The Amended and Restated Credit Facility will be secured by substantially all of the Company’s assets and the assets of most of its subsidiaries, subject to legal and tax considerations and requirements. In addition, most of the Company’s U.S. and non-U.S. subsidiaries will guarantee the obligations of the borrowers under the Amended and Restated Credit Facility, provided that non-U.S. guarantors will only be liable for obligations of non-U.S borrowers and non-U.S. guarantors.

Borrowings under the Amended and Restated Credit Facility term loans will bear interest as follows:

•

in the case of Xerium Canada Inc., at the BA (“bank accepted”) Rate plus (i) 6.25% if the leverage ratio equals or exceeds 2.75:1.00 or (ii) 5.75% if the leverage ratio is less than 2.75:1.00;

•

in the case of Xerium Technologies, Inc., the LIBOR Rate plus (i) 6.25% if the leverage ratio equals or exceeds 2.75:1.00 or (ii) 5.75% if the leverage ratio is less than 2.75:1.00; and

•

in the case of XTI LLC, Xerium Italia S.p.A., Huyck Wangner Austria GmbH and Xerium Germany Holding GmbH, at the Euribor Rate plus (i) 6.25% if the leverage ratio equals or exceeds 2.75:1.00 or (ii) 5.75 % if the leverage ratio is less than 2.75:1.00.

The terms “BA Rate,” “LIBOR Rate,” and “Euribor Rate” have the same meanings as set forth in the Company’s existing credit facility except that the BA Rate, the LIBOR Rate and the Euribor Rate shall not be less than 2.00% per annum. Interest periods will be 1, 2, 3 or 6 months. If any event of default occurs and is continuing, then interest on the unpaid balance of the outstanding term loans will accrue at a per annum rate of two percent greater than the rate of interest specified above.

The Amended and Restated Credit Facility requires the Company to make mandatory prepayments under the following circumstances:

(a) with 100% of the net cash proceeds received by us from any sale of any assets exceeding $100 outside the ordinary course of business (subject to certain exceptions regarding discontinued manufacturing facilities and exempting the first $250);

(b) with 100% of insurance and condemnation award payments, subject to certain exemptions;

(d) with 50% of its excess cash after the end of each fiscal year; that is, Adjusted EBITDA minus consolidated interest expense, cash income tax expense, consolidated capital expenditures (subject to certain exceptions), consolidated restructuring costs, cash payments of withholding taxes from proceeds of the repurchase, redemption or retention of common stock and the aggregate amount of scheduled and voluntary payments made during the past fiscal year.

The Amended and Restated Credit Facility will require that the Company observe and perform numerous affirmative and negative covenants, which will be based on the covenants set forth in its existing credit facility. The Amended and Restated Credit Facility will also require that the Company observe the following financial covenants, each at levels to be agreed upon: interest coverage ratio measured quarterly for a rolling 12 month period, leverage ratio measured quarterly for a rolling 12 month period, and maximum capital expenditures each year.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

Exit Facility

As discussed above, the Plan provides that the Company will enter into the Exit Facility on the Effective Date to be used to satisfy its outstanding obligations under the DIP Facility on the Effective Date and for its ongoing working capital (including letters of credit) requirements. The Exit Facility provides for a $20,000 revolving loan and a term loan that has a principal amount of $60,000. The revolving credit facility will mature on a date that is three years following the closing date of the Exit Facility, and the term loans will mature on a date that is four and one-half years following the closing date. The Exit Facility will be secured by substantially all of the Company’s assets and the assets of most of its subsidiaries, subject to legal and tax considerations and requirements. All loans under the Exit Facility will be senior to the amounts owing under the Amended and Restated Credit Facility. In addition, most of the Company’s U.S. and non-U.S. subsidiaries will guarantee the obligations of the borrowers under the Exit Facility, provided that non-U.S. guarantors will only be liable for obligations of non-U.S borrowers and non-U.S. guarantors.

The Company will be able to elect whether the loans under the Exit Facility are “Eurodollar Loans” or are “Base Rate Loans”, and this election will determine the rate of interest on the loans. If the loans are Eurodollar Loans, the loans bear interest at the annual rate equal to LIBOR plus the applicable margin, with a LIBOR floor of 2% per annum. Base Rate Loans bear interest at the annual rate equal to the base rate plus the applicable margin. The applicable margin is set at 4.5% per year with respect to Eurodollar Loans and 3.5% per year with respect to Base Rate Loans. The base rate is a fluctuating interest rate equal to the highest of (a) the prime rate of an agreed upon financial institution, (b) the Federal Funds Effective Rate plus one-half of 1%, and (c) LIBOR plus 1%, with a LIBOR floor of 2%.

Interest periods will be 1, 2, 3 or 6 months. If any event of default occurs and is continuing, then interest on the unpaid balance of the outstanding Exit Facility loans will accrue at a per annum rate of two percent greater than the rate of interest specified above. If any event of default occurs and is continuing under the Exit Facility, each Eurodollar Loan will convert to a Base Rate Loan at the end of the interest period then in effect for such Eurodollar Loan.

The Exit Facility will require the Company to make mandatory prepayments under the same circumstances as with respect to the Amended and Restated Credit Facility, which are described above. In addition, the Company expects that the Exit Facility will require that the Company observe and perform the same affirmative and negative covenants, including financial covenants, as required by the Amended and Restated Credit Facility.

Accounting for Reorganization

Subsequent to the Commencement Date, the Company’s financial statements are prepared in accordance with the Accounting Standards Codification (“ASC”) Topic 852, Reorganizations (“Topic 852”). Topic 852 does not change the application of generally accepted accounting principles (“U.S. GAAP”) in the preparation of the Company’s financial statements. However, for periods including and subsequent to the filing of a chapter 11 petition, Topic 852 does require that the financial statements distinguish transactions and events that are directly associated with the reorganization from those that are associated with the ongoing operations of the business. In accordance with Topic 852 the Company has:

•

Separated liabilities that are subject to compromise from liabilities that are not subject to compromise; and

•

Distinguished transactions and events that are directly associated with the reorganization from those that are associated with the ongoing operations of the business.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

Liabilities Subject to Compromise

Liabilities subject to compromise are considered by the Bankruptcy Court to be pre-petition claims. However, liabilities subject to compromise exclude pre-petition claims for which the Company has received the Bankruptcy Court’s approval to pay.

Liabilities subject to compromise are as follows at March 31, 2010:


Debt under senior credit facility and notes payable for terminated interest rate swaps	$	621,316
Lease costs for office facility in the U.S.		544


	$	621,860

Reorganization Items

Reorganization items are presented separately in the accompanying unaudited consolidated statement of operations and represent expenses that the Company has identified as directly relating to the chapter 11 case. These items for the three months ended March 31, 2010 are summarized as follows:


Legal and professional fees	$	100
Write-off of deferred financing costs on senior credit facility		14,283


	$	14,383

The accompanying balance sheet as of December 31, 2009 included a reclassification of $583,564 to reflect as current the long-term debt under the Credit Agreement that would otherwise be in default absent the waivers. Additionally, related deferred financing costs of $15,187 were reclassified to other current assets from other assets as of December 31, 2009. As a result of the chapter 11 proceedings commenced on March 30, 2010, the long-term debt under the Credit agreement of $573,489 was reclassified to liabilities subject to compromise and all related deferred financing costs of $14,283 were written off at March 30, 2010 to reorganization items on the accompanying statement of operations. Also included in liabilities subject to compromise were the $28,100 outstanding under the Company’s current revolving lines of credit and $19,727 of notes payable related to interest rate swaps that were terminated at December 31, 2009 (see Note 4).

Debtors-In-Possession Financial Information

In accordance with Topic 852, the balance sheet at March 31, 2010 and the statement of operations and statement of cash flows of the Debtors for the three months ended March 31, 2010 are presented below. Intercompany balances between Debtors and non-Debtors are not eliminated. The investment in non-Debtor subsidiaries is accounted for on an equity basis and, accordingly, the net loss reported in the debtor in possession statement of operations is equal to the consolidated net loss.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

Debtors’ Condensed Combined Balance Sheet—(Unaudited)

(dollars in thousands )


	March 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	7,462
Accounts receivable		36,924
Intercompany balances with non-Debtor subsidiaries		12,701
Inventories		38,944
Prepaid expenses		2,580
Other current assets		2,753

Total current assets		101,364
Investments in non-Debtor subsidiaries		240,692
Property and equipment, net		147,741
Goodwill		49,601
Intangible assets		10,859
Other assets		34

Total assets	$	550,291


LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Notes payable	$	—
Accounts payable		15,276
Accrued expenses		25,948
Dividends payable		3,104
Current maturities of long-term debt		—
Long-term debt classified as current		—

Total current liabilities		44,328
Liabilities subject to compromise		621,860
Long-term debt, net of current maturities and long-term debt classified as current		1,985
Deferred and long-term taxes		4,785
Pension, other postretirement and postemployment obligations		25,821
Other long-term liabilities		—
Total stockholders’ deficit		(148,488	)

Total liabilities and stockholders’ deficit	$	550,291

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

Debtors’ Condensed Combined Statement of Operations – (Unaudited)

(dollars in thousands)


For the Three Months Ended March 31, 2010

Net sales
External customers	$	66,423
Non-Debtor subsidiaries		4,824

		71,247

Costs and expenses:
Cost of products sold		45,588
Selling		8,751
General and administrative		18,319
Restructuring and impairments		827
Research and development		2,351

		75,836

Loss from operations		(4,589	)
Interest expense, net		(14,185	)
Foreign exchange loss		(111	)
Equity in earnings of non-Debtor subsidiaries		3,679

Loss before reorganization items and provision for income taxes		(15,206	)
Reorganization items		(14,383	)
Provision for income taxes		568

Net loss	$	(30,157	)

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

Debtors’ Condensed Combined Statements of Cash Flow—(Unaudited)

(dollars in thousands)


For the Three Months Ended March 31, 2010

Operating activities
Net loss	$	(30,157	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		2,103
Depreciation		4,333
Amortization of intangibles		553
Deferred financing cost amortization		1,575
Deferred taxes		377
Gain on disposition of property and equipment		(44	)
Change in the fair value of interest rate swaps		3,211
Provision for doubtful accounts		(637	)
Non-cash reorganization items		14,283
Equity in earnings of non-Debtor subsidiaries, net of dividends		(3,143	)
Change in assets and liabilities which provided (used) cash:
Accounts receivable		(3,168	)
Inventories		365
Prepaid expenses		639
Other current assets		(465	)
Accounts payable and accrued expenses		6,535
Deferred and other long-term liabilities		(563	)

Net cash used in operating activities		(4,203	)

Investing activities
Capital expenditures, gross		(826	)
Proceeds from disposals of property and equipment		(14	)

Net cash used in investing activities		(840	)

Financing activities
Net increase in borrowings (maturities of 90 days or less)		314
Principal payments on debt		(89	)
Borrowings under loans with non-Debtor subsidiaries		3,066
Cash dividends from non-Debtor subsidiaries		2,993
Other		(2,304	)

Net cash provided by financing activities		3,980

Effect of exchange rate changes on cash flows		(12	)

Net decrease in cash		(1,075	)
Cash and cash equivalents at beginning of period		8,537

Cash and cash equivalents at end of period	$	7,462


Supplemental disclosure of cash flow information
Cash reorganization items	$	100

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

2. Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements at March 31, 2010 and for the three months ended March 31, 2010 and 2009 include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in conformity with U.S. GAAP for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, such financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. The interim results presented herein are not necessarily indicative of the results to be expected for the entire year. In management’s opinion, these unaudited condensed consolidated interim financial statements contain all adjustments of a normal recurring nature necessary for a fair presentation of the financial statements for the interim periods presented. These unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2009 as reported on Form 10-K filed on March 26, 2010.

3. Accounting Policies

Derivatives and Hedging

As required by ASC Topic 815 Derivatives and Hedging (“Topic 815”), the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.

The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting under Topic 815.

Goodwill

The Company accounts for goodwill and other intangible assets in accordance with ASC Topic 350, Intangibles—Goodwill and Other Intangible Assets (“Topic 350”). Topic 350 requires that goodwill and intangible assets that have indefinite lives not be amortized but, instead, must be tested at least annually for impairment or whenever events or business conditions warrant. Goodwill impairment testing is a two-step process. Step 1 involves comparing the fair value of the Company’s reporting unit to its carrying amount. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit carrying amount is greater than the fair value then the second step must be completed to measure the amount of impairment, if any. Step 2 calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in Step 1. The implied fair value of goodwill determined in this step is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is recognized equal to the difference.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

3. Accounting Policies—(continued)

The Company performs an annual test for goodwill impairment as of December 31st at the business segment level. The Company has two business segments: clothing and roll covers. For the purpose of performing the annual impairment test, the Company allocates all shared assets and liabilities to the business segments based on the percentage of each segment’s revenue to total revenue. Shared operating expenses are allocated to the business segments to the extent necessary to allow them to operate as independent businesses. To determine if impairment exists, the fair value of each business segment is compared to its carrying value. The fair value of the Company’s segments was determined by using a weighted combination of both a market multiple approach and an income approach. The market multiple approach utilizes the Company’s proprietary information that is used to value its business segments. The income approach is a present value technique used to measure the fair value of future cash flows produced by each business segment.

Applying the guidance of Topic 350, the Company determined that as of December 31, 2009, goodwill for the roll covers segment was impaired primarily due to the adverse effect of the Company’s credit issues and the effects of the current global economic environment. Step 1 of the process indicated that the fair value of the net assets of the roll covers segment was $3,700 less than their carrying value as of December 31, 2009. Based on the Step 1 result, the Company proceeded with Step 2. Based on the increase in fair value of tangible and intangible assets over book value of $77,000 as determined in Step 2, an aggregate impairment of $80,600 was recorded. To date, there have been no indicators of impairment or recorded goodwill impairment for the Company’s clothing segment.

During the first quarter of 2010, the Company evaluated events and business conditions to determine if a test for an impairment of goodwill was warranted, specifically the Company’s filing of voluntary petitions for relief under chapter 11 of the Bankruptcy Code on March 30, 2010. The adverse effects of the Company’s credit issues were considered when determining the amount of the Company’s impairment of goodwill recorded at December 31, 2009. Accordingly, no test was determined to be warranted at March 31, 2010.

Net Loss Per Common Share

Net loss per common share has been computed and presented pursuant to the provisions of ASC Topic 260, Earnings per Share (“Topic 260”). Net loss per share is based on the weighted-average number of shares outstanding during the period. As of March 31, 2010 and 2009, the Company had outstanding restricted stock units (“RSUs”) (see Note 13). For the three months ended March 31, 2010 and 2009, respectively, the Company excluded the dilutive impact of potential future issuances of common stock underlying the Company’s RSUs from the calculation of diluted average shares outstanding because their effect would have been antidilutive as the Company had net losses for those periods.

The following table sets forth the computation of basic and diluted earnings weighted average shares:


	Three Months Ended March 31, 2010	Three Months Ended March 31, 2009
Weighted-average common shares outstanding—basic	50,040,164	48,863,512
Dilutive effect of stock-based compensation awards outstanding	—	—

Weighted-average common shares outstanding—diluted	50,040,164	48,863,512

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

3. Accounting Policies—(continued)

New Accounting Standards

In June 2009, the Financial Accounting Standards Board (“FASB”) issued guidance, in ASC Topic 810, Consolidation (“Topic 810”), which amends the consolidation guidance applicable to variable interest entities. The amendments will significantly affect the overall consolidation analysis under FASB Interpretation No. 46(R) and are effective as of the beginning of the first fiscal year that begins after November 15, 2009. The adoption of these amendments under Topic 810 in the first quarter of 2010 had no impact on the Company’s consolidated financial statements for the period.

In June 2009, the FASB issued, in ASC Topic 860, Transfers and Servicing (“Topic 860”), guidance that is intended to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. These provisions of Topic 860 must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The adoption of these provisions of Topic 860 in the first quarter of 2010 had no impact on the Company’s consolidated financial statements for the period.

4. Derivatives and Hedging

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known cash amounts, the value of which are determined by interest rates or foreign exchange rates. Specifically, the Company had entered into interest rate swaps to hedge variable interest related to its senior debt and foreign exchange contracts to protect the U.S. dollar value of certain assets and obligations. On December 31, 2009, the Company terminated with the counterparties all of its outstanding interest rate swap liabilities of $20,036 and converted them into notes payable to such counterparties. No new interest rate swaps have been entered into by the Company since December 31, 2009.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives were to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily used interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involved the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

4. Derivatives and Hedging—(continued)

As disclosed in previous filings, the Company anticipated that it would not be in compliance with certain financial covenants under its senior credit facility for the period ending September 30, 2009 and thus, on September 29, 2009, the Company entered into Waiver and Amendment No. 1 (the “Waiver Agreement”) to the Credit Agreement. As of September 30, 2009 (and as of December 31, 2009), the Company was not in compliance with those covenants. As it was uncertain that the Company would be able to complete any alternative, long-term solutions to its credit issues or to obtain a further waiver prior to expiration of the Waiver Agreement, the Company was no longer able to support that the variable-rate interest payments (hedged transactions) under its senior credit facility were probable of occurring. Therefore, effective September 1, 2009, the Company was required to discontinue cash flow hedge accounting prospectively for its interest rate swaps so that the mark to market changes in their fair value are charged or credited to interest expense. Prior to September 1, 2009, the effective portion of changes in the fair value of derivatives designated and that qualified as cash flow hedges were recorded in accumulated other comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged forecasted transaction affected earnings. The ineffective portion of the change in fair value of the derivatives was recognized directly in earnings. The balance in accumulated other comprehensive loss as of August 31, 2009 related to the interest rate swaps for which hedge accounting was to be subsequently reclassified into the statement of operations (interest expense) over the remaining original term of the derivative as the hedged forecasted transactions are also recorded to interest expense, in accordance with ASC Topic 815. In addition, as of March 31, 2010, the Company determined that it is probable that future interest payments on the debt that is in excess of the $410,000 (discussed in Note 1) will not occur. As a result, the Company reclassified $735 from accumulated other comprehensive income to interest expense, which represents the balance in accumulated other comprehensive income relating to interest payments on the debt that is in excess of $410,000. As of March 31, 2010, after this reclassification, the remaining balance in accumulated other comprehensive loss related to interest rate swaps was $6,634, which will be amortized to interest expense through December 31, 2010, the original term of the swaps. If the Company is not able to restructure its debt obligations in a manner that is consistent with the hedged forecasted transactions or if the lenders accelerate the debt under the senior credit facility so that it is payable prior to the expiration of the underlying interest rate swaps, this amount would be charged to the statement of operations at that time. Although the Company was not declared in default of such obligations, on December 31, 2009, the Company terminated with the counterparties all of its outstanding interest rate swap liabilities of $20,036 and converted them into notes payable to such counterparties.

Although these interest rate swaps were subject to mark to market accounting through earnings effective September 1, 2009, prior to their termination with the counterparties as discussed above, they effectively fixed, from a cash flow hedge perspective, the interest rate on approximately 79% of the term loan portion of the Company’s credit facility through December 31, 2010 at 10.75%. As a result of the termination of the interest rate swaps, the interest rate on the term loan portion of the credit facility is no longer effectively fixed through December 31, 2010, the original term of the swaps.

Non-designated Hedges of Foreign Exchange Risk

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to foreign exchange rates but do not meet the strict hedge accounting requirements of Topic 815. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly to earnings.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

4. Derivatives and Hedging—(continued)

The Company, from time to time, enters into foreign exchange forward contracts to fix currencies at specified rates based on expected future cash flows to protect against the fluctuations in cash flows resulting from sales denominated in foreign currency (cash flow hedges). Additionally, to manage its exposure to fluctuations in foreign currency on intercompany balances and certain purchase commitments, the Company uses foreign exchange forward contracts (fair value hedges).

As of March 31, 2010, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships. The value of these contracts is recognized at fair value based on market exchange forward rates. The change in fair value of these contracts is included in foreign exchange gain/(loss) in the statement of operations.


Foreign Currency Derivative	Notional Sold			Notional Purchased
Fair value hedges	$	(336	)	$	—

Credit-risk-related Contingent Features

The Company had agreements with certain of its derivative counterparties that contained a provision where if the Company either defaults in payment obligations under its credit facility or if such obligations are accelerated by the lenders, then the Company could also be declared in default on its derivative obligations. Although the Company was not declared in default of such obligations, as discussed above, on December 31, 2009 the Company terminated with the counterparties all of its outstanding interest rate swap liabilities of $20,036 and converted them into notes payable to such counterparties.

As of March 31, 2010, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $20. The Company has not posted any collateral related to these derivative agreements.

Due to reduced credit limits at some of its banks, the Company has entered into fewer foreign currency hedging arrangements and may not be able to enter into as many hedging arrangements in the future and, as previously discussed, the Company terminated its outstanding interest rate swaps at December 31, 2009. Consequently, the Company’s financial statements are more exposed to the effects of currency and interest rate fluctuations, respectively, both favorable and unfavorable, which could have a material impact on its results of operations.

The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheet as of March 31, 2010 and December 31, 2009, respectively.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

4. Derivatives and Hedging—(continued)

Tabular Disclosure of Fair Values of Derivative Instruments


	Asset Derivatives As of March 31, 2010			Liability Derivatives As of March 31, 2010
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments under Topic 815
Interest Rate Swaps	Other current assets	$	—	Accrued expenses	$	—

Total derivatives designated as hedging instruments under Topic 815		$	—		$	—

Derivatives not designated as hedging instruments under Topic 815
Interest Rate Swaps	Other current assets	$	—	Accrued expenses	$	—
Foreign Currency Hedges	Other current assets	$	—	Accrued expenses	$	20

Total derivatives not designated as hedging instruments under Topic 815		$	—		$	20

Tabular Disclosure of Fair Values of Derivative Instruments


	Asset Derivatives As of December 31, 2009			Liability Derivatives As of December 31, 2009
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments under Topic 815
Interest Rate Swaps	Other current assets	$	—	Accrued expenses	$	—

Total derivatives designated as hedging instruments under Topic 815		$	—		$	—

Derivatives not designated as hedging instruments under Topic 815
Interest Rate Swaps	Other current assets	$	—	Accrued expenses	$	—
Foreign Currency Hedges	Other current assets	$	5	Accrued expenses	$	47

Total derivatives not designated as hedging instruments under Topic 815		$	5		$	47

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

4. Derivatives and Hedging—(continued)

The tables below present the effect of the Company’s derivative financial instruments on the consolidated statements of operations for three months ended March 31, 2010 and 2009.

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of

Operations For the Three Months Ended March 31, 2010

Derivatives in Topic

815 Cash Flow

Hedging Relationships

Amount of
Gain or
(Loss)
Recognized
in OCI on
Derivative
(Effective
Portion), net
of tax

Location of Gain
or (Loss)
Reclassified from
Accumulated
OCI into Income
(Effective
Portion)

Amount of Gain
or (Loss)
Reclassified from
Accumulated
OCI into Income
(Effective
Portion), net of
tax

Location of Gain
or (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)

Amount of
Gain or
(Loss)
Recognized
in Income on
Derivative
(Ineffective
Portion and
Amount
Excluded
from
Effectiveness
Testing)

Interest Rate Swaps (1)

—

Interest expense

—

Interest expense

—


Derivatives Not Designated as Hedging Instruments Under Topic 815	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
Interest Rate Swaps (1)	Interest Expense	$	(3,211	)
Foreign Currency Hedges	Foreign exchange loss		(22	)

		$	(3,233	)

(1)	The Company’s interest rate swaps were considered designated hedging instruments through August 31, 2009. As discussed above, effective September 1, 2009, the interest rate swaps were no longer designated hedging instruments.

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of

Operations For the Three Months Ended March 31, 2009

Derivatives in Topic

815 Cash Flow

Hedging Relationships

Amount of
Gain or
(Loss)
Recognized
in OCI on
Derivative
(Effective
Portion), net
of tax

Location of Gain
or (Loss)
Reclassified from
Accumulated
OCI into Income
(Effective
Portion)

Amount of Gain
or (Loss)
Reclassified from
Accumulated
OCI into Income
(Effective
Portion), net of
tax

Location of Gain
or (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)

Amount of
Gain or
(Loss)
Recognized
in Income on
Derivative
(Ineffective
Portion and
Amount
Excluded
from
Effectiveness
Testing)

Interest Rate Swaps

(3,156

)

Interest expense

2,803

Interest expense

(398

)

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

4. Derivatives and Hedging—(continued)

Fair Value of Derivatives Under Topic 820

Topic 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, Topic 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

To comply with Topic 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2010 and December 31, 2009, respectively, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy. The Company does not have any fair value measurements using significant unobservable inputs (Level 3) as of March 31, 2010 or December 31, 2009. The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2010 and December 31, 2009, aggregated by the level in the fair value hierarchy within which those measurements fall.

As of March 31, 2010


Assets	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observables Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Derivatives	$	—		$	—	$	—		$	—

Total	$	—		$	—	$	—		$	—

Liabilities
Derivatives	$	(20	)	$	—	$	(20	)	$	—

Total	$	(20	)	$	—	$	(20	)	$	—

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

4. Derivatives and Hedging—(continued)

As of December 31, 2009


Assets	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observables Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Derivatives	$	5		$	—	$	5		$	—

Total	$	5		$	—	$	5		$	—


Liabilities
Derivatives	$	(47	)	$	—	$	(47	)	$	—

Total	$	(47	)	$	—	$	(47	)	$	—

Additionally, as of March 31, 2010 and December 31, 2009, the carrying value of the term debt under the Company’s senior credit facility is $573,489 and $583,564, respectively and exceeds its fair value of approximately $504,000 and $485,000, respectively. The Company determined the fair value of its debt utilizing quoted prices in active markets for its own debt (Level 1 of the fair value hierarchy).

5. Inventories

The components of inventories are as follows at:


	March 31, 2010		December 31, 2009
Raw materials	$	17,436	$	17,466
Work in process		25,332		26,811
Finished units (1)		32,815		33,897

	$	75,583	$	78,174

(1)	Includes inventory consigned to customers of $10,537 and $10,701 at March 31, 2010 and December 31, 2009, respectively.

6. Debt

As discussed in Note 1, the Company and certain of its subsidiaries filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code on the Commencement Date, March 30, 2010. On May 12, 2010, the Bankruptcy Court held a hearing to consider confirmation of the Plan, and entered the Confirmation Order confirming the Plan. The Company anticipates the Plan to become effective by the end of May 2010 (the “Effective Date”), at which time the Company would emerge from chapter 11. Pursuant to the Plan, on the Effective Date, the Company expects to enter into an amendment and restatement of its senior credit facility pursuant to which, among other things, the total outstanding debt obligations under the senior credit facility, which at March 31, 2010 are $621,316, will be reduced to approximately $410,000. Also on the Effective Date, pursuant to the Plan, the DIP Facility will be converted into an exit facility consisting of a $20,000 revolving credit facility and a $60,000 term loan that will be used to fund the Company’s emergence from chapter 11 and ongoing working capital requirements.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

6. Debt—(continued)

Borrowings under the existing revolving credit facility and the existing term loans bear interest at the sum of, as applicable, LIBOR, the Euribor or CDOR rate plus, in each case, the applicable margin of 5.50%, except that during the period between September 29, 2009, the date the Company entered into Waiver and Amendment No. 1 (the “Waiver Agreement”) to the Credit Agreement, and the Effective Date of the Amended and Restated Credit Facility, the outstanding balance under the credit facility is subject to interest at a rate that is 1.0% per year in excess of this rate. Additionally, as a result of the Company’s termination of its interest rate swaps on December 31, 2009 (see Note 4), the interest rate on the term loan portion of the credit facility is no longer effectively fixed through December 31, 2010, the original term of the swaps.

The Company did not make its scheduled quarterly debt payments for the first quarter of 2010 of approximately $6,700. The Company made its scheduled quarterly debt payments of approximately $4,700 during the first quarter of 2009. In March 2009, the Company also made mandatory debt repayments of approximately $16,100 based on the difference between its “pre-dividend free cash flow”, as defined in its credit facility agreement, and cash dividends paid in the prior year, multiplied by the applicable percentage.

7. Income Taxes

The Company utilizes the asset and liability method for accounting for income taxes in accordance with ASC Topic 740 , Income Taxes (“Topic 740”). Under Topic 740, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company reduces the deferred tax assets by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Information evaluated includes the Company’s financial position and results of operations for the current and preceding years as well as an evaluation of currently available information about future years. Because of the Company’s accumulated loss position and the uncertainty around the future profitability in certain tax jurisdictions, on March 31, 2010 the Company has valuation allowances for deferred tax assets primarily related to net operating loss carry forwards in the United States, the United Kingdom, Canada, Germany, Sweden and Australia.

For the three months ended March 31, 2010 and 2009, the provision for income taxes was $2,136 and $3,892, respectively. There is no tax benefit reflected in the first quarter of 2010 and 2009 due to losses incurred in certain of our foreign subsidiaries and those in the U.S. for which no benefit was received due to established valuation allowances.

As of December 31, 2009, the Company had a gross unrecognized tax benefit of $5,023. During the first quarter of 2010, the unrecognized tax benefit decreased by approximately $27 due to foreign currency effects and statute expirations.

The Company’s policy is to recognize interest and penalties related to income tax matters as income tax expense, which were immaterial for the three months ended March 31, 2010 and 2009. The tax years 2000 through 2009 remain open to examination by the major taxing jurisdictions to which the Company and its subsidiaries are subject.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

8. Pensions, Other Postretirement and Postemployment Benefits

The Company accounts for its pension, postretirement and postemployment benefit plans in accordance with ASC Topic 715, Compensation—Retirement Benefits (“Topic 715”)

The Company has defined benefit pension plans covering substantially all of its U.S. and Canadian employees and employees of certain subsidiaries in other countries. Benefits are generally based on the employee’s years of service and compensation. These plans are funded in conformity with the funding requirements of applicable government regulations.

The Company has postemployment plans in various countries which consist primarily of payments to be made to employees upon termination of employment, as defined, and are accrued according to local statutory laws in the respective countries.

The Company also sponsors various unfunded defined contribution plans that provide for retirement benefits to employees, some in accordance with local government requirements.

The Company also maintains a funded retirement savings plan for U.S. employees which is qualified under Section 401(k) of the U.S. Internal Revenue Code. During 2008, the plan allowed eligible employees to contribute up to 15% of their compensation (plus catch-up contributions for participants over age 50), with the Company matching 100% of up to the first 4% of employee compensation. The Company suspended the matching contribution in February 2009 but for 2010 removed the suspension and enhanced the match to 200% of the first 1% of employee compensation and 100% of the next 4% of employee compensation.

As required by Topic 715, the following tables summarize the components of net periodic benefit cost:


	Three Months Ended
Defined Benefit Plans	March 31, 2010			March 31, 2009
Service cost	$	962		$	709
Interest cost		1,710			1,479
Expected return on plan assets		(1,005	)		(759	)
Amortization of prior service cost		4			21
Amortization of net loss		183			245

Net periodic benefit cost	$	1,854		$	1,695


	Three Months Ended
Other Postretirement Benefit Plans	March 31, 2010			March 31, 2009
Service cost	$	—		$	—
Interest cost		7			9
Amortization of prior service cost		—			—
Amortization of net loss		(2	)		(1	)

Net periodic benefit cost	$	5		$	8

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

9. Comprehensive Loss and Accumulated Other Comprehensive Loss

Comprehensive loss for the periods ended March 31, 2010 and 2009 was as follows:


	Three Months Ended
	March 31, 2010			March 31, 2009
Net loss	$	(30,157	)	$	(9,448	)
Foreign currency translation adjustments		(4,072	)		(2,451	)
Pension liability changes under Topic 715		425			69
Change in value of derivative instruments		3,335			(49	)

Comprehensive loss	$	(30,469	)	$	(11,879	)

The components of accumulated other comprehensive loss were as follows:


	Foreign Currency Translation Adjustment			Pension Liability Changes Under Topic 715			Change in Value of Derivative Instruments			Accumulated Other Comprehensive Loss
Balance at December 31, 2009	$	22,379		$	(23,775	)	$	(9,721	)	$	(11,117	)
Current period change, net of tax		(4,072	)		425			3,335			(312	)

Balance at March 31, 2010	$	18,307		$	(23,350	)	$	(6,386	)	$	(11,429	)

10. Restructuring and Impairments Expense

Restructuring and impairments expense included in the Company’s income statements are the result of its long-term strategy to reduce production costs and improve long-term competitiveness. Restructuring and impairments expense consists principally of severance costs related to reductions in work force and of facility costs and impairments of assets principally related to closing facilities and/or shifting production from one facility to another. Facility costs are principally comprised of costs to relocate assets to the Company’s other facilities, operating lease termination costs and other associated costs.

During the first quarter of 2010, the Company continued its program of streamlining its operating structure and recorded restructuring expenses of $1,567 in connection therewith. The Company expects to incur restructuring expenses of approximately $13,000 during the remainder of 2010, primarily related to headcount reductions resulting from the integration of the regional management structure in North America and similar actions in Europe.

The table below sets forth for the three months ended March 31, 2010, the significant components and activity under restructuring programs and asset impairments:


	Balance at December 31, 2009		Charges		Write-offs		Currency Effects			Cash Payments			Balance at March 31, 2010
Severance	$	536	$	1,249	$	—	$	—		$	(731	)	$	1,054
Facility costs and other		1,478		318		—		(51	)		(324	)		1,421

Total	$	2,014	$	1,567	$	—	$	(51	)	$	(1,055	)	$	2,475

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

10. Restructuring and Impairments Expense—(continued)

Restructuring and impairments expense by segment, which is not included in Segment Earnings (Loss) in Note 11, is as follows:


	For the Three Months Ended
	March 31, 2010		March 31, 2009
Clothing	$	80	$	69
Roll Covers		898		(629	)
Corporate		589		674

Total	$	1,567	$	114

11. Business Segment Information

The Company is a global manufacturer and supplier of consumable products used primarily in the production of paper, and is organized into two reportable segments: Clothing and Roll Covers. The Clothing segment represents the manufacture and sale of synthetic textile belts used to transport paper along the length of papermaking machines. The Roll Covers segment primarily represents the manufacture and refurbishment of covers used on the steel rolls of papermaking machines. The Company manages each of these operating segments separately.

Management evaluates segment performance based on earnings before interest, taxes, depreciation and amortization and before allocation of corporate charges. Such measure is then adjusted to exclude items that are of an unusual nature and are not used in measuring segment performance or are not segment specific (“Segment Earnings (Loss)”). The accounting policies of these segments are the same as those for the Company as a whole. Inter-segment net sales and inter-segment eliminations are not material for any of the periods presented.

Summarized financial information for the Company’s reportable segments is presented in the tables that follow for the three months ended March 31, 2010 and 2009, respectively.


	Clothing		Roll Covers		Corporate			Total

Three Months Ended March 31, 2010:
Net sales	$	88,596	$	46,419	$	—		$	135,015
Segment Earnings (Loss)		19,409		10,842		(4,375	)

Three Months Ended March 31, 2009:
Net sales	$	77,815	$	38,688	$	—		$	116,503
Segment Earnings (Loss)		17,612		7,898		(5,046	)

Segment Earnings (Loss) above excludes restructuring and impairments expense.

Provided below is a reconciliation of Segment Earnings (Loss) to loss before provision for income taxes for the three months ended March 31, 2010 and 2009, respectively.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

11. Business Segment Information—(continued)


	Three Months Ended March 31,
	2010			2009
Segment Earnings (Loss):
Clothing	$	19,409		$	17,612
Roll Covers		10,842			7,898
Corporate		(4,375	)		(5,046	)
Non-cash compensation and related expenses		(2,389	)		(161	)
Net interest expense		(15,644	)		(15,957	)
Depreciation and amortization		(10,451	)		(9,788	)
Restructuring and impairments expense		(1,567	)		(114	)
Financial restructuring costs		(9,463	)		—

Loss before reorganization items and provision for income taxes	$	(13,638	)	$	(5,556	)

12. Commitments and Contingencies

Chapter 11 Bankruptcy Proceedings

The Company and certain of its subsidiaries filed voluntary petitions for relief under chapter 11 of title 11 of the Bankruptcy Code on the Commencement Date, March 30, 2010. The chapter 11 cases are being jointly administered under the caption “In re Xerium Technologies, Inc., et al.”, Case No. 10-11031(KJC). The Company and its subsidiaries that filed for chapter 11 protection have continued to operate their businesses and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court, and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. In connection with the chapter 11 cases, the Company requested the Bankruptcy Court to enter a series of orders designed to minimize any disruption of business operations, and to enter an order authorizing the company to enter into the DIP Facility, make adequate protection payments approved by the Bankruptcy Court, and fund costs, fees and expenses incurred in connection with the administration and prosecution of the chapter 11 cases. Each of the requests for relief was granted by the Bankruptcy Court. On May 12, 2010, the Bankruptcy Court held a hearing to consider confirmation of the Plan, and entered the Confirmation Order confirming the Plan. The Company anticipates the Plan to become effective by the end of May 2010, the Effective Date, at which time the Company would emerge from chapter 11. However, the Company can give no assurance as to when, or ultimately if, the Plan will become effective. It is also possible that amendments could be made to the Plan in accordance with the Bankruptcy Code prior to the Plan becoming effective. Although the Bankruptcy Court has entered the Confirmation Order confirming the Plan, the ultimate impact that the events occurring during these proceedings will have on our business, financial condition and results of operations and ability to retain executive officers and key employees cannot be predicted accurately or quantified. For additional information regarding the chapter 11 cases see Note 1.

The Company is involved in various legal matters, which have arisen in the ordinary course of business. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its financial position, results of operations or cash flow.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

12. Commitments and Contingencies—(continued)

Environmental Matters

During the third quarter of 2008, the Company, while evaluating its facility in Australia, discovered the possibility of contamination at the facility. Subsequently the Company had a preliminary evaluation performed, which confirmed the existence of contamination and estimated preliminary costs to remediate this facility. Based upon this evaluation, the Company accrued $4,100 in 2008 as its best estimate of the remediation costs it expected to incur. A Phase II assessment of the groundwater contamination performed for the Company during the second quarter of 2009 indicated the costs to remediate the contamination would be significantly less than originally estimated and accordingly, the Company reduced the accrual by $3,400 during the second quarter of 2009 based on this assessment.

The Company believes that any additional liability in excess of amounts provided which may result from the resolution of environmental matters will not have a material adverse effect on the financial condition, liquidity or cash flow of the Company.

13. Stock-Based Compensation

Effective May 19, 2005, the Company adopted the 2005 Equity Incentive Plan (the “2005 Plan”), under which the Board of Directors authorized 2,500,000 shares for grant (subsequently increased to 7,500,000 at the Company’s Annual Meeting of Stockholders on August 6, 2008).

The Company records stock-based compensation expense in accordance with ASC Topic 718, Compensation—Stock Compensation (“Topic 718”) and has used the straight-line attribution method to recognize expense for time-based RSUs granted after December 31, 2005. During the three months ended March 31, 2010 and 2009, the Company recorded stock-based compensation expense as follows:


	For the Three Months Ended
	March 31, 2010		March 31, 2009
RSU Awards (1)	$	1,252	$	43
Performance Award Program (2)		312		118
Stock Awards (3)		825		—

Total	$	2,389	$	161

(1)	Related to restricted stock units awarded in and prior to 2010. See further discussion below.

(2)

For 2010, amount represents an accrued estimated payout expected under the Company’s performance award program. For 2009, amount represented an accrued estimated payout expected under to the 2009 Performance Award Program, which was approved by the Company’s Board of Directors on March 10, 2009. The underlying targets for 2009 were not achieved and these amounts were subsequently reversed during the year ended December 31, 2009.

(3)	Represents a total of 795,280 shares of common stock that were sold to Mr. Stephen Light, the Company’s Chairman, President and Chief Executive Officer on January 5, 2010. See further discussion below.

The related tax impact on stock-based compensation was a provision of $86 for the three months ended March 31, 2010 and a tax benefit of $33 for the three months ended March 31, 2009.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

13. Stock-Based Compensation—(continued)

Summary of Activity Under the 2005 Plan

Non-employee Director RSU Awards

Awards to non-employee directors vest immediately under the 2005 Plan and the underlying shares will be issued to the director upon termination of service as a member of the Board or a change in control, as defined in the 2005 Plan. Annually during 2005, 2006 and 2007, the non-employee directors were granted 12,500 RSUs in the aggregate. In July 2008, they also were granted 48,820 RSUs in the aggregate. On June 9, 2009 the non-employee directors were granted 224,715 RSUs in the aggregate. These RSUs are fully vested on the grant date; provided, however, that if a director ceases to serve as a member of the Board for any reason other than as a result of a change in control (as defined in the 2005 Plan) prior to the 2010 annual meeting of stockholders, the director will forfeit a pro rata portion of the award. This forfeiture provision was subsequently modified in connection with the Company’s chapter 11 reorganization (see Note 1) so that the directors departing from the Board as a consequence of the chapter 11 reorganization will not forfeit restricted stock units as a result. Additionally, the continuing outside directors will be awarded a grant of stock options as of the Effective Date. On August 4, 2009, Board members who served as non-employee directors during the year prior to the 2009 Annual Meeting of Stockholders were awarded 221,945 RSUs in the aggregate that vested immediately.

Performance-based RSU Awards

On May 16, 2007, the Company granted 742,885 performance-based RSUs to certain officers and employees of the Company. Generally, to earn common stock under these performance-based RSUs, defined shareholder return targets must be met over the four years following the grant date and the grantee must be employed by the Company through May 16, 2011. On August 6, 2008, the Company granted 433,000 performance-based RSU awards (based on shareholder return targets) and at various dates during 2009, the Company granted 1,023,469 performance-based RSU awards to certain employees, specifically 946,969 and 37,500 RSU awards to its chief executive officer and chief financial officer, respectively. Generally, to earn common stock under the performance-based RSUs granted in 2008 and 2009, defined shareholder return targets must be met over the three years following January 3, 2008 and the grantee must be employed by the Company through January 3, 2011.

On December 24, 2009, the Compensation Committee of the Company’s Board of Directors approved an amendment to the terms of all performance-based restricted stock units of the Company outstanding on December 24, 2009. The amendment provides that upon completion of a successful debt restructuring of the Company, as defined, which shall constitute a new performance criterion, such performance-based restricted stock units shall vest and settle in full. The Compensation Committee determined that this new performance criterion would be met and vesting would occur on the date the Plan is confirmed by the Bankruptcy Court (the “Confirmation Date”). The Confirmation Date occurred on May 12, 2010 and 877,073 shares of common stock underlying 1,431,419 performance-based RSUs were issued on that date; the remaining 554,346 shares underlying such RSUs were withheld from issuance in connection with minimum tax withholding requirements related to the issuance of such shares to the recipients. This modification had no material impact on the Company’s stock based compensation expense for 2009; however following the Confirmation Date, the Company expects to record stock based compensation of approximately $1,740 in the first half of 2010 related to this modification of which approximately $957 has been recorded during the three months ended March 31, 2010.

On December 31, 2009, the Company entered into an amendment to the employment agreement with Mr. Light as the per-participant, per-year limitations under the Company’s 2005 Plan prevented the Company from fulfilling its contractual obligation and granting to Mr. Light stock units under the Company’s equity incentive plan with an aggregate value of $1,250 on January 1, 2010. The amendment to Mr. Light’s employment agreement provides that in lieu of granting him such restricted stock units, the Company instead would (i) grant to Mr. Light 500,000 performance-based restricted stock units on January 1, 2010, which are to vest annually over a three-year period if the price of the Company’s common stock meets or exceeds certain price targets approved by the Compensation Committee of the Company’s Board of Directors; and (ii) make a cash payment to Mr. Light of $825 which Mr. Light is obligated to use the total amount of such cash payment, less the amount necessary to satisfy tax obligations with respect to the cash payment, to purchase shares of common stock from the Company at its agreed fair value, based on the average per share closing price on the New York Stock Exchange of the Company’s shares of common stock for the 20 trading days prior to January 1, 2010. Accordingly, a total of 795,280 shares of common stock were sold to Mr. Light on January 5, 2010 for approximately $539 in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

13. Stock-Based Compensation—(continued)

Time-based RSU Awards

On August 6, 2008, the Company’s granted 433,000 time-based RSU awards for certain of the Company’s officers under the 2005 Plan, The time-based restricted stock unit awards are scheduled to vest completely, in nearly equal installments on the first, second, and third anniversaries of January 3, 2008 provided that the named officer continues to be employed by the Company on such dates. Additionally, on various dates during 2008, the Company granted 227,675 time-based RSU awards to certain employees, specifically 112,500 RSUs to its chief executive officer. Generally, such awards vest in nearly equal installments on the first, second and third anniversaries of the grant date. The time based restricted stock units may also vest, in whole or in part, in connection with a change of control (as defined in the awards) and/or termination of employment under the circumstances set forth in the restricted stock unit awards. Dividends, if any, on such time based restricted stock units will be paid at the same rate as dividends on the Company’s common stock, but only in the form of additional restricted stock units.

At various dates in 2009, the Company granted 1,113,470 time-based RSU awards to certain employees, specifically 946,970 and 112,500 RSUs to its chief executive officer and chief financial officer, respectively. Such awards vest in nearly equal installments on certain dates as described in the table below. The time based restricted stock units may also vest, in whole or in part, in connection with a change of control (as defined in the awards) and/or termination of employment under the circumstances set forth in the restricted stock unit awards.

Certain time-based RSUs and all non-employee director RSUs automatically adjust to reflect awards of additional RSUs upon payment of dividends by the Company. Outstanding RSUs that were awarded in connection with the payment of dividends are included in the table below. No RSUs were awarded in connection with the payment of dividends since 2007 as no dividends were declared by the Company after 2007 because the Company’s senior credit facility, as amended on May 30, 2008, precludes the payment of dividends.

During the first quarter of 2010, 374,131 shares of common stock underlying 576,152 time-based RSUs were issued; the remaining 202,021 shares underlying the RSUs were withheld from issuance in connection with minimum tax withholding requirements related to the issuance of such shares to the recipients.

In March 2010, the Board of Directors approved the contingent acceleration of all outstanding time-based awards scheduled to vest on or prior to June 30, 2010 so that they will be vested and settled immediately prior to the record date under the Plan, which is the day before the Effective Date.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

13. Stock-Based Compensation—(continued)

A summary of RSUs outstanding as of March 31, 2010 and their vesting dates is as follows:


	Vesting Dates	Number of RSUs

Time-based RSUs granted February 26, 2008	January 3, 2011	25,000

Time-based RSUs granted June 13, 2008	With respect to 25,000 RSUs—annually in equal installments on June 13, 2010 and June 13, 2011; with respect to 60,000 RSUs—June 13, 2011.	85,000

Time-based RSUs granted August 6, 2008 (contingently awarded on January 3, 2008)	Annually in equal installments on January 3, 2010 and January 3, 2011.	45,667

Time-based RSUs granted during various dates in 2008	Various dates over not more than three years.	31,001

Time-based RSUs granted during various dates in 2009	With respect to 517,985 RSUs—January 2011; with respect to 75,000 RSUs—annually in equal installments on June 8, 2010, 2011 and 2012; with respect to 15,000 RSUs—annually in equal installments on April 30, 2010, 2011 and 2012.	607,985

Performance-based RSUs granted May 16, 2007 originally based on shareholder return targets but were amended in 2009)	Original target was based on shareholder return targets to have been achieved by May 16, 2011. In 2009, such awards were modified to also allow for 100% vesting to occur upon the completion of a successful debt restructuring.	334,950

Performance-based RSUs granted August 6, 2008 (contingently awarded on January 3, 2008) (originally based on shareholder return targets but were amended in 2009)	Original target was based on shareholder return targets to have been achieved by January 3, 2011. In 2009, such awards were modified to also allow for 100% vesting to occur upon the completion of a successful debt restructuring.	137,000

Performance-based RSUs granted at various dates during 2009 (originally based on shareholder return targets but were amended in 2009)	Original target was based on shareholder return targets to have been achieved by January 3, 2011. In 2009, such awards were modified to also allow for 100% vesting to occur upon the completion of a successful debt restructuring.	1,023,469

Performance-based RSUs granted on January 1, 2010 (based on shareholder return targets	Based on shareholder return targets to be achieved by January 1, 2013.	500,000
Non-employee directors’ RSUs	Date of grant	483,199

Total RSUs outstanding		3,273,271

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

13. Stock-Based Compensation—(continued)

RSU activity during the three months ended March 31, 2010, is presented below.


	Number of RSUs		Price Range of Grant-Date Fair Value Per RSU		Weighted Average Grant-Date Fair Value Price Per RSU
Outstanding, December 31, 2009	3,349,423		$	0.52 – 12.01	$	2.51
Granted	500,000			0.63		0.63
Forfeited	—			—		—
Issued or withheld for tax withholding purposes	(576,152	)		0.52 – 5.40		1.42

Outstanding, March 31, 2010	3,273,271		$	0.52 –12.01	$	2.42

Vested, March 31, 2010 (1)	440,718		$	1.43 –12.01	$	1.95

(1)

Vested RSUs at March 31, 2010 consist entirely of non-employee director RSUs. The common stock underlying these RSUs will be issued to the directors upon termination of their service as members of the Board and/or a change in control, as defined in the 2005 Plan. The total grant-date fair value of such non-employee directors RSUs that vested during the three months ended March 31, 2010 was $79.

Assumptions

In accordance with Topic 718, the Company uses the following assumptions in determining compensation expense:

Grant-Date Fair Value

The Company calculates the grant-date fair value of time-based RSUs and non-employee directors’ RSUs based on the closing price of the Company’s common stock on the date of grant.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

13. Stock-Based Compensation—(continued)

For all granted performance-based RSUs, the Company calculated the grant-date fair value of performance-based RSUs by using a Monte Carlo pricing model and the following assumptions:


	For Performance- Based RSUs Granted January 1, 2010	For Performance- Based RSUs Granted at various dates during 2009	For Performance- Based RSUs Granted August 6, 2008 (contingently awarded January 3, 2008)	For Performance- Based RSUs Granted May 16, 2007
Expected term (i)	3 years	1 ¹ / 2 to 2 years	3 years	4 years
Expected volatility (ii)	120%	116% and 119%	44%	39%
Expected dividends (iii)	None	None	None	$0.45 per year ($0.1125 per quarter)
Risk-free interest rate (iv)	1.75%	0.99% to 1.17%	2.64%	4.32%

(i)	Expected term . Performance-based RSUs expire three years after the grant date for the 2010 and 2008 awards and four years after the grant date for the 2007 awards. For 2009 awards, the RSUs expire after approximately 1 ¹ / 2 to 2 years.

(ii)

Expected volatility . The Company is responsible for estimating the volatility of the price of its common stock and has considered a number of factors, including third party estimates, to determine its expected volatility. For the 2008 and 2007 awards, the Company performed a peer group analysis of historical and implied volatility measures rather than using its own historical volatility because it had been a public company for a relatively short period of time (i.e., since its initial public offering on May 19, 2005). Based upon the peer group analysis, the Company determined to use a 44% and 39% volatility assumption for performance-based RSUs granted in 2008 and 2007, respectively, which is the midpoint of the range developed by looking at the peer group. For the 2010 and 2009 awards, after being a public company for four years, the Company determined to use its own historical volatility rather than a peer group analysis. The volatility for the 2010 award was 120%. For the 2009 awards, the volatility was 116% and 119%.

(iii)

Expected dividends . On May 2, 2007, the Company modified its credit agreement which limited the amount of any quarterly dividends payable on its common stock to not more than $0.1125 per share. Accordingly, for the performance-based RSUs that were granted on May 16, 2007, the Company assumed continuation of quarterly dividends at the rate of $0.1125 per share of common stock for the purposes of the application of the Monte Carlo pricing model. On May 30, 2008, the Company amended its credit facility. No dividends are permitted to be paid on the Company’s common stock through May 2012, the maturity date of the term loans under the amended senior credit facility. Accordingly no dividends were assumed for the 2008 or 2009 awards for purposes of the application of the Monte Carlo pricing model.

(iv)	Risk-free interest rate . The yield on zero-coupon U.S. Treasury securities for the period that is commensurate with the expected term assumptions.

Xerium Technologies, Inc.

(Debtors-in-Possession since March 30, 2010)

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

(dollars in thousands, except per share data)

13. Stock-Based Compensation—(continued)

Forfeitures

As the time-based and performance-based RSUs require continued employment up to the time of vesting, the amount of stock-based compensation recognized during a period is required to include an estimate of forfeitures. Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is related to employee attrition and based on a historical analysis of its employee turnover. This analysis is re-evaluated quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will be only for those shares that meet the requirements of continued employment up to the time of vesting. The Company revised its forfeiture estimates during the first quarter of 2010 and as of March 31, 2010 the following forfeiture rates are estimated:


Description of Award	Forfeiture Rates
Time-based RSUs granted on various dates in 2008 and 2009 (5%, 13%, 50% and 63% forfeiture rates with respect to 1,157,470, 97,500, 508,000 and 11,175 original grants of RSUs, respectively).	5%-63	%
Performance-based RSUs granted May 19, 2007	59.72	%
Performance-based RSUs granted August 6, 2008	77.37	%
Performance-based RSUs granted in 2009	0	%
Performance-based RSUs granted in 2010	5	%
Non-employee directors’ RSUs	0	%

In accordance with Topic 718, the cumulative effect of applying the change in estimate retrospectively is recognized in the period of change. The Company’s change in forfeiture rates during 2009 resulted in a $136 cumulative decrease in compensation expense for 2009.

As of March 31, 2010, there was approximately $2,600 of total unrecognized compensation expense related to unvested share-based awards which is expected to be recognized over a weighted average period of 0.84 years.

14. Subsequent Events

In connection with the chapter 11 cases commenced by the Company and certain of its subsidiaries on the Commencement Date, the Company requested the Bankruptcy Court to enter a series of orders designed to minimize any disruption of business operations, and to enter an order authorizing the company to enter into the DIP Facility, a debtor-in-possession financing facility intended to be used to pay related transaction costs, fees and expenses associated with the DIP Facility, fund working capital and general corporate purposes of the Company and its subsidiaries during the pendency of the chapter 11 cases, make adequate protection payments approved by the Bankruptcy Court, and fund costs, fees and expenses incurred in connection with the administration and prosecution of the chapter 11 cases. Each of the requests for relief was granted by the Bankruptcy Court. On May 12, 2010, the Bankruptcy Court held a hearing to consider confirmation of the Plan, the Company’s joint prepackaged plan of reorganization, and entered the Confirmation Order confirming the Plan. See Note 1.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The following discussion of our financial condition and results of operations should be read together with our unaudited condensed consolidated interim financial statements and the related notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The discussion included in this section, as well as other sections of this Quarterly Report on Form 10-Q contains forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other comparable terminology. Undue reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors that are, in some cases, beyond our control and that could materially affect actual results, levels of activity, performance, or achievements. Factors that could materially affect our actual results, levels of activity, performance or achievements include the following items:

•

we have filed for chapter 11 protection to effectuate the restructuring of our indebtedness as contemplated by the proposed joint prepackaged plan of reorganization approved by a majority of our lenders, and subsequently confirmed by the Bankruptcy Court. The ultimate impact that the events occurring during these proceedings would have on our business, financial condition and results of operations and ability to retain executive officers and key employees cannot be predicted accurately or quantified;

•

we may be unable to achieve the objectives of our restructuring efforts;

•

our chapter 11 proceeding may take longer than we expect, which could increase the costs of the proceeding, reduce the likelihood of successfully emerging from bankruptcy, and negatively affect our business;

•

pursuant to our proposed plan of reorganization, our existing common stockholders will be severely diluted. Our lenders will own in excess of 80% of our common stock and as such will be able to control all elections for directors. Our existing common stockholders may have little or no influence;

•

the bankruptcy court could determine that liquidation under chapter 7 of the Bankruptcy Code is in the best interests of our creditors;

•

our financial results face increased exposure to currency and interest rate fluctuations, as our banks have limited our ability to enter into hedging arrangements and our interest rate swaps have been terminated with the counterparties;

•

our credit issues and bankruptcy may cause our customers and vendors to seek financial assurances from us before they are willing to continue doing business with us, and they may instead choose to do business with our competitors. This may result in decreased revenues or increased costs of our operations, or negatively impact our ability to operate our business, thereby adversely affecting our results of operations;

•

we may not have sufficient cash to fund our operations in light of (i) continuing adverse conditions in the global paper market that are negatively affecting our business, (ii) the significant professional and advisory expenses we have continued to incur in connection with addressing our long-term credit issues and (iii) our potential inability to access any additional sources of financing;

•

we may be required to sell certain of our assets or businesses for the purposes of raising cash to fund the balance of our operations;

•

we are subject to the risk of weaker economic conditions in the locations around the world where we conduct business, including without limitation the current turmoil in the global paper markets and the impact of the current global economic recession on the paper industry and our customers;

•

our strategies and plans, including, but not limited to, those relating to the decrease in our financial leverage, developing and successfully launching new products, enhancing our operational efficiencies and reducing costs may not result in the anticipated benefits;

•

our common stock may be delisted from the New York Stock Exchange (“NYSE”);

•

we may not be able to develop and market new products successfully;

•

we may not be successful in developing new technologies or in competing against new technologies developed by competitors;

•

we may have insufficient cash following our reorganization to fund growth and unexpected cash needs after satisfying our debt service obligations due to our high degree of leverage and significant debt service obligations;

•

we may be required to incur significant costs to reorganize our operations in response to market changes in the paper industry;

•

we are subject to the risk of terrorist attacks or an outbreak or escalation of any insurrection or armed conflict involving the United States or any other country in which we conduct business, or any other national or international calamity, including natural disasters;

•

we are subject to any future changes in government regulation; and

•

we are subject to any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes.

Many of these risks are discussed elsewhere in this Form 10-Q, including in the sections below: “Chapter 11 Reorganization,” “Company Overview,” “Industry Trends and Outlook,” “Liquidity and Capital Resources” and “Credit Facility.” Other factors that could materially affect actual results, levels of activity, performance, or achievements can be found in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission on March 26, 2010. If any of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what we projected. Any forward-looking statement in this Quarterly Report on Form 10-Q reflects our current views with respect to future events and is subject to these and other risks, uncertainties, and assumptions relating to our operations, results of operations, growth strategy, and liquidity. We assume no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise.

All references in this Quarterly Report to “Xerium,” “we,” “our,” and “us” mean Xerium Technologies, Inc.

Chapter 11 Reorganization

We and certain of our subsidiaries filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101-1532 (as amended, the “Bankruptcy Code”) on March 30, 2010 (the “Commencement Date”), in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The chapter 11 cases are being jointly administered under the caption “In re Xerium Technologies, Inc., et al.”, Case No. 10-11031 (KJC). We and our subsidiaries that filed for chapter 11 protection have continued to operate our businesses and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court, and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. On the Commencement Date, we requested, and thereafter the Bankruptcy Court entered, a series of orders designed to minimize any disruption of business operations, including a request for authorization to, among other things, satisfy certain prepetition obligations that may be outstanding, including wages and benefits that may be due to employees, as well as obligations to certain vendors, customers and suppliers. The Bankruptcy Court also entered certain orders permitting us to continue, on an uninterrupted basis, our centralized cash management systems and customer service programs.

On May 12, 2010, the Bankruptcy Court held a hearing to consider confirmation of the Plan, and entered an order (the “Confirmation Order”) confirming our joint prepackaged plan of reorganization (the “Plan”). We anticipate the Plan to become effective by the end of May 2010 (the “Effective Date”), at which time we would emerge from chapter 11. However, we can give no assurance as to when, or ultimately if, the Plan will become effective. It is also possible that amendments could be made to the Plan in accordance with the Bankruptcy Code prior to the Plan becoming effective. Although the Bankruptcy Court has entered the Confirmation Order confirming the Plan, the ultimate impact that the events occurring during these proceedings will have on our business, financial condition and results of operations and ability to retain executive officers and key employees cannot be predicted accurately or quantified. See discussion as follows.

Operating in bankruptcy imposes significant risks and uncertainties on our business. See”—Forward-Looking Statements” and Item 1A “Risk Factors” for a discussion of the risks and uncertainties relating to our business and investing in our securities as a result of a chapter 11 filing.

Additionally, Section 802.01D of the New York Stock Exchange (“NYSE”) Listed Company Manual provides that the NYSE will ordinarily initiate suspension and delisting procedures with respect to any company that has filed for bankruptcy while not in compliance with continued listing standards, unless such company is profitable, has positive cash flow, or is demonstrably in sound financial health despite the bankruptcy proceedings. Following discussions with the NYSE regarding our financial status, listing status and our chapter 11 filing, the NYSE permitted the continued NYSE listing of our common stock notwithstanding our chapter 11 filing. However, we have continued to be out of compliance with the NYSE’s continued listing criteria under Sections 802.01B and C of the NYSE Listed Company Manual and there can be no assurance that the NYSE will not take delisting actions against us in the future or that our common stock will continue to be listed on the NYSE.

Background

Our credit facility requires that we satisfy certain operating requirements and financial covenant ratios in order to avoid a default or event of default under the facility. See “Credit Facility” below. As previously disclosed, we were not in compliance with certain of these covenants for the quarters ended September 30, 2009 and December 31, 2009. To provide us additional time to work with our creditors to find long-term solutions to our credit issues, on September 29, 2009, December 14, 2009, January 29, 2010 and February 26, 2010, we obtained waivers with respect to non-compliance with the financial covenants of the senior credit facility from our lenders. Additionally, the February 26, 2010 waiver permanently waived the requirement that our audited financial statements for the year ended December 31, 2009 be accompanied by an audit opinion unqualified as to “going concern”. The waivers to our credit facility expired on April 1, 2010, except with respect to those of our lenders that agreed to an additional waiver and forbearance of our credit facility until April 30, 2010 in connection with the solicitation of votes on the Plan. We filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code on March 30, 2010, prior to the expiration of the waivers. In connection with the waiver agreement entered into on September 30, 2009, we incurred aggregate fees to the lenders of approximately $3 million, of which $1.5 million was paid at the time of the effectiveness of the waiver agreement and approximately $1.5 million

will be paid at the maturity date for the loans under the Credit Agreement and will accrue interest at the rate applicable to the loans until that time. In connection with the subsequent three waiver extension agreements, we were required to pay fees to the lenders of approximately $0.3 million at the time of each extension. In addition, borrowings under the revolving credit facility and the term loans bear interest at the sum of, as applicable, LIBOR, the Euribor or CDOR rate plus, in each case, the applicable margin of 5.50%, except that during the period between September 29, 2009, the date we entered into Waiver and Amendment No. 1 (the “Waiver Agreement”) to the Credit Agreement, and the Effective Date of the Amended and Restated Credit Facility, the outstanding balance under the credit facility is subject to interest at a rate that is 1.0% per year in excess of this rate.

We did not make our required quarterly principal payment due on March 31, 2010. In the absence of a waiver of such payment, our failure to pay the March 31, 2010 scheduled quarterly principal payment of approximately $6.7 million when due would constitute an event of default under the credit facility. Our chapter 11 filings suspended our obligation to make this payment after the filing date without prior approval of the Bankruptcy Court.

Our goal is to consummate a financial restructuring transaction that will significantly reduce our indebtedness and place us in a stronger financial position for future growth and stability.

DIP Facility

On the Commencement Date, we sought authorization from the Bankruptcy Court to enter into a debtor-in-possession financing facility consisting of a $20 million revolving credit facility and $60 million term loan (the “DIP Facility”). The DIP Facility is intended to be used to pay related transaction costs, fees and expenses associated with the DIP Facility, fund working capital and general corporate purposes of the Company and its subsidiaries during the pendency of the chapter 11 cases, make adequate protection payments approved by the Bankruptcy Court, and fund costs, fees and expenses incurred in connection with the administration and prosecution of the chapter 11 cases. The Bankruptcy Court approved the DIP Facility on an interim basis on March 31, 2010, authorizing us to use a portion of the total DIP Facility, and on April 1, 2010, we entered into the DIP Facility. On April 28, 2010, the Bankruptcy Court approved the DIP Facility on a final basis, granting us access to the full amount of the DIP Facility.

Plan of Reorganization

Until we emerge from Bankruptcy Court protection, we may pay all debts and honor all obligations arising in the ordinary course of our business after the date of the chapter 11 filing. However, we may not pay creditors on account of obligations arising before the chapter 11 filing or engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Directors in certain foreign subsidiaries may be required by local law to initiate insolvency proceedings, and creditors in certain foreign jurisdictions may take action under foreign law to seek available remedies.

The Plan provides that on the date on which the Plan is substantially consummated (the “Effective Date”):

•

We will enter into a revolving loan of up to $20 million and a term loan of $60 million (collectively, the “Exit Facility”) to be used to satisfy our outstanding obligations under the DIP Facility on the Effective Date and for our ongoing working capital (including letters of credit) requirements. The terms of the Proposed Exit Facility are described below;

•

We will authorize 20 million shares of new common stock (“New Common Stock”). All of our existing shares of common stock outstanding (“Existing Common Stock”) will be cancelled and replaced with shares representing 17.4% of the expected newly issued and outstanding shares, which is equivalent to a 20 to 1 reverse split of our common stock;

•

Our existing credit facility will be amended and restated (the “Amended and Restated Credit Facility”). The terms of the Amended and Restated Credit Facility are described below;

•

Our lenders and the swap termination counterparties will receive, among other things, their ratable shares of (a) $10 million in cash, (b) $410 million in principal amount of term notes, to be issued pursuant to the Amended and Restated Credit Facility, and (c) 82.6% of the shares of New Common Stock to be issued on the Effective Date prior to dilution;

•

The holders of our Existing Common Stock will receive (a) approximately 17.4% of the shares of New Common Stock to be issued on the Effective Date, and (b) warrants to purchase up to

10% of the number of issued and outstanding shares of New Common Stock as of the Effective Date. The warrants will be exercisable for a term of four years from the issue date, and the exercise price per share of common stock will be determined in accordance with a formula based on the final amount of allowed claims of the lenders under the Credit Facility and the swap termination counterparties in the chapter 11 proceeding; and

•

Our Board of Directors will be reconstituted, and will consist of seven directors as follows: (i) our Chief Executive Officer, (ii) one director nominated by our current Board of Directors, and (iii) five directors nominated by certain of our lenders.

The Plan also contemplates that we will adopt a new equity incentive plan for compensation of our management and a shareholder rights plan. We will also enter into registration rights and director nomination agreements with certain of our lenders.

Proposed Amended and Restated Credit Facility

As discussed above, the Plan provides that we will enter into the Amended and Restated Credit Facility on the Effective Date that will replace our existing credit facility. For a discussion of our existing credit facility, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facility.” The Amended and Restated Credit Facility provides for a term loan that has a principal amount of $410 million, and that matures on a date that is five years following the closing date of the Amended and Restated Credit Facility. The Amended and Restated Credit Facility will be secured by substantially all of our assets and the assets of most of our subsidiaries, subject to legal and tax considerations and requirements. In addition, most of our U.S. and non-U.S. subsidiaries will guarantee the obligations of the borrowers under the Amended and Restated Credit Facility, provided that non-U.S. guarantors will only be liable for obligations of non-U.S borrowers and non-U.S. guarantors.

Borrowings under the Amended and Restated Credit Facility term loans will bear interest as follows:

•

in the case of Xerium Canada Inc., at the BA Rate plus (i) 6.25% if the leverage ratio equals or exceeds 2.75:1.00 or (ii) 5.75% if the leverage ratio is less than 2.75:1.00;

•

in the case of Xerium Technologies, Inc., the LIBOR Rate plus (i) 6.25% if the leverage ratio equals or exceeds 2.75:1.00 or (ii) 5.75% if the leverage ratio is less than 2.75:1.00; and

•

The terms “BA Rate,” “LIBOR Rate,” and “Euribor Rate” have the same meanings as set forth in our existing credit facility except that the BA Rate, the LIBOR Rate and the Euribor Rate shall not be less than 2.00% per annum. Interest periods will be 1, 2, 3 or 6 months. If any event of default occurs and is continuing, then interest on the unpaid balance of the outstanding term loans will accrue at a per annum rate of two percent greater than the rate of interest specified above.

The Amended and Restated Credit Facility will require us to make mandatory prepayments under the following circumstances:

(a) with 100% of the net cash proceeds received by us from any sale of any assets exceeding $100,000 outside the ordinary course of business (subject to certain exceptions regarding discontinued manufacturing facilities and exempting the first $250,000);

(b) with 100% of insurance and condemnation award payments, subject to certain exemptions;

(d) with 50% of our excess cash after the end of each fiscal year; that is, our Adjusted EBITDA minus consolidated interest expense, cash income tax expense, consolidated capital expenditures (subject to certain exceptions), consolidated restructuring costs, cash payments of withholding taxes from proceeds of the repurchase, redemption or retention of common stock and the aggregate amount of scheduled and voluntary payments made during the past fiscal year.

The Amended and Restated Credit Facility will require that we observe and perform numerous affirmative and negative covenants, which will be based on the covenants set forth in our existing credit facility. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facility.” The Amended and Restated Credit Facility will also require that we observe the following financial covenants, each at agreed upon levels: interest coverage ratio measured quarterly for a rolling 12 month period, leverage ratio measured quarterly for a rolling 12 month period, and maximum capital expenditures each year.

Exit Facility

As discussed above, the Plan provides that we will enter into the Exit Facility on the Effective Date to be used to satisfy our outstanding obligations under the DIP Facility on the Effective Date and for our ongoing working capital (including letters of credit) requirements. The Exit Facility provides for a $20 million revolving loan and a term loan that has a principal amount of $60 million. The revolving credit facility will mature on a date that is three years following the closing date of the Exit Facility, and the term loans will mature on a date that is four and one-half years following the closing date. The Exit Facility will be secured by substantially all of our assets and the assets of most of our subsidiaries, subject to legal and tax considerations and requirements. All loans under the Exit Facility will be senior to the amounts owing under the Amended and Restated Credit Facility. In addition, most of our U.S. and non-U.S. subsidiaries will guarantee the obligations of the borrowers under the Exit Facility, provided that non-U.S. guarantors will only be liable for obligations of non-U.S borrowers and non-U.S. guarantors.

We will be able to elect whether the loans under the Exit Facility are “Eurodollar Loans” or are “Base Rate Loans”, and this election will determine the rate of interest on the loans. If the loans are Eurodollar Loans, the loans will bear interest at the annual rate equal to LIBOR plus the applicable margin, with a LIBOR floor of 2% per annum. Base Rate Loans will bear interest at the annual rate equal to the base rate plus the applicable margin. The applicable margin is set at 4.5% per year with respect to Eurodollar Loans and 3.5% per year with respect to Base Rate Loans. The base rate is a fluctuating interest rate equal to the highest of (a) the prime rate of an agreed upon financial institution, (b) the Federal Funds Effective Rate plus one-half of 1%, and (c) LIBOR plus 1%, with a LIBOR floor of 2%.

The Exit Facility will require us to make mandatory prepayments under the same circumstances as with respect to the Amended and Restated Credit Facility, which are described above. In addition, the Exit Facility will require that we observe and perform the same affirmative and negative covenants, including financial covenants, as required by the Amended and Restated Credit Facility.

Company Overview

We are a leading global manufacturer and supplier of two categories of consumable products used primarily in the production of paper—clothing and roll covers. Our operations are strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific.

Our products play key roles in the formation and processing of paper along the length of a paper-making machine. Paper producers rely on our products and services to help improve the quality of their paper, differentiate their paper products, operate their paper-making machines more efficiently and reduce production costs. Our products and services typically represent only a small fraction of a paper producer’s overall production costs, yet they can reduce costs by permitting the use of lower-cost raw materials and reducing energy consumption. Paper producers must replace clothing and refurbish or replace roll covers regularly as these products wear down during the paper production process. Our products are designed to withstand extreme temperature, chemical and pressure conditions, and are the result of a substantial investment in research and development and highly sophisticated manufacturing processes.

We operate in two principal business segments: clothing and roll covers. In our clothing segment, we manufacture and sell highly engineered synthetic textile belts that transport paper as it is processed on a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making processes and machine specifications vary widely, the clothing size, form, material and function is selected to fit each individual paper-making machine and process. For the three months ended March 31, 2010, our clothing segment represented 66% of our net sales.

Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. Roll covers are tailored to each individual paper-making machine and process, using different materials, treatments and finishings. In addition to manufacturing and selling new roll covers, we also provide refurbishment services for previously installed roll covers and manufacture spreader rolls. For the three months ended March 31, 2010, our roll covers segment represented 34% of our net sales.

Industry Trends and Outlook

Historically, demand for our products has been driven primarily by the volume of paper produced on a worldwide basis. Generally, and over time, we expect growth in paper production to be greater in Asia, South America and Eastern Europe than in the more mature North American and Western European regions where demand may potentially decline.

The profitability of paper producers has historically been highly cyclical due to wide swings in the price of paper, driven to a high degree by the oversupply of paper during periods when paper producers have more aggregate capacity than the market requires. A sustained downturn in the paper industry, either globally or in a particular region, can cause paper manufacturers to reduce production or cease operations, which could adversely affect our revenues and profitability. In response to significant secular changes in the sector, paper producers have continually sought to structurally improve the balance between the supply of and demand for paper. As part of these efforts, they have permanently shut down many paper-making machines or entire manufacturing facilities. Papermakers continue to experience low levels of profitability, and we believe that further consolidation among papermakers, reducing the number of paper producers, and shutdowns of paper-making machines or facilities will occur in Europe and North America, until there is a better balance between supply and demand for paper and the profit levels of paper producers improve. This rebalancing has been accelerated during the most recent global economic recession. Over a number of years, consumption growth of paper, particularly in South America and Asia, is expected to drive an increase in the global production required to maintain balance between supply and demand. It is highly likely, however, that a consumption slow-down and related effect on global paper production will continue in the near term, exacerbated by the global economic recession. Also affecting machine curtailments are structural productivity gains from improved products that we and our competitors supply.

Global paper production growth that does occur would be moderated by the level of industry consolidation and paper-machine shutdown activity that is a continuing underlying trend in North America and Western Europe. We also believe that, in addition to industry consolidation and paper machine shutdown activity in North America and Western Europe, the trend towards new paper machine designs which have fewer rolls and market recognition of extended life of our roll cover products has been and will continue to negatively impact demand for these products and that the volume potential for the roll covers business will slowly diminish. Additionally, we are seeing a trend that paper producers are placing an increasing emphasis on maintenance cost reduction and, as a result, are extending the life of roll covers through additional maintenance cycles before replacing them.

We anticipate that pricing pressure for our products will continue with the consolidation among paper producers and as the shift of paper production growth in Asia develops. In response to this pricing pressure, we expect to increase our expenditure levels on research and development expenses and continue to develop our value added selling approach as part of our strategy to differentiate our products, while at the same time remaining focused on cost reduction and efficiency programs.

The negative paper industry trends described above are likely to continue. We believe that in the current economic environment, the paper industry will experience reduced demand, increased emphasis on

cost reduction and sustained paper-machine shutdown activity than would have been the case in the absence of the economic crisis. In addition, the global financial crisis has tightened the availability of credit, which could make it more difficult for our customers to finance their business activities or pay their debts. Thus, the effects of the current global economic environment on the paper industry could negatively impact our business, results of operations and financial condition.

Sales and Expenses

Sales in both our clothing and roll covers segments are primarily driven by the following factors:

•

The volume of worldwide paper production;

•

Advances in the technology of our products, which can provide value to our customers by improving the efficiency of paper-making machines;

•

Our ability to provide products and services which reduce paper-making machine downtime, while at the same time allowing the manufacture of high quality paper products; and

•

The impact of currency fluctuations.

Sales in our roll covers segment include our mechanical services business. We have expanded this business in response to demand from paper producers that we perform work on the internal mechanisms of a roll while we refurbish or replace a roll cover. In our clothing segment, a small portion of our business has been conducted pursuant to consignment arrangements under which we do not recognize a sale of a product to a customer until the customer places the product into use, which typically occurs some period after the product is shipped to the customer or to a warehouse location near the customer’s facility. We are striving to reduce the number of consignment arrangements and increase the use of standard terms of sale under which we recognize a sale upon product shipment. We expect this effort to be successful over several years.

Our operating costs are driven primarily by our total sales volume, the impact of inflation and currency and the level and impact of cost reduction programs.

The level of our cost of products sold is primarily attributable to labor costs, raw material costs, product shipping costs, plant utilization and depreciation, with labor costs constituting the largest component. We invest in facilities and equipment that enable innovative product development and improve production efficiency and costs. Recent examples of capital spending for such purposes include faster weaving looms and seaming machines with accurate electronic controls, automated compound mixing equipment and computer-controlled lathes and mills.

The level of research and development spending is driven by market demand for technology enhancements, including both specific customer needs and general market requirements, as well as by our own analysis of applied technology opportunities. With the exception of purchases of equipment and similar capital items used in our research and development activities, all research and development is expensed as incurred. Research and development expenses were $2.9 million and $2.7 million for the three months ended March 31, 2010 and 2009, respectively.

Foreign Exchange

We have a geographically diverse customer base. For the three months ended March 31, 2010, approximately 36% of our sales was in Europe, 35% was in North America, 18% was in Asia-Pacific, 9% was in South America and 2% was in the rest of the world.

A substantial portion of our sales is denominated in Euros or other currencies. As a result, changes in the relative values of U.S. Dollars, Euros and other currencies affect our reported levels of revenues and profitability as the results are translated into U.S. Dollars for reporting purposes. In particular, increases in the value of the U.S. Dollar relative to the value of the Euro and these other currencies negatively impact our levels of revenue and profitability because the translation of a certain number of Euros or units of such other currencies into U.S. Dollars for financial reporting purposes will represent fewer U.S. Dollars.

For certain transactions, our sales are denominated in U.S. Dollars or Euros but all or a substantial portion of the associated costs are denominated in a different currency. As a result, changes in the relative values of U.S. Dollars, Euros and other currencies can affect the level of the profitability of these transactions. The largest proportion of such transactions consist of transactions in which the sales are denominated in or indexed to U.S. Dollars and all or a substantial portion of the associated costs are denominated in Euros.

Currency fluctuations have a greater effect on the level of our net sales than on the level of our income from operations. For example, for the three months ended March 31, 2010 as compared with the three months ended March 31, 2009, the change in the value of the U.S. Dollar against the currencies in which we conduct our business resulted in currency translation increases in net sales and decreases to income from operations of $5.3 million and $3.3 million, respectively. Although the results for the three months ended March 31, 2010 reflect a period in which the value of the U.S. Dollar decreased against most of the currencies in which we conduct the majority of our non-U.S. Dollar denominated business as compared to the three months ended March 31, 2009, we would expect a similar but opposite effect in a period in which the value of the U.S. Dollar increases. For any period in which the value of the U.S. Dollar changes relative to other currencies, we would expect our income from operations to be proportionately affected less than our net sales. This is due to the impact of currency on expenses incurred in foreign currencies and the fact that certain sales in foreign entities are U.S. dollar based.

During the three months ended March 31, 2010 we conducted business in 10 foreign currencies. The following table provides the average exchange rate for the three months ended March 31, 2010 and 2009, respectively, of the U.S. Dollar against each of the three foreign currencies in which we conduct the largest portion of our operations and indicates the percentage of our net sales for the three months ended March 31, 2010 denominated in such foreign currency.


Currency	Average exchange rate of the U.S. Dollar for the three months ended March 31, 2010	Average exchange rate of the U.S. Dollar for the three months ended March 31, 2009	Percentage of net sales for the three months ended March 31, 2010 denominated in such currency
Euro	$1.38 = 1 Euro	$1.30 = 1 Euro	44	%
Canadian Dollar	$0.96 = 1 Canadian Dollar	$0.80 = 1 Canadian Dollar	7	%
Brazilian Real	$0.55 = 1 Brazilian Real	$0.43 = 1 Brazilian Real	8	%

To mitigate the risk of transactions in which a sale is made in one currency and associated costs are denominated in a different currency, we utilize forward currency contracts in certain circumstances to lock in exchange rates with the objective that the gain or loss on the forward contracts will approximate the loss or gain that results from the transaction or transactions being hedged. We determine whether to enter into hedging arrangements based upon the size of the underlying transaction or transactions, an assessment of the risk of adverse movements in the applicable currencies and the availability of a cost effective hedge strategy. To the extent we do not engage in hedging or such hedging is not effective, changes in the relative value of currencies can affect our profitability.

Due to reduced credit limits at some of our banks, we have been entering into fewer foreign currency hedging arrangements and may not be able to enter into as many hedging arrangements in the future. As a result, our financial statements are more exposed to the effects of currency fluctuations, both favorable and unfavorable, which could have a material impact on our results of operations.

Cost Reduction Programs

An important part of our strategy is to seek to reduce our overall costs and improve our competitiveness. As a part of this effort, we have engaged in a series of cost reduction programs, which were designed to improve the cost structure of our global operations in response to changing market conditions. These cost reduction programs include headcount reductions throughout the world as well as plant closures that have rationalized production among our facilities to better enable us to meet customer demands.

Our cost reduction efforts between 2002 and 2009 included the closing of twelve manufacturing facilities. During this same period, as a result of these actions, our headcount decreased by almost 800 individuals during that period, offset by other changes in workforce.

During the first quarter of 2010, we continued our program of streamlining our operating structure and recorded restructuring expenses of approximately $1.6 million in connection therewith. We expect to incur restructuring expenses of approximately $13 million during the remainder of 2010, primarily related to headcount reductions resulting from the integration of the regional management structure in North America and similar actions in Europe. We expect to continue to review our business to determine if additional actions can be taken to further improve our cost structure. In light of our assessment of the impact of the global credit crisis and the potential effect on our customers and our industry, and therefore, on our performance, additional operating structure improvements and related restructuring expenses are being analyzed.

Results of Operations

The tables that follow set forth for the periods presented certain consolidated operating results and the percentage of net sales they represent:


*(in millions)*	Three Months Ended March 31,
	2010			2009

Net sales	$	135.0		$	116.5
Costs and expenses:
Cost of products sold		83.3			72.2
Selling		18.0			16.5
General and administrative		26.9			13.2
Restructuring and impairments		1.6			0.1
Research and development		2.9			2.7

Income from operations		2.4			11.7
Interest expense, net		(15.6	)		(16.0	)
Foreign exchange loss		(0.4	)		(1.3	)

Loss before reorganization items and provision for income taxes		(13.6	)		(5.6	)
Reorganization items		(14.4	)		—
Provision for income taxes		2.1			3.9

Net loss	$	(30.2	)	$	(9.5	)

Percentage of Sales


	Three Months Ended March 31,
	2010		2009

Net sales	100.0	%	100.0	%
Costs and expenses:
Cost of products sold	61.7		62.0
Selling	13.4		14.2
General and administrative	19.9		11.3
Restructuring and impairments	1.2		0.1
Research and development	2.1		2.3

Income from operations	1.8		10.0
Interest expense, net	(11.6	)	(13.7	)
Foreign exchange loss	(0.3	)	(1.1	)

Loss before reorganization items and provision for income taxes	(10.1	)	(4.8	)
Reorganization items	(10.6	)	—
Provision for income taxes	1.6		3.3

Net loss	(22.3	)%	(8.1	)%

Three Months Ended March 31, 2010 Compared to the Three Months Ended March 31, 2009.

Net Sales. Net sales for the three months ended March 31, 2010 increased by $18.5 million, or 15.9%, to $135.0 million from $116.5 million for the three months ended March 31, 2009. For the three months ended March 31, 2010, 66% of our net sales was in our clothing segment and 34% was in our roll covers segment.

In our clothing segment, net sales for the three months ended March 31, 2010 increased by $10.8 million, or 13.9%, to $88.6 million from $77.8 million for the three months ended March 31, 2009 primarily due to (i) favorable currency effects on net sales of $3.8 million and (ii) increased sales volume in Europe and North America, partially offset by decreased sales volume in South America and Asia-Pacific. Overall pricing levels in our clothing segment decreased approximately 1% during the three months ended March 31, 2010 as compared with the three months ended March 31, 2009.

In our roll covers segment, net sales for the three months ended March 31, 2010 increased by $7.7 million or 19.9%, to 46.4 million from $38.7 million for the three months ended March 31, 2009. The increase was primarily due to (i) increased sales volumes in all regions but primarily in North America and Europe and (ii) favorable currency effects on net sales of $1.5 million related to the translation of sales made in currencies other than the U.S. Dollar to U.S. Dollars for financial reporting purposes. Overall pricing levels in our roll covers segment increased approximately 1% during the three months ended March 31, 2010 as compared with the three months ended March 31, 2009.

Cost of Products Sold. Cost of products sold for the three months ended March 31, 2010 increased by $11.1 million, or 15.4%, to $83.3 million from $72.2 million for the three months ended March 31, 2009.

In our clothing segment, cost of products sold increased by $7.2 million, or 15.4%, to $54.0 million for the three months ended March 31, 2010 from $46.8 million for the three months ended March 31, 2009 primarily due to unfavorable currency effects of $5.4 million related to the translation of expenses made in currencies other than the U.S. Dollar to U.S. Dollars for financial reporting purposes and to higher sales volumes during the three months ended March 31, 2010 as compared with the three months ended March 31, 2009. Partially offsetting these increases was the $3.1 million impact of a lower cost structure, resulting from our cost reduction programs, during the three months ended March 31, 2010 as compared with the three months ended March 31, 2009

In our roll covers segment, cost of products sold increased by $3.9 million, or 15.4%, to $29.3 million for the three months ended March 31, 2010 from $25.4 million for the three months ended March 31, 2009 primarily due to (i) higher sales volumes during the three months ended March 31, 2010 as compared with the three months ended March 31, 2009 and (ii) unfavorable currency effects of $1.1 million related to the translation of expenses made in currencies other than the U.S. Dollar to U.S. Dollars for financial reporting purposes. Partially offsetting these increases was the $0.3 million impact of a lower cost structure, resulting from our cost reduction programs, during the three months ended March 31, 2010 as compared with the three months ended March 31, 2009.

Selling Expenses. For the three months ended March 31, 2010, selling expenses increased by $1.5 million, or 9.1%, to $18.0 million from $16.5 million for the three months ended March 31, 2009. The increase was primarily due to unfavorable currency effects of $1.4 million related to the translation of expenses made in currencies other than the U.S. Dollar to U.S. Dollars for financial reporting purposes.

General and Administrative Expenses. For the three months ended March 31, 2010, general and administrative expenses increased by $13.7 million, or 103.8%, to $26.9 million from $13.2 million for the three months ended March 31, 2009. The increase was primarily due to (i) an increase in consulting, legal and bank fees of $9.6 million for the three months ended March 31, 2010 as compared with the three months ended March 31, 2009 that were incurred relating to initiatives undertaken to resolve our credit issues, (ii) increased stock based compensation expenses of $2.2 million primarily related to (a) a cash payment of $0.8 million to Mr. Light with which Mr. Light was obligated to purchase shares of common stock from the Company, which occurred on January 5, 2010 and (b) an amendment to the terms of all performance-based restricted stock units of the Company outstanding on December 24, 2009 that resulted in increased stock based compensation expense of approximately $1.0 million for the three months ended March 31, 2010, (iii) unfavorable currency translation effects of $0.9 million related to the translation of expenses made in currencies other than the U.S. Dollar to U.S. Dollars for financial reporting purposes and (iv) increased provisions for doubtful accounts of approximately $0.8 million during the three months ended March 31, 2010 as compared with the three months ended March 31, 2009.

Restructuring and Impairments Expenses. For the three months ended March 31, 2010, restructuring and impairments expenses increased by $1.5 million to $1.6 million from $0.1 million for the three months

ended March 31, 2009. Restructuring expenses result from our long-term strategy to reduce production costs and improve long-term competitiveness as described above under “Cost Reduction Programs” by closing and/or transferring production from certain of our manufacturing facilities and through headcount reductions. For the three months ended March 31, 2010, restructuring expenses include severance costs of $1.3 million and facility and other costs of $0.3 million.

Research and Development Expenses. For the three months ended March 31, 2010, research and development expenses increased by $0.2 million, or 7.4%, to $2.9 million from $2.7 million for the three months ended March 31, 2009 primarily due to unfavorable currency effects related to the translation of expenses made in currencies other than the U.S. Dollar to U.S. Dollars for financial reporting purposes for the three months ended March 31, 2010 as compared with the three months ended March 31, 2009.

Interest Expense, Net. Net interest expense for the three months ended March 31, 2010 decreased by $0.4 million, or 2.5%, to $15.6 million from $16.0 million for the three months ended March 31, 2009. The decrease is primarily attributable to the termination of all of our interest rate swaps in the amount of $20.0 million on December 31, 2009, which carried fixed interest rates that were higher than variable interest rates. The decrease was partially offset by (i) increased interest rates associated with the waiver entered into on September 29, 2009, (ii) the reclassification of $3.3 million as of March 31, 2010 from accumulated other comprehensive income to interest expense which represents the balance related to the interest rate swaps, for which hedge accounting was discontinued on September 1, 2009, to be reclassified into interest expense over the remaining original term of the derivative as the hedged forecasted transactions are also recorded to interest expense, in accordance with ASC Topic 815 and (iii) unfavorable currency effects of $0.5 million.

Foreign Exchange Loss. For the three months ended March 31, 2010 and 2009, we had a foreign exchange loss of $0.4 million and $1.3 million, respectively. Foreign exchange losses during the first quarter of 2010 were primarily the result of hedging and intercompany activities.

Reorganization Items. Reorganization items are presented separately in our consolidated statements of operations for the three months ended March 31, 2010 and represent expenses that we have identified as directly relating to our chapter 11 proceedings. Reorganization items consist of the write off of deferred financing fees of $14.3 million and legal and professional fees of $0.1 million.

Provision for Income Taxes. For the three months ended March 31, 2010 and 2009, the provision for income taxes was $2.1 million and $3.9 million, respectively. There is no tax benefit reflected in the first quarter of 2010 and 2009 due to losses incurred in certain of our foreign subsidiaries and those in the U.S. for which no benefit was received due to established valuation allowances. The provision for income taxes for the first quarter of 2009 included the establishment of a valuation allowance in Canada of $2.9 million.

LIQUIDITY AND CAPITAL RESOURCES

As discussed above, we and certain of our subsidiaries filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code on the Commencement Date, March 30, 2010. On May 12, 2010, the Bankruptcy Court held a hearing to consider confirmation of the Plan, and entered the Confirmation Order confirming the Plan. For information regarding the impact of our chapter 11 proceedings on our liquidity and capital resources see “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Chapter 11 Reorganization.”

Our operations are highly dependent upon the paper production industry and the degree to which the paper industry is affected by global economic conditions and the availability of credit. Demand for our products could continue to decline if paper manufacturers are unable to obtain required financing or if the economic slowdown causes additional mill closures or continued inventory build-up. In addition, the global economic recession and the ensuing lack of credit availability may affect our customers’ ability to pay their vendors which could have a negative impact on us. These factors would impact our liquidity and our ability to satisfy the covenant requirements of our credit facility.

As previously disclosed in our Quarterly Report of Form 10-Q for the quarter ended September 30, 2009, to provide us additional time to work with our creditors to find long-term solutions to our credit

issues, on September 29, 2009, we entered into Waiver and Amendment No. 1 (the “Waiver Agreement”) to the senior credit facility. As of September 30, 2009, we were not in compliance with certain financial covenants of the Credit Agreement. Pursuant to the Waiver Agreement, the lenders agreed to waive any violation of the interest coverage, leverage and fixed charge covenants under the senior credit facility until the earliest of (i) the occurrence of any other default under the senior credit facility, (ii) our failure to comply with any term of the Waiver Agreement or (iii) December 15, 2009 (the “Waiver Period”). We agreed that during the Waiver Period no new revolving loans may be made to us, and the lenders would not be required to make any loans to us. We could request new letters of credit in an amount up to $3.5 million for equipment purchases and extend the expiration dates for certain outstanding letters of credit. The Waiver Agreement also requires us to report certain additional financial information to the lenders on a monthly basis.

In connection with the Waiver Agreement, we were required to pay aggregate fees to the lenders of approximately $3 million, of which $1.5 million was paid at the time of the effectiveness of the Waiver Agreement and $1.5 million was deferred to the maturity date for the loans under the senior credit facility and will accrue interest at the rate applicable to the loans until that time. In addition, during the period between September 29, 2009 and the Effective Date of the Amended and Restated Credit Facility, the outstanding balance under the senior credit facility bears interest at a rate that is 1.0% per year in excess of the non-default rate otherwise payable during that period under the senior credit facility. The non-default rate was LIBOR, the Euribor or CDOR rate plus the applicable margin of 5.50%.

The waiver was subsequently extended as follows: (a) on December 14, 2009 the waiver was extended until February 1, 2010, (b) on January 29, 2010 the waiver was extended until March 1, 2010, and (c) on February 26, 2010 the waiver was extended until April 1, 2010. Additionally, the February 26, 2010 waiver permanently waived the requirement that our audited financial statements for the year ended December 31, 2009 be accompanied by an audit opinion unqualified as to “going concern”. At each extension date, we paid fees of approximately $0.3 million. We were not in compliance with certain financial covenants of the credit facility as of December 31, 2009.

We and certain of our subsidiaries filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code, on the Commencement Date, March 30, 2010. On May 12, 2010, the Bankruptcy Court held a hearing to consider confirmation of the Plan, and entered the Confirmation Order confirming our joint prepackaged plan of reorganization (the “Plan”). We anticipate the Plan to become effective by the end of May 2010 (the “Effective Date”), at which time we would emerge from chapter 11. However, we can give no assurance as to when, or ultimately if, the Plan will become effective. It is also possible that amendments could be made to the Plan in accordance with the Bankruptcy Code prior to the Plan becoming effective. In connection with this restructuring, we expect to enter into an amendment or restatement of our senior credit facility. For information regarding the expected terms of the amended or restated credit facility see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Chapter 11 Reorganization—Proposed Amended and Restated Credit Facility.”

Our principal liquidity requirements are for debt service, working capital and capital expenditures. We plan to use cash generated by operations as our primary source of liquidity, but we anticipate that revenues and profits may not generate sufficient cash to fund our operations or meet our other liquidity requirements. We are not permitted to make additional borrowings under our revolver under the terms of the waiver agreements and we have limited access to other sources of loans. With the approval of the Bankruptcy Court, we entered into the DIP Facility commitment on April 1, 2010. Also, if we or the directors of our foreign subsidiaries are required to commence insolvency proceedings under the local law applicable in certain of the foreign jurisdictions in which we operate, then we may lose access to cash from our operations in those jurisdictions or may lose control of the assets underlying those operations. Our operations are highly dependent upon the paper production industry and the degree to which the paper industry is affected by global economic conditions and the availability of credit. Demand for our products could decline if paper manufacturers are unable to obtain required financing or if the economic slowdown causes additional mill closures. In addition, the global economic recession and the ensuing lack of availability of credit availability may affect our customers’ ability to pay their debts.

Net cash provided by operating activities was $4.8 million for the three months ended March 31, 2010 compared with net cash used in operating activities of $7.8 million for the three months ended March 31, 2009. The $12.6 million improvement is due to an increase in the volume of business in the three months ended March 31, 2010 as compared with the three months ended March 31, 2009 and a decrease in working capital during the first quarter of 2010 as compared with the first quarter of 2009.

Net cash used in investing activities was $2.5 million for the three months ended March 31, 2010 and $5.1 million for the three months ended March 31, 2009. The improvement of $2.6 million was primarily due to a decrease in capital equipment spending of $4.5 million in the three months ended March 31, 2010 as compared with the three months ended March 31, 2009, partially offset by the proceeds of $1.9 million from the sale of our Swedish roll covers facility on March 31, 2009.

Net cash used in financing activities was $3.3 million for the three months ended March 31, 2010 compared with net cash provided by financing activities of $6.5 million for the three months ended March 31, 2009. The fluctuation of $9.8 million was primarily the result of borrowings under our revolver of $28.0 million during the three months ended March 31, 2009, partially offset by lower debt payments of approximately $20.6 million during the three months ended March 31, 2010 as compared with the three months ended March 31, 2009 and to cash paid for professional fees of $2.3 million relating to initiatives undertaken to resolve our credit issues during the three months ended March 31, 2010 as compared with the three months ended March 31, 2009. We made a mandatory principal repayment of $16.1 million in the first quarter of 2009 and none in the first quarter of 2010.

As of March 31, 2010, there was a $573.5 million balance of term loans outstanding under our senior credit facility. During the first quarter of 2010, we made no scheduled principal payments, which were to have been approximately $6.8 million. In addition, as of March 31, 2010, we had an aggregate of $28.1 million outstanding under our current revolving lines of credit, including the revolving credit facility under our senior credit facility and lines of credit in various foreign countries that are used to facilitate local short-term operating needs and an aggregate of $6.4 million available for additional borrowings under these revolving lines of credit. We were not permitted to make additional borrowings under our revolver during the Waiver Period and during the bankruptcy proceedings and we have limited access to other sources of loans. Our liquidity is substantially affected by the covenant requirements of our credit agreement. See “Credit Facility” below. We had cash and cash equivalents of $21.9 million at March 31, 2010 compared to $23.0 million at December 31, 2009. During the chapter 11 cases, we have access to the DIP Facility for liquidity needs. The DIP Facility includes restrictive covenants that are customary for facilities of this type. Borrowings under the DIP Facility may be made in accordance with the terms thereof and the DIP budget.

CAPITAL EXPENDITURES

For the three months ended March 31, 2010, we had capital expenditures of $2.5 million consisting of growth capital expenditures of $0.4 million and maintenance capital expenditures of $2.1 million. Growth capital expenditures consist of items that are intended to increase the manufacturing, production and/or distribution capacity or efficiencies of our operations in conjunction with the execution of our business strategies. Maintenance capital expenditures are designed to sustain the current capacity or efficiency of our operations and include items relating to the renovation of existing manufacturing or service facilities, the purchase of machinery and equipment for safety and environmental needs and information technology. For the three months ended March 31, 2009, capital expenditures were $7.0 million, consisting of growth capital expenditures of $5.0 million and maintenance capital expenditures of $2.0 million.

We target capital expenditures for 2010 to be approximately $32 million. We analyze our planned capital expenditures based on investment opportunities available to us and our financial and operating performance, and accordingly, actual capital expenditures may be more or less than this amount.

See “—Credit Facility” below for a description on limitations on capital expenditures imposed by our credit facility. We anticipate similar limitations on capital expenditures under the Amended and Restated Credit facility and the Exit Facility following the Effective Date.

CREDIT FACILITY

We and certain of our subsidiaries filed voluntary petitions for relief under chapter 11 of title 11 of the Bankruptcy Code on the Commencement Date, March 30, 2010. On May 12, 2010, the Bankruptcy Court held a hearing to consider confirmation of the Plan and entered the Confirmation Order confirming the Plan. We anticipate the Plan to become effective by the end of May 2010, at which time we would emerge from chapter 11. Pursuant to the Plan, on the Effective Date, we expect to enter into an amendment

and restatement of our credit facility pursuant to which, among other things, the total outstanding debt obligations under the credit facility, which at March 31, 2010 are approximately $621.3 million, will be reduced to approximately $410 million. For information regarding the expected terms of the amended and restated credit facility see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Chapter 11 Reorganization—Proposed Amended and Restated Credit Facility.” The discussion below reflects our credit facility in effect prior to the Effective Date, and does not reflect any amendment to the facility that may occur as a result of the emergence from bankruptcy.

Upon the completion of the initial public offering of our common stock on May 19, 2005, we and certain of our subsidiaries entered into a senior secured credit facility. The credit facility was amended several times, most recently by the Waiver Agreement described below.

The credit facility requires that we satisfy certain operating requirements and financial covenant ratios in order to avoid a default or event of default under the senior credit facility agreement. See further discussion below. As previously disclosed in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, to provide us additional time to work with our creditors to find long-term solutions to our credit issues, on September 29, 2009, we entered into the Waiver Agreement to the Credit Agreement. As of September 30, 2009, we were not in compliance with certain financial covenants of the credit facility.

Pursuant to the Waiver Agreement, the lenders agreed to waive any violation of the interest coverage, leverage and fixed charge covenants under the senior credit facility until the earliest of (i) the occurrence of any other default under the credit facility, (ii) our failure to comply with any term of the Waiver Agreement or (iii) December 15, 2009 (the “Waiver Period”). We agreed that during the Waiver Period no new revolving loans may be made to us, and the lenders would not be required to make any loans to us. We may request new letters of credit in an amount up to $3.5 million for equipment purchases and may extend the expiration dates for certain outstanding letters of credit. The Waiver Agreement also required us to report certain additional financial information to the lenders on a monthly basis. In connection with the Waiver Agreement, we were required to pay aggregate fees to the lenders of approximately $3 million, of which $1.5 million was paid at the time of the effectiveness of the Waiver Agreement and $1.5 million was deferred to the maturity date for the loans under the credit facility and will accrue interest at the rate applicable to the loans until that time. In addition, during the period between September 29, 2009 and the Effective Date of the Amended and Restated Credit Facility the outstanding balance under the credit facility was to bear interest at a rate that is 1.0% per year in excess of the non-default rate otherwise payable during that period under the credit facility. The non-default rate was LIBOR, the Euribor or CDOR rate plus the applicable margin of 5.50%.

On December 14, 2009 the waiver was extended until February 1, 2010, on January 29, 2010 the waiver was extended until March 1, 2010, and (c) on February 26, 2010 the waiver was extended until April 1, 2010. Additionally, the February 26, 2010 waiver permanently waived the requirement that our audited financial statements for the year ended December 31, 2009 be accompanied by an audit opinion unqualified as to “going concern”. At each extension date, we paid fees of approximately $0.3 million.

We were not in compliance with certain financial covenants of the Credit Agreement as of December 31, 2009.

The description of the credit facility below describes the facility as amended and restated on May 30, 2008, and further amended on September 29, 2009, December 14, 2009, January 29, 2010 and February 26, 2010.

Our credit facility provides for a $50 million senior secured revolving credit facility and for term loans that had a total principal amount of $650 million as of May 2005. Because the term loans include portions denominated in Euros and Canadian dollars, in addition to a U.S. Dollar denominated portion, the aggregate outstanding principal on our term loans is affected by our currency exchange rates as well as principal repayments. The revolving credit facility matures on November 19, 2011, and the term loans mature on May 19, 2012. The credit facility is secured by substantially all of our assets and the assets of most of our subsidiaries, subject to legal and tax considerations and requirements.

Borrowings under the revolving credit facility and the term loans bear interest at the sum of, as applicable, LIBOR, the Euribor or CDOR rate plus, in each case, the applicable margin. The applicable margin was set at 5.50% through December 31, 2008. Beginning January 1, 2009, the applicable margin depends upon our credit rating level: it will be 2.75% if our credit rating is Ba3 or higher by Moody’s and

BB- or higher by S&P, 3.75% if our credit rating is B1 by Moody’s or B+ by S&P, 4.25% if our credit rating is B3 or higher but lower than B1 by Moody’s and ‘B-’ or higher but lower than ‘B+’ by S&P, and 5.50% if our credit rating is lower than B3 by Moody’s or lower than B- by S&P. In order to qualify at each level the rating must be with a stable outlook. Our current credit rating is ‘D’ by S&P and our rating by Moody’s has been withdrawn. Our current applicable margin is 5.50%, except that during the period between September 29, 2009, the date the Company entered into Waiver and Amendment No. 1 (the “Waiver Agreement”) to the Credit Agreement, and the Effective Date of the Amended and Restated Credit Facility, the outstanding balance under the credit facility will bear interest at a rate that is 1.0% per year in excess of this rate.

On December 31, 2009, we terminated with the counterparties all of our outstanding interest rate swap liabilities of $20.0 million and converted them into notes payable to such counterparties. The swap termination counterparties have rights similar to the lenders under the credit facility. Prior to their termination with the counterparties, the interest rate swaps effectively fixed, from a cash flow hedge perspective, the interest rate on approximately 79% of the term loan portion of our credit facility through December 31, 2010 at 10.75%. As a result of the termination of the interest rate swaps, the interest rate on the term loan portion of the credit facility is no longer effectively fixed through December 31, 2010, the original term of the swaps.

Prior to September 1, 2009, the effective portion of changes in the fair value of interest rate derivatives designated and that qualified as cash flow hedges were recorded in accumulated other comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged forecasted transaction affected earnings. The ineffective portion of the change in fair value of the derivatives was recognized directly in earnings. The balance in accumulated other comprehensive loss as of August 31, 2009 related to the interest rate swaps for which hedge accounting was discontinued was to be subsequently reclassified into the statement of operations (interest expense) over the remaining original term of the derivative as the hedged forecasted transactions are also recorded to interest expense, in accordance with Topic 815. In addition, as of March 31, 2010, we determined that it is probable that future interest payments on the debt that is in excess of the $410 million (discussed in Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements) will not occur. As a result, we reclassified $0.7 million from accumulated other comprehensive income to interest expense, which represents the balance in accumulated other comprehensive income relating to interest payments on the debt that is in excess of $410 million. As of March 31, 2010, after this reclassification, the remaining balance in accumulated other comprehensive loss related to interest rate swaps was $6.6 million, which will be amortized to interest expense through December 31, 2010, the original term of the swaps. If we are not able to restructure our debt obligations in a manner that is consistent with the hedged forecasted transactions or if our lenders accelerate the debt under the senior credit facility so that it is payable prior to the original expiration of the underlying interest rate swaps (prior to their termination, as previously discussed), the cumulative mark to market changes in the fair value of the underlying interest rate swaps that have been recorded in accumulated other comprehensive loss would be charged to the statement of operations at that time.

The existing credit facility provides for remaining scheduled quarterly principal payments, in the aggregate amount of $70.2 million for the years 2010 through 2012, as outlined below, and a balloon payment of $513.4 million due at maturity in May 2012:


	USD Denominated Debt (in USD)	Euro Denominated Debt (in Euro)	Canadian Dollar Denominated Debt (in CAD)	Total Scheduled Quarterly Payments Converted into USD (in USD millions)
	(in millions)
2010	3.3	1.9	0.8	$	6.8
2011	4.1	2.3	1.0		8.3
2012 (first quarter only)	4.9	2.8	1.2		10.0

				$	25.1

The existing credit facility provides that for the purposes of computing debt, which is a part of the calculation of the leverage ratio, indebtedness which is payable in Canadian Dollars or Euros shall be converted into U.S. Dollars using the average exchange rate for the period of four consecutive fiscal quarters ended March 31, 2008. Accordingly, if the value of the U.S. Dollar increases relative to the Euro or the Canadian Dollar and our Adjusted EBITDA declines as a result of this currency effect, there would not be a corresponding decrease in the amount of our debt for purposes of the leverage ratio covenant calculation.

The existing credit facility also requires us to make additional prepayments of the term loans under the following circumstances:

•

with 100% of the net cash proceeds received by us from any sale, transfer or other disposition of any assets (excluding inventory and certain discontinued manufacturing facilities), subject to an exemption for the reinvestment of up to $3 million of such proceeds within a year of our receipt thereof in long-term productive assets of the general type used in our business;

•

with 100% of the net cash proceeds received by us from any insurance recovery or condemnation events, subject to certain exceptions and reinvestment rights and exempting the first $2 million;

•

with 75% of the net cash proceeds from the issuance of any common stock, subject to customary exceptions and exempting the first $100,000;

•

with 100% of the net cash proceeds from the incurrence of any indebtedness by us (excluding indebtedness permitted under the credit facility, but including any subordinated indebtedness), subject to customary exceptions; and

•

with 75% of our excess cash on an annual basis; that is, our Adjusted EBITDA minus consolidated interest expense, cash income tax expense, consolidated capital expenditures (subject to certain exceptions), consolidated restructuring costs, cash payments of withholding taxes from proceeds of the repurchase, redemption or retention of common stock and the aggregate amount of scheduled and voluntary payments made during the past fiscal year.

Prior to the effectiveness of the amendment and restatement of our credit facility, the percentage of our annual excess cash required to be prepaid was 40% for 2007, 27.5% for 2008 and 50% for each fiscal year thereafter. We made mandatory principal prepayments from excess cash of $19.2 million and $9.4 million in the years ended December 31, 2009 and 2008, respectively. During 2008, we also made a voluntary repayment of $6.1 million.

Our existing credit facility requires that we observe and perform numerous affirmative and negative covenants, including certain financial covenants. The financial covenants per the existing credit facility are as follows:


Minimum Interest Coverage Ratio:	Four Fiscal Quarters Ending	Ratio
The ratio of four quarter Adjusted EBITDA to interest expense.	March 31, 2009 to March 31, 2010	2.00:1.00
	June 30, 2010 to March 31, 2011	2.25:1.00
	June 30, 2011 to December 31, 2011	2.50:1.00
	March 31, 2012	2.75:1.00

Minimum Fixed Charge Coverage Ratio:	Four Fiscal Quarters Ending	Ratio
The ratio of four quarter Adjusted EBITDA to fixed charges (interest expense, scheduled principal payments, and cash taxes).	June 30, 2009 to March 31, 2012	1.20:1.00

Maximum Leverage Ratio:	Four Fiscal Quarters Ending	Ratio
The ratio of outstanding debt to four quarter Adjusted EBITDA.	June 30, 2009 and September 30, 2009	5.25:1.00
	December 31, 2009	5.00:1.00
	March 31, 2010 and June 30, 2010	4.75:1.00
	September 30, 2010	4.50:1.00
	December 31, 2010 and March 31, 2011	4.25:1.00
	June 30, 2011 to March 31, 2012	4.00:1.00

We were not in compliance with these financial covenants as of March 31, 2010.

Our existing credit facility defines consolidated capital expenditures for a particular fiscal year as all expenditures required under GAAP to be included in “purchase of property and equipment” or similar items. The credit facility limits the amount of our consolidated capital expenditures in any given fiscal year to an amount not exceeding $50 million for fiscal year 2008 and $35 million for each of fiscal years 2009, 2010 and 2011, exclusive of capital expenditures paid with net insurance and condemnation proceeds;

provided that the maximum amount of consolidated capital expenditures permitted in each fiscal year shall be increased by 50% of the amount below the maximum not spent in the prior fiscal year (determined without reference to any carryover amount); and provided, further, that solely for fiscal year 2008, the maximum amount that may be carried forward to fiscal year 2009 shall equal 100% of the first $10 million of any permitted consolidated expenditures not expended in fiscal year 2008 plus 50% of any remaining expenditures not expended in fiscal year 2008.

Our credit facility also prohibits the payment of dividends on our common stock.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. We have formal accounting policies in place including those that address critical and complex accounting areas. Note 3 to the consolidated financial statements included elsewhere in this Quarterly Report identify the significant accounting policies used in preparation of the consolidated financial statements. The most significant areas involving management judgments and estimates are described below.

Derivatives and Hedging. Effective January 1, 2009, we adopted ASC Topic 815-10-65-1, Transition and Effective Date Related to FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (“Topic 815-10-65-1”) for disclosure related to derivatives and hedging. Topic 815-10-65-1 amends and expands the disclosure requirements to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Topic 815-10-65-1 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative instruments.

As required by Topic 815, we record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of our risks, even though hedge accounting does not apply or if we elect not to apply hedge accounting under Topic 815.

There are two types of hedges into which we enter: hedges of fair value exposure and hedges of cash flow exposure. Hedges of fair value exposure are entered into in order to hedge the fair value of a recognized asset or liability, or a firm commitment. Hedges of cash flow exposure are entered into in order to hedge a forecasted transaction or the variability of cash flows to be paid related to a recognized liability. Changes in derivative fair values are recognized in earnings as offsets to the changes in fair value of the related hedged assets and liabilities. Changes in the derivative fair values that are designated as cash flow hedges which meet the criteria for hedge accounting are recorded in other comprehensive income (loss). On December 31, 2009, we terminated with the counterparties all of our outstanding interest rate swap liabilities of $20.0 million and converted them into notes payable to such counterparties. The swap termination counterparties have rights similar to the lenders under the credit facility. Prior to their termination with the counterparties, the interest rate swaps effectively fixed, from a cash flow hedge perspective, the interest rate on approximately 79% of the term loan portion of our credit facility through

December 31, 2010 at 10.75%. As a result of the termination of the interest rate swaps, the interest rate on the term loan portion of the credit facility is no longer effectively fixed through December 31, 2010, the original term of the swaps.

Prior to September 1, 2009, the effective portion of changes in the fair value of derivatives designated and that qualified as cash flow hedges were recorded in accumulated other comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged forecasted transaction affected earnings. The ineffective portion of the change in fair value of the derivatives was recognized directly in earnings. The balance in accumulated other comprehensive loss as of August 31, 2009 related to the interest rate swaps for which hedge accounting was discontinued was to be subsequently reclassified into the statement of operations (interest expense) over the remaining original term of the derivative as the hedged forecasted transactions are also recorded to interest expense, in accordance with Topic 815. In addition, as of March 31, 2010, we determined that it is probable that future interest payments on the debt that is in excess of the $410 million (discussed in Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements) will not occur. As a result, reclassified $0.7 million from accumulated other comprehensive income to interest expense, which represents the balance in accumulated other comprehensive income relating to interest payments on the debt that is in excess of $410 million. As of March 31, 2010, after this reclassification, the remaining balance in accumulated other comprehensive loss related to interest rate swaps was $6.6 million, which will be amortized to interest expense through December 31, 2010, the original term of the swaps. If we are not able to restructure our debt obligations in a manner that is consistent with the hedged forecasted transactions or if our lenders accelerate the debt under the senior credit facility so that it is payable prior to the original expiration of the underlying interest rate swaps (prior to their termination, as previously discussed), the cumulative mark to market changes in the fair value of the underlying interest rate swaps that have been recorded in accumulated other comprehensive loss would be charged to the statement of operations at that time.

We have measured our derivative assets and liabilities under Topic 820 and have classified our interest rate swaps in Level 2 of the Topic 820 fair value hierarchy, as the significant inputs to the overall valuations are based on market-observable data or information derived from or corroborated by market-observable data, including market-based inputs to models, model calibration to market-clearing transactions, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Where models are used, the selection of a particular model to value a derivative depends upon the contractual terms of, and specific risks inherent in, the instrument as well as the availability of pricing information in the market. We use similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, and correlations of such inputs. For our derivatives, all of which traded in liquid markets, model inputs can generally be verified and model selection does not involve significant management judgment.

To comply with the provisions of Topic 820, we incorporated credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements of our derivatives. The credit valuation adjustments are calculated by determining the total expected exposure of the derivatives (which incorporates both the current and potential future exposure) and then applying each counterparty’s credit spread to the applicable exposure. For derivatives with two-way exposure, such as interest rate swaps, the counterparty’s credit spread is applied to our exposure to the counterparty, and our own credit spread is applied to the counterparty’s exposure to us, and the net credit valuation adjustment is reflected in our derivative valuations. The total expected exposure of a derivative is derived using market-observable inputs, such as yield curves and volatilities. The inputs utilized for our own credit spread are based on implied spreads from its publicly-traded debt. For counterparties with publicly available credit information, the credit spreads over LIBOR used in the calculations represent implied credit default swap spreads obtained from a third party credit data provider. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Additionally, we actively monitor counterparty credit ratings for any significant changes.

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. We do not have any fair value measurements using significant unobservable inputs (Level 3) as of March 31, 2010.

However, as of March 31, 2010, the credit valuation adjustments have no impact on the overall valuation of our derivative positions as we terminated all of our outstanding interest rate swaps with the counterparties on December 31, 2009. Various factors which impact changes in the credit are not significant to the overall valuation adjustments over time, including changes in the credit spreads of the parties to the contracts, as well as changes in market rates and volatilities, which affect the total expected exposure of the derivative instruments.

Goodwill . We account for acquired goodwill and intangible assets in accordance with ASC Topic 805, Business Combinations (“Topic 805”). Purchase accounting required by Topic 805 involves judgment with respect to the valuation of the acquired assets and liabilities in order to determine the amount of goodwill. We have recorded our acquisitions in accordance with Topic 805.

Impairment of Goodwill and Indefinite-Lived Intangible Assets. We account for acquired goodwill and goodwill impairment in accordance with Topic 350, which requires considerable judgment in the valuation of acquired goodwill and the ongoing evaluation of goodwill impairment. Topic 350 requires that goodwill and intangible assets that have indefinite lives not be amortized but, instead, must be tested at least annually for impairment or whenever events or business conditions warrant.

We perform an annual test for goodwill impairment as of December 31st at the business segment level. We have two business segments: clothing and roll covers. When our business was acquired in 1999, more than 80% of the goodwill was assigned to the roll covers segment based on relative fair values at the date of acquisition.

Goodwill impairment testing is a two-step process. Step 1 involves comparing the fair value of our reporting unit to its carrying amount. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit carrying amount is greater than the fair value then the second step must be completed to measure the amount of impairment, if any. Step 2 calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in Step 1. The implied fair value of goodwill determined in this step is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is recognized equal to the difference.

For the purpose of performing the annual impairment test, we allocate all shared assets and liabilities to the business segments based upon the percentage of each segment’s revenue to total revenue. Shared expenses are allocated to each segment to the extent necessary to allow them to operate as independent businesses. Fair value was determined by using a weighted combination of both a market multiple approach and an income approach. The market multiple approach utilizes our proprietary information to determine measures that are used to value our business segments. The income approach is a present value technique used to measure the fair value of future cash flows produced by each business segment. Determining the fair value of a business segment or an indefinite-lived purchased intangible asset is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates and operating margins, discount rates and future market conditions, among others. We believe that the assumptions and rates used in our annual impairment test under Topic 350 are reasonable, but inherently uncertain.

As of December 31, 2009, we recorded a non-cash charge for goodwill impairment of $80.6 million related to our roll covers segment based on assessments performed as of that date. Applying the guidance of Topic 350, we determined that as of December 31, 2009, goodwill for the roll covers segment was impaired primarily due to the adverse effect of our credit issues and the effects of the current global economic environment. Step 1 of the process indicated that the fair value of the net assets of the roll covers segment was $3.7 million less than their carrying value as of December 31, 2009. Based on the Step 1 result, we proceeded with Step 2. Based on the increase in fair value of tangible and intangible assets over book value of $77 million as determined in Step 2, an aggregate impairment of $80.6 million was recorded in the roll covers segment. To date, there have been no indicators of impairment or recorded goodwill impairment for our clothing segment. The excess of the fair value over the carrying value for our clothing segment as of December 31, 2009 was approximately $142 million. In order to evaluate the sensitivity of the analysis performed, we applied a hypothetical 5% decrease to the fair value of this business segment, which resulted in a fair value in excess of carrying value of approximately $116 million for the clothing segment.

During the first quarter of 2010, we evaluated business conditions to determine if a test for an impairment of goodwill was warranted, specifically our filing of voluntary petitions for relief under chapter 11 of the Bankruptcy Code on March 30, 2010. The adverse effects of our credit issues were considered when determining the amount of our impairment of goodwill recorded at December 31, 2009. Accordingly, no test was determined to be warranted at March 31, 2010.

Contingencies. We are subject to various claims and contingencies associated with lawsuits, insurance, tax, environmental and other issues arising out of the normal course of business. Our consolidated financial statements reflect the treatment of claims and contingencies based on management’s view of the expected outcome. We consult with legal counsel on those issues related to litigation with respect to matters in the ordinary course of business. If the likelihood of an adverse outcome is probable and the amount is estimable, we accrue a liability in accordance with ASC Topic 450, Contingencies. While we believe that the current level of reserves is adequate, the adequacy of these reserves may change in the future due to new developments in particular matters. During the third quarter of 2008, while evaluating one of our foreign facilities, we discovered the possibility of contamination at the facility. Subsequently we had a preliminary evaluation performed, which confirmed the existence of contamination and estimated preliminary costs to clean up the facility. Based upon this evaluation, we recorded $4.1 million in 2008 as our best estimate of the remediation costs we expected to incur. A Phase II assessment of the ground water contamination performed for us during the second quarter of 2009 indicated the costs to remediate the contamination would be significantly less than originally estimated and accordingly, we reduced the accrual by $3.4 million during the second quarter of 2009 based on this assessment. We believe that any additional liability in excess of amounts provided which may result from the resolution of environmental matters will not have a material adverse effect on our financial condition, liquidity or cash flow.

Income Taxes. We utilize the asset and liability method for accounting for income taxes in accordance with ASC Topic 740, Income Taxes (“Topic 740”). Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates and statutes that will be in effect when the differences are expected to reverse.

We reduce our deferred tax assets by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Relevant evidence, both positive and negative, is considered in determining the need for a valuation allowance. Information evaluated includes our financial position and results of operations for the current and preceding years as well as an evaluation of currently available information about future years. In light of our accumulated loss position in certain tax jurisdictions, and the uncertainty of taxability in future periods, we recorded valuation allowances for deferred tax assets primarily related to net operating loss carryforwards in Australia, Canada, Germany, Sweden, the United Kingdom and the United States.

In addition, we operate within multiple taxing jurisdictions and could be subject to audit in these jurisdictions. These audits can involve complex issues and rely on estimates and assumptions. These audits may require an extended period of time to resolve and may cover multiple years. Although we believe that the estimates and assumptions are reasonable, the final determination of tax audits and any related litigation could be different than that which is reflected in historical income tax provisions and recorded assets and liabilities. There are currently no U.S. Federal or state income tax audits or examinations underway. In May 2009, we concluded an audit relating to our German subsidiaries for tax years 1999 through 2002. No further adjustments not previously recorded were required in the year ended December 31, 2009 as a result of this settlement. The Canadian Revenue Authority contacted us in October of 2008 and has initiated an audit of our Canadian companies. The audit is still in the initial information gathering stages and no issues or assessments have been raised. The Italian tax authority and the Finnish tax authority are also in the process of conducting an examination for certain of our Italian and Finnish entities. The audit is still in the initial information gathering stages and we are currently working to address issues that have been raised. We believe that there are no other jurisdictions in which the outcome of unresolved issues or claims is likely to be material to our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties.

ASC Topic 740-10-25 relates to uncertain tax positions and prescribes a two-step process to determine the amount of tax benefit to be recognized as it relates to uncertain tax positions. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the taxing authority that has full knowledge of all relevant information.

NON-GAAP LIQUIDITY MEASURES

We use EBITDA and Adjusted EBITDA as supplementary non-GAAP liquidity measures to assist us in evaluating our liquidity and financial performance, specifically our ability to service indebtedness and to fund ongoing capital expenditures. Our current credit facility includes covenants based on Adjusted EBITDA and the anticipated Amended and Restated Credit Facility following our emergence from bankruptcy will include similar covenants. If our Adjusted EBITDA declines below certain levels, we will violate the covenants resulting in a default condition under the credit facility or be required to prepay the credit facility. Neither EBITDA nor Adjusted EBITDA should be considered in isolation or as a substitute for income (loss) from operations (as determined in accordance with GAAP).

EBITDA is defined as net income (loss) before interest expense, income tax provision (benefit) and depreciation (including non-cash impairment charges) and amortization.

Adjusted EBITDA is defined in our existing credit facility as EBITDA plus (i) restructuring or related impairment costs (not to exceed $5.0 million in the aggregate for 2008 and in each year thereafter), (ii) reserves for inventory in connection with plant closings, (iii) stock-based and other non-cash compensation charges, charges from forgiveness of loans made to employees in connection with the purchase of equity and any tax gross-up payments made in respect of such loan forgiveness in connection with or prior to the completion of our initial public offering, (iv) certain transaction costs, including costs incurred in connection with our initial public offering and the related debt financing, the legal reorganization of Brazilian subsidiaries and the preparation and closing of the existing credit agreement, (v) consolidated amendment/termination costs, which consist of costs incurred in connection with the consummation of the fourth and fifth amendments to the senior credit facility and the termination of the employment contract of the former Chief Executive Officer and transition to the new Chief Executive Officer, not to exceed $8.0 million in the aggregate, (vi) costs associated with payments to management prior to the completion of our initial public offering in connection with the termination of incentive plans, (vii) non-cash charges resulting from the application of purchase accounting, (viii) non-cash expenses resulting from the granting of stock options, restricted stock or restricted stock unit awards under equity compensation programs solely with respect to our common stock and (ix) expenses incurred not exceeding $7 million per year as a result of the repurchase, redemption or retention of our own common stock earned under equity compensation programs solely in order to make withholding tax payments. Adjusted EBITDA, as defined in the credit facility and calculated below, may not be comparable to similarly titled measurements used by other companies.

Under the Amended and Restated credit facility, changes in the definition of Adjusted EBITDA include the add back of the following items, without duplication to the extent that any of these items were deducted in computing consolidated net income (loss) for the period: (i) financial restructuring costs, (ii) the amortization or write-offs of deferred financing costs, (iii) non-cash items related to a change in or adoption of accounting policies, (iv) non-cash expenses resulting from the granting of common stock and (v) certain other items that were not applicable during the first quarter of 2010.

The following table provides a reconciliation from net loss, which is the most directly comparable GAAP financial measure, to EBITDA and Adjusted EBITDA. The three months ended March 31, 2010 are presented based on the Adjusted EBITDA definitions in the Amended and Restated Credit Facility which the Company expects to enter into on the Effective Date. The three months ended March 31, 2009 are presented based on the Adjusted EBITDA definitions in effect under the credit agreement at that time. Had the expected definitions been in place for 2009, the only change to Adjusted EBITDA for the three months ended March 31, 2009 would have been an increase of $398 as the change in the fair value of interest rate swaps is not an adjustment under the definition of Adjusted EBITDA in the Amended and Restated credit facility.


	Three Months Ended March 31,
*(in thousands)*	2010			2009

Net loss	$	(30,157	)	$	(9,448	)
Income tax provision		2,136			3,892
Interest expense, net		15,644			15,957
Depreciation and amortization		10,451			9,788

EBITDA		(1,926	)		20,189
Change in fair value of interest rate swaps		—			(398	)
Restructuring expenses		1,567			114
Inventory write-offs under restructuring programs		—			103
Non-cash compensation and related expenses(D)		2,389			161
Change in accounting policies(A)		(1,400	)		—
Financial restructuring costs(B)		9,563			—
Write-off of deferred financing costs as “reorganization item”(C)		14,283			—

Adjusted EBITDA	$	24,476		$	20,169

Based on the Adjusted EBITDA definitions in the Amended and Restated Credit Facility which the Company expects to enter into on the Effective Date:

(A)

Changes in non-cash items related to a change in or adoption of accounting policies are added back to (deducted from) EBITDA to arrive at Adjusted EBITDA for periods beginning after the quarter ended December 31, 2009. For the three months ended March 31, 2009, such items were not added back to EBITDA based upon the credit facility agreement as in effect at that time. Had the amended definition been in place for all periods presented, there would have been no impact to Adjusted EBITDA for the three months ended March 31, 2009 as there were no charges or credits recorded during that period pertaining to changes in or adoption of accounting policies.

(B)

Financial restructuring costs that have been expensed to the statement of operations are added back to EBITDA to arrive at Adjusted EBITDA for periods beginning after the quarter ended December 31, 2009. For the three months ended March 31, 2009, such items were not added back to EBITDA based upon the credit facility agreement as in effect at that time. Had the amended definition been in place for all periods presented, there would have been no impact to Adjusted EBITDA for the three months ended March 31, 2009 as there were no charges recorded during that period pertaining to financial restructuring costs.

(C)

The write-off of deferred financing costs included in reorganization items in the statement of operations is added back to EBITDA to arrive at Adjusted EBITDA for periods beginning after the quarter ended December 31, 2009. As of March 31, 2010, the Company was required to record such costs in “reorganization items” as per Accounting Standards Codification Topic 852, Reorganizations , as a result of its filing voluntary petitions for relief under chapter 11 on March 30, 2010. Prior to March 31, 2010, any write-offs of deferred financing costs were charged to interest expense and accordingly added back in the “interest expense, net” line item of the Adjusted EBITDA reconciliation above. Accordingly the amended definition has no impact on total Adjusted EBITDA for the three months ended March 31, 2010 or the three months ended March 31, 2009 because under both definitions the write-off of deferred financing costs was allowed as an add back.

(D)

The three months ended March 31, 2010 include an add back of $539 to EBITDA to arrive at Adjusted EBITDA related to shares of common stock that were sold to Mr. Light on January 5, 2010 for this amount in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended. Had the amended definition been in place for the three months ended March 31, 2009, there would have been no impact to Adjusted EBITDA for the three months ended March 31, 2009 as there were no charges recorded during that period pertaining to the issuance of common stock.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Hedging. We have foreign currency cash flow and earnings exposure with respect to specific sale and intercompany debt transactions denominated in currencies other than the functional currency of the unit incurring the costs associated with such transactions. To mitigate the risks related to these exposures, we utilize forward currency contracts in certain circumstances, to lock in exchange rates with the objective that the gain or loss on the forward contracts will approximate the loss or gain on the transaction or transactions being hedged. We determine whether to enter into hedging arrangements based upon the size of the underlying transaction or transactions, an assessment of the risk of adverse movements in the applicable currencies and the availability of a cost-effective hedging strategy. In South America, substantially all of our sales are indexed to U.S. Dollars, but the associated costs are recorded in the local currencies of the operating units. Generally, we do not hedge this U.S. Dollar exposure as it would not be cost effective due to the relatively inefficient foreign exchange markets for local currencies in that region. To the extent we do not engage in hedging or such hedging is not effective, changes in the relative value of currencies can affect our profitability. The value of these contracts is recognized at fair value based on market exchange forward rates and amounted to a net liability position of less than $0.1 million at March 31, 2010. These contracts mature at various dates through August 2010.

For additional information about the risks associated with fluctuations in currency exchange rates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Foreign Exchange.”

Interest Rate Hedging . Our senior credit facility has a variable interest rate and we had entered into interest rate swap arrangements pursuant to which we paid fixed rates on notional amounts while receiving the applicable floating LIBOR, Euribor or CDOR rates. On December 31, 2009, we terminated with the counterparties all of our outstanding interest rate swap liabilities of $20.0 million and converted them into notes payable to such counterparties. The swap termination counterparties have rights similar to the lenders under the credit facility. Prior to their termination with the counterparties, the interest rate swaps effectively fixed, from a cash flow hedge perspective, the interest rate on approximately 79% of the term loan portion of our credit facility through December 31, 2010 at 10.75%. As a result of the termination of the interest rate swaps, the interest rate on the term loan portion of the credit facility is no longer effectively fixed through December 31, 2010, the original term of the swaps. The applicable margin for our LIBOR term loans, LIBOR revolving loans, Euribor loans and CDOR loans under our senior credit facility is 5.50%, except that during the period between September 29, 2009, the date the Company entered into Waiver and Amendment No. 1 (the “Waiver Agreement”) to the Credit Agreement, and the Effective Date of the Amended and Restated Credit Facility, the outstanding balance under the credit facility will bear interest at a rate that is 1.0% per year in excess of this rate. We estimate that a 1% increase in the LIBOR rate would increase our interest expense on the term debt by approximately $5.7 million on an annual basis through December 31, 2010, the period covered by the interest rate swap agreements that we terminated with the counterparties on December 31, 2009.

Prior to September 1, 2009, the effective portion of changes in the fair value of derivatives designated and that qualified as cash flow hedges were recorded in accumulated other comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged forecasted transaction affected earnings. The ineffective portion of the change in fair value of the derivatives was recognized directly in earnings. The balance in accumulated other comprehensive loss as of August 31, 2009 related to the interest rate swaps for which hedge accounting was discontinued was to be subsequently reclassified into the statement of operations (interest expense) over the remaining original term of the derivative as the hedged forecasted transactions are also recorded to interest expense, in accordance with Topic 815. In addition, as of March 31, 2010, we determined that it is probable that future interest payments on the debt that is in excess of the $410 million (discussed in Note 1 the Notes to Unaudited Condensed Consolidated Financial Statements) will not occur. As a result, we reclassified $0.7 million from accumulated other comprehensive income to interest expense, which represents the balance in accumulated other comprehensive income relating to interest payments on the debt that is in excess of $410 million. As of March 31, 2010, after this reclassification, the remaining balance in accumulated other comprehensive loss related to interest rate swaps was $6.6 million, which will be amortized to interest expense through December 31, 2010, the original term of the swaps. If we are not able to restructure our debt obligations in a manner that is consistent with the hedged forecasted transactions or if our lenders

accelerate the debt under the senior credit facility so that it is payable prior to the original expiration of the underlying interest rate swaps (prior to their termination, as previously discussed), the cumulative mark to market changes in the fair value of the underlying interest rate swaps that have been recorded in accumulated other comprehensive loss would be charged to the statement of operations at that time.

Due to reduced credit limits at some of our banks, we have entered into fewer foreign currency hedging arrangements and may not be able to enter into as many hedging arrangements in the future. As discussed above, we also were required to discontinue cash flow hedge accounting prospectively effective September 1, 2009 for our interest rate swaps so that the mark to market changes in their fair value are charged or credited to interest expense. Consequently, our financial statements are more exposed to the effects of currency and interest rate fluctuations, respectively, both favorable and unfavorable, which could have a material impact on our results of operations.

ITEM 4T.

CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures . We have carried out an evaluation, as of March 31, 2010 under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934, as amended (the “Act”). Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures. No evaluation of disclosure controls and procedures can provide absolute assurance that these controls and procedures will operate effectively under all circumstances. However, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective at the reasonable assurance level as set forth above.

(b) Changes in Internal Control over Financial Reporting. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended March 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

On the Commencement Date, March 30, 2010, we and certain of our subsidiaries filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The chapter 11 cases are being jointly administered under the caption “In re Xerium Technologies, Inc. et al.” Case No. 10-11031(KJC). We and our subsidiaries that filed for chapter 11 protection have continued to operate our businesses and manage our properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court, and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. In connection with the chapter 11 cases, we requested the Bankruptcy Court to enter a series of orders designed to minimize any disruption of business operations, and to enter an order authorizing us to enter into the DIP Facility, make adequate protection payments approved by the Bankruptcy Court, and fund costs, fees and expenses incurred in connection with the administration and prosecution of the chapter 11 cases. Each of the requests for relief was granted by the Bankruptcy Court. On May 12, 2010, the Bankruptcy Court held a hearing to consider confirmation of the Plan, and entered the Confirmation Order confirming the Plan. We anticipate the Plan to become effective by the end of May 2010, the Effective Date, at which time we would emerge from chapter 11. However, we can give no assurance as to when, or ultimately if, the Plan will become effective. It is also possible that amendments could be made to the Plan in accordance with the Bankruptcy Code prior to the Plan becoming effective. Although the Bankruptcy Court has entered the Confirmation Order confirming the Plan, the ultimate impact that the events occurring during these proceedings will have on our business, financial condition and results of operations and ability to retain executive officers and key employees cannot be predicted accurately or quantified.

We are involved in various legal matters, which have arisen in the ordinary course of business. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our financial position, results of operations or cash flow.

ITEM 1A.

RISK FACTORS

The risks described in the risk factors included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 have not materially changed. However, on the Commencement Date, March 30, 2010, we and certain of our subsidiaries filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The chapter 11 cases are being jointly administered under the caption “In re Xerium Technologies, Inc., et al.”, Case No. 10-11031(KJC). We and our subsidiaries that filed for chapter 11 protection have continued to operate our businesses and manage our properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court, and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. On May 12, 2010, the Bankruptcy Court held a hearing to consider confirmation of the Plan, and entered the Confirmation Order confirming the Plan. We anticipate the Plan to become effective by the end of May 2010 (the Effective Date), at which time we would emerge from chapter 11. However, we can give no assurance as to when, or ultimately if, the Plan will become effective. It is also possible that amendments could be made to the Plan in accordance with the Bankruptcy Code prior to the Plan becoming effective. Although the Bankruptcy Court has entered the Confirmation Order confirming the Plan, the ultimate impact that the events occurring during these proceedings will have on our business, financial condition and results of operations and ability to retain executive officers and key employees cannot be predicted accurately or quantified.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On December 31, 2009, we entered into an amendment to the employment agreement between us and Mr. Stephen Light, our Chairman, President and Chief Executive Officer, as the per-participant, per-year limitations under our 2005 Plan prevented us from fulfilling our contractual obligation and granting to Mr. Light stock units under our equity incentive plan with an aggregate value of $1.25 million on January 1, 2010. The amendment to Mr. Light’s employment agreement provides that in lieu of granting him such restricted stock units, we instead are to (i) grant to Mr. Light 500,000 performance-based restricted stock units on January 1, 2010, which are to vest annually over a three-year period if the price of our common stock meets or exceeds certain price targets approved by the Compensation Committee of our Board of Directors; and (ii) make a cash payment to Mr. Light of $825,000 which Mr. Light is obligated to use the total amount of such cash payment, less the amount necessary to satisfy tax obligations with respect to the cash payment, to purchase shares of common stock from us at its agreed fair value, based on the average per share closing price on the New York Stock Exchange of our shares of common stock for the 20 trading days prior to January 1, 2010. Accordingly, a total of 795,280 shares of common stock were sold to Mr. Light on January 5, 2010 for $530,803 in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.

Restrictions on Payment of Dividends

For a description on restrictions imposed by our existing credit agreement on our payment of dividends, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Credit Facility.”

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Credit Facility.”

ITEM 4.

(REMOVED AND RESERVED).

ITEM 5.

OTHER INFORMATION.

Confirmation of Plan of Reorganization

On May 12, 2010, the Bankruptcy Court held a hearing to consider confirmation of the Plan, and entered the Confirmation Order confirming the Plan. A copy of the Plan, as confirmed by the Bankruptcy Court (the “Confirmed Plan”), is attached as Exhibit 2.1 to this Quarterly Report on Form 10-Q and is incorporated by reference herein. The Confirmation Order is attached as Exhibit 2.2 to this Quarterly Report on Form 8-K and is incorporated herein by reference. We anticipate the Plan to become effective by the end of May 2010 (the Effective Date), at which time we would emerge from chapter 11, though we can give no assurance as to when, or ultimately if, the Plan will become effective. It is also possible that amendments could be made to the Plan prior to the Plan becoming effective. Although the Bankruptcy Court has entered the Confirmation Order confirming the Plan, the ultimate impact that the events occurring during these proceedings will have on our business, financial condition and results of operations and ability to retain executive officers and key employees cannot be predicted accurately or quantified. For a summary of the material terms of the Plan see “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Chapter 11 Reorganization—Plan of Reorganization.” This summary highlights only certain provisions of the Plan and is not a complete description of the Plan. This summary is qualified in its entirety by reference to the full text of the Plan.

The Plan provides that all of our outstanding shares of common stock will be cancelled as of the Effective Date, and 20 million shares of new common stock will be authorized. Pursuant to the Plan, (i) 12,403,759 shares of new common stock are expected to be issued to our lenders, (ii) our existing stockholders are expected to be issued 2,565,937 shares of new common stock and warrants to purchase 1,663,303 shares of new common stock and (iii) 463,525 shares of new common stock are expected to be reserved for issuance in connection with a new management incentive plan. Each share of new common stock will be accompanied by a right to purchase 1/1000 shares of Series A Junior Participating Preferred Stock and such preferred shares shall be reserved for issuance, pursuant to a shareholder rights plan.

For information as to our assets and liabilities as of March 31, 2010, see “Financial Statements” in this Quarterly Report on Form 10-Q.

ITEM 6.

EXHIBITS

See the exhibit index following the signature page to this quarterly report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	XERIUM TECHNOLOGIES, INC.
	(Registrant)

Date: May 14, 2010	By:	/ S / D AVID G. M AFFUCCI
		David G. Maffucci
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit Number		Description of Exhibits

2.1*(3)		Joint Prepackaged Plan of Reorganization, as confirmed by the bankruptcy court on May 12, 2010

2.2(3)		Confirmation Order, dated May 12, 2010

10.1(1)		Waiver and Amendment No. 3 to Credit Agreement, dated as of January 29, 2010, by and among Xerium Technologies, Inc., certain subsidiaries of Xerium Technologies, Inc. and certain financial institutions as the Lenders.

10.2(2)		Waiver and Amendment No. 4 to Credit Agreement, dated as of February 26, 2010, by and among Xerium Technologies, Inc., certain subsidiaries of Xerium Technologies, Inc. and certain financial institutions as the Lenders.

31.1(3)		Certification Statement of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2(3)		Certification Statement of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1(3)		Certification Statement of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2(3)		Certification Statement of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)	Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 1, 2010 and incorporated herein by reference.

(2)	Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 26, 2010 and incorporated herein by reference.

(3)	Filed herewith.

The following exhibits to the Joint Prepackaged Plan of Reorganization were filed with the Bankruptcy Court, which, as permitted by Item 601(b)(2) of Regulation S-K, have been omitted from this Quarterly Report on Form 10-Q. We will furnish supplementally a copy of any exhibit to the Joint Prepackaged Plan of Reorganization to the Securities and Exchange Commission upon request. Each attachment is available and can be viewed at the website www.xeriuminfo.com.


Exhibit A		Amended and Restated Credit Facility
Exhibit B		Commitment Letter
Exhibit C		New Management Incentive Plan
Exhibit D		New Warrants
Exhibit E		Executory Contracts and Unexpired Leases to be Rejected
Exhibit F		Amended and Restated Pledge and Security Agreement
Exhibit G		Austria Contribution Agreement
Exhibit H		Austria Note
Exhibit I		Austria Purchase Agreement
Exhibit J		Canada Direction Letter Agreement
Exhibit K		Exit Facility Credit Agreement
Exhibit L		Exit Facility Pledge and Security Agreement
Exhibit M		Germany Assumption Agreement
Exhibit N		Intercreditor Agreement
Exhibit O		Nominating Agreement
Exhibit P		Registration Rights Agreement
Exhibit Q		Restated Bylaws of each Reorganized Debtor
Exhibit R		Restated Charters of each Reorganized Debtor
Exhibit S		Shareholder Rights Plan
Exhibit T		U.S. Direction Letter Agreement
Exhibit U		Initial Directors and Initial Officers of the Reorganized Debtors
Exhibit V		Retained Actions
Exhibit W		Additional Intercompany Transactions

Exhibit 2.1

UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE


	x
	x
In re	:	Chapter 11

	:
XERIUM TECHNOLOGIES, INC., et al. ,		Case No. 10-11031 (KJC)
	:

Debtors.	:	Jointly Administered

	x
	x

DEBTORS’ AMENDED JOINT PREPACKAGED PLAN OF

REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

CADWALADER, WICKERSHAM & TAFT LLP

Co-Attorneys for Debtors and

Debtors in Possession

One World Financial Center

New York, New York 10281

Telephone: (212) 504-6000

RICHARDS, LAYTON & FINGER, P.A.

Co-Attorneys for Debtors and

Debtors in Possession

One Rodney Square

P.O. Box 551

Wilmington, Delaware 19899

Telephone: (302) 651-7700

TABLE OF CONTENTS


		Page

Section 1.	Definitions and Interpretation	1

A.	Definitions.	1

B.	Interpretation, Application of Definitions and Rules of Construction	12

Section 2.	ADMINISTRATIVE EXPENSE AND PRIORITY TAX CLAIMS	12

2.1	Administrative Expense Claims.	12

2.2	Priority Tax Claims.	13

2.3	DIP Financing Claims.	13

Section 3.	CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS	13

Section 4.	TREATMENT OF CLAIMS AND EQUITY INTERESTS	14

4.1	Priority Non-Tax Claims (Class 1).	14

4.2	Shared Collateral Claims (Class 2).	14

4.3	Other Secured Claims (Class 3).	16

4.4	General Unsecured Claims (Class 4).	17

4.5	Unsecured Swap Termination Claims (Class 5).	17

4.6	Intercompany Claims (Class 6).	18

4.7	Equity Interests in Subsidiary Debtors (Class 7).	18

4.8	Equity Interests in Xerium (Class 8).	18

4.9	Nonconsensual Confirmation.	19

Section 5.	MEANS FOR IMPLEMENTATION	19

5.1	Procedural Consolidation of Debtors for Plan Purposes Only.	19

5.2	Issuance of Capital Stock and New Warrants.	19

5.3	Capitalization of Reorganized Xerium on the Effective Date; No Fractional Shares or Warrants.	21

5.4	Amended and Restated Credit Facility.	21

5.5	Exit Financing.	22

5.6	New Management Incentive Plan.	22

5.7	Existing Debt Securities and Agreements; Release of Liens.	22

5.8	Surrender of Existing Securities.	23

TABLE OF CONTENTS

(continued)


		Page

5.9	Corporate Action.	23

5.10	Compromise of Controversies.	26

5.11	Exemption from Securities Laws.	26

5.12	Exemption from Transfer Taxes.	26

Section 6.	DISTRIBUTIONS	27

6.1	Distribution Record Date.	27

6.2	Date of Distributions.	27

6.3	Sources of Cash for Distributions.	27

6.4	Disbursement Agent.	27

6.5	Rights and Powers of Disbursement Agent.	27

6.6	Expenses of the Disbursement Agent.	28

6.7	Delivery of Distributions.	28

6.8	Manner of Payment Under Plan.	28

6.9	Setoffs and Recoupment.	29

6.10	Distributions After Effective Date.	29

6.11	Allocation of Distributions Between Principal and Interest.	29

6.12	No Postpetition Interest on Claims.	29

Section 7.	PROCEDURES FOR DISPUTED CLAIMS or EQUITY INTERESTS	29

7.1	Proofs of Claims and Equity Interests.	29

7.2	Objections to Claims and Equity Interests/Requests for Estimation	29

7.3	No Distributions Pending Allowance.	30

7.4	Distributions After Allowance.	31

7.5	Preservation of Claims and Rights to Settle Claims.	31

Section 8.	EXECUTORY CONTRACTS AND UNEXPIRED LEASES	31

8.1	Assumption and Rejection of Contracts and Leases.	31

8.2	Cure of Defaults.	32

8.3	Rejection Damage Claims.	32

8.4	Indemnification Obligations.	32

8.5	Compensation and Benefit Plans.	32

8.6	Retiree Benefits.	33

TABLE OF CONTENTS

(continued)


		Page

8.7	Insurance Policies.	33

Section 9.	CONDITIONS PRECEDENT TO THE EFFECTIVE DATE	33

9.1	Conditions Precedent to the Effective Date.	33

9.2	Waiver of Conditions Precedent.	34

9.3	Effect of Failure of Conditions.	34

Section 10.	EFFECT OF CONFIRMATION	34

10.1	Vesting of Assets.	34

10.2	Binding Effect.	35

10.3	Discharge of the Debtors.	35

10.4	Exculpation.	35

10.5	Reservation of Rights.	36

10.6	Plan Supplement.	36

Section 11.	RETENTION OF JURISDICTION	36

Section 12.	MISCELLANEOUS PROVISIONS	38

12.1	Payment of Statutory Fees.	38

12.2	Dissolution of Statutory Committees and Cessation of Fee and Expense Payment.	38

12.3	Substantial Consummation.	38

12.4	Expedited Determination of Postpetition Taxes.	38

12.5	Amendments.	38

12.6	Effectuating Documents and Further Transactions.	39

12.7	Additional Intercompany Transactions.	39

12.8	Revocation or Withdrawal of the Plan.	39

12.9	Severability.	39

12.10	Schedules and Exhibits Incorporated.	40

12.11	Solicitation.	40

12.12	Governing Law.	40

12.13	Compliance with Tax Requirements.	40

12.14	Conflict Between Plan and Disclosure Statement.	41

12.15	Notices.	41

iii

TABLE OF CONTENTS

(continued)


		Page
Exhibits
Amended and Restated Credit Facility		Exhibit A
Commitment Letter		Exhibit B
New Management Incentive Plan		Exhibit C
New Warrants		Exhibit D
Executory Contracts and Unexpired Leases to be Rejected		Exhibit E

Xerium Technologies, Inc.; Huyck Licensco Inc.; Stowe Woodward Licensco LLC; Stowe Woodward LLC; Wangner Itelpa I LLC; Wangner Itelpa II LLC; Weavexx, LLC; Xerium Asia, LLC; Xerium III (US) Limited; Xerium IV (US) Limited; Xerium V (US) Limited; XTI LLC; Xerium Canada Inc.; Huyck.Wangner Austria GmbH; Xerium Germany Holding GmbH; and Xerium Italia S.p.A., as debtors and debtors in possession in the above-captioned chapter 11 cases, propose the following joint prepackaged chapter 11 plan of reorganization pursuant to section 1121(a) of title 11 of the United States Code:

SECTION 1.

DEFINITIONS AND INTERPRETATION

Definitions.

The following terms used herein shall have the respective meanings defined below (such meanings to be equally applicable to both the singular and plural):

1.1 Administrative Agent means Citicorp North America, Inc., as administrative and collateral agent under the Credit Facility.

1.2 Administrative Expense Claim means any right to payment constituting a cost or expense of administration of any of the Reorganization Cases Allowed under and in accordance with, as applicable, sections 330, 364, 365, 503(b), 507(a)(2), and 507(b) of the Bankruptcy Code, including, without limitation, (a) any actual and necessary costs and expenses of preserving the Debtors’ estates or operating the Debtors’ businesses, (b) any indebtedness or obligations incurred or assumed by the Debtors, as debtors in possession, during the Reorganization Cases, and (c) any compensation for professional services rendered and reimbursement of expenses incurred by a professional retained by order of the Bankruptcy Court or otherwise Allowed pursuant to section 503(b) of the Bankruptcy Code. Any fees or charges assessed against the estate of any of the Debtors under section 1930, chapter 123, title 28, United States Code are excluded from the definition of “Administrative Expense Claim” and shall be paid in accordance with Section 12.1 of the Plan.

1.3 Allowed means, with respect to any Claim or Equity Interest, any Claim or Equity Interest as to which (a) no objection to the allowance and no request for estimation have been interposed on or before the deadline established in Section 7.2 of the Plan or such other deadline established by the Bankruptcy Court or (b) any timely objection or request for estimation has been withdrawn with prejudice or determined by a Final Order to the extent such determination is in favor of the respective holder.

1.4 Amended and Restated Credit Agreement means that certain second amended and restated credit and guaranty agreement, to be effective as of the Effective Date, among the Reorganized Borrowers, as borrowers, the Reorganized Debtors, the Non-Debtor Guarantors, and Robec Brazil LLC, as guarantors, and Citicorp North America, Inc., as administrative and collateral agent (as amended or otherwise modified from time to time in accordance with the terms thereof), in form and substance reasonably satisfactory to the Secured Lender Ad Hoc Working Group and substantially in the form set forth in the Plan Supplement.

1.5 Amended and Restated Credit Facility means, collectively (a) the Amended and Restated Credit Agreement, (b) the Amended and Restated Pledge and Security Agreement, and (c) the related amended and restated loans, guarantees, pledges, security agreements, and other agreements and documents to be given or issued pursuant to or in connection with, the foregoing, having the principal terms and conditions set forth in Exhibit A to the Plan.

1.6 Amended and Restated Pledge and Security Agreement means that certain amended and restated pledge and security agreement, to be effective as of the Effective Date, among the collateral agent under the Amended and Restated Credit Agreement, the Reorganized U.S. Debtors, and Robec Brazil LLC, in form and substance reasonably satisfactory to the Secured Lender Ad Hoc Working Group and substantially in the form set forth in the Plan Supplement.

1.7 Austria Contribution Agreement means the contribution agreement between Reorganized Xerium and Reorganized Xerium Austria to be effective on the Effective Date, substantially in the form set forth in the Plan Supplement.

1.8 Austria Note means the note to be issued by Reorganized Xerium Austria to Reorganized Xerium on the Effective Date, substantially in the form set forth in the Plan Supplement (a) in a principal amount equal to 99% of the United States dollar equivalent of €8,623,016 based on the “New York Closing” conversion rate published online at http://online.wsj.com for February 23, 2010, which amount shall be restated on the date that is two (2) business days prior to the Effective Date using the “New York Closing” conversion rate published online at http://online.wsj.com for such date and (b) bearing interest at a rate not to exceed 9.25% per annum and subordinated to all debt for which Reorganized Xerium Austria is an obligor.

1.9 Austria Purchase Agreement means the purchase and sale agreement between Reorganized Xerium and Reorganized Xerium Austria to be effective on the Effective Date, substantially in the form set forth in the Plan Supplement.

1.10 Bankruptcy Code means title 11 of the United States Code, as amended from time to time, as applicable to the Reorganization Cases.

1.11 Bankruptcy Court means the United States Bankruptcy Court for the District of Delaware having jurisdiction over the Reorganization Cases, and to the extent of any reference made under section 157 of title 28 of the United States Code, the unit of such District Court having jurisdiction over the Reorganization Cases under section 151 of title 28 of the United States Code.

1.12 Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure as promulgated by the United States Supreme Court under section 2075 of title 28 of the United States Code, as amended from time to time, applicable to the Reorganization Cases, and any local rules of the Bankruptcy Court.

1.13 Borrowers means Xerium, XTI LLC, Xerium Italy, Xerium Canada, Xerium Austria, and Xerium Germany.

1.14 Business Day means any day other than a Saturday, a Sunday, or any other day on which banking institutions in New York, New York are required or authorized to close by law or executive order.

1.15 Canada Direction Letter Agreement means the direction letter agreement between Reorganized Xerium Canada and Reorganized Xerium V to be effective on the Effective Date, substantially in the form set forth in the Plan Supplement.

1.16 Cash means legal tender of the United States of America.

1.17 Claim has the meaning set forth in section 101(5) of the Bankruptcy Code, and for the avoidance of doubt, includes Administrative Expense Claim.

1.18 Class means any group of substantially similar Claims or Equity Interests classified by the Plan pursuant to sections 1122 and 1123(a)(1) of the Bankruptcy Code.

1.19 Collateral means any property or interest in property of the estate of any Debtor subject to a lien, charge or other encumbrance to secure the payment or performance of a Claim, which lien, charge or other encumbrance is not subject to avoidance or otherwise invalid under the Bankruptcy Code or applicable nonbankruptcy law.

1.20 Commencement Date means the date on which each of the Debtors commenced its respective Reorganization Case.

1.21 Commitment Letter means that certain Commitment Letter, dated February 26, 2010, as amended and modified from time to time, between Citigroup Global Markets Inc. and Xerium, including the term sheets attached thereto, set forth in Exhibit B to the Plan.

1.22 Confirmation Date means the date on which the Clerk of the Bankruptcy Court enters the Confirmation Order.

1.23 Confirmation Hearing means the hearing to be held by the Bankruptcy Court regarding confirmation of the Plan, as such hearing may be adjourned or continued from time to time.

1.24 Confirmation Order means the order of the Bankruptcy Court confirming the Plan pursuant to section 1129 of the Bankruptcy Code.

1.25 Credit Facility means that certain Amended and Restated Credit and Guaranty Agreement, dated as of May 30, 2008, as amended prior to the Effective Date, by and among the Borrowers, as borrowers, the Debtors and the Non-Debtor Guarantors, as guarantors, the Administrative Agent, and the lenders party thereto, and any notes, guarantees, pledges, security agreements, or other agreements or documents given or issued pursuant thereto or in connection therewith.

1.26 Credit Facility Claims means the Secured Claims arising under the Credit Facility, other than a Deferred Waiver Claim.

1.27 Debtors means Xerium; Huyck Licensco Inc.; Stowe Woodward Licensco LLC; Stowe Woodward LLC; Wangner Itelpa I LLC; Wangner Itelpa II LLC; Weavexx, LLC; Xerium Asia, LLC; Xerium III (US) Limited; Xerium IV (US) Limited; Xerium V; XTI LLC; Xerium Canada; Xerium Austria; Xerium Germany; and Xerium Italy.

1.28 Deferred Waiver Claim means the unpaid principal amount of the Secured Claim arising under section 4 of the First Credit Facility Waiver.

1.29 DIP Credit Agreement means that certain debtor in possession credit and guaranty agreement, to be dated on or about the Commencement Date, by and among Xerium, as borrower, the U.S. Debtors (other than Xerium), as guarantors, Citicorp North America, Inc., as administrative agent and issuing bank, and the lender parties thereto (as amended or otherwise modified from time to time in accordance with the terms thereof).

1.30 DIP Facility means, collectively (a) the DIP Credit Agreement and (b) the related loans, guarantees, pledges, security agreements, and other agreements and documents to be given or issued pursuant to or in connection with, the foregoing, having the principal terms and conditions set forth in the Commitment Letter.

1.31 Disbursement Agent means any entity (including any applicable Debtor if it acts in such capacity) in its capacity as a Disbursement Agent under Sections 6.4, 6.5, and 6.7 hereof.

1.32 Disclosure Statement means that written disclosure statement, dated March 2, 2010, relating to the Plan, including, without limitation, all exhibits and schedules thereto, as the same may be amended, supplemented, or otherwise modified from time to time, as approved by the Bankruptcy Court pursuant to sections 1125 and 1126(b) of the Bankruptcy Code.

1.33 Disputed means, with respect to any Claim or Equity Interest, any Claim or Equity Interest as to which an objection to allowance or a request for estimation has been interposed on or before the deadline established in Section 7.2 of the Plan and such objection or request has not been withdrawn with prejudice or determined by a Final Order.

1.34 Distributable Share means, with reference to any distribution on account of any Allowed Credit Facility Claim, Allowed Secured Swap Termination Claim, or Allowed Unsecured Swap Termination Claim, a distribution equal in amount to the ratio (expressed as a percentage) that the amount such Allowed Claim bears to the aggregate amount of (a) Allowed Credit Facility Claims, Allowed Secured Swap Termination Claims, and Allowed Unsecured Swap Termination Claims plus (b) Disputed Credit Facility Claims, Disputed Secured Swap Termination Claim, and Disputed Unsecured Swap Termination Claims, if any, until disallowed.

1.35 Distribution Record Date means the record date for purposes of making distributions under the Plan on account of Allowed Claims and Allowed Equity Interests, which date shall be (a) the Confirmation Date, with respect to (i) all Allowed Claims and (ii) all Allowed Equity Interests in the Subsidiary Debtors and (b) the day immediately preceding the Effective Date, with respect to all Allowed Equity Interests in Xerium represented by issued and outstanding shares of Existing Common Stock.

1.36 Effective Date means the Business Day on or after the Confirmation Date specified by the Debtors on which (a) no stay of the Confirmation Order is in effect and (b) the conditions to the effectiveness of the Plan specified in Section 9 hereof have been satisfied or waived.

1.37 Entity has the meaning set forth in section 101(15) of the Bankruptcy Code.

1.38 Equity Interest means the interest of any holder of an equity security of any of the Debtors represented by any issued and outstanding shares of common or preferred stock or other instrument evidencing a present ownership or membership interest in any of the Debtors, whether or not transferable, or any option, warrant or right, contractual or otherwise, to acquire any such interest.

1.39 Existing Common Stock means the shares of common stock of Xerium, par value $0.01 per share, issued and outstanding immediately prior to the Effective Date.

1.40 Existing Management Agreement means an employment agreement between a Debtor and a member of its senior management employed by the Debtor in such capacity immediately prior to the Effective Date.

1.41 Existing Management Incentive Plan means the 2005 Equity Incentive Plan of Xerium, including any outstanding awards thereunder, in effect as of the Commencement Date.

1.42 Exit Facility means, collectively (a) the Exit Facility Credit Agreement, (b) the Exit Facility Pledge and Security Agreement, and (c) the related loans, guarantees, pledges, security agreements, and other agreements and documents to be given or issued pursuant to or in connection with, the foregoing, having the principal terms and conditions set forth in the Commitment Letter.

1.43 Exit Facility Credit Agreement means that certain credit and guaranty agreement, to be effective as of the Effective Date, by and among the Reorganized Borrowers, as borrowers, the Reorganized Debtors, the Non-Debtor Guarantors, and Robec Brazil LLC, as guarantors, Citicorp North America, Inc., as administrative agent, collateral agent, and issuing bank, and the lender parties thereto (as amended or otherwise modified from time to time in accordance with the terms thereof), in form and substance reasonably satisfactory to the Secured Lender Ad Hoc Working Group and substantially in the form set forth in the Plan Supplement.

1.44 Exit Facility Pledge and Security Agreement means that certain pledge and security agreement among the collateral agent under the Exit Facility Credit Agreement, the Reorganized U.S. Debtors, and Robec Brazil LLC, to be effective as of the Effective Date, in form and substance reasonably satisfactory to the Secured Lender Ad Hoc Working Group and substantially in the form set forth in the Plan Supplement.

1.45 Final Order means an order or judgment of a court of competent jurisdiction that has been entered on the docket maintained by the clerk of such court which has not been reversed, vacated or stayed and as to which (a) the time to appeal, petition for certiorari

or move for a stay, new trial, reargument or rehearing has expired and as to which no appeal, petition for certiorari or other proceedings for a stay, new trial, reargument or rehearing shall then be pending or (b) if an appeal, writ of certiorari, stay, new trial, reargument or rehearing thereof has been sought, (i) such order or judgment shall have been affirmed by the highest court to which such order was appealed, certiorari shall have been denied, or a stay, new trial, reargument or rehearing shall have been denied or resulted in no modification of such order, and (ii) the time to take any further appeal, petition for certiorari or move for a stay, new trial, reargument or rehearing shall have expired; provided , however , that the possibility that a motion pursuant to section 502(j) or 1144 of the Bankruptcy Code or under Rule 60 of the Federal Rules of Civil Procedure, or any analogous rule under the Bankruptcy Rules, may be filed relating to such order shall not cause such order to not be a “Final Order.”

1.46 First Credit Facility Waiver means that certain Waiver and Amendment No. 1, dated as of September 29, 2009, by and among the Borrowers, as borrowers, the Debtors and the Non-Debtor Guarantors, as guarantors, the Administrative Agent, and the lenders party thereto.

1.47 Fourth Credit Facility Waiver means that certain Waiver and Amendment No. 4, dated as of February 26, 2010, by and among the Borrowers, as borrowers, the Debtors and the Non-Debtor Guarantors, as guarantors, the Administrative Agent, and the lenders party thereto.

1.48 General Unsecured Claim means any Claim against any of the Debtors that (a) is not an Administrative Expense Claim, Priority Tax Claim, Priority Non-Tax Claim, Secured Claim, Unsecured Swap Termination Claim, or Intercompany Claim or (b) is otherwise determined by the Bankruptcy Court to be a General Unsecured Claim.

1.49 Germany Assumption Agreement means the assumption agreement between Reorganized Xerium and Reorganized Xerium Germany to be effective on the Effective Date, substantially in the form set forth in the Plan Supplement.

1.50 Impaired has the meaning set forth in section 1124 of the Bankruptcy Code.

1.51 Intercompany Claim means any Claim held by (a) a Debtor against another Debtor or (b) a non-Debtor subsidiary of a Debtor against a Debtor.

1.52 Intercreditor Agreement means the intercreditor agreement, to be effective as of the Effective Date, by and among the collateral agent under the Amended and Restated Credit Agreement (as amended or otherwise modified from time to time in accordance with the terms thereof), the collateral agent under the Exit Facility Credit Agreement (as amended or otherwise modified from time to time in accordance with the terms thereof), the Reorganized Debtors, the Non-Debtor Guarantors, and Robec Brazil LLC, in form and substance reasonably satisfactory to the Secured Lender Ad Hoc Working Group and substantially in the form set forth in the Plan Supplement.

1.53 New Boards means the respective boards of directors or other governing bodies, as the case may be, of the Reorganized Debtors appointed pursuant to Section 5.9(d) of the Plan.

1.54 New Common Stock means the shares of common stock of Reorganized Xerium, par value $0.001 per share, issued or outstanding on or after the Effective Date

1.55 New Management Incentive Plan means the 2010 Equity Incentive Plan of Reorganized Xerium, to be effective as of the Effective Date, substantially in the form set forth in Exhibit C to the Plan.

1.56 New Warrants means the warrants to purchase New Common Stock to be issued by Reorganized Xerium on the Effective Date, in form and substance reasonably satisfactory to the Secured Lender Ad Hoc Working Group and substantially in the form set forth in the Plan Supplement, and having the principal terms and conditions set forth in Exhibit D to the Plan.

1.57 Nominating Agreements means the nominating agreements by and between Reorganized Xerium and each of American Securities LLC, Carl Marks Strategic Investments, L.P., and Cerberus Capital Management, L.P., on behalf of its affiliated funds and accounts, to be effective on the Effective Date, in each case, in form and substance reasonably satisfactory to the parties thereto and substantially in the form set forth in the Plan Supplement.

1.58 Non-Debtor Guarantors means Huyck Wangner Australia Pty Ltd; Xerium do Brasil Ltda; Xerium Technologies Brasil Indústria e Comércio SA; Wangner Itelpa Participacoes Ltda; Stowe Woodward France SAS; Xerium (France) SAS; Huyck Wangner Japan Ltd; Stowe Woodward Mexico SA de CV; TIAG Transworld Interweaving GmbH; Huyck Wangner UK Limited; Stowe Woodward (UK) Limited; Xerium Technologies Limited; Huyck Wangner Scandinavia AB; Stowe Woodward Sweden AB; Huyck Wangner Vietnam Co Ltd; Huyck Wangner Germany GmbH; Stowe Woodward AG; and Robec Walzen GmbH.

1.59 Non-U.S. Debtors means Xerium Canada, Xerium Austria, Xerium Germany, and Xerium Italy.

1.60 Non-U.S. Term Notes means those Term Notes for which the Reorganized Non-U.S. Debtors are obligors.

1.61 Other Secured Claim means a Secured Claim that is not a Credit Facility Claim, a Secured Swap Termination Claim, or a Claim arising under the DIP Facility. For the avoidance of doubt, “Other Secured Claim” includes the Deferred Waiver Claim.

1.62 Plan means this joint plan of reorganization, including the exhibits and schedules hereto and the Plan Supplement, as the same may be amended or modified from time to time in accordance with the provisions of the Bankruptcy Code.

1.63 Plan Documents means the documents to be executed, delivered, assumed, or performed in connection with the consummation and implementation of the Plan including, but not limited to, the New Warrants, the Restated Charters, the Restated Bylaws, the

Amended and Restated Credit Agreement, the Amended and Restated Pledge and Security Agreement, the Nominating Agreements, the Registration Rights Agreement, the Shareholder Rights Plan, the Intercreditor Agreement, the Exit Facility Credit Agreement, the Exit Facility Pledge and Security Agreement, the Austria Contribution Agreement, the Austria Purchase Agreement, the Austria Note, the Germany Assumption Agreement, the Canada Direction Letter Agreement, the U.S. Direction Letter Agreement, the Existing Management Agreements, the Existing Management Incentive Plan, and the New Management Incentive Plan.

1.64 Plan Supplement means the supplemental appendix to the Plan, described in Section 10.6 of the Plan.

1.65 Preferred Stock means the shares of preferred stock of Reorganized Xerium authorized to be issued on or after the Effective Date.

1.66 Priority Non-Tax Claim means any Claim against any of the Debtors, other than an Administrative Expense Claim or a Priority Tax Claim, entitled to priority in payment as specified in sections 507(a)(3), (4), (5), (6), (7) or (9) of the Bankruptcy Code.

1.67 Priority Tax Claim means any Claim of a governmental unit of the kind entitled to priority in payment as specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code.

1.68 Pro Rata Share means, with reference to any distribution on account of any Allowed Equity Interest in Xerium or any Allowed Claim, a distribution equal in amount to the ratio (expressed as a percentage) that the amount such Allowed Equity Interest or Allowed Claim bears to the aggregate amount of (a) Allowed Equity Interests in Xerium or Allowed Claims in such Class, as the case may be plus (b) Disputed Equity Interests in Xerium or Disputed Claims in such Class, as the case may be, if any, until disallowed.

1.69 Registration Rights Agreement means the registration rights agreement by and among Reorganized Xerium, American Securities LLC, Carl Marks Strategic Investments, L.P., Cerberus Capital Management, L.P., on behalf of its affiliated funds and accounts, and certain other holders of New Common Stock or New Warrants that may be deemed to be “underwriters” under section 1145 of the Bankruptcy Code or 2(a)(11) of the Securities Act, or “issuers” under section 2(a)(11) of the Securities Act, to be effective on the Effective Date, in form and substance reasonably satisfactory to the parties thereto and substantially in the form set forth in the Plan Supplement.

1.70 Reorganization Cases means the voluntary cases under chapter 11 of the Bankruptcy Code commenced by the Debtors in the United States Bankruptcy Court for the District of Delaware.

1.71 Reorganized Borrowers means the Borrowers, as reorganized on and after the Effective Date in accordance with the Plan.

1.72 Reorganized Debtors means the Debtors, as reorganized on and after the Effective Date in accordance with the Plan.

1.73 Reorganized Non-U.S. Debtors means the Non-U.S. Debtors, as reorganized on and after the Effective Date in accordance with the Plan.

1.74 Reorganized U.S. Debtors means the U.S. Debtors, as reorganized on and after the Effective Date in accordance with the Plan.

1.75 Reorganized Xerium means Xerium, as reorganized on and after the Effective Date in accordance with the Plan.

1.76 Reorganized Xerium Austria means Xerium Austria, as reorganized on and after the Effective Date in accordance with the Plan.

1.77 Reorganized Xerium Canada means Xerium Canada, as reorganized on and after the Effective Date in accordance with the Plan.

1.78 Reorganized Xerium Canada Preferred Stock means the shares of Series A preferred stock of Reorganized Xerium Canada, with no par value, issued or outstanding on or after the Effective Date.

1.79 Reorganized Xerium Germany means Xerium Germany, as reorganized on and after the Effective Date in accordance with the Plan.

1.80 Reorganized Xerium Italy means Xerium Italy, as reorganized on and after the Effective Date in accordance with the Plan.

1.81 Reorganized Xerium V means Xerium V, as reorganized on and after the Effective Date in accordance with the Plan.

1.82 Restated Bylaws means the respective amended and restated bylaws or equivalent documents, as applicable, of each of the Reorganized Debtors to be adopted on the Effective Date, in form and substance reasonably satisfactory to the Secured Lender Ad Hoc Working Group and substantially in the forms set forth in the Plan Supplement.

1.83 Restated Charters means the respective amended and restated corporate charters, certificates of incorporation, or equivalent organizational documents, as applicable, of each of the Reorganized Debtors to be adopted and filed by the Reorganized Debtors in their respective jurisdictions of incorporation, formation, or organization on the Effective Date, in form and substance reasonably satisfactory to the Secured Lender Ad Hoc Working Group and substantially in the forms set forth in Plan Supplement.

1.84 Secured Claim means a Claim to the extent (a) of the value of the Collateral securing such Claim, (b) determined by a Final Order in accordance with section 506(a) of the Bankruptcy Code as secured, or (c) of any rights of setoff of the holder thereof under section 553 of the Bankruptcy Code.

1.85 Secured Lender Ad Hoc Working Group means American Securities LLC, on behalf of its affiliated funds; ING Investment Management Co., on behalf of its affiliated funds; Carl Marks Strategic Investments, L.P.; Citicorp North America, Inc.; Cerberus Capital Management, L.P., on behalf of its affiliated funds and accounts; and Harbourmaster Capital Management Ltd.

1.86 Secured Swap Termination Agreement means that certain Forbearance Agreement, dated as of January 4, 2010, by and among Xerium, XTI LLC, and Merrill Lynch Capital Services, Inc., as amended from time to time.

1.87 Secured Swap Termination Claim means a Secured Claim arising under the Secured Swap Termination Agreement.

1.88 Securities Act means the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder.

1.89 Shared Collateral Claims means Credit Facility Claims and Secured Swap Termination Claims.

1.90 Shareholder Rights Plan means the shareholder rights plan of Reorganized Xerium, to be effective as of the Effective Date, in form and substance reasonably satisfactory to the Secured Lender Ad Hoc Working Group and substantially in the form set forth in Plan Supplement.

1.91 Subsidiary Debtors means Huyck Licensco Inc.; Stowe Woodward Licensco LLC; Stowe Woodward LLC; Wangner Itelpa I LLC; Wangner Itelpa II LLC; Weavexx, LLC; Xerium Asia, LLC; Xerium III (US) Limited; Xerium IV (US) Limited; Xerium V; XTI LLC; Xerium Canada; Xerium Austria; Xerium Germany; and Xerium Italy.

1.92 Tax Code means the Internal Revenue Code of 1986, as amended from time to time, and the Treasury regulations promulgated thereunder.

1.93 Term Notes means the second lien term notes in the aggregate principal amount of $410,000,000.00 (four hundred ten million dollars) to be issued under the Amended and Restated Credit Facility on the Effective Date.

1.94 Unsecured Swap Termination Agreement means that certain Forbearance Agreement, dated as of December 31, 2009, by and among Xerium, XTI LLC, Xerium Canada, and Deutsche Bank AG, as amended from time to time.

1.95 Unsecured Swap Termination Claim means collectively (a) the Termination Claim as defined in the Unsecured Swap Termination Agreement and (b) the Unsecured Swap Termination Interest Component.

1.96 Unsecured Swap Termination Interest Component means interest on the Termination Claim (as defined in the Unsecured Swap Termination Agreement) as provided in section 3(a) of the Unsecured Swap Termination Agreement, that is accrued and unpaid through the date immediately prior to the Effective Date.

1.97 U.S. Debtors means Xerium; Huyck Licensco Inc.; Stowe Woodward Licensco LLC; Stowe Woodward LLC; Wangner Itelpa I LLC; Wangner Itelpa II LLC; Weavexx, LLC; Xerium Asia, LLC; Xerium III (US) Limited; Xerium IV (US) Limited; Xerium V; and XTI LLC.

1.98 U.S. Direction Letter Agreement means the direction letter agreement between Reorganized Xerium V and Reorganized Xerium to be effective on the Effective Date, substantially in the form set forth in the Plan Supplement.

1.99 Xerium means Xerium Technologies, Inc.

1.100 Xerium Austria means Huyck.Wangner Austria GmbH.

1.101 Xerium Austria Shares Distribution means the shares of New Common Stock to which the holders of Allowed Credit Facility Claims against Xerium Austria are entitled pursuant to Section 4.2(b) of the Plan.

1.102 Xerium Canada Distribution means, collectively, the Xerium Canada Shares Distribution and the Xerium Canada Cash Distribution.

1.103 Xerium Canada means Xerium Canada Inc.

1.104 Xerium Canada Cash Distribution means, collectively, the difference between (a) the amount of Cash to which holders of Allowed Credit Facility Claims and Allowed Unsecured Swap Termination Claims against Xerium Canada are entitled pursuant to Sections 4.2(b) and 4.5(b), respectively, of the Plan and (b) the amount of Cash that Xerium Canada directly transfers to such holders of Allowed Credit Facility Claims and Allowed Unsecured Swap Termination Claims pursuant to Sections 4.2(b) and 4.5(b), respectively, of the Plan.

1.105 Xerium Canada Shares Distribution means, collectively, the shares of New Common Stock to which holders of Allowed Credit Facility Claims and Allowed Unsecured Swap Termination Claims against Xerium Canada and are entitled pursuant to Sections 4.2(b) and 4.5(b), respectively, of the Plan.

1.106 Xerium Germany means Xerium Germany Holding GmbH.

1.107 Xerium Germany Shares Distribution means the shares of New Common Stock to which the holders of Allowed Credit Facility Claims against Xerium Germany are entitled pursuant to Section 4.2(b) of the Plan.

1.108 Xerium Italy means Xerium Italia S.p.A.

1.109 Xerium Italy Exchange means the exchange of the Xerium Italy Share Distribution by Reorganized Xerium for the portion of Allowed Credit Facility Claims against Xerium Italy to be exchanged for the Xerium Italy Shares Distribution pursuant to Section 4.2(b) of the Plan.

1.110 Xerium Italy Shares Distribution means the shares of New Common Stock to which the holders of Allowed Credit Facility Claims against Xerium Italy are entitled pursuant to Section 4.2(b) of the Plan.

1.111 Xerium V means Xerium V (US) Limited.

Interpretation, Application of Definitions, and Rules of Construction.

For purposes of the Plan: (1) whenever from the context it is appropriate, each term, whether stated in the singular or the plural, shall include both the singular and the plural, and pronouns stated in the masculine, feminine, or neuter gender shall include the masculine, feminine and the neuter gender, (2) unless otherwise specified, any reference in the Plan to an existing document, schedule, or exhibit, whether or not filed with the Bankruptcy Court, shall mean such document, schedule, or exhibit, as it may have been or may be amended, modified, or supplemented, (3) any reference to an entity as a holder of a Claim or Equity Interest includes that entity’s permitted successors and assigns, (4) unless otherwise specified, all references in the Plan to sections are references to sections of the Plan, (5) unless otherwise specified, all references in the Plan to exhibits are references to exhibits in the Plan Supplement, (6) the words “herein,” “hereof,” and “hereto” refer to the Plan in its entirety rather than to a particular provision of the Plan, (7) subject to the provisions of any contract, certificate of incorporation, bylaw, instrument, release, or other agreement or document entered into in connection with the Plan, the rights and obligations arising pursuant to the Plan shall be governed by, and construed and enforced in accordance with, applicable federal law, including the Bankruptcy Code and Bankruptcy Rules, (8) captions and headings to sections of the Plan are inserted for convenience of reference only and are not intended to be a part of or to affect the interpretation of the Plan, (9) unless otherwise set forth in the Plan, the rules of construction set forth in section 102 of the Bankruptcy Code shall apply, (10) any term used in capitalized form in the Plan that is not otherwise defined but that is used in the Bankruptcy Code or the Bankruptcy Rules shall have the meaning assigned to such term in the Bankruptcy Code or the Bankruptcy Rules, as applicable, (11) all references to docket numbers of documents filed in the Reorganization Cases are references to the docket numbers under the Bankruptcy Court’s CM/ECF system, (12) all references to statutes, regulations, orders, rules of courts, and the like shall mean as amended from time to time, as applicable to the Reorganization Cases, unless otherwise stated, and (13) any immaterial effectuating provisions may be interpreted by the Reorganized Debtors after the Effective Date in such a manner that is consistent with the overall purpose and intent of the Plan all without further Bankruptcy Court order.

In computing any period of time prescribed or allowed by the Plan, the provisions of Bankruptcy Rule 9006(a) shall apply.

SECTION 2.

ADMINISTRATIVE EXPENSE AND PRIORITY TAX CLAIMS

2.1

Administrative Expense Claims.

(a) Except to the extent that the holder of an Allowed Administrative Expense Claim agrees to a less favorable treatment, and except as provided in Section 2.1(b) of the Plan, each Allowed Administrative Expense Claim shall be paid in full, in Cash, on the latest of (i) the Effective Date, (ii) the date on which such Administrative Expense Claim is Allowed, and (iii) the date on which such Administrative Expense Claim is due and payable in the ordinary course of business under any agreement or understanding between the applicable Debtor and the holder

of such Allowed Administrative Expense Claim, or, in each case, as soon as practicable thereafter; provided , however , that Allowed Administrative Expense Claims representing obligations incurred in the ordinary course of business or assumed by any of the Debtors shall be paid in full, in Cash, or performed by the applicable Debtor or Reorganized Debtor in the ordinary course of business in accordance with the terms and subject to the conditions of any agreements or regulations governing, instruments evidencing, or other documents relating to, such transactions.

(b) All Entities seeking awards of compensation for services rendered or reimbursement of expenses incurred through and including the Confirmation Date under section 503(b)(2), 503(b)(3), 503(b)(4), or 503(b)(5) of the Bankruptcy Code shall (i) file their respective applications for final allowances of compensation for services rendered and reimbursement of expenses incurred on or before the date that is forty-five (45) days after the Effective Date and (ii) be paid in full, in Cash, in such amounts as are Allowed by the Bankruptcy Court. The Debtors or the Reorganized Debtors, as applicable, are authorized to pay compensation for services rendered and reimbursement of expenses incurred after the Confirmation Date in the ordinary course and without the need for Bankruptcy Court approval.

2.2

Priority Tax Claims.

Except to the extent that a holder of an Allowed Priority Tax Claim agrees to a less favorable treatment, on the later of (a) the Effective Date and (b) the date on which such Priority Tax Claim is Allowed, or, in each case, as soon as practicable thereafter, each holder of an Allowed Priority Tax Claim shall, in full satisfaction, release, and discharge of such Allowed Priority Tax Claim, (i) to the extent such Claim is due and owing on the Effective Date, be paid in full, in Cash, on the Effective Date or (ii) to the extent such Claim is not due and owing on the Effective Date, be paid in full, in Cash (A) in accordance with the terms of any agreement between the Debtors and such holder, (B) as may be due and owing under applicable nonbankruptcy law, or (C) in the ordinary course of business.

2.3

DIP Financing Claims.

In satisfaction of the Debtors’ respective obligations under the DIP Facility, on the Effective Date or as soon thereafter as practicable, (a) all obligations of the Debtors under the DIP Facility shall be assumed under, and become subject to the terms and conditions of, the Exit Facility and (b) all liens and security interests granted to secure the Debtors’ obligations under the DIP Facility shall be satisfied, discharged, and terminated in full and of no further force or effect.

SECTION 3.

CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS

The Plan is premised upon the procedural consolidation of the Debtors for Plan purposes only.

The following table designates the Classes of Claims against, and Equity Interests in, the Debtors, and specifies which of those Classes are (a) Impaired and entitled to vote to accept or reject the Plan in accordance with section 1126 of the Bankruptcy Code, (b) unimpaired and presumed to accept the Plan, and therefore, not entitled to vote to accept or reject the Plan, and (c) Impaired and deemed to reject the Plan.


Class	Designation	Impairment	Entitled to Vote
1	Priority Non-Tax Claims	Unimpaired	No (presumed to accept)

2	Shared Collateral Claims	Impaired	Yes

3	Other Secured Claims	Unimpaired	No (presumed to accept)

4	General Unsecured Claims	Unimpaired	No (presumed to accept)

5	Unsecured Swap Termination Claims	Impaired	Yes

6	Intercompany Claims	Unimpaired	No (presumed to accept)

7	Equity Interests in Subsidiary Debtors	Unimpaired	No (presumed to accept)

8	Equity Interests in Xerium	Impaired	No (deemed to reject)

SECTION 4.

TREATMENT OF CLAIMS AND EQUITY INTERESTS

4.1

Priority Non-Tax Claims (Class 1).

(a) Classification . Class 1 consists of all Allowed Priority Non-Tax Claims.

(b) Treatment . Except to the extent that a holder of an Allowed Priority Non-Tax Claim agrees to a less favorable treatment, on the latest of (i) the Effective Date, (ii) the date on which such Priority Non-Tax Claim is Allowed, and (iii) the date on which such Allowed Priority Non-Tax Claim is due and payable in the ordinary course of business under any agreement or understanding between the applicable Debtor and the holder of such Claim, or, in each case, as soon as practicable thereafter, each Allowed Priority Non-Tax Claim shall be paid in Cash in an amount equal to the Allowed amount of such Claim, together with postpetition interest to the extent required to render such Claim unimpaired.

(c) Impairment and Voting . Class 1 is not Impaired. The holders of Claims in Class 1 are conclusively presumed to have accepted the Plan, and accordingly, are not entitled to vote to accept or reject the Plan.

4.2

Shared Collateral Claims (Class 2).

(a) Classification . Class 2 consists of all Allowed Credit Facility Claims and Allowed Secured Swap Termination Claims. Pursuant to the Plan, the Credit Facility Claims shall be Allowed in the aggregate principal amount of $597,069,009 and the Secured Swap

Termination Claims shall be Allowed in the aggregate principal amount of $6,769,826, plus , in each case, any interest accrued thereon through the date immediately prior to the Effective Date, as provided in the Credit Facility or Secured Swap Termination Agreement, as applicable. Notwithstanding that a portion of the Allowed Credit Facility Claims and the Allowed Secured Swap Termination Claims is denominated in a currency other than U.S. dollars, the Allowed amounts set forth herein with respect to the Allowed Credit Facility Claims and Allowed Secured Swap Termination Claims are stated in U.S. dollars after converting the amounts of such Claims using the “New York Closing” conversion rate published online at http://online.wsj.com for February 23, 2010. The final amount of the Allowed Credit Facility Claims and the Allowed Secured Swap Termination Claims shall be restated as of the date that is two (2) business days prior to the Effective Date (i) using the “New York Closing” conversion rate published online at http://online.wsj.com for such date and (ii) to reflect any payments made thereon during the Reorganization Cases, as adequate protection or otherwise. Distributions required under the Plan with respect to Allowed Credit Facility Claims and Allowed Secured Swap Termination Claims shall be made in accordance with such restated amounts.

(b) Treatment . Except to the extent that a holder of an Allowed Shared Collateral Claim agrees to a less favorable treatment, on the Effective Date or as soon as practicable thereafter, each holder of an Allowed Shared Collateral Claim shall receive (i) its Distributable Share of (A) Cash in an amount equal to $10,000,000.00 (ten million dollars), (B) the Term Notes, and (C) 82.6% of the shares of New Common Stock to be issued on the Effective Date pursuant to Section 5.2(a)(ii) of the Plan and (ii) Cash in an amount equal to (A) the unpaid interest on the principal amount of such holder’s Allowed Credit Facility Claim or Allowed Secured Swap Termination Claim, as the case may be, accrued through the date immediately prior to the Effective Date at the rate set forth in section 4 of the Fourth Credit Facility Waiver, with respect to Allowed Credit Facility Claims, and at the rate set forth in section 3(a) of the Secured Swap Termination Agreement, with respect to Allowed Secured Swap Termination Claims less (B) any amounts paid to such holder during the Reorganization Cases, as adequate protection or otherwise.

(i) Except as otherwise provided in the Plan, including Section 5.9(i) of the Plan, the Cash and Term Notes distributable pursuant to this Section 4 to the holders of Class 2 Claims against (A) U.S. Debtors, shall be issued and distributed by Xerium and (B) Non-U.S. Debtors, shall be issued and distributed by the respective Non-U.S. Debtor as borrower under the Credit Facility, against which borrower such Class 2 Claim is held.

(ii) Except as otherwise provided in the Plan, including Section 5.9(i) of the Plan, the New Common Stock distributable pursuant to this Section 4 to the holders of Class 2 Claims against (A) U.S. Debtors, shall be distributed by Xerium and (B) Non-U.S. Debtors, shall be distributed by the respective Non-U.S. Debtor as borrower under the Credit Facility, against which borrower such Class 2 Claim is held.

(d) Manner of Distribution to Holders of Allowed Credit Facility Claims . Except as otherwise provided in Section 5.9(i) of the Plan, on the Effective Date, the applicable Debtors or Reorganized Debtors shall make all distributions of (i) Cash and Term Notes required under the Plan with respect to Allowed Credit Facility Claims to the Administrative Agent, and the Administrative Agent shall thereafter distribute such Cash and Term Notes to the holders of Allowed Credit Facility Claims and (ii) New Common Stock required under the Plan with respect to Allowed Credit Facility Claims to the holders of Allowed Credit Facility Claims. Such distributions by the Debtors or Reorganized Debtors, as applicable, shall be in complete satisfaction and discharge of all obligations of the Debtors and the Non-Debtor Guarantors to the holders of Allowed Credit Facility Claims. Without limiting Section 10 of the Plan or section 524 or 1141 of the Bankruptcy Code, each holder of an Allowed Credit Facility Claim that accepts such distribution shall be deemed to consent to the amendment and restatement of the Credit Facility pursuant to the Plan.

(e) Impairment and Voting . Class 2 is Impaired, and accordingly, the holders of Claims in Class 2 are entitled to vote to accept or reject the Plan.

4.3

Other Secured Claims (Class 3).

(a) Classification . Class 3 consists of all Allowed Other Secured Claims. Pursuant to the Plan, the Deferred Waiver Claim shall be Allowed in the amount set forth in section 4 of the First Credit Facility Waiver.

(b) Treatment . Except to the extent that a holder of an Allowed Other Secured Claim agrees to a less favorable treatment, on the Effective Date, or as soon as practicable thereafter, each Allowed Other Secured Claim shall be, at the option of the Debtors or Reorganized Debtors, as applicable, (i) reinstated and rendered unimpaired in accordance with section 1124 of the Bankruptcy Code, (ii) paid in full, in Cash, together with postpetition interest to the extent required to render such Claim unimpaired, (iii) satisfied by the surrender of the Collateral securing such Claim, or (iv) otherwise rendered unimpaired in accordance with section 1124 of the Bankruptcy Code, notwithstanding any contractual provision or applicable nonbankruptcy law that entitles the holder of an Allowed Other Secured Claim to demand or receive payment of such Claim prior to its stated maturity from and after the occurrence of default. Notwithstanding the foregoing, the Allowed Deferred Waiver Claim shall be paid by the Debtors or the Reorganized Debtors, as applicable, in full, in Cash, on the Effective Date, together with postpetition interest at the rate set forth in section 4 of the First Credit Facility Waiver, to the Administrative Agent and the Administrative Agent shall thereafter distribute such Cash to the applicable lender under the Credit Facility. Such payment by the Debtors or the Reorganized Debtors, as applicable, shall be in complete satisfaction and discharge of all obligations of the Debtors and the Non-Debtor Guarantors with respect to the Allowed Deferred Waiver Claim.

(c) Impairment and Voting . Class 3 is not Impaired. The holders of Claims in Class 3 are conclusively presumed to have accepted the Plan, and accordingly, are not entitled to vote to accept or reject the Plan.

4.4

General Unsecured Claims (Class 4).

(a) Classification . Class 4 consists of all Allowed General Unsecured Claims.

(b) Treatment . Except to the extent that a holder of an Allowed General Unsecured Claim agrees to a less favorable treatment, on the latest of (i) the Effective Date, (ii) the date on which such General Unsecured Claim is Allowed, and (iii) the date on which such General Unsecured Claim is due and payable in the ordinary course of business under any agreement or understanding between the applicable Debtor and the holder of such Claim, or, in each case, as soon as practicable thereafter, each Allowed General Unsecured Claim shall, at the Reorganized Debtors’ option, (A) be paid in full, in Cash, with postpetition interest to the extent required to render such Claim unimpaired or (B) otherwise be rendered unimpaired in accordance with section 1124 of the Bankruptcy Code.

(c) Impairment and Voting . Class 4 is not Impaired. The holders of Claims in Class 4 are conclusively presumed to have accepted the Plan, and accordingly, are not entitled to vote to accept or reject the Plan.

4.5

Unsecured Swap Termination Claims (Class 5).

(a) Classification . Class 5 consists of all Allowed Unsecured Swap Termination Claims. Pursuant to the Plan, the Unsecured Swap Termination Claims shall be Allowed in the aggregate principal amount of $12,837,079, plus the amount of the Unsecured Swap Termination Interest Component. Notwithstanding that a portion of the Allowed Unsecured Swap Termination Claims is denominated in a currency other than U.S. dollars, the Allowed amount set forth herein with respect to the Allowed Unsecured Swap Termination Claims is stated in U.S. dollars after converting the amount of such Claims using the “New York Closing” conversion rate published online at http://online.wsj.com for February 23, 2010. The final amount of the Allowed Unsecured Swap Termination Claims shall be restated as of the date that is two (2) business days prior to the Effective Date using the “New York Closing” conversion rate published online at http://online.wsj.com for such date. Distributions required under the Plan with respect to Allowed Unsecured Swap Termination Claims shall be made in accordance with such restated amounts.

(b) Treatment . Except to the extent that a holder of an Allowed Unsecured Swap Termination Claim agrees to a less favorable treatment, on the Effective Date or as soon as practicable thereafter, each holder of an Allowed Unsecured Swap Termination Claim shall receive its (i) Distributable Share of (A) Cash in an amount equal to $10,000,000.00 (ten million dollars), (B) the Term Notes, and (C) 82.6 % of the shares of New Common Stock to be issued on the Effective Date pursuant to Section 5.2(a)(ii) of the Plan and (ii) Pro Rata Share of Cash in an amount equal to the Unsecured Swap Termination Interest Component.

(i) Except as otherwise provided in the Plan, including Section 5.9(i) of the Plan, the Cash and Term Notes distributable pursuant to this Section 4 to the holders of Class 5 Claims against (A) U.S. Debtors, shall be issued and distributed by Xerium and (B) Non-U.S. Debtors, shall be issued and distributed

by the respective Non-U.S. Debtor identified in Schedule 1 to the Unsecured Swap Termination Agreement, against which Non-U.S. Debtor such Class 5 Claim is held.

(ii) Except as otherwise provided in the Plan, including Section 5.9(i) of the Plan, the New Common Stock distributable pursuant to this Section 4 to the holders of Class 5 Claims against (A) U.S. Debtors, shall be distributed by Xerium and (B) Non-U.S. Debtors, shall be distributed by the respective Non-U.S. Debtor identified in Schedule 1 to the Unsecured Swap Termination Agreement, against which Non-U.S. Debtor such Class 5 Claim is held.

(d) Impairment and Voting . Class 5 is Impaired, and accordingly, the holders of Claims in Class 5 are entitled to vote to accept or reject the Plan.

4.6

Intercompany Claims (Class 6).

(a) Classification . Class 6 consists of all Allowed Intercompany Claims.

(b) Treatment . On the Effective Date or as soon as practicable thereafter, all Allowed Intercompany Claims shall either be reinstated to the extent determined to be appropriate by the Reorganized Debtors or adjusted, continued, or capitalized, either directly or indirectly, in whole or in part.

(c) Impairment and Voting . Class 6 is not Impaired. The holders of Claims in Class 6 are conclusively presumed to have accepted the Plan, and accordingly, are not entitled to vote to accept or reject the Plan.

4.7

Equity Interests in Subsidiary Debtors (Class 7).

(a) Classification . Class 7 consists of all Allowed Equity Interests in the Subsidiary Debtors.

(b) Treatment . On the Effective Date, all Allowed Equity Interests in the Subsidiary Debtors shall be reinstated and rendered unimpaired in accordance with section 1124 of the Bankruptcy Code.

(c) Impairment and Voting . Class 7 is not Impaired. The holders of Equity Interests in Class 7 are conclusively presumed to have accepted the Plan, and accordingly, are not entitled to vote to accept or reject the Plan.

4.8

Equity Interests in Xerium (Class 8).

(a) Classification . Class 8 consists of all Allowed Equity Interests in Xerium represented by shares of Existing Common Stock issued and outstanding immediately prior to the Effective Date.

(b) Treatment . On the Effective Date, (i) the Existing Common Stock shall be canceled and (ii) each holder of an Allowed Equity Interest in Class 8 shall receive its Pro Rata

Share of (A) a number of shares of New Common Stock that is equal to the difference between (1) 17.4% of the shares of New Common Stock to be issued on the Effective Date pursuant to Section 5.2(a)(ii) of the Plan and (2) the number of shares of New Common Stock to be reserved pursuant to Section 5.2(a)(iii) of the Plan and (B) New Warrants to purchase up to 10% of the issued and outstanding shares of New Common Stock as of the Effective Date (on a fully diluted basis).

(c) Impairment and Voting . Class 8 is Impaired. The holders of Equity Interests in Class 8 are deemed to have rejected the Plan, and accordingly, are not entitled to vote to accept or reject the Plan.

4.9

Nonconsensual Confirmation.

In the event that any Impaired Class of Claims or Equity Interests rejects the Plan or is deemed to have rejected the Plan, the Debtors (a) request that the Bankruptcy Court confirm the Plan in accordance with 1129(b) of the Bankruptcy Code with respect to such non-accepting Class, in which case the Plan shall constitute a motion for such relief and (b) reserve the right to amend the Plan in accordance with Section 12.5 hereof.

SECTION 5.

MEANS FOR IMPLEMENTATION

5.1

Procedural Consolidation of Debtors for Plan Purposes Only.

The Plan provides for the procedural consolidation of the Debtors for Plan purposes only and shall serve as a motion by the Debtors for entry of an order of the Bankruptcy Court granting such relief. The Debtors propose procedural consolidation to avoid the inefficiency of proposing, voting on, and making distributions in respect of entity-specific claims. Accordingly, except as otherwise provided in the Plan, on the Effective Date, all of the Debtors and their estates shall, for purposes of the Plan only, be treated as though they were merged and (a) all assets and liabilities of the Debtors shall, for purposes of the Plan only, be treated as though they were merged, (b) all guarantees of the Debtors of payment, performance, or collection of obligations of any other Debtor shall be eliminated and canceled, (c) all joint obligations of two or more Debtors, and all multiple Claims against such entities on account of such joint obligations, shall be considered a single claim against the Debtors, and (d) any Claim filed in the Reorganization Cases shall be deemed filed against the consolidated Debtors and a single obligation of the consolidated Debtors on and after the Effective Date. Unless otherwise set forth herein, such consolidation shall not (other than for voting, treatment, and distribution purposes under the Plan) affect (i) the legal and corporate structures of the Debtors (including the corporate ownership of the Subsidiary Debtors), (ii) any intercompany claims, or (iii) the substantive rights of any creditor. If any party in interest challenges the proposed procedural consolidation, the Debtors reserve the right to establish at the Confirmation Hearing the ability to confirm the Plan on an entity-by-entity basis.

5.2

Issuance of Capital Stock and New Warrants.

(a) The issuance of the shares of New Common Stock, shares of Preferred Stock, and New Warrants by Reorganized Xerium (the amounts of which, as described in this Section 5.2(a)(i)-(iv), are subject to adjustment on the Effective Date, provided that such

adjustments shall not affect the percentage of shares of New Common Stock to be distributed pursuant to Sections 4.2(b), 4.5(b), and 4.8(b) of the Plan or the percentage of shares of New Common Stock subject to purchase under the New Warrants to be distributed pursuant to Section 4.8(b) of the Plan) is hereby authorized without the need for any further corporate action and without further action by the holders of Claims or Equity Interests. On the Effective Date:

(i) The capital stock of Reorganized Xerium shall consist of (A) 20,000,000 shares of New Common Stock, $0.001 par value per share, which shares shall be duly authorized, fully paid, and nonassessable and (B) 1,000,000 shares of Preferred Stock, $0.001 par value per share. The Preferred Stock may be issued in one or more series at any time, and from time to time for future corporate purposes as determined by the New Board of Reorganized Xerium and authorized by the Restated Charter of Reorganized Xerium, including in connection with the Shareholder Rights Plan.

(ii) 14,991,640 shares of New Common Stock shall be issued and distributed pursuant to Section 4 of the Plan, or withheld pursuant to Section 7.3 of the Plan, as applicable.

(iii) 39,729 shares of New Common Stock shall be issued and distributed or reserved for future distribution, as applicable, pursuant to the Existing Management Incentive Plan and Existing Management Agreements; provided , however , that to the extent that equity incentive awards granted prior to the Effective Date pursuant to the Existing Management Incentive Plan or the Existing Management Agreements do not vest on or after the Effective Date in accordance with their terms, the shares of New Common Stock reserved pursuant to this Section 5.2(a)(iii) of the Plan with respect thereto shall be added to the number of shares of New Common Stock reserved for distribution pursuant to the New Management Incentive Plan under Section 5.2(a)(iv)(A) of the Plan.

(iv) The remaining authorized shares of New Common Stock shall be reserved as follows:

(A) 463,525 shares of New Common Stock shall be reserved for future distribution pursuant to the New Management Incentive Plan, from which distributions may be granted by a committee comprised of disinterested members of the New Board of Reorganized Xerium; provided , however , that to the extent that equity incentive awards granted prior to the Effective Date pursuant to the Existing Management Incentive Plan or the Existing Management Agreements do not vest on or after the Effective Date in accordance with their terms, the shares of New Common Stock reserved pursuant to Section 5.2(a)(iii) of the Plan with respect thereto shall be added to the number of shares of New Common Stock reserved for distribution pursuant to the New Management Incentive Plan under this Section 5.2(a)(iv)(A) of the Plan.

(B) 1,665,738 shares of New Common Stock shall be reserved for issuance upon exercise of the New Warrants.

(C) 2,839,368 shares of New Common Stock shall be reserved for future corporate purposes as determined by the New Board of Reorganized Xerium consistent with its Restated Charter.

(v) New Warrants to purchase up to 10% of the issued and outstanding shares of New Common Stock as of the Effective Date (on a fully diluted basis) shall be issued and distributed pursuant to Section 4 of the Plan.

(b) The issuance of one hundred (100) shares of Reorganized Xerium Canada Preferred Stock is hereby authorized without further action by the holders of Claims or Equity Interests. On the Effective Date, one hundred (100) shares of Reorganized Xerium Canada Preferred Stock shall be issued by Reorganized Xerium Canada and transferred pursuant to Section 5.9(i)(iv) of the Plan.

5.3

Capitalization of Reorganized Xerium on the Effective Date; No Fractional Shares or Warrants.

(a) Capitalization of Reorganized Xerium . All shares of New Common Stock distributable pursuant to Section 4 of the Plan are subject to dilution by (i) equity incentive awards to be granted under the New Management Incentive Plan on or after the Effective Date and (ii) the exercise of the New Warrants. All shares of New Common Stock distributable on account of equity incentive awards granted prior to but that are scheduled to vest on or after the Effective Date (x) shall not dilute the shares of New Common Stock distributed to holders of Allowed Claims in Class 2 and Class 5 pursuant to Section 4 of the Plan and (y) shall be reserved in accordance with Section 5.2(a)(iii) of the Plan.

(b) No Fractional Shares or Warrants . No fractional shares of New Common Stock or fractional New Warrants shall be issued or distributed under the Plan and no Cash shall be distributed in lieu of such fractional shares or warrants. When any distribution pursuant to the Plan on account of an Allowed Claim or Allowed Equity Interest would otherwise result in the issuance of a number of shares of New Common Stock or number of New Warrants that is not a whole number, the actual number of shares of New Common Stock or New Warrants distributed shall be rounded as follows: (i) fractions of ¹ / 2 (one half) or greater shall be rounded up to the next whole number and (ii) fractions of less than ¹ / 2 (one half) shall be rounded down to the next whole number with no further payment therefor. All Claims and Equity Interests of a holder shall be aggregated in making such determination. The total number of authorized shares of New Common Stock and number of New Warrants to be distributed to holders of Allowed Claims or Allowed Equity Interests shall be adjusted as necessary to account for the foregoing rounding.

5.4

Amended and Restated Credit Facility.

The following actions are hereby authorized without the need for any further corporate action and without further action by the holders of Claims or Equity Interests: On the Effective Date, (i) the Reorganized Borrowers, as borrowers, and the Reorganized Debtors, the

Non-Debtor Guarantors, and Robec Brazil LLC, as guarantors, shall enter into the Amended and Restated Credit Facility having principal terms and conditions not materially less favorable to the Reorganized Debtors than those set forth in Exhibit A to the Plan and (ii) the Reorganized Borrowers shall issue the Term Notes. The Term Notes may be represented by notes or other documents or instruments or by notations in the register that shall be established by the administrative agent under the Amended and Restated Credit Agreement on or before the Effective Date.

5.5

Exit Financing.

On the Effective Date, without the need for any further corporate action and without further action by the holders of Claims or Equity Interests, the Reorganized Debtors shall enter into the Exit Facility.

5.6

New Management Incentive Plan.

On the Effective Date, without the need for any further corporate action and without further action by the holders of Claims or Equity Interests, the New Management Incentive Plan shall become effective. Awards and distributions to be made under the New Management Incentive Plan shall be determined and granted by a committee comprised of disinterested members of the New Board of Reorganized Xerium. The solicitation of votes on the Plan shall include, and be deemed to be, a solicitation for approval of the New Management Incentive Plan. Entry of the Confirmation Order shall constitute such approval.

5.7

Existing Debt Securities and Agreements; Release of Liens.

On the Effective Date, (a) the Credit Facility shall be amended and restated as the Amended and Restated Credit Facility and each of the guarantees by (i) the Non-U.S. Debtors and the Non-Debtor Guarantors under the Credit Facility shall be amended and restated to reduce the aggregate amount of such guaranteed obligations to an amount that is not more than the lesser of (A) the maximum amount permitted under the laws of the jurisdiction of the respective Non-U.S. Debtor or Non-Debtor Guarantor, as the case may be and (B) the aggregate amount of Non-U.S. Term Note obligations and all other obligations of the Non-U.S. Debtors and the Non-Debtor Guarantors under the Amended and Restated Credit Facility and (ii) the U.S. Debtors under the Credit Facility shall be amended and restated to reduce the aggregate amount of such guaranteed obligations to an amount that is not more than the aggregate amount of the Term Notes and all other obligations of the U.S. Debtors, the Non-U.S. Debtors, and the Non-Debtor Guarantors under the Amended and Restated Credit Facility and (b) with respect to Secured Claims other than Credit Facility Claims, except to the extent the Plan provides otherwise, on the Effective Date, all liens, security interests, and pledges securing the obligations of the Debtors shall be released and the holders of such Secured Claims shall be authorized and directed to release any Collateral or other property and to take such actions as may be requested by the Reorganized Debtors to evidence the release of such liens, security interests, and pledges, including the execution, delivery, and filing or recording of such releases. The filing of the Confirmation Order with any federal, state, or local agency or department shall constitute good and sufficient evidence of, but shall not be required to effect, the termination of such liens, security interests, and pledges.

5.8

Surrender of Existing Securities.

As a condition to receiving any distribution under the Plan, each holder of a promissory note, certificate, or other instrument evidencing a Claim must surrender such promissory note, certificate, or other instrument to Reorganized Xerium or its designee. Any holder of a Claim that fails to (a) surrender such instrument or (b) execute and deliver an affidavit of loss and/or indemnity reasonably satisfactory to Reorganized Xerium before the later to occur of (i) the second anniversary of the Effective Date and (ii) six months following the date such holder’s Claim is Allowed, shall be deemed to have forfeited all rights and claims with respect thereto, may not participate in any distribution under the Plan on account thereof, and all amounts owing with respect to such Allowed Claim shall be retained by Reorganized Xerium; provided , however , that any promissory note, certificate, or other instrument, if any, issued under the Credit Facility shall be canceled on the Effective Date and holders of Allowed Credit Facility Claims shall not be required to surrender any such instruments prior to receiving distributions pursuant to the Plan.

5.9

Corporate Action.

(a) Due Authorization . On the Effective Date, all matters provided for under the Plan that otherwise would require approval of the stockholders or directors of one or more of the Debtors shall be deemed to have occurred and shall be in effect on and after the Effective Date pursuant to the applicable general corporation (or similar) law of the jurisdictions in which the Debtors are incorporated, formed, or organized, as applicable, without any requirement of further action by the stockholders or directors of the Debtors or the Reorganized Debtors.

(b) General . On the Effective Date, all actions contemplated by the Plan (including, without limitation, the transactions contemplated by Section 5.9(i) of the Plan) shall be deemed authorized and approved in all respects without the need for any further corporate action and without further action by the holders of Claims or Equity Interests. On the Effective Date, the appropriate officers of the Debtors or the Reorganized Debtors, as applicable, shall be authorized and directed to issue, execute, and deliver the agreements, documents, shares and other securities, and instruments contemplated by the Plan (or necessary or desirable to effect the transactions contemplated by the Plan) in the name of and on behalf of the Reorganized Debtors, including, without limitation, the Amended and Restated Credit Facility, the Exit Facility, the Nominating Agreements, the Registration Rights Agreement, the Shareholder Rights Plan, the New Warrants, the Restated Charters, the Restated Bylaws, the Intercreditor Agreement, the Austria Contribution Agreement, the Austria Purchase Agreement, the Austria Note, the Germany Assumption Agreement, the Canada Direction Letter Agreement, the U.S. Direction Letter Agreement, the New Management Incentive Plan and any and all other agreements, documents, securities and instruments relating to the foregoing (including without limitation security documents). The authorizations and approvals contemplated by this Section 5.9(b) shall be effective notwithstanding any requirements under nonbankruptcy law.

(c) Restated Charters and Restated Bylaws of the Reorganized Debtors . On the Effective Date, each of the Reorganized Debtors shall be deemed to have adopted its respective Restated Charter and Restated Bylaws. On the Effective Date or as soon as practicable thereafter, the Reorganized Debtors shall file their respective Restated Charters in the

respective jurisdictions of their incorporation, formation, or organization, as applicable. Pursuant to and only to the extent required by section 1123(a)(6) of the Bankruptcy Code, the Restated Charters shall include, among other things, (i) a provision prohibiting the issuance of non-voting equity securities and (ii) a provision setting forth an appropriate distribution of voting power among classes of equity securities possessing voting power. The Restated Charter of Reorganized Xerium also shall include, among other things, an election by Reorganized Xerium to be governed by section 203 of the Delaware General Corporation Law.

(d) Boards of Directors of the Reorganized Debtors . On the Effective Date, the operation of the Reorganized Debtors shall become the general responsibility of their New Boards, subject to, and in accordance with, their respective Restated Charters and Restated Bylaws. The initial New Board of Reorganized Xerium shall consist of seven (7) directors, as follows: (i) the Chief Executive Officer of Xerium in office immediately prior to the Effective Date, (ii) one (1) director nominated by the board of directors of Xerium, and (iii) five (5) directors nominated by members of the Secured Lender Ad Hoc Working Group. The initial directors of the Reorganized Debtors shall be disclosed, together with biographical information, in the Plan Supplement and shall be deemed elected or appointed, as the case may be, pursuant to the Confirmation Order, but shall not take office and shall not be deemed to be elected or appointed until the occurrence of the Effective Date. Those directors not continuing in office shall be deemed removed therefrom as of the Effective Date pursuant to the Confirmation Order.

(e) Officers of the Reorganized Debtors . The initial officers of the Reorganized Debtors shall be disclosed, together with biographical information, in the Plan Supplement and shall be deemed elected or appointed, as the case may be, pursuant to the Confirmation Order, but shall not take office and shall not be deemed to be elected or appointed until the occurrence of the Effective Date. Those officers not continuing in office shall be deemed removed therefrom as of the Effective Date pursuant to the Confirmation Order.

(f) Nominating Agreements . On Effective Date, and without the need for any further corporate action and without further action by the holders of Claims or Equity Interests, the Nominating Agreements shall be executed and delivered by the parties thereto.

(g) Registration Rights Agreement . On the Effective Date, and without the need for any further corporate action and without further action by the holders of Claims or Equity Interests, the Registration Rights Agreement shall be executed and delivered by the parties thereto.

(h) Shareholder Rights Plan . On the Effective Date, and without the need for any further corporate action and without further action by the holders of Claims or Equity Interests, Reorganized Xerium shall adopt the Shareholder Rights Plan.

(i) Intercompany Transactions . On the Effective Date, and without the need for any further corporate action and without further action by the holders of Claims or Equity Interests:

(i)(A) Reorganized Xerium and Reorganized Xerium Austria shall (1) enter into the Austria Purchase Agreement, pursuant to which Reorganized

Xerium shall sell and Reorganized Xerium Austria shall purchase 99% of the Xerium Austria Shares Distribution in exchange for the Austria Note and (2) enter into the Austria Contribution Agreement, pursuant to which Reorganized Xerium shall contribute to Reorganized Xerium Austria 1% of the Xerium Austria Shares Distribution and (B) Reorganized Xerium Austria shall, in exchange for the portion of the Allowed Credit Facility Claims against Xerium Austria to be exchanged for the Xerium Austria Shares Distribution, transfer the Xerium Austria Shares Distribution to the holders of such Allowed Credit Facility Claims pursuant to Section 4.2(b) of the Plan.

(ii) (A) Reorganized Xerium and Reorganized Xerium Germany shall enter into the Germany Assumption Agreement, pursuant to which Reorganized Xerium shall (1) assume with discharging effect the obligations of Xerium Germany with respect to the portion of Allowed Credit Facility Claims against Xerium Germany to be exchanged for the Xerium Germany Shares Distribution and (2) unconditionally waive any recourse it may have against Xerium Germany with respect thereto and (B) Reorganized Xerium shall (1) in exchange for the portion of Allowed Credit Facility Claims against Xerium Germany assumed by Reorganized Xerium, transfer the Xerium Germany Shares Distribution to the holders of such Allowed Credit Facility Claims pursuant to Section 4.2(b) of the Plan and (2) forgive such Allowed Credit Facility Claims against Xerium Germany.

(iii) (A) Reorganized Xerium shall, in exchange for the portion of Allowed Credit Facility Claims against Xerium Italy to be exchanged for the Xerium Italy Shares Distribution, transfer the Xerium Italy Shares Distribution to the holders of such Allowed Credit Facility Claims pursuant to Section 4.2(b) of the Plan and (B) pursuant to the Austria Contribution Agreement and the Xerium Italy Exchange (1) Reorganized Xerium shall contribute to Reorganized Xerium Austria the portion of Allowed Credit Facility Claims against Xerium Italy exchanged for the Xerium Italy Shares Distribution and all receivables related thereto and (2) Reorganized Xerium Austria shall forgive such Allowed Credit Facility Claims against Xerium Italy.

(iv) (A) Reorganized Xerium Canada and Reorganized Xerium V shall enter into the Canada Direction Letter Agreement, pursuant to which (1) Reorganized Xerium Canada shall direct Reorganized Xerium V, and Reorganized Xerium V shall agree, to transfer or cause the transfer by Reorganized Xerium of the Xerium Canada Distribution to the holders of Allowed Credit Facility Claims and Allowed Unsecured Swap Termination Claims against Xerium Canada, and in consideration therefor, (2) Reorganized Xerium Canada shall transfer to Reorganized Xerium V one hundred (100) shares of Reorganized Xerium Canada Preferred Stock and (B) Reorganized Xerium V and Reorganized Xerium shall enter into the U.S. Direction Letter Agreement, pursuant to which (1) Reorganized Xerium V shall direct Reorganized Xerium, and Reorganized Xerium shall agree, to transfer the Xerium Canada Distribution to the holders of Allowed Credit Facility Claims and Allowed Unsecured Swap

Termination Claims against Xerium Canada in satisfaction of the obligations of Reorganized Xerium V under the Canada Direction Letter Agreement, and in consideration therefor, (2) Reorganized Xerium shall be deemed for U.S. federal income tax purposes to make a capital contribution to Reorganized Xerium V in exchange for a deemed transfer of Reorganized Xerium V shares to Reorganized Xerium and (3) Reorganized Xerium shall, in exchange for the portion of the Allowed Credit Facility Claims and the Allowed Unsecured Swap Termination Claims against Xerium Canada to be exchanged for the Xerium Canada Distribution, transfer the Xerium Canada Distribution to the holders of such Allowed Credit Facility Claims and Allowed Unsecured Swap Termination Claims pursuant to Sections 4.2(b) and 4.5(b), respectively, of the Plan.

5.10

Compromise of Controversies.

In consideration for the distributions and other benefits provided under the Plan, the provisions of the Plan constitute a good faith compromise and settlement of all Claims and controversies resolved under the Plan, and the entry of the Confirmation Order shall constitute the Bankruptcy Court’s approval of such compromise and settlement under Bankruptcy Rule 9019.

5.11

Exemption from Securities Laws.

To the maximum extent provided by section 1145 of the Bankruptcy Code and applicable nonbankruptcy law, the issuance under the Plan of the New Common Stock and New Warrants will be exempt from registration under the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder.

5.12

Exemption from Transfer Taxes.

Pursuant to section 1146(a) of the Bankruptcy Code, any issuance, transfer or exchange of notes or equity securities under the Plan, the creation of any mortgage, deed of trust or other security interest, the making or assignment of any lease or sublease, or the making or delivery of any instrument of transfer from a Debtor to a Reorganized Debtor or any other Entity pursuant to the Plan shall not be subject to any document recording tax, stamp tax, conveyance fee, intangibles or similar tax, mortgage tax, real estate transfer tax, mortgage recording tax or other similar tax or governmental assessment, and the Confirmation Order shall direct the appropriate state or local governmental officials or agents to forego the collection of any such tax or governmental assessment and to accept for filing and recordation any of the foregoing instruments or other documents without the payment of any such tax or governmental assessment. Without limiting the foregoing, any issuance, transfer or exchange of a security or any making or delivery of an instrument of transfer pursuant to the Plan shall be exempt from the imposition and payment of any and all transfer taxes (including, without limitation, any and all stamp taxes or similar taxes and any interest, penalties and addition to the tax that may be required to be paid in connection with the consummation of the Plan and the Plan Documents) pursuant to sections 1146(a), 505(a), 106, and 1141 of the Bankruptcy Code.

SECTION 6.

DISTRIBUTIONS

6.1

Distribution Record Date.

As of the close of business on the Distribution Record Date, the various transfer registers for each of the Classes of Claims and Equity Interests as maintained by the Debtors, or their respective agents, shall be deemed closed, there shall be no further changes in the record holders of any Claims or Equity Interests for purposes of Plan distributions, and the Debtors or the Reorganized Debtors, as applicable, shall have no obligation to recognize, for distribution purposes, any transfer of Claims or Equity Interests occurring on or after the Distribution Record Date. The Debtors, the Reorganized Debtors or any party responsible for making distributions pursuant to this Section 6 shall be entitled to recognize and deal for all purposes hereunder only with those record holders stated on the transfer ledgers as of the close of business on the Distribution Record Date, to the extent applicable.

6.2

Date of Distributions.

Except as otherwise provided herein, any distributions and deliveries to be made under the Plan shall be made on the Effective Date or as soon as practicable thereafter. In the event that any payment or act under the Plan is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may be completed on the next succeeding Business Day, but shall be deemed to have been completed as of the required date.

6.3

Sources of Cash for Distributions.

All Cash required for the payments to be made hereunder shall be obtained from the Debtors’ and the Reorganized Debtors’ operations, Cash on hand, and borrowings under the Exit Facility.

6.4

Disbursement Agent.

Unless otherwise provided in the Plan, all distributions under this Plan shall be made on the Effective Date by Reorganized Xerium as Disbursement Agent or such other entity designated by Reorganized Xerium as a Disbursement Agent. No Disbursement Agent hereunder, including, without limitation, the Administrative Agent, shall be required to give any bond or surety or other security for the performance of its duties unless otherwise ordered by the Bankruptcy Court.

6.5

Rights and Powers of Disbursement Agent.

Each Disbursement Agent shall be empowered to (a) effect all actions and execute all agreements, instruments, and other documents necessary to perform its duties under the Plan, (b) make all distributions contemplated by the Plan, (c) employ professionals to represent it with respect to its responsibilities, and (d) exercise such other powers as may be vested in the Disbursement Agent by order of the Bankruptcy Court, pursuant to the Plan or as deemed by such Disbursement Agent to be necessary and proper to implement the provisions hereof.

6.6

Expenses of the Disbursement Agent.

The amount of any reasonable fees and expenses incurred by each Disbursement Agent acting in such capacity (including taxes and reasonable attorneys’ fees and expenses) on or after the Effective Date shall be paid in Cash by the Reorganized Debtors in the ordinary course of business.

6.7

Delivery of Distributions.

Subject to Bankruptcy Rule 9010, all distributions to any holder of an Allowed Claim or Equity Interest shall be made to the address of such holder as set forth in the books and records of the Debtors or its agents, as applicable, unless the Debtors or Reorganized Debtors have been notified in writing of a change of address, including by the filing of a proof of claim or interest by such holder that contains an address for such holder different from the address reflected in the Debtors’ books and records. In the event that any distribution to any holder is returned as undeliverable, the Disbursement Agent shall use reasonable efforts to determine the current address of such holder, but no distribution to such holder shall be made unless and until the Disbursement Agent has determined the then-current address of such holder, at which time such distribution shall be made to such holder without interest; provided , however , that such distributions shall be deemed unclaimed property under section 347(b) of the Bankruptcy Code at the expiration of one year from the Effective Date. After such date, all unclaimed property or interest in property shall revert to the Reorganized Debtors, and the Claim of any other holder to such property or interest in property shall be discharged and forever barred notwithstanding any applicable federal or state escheat, abandoned, or unclaimed property laws to the contrary.

6.8

Manner of Payment Under Plan.

(a) Cash distributable to holders of Allowed Claims against Non-U.S. Debtors shall be (i) converted to the legal tender of the country in which such Non-U.S. Debtor is incorporated, formed, or organized, as applicable, using the “New York Closing” conversion rate published online at http://online.wsj.com for the date that is two (2) business days prior to the Effective Date and (ii) distributed to such holders in such converted legal tender.

(b) Term Notes distributable to holders of Allowed Claims against Non-U.S. Debtors shall be (i) converted to the currency of the country in which such Non-U.S. Debtor is incorporated, formed, or organized, as applicable, using the “New York Closing” conversion rate published online at http://online.wsj.com for the date that is two (2) business days prior to the Effective Date and (ii) distributed as so converted.

(c) At the option of the applicable Disbursement Agent, any Cash payment to be made under the Plan may be made by a check or wire transfer or as otherwise required or provided in applicable agreements.

(d) Except as otherwise provided in Section 5.9(i) of the Plan, all distributions of Cash, Term Notes, New Common Stock, and New Warrants to the holders of Claims against, or Equity Interests in, Debtors domiciled in the United States of America shall be made by, or on behalf of, the applicable Debtor.

6.9

Setoffs and Recoupment.

The Debtors and the Reorganized Debtors may, but shall not be required to, set off against any Claim (for purposes of determining the Allowed amount of such Claim on which distribution shall be made) any claims of any nature whatsoever that the Debtors or the Reorganized Debtors may have against the holder of such Claim, but neither the failure to do so nor the allowance of any Claim hereunder shall constitute a waiver or release by the Debtors of any such claim the Debtors or the Reorganized Debtors may have against the holder of such Claim.

6.10

Distributions After Effective Date.

Distributions made after the Effective Date to holders of Disputed Claims or Disputed Equity Interests that are not Allowed Claims or Allowed Equity Interests, as the case may be, as of the Effective Date but which later become Allowed Claims or Allowed Equity Interests shall be deemed to have been made on the Effective Date.

6.11

Allocation of Distributions Between Principal and Interest.

The aggregate consideration to be distributed to the holders of Allowed Claims under the Plan shall be treated as first satisfying an amount equal to the stated principal amount of the Allowed Claims of such holders, as determined for federal income tax purposes, and any remaining consideration as satisfying accrued, but unpaid, interest, if any.

6.12

No Postpetition Interest on Claims.

Unless otherwise specifically provided for in this Plan, the Confirmation Order, or any other order entered by the Bankruptcy Court, or as required by applicable law, postpetition interest shall not accrue on or after the Commencement Date on account of any Claim.

SECTION 7.

PROCEDURES FOR DISPUTED CLAIMS OR EQUITY INTERESTS

7.1

Proofs of Claims and Equity Interests.

Proofs of Claim arising from the rejection of executory contracts or unexpired leases pursuant to the Plan shall be served and filed in accordance with Section 8.3 of the Plan. Except as otherwise provided in the Plan or by order of the Bankruptcy Court, holders of other Claims or Equity Interests shall not be required to file proofs of Claims or Equity Interests in the Reorganization Cases.

7.2

Objections to Claims and Equity Interests/Requests for Estimation

(a) The Debtors and Reorganized Debtors shall be entitled to dispute Claims and Equity Interests, and if the Debtors dispute any Claim or Equity Interest, such dispute shall be determined, resolved, or adjudicated, as the case may be, by the Bankruptcy Court. On and after the Effective Date, except to the extent that the Reorganized Debtors consent, only the Reorganized Debtors shall have the authority to file, settle, compromise, withdraw, or litigate to judgment objections to, and requests for estimation of, Claims and Equity Interests.

(b) The Debtors and the Reorganized Debtors may at any time request that the Bankruptcy Court estimate any contingent, unliquidated, or Disputed Claims or Disputed Equity Interests pursuant to section 502(c) of the Bankruptcy Code, regardless of whether the Debtor previously objected to such Claim or Equity Interest or whether the Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court will retain jurisdiction to estimate any Claim or Equity Interest at any time during litigation concerning any objection to any Claim or Equity Interest, including, without limitation, during the pendency of any appeal relating to any such objection. In the event that the Bankruptcy Court estimates any contingent, unliquidated, or Disputed Claim or Disputed Equity Interest, the amount so estimated shall constitute either the Allowed amount of such Claim or Equity Interest or a maximum limitation on such Claim or Equity Interest, as determined by the Bankruptcy Court. If the estimated amount constitutes a maximum limitation on the amount of such Claim or Equity Interest, the Reorganized Debtors may pursue supplementary proceedings to object to the allowance of such Claim or Equity Interest. All of the aforementioned objection, estimation, and resolution procedures are intended to be cumulative and not exclusive of one another. Claims or Equity Interests may be estimated and subsequently compromised, settled, withdrawn, or resolved by any mechanism approved by the Bankruptcy Court.

(c) Any objections to Claims or Equity Interests or requests for estimation thereof shall be served and filed (i) in the case of Claims or Equity Interests known to the Debtors prior to the Effective Date, on or before the date that is the later of (A) 120 (one hundred twenty) days after the Effective Date and (B) such later date as may be fixed by the Bankruptcy Court, (ii) in the case of Claims arising from the rejection of executory contracts or unexpired leases pursuant to the Plan, on or before the date that is the later of (A) 120 (one hundred twenty) days after the date on which proof of such Claim is served and filed in accordance with Section 8.3 of the Plan and (B) such later date as may be fixed by the Bankruptcy Court, and (iii) in the case of other Claims or Equity Interests not known to the Debtors prior to the Effective Date, on or before that date that is the later of (A) 120 (one hundred twenty) days after such Claim or Equity Interest is known to the Debtors and (B) such later date as may be fixed by the Bankruptcy Court.

7.3

No Distributions Pending Allowance.

Notwithstanding any other provision of the Plan, if all or any portion of a Claim or Equity Interest is a Disputed Claim or Disputed Equity Interest, as the case may be, no payment or distribution provided under the Plan shall be made on account of such Claim or Equity Interest unless and until such Disputed Claim or Disputed Equity Interest becomes an Allowed Claim or Allowed Equity Interest, as the case may be. In the event that a Claim or an Equity Interest in Xerium is Disputed, until such time as such Disputed Claim or Disputed Equity Interest is determined by Final Order, the Debtors or the Reorganized Debtors, as applicable, shall withhold on account of such Claim or Equity Interest the distribution to which the holder of such Claim or Equity Interest would be entitled under Section 4 of the Plan if such Claim or Equity Interest were Allowed in full.

7.4

Distributions After Allowance.

At such time as a Disputed Claim or Disputed Equity Interest becomes an Allowed Claim or Allowed Equity Interest, as the case may be, the Disbursement Agent shall distribute to the holder of such Claim or Equity Interest the property distributable to such holder pursuant to Section 4 of the Plan. To the extent that all or a portion of a Disputed Claim or Disputed Equity Interest is disallowed, the holder of such Claim or Equity Interest shall not receive any distribution on account of the portion of such Claim or Equity Interest, as the case may be, that is disallowed.

7.5

Preservation of Claims and Rights to Settle Claims.

Except as otherwise provided in the Plan, or in any contract, instrument, or other agreement or document entered into in connection with this Plan, in accordance with section 1123(b) of the Bankruptcy Code, the Reorganized Debtors shall retain and may enforce, sue on, settle, compromise, otherwise resolve, discontinue, abandon, or dismiss all claims, rights, causes of action, suits, and proceedings, including those described in the Plan Supplement, whether at law or in equity, whether known or unknown, that the Debtors or their estates may hold against any Entity, without the approval of the Bankruptcy Court, subject to the terms of Section 7.2 of the Plan, the Confirmation Order, and any contract, instrument, release, or other agreement entered into in connection herewith. The Reorganized Debtors or their successor(s) may pursue such retained claims, rights, causes of action, suits, or proceedings, as appropriate, in accordance with the best interests of the Reorganized Debtors or their successor(s) that hold such rights.

SECTION 8.

EXECUTORY CONTRACTS AND UNEXPIRED LEASES

8.1

Assumption and Rejection of Contracts and Leases.

Except for any executory contracts or unexpired leases that are (a) the subject of a motion to assume or reject that is pending on the Confirmation Date, which shall be assumed or rejected in accordance with the disposition of such motions or (b) listed on Exhibit E to the Plan or in any amendment to Exhibit E that may be included in the Plan Supplement, which are specifically rejected pursuant to the Plan, all executory contracts (including, without limitation, the Existing Management Incentive Plan and Existing Management Agreements) and unexpired leases to which any of the Debtors is a party are hereby specifically assumed (x) as of the Confirmation Date, with respect to the Existing Management Incentive Plan and the Existing Management Agreement of the Chief Executive Officer of Xerium and (y) as of the Effective Date, with respect to all other executory contracts and unexpired leases assumed pursuant to the Plan. Entry of the Confirmation Order by the Clerk of the Bankruptcy Court shall constitute an order of the Bankruptcy Court under sections 365 and 1123(b) of the Bankruptcy Code approving the contract and lease assumptions or rejections described above, as of the Confirmation Date or the Effective Date, as applicable, and determining that, with respect to such assumptions pursuant to the Plan, that “adequate assurance of future performance” (within the meaning of section 365 of the Bankruptcy Code) by the Reorganized Debtors has been demonstrated and no further adequate assurance is required.

8.2

Cure of Defaults.

Any monetary amounts by which any executory contract and unexpired lease to be assumed pursuant to the Plan is in default shall be satisfied, under section 365(b)(1) of the Bankruptcy Code, by the Debtors upon assumption thereof or as soon as practicable thereafter. If there is a dispute regarding (a) the nature or amount of any cure, (b) the ability of the Debtors or any assignee to provide “adequate assurance of future performance” (within the meaning of section 365 of the Bankruptcy Code) under the contract or lease to be assumed, or (c) any other matter pertaining to assumption, any cure shall occur following the entry of a Final Order resolving the dispute and approving the assumption or assumption and assignment, as the case may be.

8.3

Rejection Damage Claims.

All Claims arising from the rejection of executory contracts and unexpired leases pursuant to the Plan must be filed with the Bankruptcy Court and served upon the Debtors and their counsel on or before the date that is thirty (30) days after the later of (a) the Confirmation Date and (b) the date of entry of an order of the Bankruptcy Court approving such rejection. Any Claims not filed within such time shall be forever barred from assertion against the Debtors, their estates, the Reorganized Debtors, and their property.

8.4

Indemnification Obligations.

(a) Directors, Officers, Agents, and Employees . Any obligations of the Debtors pursuant to their certificates of incorporation and bylaws, or organizational documents, as applicable, or any other agreements entered into by any Debtor at any time prior to the Effective Date, to indemnify current and former directors, officers, agents, and/or employees with respect to all present and future actions, suits, and proceedings against the Debtors or such directors, officers, agents, and/or employees, based upon any act or omission for or on behalf of the Debtors, irrespective of whether such indemnification is owed in connection with an event occurring before or after the Commencement Date, shall not be discharged or Impaired by confirmation of the Plan. Such obligations shall be deemed and treated as executory contracts to be assumed by the Debtors hereunder and shall continue as obligations of the Reorganized Debtors.

(b) Administrative Agent . The obligations of the Debtors to indemnify the Administrative Agent pursuant to section 10.4 of the Credit Facility, irrespective of whether such indemnification is owed in connection with an event occurring before or after the Commencement Date, shall not be discharged or Impaired by confirmation of the Plan and shall continue as obligations of the Reorganized Debtors.

8.5

Compensation and Benefit Plans.

All employee compensation and benefit plans, policies, and programs of the Debtors entered into before or after the Commencement Date and not since terminated shall be deemed to be, and shall be treated as if they were, executory contracts to be assumed pursuant to the Plan. Employee benefit plans, policies, and programs include, without limitation, the Existing Management Incentive Plan, all medical and health insurance, life insurance, dental

insurance, disability benefits and coverage, leave of absence, retirement plans, retention plans, severance plans, and other such benefits. The Debtors’ obligations under such plans, policies, and programs shall survive confirmation of the Plan and shall be performed by the applicable Debtor or Reorganized Debtor in the ordinary course of business in accordance with the terms and subject to the conditions of any agreements or regulations governing, instruments evidencing, or other documents relating to, such plans, policies, and programs, except for (a) executory contracts or employee benefit plans specifically rejected pursuant to the Plan (to the extent such rejection does not violate sections 1114 and 1129(a)(13) of the Bankruptcy Code) and (b) such executory contracts or employee benefit plans that are the subject of a motion to reject pending as of the Confirmation Date.

8.6

Retiree Benefits.

On and after the Effective Date, the payment of retiree benefits (as defined in section 1114 of the Bankruptcy Code), if any, at the level established pursuant to section 1114 of the Bankruptcy Code, shall continue for the duration of the period the Debtors have obligated themselves to provide such benefits.

8.7

Insurance Policies.

All insurance policies pursuant to which the Debtors have any obligations in effect as of the date of the Confirmation Order shall be deemed and treated as executory contracts pursuant to the Plan and shall be assumed by the respective Debtors and Reorganized Debtors and shall continue in full force and effect. All other insurance policies shall re-vest in the Reorganized Debtors.

SECTION 9.

CONDITIONS PRECEDENT TO THE EFFECTIVE DATE

9.1

Conditions Precedent to the Effective Date.

The Effective Date shall not occur and the Plan shall not become effective unless and until the following conditions have been satisfied in full or waived in accordance Section 9.2 of the Plan:

(a) Entry of Confirmation Order . The Confirmation Order, in form and substance satisfactory to the Debtors, shall have been entered and shall be in full force and effect and there shall not be a stay or injunction (or similar prohibition) in effect with respect thereto.

(b) Administrative Agent . The Confirmation Order shall be in form and substance reasonably satisfactory to the Administrative Agent and shall have been entered and shall be in full force and effect and there shall not be a stay or injunction (or similar prohibition) in effect with respect thereto.

(c) Execution and Delivery of Other Documents . All other actions and all agreements, instruments or other documents necessary to implement the Plan, including without limitation, the Exit Facility and the Amended and Restated Credit Facility, shall have been (i) effected or (ii) duly and validly executed and delivered by the parties thereto and all conditions to their effectiveness shall have been satisfied or waived.

(d) Access to Funding . The Debtors shall have access to funding under the Exit Facility.

(e) Regulatory Approvals . The Debtors shall have received all authorizations, consents, regulatory approvals, rulings, letters, no-action letters, opinions or documents necessary to implement the Plan and that are required by law, regulation, or order.

(f) Consents . All authorizations, consents and approvals determined by the Debtors to be necessary to implement the Plan shall have been obtained.

(g) Corporate Formalities . Prior to or simultaneously with the effectiveness of the Plan, the Restated Charters shall have been filed in the Debtors’ respective jurisdictions of incorporation, formation, or organization.

(h) Other Acts . Any other actions the Debtors determine are necessary to implement the terms of the Plan shall have been taken.

9.2

Waiver of Conditions Precedent.

Each of the conditions precedent in Section 9.1(b)-(h) of the Plan may be waived, in whole or in part, by the Debtors in writing without notice to third parties or order of the Bankruptcy Court or any other formal action; provided , however , the condition precedent in Section 9.1(b) of the Plan and the condition precedent in Section 9.1(c) of the Plan that the Amended and Restated Credit Facility shall have been duly and validly executed, may be waived, in whole or in part, by the Debtors, only with the consent of the Administrative Agent.

9.3

Effect of Failure of Conditions.

If the conditions specified in Section 9.1 hereof have not been satisfied or waived in the manner provided in Section 9.2 hereof on or before the date that is thirty (30) days after the Confirmation Date, then (a) the Confirmation Order shall be of no further force or effect, (b) no distributions under the Plan shall be made, (c) the Debtors and all holders of Claims and Equity Interests in the Debtors shall be restored to the status quo ante as of the day immediately preceding the Confirmation Date as though the Confirmation Date had never occurred, (d) all of the Debtors’ obligations with respect to the Claims and Equity Interests shall remain unaffected by the Plan and nothing contained herein shall be deemed to constitute a waiver or release of any Claims by or against the Debtors or any other Entity or to prejudice in any manner the rights of the Debtors or any Entity in any further proceedings involving the Debtors, and (e) the Plan shall be deemed withdrawn.

SECTION 10.

EFFECT OF CONFIRMATION

10.1

Vesting of Assets.

On the Effective Date, except as otherwise provided in the Plan, pursuant to sections 1141(b) and 1141(c) of the Bankruptcy Code, all property of the Debtors’ estates shall vest in the Reorganized Debtors free and clear of all Claims, liens, encumbrances, charges, and other interests. Except as otherwise provided in the Plan, each of the Debtors, as Reorganized

Debtors, shall continue to exist on and after the Effective Date as a separate legal entity with all of the powers available to such legal entity under applicable law, without prejudice to any right to alter or terminate such existence (whether by merger or otherwise) in accordance with such applicable law. On and after the Effective Date, the Reorganized Debtors shall be authorized to operate their respective businesses, and to use, acquire, or dispose of assets, without supervision or approval by the Bankruptcy Court and free from any restrictions of the Bankruptcy Code or the Bankruptcy Rules.

10.2

Binding Effect.

Subject to the occurrence of the Effective Date, on and after the Confirmation Date, the provisions of the Plan shall bind any holder of a Claim against, or Equity Interest in, the Debtors, and such holder’s respective successors and assigns, whether or not the Claim or Equity Interest of such holder is Impaired under the Plan, whether or not such holder has accepted the Plan, and whether or not such holder is entitled to a distribution under the Plan.

10.3

Discharge of the Debtors.

(a) Scope . Except to the extent otherwise provided in the Plan, the rights afforded in the Plan and the treatment of all Claims against, or Equity Interests in, the Debtors under the Plan shall be in exchange for and in complete satisfaction, discharge and release of all Claims against, and Equity Interests in, the Debtors of any nature whatsoever, known or unknown, including without limitation, any interest accrued or expenses incurred thereon from and after the Commencement Date, or against their estates, the Reorganized Debtors, or their properties or interests in property. Except as otherwise provided in the Plan, upon the Effective Date, all Claims against, and Equity Interests in, the Debtors shall be satisfied, discharged, and released in full exchange for the consideration, if any, provided under the Plan. Except as otherwise provided in the Plan, all Entities shall be precluded from asserting against the Debtors, the Reorganized Debtors, or their respective properties or interests in property, any other Claims based upon any act or omission, transaction, or other activity of any kind or nature that occurred prior to the Effective Date.

(b) Statutory Injunction . In accordance with section 524 of the Bankruptcy Code, the discharge provided by the Plan and section 1141 of the Bankruptcy Code, among other things, acts as an injunction against the commencement or continuation of any action, employment of process, or an act, to collect, recover or offset the claims discharged upon confirmation of the Plan.

10.4

Exculpation.

The Debtors, the Reorganized Debtors, the Administrative Agent, the lender parties to the Credit Facility, the administrative agent under the DIP Facility, the lender parties to the DIP Facility, Deutsche Bank AG, Merrill Lynch Capital Services, Inc., the members of the Secured Lender Ad Hoc Working Group, and their respective principals, members, partners, officers, directors, employees, agents, managers, representatives, advisors, attorneys, accountants, and professionals shall neither have nor incur any liability to any Entity for any act taken or omitted to be taken in connection with, or arising out of, the Reorganization Cases, the

negotiation, formulation, dissemination, confirmation, consummation, or administration of the Plan, or property to be distributed under the Plan, or any other act or omission in connection with the Reorganization Cases, the Plan, the Disclosure Statement, or any contract, instrument, or other agreement or document related thereto or delivered thereunder, or any act taken or omitted to be taken in connection with the restructuring of the Debtors; provided , however , that the foregoing shall not affect the liability of any Entity that otherwise would result from any such act or omission to the extent that such act or omission is determined by a Final Order to have constituted willful misconduct or gross negligence.

10.5

Reservation of Rights.

The Plan shall have no force or effect unless and until the Effective Date. Prior to the Effective Date, none of the filing of the Plan, any statement or provision contained in the Plan, or action taken by the Debtors with respect to the Plan shall be, or shall be deemed to be, an admission or waiver of any rights of any Debtor or any other party with respect to any Claims or Equity Interests or any other matter.

10.6

Plan Supplement.

The Plan Supplement shall include certain documents relating to the Plan and its consummation and implementation, including the form of the New Warrants, the Restated Charters, the Restated Bylaws, the Amended and Restated Credit Agreement, the Amended and Restated Pledge and Security Agreement, the Nominating Agreements, the Registration Rights Agreement, the Shareholder Rights Plan, the Intercreditor Agreement, the Exit Facility Credit Agreement, the Exit Facility Pledge and Security Agreement, the Austria Contribution Agreement, the Austria Purchase Agreement, the Austria Note, the Germany Assumption Agreement, the Canada Direction Letter Agreement, the U.S. Direction Letter Agreement, a description of the claims, rights, causes of action, suits, and proceedings to be retained by the Reorganized Debtors, and modifications, if any, to Exhibit E to the Plan. The Plan Supplement shall be filed with the Clerk of the Bankruptcy Court on the Commencement Date and may be amended, modified, or supplemented by the Debtors prior to the Confirmation Hearing. Upon its filing with the Bankruptcy Court, the Plan Supplement may be accessed on the docket electronically maintained by the Clerk of the Bankruptcy Court or inspected in the office of the Clerk of the Bankruptcy Court during normal court hours.

SECTION 11.

RETENTION OF JURISDICTION

The Bankruptcy Court shall have exclusive jurisdiction over all matters arising in, arising under, and related to, the Reorganization Cases and the Plan pursuant to, and for purposes of sections 105(a) and 1142 of the Bankruptcy Code, and for, among other things, the following purposes:

(a) To hear and determine applications for the assumption or rejection of executory contracts or unexpired leases and the allowance of Claims resulting therefrom;

(b) To determine any and all motions, adversary proceedings, applications, contested matters, or other litigated matters pending on the Effective Date;

(c) To ensure that distributions to holders of Allowed Claims and Allowed Equity Interests are accomplished as provided herein;

(d) To enter, implement, or enforce such orders as may be appropriate in the event the Confirmation Order is for any reason stayed, reversed, revoked, modified, or vacated;

(e) To issue injunctions, enter and implement other orders, and take such other actions as may be necessary or appropriate to restrain interference by any Entity with the consummation, implementation, or enforcement of the Plan, the Confirmation Order, or any other order of the Bankruptcy Court;

(f) To hear and determine objections to Claims and Equity Interests, including any objections to the classification of any Claim or Equity Interest, and to allow or disallow any Disputed Claim or Disputed Equity Interest, in whole or in part;

(g) To consider any amendments to or modifications of the Plan, or remedy any defect or omission or reconcile any inconsistency in any order of the Bankruptcy Court, including the Confirmation Order, in such a manner as may be necessary to carry out the purposes and effects thereof;

(h) To hear and determine all applications of retained professionals under sections 330, 331, and 503(b) of the Bankruptcy Code for allowances of compensation for services rendered and reimbursement of expenses incurred prior to the Confirmation Date;

(i) To hear and determine disputes arising in connection with the interpretation, implementation, or enforcement of the Plan, the Plan Documents, the Confirmation Order, any transactions contemplated thereby, or any agreement, instrument, or other document governing or relating to any of the foregoing;

(j) To hear and determine any issue for which the Plan or a Plan Document requires a Final Order of the Bankruptcy Court;

(k) To issue such orders as may be necessary or appropriate to aid in execution of the Plan or to maintain the integrity of the Plan following consummation, to the extent authorized by section 1142 of the Bankruptcy Code;

(l) To determine such other matters and for such other purposes as may be provided in the Confirmation Order;

(m) To hear and determine matters concerning state, local, and federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy Code;

(n) To hear and determine all disputes involving the existence, scope and nature of the discharges granted under the Plan and the Bankruptcy Code;

(o) To hear and determine all disputes involving or in any manner implicating the exculpation or indemnification provisions contained in the Plan;

(p) To hear and determine any matters arising under or related to section 1145 of the Bankruptcy Code;

(q) To hear and determine any other matters related hereto and not inconsistent with the Bankruptcy Code and title 28 of the United States Code;

(r) To recover all assets of the Debtors and property of the Debtors’ estates, wherever located; and

(s) To enter a final decree closing the Reorganization Cases.

SECTION 12.

MISCELLANEOUS PROVISIONS

12.1

Payment of Statutory Fees.

On the Effective Date, and thereafter as may be required, the Debtors shall pay all fees payable pursuant to section 1930 of chapter 123 of title 28 of the United States Code. Notwithstanding Section 5.1 above, the Debtors shall pay all of the foregoing fees on a per-Debtor basis.

12.2

Dissolution of Statutory Committees and Cessation of Fee and Expense Payment.

Any statutory committees appointed in the Reorganization Cases shall dissolve on the Effective Date. Provided that all such fees and expenses payable as of the Effective Date have been paid in full, the Reorganized Debtors shall not be responsible for paying any fees and expenses incurred after the Effective Date by the professionals retained by any statutory committees.

12.3

Substantial Consummation.

On the Effective Date, the Plan shall be deemed to be substantially consummated under sections 1101 and 1127(b) of the Bankruptcy Code.

12.4

Expedited Determination of Postpetition Taxes.

The Reorganized Debtors shall have the right to request an expedited determination of their tax liability, if any, under section 505(b) of the Bankruptcy Code with respect to any tax returns filed, or to be filed, for any and all taxable periods ending after the Commencement Date through the Effective Date.

12.5

Amendments.

Subject to section 1127 of the Bankruptcy Code and, to the extent applicable, sections 1122, 1123, and 1125 of the Bankruptcy Code, alterations, amendments or modifications of the Plan may be proposed in writing by the Debtors at any time prior to or after the Confirmation Date, but prior to the Effective Date. Holders of Claims that have accepted the Plan shall be deemed to have accepted the Plan, as altered, amended, or modified, if the proposed

alteration, amendment, or modification complies with the requirements of this Section 12.5 and does not materially and adversely change the treatment of the Claim of such holder; provided , however , that any holders of Claims that were deemed to accept the Plan because such Claims were unimpaired shall continue to be deemed to accept the Plan only if, after giving effect to such amendment or modification, such Claims continue to be unimpaired.

12.6

Effectuating Documents and Further Transactions.

Each of the officers of the Reorganized Debtors is authorized, in accordance with his or her authority under the resolutions of the applicable New Board, to execute, deliver, file, or record such contracts, instruments, releases, indentures, and other agreements or documents and take such actions as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan.

12.7

Additional Intercompany Transactions.

The Debtors and Reorganized Debtors, as applicable, are hereby authorized without the need for any further corporate action and without further action by the holders of Claims or Equity Interests to (a) engage in intercompany transactions to transfer Cash for distribution pursuant to the Plan and (b) continue to engage in intercompany transactions (subject to applicable contractual limitations, including those in the Exit Facility Credit Agreement and the Amended and Restated Credit Agreement) including, without limitation, transactions relating to the incurrence of intercompany indebtedness.

12.8

Revocation or Withdrawal of the Plan.

The Debtors reserve the right to revoke or withdraw the Plan prior to the Effective Date. If the Debtors take such action, the Plan shall be deemed null and void. In such event, nothing contained herein shall constitute or be deemed to be a waiver or release of any Claims by or against the Debtors or any other Entity or to prejudice in any manner the rights of the Debtors or any Entity in further proceedings involving the Debtors.

12.9

Severability.

If, prior to the entry of the Confirmation Order, any term or provision of the Plan is held by the Bankruptcy Court to be invalid, void, or unenforceable, the Bankruptcy Court, at the request of the Debtors, shall have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void, or unenforceable, and such term or provision shall then be applicable as altered or interpreted. Notwithstanding any such holding, alteration, or interpretation, the remainder of the terms and provisions of the Plan shall remain in full force and effect and shall in no way be affected, impaired, or invalidated by such holding, alteration, or interpretation. The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Plan, as it may have been altered or interpreted in accordance with the foregoing, is valid and enforceable pursuant to its terms.

12.10

Schedules and Exhibits Incorporated.

All exhibits and schedules to the Plan, including the Plan Supplement, are incorporated into and are a part of the Plan as if fully set forth herein.

12.11

Solicitation.

The Debtors have, and upon the Confirmation Date shall be deemed to have, solicited acceptances of the Plan in good faith and in compliance with the applicable provisions of the Bankruptcy Code, including without limitation, sections 1125(a) and (e) of the Bankruptcy Code, and any applicable nonbankruptcy law, rule, or regulation governing the adequacy of disclosure in connection with such solicitation. The Debtors, the Reorganized Debtors, and each of their respective principals, members, partners, officers, directors, employees, agents, managers, representatives, advisors, attorneys, accountants, and professionals shall be deemed to have participated in good faith and in compliance with the applicable provisions of the Bankruptcy Code in the offer, issuance, sale, and purchase of any securities offered or sold under the Plan, and therefore, are not, and on account of such offer, issuance, sale, solicitation, or purchase shall not be, liable at any time for the violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan or the offer, issuance, sale, or purchase of any securities offered or sold under the Plan.

12.12

Governing Law.

Except to the extent that the Bankruptcy Code or other federal law is applicable, or to the extent an exhibit hereto or a schedule in the Plan Supplement provides otherwise, the rights, duties, and obligations arising under the Plan shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without giving effect to the principles of conflict of laws thereof.

12.13

Compliance with Tax Requirements.

In connection with the Plan and all instruments issued in connection herewith and distributed hereunder, any Entity issuing any instruments or making any distribution under the Plan, including any Entity described in Sections 5.2 and 5.4 hereof, shall comply with all applicable withholding and reporting requirements imposed by any federal, state, local, or foreign taxing authority, and all distributions under the Plan shall be subject to any such withholding or reporting requirements. Any Entity issuing any instruments or making any distribution under the Plan to a holder of an Allowed Claim or Allowed Equity Interest has the right, but not the obligation, to not make a distribution until such holder has provided to such Entity the information necessary to comply with any withholding requirements of any such taxing authority, and any required withholdings (determined after taking into account all information provided by such holder pursuant to this Section 12.13) shall reduce the distribution to such holder.

12.14

Conflict Between Plan and Disclosure Statement.

In the event of any conflict between the terms and provisions in the Plan and the terms and provisions in the Disclosure Statement, the terms and provisions of the Plan shall control and govern.

12.15

Notices.

Any notice required or permitted to be provided under the Plan to be effective shall be in writing (including by facsimile transmission) and, unless otherwise expressly provided in the Plan, shall be deemed to have been duly given or made when actually delivered or, in the case of notice by facsimile transmission, when received and telephonically confirmed, addressed as follows:


(a)	if to the Debtors or Reorganized Debtors to:

	XERIUM TECHNOLOGIES, INC. 8537 Six Forks Road, Suite 300 Raleigh, NC 27615
	Attn:	Mr. Stephen R. Light
	Telephone:	(919) 526-1402
	Facsimile:	(919) 526-1430
	Email:	Stephen.Light@xerium.com

	with copies to:

	CADWALADER, WICKERSHAM & TAFT LLP One World Financial Center New York, NY 10281
	Attn:	John J. Rapisardi, Esq.
		Sharon J. Richardson, Esq.
	Telephone:	(212) 504-6000
	Facsimile:	(212) 504-6666
	Email:	john.rapisardi@cwt.com
		sharon.richardson@cwt.com

(b)	if to the Administrative Agent, to:

	Citicorp North America, Inc. 388 Greenwich Street New York, NY 10013
	Attn:	Ryan Falconer
	Telephone:	(212) 816-3130
	Facsimile:	(866) 535-9445
	Email:	ryan.falconer@citi.com


		with copies to:

		CHADBOURNE & PARKE LLP 30 Rockefeller Plaza New York, NY 10112
		Attn:		Howard Seife, Esq.
				Andrew Rosenblatt, Esq.
		Telephone:		(212) 408-5100
		Facsimile:		(212) 541-5369
		Email:		hseife@chadbourne.com
				arosenblatt@chadbourne.com

Dated: March 30, 2010


Respectfully submitted,

Xerium Technologies, Inc.

By:		/s/ Stephen R. Light
		Stephen R. Light
		Chairman and Chief Executive Officer

Xerium III (US) Limited Xerium IV (US) Limited Xerium V (US) Limited Huyck Licensco Inc. Stowe Woodward Licensco LLC Wangner Itelpa I LLC Wangner Itelpa II LLC Xerium Asia, LLC

By:		/s/ Stephen R. Light
		Stephen R. Light
		President

Stowe Woodward LLC Weavexx, LLC Xerium Canada Inc.

By:		/s/ Stephen R. Light
		Stephen R. Light
		President and Chief Executive Officer

Xerium Italia S.p.A.

By:		/s/ Stephen R. Light
		Stephen R. Light
		Chairman


XTI LLC

By:		/s/ David Maffucci
		David Maffucci
		Executive Vice President

Xerium Germany Holding GmbH

By:		/s/ David Maffucci
		David Maffucci
		Managing Director


Huyck.Wangner Austria GmbH

By:		/s/ David Pretty
		David Pretty
		Managing Director

Exhibit 2.2

UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE


	x
	x
In re	:	Chapter 11

	:
XERIUM TECHNOLOGIES, INC., et al. ¹		Case No. 10-11031 (KJC)
	:

Debtors.	:	Jointly Administered

	x
	x

ORDER (I) APPROVING THE DEBTORS’

(A) DISCLOSURE STATEMENT, (B) SOLICITATION OF

VOTES AND VOTING PROCEDURES, AND (C) FORMS OF BALLOTS

AND (II) CONFIRMING THE DEBTORS’ AMENDED JOINT PREPACKAGED

PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

The Debtors’ Amended Joint Prepackaged Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated March 30, 2010 (D.I. 23) having been jointly proposed by Xerium Technologies, Inc. (“ Xerium ”) and certain of its direct and indirect subsidiaries, as debtors and debtors in possession in the above-captioned chapter 11 cases (collectively, the “ Debtors ”), and filed with the United States Bankruptcy Court for the District of Delaware (the “ Court ”) on March 30, 2010 (the “ Plan ”) ² ; and the Debtors having filed with the Court on March 30, 2010 (a) the Disclosure Statement, dated March 2, 2010 (D.I. 28), including the form of the

The Debtors in these chapter 11 cases (along with the last four digits of each Debtor’s federal tax identification number or its foreign equivalent) are: Xerium Technologies, Inc. (8674), Huyck Licensco Inc. (0434), Stowe Woodward Licensco LLC (4459), Stowe Woodward LLC (4102), Wangner Itelpa I LLC (3561), Wangner Itelpa II LLC (3562), Weavexx, LLC (7969), Xerium Asia, LLC (3367), Xerium III (US) Limited (4460), Xerium IV (US) Limited (4461), Xerium V (US) Limited (4462), XTI LLC (6754), Xerium Canada Inc. (0003), Huyck.Wangner Austria GmbH (0323), Xerium Germany Holding GmbH (3219), and Xerium Italia S.p.A. (0150). The location of the Debtors’ corporate headquarters and the service address for all Debtors is: 8537 Six Forks Road, Suite 300, Raleigh, North Carolina 27615.

²	Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Plan. The rules of construction in section 102 of the Bankruptcy Code shall apply to this Order.

Debtors’ Joint Prepackaged Plan of Reorganization Under Chapter 11 of the Bankruptcy Code attached thereto (the “ Form of Plan ”), and the Supplement to the Disclosure Statement, dated March 8, 2010 (D.I. 25) (collectively, the “ Disclosure Statement ’) and (b) the Blackline Reflecting Changes to Debtors’ Joint Prepackaged Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (D.I. 22) (the “ Plan Blackline ”), which reflects the nonmaterial modifications to the Form of Plan set forth in the Plan (the “ Modifications ”); and the Debtors having filed with the Court the Plan Supplement (D.I. 24) on March 30, 2010, and the Amended and Restated Plan Supplement (D.I. 172) on May 3, 2010 (collectively, the “ Plan Supplement ”); and the Certification of The Garden City Group, Inc. With Respect to Solicitation and Tabulation of Votes On Debtors’ Joint Prepackaged Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, sworn to by Jeffrey S. Stein of The Garden City Group, Inc. (D.I. 30) having been filed with the Court on March 30, 2010 (the “ Vote Certification ”); and the Declaration of Stephen Light in Support of the Debtors’ Chapter 11 Petitions and First Day Pleadings (D.I. 3) (the “ Light Declaration I ”) having been filed with the Court on March 30, 2010; and the Court having entered on March 31, 2010 the Order (I) Scheduling a Combined Hearing to Consider (A) Approval of the Disclosure Statement, (B) Approval of Solicitation Procedures and Forms of Ballots, and (C) Confirmation of the Plan, (II) Establishing a Deadline to Object to the Disclosure Statement and the Plan, and (III) Approving the Form and Manner of Notice Thereof (D.I. 65) (the “ Scheduling Order ”), among other things, scheduling a combined hearing to consider approval of the Disclosure Statement, the solicitation of votes on the Plan, the forms of ballots, and confirmation of the Plan (the “ Combined Hearing ”); and the Affidavit of Service of Gregory B. Guarton (D.I. 86), having been filed with the Court on April 2, 2010, the Affidavit of Service of Gregory B. Guarton (D.I. 87), having been filed with the Court on April 2, 2010, the Affidavit of Service of Angela Ferrante (D.I. 93), having been filed with the Court on April 5,

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2010, the Affidavit of Service of Radha S. Rai (D.I. 95), having been filed with the Court on April 5, 2010, the Affidavit of Service of Edward J. Devane (D.I. 96), having been filed with the Court on April 5, 2010, the Affidavit of Service of Radha S. Rai (D.I. 97), having been filed with the Court on April 6, 2010, the Supplement to Affidavit of Service of Ronda K. Collum (D.I. 121), having been filed with the Court on April 23, 2010, and the Supplement to Affidavit of Service of Gregory B. Guarton (D.I. 159), having been filed with the Court on April 28, 2010 (collectively, the “ Affidavits of Service ”); and the Debtors’ Memorandum of Law (A) in Support of Debtors’ Motion for Entry of an Order (I) Approving the Disclosure Statement, Solicitation of Votes on the Debtors’ Joint Prepackaged Plan of Reorganization, and Forms of Ballots and (II) Confirming the Debtors’ Amended Joint Prepackaged Plan of Reorganization Under Chapter 11 of the Bankruptcy Code and (B) In Response to Objections to Confirmation, dated May 10, 2010 (D.I. 183) having been filed with the Court on May 10, 2010; and the Debtors having distributed the Disclosure Statement, including the Form of Plan, and ballots substantially in the forms attached to the Vote Certification (the “ Ballots ”) and commenced on March 2, 2010 a solicitation of votes pursuant thereto (the “ Solicitation ”); and the Debtors having established 6:00 p.m. (Eastern Daylight Time) on March 26, 2010 as the voting deadline in the Solicitation; and the Declaration of Kevin L. McDougall in Support of Confirmation of the Debtors’ Amended Joint Prepackaged Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (D.I. 185) (the “ McDougall Declaration ”) having been filed with the Court on May 10, 2010; and the Declaration of Stephen R. Light in Support of Confirmation of the Debtors’ Amended Joint Prepackaged Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (D.I. 186) (the “ Light Declaration II ”) having been filed with the Court on May 10, 2010; and the Declaration of Brian J. Fox in Support of Confirmation of the Debtors’ Amended Joint Prepackaged Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (D.I. 188) (the “ Fox Declaration ”)

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having been filed with the Court on May 10, 2010; and the Declaration of Daniel Gilligan in Support of Confirmation of the Debtors’ Amended Joint Prepackaged Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (D.I. 187) having been filed with the Court on May 10, 2010 (the “ Gilligan Declaration ,” and together with the McDougall Declaration, the Light Declaration II, and the Fox Declaration, the “ Supporting Declarations ”); and the Court having considered the Plan, the Modifications, the Disclosure Statement, the Ballots, the Plan Supplement, the Vote Certification, the Affidavits of Service, the Light Declaration I, the Supporting Declarations, the papers in support of approval of the Disclosure Statement, the Solicitation, the Ballots, and confirmation of the Plan, and all objections and responses thereto, including, without limitation, the Objection of Privet Fund Management LLC and Tiburon Capital Management, LLC to Confirmation of Debtors’ Amended Joint Prepackaged Plan of Reorganization (D.I. 179) filed with the Court on May 6, 2010 (the “ Privet and Tiburon Objection ,” and collectively with all other objections, the “ Objections ”); and the Combined Hearing having been held before the Court on May 12, 2010; and the appearances of all interested parties having been noted in the record of the Combined Hearing; and the Court having considered all of the arguments of counsel and the evidence proffered, adduced, or presented at the Combined Hearing, and all of the proceedings had before this Court; and upon the Plan, the Modifications, the Disclosure Statement, the Ballots, the Plan Supplement, the Vote Certification, the Affidavits of Service, the Light Declaration I, the Supporting Declarations, the papers filed in support of approval of the Disclosure Statement, the Solicitation, the Ballots, and confirmation of the Plan, the Objections, and the record of the Combined Hearing; and the Court having found and determined that the Disclosure Statement contains sufficient information to comply with the disclosure requirements of the Bankruptcy Code, that the Disclosure Statement, the Solicitation, and the Ballots comply with the applicable provisions of the Bankruptcy Code,

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the Federal Rules of Bankruptcy Procedure (the “ Bankruptcy Rules ”), and any applicable nonbankruptcy law, rule, or regulation and should be approved, and that the Plan is in the best interests of the Debtors, their estates and creditors, and all parties in interest and should be confirmed as reflected by this Court’s rulings made in this Order and at the Combined Hearing; and after due deliberation and sufficient cause appearing therefor, the Court hereby FINDS, DETERMINES, AND CONCLUDES that:

Findings and Conclusions

A. The findings and conclusions set forth in this Order constitute the Court’s findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052, made applicable to this proceeding pursuant to Fed. R. Bankr. P. 9014.

B. To the extent any of the following findings of fact constitute conclusions of law, they are adopted as such. To the extent any of the following conclusions of law constitute findings of fact, they are adopted as such.

Jurisdiction and Venue

C. This Court has jurisdiction over these chapter 11 cases and to approve the Disclosure Statement, the Solicitation, and the Ballots and to confirm the Plan pursuant to 28 U.S.C. § 1334.

D. Approval of the Disclosure Statement, the Solicitation, and the Ballots and confirmation of the Plan are core proceedings pursuant to 28 U.S.C. § 157(b) and this Court has jurisdiction to enter a final order with respect thereto.

E. Venue of these chapter 11 cases is properly in this district pursuant to 28 U.S.C. §§ 1408 and 1409.

F. The Debtors are proper debtors under section 109 of the Bankruptcy Code and proper proponents of the Plan under section 1121(a) of the Bankruptcy Code.

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Notice and Solicitation

G. All parties required to receive notice of the Disclosure Statement, the Plan and the transactions contemplated thereby, the Plan Supplement, and the Combined Hearing (including the deadline for filing and serving objections to approval of the Disclosure Statement, the Solicitation, and the Ballots and confirmation of the Plan) have received due, proper, timely, and adequate notice in accordance with the Bankruptcy Code, the Bankruptcy Rules, the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the “ Local Rules ”), and the Scheduling Order and have had an opportunity to appear and be heard with respect thereto. No other or further notice is required.

H. All parties required to receive notice of the Modifications have received due, proper, timely, and adequate notice in accordance with the Bankruptcy Code, the Bankruptcy Rules, and the Local Rules and have had an opportunity to appear and be heard with respect thereto. See McDougall Declaration ¶ 16. The Modifications do not adversely change the treatment of any claims against, or equity interests in, the Debtors, and are in compliance with section 1127 of the Bankruptcy Code and Fed. R. Bankr. P. 3019. See id. ¶ 17. The Debtors have complied with section 1125 of the Bankruptcy Code with respect to the Modifications. Id. ¶¶ 12, 18. No other or further disclosure or solicitation of votes is required.

I. The Disclosure Statement contains sufficient information of a kind necessary to satisfy the disclosure requirements of any applicable nonbankruptcy law, rule, or regulation, including, without limitation, the Securities Act of 1933 (as amended, the “ Securities Act ”) and the Securities Exchange Act of 1934 (as amended, the “ Exchange Act ”), and contains “adequate information” (as such term is defined in section 1125(a)(1) of the Bankruptcy Code and used in section 1126(b)(2) of the Bankruptcy Code). See id. ¶ 18.

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J. The Solicitation complied with any applicable nonbankruptcy law, rule, or regulation governing the adequacy of disclosure in connection therewith, including, without limitation, the requirements of section 4(2) of the Securities Act and Regulation D promulgated thereunder, the antifraud provisions of the Securities Act, and the antifraud and antimanipulation provisions of the Exchange Act. See id. The Debtors have established that the Solicitation complies with any applicable European and Canadian securities laws.

K. Prior to the Commencement Date, the Form of Plan, the Disclosure Statement, and the Ballots were transmitted in compliance with the Bankruptcy Code, the Bankruptcy Rules, the Local Rules, the Solicitation Procedures, and any applicable nonbankruptcy law, rule, or regulation. See Stein Declaration ¶¶ 6-8.

L. The Debtors complied fully with Fed. R. Bankr. P. 3017, 3018(b), and 3018(c) in the Solicitation.

M. Prior to the Commencement Date, the Form of Plan, the Disclosure Statement, and the Ballots were transmitted to all or substantially all the Debtors’ creditors of each class entitled to vote. Id. ¶ 6, 8. After the Commencement Date, (a) the Plan Blackline reflecting the Modifications was transmitted to all or substantially all of the Debtors’ creditors of each class entitled to vote, (b) notice of the Combined Hearing, including the deadlines for interposing Objections, in substantially the form attached to the Scheduling Order (the “ Combined Hearing Notice ”) was provided to all or substantially all creditors and equity interests holders of the Debtors, and (c) the Plan, the Plan Blackline, the Disclosure Statement, and the Combined Hearing Notice were transmitted to the Office of the United States Trustee for the District of Delaware (the “ U.S. Trustee ”). The transmittal of the foregoing materials complies with Fed. R. Bankr. P. 3017(d).

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N. The procedures employed by the Debtors for transmitting documents and information required by Fed. R. Bankr. P. 3017(e) to beneficial holders of the Debtors’ securities were adequate.

O. The creditors whose claims are based on securities of record and who accepted the Form of Plan were the holders of record of such securities on February 23, 2010, the date specified in the Disclosure Statement as the record date for the Solicitation.

P. The Solicitation period prescribed for creditors to accept or reject the Form of Plan was not unreasonably short and was reasonable and proper under the circumstances. See id. ¶¶ 6, 8, 11-12.

Q. The Ballots comply with Fed. R. Bankr. P. 3018(c) and conform to Official Form Number 14.

R. The Plan has been accepted by more than the statutory majorities specified in section 1126(c) of the Bankruptcy Code.

S. Pursuant to section 1126(f) of the Bankruptcy Code, the Debtors were not required to solicit votes from the holders of Claims or Equity Interests, as the case may be, in Class 1, Class 3, Class 4, Class 6, and Class 7, as each such Class is unimpaired under the Plan and conclusively presumed to have accepted the Plan. The Debtors also were not required to solicit votes from the holders of Equity Interests in Class 8, as such Class is deemed to have rejected the Plan.

T. The Debtors and each of their respective officers, directors, principals, members, partners, employees, agents, managers, representatives, advisors, attorneys, accountants, and professionals have (i) solicited and tabulated votes on the Plan fairly, in good faith, and in compliance with the applicable provisions of the Bankruptcy Code, including, without limitation, sections 1125(a) and 1125(e) of the Bankruptcy Code, the Bankruptcy Rules,

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the Local Rules, and any applicable nonbankruptcy law, rule, or regulation, (ii) participated in good faith and in compliance with the applicable provisions of the Bankruptcy Code, including, without limitation, sections 1125(a) and 1125(e) of the Bankruptcy Code, the Bankruptcy Rules, the Local Rules, and any applicable nonbankruptcy law, rule, or regulation in the offer, issuance, sale, and purchase of any and all securities offered or sold under the Plan, and (iii) are entitled to the protections afforded by section 1125(e) of the Bankruptcy Code.

The Plan Satisfies the Requirements of the Bankruptcy Code

U. The Plan complies with all applicable provisions of the Bankruptcy Code. McDougall Declaration ¶ 4.

V. The Plan is dated and identifies the Debtors as its proponents.

W. The Plan designates classes of claims and equity interests. Id. ¶ 6. The classification of claims and equity interests under the Plan complies with section 1122 of the Bankruptcy Code. Each claim and equity interest placed in a particular class pursuant to the Plan is substantially similar to the other claims and equity interests, as the case may be, in such class. Id. ¶ 5. A reasonable basis exists for the classification in the Plan.

X. The Plan specifies each class of claims and equity interests that is not impaired under the Plan. Id. ¶ 7.

Y. The Plan specifies the treatment of each class of claims and equity interests that is impaired under the Plan. Id.

Z. The Plan provides for the same treatment for each claim or equity interest of a particular class, unless the holder of a particular claim or equity interest agrees to a less favorable treatment of such particular claim or equity interest. McDougall Declaration ¶ 7.

AA. The Plan provides adequate means for its implementation. Id. ¶ 8.

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BB. The Plan provides for the inclusion in the Restated Charters of a provision prohibiting the issuance of nonvoting equity securities and provides, as to each class of securities possessing voting power, an appropriate distribution of such power. McDougall Declaration ¶ 9.

CC. The Plan contains only provisions that are consistent with the interests of creditors and equity interest holders and with public policy with respect to the manner of selection of officers and directors under the Plan and any successors to such officers and directors. Id. ¶ 10.

DD. Amounts necessary to cure defaults required to be cured under the plan shall be determined in accordance with the underlying agreements and applicable nonbankruptcy law and the procedures set forth in the Plan.

EE. The Debtors, as Plan proponents, have complied with all applicable provisions of the Bankruptcy Code. Id. ¶ 12.

FF. The Plan has been proposed in good faith and not by any means forbidden by law. See Light Declaration II ¶¶ 5-21. The Plan was proposed with the legitimate and honest purpose of maximizing recoveries for all stakeholders of the Debtors and with a reasonable basis for expecting that a reorganization of the Debtors pursuant to the Plan could be effected. See id. ¶ 15. Implementation of the Plan will achieve a result that is consistent with the objectives and purposes of the Bankruptcy Code. Id. ¶ 16. The Debtors, as Plan proponents, and each of their respective officers, directors, principals, members, partners, employees, agents, managers, representatives, advisors, attorneys, accountants, and professionals have acted in good faith and with fundamental fairness in the negotiation and formulation of the Plan.

GG. The Plan is the product of good faith, arm’s length negotiations among the Debtors, the Administrative Agent, the Secured Lender Ad Hoc Working Group, Deutsche Bank AG (“ DB ”), Merrill Lynch Capital Services, Inc. (“ MLCS ”), Apax WW Nominees Ltd., Apax-Xerium

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APIA LP, and each of their respective officers, directors, principals, members, partners, employees, agents, managers, representatives, advisors, attorneys, accountants, and professionals. See id. ¶ 13.

HH. Any payment made or to be made by the Debtors or by a person issuing securities or acquiring property under the Plan, for services or for costs and expenses in or in connection with the Plan and incident to the Reorganization Cases, has been approved by, or is subject to the approval of, the Court as reasonable. See McDougall Declaration ¶ 20.

II. The identities, qualifications, and affiliations of the individuals proposed to serve as the directors and officers of the Reorganized Debtors as of the Effective Date have been fully disclosed, and the appointment to, or continuance in, such offices is consistent with the interests of creditors and equity interest holders and with public policy. See id. ¶¶ 21-22.

JJ. The identity of any insider proposed to be employed by the Reorganized Debtors as of the Effective Date and the nature of such insider’s compensation have been fully disclosed.

KK. With respect to each impaired class of claims or equity interests, each holder of a claim or equity interest in such class has accepted the Plan or will receive or retain under the Plan on account of such claim or equity interest property of a value, as of the Effective Date, that is not less than the amount that such holder would receive or retain if the Debtors were liquidated under chapter 7 of the Bankruptcy Code on the Effective Date. See Fox Declaration ¶¶ 26-28.

LL. The Plan provides that, except to the extent that a holder of an Allowed Administrative Expense Claim agrees to a less favorable treatment, each Allowed Administrative Expense Claim shall be paid in full, in Cash, on the latest of (i) the Effective Date, (ii) the date on which such Administrative Expense Claim is Allowed, and (iii) the date on which such

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Administrative Expense Claim is due and payable in the ordinary course of business under any agreement or understanding between the applicable Debtor and the holder of such Allowed Administrative Expense Claim, or, in each case, as soon as practicable thereafter; provided , that Allowed Administrative Expense Claims representing obligations incurred in the ordinary course of business or assumed by any of the Debtors shall be paid in full, in Cash, or performed by the applicable Debtor or Reorganized Debtor in the ordinary course of business in accordance with the terms and subject to the conditions of any agreements or regulations governing, instruments evidencing, or other documents relating to, such transactions. Except as otherwise ordered by the Court, all Entities seeking awards of compensation for services rendered or reimbursement of expenses incurred through and including the Confirmation Date under section 503(b)(2), 503(b)(3), 503(b)(4), or 503(b)(5) of the Bankruptcy Code shall (i) file their respective applications for final allowances of compensation for services rendered and reimbursement of expenses incurred on or before the date that is forty-five (45) days after the Effective Date and (ii) be paid in full, in Cash, in such amounts as are Allowed by the Court. See McDougall Declaration ¶ 30.

MM. The Plan provides that, in satisfaction of the Debtors’ respective obligations under the DIP Facility, on the Effective Date or as soon thereafter as practicable, (i) all obligations of the Debtors under the DIP Facility shall be assumed under, and become subject to the terms and conditions of, the Exit Facility and (ii) all liens and security interests granted to secure the Debtors’ obligations under the DIP Facility shall be satisfied, discharged, and terminated in full and of no further force or effect. See Fox Declaration ¶ 10.

NN. The Plan provides that, except to the extent that a holder of an Allowed Priority Non-Tax Claim agrees to a less favorable treatment, on the latest of (i) the Effective Date, (ii) the date on which such Priority Non-Tax Claim is Allowed, and (iii) the date on which

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such Allowed Priority Non-Tax Claim is due and payable in the ordinary course of business under any agreement or understanding between the applicable Debtor and the holder of such Claim, or, in each case, as soon as practicable thereafter, each Allowed Priority Non-Tax Claim shall be paid in Cash in an amount equal to the Allowed amount of such Claim, together with postpetition interest to the extent required to render such Claim unimpaired. McDougall Declaration ¶ 31.

OO. The Plan provides that, except to the extent that a holder of an Allowed Priority Tax Claim agrees to a less favorable treatment, on the later of (i) the Effective Date and (ii) the date on which such Priority Tax Claim is Allowed, or, in each case, as soon as practicable thereafter, each holder of an Allowed Priority Tax Claim shall, in full satisfaction, release, and discharge of such Allowed Priority Tax Claim, (a) to the extent such Claim is due and owing on the Effective Date, be paid in full, in Cash, on the Effective Date or (b) to the extent such Claim is not due and owing on the Effective Date, be paid in full, in Cash (1) in accordance with the terms of any agreement between the Debtors and such holder, (2) as may be due and owing under applicable nonbankruptcy law, or (3) in the ordinary course of business. Id. ¶ 32.

PP. Pursuant to the Plan, the holder of any Allowed Secured Claim that would otherwise meet the description of a Priority Tax Claim but for the secured status of that Claim, shall receive on account of that Claim, Cash payments, in the same manner and over the same period as will be received by holders of Allowed Priority Tax Claims. Id. ¶ 33.

QQ. Classes 1, 3, 4, 6, and 7 are unimpaired by the Plan and are conclusively presumed to have accepted the Plan. Id. ¶ 26; Fox Declaration ¶ 26. Class 8 is impaired by the Plan and is deemed to have rejected the Plan. McDougall Declaration ¶ 27; Fox Declaration ¶ 26.

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RR. Class 2 is impaired by the Plan. The Plan has been accepted in writing by the holders of more than two-thirds in amount and one-half in number of Allowed Class 2 Claims voting on the Plan, determined without including any acceptance of the Plan by any insider. Class 2 has accepted the Plan. See McDougall Declaration ¶¶ 26, 34; Vote Certification.

SS. Class 5 is impaired by the Plan. The Plan has been accepted in writing by the holders of more than two-thirds in amount and one-half in number of Allowed Class 5 Claims voting on the Plan, determined without including any acceptance of the Plan by any insider. Class 5 has accepted the Plan. See McDougall Declaration ¶¶ 26, 34; Vote Certification.

TT. The Debtors have sufficient liquidity to make all payments required under the Plan to be made on the Effective Date and thereafter. The Plan is feasible and confirmation of the Plan is not likely to be followed by the liquidation or the need for further financial reorganization of the Debtors or the Reorganized Debtors. See Fox Declaration ¶¶ 29-32.

UU. The Plan provides for the payment, on the Effective Date, and thereafter as may be required, of all fees payable under 28 U.S.C. § 1930. McDougall Declaration ¶ 36.

VV. The Plan provides for the continuation after the Effective Date of payment of all retiree benefits, to the extent applicable, as that term is defined in section 1114 of the Bankruptcy Code, at the level established pursuant to subsection (e)(1)(B) or (g) of section 1114 of the Bankruptcy Code, at any time prior to confirmation of the Plan, for the duration of the period the Debtors have obligated themselves to provide such benefits. Id. ¶ 37.

WW. All applicable requirements of section 1129(a) of the Bankruptcy Code, other than section 1129(a)(8), have been satisfied. McDougall Conclusion.

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XX. There is no class of equity interests that is similarly situated to Class 8. McDougall Declaration ¶ 28. The Plan does not discriminate unfairly against Class 8, as required by section 1129(b)(1) of the Bankruptcy Code. Id.

YY. The Plan is fair and equitable as to Class 8, as required by section 1129(b)(2)(C)(ii) of the Bankruptcy Code. Id. ¶ 29. There are no equity interests junior to the equity interests in Class 8. Id. Accordingly, there is no holder of any equity interest that is junior to the equity interests in Class 8 that will receive or retain any property under the Plan on account of such junior interest.

ZZ. The Debtors’ business plan (the “ Business Plan ”) and projections summarized in Section VI of the Disclosure Statement and set forth in the Revised Exhibit G thereto (the “ Projections ”) represent a fair and reasonable forecast of the Debtors’ future operations. See Light Declaration II ¶¶ 20, 24, 25, 27; Gilligan Declaration ¶¶ 12-14. The Business Plan and the Projections were prepared in a reasonable manner and are supported by reasonable assumptions and logically consistent computations. See Light Declaration II ¶¶ 20, 22-23, 27; Gilligan Declaration ¶ 11-13.

AAA. The valuation of the Debtors set forth in Section VI of the Disclosure Statement is based upon the informed judgment of Rothschild Inc. and the Debtors, embraces all facts relevant to the future earning capacity of the Debtors, and is a reasonable range of the Debtors’ going concern value as of the Effective Date. See Light Declaration II ¶¶ 20, 22-23, 27; Gilligan Declaration ¶¶ 12-14. The indicative total enterprise value for the Debtors of $715 million is a reasonable determination of the Debtors’ going concern value as of the Effective Date, reflects a fair resolution of the positions of the Debtors’ significant stakeholders with respect to the Debtors’ going concern value as of the Effective Date, and is supported by the extensive negotiations of the Debtors and their significant stakeholders in achieving such resolution. See Light Declaration II ¶ 15; Gilligan Declaration ¶ 31.

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BBB. Based upon the valuation of the Debtors set forth in Section VI of the Disclosure Statement, no holder of a claim or equity interest in any class will receive or retain under the Plan value greater than the allowed amount of its claim or interest. See Gilligan Declaration ¶ 32-34.

CCC. All applicable requirements of section 1129(b) of the Bankruptcy Code have been satisfied. McDougall Declaration ¶¶ 27-29, Conclusion.

DDD. The principal purpose of the Plan is neither the avoidance of taxes nor the avoidance of section 5 of the Securities Act.

Good Faith

EEE. All documents necessary to consummate and implement the Plan and the transactions contemplated thereby, including, without limitation, the Plan Documents, have been negotiated in good faith and at arm’s length and, upon execution thereof, shall be valid, binding, and enforceable agreements and shall not be in conflict with any federal or state law.

FFF. The Debtors, the Reorganized Debtors, and each of their respective officers, directors, principals, members, partners, employees, agents, managers, representatives, advisors, attorneys, accountants, and professionals will be acting in good faith if they proceed to consummate and implement the Plan and the transactions contemplated thereby and take the actions authorized and directed by this Order.

Executory Contracts and Unexpired Leases

GGG. The Debtors have exercised reasonable business judgment in determining whether to assume or reject each of the Debtors’ executory contracts and unexpired leases as set forth in Section 8 of the Plan.

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HHH. The Debtors and One Tech Westborough, LLC (“ One Tech ”) have agreed to the rejection, pursuant to the Plan, of the lease identified on Exhibit E to the Plan (the “ Westborough Lease ”), effective 12:01 a.m. on May 31, 2010, on the terms set forth in this Order.

Exculpation

III. The exculpation set forth in Section 10.4 of the Plan, as modified by paragraph 20 of this Order, is appropriate under the circumstances, fair, reasonable, supported by adequate consideration, necessary to the Debtors’ reorganization, and is in the best interests of the Debtors, their estates and creditors, all parties in interest, and the Reorganized Debtors. The exculpated parties have made substantial contributions to the Debtors’ reorganization, and these efforts have conferred significant value upon the Debtors’ estates. Any creditor or equity interest holder of the Debtors that does not consent to the exculpation will receive fair consideration under the Plan for its claims or interests. The prepackaged nature of these cases, the extensive efforts of the exculpated parties in connection with the negotiation and formulation of the Plan, the magnitude of the recoveries provided under the Plan to the holders of allowed claims and allowed equity interests constitute extraordinary circumstances, warranting such exculpation. See Light Declaration II ¶ 14.

Exit Facility

JJJ. The Exit Facility has been negotiated in good faith and at arm’s length and each party thereto may rely upon the provisions of this Order in closing the Exit Facility. The Exit Facility is necessary to consummate and implement the Plan and the transactions contemplated thereby and to the operation of the Reorganized Debtors. The Exit Facility constitutes reasonably equivalent value and fair consideration, and is in the best interests of the Debtors, their estates and creditors, all parties in interest, and the Reorganized Debtors. The Exit

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Facility constitutes valid and binding obligations of the parties thereto, and no obligation, payment, transfer, guarantee, or grant of security interest thereunder is subject to avoidance or recovery under the Bankruptcy Code or any applicable nonbankruptcy law, or subject to any defense, reduction, setoff, recoupment or counterclaim. The Debtors have exercised reasonable business judgment in entering into the Exit Facility. See Fox Declaration ¶ 31.

Equity Security Holders

KKK. The interests of the Debtors’ equity security holders were adequately represented throughout the negotiation and formulation of the Plan and have been adequately represented throughout these chapter 11 cases. See Light Declaration II ¶ 10. All equity security holders have received due, proper, timely, and adequate notice of the Disclosure Statement, the Modifications, the Plan and the transactions contemplated thereby, the Plan Supplement, and the Combined Hearing (including the deadline for filing and serving objections to approval of the Disclosure Statement, the Solicitation, and the Ballots and confirmation of the Plan and any amendments or modifications thereto) in accordance with the Bankruptcy Code, the Bankruptcy Rules, the Local Rules, and the Scheduling Order and have had an opportunity to appear and be heard with respect thereto. No other or further notice is required.

LLL. No Person has demanded or otherwise requested in these chapter 11 cases discovery of the Debtors or discovery of any of the Debtors’ professionals. No motion has been filed with the Court requesting the appointment of a committee of equity security holders pursuant to section 1102 of the Bankruptcy Code. The appointment of a committee of equity security holders pursuant to section 1102 of the Bankruptcy Code is neither warranted nor appropriate in these chapter 11 cases.

MMM. The Plan is supported by holders of a majority of the equity security interests in Xerium.

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NNN. The Privet and Tiburon Objection is the only objection interposed in these cases by an equity security holder. See In re Xerium Techs. , No. 10-11031 (Bankr. D. Del. filed Mar. 30, 2010). The number of equity security interests in Xerium held by each of Privet Fund Management LLC and Tiburon Capital Management, LLC is de minimis. See Verified Statement of Christopher D. Loizides on Behalf of Loizides, P.A. Pursuant to Federal Rule of Bankruptcy Procedure 2019(a), dated May 7, 2010 (D.I. 180), ¶ 2. No other equity security holder has appeared in these chapter 11 cases. See In re Xerium Techs. , No. 10-11031 (Bankr. D. Del. filed Mar. 30, 2010).

OOO. The Court declines to reconsider the Order (I) Authorizing the Debtors to File a Modified Creditor Matrix and Modified Equity Security Holders List, (II) Approving the Manner of Notices to the Debtors European Employees, (III) Extending Time Within Which to File (A) Schedules And Statements and (B) Financial Reports Pursuant to Fed. R. Bankr. P. 2015.3(a), (IV) Waiving the Requirement to File Schedules, Statements, and Financial Reports Upon the Effective Date of the Debtors Prepackaged Plan, and (V) Directing the United States Trustee not to Convene a Meeting of Creditors or Equity Security Holders or Appoint A Statutory Committee, entered April 27, 2010 (D.I. 147) (the “ April 27 Order ”). To the extent the Privet and Tiburon Objection is a motion to reconsider the April 27 Order pursuant to Bankruptcy Rule 9023 or otherwise, such motion is denied.

For all of the foregoing reasons, and after due deliberation, the Court FINDS, ADJUDGES, AND DECREES THAT:

Approval of Disclosure Statement and Solicitation

1. In accordance with sections 1125 and 1126(b) of the Bankruptcy Code and Fed. R. Bankr. P. 3017 and 3018, the Disclosure Statement and the Debtors’ solicitation of votes to accept or reject the Plan are approved in all respects.

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2. In accordance with sections 1125 and 1127 of the Bankruptcy Code and Fed. R. Bankr. P. 3019, the Modifications are approved in all respects. The Plan is deemed accepted by all the Debtors’ creditors that accepted the Form of Plan and no other or further disclosure or solicitation of votes is required.

3. To the extent that the Solicitation is deemed to constitute an offer of new securities, the Debtors are exempt from the registration requirements of the Securities Act (and of any equivalent state securities or “blue sky” laws) with respect to such Solicitation under section 4(2) of the Securities Act and Regulation D promulgated thereunder.

4. Pursuant to section 1125(e) of the Bankruptcy Code, the Debtors, the Reorganized Debtors, and each of their respective officers, directors, principals, members, partners, employees, agents, managers, representatives, advisors, attorneys, accountants, and professionals have participated in good faith and in compliance with the applicable provisions of the Bankruptcy Code in the Solicitation and in the offer, issuance, sale, and purchase of any and all securities offered or sold under the Plan and shall not be liable at any time, on account of such Solicitation or participation in such offer, issuance, sale, or purchase of securities under the Plan, for any violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan or the offer, issuance, sale, or purchase of any securities offered or sold under the Plan.

5. The Ballots are approved in all respects.

Confirmation of the Plan

6. The Plan is confirmed. A copy of the confirmed Plan is attached as Exhibit A to this Order.

7. Pursuant to Fed. R. Bankr. P. 3020(e), the fourteen-day stay of this Order imposed thereby is waived. The Debtors are authorized to consummate and implement the Plan and the transactions contemplated thereby immediately upon, concurrently with, or as soon as practicable following satisfaction of the conditions set forth in Section 9.1 of the Plan.

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8. The Privet and Tiburon Objection is overruled in all respects for the reasons set forth herein and in the record of the Combined Hearing. All other Objections that have not been withdrawn prior to the entry of this Order or are not cured by the relief granted in this Order are overruled in all respects for the reasons set forth by the Court in the record of the Combined Hearing. All withdrawn Objections, if any, are deemed withdrawn with prejudice.

9. To the extent not previously satisfied pursuant to prior order of the Court, all valid claims relating to reclamation demands given in accordance with section 546(c) of the Bankruptcy Code (“ Reclamation Demands ”) shall be satisfied pursuant to Section 2 or Section 4 of the Plan, as applicable, and all Reclamation Demands given to any of the Debtors that have not been withdrawn prior to entry of this Order are hereby deemed withdrawn with prejudice.

Executory Contracts and Unexpired Leases

10. The assumption or rejection of executory contracts and unexpired leases of the Debtors pursuant to Section 8 of the Plan is approved in all respects pursuant to sections 365 and 1123(b) of the Bankruptcy Code.

11. The executory contracts and unexpired leases assumed pursuant to Section 8 of the Plan are assumed effective as of the respective dates set forth in Section 8.1 of the Plan. “Adequate assurance of future performance” (within the meaning of sections 365 and 1123(b) of the Bankruptcy Code) by the Reorganized Debtors has been demonstrated with respect to the assumed executory contracts and unexpired leases and no further adequate assurance is required.

12. Stowe Woodward LLC (“ Stowe Woodward ”), a Debtor and member of Xerium’s controlled group, established and maintains two pension plans for certain of its employees known as: the (a) Xerium Inc. Union Pension Plan and (b) Xerium Inc. Pension Plan

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for US Salaried and Non-Union Hourly Employees (collectively, the “Pension Plans”). The Plan provides that the Pension Plans will be treated as if they are executory contracts and assumed under the Plan. The Pension Benefit Guaranty Corporation (the “ PBGC ”) believes that the Pension Plans are not executory contracts and are covered by Title IV of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”) (29 U.S.C. § 1301 et seq .). Pursuant to the Plan, Reorganized Stowe Woodward will continue the Pension Plans. Stowe Woodward and all members of its controlled group are obligated to contribute to the Pension Plans at least the amounts necessary to satisfy ERISA’s minimum funding standards, ERISA § 302; Internal Revenue Code § 412. The liability of Stowe Woodward and its controlled group members to the Pension Plans, or to the PBGC with respect to the Pension Plans, under ERISA shall not be affected in any way by this reorganization proceeding, including by discharge.

13. In full and final satisfaction of the claims of One Tech against the Debtors and the Reorganized Debtors with respect to the Westborough Lease and the rejection thereof pursuant to the Plan, One Tech shall have an allowed claim pursuant to section 502(b)(6) of the Bankruptcy Code in the aggregate amount of $417,352.74 (the “ One Tech Claim ”). The One Tech Claim shall constitute an Allowed General Unsecured (Class 4) Claim and shall be paid in full in cash by the Debtors on the Effective Date or within fifteen days thereafter. If the payment is not made within 21 days of the Effective Date, the unpaid balance shall accrue interest at a rate of 15% per annum compounded monthly. This Order shall in no way limit One Tech’s right to seek payment of any amounts due and unpaid under the Westborough Lease in respect of the postpetition period through 12:01 a.m. on May 31, 2010, which amounts, if any, shall be paid in the ordinary course of business if not contested or to the extent of, and promptly following, allowance by the Court as administrative expenses.

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14. Pursuant to section 1142(b) of the Bankruptcy Code, at 12:01 a.m. on May 31, 2010, One Tech, as landlord, and Xerium, as Reorganized Debtor and tenant, shall be deemed to have entered into a new lease for the premises that are the subject of the Westborough Lease (the “ New Lease ”). The term of the New Lease shall commence immediately following rejection of the Westborough Lease on May 31, 2010 and expire at 11:59 p.m. on December 31, 2010 (with no further extension options). All other terms and conditions of the New Lease shall be identical to the terms and conditions of the Westborough Lease. At the request of either party, the other party shall execute and deliver a written lease memorializing the terms of the New Lease as contemplated herein; provided , however , that the New Lease shall be fully effective and enforceable in accordance with its terms whether or not any additional written agreement is executed among the parties. On and after the Effective Date, One Tech may enforce the terms of the New Lease without further order of this Court, if necessary, in accordance with its state law rights and remedies.

Discharge and Injunction

15. On the Effective Date, except as otherwise provided in the Plan or this Order:

a. The provisions of the Plan bind the Debtors, the Reorganized Debtors, any entity issuing securities under the Plan, any entity acquiring property under the Plan, any creditor or equity interest holder of the Debtors, and such creditor or equity interest holder’s successors and assigns, whether or not the claim or equity interest of such creditor or equity interest holder is impaired under the Plan, whether or not such creditor or equity interest holder has accepted the Plan, and whether or not such creditor or equity security holder is entitled to a distribution under the Plan.

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b. All property of the Debtors’ estates, wherever located, is vested in the Reorganized Debtors, free and clear of all claims, liens, encumbrances, charges, and interests of creditors and equity interest holders of the Debtors.

c. The Debtors are discharged from any and all debts, claims, and interests of any nature whatsoever, known or unknown, that arose before the date and time of entry of this Order.

d. All persons and entities, wherever located, are permanently enjoined from enforcing or attempting to enforce in any jurisdiction any contractual, legal, or subordination rights exchanged, satisfied, compromised, or settled pursuant to the Plan.

e. All persons and entities, wherever located, are permanently enjoined from commencing or continuing in any manner and in any jurisdiction, any suit, action, or other proceeding, on account of or respecting any claim, interest, obligation, debt, right, action, cause of action, remedy, or liability exchanged, satisfied, compromised, or settled pursuant to the Plan.

16. Any judgment at any time obtained, to the extent such judgment is a determination of the personal liability of the Debtors with respect to any debt, claim, or interest discharged hereunder is hereby rendered null and void.

17. The commencement or continuation of any action, the employment of process, or an act to collect, recover, or offset any debt, claim, or interest discharged pursuant to this Order as a personal liability of the Debtors, or from property of the Debtors is hereby permanently enjoined, stayed, and restrained; provided , that nothing in the Plan or this Order shall affect the rights of offset held by holders of Allowed Priority Tax Claims under applicable nonbankruptcy law; provided , further , that notwithstanding Section 10.3 of the Plan, effective as of the Effective Date, any Claim that is the subject of litigation pending on the Commencement

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Date, which has not been determined by Final Order entered prior to the Effective Date, shall be determined and liquidated pursuant to a Final Order entered by an administrative or judicial forum of competent jurisdiction, settled, or otherwise resolved, and to the extent Allowed, shall receive the treatment specified in Section 4 of the Plan.

18. Distributions made pursuant to Section 4.2(d) of the Plan shall be in complete satisfaction and discharge of all obligations of the Debtors and Non-Debtor Guarantors to the holders of Allowed Credit Facility Claims. Upon the making such distributions, the respective holders of the discharged Credit Facility Claims are permanently enjoined from commencing or continuing in any manner and in any jurisdiction, any suit, action, or other proceeding based upon any security, note, instrument, certificate, agreement, or other document related to a discharged Credit Facility Claim. This Order shall be and is a judicial determination of discharge of all such liabilities of the Debtors and Non-Debtor Guarantors, subject to the occurrence of the Effective Date and the making of the distributions required to be made by the Debtors or the Reorganized Debtors pursuant to Section 4.2 of the Plan. Without limiting Section 10 of the Plan or section 524 or 1141 of the Bankruptcy Code, each holder of an Allowed Credit Facility Claim that accepts such distribution is deemed to consent to the amendment and restatement of the Credit Facility pursuant to the Plan.

19. With respect to environmental liabilities, nothing in the Plan or this Order (a) discharges or releases the Debtors from any environmental claim of, liability to, or cause of action by, the United States or any other governmental unit or (b) impairs the ability of the United States or any other governmental unit to exert its police and regulatory authority over any Debtor, Reorganized Debtor, or other person or entity.

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Exculpation

20. The Debtors, the Reorganized Debtors, the Administrative Agent, the lender parties to the Credit Facility, the administrative agent under the DIP Facility, the lender parties to the DIP Facility, DB, MLCS, the members of the Secured Lender Ad Hoc Working Group, and each of their respective officers, directors, principals, members, partners, employees, agents, managers, representatives, advisors, attorneys, accountants, and professionals shall neither have nor incur any liability to any Entity ( provided , that as to a governmental unit, with respect to the solicitation of votes on the Plan or the offer, issuance, sale, or purchase of a security, offered or sold under the Plan, subject to section 1125(e) of the Bankruptcy Code) for any act taken or omitted to be taken in connection with, or arising out of, the Reorganization Cases, the negotiation, formulation, dissemination, confirmation, consummation, or administration of the Plan, or property to be distributed under the Plan, or any other act or omission in connection with the Reorganization Cases, the Plan, the Disclosure Statement, or any contract, instrument, or other agreement or document related thereto or delivered thereunder, or any act taken or omitted to be taken in connection with the restructuring of the Debtors; provided , that the foregoing shall not affect the liability of any Entity that otherwise would result from any such act or omission to the extent that such act or omission is determined by a Final Order to have constituted willful misconduct or gross negligence.

21. Notwithstanding any provision to the contrary in the Plan, the Order confirming the Plan, and any implementing Plan documents, nothing shall: (a) affect the ability of the Internal Revenue Service (“ IRS ”) to pursue any non-debtors to the extent allowed by non-bankruptcy law for any liabilities that may be related to any federal tax liabilities owed by the Debtors; (b) affect the rights of the IRS to assert setoff and recoupment and such rights are expressly preserved; (c) require the filing of any claim or interest described in 11 U.S.C. 503(b)(1)(D);

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(d) require the IRS to allocate between interest and principal payments received pursuant to the Plan; and (e) discharge any claim of the IRS described in 11 U.S.C. Section 1141(d)(6). To the extent the allowed IRS Priority Tax Claims are not paid in full in cash on the Effective Date, the allowed IRS Priority Tax Claims shall be paid when due with interest to accrue at the rate and method set forth in 26 U.S.C. Sections 6621 and 6622.

Implementation

22. Except as otherwise provided in the Plan, on the Effective Date, all of the Debtors and their estates shall, for purposes of the Plan only, be treated as though they were merged and (a) all assets and liabilities of the Debtors shall, for purposes of the Plan only, be treated as though they were merged, (b) all guarantees of the Debtors of payment, performance, or collection of obligations of any other Debtor shall be eliminated and canceled, (c) all joint obligations of two or more Debtors, and all multiple Claims against such entities on account of such joint obligations, shall be considered a single claim against the Debtors, and (d) any Claim filed in the Reorganization Cases shall be deemed filed against the consolidated Debtors and a single obligation of the consolidated Debtors on and after the Effective Date. Unless otherwise set forth herein or in the Plan, such consolidation shall not (other than for voting, treatment, and distribution purposes under the Plan) affect (i) the legal and corporate structures of the Debtors (including the corporate ownership of the Subsidiary Debtors), (ii) any intercompany claims, or (iii) the substantive rights of any creditor.

23. The Debtors are hereby authorized to take all actions necessary or appropriate to consummate and implement the Plan and the transactions contemplated thereby, without further application to, or order of, this Court, provided that such actions are consistent with the terms and provisions of the Plan or this Order. For the avoidance of doubt, in accordance with Section 6.4 of the Plan, Cash distributions to be made by Non-U.S. Debtors to

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the holders of Allowed Claims pursuant to Section 2 or Section 4 of the Plan may be made by the respective Non-U.S. Debtor against which such Claim is held, or by Reorganized Xerium as Disbursement Agent or such other entity designated by Reorganized Xerium as a Disbursement Agent.

24. Effective as of the Effective Date, the issuances by (a) Reorganized Xerium of the New Common Stock and the New Warrants in accordance with the Plan and (b) Reorganized Xerium Canada of the Reorganized Xerium Canada Preferred Stock in accordance with the Plan are hereby authorized without the need for any further corporate action and without any further action by the holders of Claims or Equity Interests.

25. Pursuant to section 1142(b) of the Bankruptcy Code, on the Effective Date, and without the need for any further corporate action and without any further action by the holders of Claims or Equity Interests, the (a) the Reorganized Borrowers, as borrowers, the Reorganized Debtors, the Non-Debtor Guarantors, and Robec Brazil LLC, as guarantors, and Citicorp North America, Inc., as administrative and collateral agent, shall enter into the Amended and Restated Credit Facility and (b) the Reorganized Borrowers shall issue the Term Notes. The Reorganized Debtors are authorized to (x) enter into the Amended and Restated Credit Facility and pay any fees related thereto, (y) grant the liens and security interests and incur or guaranty the indebtedness contemplated thereby, and (z) issue, execute, and deliver all documents and instruments and take all actions necessary or appropriate to implement and effectuate the Amended and Restated Credit Facility and the transactions contemplated thereby.

26. Pursuant to section 1142(b) of the Bankruptcy Code, on the Effective Date, and without the need for any further corporate action and without any further action by the holders of Claims or Equity Interests, the Reorganized Borrowers, as borrowers, the Reorganized Debtors, the Non-Debtor Guarantors, and Robec Brazil LLC, as guarantors, and Citicorp North

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America, Inc. as administrative agent, collateral agent, and issuing bank, shall enter into the Exit Facility. The Reorganized Debtors are authorized to (a) enter into the Exit Facility and pay any fees related thereto, (b) grant the liens and security interests and incur or guaranty the indebtedness contemplated thereby, and (c) issue, execute, and deliver all documents and instruments and take all actions necessary or appropriate to implement and effectuate the Exit Facility and the transactions contemplated thereby, including, without limitation, borrowings thereunder. Any credit extended under the Exit Facility shall be deemed to have been extended in good faith, as such term is used in section 364(e) of the Bankruptcy Code.

27. On the Effective Date, and without the need for any further corporate action and without any further action by the holders of Claims or Equity Interests, all obligations of the Debtors under the DIP Facility shall be assumed under, and become subject to the terms and conditions of, the Exit Facility and all liens and security interests granted to secure the Debtors’ obligations under the DIP Facility shall be satisfied, discharged, and terminated in full and of no further force or effect and shall be replaced by liens to be issued under the terms of the Exit Facility.

28. The New Management Incentive Plan is approved. The solicitation of acceptances and rejections of the Plan is deemed to have been a solicitation for approval of the New Management Incentive Plan. On the Effective Date, and without the need for further corporate action and without any further action by the holders of Claims or Equity Interests, the New Management Incentive Plan shall become effective.

29. Except as otherwise provided in the Plan or this Order, upon the occurrence of the Effective Date, and without the need for any further corporate action and without any further action by the holders of Claims or Equity Interests, with respect to Secured Claims other than Credit Facility Claims, all liens, security interests, and pledges securing the

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obligations of the Debtors shall be released and the holders of such Secured Claims shall be authorized and directed to release any Collateral or other property and to take such actions as may be requested by the Reorganized Debtors to evidence the release of such liens, security interests, and pledges, including the execution, delivery, and filing or recording of such releases. A copy of this Order may, but need not be, filed in the relevant filing offices as evidence of the termination the termination of such liens, security interests, and pledges.

30. As a condition to receiving any distribution under the Plan, each holder of a promissory note, certificate, or other instrument evidencing a Claim shall surrender such promissory note, certificate, or other instrument to Reorganized Xerium or its designee. Any holder of a Claim that fails to (a) surrender such instrument or (b) execute and deliver an affidavit of loss and/or indemnity reasonably satisfactory to Reorganized Xerium before the later to occur of (i) the second anniversary of the Effective Date and (ii) six months following the date such holder’s Claim is Allowed, shall be deemed to have forfeited all rights and claims with respect thereto, may not participate in any distribution under the Plan on account thereof, and all amounts owing with respect to such Allowed Claim shall be retained by Reorganized Xerium; provided , that any promissory note, certificate, or other instrument, if any, issued under the Credit Facility shall be canceled on the Effective Date and holders of Allowed Credit Facility Claims shall not be required to surrender any such instruments prior to receiving distributions pursuant to the Plan.

31. On and after the Effective Date, the Reorganized Debtors shall issue all securities, notes, instruments, certificates, agreements, and other documents required to be issued pursuant to the Plan and this Order. Effective as of the Effective date, the Reorganized Debtors are authorized and empowered to issue, execute, deliver, file, or record any and all documents, instruments, and agreements, whether or not specifically referred to in the Plan or any exhibit or

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supplement to the Plan, and to take any action necessary or appropriate to consummate and implement the Plan and the transactions contemplated thereby in accordance with its terms, all without further application to, or order of, this Court, provided that such actions are consistent with the terms and provisions of the Plan or this Order.

32. The documents contained in the Plan Supplement, and any amendments, modifications, and supplements thereto made in accordance with the Plan, and all documents and agreements introduced into evidence by the Debtors at the Combined Hearing (including all exhibits and attachments thereto and all documents referred to therein), and the execution, delivery, and performance thereof by the Debtors and the Reorganized Debtors, as applicable, are authorized and approved when such documents and agreements are finalized, executed, and delivered. Without further order or authorization of the Court, the Debtors and the Reorganized Debtors are authorized and empowered to make all modifications to documents included as part of the Plan Supplement, and any other documents that are necessary or appropriate to consummate and implement the Plan and the transactions contemplated thereby, that do not materially modify the terms of such documents and are consistent with the Plan or this Order. The executed versions of the documents included in the Plan Supplement, including, without limitation, the Amended and Restated Credit Agreement and the Exit Facility, shall constitute legal, valid, binding, and authorized obligations of the respective parties thereto, enforceable in accordance with their terms and, to the extent applicable, shall create, as of the Effective Date, all liens and security interests purported to be created thereby. No obligation, payment, transfer, guarantee, or grant of security under this Order or under any of the documents included in the Plan Supplement, including, without limitation, the Amended and Restated Credit Agreement and the Exit Facility, shall be subject to avoidance or recovery under the Bankruptcy Code or any applicable nonbankruptcy law, or subjected to any defense, reduction, setoff, recoupment, or counterclaim.

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33. Pursuant to section 1142(b) of the Bankruptcy Code, on the Effective Date, and without the need for further corporate action and without any further action by the holders of Claims or Equity Interests, the Nominating Agreements and the Registration Rights Agreement shall be executed and delivered by the parties thereto. For the avoidance of doubt, nothing in the Plan or in this Order shall be deemed to require any party other than a Reorganized Debtor to enter into a Nominating Agreement or Registration Rights Agreement.

34. Effective as of the Effective Date, and without the need for further corporate action and without any further action by the holders of Claims or Equity Interests, the Shareholder Rights Plan shall be deemed adopted by the Reorganized Xerium.

35. On the Effective Date, and without the need for further corporate action and without any further action by the holders of Claims or Equity Interests, the Debtors and the Reorganized Debtors, as applicable, are authorized to engage in the intercompany transactions set forth in Sections 5.9(i) and 12.7 of the Plan.

36. Pursuant to Fed. R. Bankr. P. 9019 the compromise and settlement set forth in Section 5.10 of the Plan is approved.

37. To the maximum extent permitted by operation of section 1145 of the Bankruptcy Code, the distribution of New Common Stock and New Warrants to be issued under the Plan is exempt from registration under the Securities Act and any state or local law requiring registration for offer or sale of a security or registration or licensing of an issuer of, or broker or dealer in, a security. All such securities so issued shall be freely transferrable by the initial recipients thereof (a) except for any restrictions set forth in section 1145(b) of the Bankruptcy Code and (b) subject to any restriction contained in the terms of such securities themselves, in the Plan, the Disclosure Statement, or in any other documents related to the Plan or executed in connection with the effectiveness thereof.

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38. Pursuant to section 1146(a) of the Bankruptcy Code, any issuance, transfer or exchange of notes or equity securities under the Plan, the creation of any mortgage, deed of trust or other security interest, the making or assignment of any lease or sublease, or the making or delivery of any instrument of transfer from a Debtor to a Reorganized Debtor or any other Entity pursuant to the Plan shall not be subject to any document recording tax, stamp tax, conveyance fee, intangibles or similar tax, mortgage tax, real estate transfer tax, mortgage recording tax or other similar tax or governmental assessment. All filing or recording officers (or any other Entity with authority over any of the foregoing), wherever located and by whomever appointed, shall comply with the requirements of section 1146(a) of the Bankruptcy Code, forego the collection of any such tax or governmental assessment, and accept for filing and recordation any of the foregoing instruments or other documents without the payment of any such tax or governmental assessment. Without limiting the foregoing, any issuance, transfer or exchange of a security or any making or delivery of an instrument of transfer pursuant to the Plan shall be exempt from the imposition and payment of any and all transfer taxes (including, without limitation, any and all stamp taxes or similar taxes and any interest, penalties and additions to the tax that may be required to be paid in connection with the consummation and implementation of the Plan and the Plan Documents) pursuant to sections 1146(a), 505(a), 106, and 1141 of the Bankruptcy Code.

39. Each federal, state, local, and foreign governmental agency or department, or other governmental agency or department is hereby authorized to accept any and all documents and instruments necessary or appropriate to consummate and implement the Plan and the transactions contemplated thereby.

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40. The substantial consummation of the Plan, within the meaning of section 1127 of the Bankruptcy Code, is deemed to occur on the Effective Date.

41. Any objections to, and requests for estimations of, Claims and Equity Interests, shall be served and filed in accordance with Section 7.2 of the Plan.

42. Except as otherwise provided in the Plan or this Order, any claims, rights, causes of action, suits, and proceedings, including, without limitation, those described in the Plan Supplement, whether at law or in equity, whether known or unknown, that the Debtors or their estates may hold against any Entity are hereby preserved in accordance with Section 7.5 of the Plan.

Professional Compensation and Reimbursement

43. Except as otherwise ordered by the Court, on or before the date that is forty-five (45) days after the Effective Date (or if such forty-fifth (45th) day is not a Business Day, the first Business Day thereafter), each professional or other entity requesting compensation or reimbursement of expenses pursuant to sections 327, 328, 330, 503(b), and 1103 of the Bankruptcy Code for services rendered up to the date and time of entry of this Order (including compensation requested pursuant to sections 503(b)(2), 503(b)(3), 503(b)(4) or 503(b)(5) of the Bankruptcy Code or other entity for making a substantial contribution in the Debtors’ chapter 11 cases) shall file an application for final allowance of compensation and reimbursement of expenses with the Court (a “ Final Fee Application ”), together with proof of service thereof, and shall serve such Final Fee Application on the Debtors, counsel for the Debtors, and the U.S. Trustee. Final Fee Applications shall show and reflect the application of any retainers in connection with the Debtors’ chapter 11 cases.

44. Objections and responses, if any, to any Final Fee Application shall be filed with the Court, together with proof of service thereof, and served upon the applicant and

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each of the parties identified in the preceding decretal paragraph, so as to be actually received not later than 4:00 p.m. (Eastern Daylight Time) on the date that is the sixtieth (60th) day after the Effective Date, or if such sixtieth (60th) day is not a Business Day, the first Business Day thereafter.

45. Unless an objection to a Final Fee Application, together with a request for a hearing thereon, is timely filed and served in accordance with this Order, the Final Fee Applications may be granted without further notice or without conducting a hearing.

46. Without further order or authorization of the Court, the Debtors and the Reorganized Debtors, as applicable, are authorized to retain professionals and pay, in the ordinary course of business, compensation for services rendered and reimbursement of expenses incurred by professionals after the date and time of entry of this Order.

47. The amount of any reasonable fees and expenses incurred by each Disbursement Agent acting in such capacity (including taxes and reasonable attorneys’ fees and expenses) on or after the date of entry of this Order shall be paid in Cash by the Debtors or the Reorganized Debtors, as applicable, in the ordinary course of business.

Retention of Jurisdiction

48. The Court shall retain jurisdiction as provided in Section 11 of the Plan to the fullest extent permitted by law. Section 11 of the Plan shall not be construed to expand or limit the Court’s jurisdiction beyond that allowed by applicable law.

Efficacy of Plan

49. The failure to specifically include any particular provisions of the Plan in this Order shall not diminish or impair the efficacy of such provisions, it being understood the intent of this Court that the Plan be confirmed and approved in its entirety. To the extent of any inconsistency between the Plan and this Order, the terms and conditions of this Order shall govern. The provisions of this Order are integrated with each other and are nonseverable and mutually dependent unless expressly stated by further order of the Court.

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Notice

50. On the Effective Date, or as soon thereafter as practicable, the Debtors shall (a) serve notice of the entry of this Order and the occurrence of the Effective Date, substantially in the form attached hereto as Exhibit B , which notice is hereby approved in all respects (the “ Confirmation and Effective Date Notice ”), upon each of the following at their respective addresses last known to the Debtors: (i) counsel to Citicorp North America, Inc., as administrative agent for the Debtors’ prepetition secured lenders and postpetition lenders, (ii) the parties listed on the Debtors’ creditor matrix, (iii) all equity security holders of record as of the applicable Distribution Record Date, (iv) any other known holders of claims or equity interests in the Debtors, (v) counterparties to the Debtors’ executory contracts and unexpired leases rejected pursuant to the Plan, (vi) the U.S. Trustee, (vii) the Securities and Exchange Commission, (viii) the Internal Revenue Service, (ix) the United States Department of Justice, (x) the Pension Benefit Guaranty Corporation, and (xi) all parties having filed requests for notices in these chapter 11 cases and (b) post the Confirmation and Effective Date Notice on the website maintained in these cases by the Debtors’ noticing agent: http://www.xeriuminfo.com. Service and posting of such notice as soon as practicable after the Effective Date shall be deemed to have occurred promptly after entry of this Order, and such notice shall constitute good and sufficient notice (x) pursuant to Fed. R. Bankr. P. 2002(f)(7), 2002(j), 2002(k), and 3020(c)(2) of confirmation of the Plan and entry of this Order, (y) pursuant to Fed. R. Bankr. P. 2002(a)(6) of any hearing scheduled by the Court to consider Final Fee Applications, and (z) of the occurrence of the Effective Date, and no other or further notice need be given.

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51. The Plan shall not become effective unless and until the conditions set forth in Section 9.1 of the Plan have been satisfied or waived in accordance with Section 9.2 of the Plan.


Dated:		May 12, 2010
		at : .m.
		Wilmington, Delaware

/s/ Kevin J. Carey

United States Bankruptcy Judge

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Exhibit 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Stephen R. Light, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Xerium Technologies, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2010

/s/ Stephen R. Light

Stephen R. Light

President, Chief Executive Officer and Chairman

(Principal Executive Officer)

Exhibit 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

I, David G. Maffucci, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Xerium Technologies, Inc. (the “Registrant”);

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2010

/s/ David G. Maffucci

David G. Maffucci

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as principal executive officer of Xerium Technologies, Inc. (the “Company”), does hereby certify that, to his knowledge:

1) the Company’s Form 10-Q for the period ended March 31, 2010, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) the information contained in the Company’s Form 10-Q for the period ended March 31, 2010, fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Stephen R. Light

Stephen R. Light

President, Chief Executive Officer and Chairman

(Principal Executive Officer)

May 14, 2010

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as principal financial officer of Xerium Technologies, Inc. (the “Company”), does hereby certify that, to his knowledge:

1) the Company’s Form 10-Q for the period ended March 31, 2010, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

/s/ David G. Maffucci

David G. Maffucci

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

May 14, 2010