XERIUM TECHNOLOGIES INC (Form: 10-Q, Received: 05/05/2011 08:16:07)

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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, 2011

¨	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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of April 26, 2011 was 15,017,298.

TABLE OF CONTENTS


		Page
Part I. Financial Information

Item 1.	Financial Statements		3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		31

Item 4.	Controls and Procedures		31

Part II. Other Information

Item 1.	Legal Proceedings		31

Item 1A	Risk Factors		32

Item 6.	Exhibits		32

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Xerium Technologies, Inc.

Condensed Consolidated Balance Sheets—(Unaudited)

(dollars in thousands, except per share data)


	March 31, 2011			December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	32,781		$	38,701
Restricted cash		13,961			13,701
Accounts receivable (net of allowance for doubtful accounts of $4,510 at March 31, 2011 and $4,755 at December 31, 2010)		99,359			93,332
Inventories, net		90,177			81,927
Prepaid expenses		4,840			5,108
Other current assets		15,437			15,192

Total current assets		256,555			247,961
Property and equipment, net		367,833			361,270
Goodwill		65,944			60,958
Intangible assets		12,219			12,958
Other assets		17,389			16,996

Total assets	$	719,940		$	700,143


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable	$	—		$	184
Accounts payable		37,992			41,686
Accrued expenses		51,292			47,677
Current maturities of long-term debt		13,028			12,794

Total current liabilities		102,312			102,341
Long-term debt, net of current maturities		475,137			468,383
Deferred and long-term taxes		30,524			28,506
Pension, other postretirement and postemployment obligations		72,549			69,646
Other long-term liabilities		13,183			12,532
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.001 par value, 1,000,000 shares authorized; no shares outstanding as of March 31, 2011 and December 31, 2010
Common stock, $0.001 par value, 20,000,000 shares authorized; 15,016,493 and 14,970,095 shares outstanding as of March 31, 2011 and December 31, 2010, respectively		15			15
Stock warrants		13,560			13,560
Paid-in capital		412,639			411,531
Accumulated deficit		(403,347	)		(403,994	)
Accumulated other comprehensive income (loss)		3,368			(2,377	)

Total stockholders’ equity		26,235			18,735

Total liabilities and stockholders’ equity	$	719,940		$	700,143

See accompanying notes.

Xerium Technologies, Inc.

Condensed Consolidated Statements of Operations—(Unaudited)

(dollars in thousands, except per share data)


	Three Months Ended March 31,
	2011			2010
Net sales	$	143,166		$	135,015
Costs and expenses:
Cost of products sold		89,251			83,304
Selling		19,524			18,042
General and administrative		17,380			26,850
Restructuring and impairments		168			1,567
Research and development		3,088			2,868

		129,411			132,631

Income from operations		13,755			2,384
Interest expense, net		(9,854	)		(15,644	)
Foreign exchange gain (loss)		164			(378	)

Income (loss) before reorganization items and provision for income taxes		4,065			(13,638	)
Reorganization items		—			(14,383	)


Income (loss) before provision for income taxes		4,065			(28,021	)
Provision for income taxes		3,418			2,136

Net income (loss)	$	647		$	(30,157	)


Net income (loss) per share:

Basic	$	0.04		$	(12.05	)


Diluted	$	0.04		$	(12.05	)


Shares used in computing net income (loss) per share:

Basic		14,988,624			2,502,008


Diluted		16,635,189			2,502,008

See accompanying notes.

Xerium Technologies, Inc.

Condensed Consolidated Statements of Cash Flows—(Unaudited)

(dollars in thousands)


	Three Months Ended March 31,
	2011			2010
Operating activities
Net income (loss)	$	647		$	(30,157	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Stock-based compensation		1,250			2,103
Depreciation		10,232			9,871
Amortization of intangibles		576			580
Deferred financing cost amortization		236			1,575
Unrealized foreign exchange gain on revaluation of debt		(610	)		149
Deferred taxes		660			558
(Gain) loss on disposition of property and equipment		(538	)		86
Non-cash interest expense related to interest rate swaps		—			3,211
Non-cash reorganization items		—			14,283
Reorganization items accrued		(115	)		100
Provision (credit) for doubtful accounts		44			(799	)
Change in assets and liabilities which (used) provided cash:
Accounts receivable		(2,921	)		(6,267	)
Inventories		(5,243	)		541
Prepaid expenses		383			499
Other current assets		(1,303	)		(601	)
Accounts payable and accrued expenses		(3,323	)		9,846
Deferred and other long-term liabilities		(169	)		(744	)

Net cash (used in) provided by operating activities		(194	)		4,834

Investing activities
Capital expenditures, gross		(4,190	)		(2,513	)
Proceeds from disposals of property and equipment		1,878			57
Restricted cash		(260	)		—

Net cash used in investing activities		(2,572	)		(2,456	)

Financing activities
Net decrease in borrowings (maturities of 90 days or less)		(181	)		—
Proceeds from borrowings (maturities longer than 90 days)		—			314
Principal payments on debt		(4,203	)		(1,273	)
Other		—			(2,304	)

Net cash used in financing activities		(4,384	)		(3,263	)

Effect of exchange rate changes on cash flows		1,230			(262	)

Net decrease in cash		(5,920	)		(1,147	)
Cash and cash equivalents at beginning of period		38,701			23,039

Cash and cash equivalents at end of period	$	32,781		$	21,892

Xerium Technologies, Inc.

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, Emergence and Plan of Reorganization

On March 30, 2010, the Company and certain of its subsidiaries (the “Debtor 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”), and on April 1, 2010, the Company entered into a debtor-in-possession financing facility consisting of a $20,000 revolving credit facility and $60,000 term loan (the “DIP Facility”). On May 25, 2010 (the “Effective Date”), the Company’s amended joint prepackaged plan of reorganization (the “Plan”) became effective and the Company and the Debtor Subsidiaries emerged from chapter 11. Pursuant to the Plan, on the Effective Date:

•

20 million shares of new common stock of the Company, par value $0.001 (the “New Common Stock”) were authorized, of which an aggregate of 14,970,050 shares were issued and outstanding, as described below. In addition, 1,000,000 shares of preferred stock of the Company, par value $0.001, were authorized, of which 20,000 shares are designated as Series A Junior Participating Preferred Stock;

•

All of the shares of the Company’s common stock outstanding (the “Old Common Stock”), par value $0.01, were cancelled and replaced with 2,566,150 shares of New Common Stock, which was equivalent to a 20 to 1 reverse split of the Old Common Stock;

•

The Company’s lenders under its pre-petition credit facility and the interest rate swap termination counterparties (collectively, the “Lenders”) received, 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 (defined below), and (c) 12,403,900 shares of New Common Stock; and

•

Holders of the Company’s Old Common Stock also received four-year warrants to purchase an aggregate of 1,663,760 shares of New Common Stock (the “Warrants”) at an exercise price of $19.55 per share, representing approximately 0.0324108 Warrants for each share of Old Common Stock.

In addition, pursuant to the Plan, the Company entered into a number of material agreements and engaged in a series of transactions on the Effective Date, including (i) the Amended and Restated Credit Facility (defined below) (ii) the Exit Facility (defined below), (iii) a Rights Agreement, (iv) a Registration Rights Agreement with certain of the Company’s stockholders, and (v) Director Nomination Agreements with certain of the Company’s stockholders. The terms of the Amended and Restated Credit Facility and Exit Facility are described below.

Amended and Restated Credit Facility

Pursuant to the Plan, on the Effective Date, the Company’s existing senior credit facility was amended and restated as the Second Amended and Restated Credit and Guaranty Agreement (the “Amended and Restated Credit Facility”), dated as of May 25, 2010, by and among the Company, certain subsidiaries of the Company, Citigroup Global Markets Inc. as Lead Arranger and Bookrunner, and other agents and banks party thereto. The Amended and Restated Credit Facility provides for a term loan that has a principal amount of $410,000, and a maturity date that is five years following May 25, 2010, the closing date of the Amended and Restated Credit Facility. The $410,000 is denominated in U.S. Dollars, Euros and Canadian Dollars representing approximately 56%, 32% and 12% of this amount, respectively, at the Effective Date. The Amended and Restated Credit Facility is secured by second priority liens against, and security interests in, 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 guaranteed 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 bear interest as follows:

•

in the case of Xerium Canada Inc., at the CDOR (“Canada Dollar”) 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 “CDOR Rate,” “LIBOR Rate,” and “Euribor Rate” have the same meanings as set forth in the Company’s pre-petition credit facility except that the CDOR 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, subject to inter-creditor sharing arrangements with the lenders under the Exit Facility (as defined below) and on a pro rata basis with the Exit Facility:

(a) with 100% of the net cash proceeds received by the Company from any sale of any assets (50% of the net cash proceeds of the sale of assets belonging to our Australian and Vietnamese subsidiaries) for any transaction or series of transactions exceeding $250 outside the ordinary course of business (subject to certain exceptions regarding discontinued manufacturing facilities and exempting the first $3,000 if invested in other assets, except for the sale of assets belonging to the Company’s Australian and Vietnamese subsidiaries);

(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, beginning with fiscal year 2011; that is, Adjusted EBITDA plus a working capital adjustment, 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 requires that the Company observe and perform numerous affirmative and negative covenants, including certain financial covenants. The Amended and Restated Credit Facility also prohibits the payment of dividends on the New Common Stock.

Exit Facility

On the Effective Date, the DIP Facility was converted into an exit facility consisting of a $20,000 revolving credit facility and a $60,000 term loan (collectively, the “Exit Facility”) that was used to satisfy the Company’s and Debtor Subsidiaries’ obligations under the Plan and for ongoing working capital (including letters of credit) requirements. The revolving credit facility matures on a date that is three years following May 25, 2010, the closing date of the Exit Facility, and the term loan will mature on a date that is four and one-half years following May 25, 2010. The Exit Facility is secured by first priority liens against, and security interests in, 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 are 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 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 deferred costs of $3,645 related to the Exit Facility to be amortized over the life of the facility.

The loans under the Exit Facility are “LIBOR Loans” and bear interest at the annual rate equal to LIBOR plus the applicable margin, 4.5% per year, with a LIBOR floor of 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 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 LIBOR Loan will convert to an ABR Loan at the end of the interest period then in effect for such LIBOR Loan.

The Exit Facility requires the Company to make mandatory prepayments under the same circumstances as with respect to the Amended and Restated Credit Facility on a pro rata basis, which are described above. In addition, with limited exceptions, the Exit Facility requires 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 the Reorganization

Subsequent to the Commencement Date and through the Effective Date, the Company’s financial statements were prepared in accordance with the Accounting Standards Codification (“ASC”) Topic 852, Reorganizations (“Topic 852”). Topic 852 does not change the application of U.S. generally accepted accounting principles (“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. Because the reorganization value of the Company’s assets was greater than the sum of its post-petition liabilities and allowed claims, the Company did not adopt the fresh-start reporting principles of Topic 852.

In accordance with Topic 852, the Company (i) separated liabilities that are subject to compromise from liabilities that are not subject to compromise, during the period subsequent to the Commencement Date and prior to the Effective Date; and (ii) distinguished transactions and events that were directly associated with the reorganization from those that are associated with the ongoing operations of the business.

Reorganization items are presented separately in the accompanying unaudited Condensed Consolidated Statements of Operations and represent expenses that the Company identified as directly relating to the chapter 11 case. These items for the three months ended March 31, 2010 are summarized below. As the reorganization occurred in 2010, there were no reorganization items in the three months ended March 31, 2011.


	Three Months Ended March 31, 2010
Legal and professional fees	$	100
Write-off of deferred financing costs on pre-petition credit facility		14,283

	$	14,383

Restricted Cash

At March 31, 2011 and December 31, 2010, the Company had $13,961 and $13,701 of restricted cash, respectively, which were classified as a current asset. The restricted cash serves as collateral for letters of credit and no letter of credit has a maturity greater than one year, although certain of them can be renewed for another year. The cash is held in custody by the issuing bank, is restricted as to withdrawal or use and is currently invested in money market funds. Income from these funds is paid to the Company.

2. Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements at March 31, 2011 and for the three months ended March 31, 2011 and 2010 include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in conformity with 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, 2010 as reported on Form 10-K filed on March 11, 2011. Additionally, as discussed in Note 1, in 2010, the Company had a 20 to 1 reverse split of its Old Common Stock; accordingly the effect of the split has been reflected retroactively for all periods presented.

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. During the three months ended March 31, 2011, the Company evaluated events and business conditions to determine if a test for an impairment of goodwill was warranted. No such events or business conditions took place during this period, therefore, no test was determined to be warranted at March 31, 2011.

Warranties

The Company offers warranties on certain products that it sells. The specific terms and conditions of these warranties vary depending on the product sold, the country in which the product is sold and arrangements with the customer. The Company estimates the costs that may be incurred under its warranties and records a liability for such costs. Factors that affect the Company’s warranty liability include the number of units sold, historical and anticipated rates of warranty claims, cost per claim and new product introduction. The Company periodically assesses the adequacy of its recorded warranty claims and adjusts the amounts as necessary. Below represents the changes in the Company’s warranty liability for the three months ended March 31, 2011:


	Balance at December 31, 2010		Charged to Revenue or Cost of Sales		Effect of Foreign Currency Translation		Deduction from Reserves			Balance at March 31, 2011
For the three months ended March 31, 2011	$	1,688	$	868	$	108	$	(360	)	$	2,304

Net Income (loss) Per Common Share

Net income (loss) per common share has been computed and presented pursuant to the provisions of ASC Topic 260, Earnings per Share (“Topic 260”). Net income (loss) per share is based on the weighted-average number of shares outstanding during the period. As of March 31, 2011 and 2010, the Company had outstanding restricted

stock units (“RSUs”), warrants and options. For the three months ended March 31, 2010, the Company excluded the dilutive impact of potential future issuances of common stock underlying the Company’s RSUs, stock options and warrants from the calculation of diluted weighted average shares outstanding because their effect would have been anti-dilutive as the Company had a net loss for this period.

The following table sets forth the computation of basic and diluted weighted average shares. As discussed in Note 1, in 2010, the Company had a 20 to 1 reverse split of its Old Common Stock; accordingly, the effect of the split has been reflected retroactively for all periods presented.


	Three Months Ended March 31, 2011		Three Months Ended March 31, 2010
Weighted-average common shares outstanding—basic		14,988,624		2,502,008
Dilutive effect of stock-based compensation awards outstanding		1,646,565		—

Weighted-average common shares outstanding—diluted		16,635,189		2,502,008

Reclassifications

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

New Accounting Standards

In December 2010, the FASB issued ASU 2010-28, Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (“ASU No. 2010-28”). The amendments in this ASU modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. As both the Rolls and Clothing reporting units have positive carrying values, this statement will have no impact on the Company’s financial statements.

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. From time to time, 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 prior 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.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives through December 31, 2009 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.

As previously discussed, the Company terminated its outstanding interest rate swaps at December 31, 2009 and has not entered into any new interest rate swap agreements since that time. Consequently, the Company’s financial statements are exposed to the effects of interest rate fluctuations which could have a material impact on its results of operations. However, under the Amended and Restated Credit Facility, the BA Rate, the LIBOR Rate and the Euribor Rate are subject to a minimum base rate of 2.00% per annum, which is currently higher than the respective base rates.

The Company’s interest rate swaps were considered designated hedging instruments through August 31, 2009. Effective September 1, 2009, the interest rate swaps were no longer designated hedging instruments. During 2010, the Company amortized the mark to market balances related to these interest rate swaps from accumulated other comprehensive income. The Company recognized an expense of $3,211 related to its derivative financial instruments in the three months ended March 31, 2010, which was included in interest expense in its Condensed Consolidated Statements of Operations for that same period. This amount included the amortization of an additional $735 from accumulated other comprehensive income to interest expense, as the Company determined it was probable that interest payments on certain debt would not occur.

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 through December 31, 2010, the interest rate at 10.75% on approximately 79% of the term loan portion of the Company’s pre-petition credit facility. As a result of the termination of the interest rate swaps, the interest rate on the term loan portion of the credit facility was 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.

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 currencies (cash flow hedges). Additionally, to manage its exposure to fluctuations in foreign currency on intercompany balances and certain purchase commitments, the Company from time to time uses foreign exchange forward contracts (fair value hedges).

As of March 31, 2011 and December 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 and is recorded in other assets (liabilities) on the Condensed Consolidated Balance Sheet. The fair value of these derivatives at March 31, 2011 and December 31, 2010 was $(701) and $(222), respectively. The change in fair value of these contracts as included in foreign exchange loss was $(592) and $(22) for the three months ended March 31, 2011 and 2010, respectively and is recorded in the Condensed Consolidated Statements of Operations.


Foreign Currency Derivative as of March 31, 2011	Notional Sold			Notional Purchased
Cash flow hedges	$	(2,373	)	$	—
Fair value hedges	$	(36,300	)	$	13,228


Foreign Currency Derivative (as of December 31, 2010)	Notional Sold			Notional Purchased
Cash flow hedges	$	(1,683	)	$	—
Fair value hedges	$	(23,964	)	$	5,623

Fair Value of Derivatives Under ASC Topic 820

ASC Topic 820, Fair Value Measurements and Disclosures (“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 the Company considers factors specific to the asset or liability.

The Company determined that its derivative valuations, which are based on market exchange forward rates, fall within Level 2 of the fair value hierarchy. The Company does not have any fair value measurements using significant unobservable inputs (Level 3).

5. Inventories, net

The components of inventories, net are as follows:


	March 31, 2011		December 31, 2010
Raw materials	$	22,439	$	19,144
Work in process		29,790		27,065
Finished units (includes consigned inventory of $12,260 and $11,784, respectively)		37,948		35,718

	$	90,177	$	81,927

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, and the Company and the Debtor Subsidiaries emerged from chapter 11 on the Effective Date. On the Effective Date, the Company entered 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 May 25, 2010 were $603,590 were reduced to $410,000. Also on the Effective Date, pursuant to the Plan, the DIP Facility was converted into an exit facility consisting of a $20,000 revolving credit facility and a $60,000 term loan used to fund the Company’s emergence from chapter 11 and ongoing working capital requirements. As of March 31, 2011, no borrowings have been made under the revolving credit facility. See Note 1 for additional information related to the terms of the Amended and Restated Credit Facility and the Exit Facility.

In addition to scheduled quarterly principal payments on the term loans and approximately $57,300 and $387,800 due at maturity in November 2014 and May 2015, respectively, the Amended and Restated Credit Facility requires the Company to make mandatory prepayments under certain circumstances. During the three months ended March 31, 2011, the Company made payments under its credit facility agreements as shown in the table below.


	For the Three Months Ended
	March 31, 2011		March 31, 2010
Scheduled payments	$	2,305	$	—
Mandatory prepayments, as defined	$	1,073	$	—

As of March 31, 2011 and December 31, 2010, the carrying value of the term debt under the Company’s senior credit facility is $483,168 and $475,563, respectively, and exceeds its fair value of approximately $482,029 and $464,563, 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).

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 the difference between their financial reporting and tax bases. The 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 its deferred tax assets by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In making this determination, the Company evaluates all available information including the Company’s financial position and results of operations for the current and preceding years, as well as any available projected information for future years.

As of March 31, 2011, the Company had a valuation allowance in place for certain of its deferred tax assets due to the Company’s accumulated loss position and its uncertainty around the future profitability in certain of its tax jurisdictions. The valuation allowance primarily relates to available net operating loss carry forwards in the United States, the United Kingdom, Canada, Germany, Sweden, France and Australia. While we believe we have adequately provided for our income tax assets and liabilities in accordance with the FASB income tax guidance, we recognize that adverse determinations by taxing authorities, or changes in tax laws and regulations could have a material adverse effect on our consolidated financial position, results of operations or cash flows.

For the three months ended March 31, 2011 and 2010, the provision for income taxes was $3,418 and $2,136, respectively. The increase from the quarter ended March 31, 2010 to the quarter ended March 31, 2011 was principally due to increased income being earned in 2011 as compared with 2010 in the jurisdictions where we currently pay income taxes. We continue to incur net operating losses both domestically and in certain foreign jurisdictions for which no corresponding tax benefits are recognized as the losses are fully reserved for financial accounting purposes.

As of March 31, 2011, the Company had a gross unrecognized tax benefit of $9,772. The unrecognized tax benefit increased by approximately $485 during the three months ended March 31, 2011 as a result of foreign currency effects, statute expirations and ongoing changes in currently reserved positions.

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, 2011 and 2010. The tax years 2000 through 2010 remain open to examination by most of the major taxing jurisdictions to which the Company and its subsidiaries are subject.

As discussed in Note 1, the Company emerged from Chapter 11 bankruptcy protection on May 25, 2010. The Company’s review of the potential impact of the overall plan of reorganization resulted in no material change in

its tax position. In December 2010, as a result of the debt reorganization, the Company impaired a portion of the deferred tax asset related to its German federal and trade loss carry forwards; however, the impaired amount was not deemed material to the overall financial statements.

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. The plan allows eligible employees to contribute up to 15% of their compensation (plus catch-up contributions for participants over age 50), with the Company matching 200% of the first 1% of employee compensation and 100% of the next 4% of employee compensation. The matching contribution expense was $444 and $421 for the three months ended March 31, 2011 and 2010, respectively.

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

Defined Benefit Plans


	Three Months Ended
	March 31, 2011			March 31, 2010
Service cost	$	692		$	962
Interest cost		1,977			1,710
Expected return on plan assets		(1,441	)		(1,005	)
Amortization of prior service cost		4			4
Amortization of net loss		362			183

Net periodic benefit cost	$	1,594		$	1,854

9. Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)

Comprehensive income (loss) for the three months ended March 31, 2011 and 2010 is as follows:


	Three Months Ended
	March 31, 2011			March 31, 2010
Net income (loss)	$	647		$	(30,157	)
Foreign currency translation adjustments		6,438			(4,072	)
Pension liability changes under Topic 715		(693	)		425
Change in value of derivative instruments		—			3,335

Comprehensive income (loss)	$	6,392		$	(30,469	)

The components of accumulated other comprehensive income (loss) are as follows:


	Foreign Currency Translation Adjustment		Pension Liability Changes Under Topic 715			Accumulated Other Comprehensive Income Gain(Loss)
Balance at December 31, 2010	$	25,007	$	(27,384	)	$	(2,377	)
Current period change, net of tax		6,438		(693	)		5,745

Balance at March 31, 2011	$	31,445	$	(28,077	)	$	3,368

10. Restructuring and Impairments Expense

Restructuring and impairments expense included in the Company’s Statements of Operations 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 three months ended March 31, 2011, the Company recorded restructuring expenses of $168. The Company expects to incur restructuring expenses of approximately $1.0 to $2.0 million in the aggregate during 2011, with 60% of the range of expected costs to be incurred in the clothing segment, and 40% of the range of expected costs to be incurred in the roll covers segment. These costs are primarily related to the continuation of the streamlining of its operations. In addition, in the first quarter of 2011, the Company completed the sale of its Sherbrooke, Canada facility, with net proceeds of approximately $1.6 million and a gain of $278. This facility was held for sale at December 31, 2010.

The table below sets forth for the three months ended March 31, 2011 and 2010, the significant components and activity under restructuring programs and asset impairments:


	Balance at December 31, 2010		Charges		Write-offs		Currency Effects		Cash Payments			Balance at March 31, 2011
Severance	$	2,255	$	22	$	—	$	—	$	(561	)	$	1,716
Facility costs and other		471		146		—		88		(147	)		558

Total	$	2,726	$	168	$	—	$	88	$	(708	)	$	2,274


	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

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, 2011		March 31, 2010
Clothing	$	168	$	80
Roll Covers		—		898
Corporate		—		589

Total	$	168	$	1,567

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 segments is presented in the tables that follow for the three months ended March 31, 2011 and 2010, respectively.


	Clothing		Roll Covers		Corporate			Total
Three Months Ended March 31, 2011:
Net sales	$	93,939	$	49,227	$	—		$	143,166
Segment Earnings (Loss)		19,790		10,584		(4,229	)

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

Provided below is a reconciliation of Segment Earnings (Loss) to income (loss) before reorganization items and provision for income taxes for the three months ended March 31, 2011 and 2010, respectively.


	Three Months Ended March 31,
	2011			2010
Segment Earnings (Loss):
Clothing	$	19,790		$	19,409
Roll Covers		10,584			10,842
Corporate		(4,229	)		(4,375	)
Non-cash compensation and related expenses		(1,250	)		(2,389	)
Net interest expense		(9,854	)		(15,644	)
Depreciation and amortization		(10,808	)		(10,451	)
Restructuring and impairments expense		(168	)		(1,567	)
Financial restructuring expense		—			(9,463	)

Income (loss) before reorganization items and provision for income taxes	$	4,065		$	(13,638	)

12. Commitments and Contingencies

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.

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. At the end of the second quarter of 2010, the Company entered into a contingent purchase and sale agreement with a third party whereby the third party could purchase the Australian facility after two years from the date of the purchase and sale agreement. Under the terms of the purchase and sale agreement, the environmental liability would transfer to the third party at the time of such purchase.

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 and Stockholders’ Equity

As discussed in Note 1, in 2010, the Company had a 20 to 1 reverse split of its Old Common Stock, accordingly the effect of the split has been reflected retroactively for all periods presented.

The Company records stock-based compensation expense in accordance with Topic 718 and has used the straight-line attribution method to recognize expense for time-based RSUs. The Company recorded stock-based compensation expense during the three months ended March 31, 2011 and 2010 as follows:


	For the Three Months Ended
	March 31, 2011		March 31, 2010
RSU Awards (1)	$	716	$	1,252
Management Incentive/Performance Award Programs (2)		534		312
Stock Awards (3)		—		825

Total	$	1,250	$	2,389

(1)	Related to restricted stock units awarded in and prior to 2011. See further discussion below.

(2)	For 2010, amount represents the estimated value of RSU awards to be made under the 2010 Management Incentive Compensation Program (the “2010 MIC”), which was approved by the Company’s Board of Directors on September 22, 2010.

(3)	For 2010, the amount represents a total of 39,764 shares of common stock that were sold to Mr. Stephen Light, the Company’s Chairman, President and Chief Executive Officer on January 5, 2010.

Summary of Activity Under the Long-Term Incentive Plans

2010

On September 22, 2010, the Board approved the Company’s 2010-2012 Long-Term Incentive Plan (the “2010 LTIP”) under the 2010 Plan. Awards under the 2010 LTIP are both time-based and performance-based. Awards will be paid in the form of restricted stock units or shares of common stock of the Company, as described below.

Time-based awards under the 2010 LTIP were approved in the form of 122,260 time-based restricted stock units granted on October 29, 2010 under the Company’s 2010 Plan. As of March 31, 2011, 43,651 time-based restricted stock units vested in accordance with the 2010 LTIP and were converted to common stock, less shares withheld to pay taxes, and the remaining 78,609 will vest in equal installments on March 31, 2012 and March 31, 2013, and will be converted into shares of common stock as they vest.

Performance-based awards under the 2010 LTIP will vest (a) if the participant remains continuously employed with the Company through December 31, 2012 and (b) on a sliding scale ranging from 0% to 110% if the Company’s results fall between 80.1% and 110% of the specified three-year cumulative Adjusted EBITDA target as adjusted to reflect currency exchange rate fluctuations relative to the U.S. Dollar. Vested stock units will convert into shares of the Company’s common stock after the close of the three-year performance period ended December 31, 2012.

2011

On March 15, 2011, the Board approved the Company’s 2011-2013 Long-Term Incentive Plan (the “2011 LTIP”) under the 2010 Plan. Awards under the 2011 LTIP are both time-based and performance-based. Awards will be paid in the form of restricted stock units or shares of common stock of the Company, as described below.

Time-based awards under the 2011 LTIP were approved in the form of 9,252 time-based restricted stock units granted on March 15, 2011 under the Company’s 2010 Plan. These time-based restricted stock units will vest in equal installments on March 31, 2012, March 31, 2013 and March 31, 2014, and will be converted into shares of common stock as they vest.

Performance-based awards under the 2011 LTIP were approved in the form of 17,183 performance-based restricted stock units and will vest (a) if the participant remains continuously employed with the Company through December 31, 2013 and (b) on a sliding scale ranging from 0% to 110% if the Company’s results fall between 80.1% and 110% of the specified three-year cumulative Adjusted EBITDA target as adjusted to reflect currency exchange rate fluctuations relative to the U.S. Dollar. Vested stock units will convert into shares of the Company’s common stock after the close of the three-year performance period ended December 31, 2013.

Summary of Activity Under the MIC Plans

2010

On September 22, 2010, the Board approved the 2010 MIC, which was an amendment and restatement of the Company’s Performance Award Program for 2010. Under the 2010 MIC, payouts were determined by the Company’s performance against a specified Adjusted EBITDA metric for the 2010 fiscal year. Fifty percent (50%) of the 2010 MIC award earned was paid in cash of $2.5 million in March 2011 and 50% will be paid in the form of approximately 164,000 of common stock on June 3, 2011, based on an average per-share price within a collar. The 2010 MIC awards were paid out based on a sliding scale ranging from 35% if the metric is achieved at 95% of target up to 200% if the metric is achieved at 125% of target. The Adjusted EBITDA metric was adjusted to reflect currency fluctuations relative to the U.S. Dollar.

2011

On March 15, 2011, the Board approved the 2011 Management Incentive Plan (“2011 MIC”). Under the 2011 MIC, payouts will be determined by the Company’s performance against a specified Adjusted EBITDA metric for the 2011 fiscal year. Fifty percent (50%) of any 2011 MIC award earned will be paid in cash and 50% is expected to be paid in the form of common stock based on an average per-share price within a collar. The 2011 MIC awards will be paid out based on a sliding scale ranging from 35% if the metric is achieved at 95% of target up to 200% if the metric is achieved at 120% of target. The Adjusted EBITDA metric will be adjusted to reflect currency fluctuations relative to the U.S. Dollar. The awards will be fully vested at the grant date and payable 90 days later.

Summary of Activity under the Directors’ Deferred Stock Unit Plan

On March 15, 2011, the Board approved a new compensation plan for non-management directors (the “2011 DSU Plan”). Under this plan, each director is to receive an annual retainer of $112, to be paid on a quarterly basis in arrears beginning with the quarter ended March 31, 2011. Half of the annual retainer is payable in deferred stock units (“DSUs”), with the remaining half payable in cash. The non-management directors were awarded an aggregate 3,492 DSUs under the 2011 DSU Plan for service during the quarter ended March 31, 2011.

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:

•

our financial results could be adversely affected by fluctuations in interest rates and currency exchange rates;

•

our credit facilities contain restrictive covenants, such as the covenants requiring compliance with minimum interest coverage and maximum leverage ratios, which become more restrictive over time, that may require us to increasingly improve our performance over time to remain in compliance therewith;

•

we are subject to the risk of weaker economic conditions in the locations around the world where we conduct business, including the impact of price pressures and cost reduction strategies by our customers in the paper industry;

•

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

•

variations in demand for our products, including our new products, could negatively affect our net sales and profitability;

•

our manufacturing facilities may be required to operate at or near capacity, which could negatively affect our production, customer order lead time, product quality and labor relations;

•

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

•

due to our high degree of leverage and significant debt service obligations, we need to generate substantial operating cash flow to fund growth and unexpected cash needs;

•

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 domestic or international calamity, including natural disasters;

•

we are subject to any future changes in government regulation;

•

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

•

anti-takeover provisions could make it more difficult for a third-party to acquire us.

Many of these risks are discussed elsewhere in this Form 10-Q, including in the sections below: “Company Overview,” “Industry Trends and Outlook,” “Liquidity and Capital Resources” and “Credit Facilities.” Other factors that could materially affect our 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, 2010 filed with the Securities and Exchange Commission on March 11, 2011. 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.

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, 2011, 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, 2011, 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. We expect the growth of global paper production from 2011 to 2014 to be between 3 and 4% per annum. Generally, and over time, we expect growth in paper production to be greater in Asia-Pacific, South America and Eastern Europe than in the more mature North American and Western European regions. Between 2008, especially the latter part of the year, and 2009, the global paper industry experienced a sharp reduction in production levels, caused by the general slowdown in economic activity and related paper consumption during the same period. In 2010, however, global paper and board production began to recover, with growth estimated to have rebounded 5.7% in 2010, following a general recovery in global economic conditions. This growth was most prevalent in developing countries. We believe that our increase in net sales volume in the first quarter of 2011 as compared with the first quarter of 2010 reflects this ongoing recovery, as well as the success of our new products.

The profitability of paper producers has historically been cyclical based on the price of paper, driven to a high degree by the 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. Since 2000, paper producers have taken actions that seek to structurally improve the balance between the geographical supply of and demand for paper. As part of these efforts, they have permanently shut down many paper-making machines or entire manufacturing facilities. Some papermakers continue to experience low levels of profitability, and we believe that the industry will see further consolidation among papermakers. The reduction in the number of paper producers, and shutdowns of paper-making machines and facilities occurred largely in Europe and North America, while producers moved operations to lower-cost regions such as Asia and South America, leading to better balance between supply and demand for paper. Over a number of years, consumption growth of paper, particularly in South America and Asia-Pacific, is expected to drive an increase in the global production rates.

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 Europe. We also believe that, in addition to industry consolidation and paper machine shutdown activity in North America and Europe, the trend towards new paper machine designs which have fewer rolls and market recognition of extended life of our roll cover products has and may continue to impact demand for these products. Volume potential for the roll covers business may slowly diminish, but we feel that volume declines would be at least partially offset by our introduction of new products and increasing market share of proprietary products such as our SmartRoll™. Also affecting machine curtailments are structural productivity gains from improved products that we and our competitors supply. 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.

Though an economic recovery appears to be underway, we believe that the paper industry will experience increased emphasis on cost reduction, continued paper-machine shutdown activity, and reduced availability of credit than would have been the case in the absence of the economic downturn.

Net sales and Expenses

Net 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 and reducing manufacturing costs;

•

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.

Net 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 the next several years.

Our operating costs are primarily driven by total sales volume, the impact of inflation, foreign currency fluctuations 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 $3.1 million and $2.9 million for the three months ended March 31, 2011 and 2010, respectively.

Foreign Exchange

We have a geographically diverse customer base. In the first quarter of 2011, approximately 36% of our net sales was in North America, 34% was in Europe, 9% was in South America, 19% was in Asia-Pacific and 2% was in the rest of the world.

A substantial portion of our net 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 net sales 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 net sales are denominated in U.S. Dollars 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 net sales are denominated in or indexed to U.S. Dollars and all or a substantial portion of the associated costs are denominated in Euros, Brazilian Reals or other currencies.

Currency fluctuations have a greater effect on the level of our net sales than on the level of our income (loss) from operations. For example, in the first quarter of 2011 as compared to the first quarter of 2010, the change in the value of the U.S. Dollar against most of the currencies we conduct our business in resulted in net currency increases in net sales of $1.3 million and net currency decreases in income from operations of $(0.5) million. Although the first quarter of 2011 results reflect a period in which the value of the U.S. Dollar increased against the Euro as compared to the first quarter of 2010, we would expect an opposite effect in a period in which the value of the U.S. Dollar decreases.

During the first quarter of 2011, we conducted business in 9 foreign currencies. The following table provides the average exchange rate in the first quarter of 2011 and the first quarter of 2010 of the U.S. Dollar against each of the four foreign currencies in which we conduct the largest portion of our operations.


Currency	Average exchange rate of the U.S. Dollar in the three months ended March 31, 2011	Average exchange rate of the U.S. Dollar in the three months ended March 31, 2010
Euro	$1.37 = 1 Euro	$1.38 = 1 Euro
Brazilian Real	$0.60 = 1 Brazilian Real	$0.55 = 1 Brazilian Real
Canadian Dollar	$1.01 = 1 Canadian Dollar	$0.96 = 1 Canadian Dollar
Australian Dollar	$1.00 = 1 Australian Dollar	$0.90 = 1 Australian Dollar

In the first quarter of 2011, approximately 42% of our operations were conducted in Euros, approximately 8% in the Brazilian Real (although a significant portion of Brazil net sales are in U.S. Dollars) and approximately 6% in the Canadian Dollar.

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 than we had historically 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.

Chapter 11 Filing, Emergence and Plan of Reorganization

On March 30, 2010, 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, and on April 1, 2010, we entered into a debtor-in-possession financing facility (the “DIP Facility”) consisting of a $20 million revolving credit facility and $60 million term loan. On May 25, 2010 (the “Effective Date”), our amended joint prepackaged plan of reorganization (the “Plan”) became effective, at which time we emerged from chapter 11. Pursuant to the Plan, on the Effective Date:

•

20,000,000 shares of our new common stock, par value $0.001 (the “New Common Stock”), were authorized, of which an aggregate of 14,970,050 shares were issued and outstanding, as described below. In addition, 1,000,000 shares of preferred stock, par value $0.001, were authorized, of which 20,000 shares were designated as Series A Junior Participating Preferred Stock;

•

All of the shares of our common stock then outstanding, par value $0.01 (the “Old Common Stock”), were cancelled and replaced with 2,566,150 shares of New Common Stock, which was equivalent to a 20-to-1 reverse split of our Old Common Stock;

•

The lenders under our pre-petition credit facility and the interest rate swap termination counterparties received, 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 (defined below), and (c) 12,403,900 shares of New Common Stock;

•

Holders of our Old Common Stock also received four-year warrants to purchase an aggregate of 1,663,760 shares of New Common Stock (the “Warrants”) at an exercise price of $19.55 per share, representing approximately 0.0324108 Warrants for each share of Old Common Stock.

As previously disclosed in our filings with the SEC, we entered into a number of material agreements and engaged in a series of transactions on the Effective Date, including (i) the Amended and Restated Credit Facility (ii) the Exit Facility (defined below), (iii) a Rights Agreement, (iv) a Registration Rights Agreement with certain of our stockholders, and (v) Director Nomination Agreements with certain of our stockholders. See “—Credit Facilities” for a discussion of the Amended and Restated Credit Facility and Exit Facility.

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 engage in cost reduction programs, which are 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.

During the first quarter of 2011, we recorded restructuring and impairment expenses of approximately $168,000. We expect to incur restructuring expenses of approximately $1.0 to $2.0 million in the aggregate during 2011, primarily related to the continuation of streamlining our operations.

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, 2011				Three Months Ended March 31, 2010
	Dollars		% of Net Sales		Dollars		% of Net Sales
Net sales	$	143.2		100.0%	$	135.0		100.0%
Cost of products sold		89.3		62.4%		83.3		61.7%
Selling expenses		19.5		13.6%		18.0		13.3%
General and administrative expenses		17.4		12.2%		26.9		19.9%
Restructuring and impairments expenses		0.2		0.1%		1.6		1.2%
Research and development expenses		3.1		2.2%		2.9		2.1%

Income from operations		13.7		9.6%		2.3		1.7%
Interest expense, net		(9.9)		(6.9)%		(15.6)		(11.6)%
Foreign exchange gain (loss)		0.2		0.1%		(0.4)		(0.3)%

Income (loss) before reorganization items and provision for income taxes		4.0		2.8%		(13.7)		(10.1)%
Reorganization items		—		0.0%		(14.4)		(10.7)%

Income (loss) before provision for income taxes		4.0		2.8%		(28.1)		(20.8)%
Provision for income taxes		3.4		2.4%		2.1		1.6%

Net loss	$	0.6		0.4%	$	(30.2)		(22.4)%

Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010

Net Sales. Net sales for the three months ended March 31, 2011 increased by $8.2 million, or 6.1%, to $143.2 million from $135.0 million for the three months ended March 31, 2010. For the three months ended March 31, 2011, 66% of our net sales were in our clothing segment and 34% were in our roll covers segment.

In our clothing segment, net sales for the three months ended March 31, 2011 increased by $5.3 million, or 6.0%, to $93.9 million from $88.6 million for the three months ended March 31, 2010 primarily due to increased sales volume in North America and Asia-Pacific and favorable currency effects of $1.1 million. These increases were partially offset by decreased sales volume in Europe and South America and unfavorable mix and price changes of $1.1 million.

In our roll covers segment, net sales for the three months ended March 31, 2011 increased by $2.9 million or 6.3%, to $49.3 million from $46.4 million for the three months ended March 31, 2010. The increase is primarily due to higher sales volume of $2.1 million in all regions, improved price changes and product mix of $0.5 million and favorable currency effects of $0.2 million.

Cost of Products Sold. Cost of products sold for the three months ended March 31, 2011 increased by $6.0 million, or 7.2%, to $89.3 million from $83.3 million for the three months ended March 31, 2010.

In our clothing segment, cost of products sold, as a percentage of net sales, increased by 0.3% to 61.9% in the three months ended March 31, 2011 from 61.6% in the three months ended March 31, 2010. This increase was primarily a result of unfavorable product mix and higher freight costs.

In our roll covers segment, cost of products sold, as a percentage of net sales, increased by 1.3% to 64.4% in the three months ended March 31, 2011 from 63.1% in the three months ended March 31, 2010. This increase was primarily a result of unfavorable product mix and higher material costs from petroleum-based products.

Selling Expenses. For the three months ended March 31, 2011, selling expenses increased by $1.5 million, or 8.3%, to $19.5 million from $18.0 million for the three months ended March 31, 2010 primarily due to $0.8 million increase in salaries as a result of additional headcount, $0.4 million higher sales commissions and unfavorable currency effects of $0.3 million.

General and Administrative Expenses. For the three months ended March 31, 2011, general and administrative expenses decreased by $9.5 million, or 35.3%, to $17.4 million from $26.9 million for the three months ended March 31, 2010. The decrease is primarily due to consulting, legal and bank fees of $9.5 million that were incurred in 2010 relating to initiatives that were undertaken to resolve the company’s credit issues in the three months ended March 31, 2010. In addition, salaries decreased by $0.7 million, mostly due to a cash payment of $0.8 million to Mr. Light in 2010 with which he was obligated to purchase shares of common stock from us. These decreases were partially offset by unfavorable currency effects of $0.2 million and an increase in bad debt expense of $0.8 million which was due to a credit in the first quarter of 2010 as a result of a change in estimating the bad debt reserve.

Restructuring and Impairments Expenses. For the three months ended March 31, 2011, restructuring and impairments expenses decreased by $1.4 million, or 87.5%, to $0.2 million from $1.6 million for the three months ended March 31, 2010. For the most part, restructuring expenses 2011 and 2010 resulted 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, 2011, restructuring expenses included $0.5 million for cost reduction programs offset by a $0.3 million gain due to the sale of the Sherbrooke, Canada facility.

Research and Development Expenses. For the three months ended March 31, 2011, research and development expenses increased by $0.2 million, or 6.9%, to $3.1 million from $2.9 million for the three months ended March 31, 2010, primarily due to increased research and development efforts.

Interest Expense, Net. Interest expense, net for the three months ended March 31, 2011 decreased by $5.7 million or 36.5%, to $9.9 million from $15.6 million for the three months ended March 31, 2010. The decrease was primarily attributable to $1.2 million lower interest expense due to lower debt balances under the Amended and Restated Credit Facility in 2010, $1.3 million lower amortization of deferred financing costs in 2011 and $3.2 million due to the interest rate swaps being fully amortized at December 31, 2010.

Foreign Exchange Gain (Loss). For the three months ended March 31, 2011 we had a foreign exchange gain of $0.2 million. For the three months ended March 31, 2010 we had a foreign exchange loss of $(0.4) million. Foreign exchange gains and losses are primarily the result of hedging activities, intercompany activities and US Dollar denominated debt held by foreign entities.

Reorganization Items. Reorganization items amounting to $14.4 million are presented separately in our consolidated statements of operations for the three months ended March 31, 2010 and primarily represent expenses that we have identified as directly relating to the write off of certain deferred financing costs in connection with the chapter 11 proceedings in 2010. For the three months ended March 31, 2011, we had no reorganization expenses.

Provision for Income Taxes. For the three months ended March 31, 2011 and 2010, the provision for income taxes was $3.4 million and $2.1 million, respectively. The increase from the quarter ended March 31, 2010 to the quarter ended March 31, 2011 was principally due to increased income being earned in 2011 as compared with 2010 in the jurisdictions where we currently pay income taxes. We continue to incur net operating losses both domestically and in certain foreign jurisdictions for which no corresponding tax benefits are recognized as the losses are fully reserved for financial accounting purposes.

LIQUIDITY AND CAPITAL RESOURCES

Our principal liquidity requirements are for debt service, working capital and capital expenditures. We plan to use unrestricted cash on hand, cash generated by operations and, should it become necessary, access to our revolving credit facility, as our primary sources of liquidity. 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 economic conditions cause additional mill closures. In addition, the impact of the most recent global economic recession and the ensuing lack of availability of credit may affect our customers’ ability to pay their debts.

We regularly evaluate our debt arrangements, as well as market conditions, and from time to time may explore opportunities to modify our existing debt arrangements or pursue additional debt financing arrangements that could result in the issuance of new debt securities by us in the future. We cannot assure you that we will be able to complete any such alternative financing arrangements or other transactions or that the terms of any financing transactions would be more favorable to us than our existing debt financing arrangements.

Net cash used in operating activities was $0.2 million for the three months ended March 31, 2011. Net cash provided by operating activities was $4.8 million for the three months ended March 31, 2010. The $5.0 million decrease is due to an increase in working capital, partially offset by improved cash earnings from the three months ended March 31, 2010 to the three months ended March 31, 2011.

Net cash used in investing activities was $2.6 million for the three months ended March 31, 2011 and $2.5 million for the three months ended March 31, 2010. The increase of $0.1 million was primarily due to a $1.8 million increase in proceeds from the sale of fixed assets, primarily offset by a $1.7 million increase in capital equipment expenditures during the three months ended March 31, 2011 as compared with the same period in 2010.

Net cash used in financing activities was $4.4 million for the three months ended March 31, 2011 and $3.3 million for the three months ended March 31, 2010. The increase of $1.1 million was primarily the result of an increase in net principal payments on debt of $3.4 million in the three months ended March 31, 2011 from the three months ended March 31, 2010, partially offset by higher deferred financing costs of $2.3 million in the three months ended March 31, 2010.

As of March 31, 2011, there was a $483.2 million balance of term loans outstanding under our senior credit facility, In addition, as of March 31, 2011, we had no outstanding borrowings 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. An aggregate of $26.4 million is available for additional borrowings under these revolving lines of credit. We had cash and cash equivalents of $32.8 million at March 31, 2011 compared to $38.7 million at December 31, 2010. At March 31, 2011 we also had $14.0 million of restricted cash which is classified as a current asset. The restricted cash serves as collateral for letters of credit and no letter of credit has a maturity greater than one year, although certain of these letters of credit can be renewed for another year. The cash collateral is held in custody by the issuing bank, is restricted as to withdrawal or use and is currently invested in money market funds. Income from these funds is paid to us.

CAPITAL EXPENDITURES

For the three months ended March 31, 2011, we had capital expenditures of $4.2 million consisting of growth capital expenditures of $0.7 million and maintenance capital expenditures of $3.5 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, 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.

We target capital expenditures for 2011 to be approximately $32.3 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 Facilities” below for a description on limitations on capital expenditures imposed by our Amended and Restated Credit Facility and Exit Facility.

CREDIT FACILITIES

Amended and Restated Credit Facility

Pursuant to the Plan, on the Effective Date, we entered into the Second Amended and Restated Credit and Guaranty Agreement (the “Amended and Restated Credit Facility”), dated as of May 25, 2010 by and among us, certain subsidiaries of ours, Citigroup Global Markets Inc. as Lead Arranger and Bookrunner, and other agents and banks party thereto. The Amended and Restated Credit Facility provides for a term loan that has a principal amount of $410 million, and a maturity date that is five years following May 25, 2010, the closing date of the Amended and Restated Credit Facility. The $410 million is denominated in U.S. Dollars, Euros and Canadian Dollars representing approximately 56%, 32% and 12% of this amount, respectively, at the Effective Date. The Amended and Restated Credit Facility is secured by second priority liens against, and security interests in, 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 have guaranteed 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 bear interest as follows:

•

in the case of Xerium Canada Inc., at the CDOR (“Canadian dollar”) 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 “CDOR Rate,” “LIBOR Rate,” and “Euribor Rate” have the same meanings as set forth in the our pre-petition credit facility except that the CDOR 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 provides that we will make scheduled principal payments totaling approximately $2.0 million each quarter through May 2015.

The Amended and Restated Credit Facility requires us to make mandatory prepayments under the following circumstances, subject to intercreditor sharing arrangements with the lenders under the Exit Facility:

(a) with 100% of the net cash proceeds we receive from any sale of any assets (50% of the net cash proceeds of the sale of assets belonging to our Australian and Vietnamese subsidiaries) for any transaction or series of transactions exceeding $250,000 outside the ordinary course of business (subject to certain exceptions regarding discontinued manufacturing facilities and exempting the first $3 million if invested in other assets, except for the sale of assets belonging to our Australian and Vietnamese subsidiaries);

(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, beginning with fiscal year 2011; that is, Adjusted EBITDA plus a working capital adjustment, 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 requires that we observe and perform numerous affirmative and negative covenants, including certain financial covenants. The Amended and Restated Credit Facility also prohibits the payment of dividends on our New Common Stock. The financial covenants per the Amended and Restated Credit Facility are now as follows:


Minimum Interest Coverage Ratio:	Four Fiscal Quarters Ending	Ratio
The ratio of four quarter Adjusted EBITDA to interest expense.	September 30, 2010 to March 31, 2011		1.75:1.00
	June 30, 2011 to December 31, 2011		2.00:1.00
	March 31, 2012 to September 30, 2013		2.25:1.00
	December 31, 2013 to December 31, 2015		2.50:1.00

Maximum Leverage Ratio:	Four Fiscal Quarters Ending	Ratio
The ratio of outstanding debt to four quarter Adjusted EBITDA.	September 30, 2010 and December 31, 2010		5.50:1.00
	March 31, 2011 and June 30, 2011		5.25:1.00
	September 30, 2011		5.00:1.00
	December 31, 2011 and March 31, 2012		4.75:1.00
	June 30, 2012 and September 30, 2012		4.50:1.00
	December 31, 2012 to June 30, 2013		4.25:1.00
	September 30, 2013 and December 31, 2013		4.00:1.00
	March 31, 2014 to September 30, 2014		3.75:1.00
	December 31, 2014 to December 31, 2015		3.50:1.00

For the four fiscal quarters ended March 31, 2011 our interest coverage ratio was 2.99:1 and our leverage ratio was 4.11:1. Each of these covenants is calculated at the end of each quarter, beginning with the quarter ended September 30, 2010, and is based on a rolling twelve month period. The interest coverage ratio is calculated by dividing Adjusted EBITDA by interest expense, net of mark-to-market movements on hedging instruments and amortization of deferred financing costs. The leverage ratio is calculated by dividing our total gross debt, at average currency exchange rates for the last twelve months, by Adjusted EBITDA.

The Amended and Restated 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 included in our cash flow. The Amended and Restated Credit Facility limits our consolidated capital expenditures to (i) in 2011, an amount not exceeding $38.1 million, which includes the original limit of $33.4 million and an additional $4.7 million in amounts carried over from 2010 as permitted by the Amended and Restated Credit Facility, (ii) $33.8 million for fiscal year 2012, and (iii) $33.1 million for each of fiscal years 2013, 2014 and 2015, in each case, 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).

Exit Facility

On the Effective Date, the DIP Facility was converted into an exit facility consisting of a $20 million revolving credit facility and a $60 million term loan (collectively, the “Exit Facility”) that was used to satisfy our obligations under the Plan and for ongoing working capital (including letters of credit) requirements. The revolving credit facility matures May 25, 2013, the closing date of the Exit Facility, and the term loans mature November 25, 2014. The Exit Facility is secured by first priority liens against, and security interests in, 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 are senior to the amounts owing under the Amended and Restated Credit Facility. In addition, most of our U.S. and non-U.S. subsidiaries 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 loans under the Exit Facility are “LIBOR Loans” and bear interest at the annual rate equal to LIBOR plus the applicable margin, 4.5% per year, with a LIBOR floor of 2% 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 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 LIBOR Loan will convert to an ABR Loan at the end of the interest period then in effect for such LIBOR Loan.

The Exit Facility provides that we will make scheduled principal payments totaling approximately $0.15 million each quarter through September 2014.

The Exit Facility requires 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, with limited exceptions, the Exit Facility requires that we observe and perform the same affirmative and negative covenants, including financial covenants, as required by the Amended and Restated Credit Facility.

Beginning in the third quarter of 2010, the Exit Facility and the Amended and Restated Credit Facility provide for scheduled principal payments, to be made on a quarterly basis, in the aggregate amount of approximately $38.1 million over the remaining term of the facilities as outlined below. Additionally, balloon payments of approximately $57.3 million and $387.8 million are due at the maturity date of the term loans under the Exit Facility in November 2014 and at the maturity date of the term loans under the Amended and Restated Credit Facility in May 2015, respectively, assuming no prior voluntary or mandatory payments have been made. The aggregate scheduled quarterly principal payments over the term of the facilities are shown below:


	U.S. Dollar Denominated Debt (in USD)		Euro Denominated Debt (in Euro)		Canadian Dollar Denominated Debt (in CAD)		Total Scheduled Principal Payments (excluding balloon payments) Converted into U.S. Dollars at March 31, 2011 Exchange Rates (in USD)
	(in millions)
2011	$	3.9	$	1.6	$	0.8	$	6.9
2012		5.2		2.1		1.0		9.2
2013		5.2		2.1		1.0		9.2
2014		5.1		2.1		1.0		9.2
2015		1.9		0.9		0.4		3.6
2016 (second, third and fourth quarters)		—		—		—		—

							$	38.1

Additionally, the following table outlines the estimated interest payments, to be made on a quarterly basis, under the Amended and Restated Credit Facility and the Exit Facility over the term of the facilities:


	Total Estimated Interest Payments Converted into U.S. Dollars at March 31, 2011 Exchange Rates (in USD millions)
2011	$	29.0
2012		38.2
2013		37.5
2014		36.4
2015		13.5
2016 (second, third and fourth quarters)		—

	$	154.6

CRITICAL ACCOUNTING POLICIES

The condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with 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.

Our significant policies are described in the notes to the condensed consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010. Judgments and estimates of uncertainties are required in applying our accounting policies in many areas. There have been no material changes to the critical accounting policies affecting the application of those accounting policies as noted in our Annual Report on Form 10-K for the year ended December 31, 2010.

Non-GAAP Liquidity Measures

We use EBITDA and Adjusted EBITDA (as defined in the Amended and Restated Credit Facility) 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. The Amended and Restated Credit Facility includes covenants based on Adjusted EBITDA. If our Adjusted EBITDA declines below certain levels, we may 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 the Amended and Restated Credit Facility as the total of (A) Consolidated Net Income, as defined below, plus (B), without duplication, to the extent that any of the following were deducted in computing consolidated net income: (i) provision for taxes based on income or profits, (ii) consolidated interest expense, (iii) consolidated depreciation and amortization expense, (iv) reserves for inventory in connection with plant closures, (v) consolidated operational restructuring costs, not to exceed $6 million in fiscal year 2011, and $5 million in any of the 2012, 2013, 2014 or 2015 fiscal years, (vi) consolidated financial restructuring costs incurred in connection with the reorganization (vii) non-cash charges or gains resulting from the application of purchase accounting, including push-down accounting, (viii) non-cash expenses resulting from the granting of common stock, stock options, restricted stock or restricted stock unit awards under equity compensation programs solely with respect to common stock, and cash expenses for compensation mandatorily applied to purchase common stock, (ix) non-cash items related to a change in or adoption of accounting policies, (x) expenses incurred as a result of the repurchase, redemption or retention by us of common stock earned under equity compensation programs solely in order to make withholding tax payments, and (xi) amortization or write-offs of deferred financing costs, minus (C) without duplication, to the extent any of the following were included in computing consolidated net income for such period, (i) non-cash gains with respect to the items described in clauses (vii), (viii) and (ix) of clause (B) above and (ii) provisions for tax benefits based on income or profits. Adjusted EBITDA, as defined in the credit facility and calculated below, may not be comparable to similarly titled measurements used by other companies.

Consolidated Net Income is defined as net income (loss) determined on a consolidated basis in accordance with GAAP; provided, however, that the following, without duplication, shall be excluded in determining Consolidated Net Income: (i) any net after-tax extraordinary or non-recurring gains, losses or expenses (less all fees and expenses relating thereto), (ii) the cumulative effect of changes in accounting principles, (iii) any fees and expenses incurred during such period in connection with the issuance or repayment of indebtedness, any refinancing transaction or amendment or modification of any debt instrument, in each case, as permitted under the Amended and Restated Credit Facility and (iv) any gains resulting from the returned surplus assets of any pension plan.

The following table provides reconciliation from net income (loss), which is the most directly comparable GAAP financial measure, to EBITDA and Adjusted EBITDA.


	Three Months Ended March 31, 2011		Three Months Ended March 31, 2010
Net income (loss)	$	647	$	(30,157	)
Income tax provision		3,418		2,136
Interest expense, net		9,854		15,644
Depreciation and amortization		10,808		10,451

EBITDA		24,727		(1,926	)
Financial restructuring costs		—		9,563
Write-off of deferred financing costs as “reorganization item”		—		14,283
Non-cash compensation and related expenses		1,250		2,389
Operational restructuring expenses		168		1,567
Non-cash change in accounting method		—		(1,400	)

Adjusted EBITDA	$	26,145	$	24,476

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our foreign currency exposure and interest rate risks as of March 31, 2011 have not materially changed from December 31, 2010 (see Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010).

ITEM 4.

CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures . We have carried out an evaluation, as of March 31, 2011 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 Act) occurred during the quarter ended March 31, 2011 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

There have been no material developments to the legal proceedings reported in our Annual Report on Form 10K for the year ended December 31, 2010.

ITEM 1A.

RISK FACTORS

The risks described in our Annual Report on Form 10-K for the year ended December 31, 2010 have not materially changed, except for the risk factor included below:

Energy price increases may negatively impact our results of operations.

Certain of the components that we use in our manufacturing activities are petroleum-based. In addition, we, along with our suppliers and customers, rely on various energy sources (including oil) in our transportation activities. While significant uncertainty currently exists about the future levels of energy prices, a significant increase is possible. Increased energy prices could cause an increase to our raw material costs and transportation costs. In addition, increased transportation costs of certain of our suppliers could be passed along to us. We may not be able to increase our prices enough to offset these increased costs. In addition, any increase in our prices may reduce our future customer orders and profitability.

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 5, 2011	By:	/s/ Clifford E. Pietrafitta
		Clifford E. Pietrafitta
		Executive Vice President and CFO
		(Principal Financial Officer)

EXHIBIT INDEX


Exhibit Number		Description of Exhibits

10.1		Employment Agreement with Clifford E. Pietrafitta

10.2		2011 Management Incentive Compensation Plan

10.3		2011-2013 Long-Term Incentive Plan

10.4		Amendment to Amended and Restated Employment Agreement with David Pretty

10.5		Amendment to Employment Agreement with Thomas Johnson

10.6		Amendment to Employment Agreement with Kevin McDougall

10.7		Description of Compensation for Non-Management Directors.

10.8		Directors’ Deferred Stock Unit Plan

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

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

32.1		Certification Statement of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley

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

Exhibit 10.1

EMPLOYMENT AGREEMENT

AGREEMENT made and entered into in North Carolina by and between Xerium Technologies, Inc. (the “Company”), a Delaware corporation with its principal place of business in Raleigh, North Carolina and Clifford E. Pietrafitta (the “Executive”), effective as of the 14 ^th day of March, 2011 (the “Effective Date”).

WHEREAS, subject to the terms and conditions hereinafter set forth, the Company wishes to employ the Executive, in the position of Chief Financial Officer, and Executive wishes to accept such employment;

NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, terms, provisions and conditions set forth in this Agreement, the parties hereby agree:

1. Employment . Subject to the terms and conditions set forth in this Agreement, the Company hereby offers and the Executive hereby accepts employment.

2. Term . The employment of the Executive by the Company hereunder shall be for the period commencing on the Effective Date and expiring on the date of the termination of such employment in accordance with Section 5 hereof. For all purposes of this Agreement, references to (a) the “Termination Date” shall mean the date Executive’s employment hereunder shall terminate pursuant to said Section 5, and (b) references to the “term” of the Executive’s employment hereunder shall mean the period commencing on the Effective Date and ending on the Termination Date. Following the Termination Date, unless specifically otherwise agreed between Executive and any applicable party, the Executive shall cease to hold any position (whether as an officer, director, manager, employee, trustee, fiduciary or otherwise) with the Company or any of its Subsidiaries or Affiliates.

3. Capacity and Performance .

(a) During the term of Executive’s employment hereunder, the Executive shall serve the Company as its Chief Financial Officer. In addition, and without further compensation, the Executive may serve as a director of the Company and as a director and/or officer of one or more of the Company’s subsidiaries, if so elected or appointed from time to time.

(b) During the term of Executive’s employment hereunder, the Executive shall be employed by the Company on a full-time basis and shall perform such duties and responsibilities on behalf of the Company and its Subsidiaries as may be designated from time to time by the Chief Executive Officer.

(c) During the term of Executive’s employment hereunder, the Executive shall devote his full business time to the advancement of the business and interests of the Company and its Subsidiaries and to the discharge of his duties and responsibilities hereunder, except that Executive may serve as a director of one for-profit external board. The Executive shall not engage in any other business activity or serve in any industry, trade, professional, governmental or academic position during the term of this Agreement, except as may be expressly approved in advance by the Chief Executive Officer in writing.

4. Compensation and Benefits . During the term of Executive’s employment hereunder as compensation for all services performed by the Executive:

(a) Base Salary . The Company shall pay the Executive a base salary at the rate of three hundred forty thousand dollars ($340,000) per year, payable in accordance with the payroll practices of the Company for its executives and subject to increase from time to time by the Board, in its sole discretion. Such base salary, as from time to time increased, is hereafter referred to as the “Base Salary.”

(b) Annual Incentive Bonus Plan . The Executive shall be entitled to participate in any and all annual bonus plans (the “Annual Bonus Plans”) from time to time in effect for senior executives of the Company generally. The terms of each Annual Bonus Plan and Executive’s participation therein shall be determined by the compensation committee of the Board of Directors of the Company (the “Board”) (or, if there is no such committee, by the Board); provided, however, that the Executive shall be entitled to participate in such plans at a minimum participation rate of fifty percent (50%) of his Base Salary (pro-rated in 2011 based on employment commencement date provided that the Executive is employed by the Company on the payment date) paid for the applicable year, with any awards thereunder payable only to the extent earned pursuant to the terms of the applicable Annual Bonus Plan and subject to adjustment in accordance with the terms of the applicable Annual Bonus Plan. Notwithstanding the foregoing, no award under the Annual Bonus Plans may be granted if the compensation committee determines that in order for such award to qualify as performance-based for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), the Plan must be submitted to and approved, or resubmitted to and approved, by the stockholders of the Company in accordance with the requirements of Section 162(m) of the Code, unless such grant is made contingent upon such approval. The compensation committee of the Board (or, if there is no such committee, the Board) may alter, modify, add to or delete any Annual Bonus Plan at any time as it, in its sole judgment determines to be appropriate.

(i) Fiscal 2011 Bonus Guarantee . With respect to the Company’s 2011 fiscal year only, the Executive is guaranteed that his total bonus compensation earned for such fiscal year (including any awards granted him under the Annual Bonus Plans for the fiscal year) shall not be less than fifty percent (50%) of the (pro-rated) amount calculated in Section 4(b) above. Any payment due pursuant to this guarantee that is made pursuant to an award under one or more of the Annual Bonus Plans shall be payable in accordance with the Incentive Compensation Plan.

(i) A grant of ten thousand (10,000) shares under the Company’s 2011-2013 Long Term Incentive Program will be recommended to the compensation committee of the Board for approval, however, approval cannot be guaranteed. Assuming the requisite approvals are secured, the grant will be made as soon as practicable thereafter. The Executive shall participate in such Program for the remainder of the Program, provided that the Executive’s employment by the Company hereunder is continuing on the applicable date, subject to any delay resulting from the need to obtain stockholder approval to increase the size of said Program and subject to the Executive’s signing and timely returning the applicable Restricted Stock Units

Agreement. Two Thousand Five Hundred (2,500) shares of such grant shall be subject to the Company’s time-based Restricted Stock Units Agreement then in effect and the remaining shares of such grant shall be performance-based subject to the terms of the Company’s Program.

(ii) In addition to the equity participation described above, while the Executive’s employment with the Company hereunder is continuing, the Executive shall be entitled to participate in such Company equity plans from time to time in effect for senior executives of the Company generally. The terms of each such plan and Executive’s participation therein shall be determined by the compensation committee of the Board (or, if there is no such committee, by the Board itself).

(d) Other Incentive Plans . The Executive shall be entitled to participate in any and all cash, equity, bonus and other incentive plans which are not Annual Bonus Plans (the “Long Term Plans”) from time to time in effect for senior executives of the Company generally. The terms of each Long Term Plan and Executive’s participation therein shall be determined by the compensation committee of the Board (or, if there is no such committee, by the Board). The compensation committee of the Board (or, if there is no such committee, the Board) may alter, modify, add to or delete any Long Term Plan at any time as it, in its sole judgment, determines to be appropriate.

(e) Vacations . The Executive shall be entitled to an annual vacation of three (3) weeks, with reasonable notice to the Chief Executive Officer and subject to the reasonable business needs of the Company. Vacation shall otherwise be governed by the policies of the Company, as in effect from time to time.

(f) Other Benefits . Subject to any contribution therefor generally required of executives of the Company, the Executive shall be entitled to participate in any and all employee benefit plans from time to time in effect for executives of the Company generally, except to the extent such plans are in a category of benefit specifically otherwise provided to the Executive under this Agreement (e.g., severance pay). Such participation shall be subject to the terms of the applicable plan documents and generally applicable Company policies. The Board may alter, modify, add to or delete employee benefit plans at any time as it, in its sole judgment, determines to be appropriate.

(g) Certain Prerequisites . The Company shall provide the Executive while he continues to be employed by the Company with: (i) participation in the Company’s standard executive automobile program, receiving six hundred dollars ($600) per month as an automobile allowance; and (ii) eligibility to use a Company-owned country club membership at the TPC in Wakefield, North Carolina.

(h) Business Expenses . The Company shall pay or reimburse the Executive for all reasonable and necessary business expenses incurred or paid by the Executive in the performance of his duties and responsibilities hereunder, subject to any maximum annual limit or other restrictions on such expenses set by the Board and to such reasonable substantiation and documentation as may be specified by the Company from time to time. In the case of any reimbursement to which the Executive is entitled pursuant to this Section 4(h) that would constitute deferred compensation subject to Section 409A of the Code, the following additional

rules shall apply: (i) the reimbursable expense must have been incurred, except as otherwise expressly provided in this Agreement, during the term of this Agreement; (ii) the amount of expenses eligible for reimbursement during any calendar year will not affect the amount of expenses eligible for reimbursement in any other calendar year; (iii) the reimbursement shall be made not later than December 31 of the calendar year following the calendar year in which the expense was incurred; and (iv) the Executive’s entitlement to reimbursement shall not be subject to liquidation or exchange for another benefit.

(i) Relocation Expenses . The Company shall provide the Executive with the Company’s standard relocation benefits package.

(j) Payments/Actions by Company . Wherever it is provided in this Agreement that payment of any form of compensation or any other action shall be made by the Company, such payment or action may be made by any Subsidiary or Affiliate of the Company.

5. Termination of Employment . The Executive’s employment hereunder shall terminate under the following circumstances:

(a) Death . In the event of the Executive’s death during the term of Executive’s employment hereunder, the Executive’s employment shall immediately and automatically terminate.

(b) Disability . The Company may terminate the Executive’s employment hereunder, upon notice to the Executive, in the event that the Executive becomes disabled during his employment hereunder. For this purpose, disability means that the Executive (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company. If any questions shall arise as to whether during any period the Executive is disabled within the meaning of this Section 5(b), the Executive, at the request of the Company, shall submit to a medical examination by a physician selected by the Company to determine whether the Executive is so disabled and such determination shall for the purposes of this Agreement be conclusive of the issue. If such question shall arise and the Executive shall fail to submit to such medical examination, the Company’s determination of the issue shall be binding on the Executive.

(c) By the Company for Cause . The Company may terminate the Executive’s employment hereunder for Cause at any time upon notice to the Executive setting forth the nature of such Cause. The following shall constitute Cause for termination: (i) the Executive’s conviction of or plea of nolo contendere to a felony or other crime involving moral turpitude; (ii) the Executive’s fraud, theft or embezzlement committed with respect to the Company or its Subsidiaries; (iii) material breach by the Executive of any of the provisions of Sections 8, 9 or 10 hereof that causes demonstrable harm to the Company or any of its Subsidiaries; or (iv) the Executive’s willful and continued failure to perform his material duties to the Company and its

Subsidiaries; provided, however, that the Company may terminate Executive’s employment hereunder for “Cause” within the meaning of this clause (iv) only after the Company has provided written notice to the Executive of the failure and the Executive shall not have remedied such failure within ten (10) business days following the effectiveness of such notice.

(d) By the Company Other than for Cause . The Company may terminate the Executive’s employment, hereunder other than for Cause at any time upon notice to the Executive.

(e) By the Executive Other than for Good Reason . The Executive may terminate his employment hereunder other than for Good Reason (as defined in Section 5(f) below) at any time upon the provision of sixty (60) days written notice to the Company. In the event of termination of the Executive pursuant to this Section 5(e), the Board may elect to waive the period of notice or any portion thereof.

(f) By the Executive for Good Reason . The Executive may terminate his employment hereunder for Good Reason upon written notice to the Company setting forth in reasonable detail the nature of such Good Reason; provided, that such written notice must be delivered to the Company within ninety (90) days of the initial existence of the condition or circumstance constituting or giving rise to the purported Good Reason. A termination by the Executive hereunder shall not be treated as a termination for Good Reason if the Company remedies the condition or circumstance constituting or giving rise to the purported Good Reason within thirty (30) days of the receipt of the Executive’s notice, or if actual termination occurs more than two years following the initial existence of such condition or circumstance. The following shall constitute Good Reason for purposes of this subsection (f): a requirement that the Executive relocate more than fifty (50) miles from his then-current principal residence, it being understood that the Executive may be required to travel frequently and that prolonged periods spent away from Executive’s principal residence shall not constitute Good Reason.

6. Compensation upon Termination .

(a) Death . In the event of a termination of the Executive’s employment hereunder by reason of death as contemplated by Section 5(a), the Company shall pay in a lump sum within thirty (30) days of such termination to the Executive’s designated beneficiary or, if no beneficiary has been designated by the Executive, to his estate, the Base Salary earned but not paid through the Termination Date.

(b) Disability . In the event of any termination of Executive’s employment hereunder by reason of disability as contemplated by Section 5(b), the Company shall pay to the Executive his Base Salary earned but not paid through the date of the notice required by Section 5(b) and, in addition, shall, subject to any employee contribution applicable to the Executive on the Termination Date, continue to contribute to the premium cost of the Executive’s participation in the Company’s group medical and dental plans for eighteen (18) months (or such longer period as may be provided under the employee benefit plans of the Company), but only if the Executive does not have access at reasonable cost to substantially equivalent benefits through another employer, and provided that the Executive is entitled to continue such participation under applicable law and plan terms. For the purpose of insuring that

the Executive receives the full benefit of the Company’s short-term disability insurance plan, the Termination Date under Section 5(b) (Termination for Disability) shall be that date that corresponds with the date the Executive exhausts his eligibility for short-term disability insurance benefits under the Company’s then-existing short-term disability plan. For the avoidance of doubt, nothing in this Agreement is intended to affect any rights the Executive may have under any long-term disability plan the Company may have and in which the Executive is entitled to participate.

(c) By the Company for Cause . In the event of any termination of Executive’s employment hereunder by the Company for Cause as contemplated by Section 5(c), the Company shall have no further obligations to the Executive under this Agreement other than payment of Base Salary through the Termination Date and except as specifically provided in Section 6(g).

(d) By the Company Other than for Cause or by the Executive for Good Reason .

(i) Not Close in Time to a Change of Control . In the event of any termination of Executive’s employment hereunder by the Company pursuant to Section 5(d) or by the Executive pursuant to Section 5(f), which occurs after Executive has completed at least three (3) months of employment with the Company and which termination does not occur within three (3) months prior to or within two (2) years following a Change of Control, the Company (A) shall continue to pay the Executive the Base Salary at the rate in effect on the Termination Date for one (1) year, and (B) subject to any employee contribution applicable to the Executive on the Termination Date, shall continue to contribute to the premium cost of the Executive’s participation in the Company’s group medical and dental plans for one (1) year (or such longer period as may be provided under the employee benefit plans of the Company), but only if the Executive does not have access at reasonable cost to substantially equivalent benefits through another employer, and provided that the Executive is entitled to continue such participation under applicable law and plan terms.

(ii) Close in Time to a Change of Control . In the event of any termination of Executive’s employment hereunder by the Company pursuant to Section 5(d) or by the Executive pursuant to Section 5(f), which occurs after Executive has completed at least three (3) months of employment with the Company and which termination occurs within three (3) months prior to or within two (2) years following a Change of Control, the Company (A) shall continue to pay the Executive the Base Salary at the rate in effect on the Termination Date for eighteen (18) months, and (B) subject to any employee contribution applicable to the Executive on the Termination Date, shall continue to contribute to the premium cost of the Executive’s participation in the Company’s group medical and dental plans for eighteen (18) months (or such longer period as may be provided under the employee benefit plans of the Company), but only if the Executive does not have access at reasonable cost to substantially equivalent benefits through another employer, and provided that the Executive is entitled to continue such participation under applicable law and plan terms.

(iii) Conditions . Any obligation of the Company to the Executive under Sections 6(b) and 6(d) hereof is conditioned upon (A) the Executive’s signing a release of

claims in such form as the Company may require (the “Employee Release”) and (B) the Executive’s continued full performance of his continuing obligations hereunder, including those under Sections 8, 9 and 10. The Employee Release shall be provided to the Executive within ten (10) days following the Termination Date and the Executive must execute it within the time period specified in the Employee Release which shall not be longer than forty-five (45) days. The Employee Release shall not be effective until any applicable revocation period has expired. Base Salary to which the Executive is entitled under Sections 6(b) and 6(d) hereof shall be payable in accordance with the normal payroll practices of the Company in effect on the Termination Date and will begin at the Company’s next regular payroll period which is at least five (5) business days following the effective date of the Employee Release, but shall be retroactive to next business day following the Termination Date, provided, however, that in all cases, such payments shall commence within ninety (90) days following the Executive’s separation from service, and further provided that if the ninety (90) day period begins in one taxable year for the Executive and ends in the subsequent taxable year for the Executive, then the payments shall not commence until the subsequent taxable year pursuant to the guidance provided in IRS Notice 2010-80.

(iv) No reduction . The continued payments/contributions by the Company that are described in Sections 6(d)(i) and 6(d)(ii) hereof shall not be reduced by any income or other compensation received by Executive subsequent to the termination of his employment.

(e) By the Executive Other than for Good Reason . If the Executive shall terminate his employment pursuant to Section 5(e), the Company shall continue to pay Executive his Base Salary through the Termination Date (it being understood that if, in accordance with Section 5(e), the Board elects to waive the period of notice, or any portion thereof, the payment of Base Salary under this Section 6(e) shall continue through the notice period or any portion thereof so waived).

(f) Delay in Payment Commencement on Account of Internal Revenue Code Section 409A . If the Executive is, at the time of separation from service, a “specified employee” (as hereinafter defined), any and all amounts payable in connection with such separation from service that constitute deferred compensation subject to Section 409A of the Code, as determined by the Company in its sole discretion, and that would (but for this sentence) be payable within six (6) months following such separation from service, shall not be paid until the date which is six (6) months and one (1) day after the date of such separation from service or, if earlier, Executive’s date of death. In this regard, any payments that otherwise would have been made during such six (6) month period shall be paid to the Executive in a lump sum on the first date on which they may be paid, together with interest credited at the short-term applicable federal rate, compounded daily. For purposes of this subsection (f), “specified employee” means an individual determined by the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of Section 409A of the Code. The Company may, but need not, elect in writing, subject to the applicable limitations under Section 409 A of the Code, any of the special elective rules prescribed in Section 1.409A-l(i) of the Treasury Regulations for purposes of determining “specified employee” status. Any such written election shall be deemed part of this Agreement.

(g) Post-Termination Obligations Generally . Except for (i) any right expressly set forth in this Section 6, (ii) any vested benefits under any employee benefit plan referred to in Section 4(f) which specifically is designed to provide benefits following termination of employment (such as any such plan providing benefits upon disability or retirement) (but subject to all of the terms, if any, of each such other benefit plan as to how such vested benefits will be treated following termination of employment) and (iii) any rights expressly set forth in any other written agreement to which Executive and any of the company or any of its Subsidiaries or Affiliates shall become parties from time to time after the date hereof, none of the Company or any of its Subsidiaries or Affiliates shall have any further obligations to the Executive, in connection with his employment or the termination thereof, following expiration of the term of the Executive’s employment hereunder. Satisfaction by the Company and other applicable Persons of such rights and benefits shall constitute full settlement of any claim that the Executive may have on account of any termination of employment hereunder against the Company, any of its Subsidiaries or Affiliates and all of their respective past and present officers, directors, stockholders, members, managers, partners, controlling Persons, employees, agents, representatives, successors and assigns and all other others connected with any of them, both individually and in their official capacities.

7. Limitation .

(a) In the event that it is determined that any payment or benefit provided by the Company or any of its Subsidiaries to or for the benefit of the Executive, either under this Agreement or otherwise, and regardless of under what plan or arrangement it was made, would, absent the application of this Section 7, be subject to excise tax (the “Excise Tax”) imposed by Section 4999 of the Code, or any successor provision (“Section 4999”), the Company will reduce such payments and/or benefits to the extent, but only to the extent, necessary so that no portion of the remaining payments and/or benefits will be subject to the Excise Tax. The Company shall have discretion in determining which, if any, of several payments and/or benefits (if more than one) are to be reduced.

(b) Determinations as to the amount of any cutback required under this Section 7 will be made by the Company’s tax accountant unless the Executive has reasonable objections to the use of that firm, in which case the determinations will be made by a comparable firm chosen jointly by the Company and the Executive (the firm making the determinations to be referred to as the “Firm”). The determinations of the Firm will be binding upon the Company and the Executive except as the determinations are established in resolution (including by settlement) of a controversy with the Internal Revenue Service to have been incorrect. All fees and expenses of the Firm will be paid by the Company.

8. Restricted Activities . The Executive agrees that some restrictions on his activities during and after his employment are necessary to protect the goodwill, Confidential Information and other legitimate interests of the Company and its Subsidiaries:

(a) While the Executive is employed by the Company and for one (1) year after his employment terminates (or eighteen (18) if the Executive is terminated in accordance with Section 6 (d)(ii)) (in the aggregate, the “Non-Competition Period”) the Executive shall not, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise,

compete with the Company: (i) anywhere throughout the world; (ii) in North America; (iii) in South America; (iv) in Europe; (v) in Asia; or (vi) in Australia. Specifically, but without limiting the foregoing, the Executive agrees not to: (A) undertake any planning for any business competitive with the Company or any of its Subsidiaries; or (B) engage in any manner in any activity that is competitive with the business of the Company or any of its Subsidiaries. For the purposes of this Section 8, the Executive’s undertaking shall encompass all items, products and services that may be used in substitution for Products.

(b) The Executive agrees that, during his employment with the Company, he will not undertake any outside activity, whether or not competitive with the business of the Company or its Subsidiaries that could reasonably give rise to a conflict of interest or otherwise interfere with his duties and obligations to the Company or any of its Subsidiaries.

(c) The Executive further agrees that while he is employed by the Company and during the Non-Competition Period, the Executive will not, directly or indirectly, (i) hire or attempt to hire any employee of the Company or any of its Subsidiaries, (ii) hire or attempt to hire any independent contractor providing services to the Company or any of its Subsidiaries, (iii) assist in hiring or any attempt to hire anyone identified in clauses (i) or (ii) of this sentence by any other Person, (iv) encourage any employee or independent contractor of the Company or any of its Subsidiaries to terminate his or her relationship with the Company or any of its Subsidiaries, or (v) solicit or encourage any customer or vendor of the Company or any of its Subsidiaries to terminate or diminish its relationship with any of them, or, in the case of a customer, to conduct with any Person any competing business or activity.

(d) In the event that the one (1) year or eighteen (18) month post-termination period stated above is held unenforceable by a court of competent jurisdiction due to its length, then the period shall be six (6) months.

9. Confidential Information .

(a) The Executive acknowledges that the Company and its Subsidiaries continually develop Confidential Information, that the Executive has in the past and may in the future develop Confidential Information for the Company or its Subsidiaries and that the Executive has in the past and may in the future learn of Confidential Information during the course of employment. The Executive will comply with the policies and procedures of the Company and its Subsidiaries for protecting Confidential Information and shall never use or disclose to any Person (except as required by applicable law or for the proper performance of his duties and responsibilities to the Company and its Subsidiaries), any Confidential Information obtained by the Executive incident to his employment or other association with the Company or any of its Subsidiaries. The Executive understands that this restriction shall continue to apply after his employment terminates, regardless of the reason for such termination.

(b) All documents, records, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company or its Subsidiaries and any copies, in whole or in part, thereof (the “Documents”), whether or not prepared by the Executive, shall be the sole and exclusive property of the Company and its Subsidiaries. The Executive shall safeguard all Documents and shall surrender to the Company at the time his

employment terminates, or at such earlier time or times as the Board or its designee may specify, all Documents then in the Executive’s possession or control.

10. Assignment of Rights to Intellectual Property . The Executive shall promptly and fully disclose all Intellectual Property to the Company. The Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Executive’s foil right, title and interest in and to all Intellectual Property. The Executive agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. The Executive will not charge the Company for time spent in complying with these obligations. All copyrightable works that the Executive creates shall be considered “work made for hire.”

11. Notification Requirement . Until the conclusion of the Non-Competition Period, the Executive shall give notice to the Company of each new business activity that he plans to undertake at least thirty (30) days prior to beginning any such activity. Such notice shall state the name and address of the Person for whom such activity is undertaken and the nature of the Executive’s business relationship(s) and position(s) with such Person. The Executive shall provide the Company with such other pertinent information concerning such business activity as the Company may reasonably request in order to determine the Executive’s continued compliance with his obligations under Sections 8, 9 and 10 hereof.

12. Enforcement of Covenants . The Executive acknowledges that he has carefully read and considered all the terms and conditions of this Agreement, including the restraints imposed upon his pursuant to Sections 8, 9 and 10 hereof. The Executive agrees that said restraints are necessary for the reasonable and proper protection of the Company and its Subsidiaries and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area. The Executive further acknowledges that, were he to breach any of the covenants contained in Sections 8, 9 and 10 hereof, the damage to the Company would be irreparable. The Executive therefore agrees that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by the Executive of any of said covenants, without having to post bond. The parties further agree that, in the event that my provision of Sections 8, 9 and 10 hereof shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision may be “blue penciled” or written by the court to the extent necessary to render it enforceable to the maximum extent permitted by law.

13. Conflicting Agreements . The Executive hereby represents and warrants that the execution of this Agreement and the performance of his obligations hereunder will not breach or be in conflict with any other agreement to which the Executive is a party or is bound and that the Executive is not now subject to any covenants against competition or similar covenants or any court order or other legal obligation that would affect the performance of his obligations hereunder. The Executive will not disclose to or use on behalf of the Company any proprietary information of a third party without such party’s consent.

14. Definitions . Words or phrases which are initially capitalized or are within quotation marks shall have the meanings provided in this Section 14 and as provided elsewhere herein. For purposes of this Agreement, the following definitions apply:

(a) “Affiliate” means, with respect to the Company or any other specified Person, any other Person directly or indirectly controlling, controlled by or under common control with the Company or such other specified Person, where control may be by management authority, equity interest or other means.

(b) “Change of Control” shall mean any of the following which takes place after the consummation of the initial public offering of common stock of the Company (including as part of an income deposit security or other investment unit) registered under the Securities Act of 1933, as amended: (i) any Person or “group,” within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the “Act”), other than the Company or any of its Subsidiaries or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or one of its Subsidiaries, becomes a beneficial owner, directly or indirectly, in one or a series of transactions, of securities representing fifty percent (50%) or more of the total number of votes that may be cast for the election of directors of the Company; (ii) any merger or consolidation involving the Company or any sale or other disposition of all or substantially all of the assets of the Company, or any combination of the foregoing, occurs and the beneficial owners of the Company’s voting securities outstanding immediately prior to such consolidation, merger, sale or other disposition do not, immediately following the consummation of such consolidation, merger, sale or other disposition, hold beneficial ownership, directly or indirectly, of securities representing fifty percent (50%) or more of the total number of votes that may be cast for election of directors of the surviving or resulting corporation in the case of any merger or consolidation or of the acquiring Person or Persons in the case of any sale or other disposition; or (iii) within twelve (12) months after a tender offer or exchange offer for voting securities of the Company (other than by the Company or any of its Subsidiaries), individuals who are Continuing Directors shall cease to constitute a majority of the Board; provided, however, that the debt restructuring anticipated to be completed in 2010 shall not constitute a “Change of Control” for purposes of this Agreement. For the purpose of this definition, the term “beneficial owner” (and correlative terms, including “beneficial ownership”) shall have the meaning set forth in Rule 13d-3 under the Act.

(c) “Confidential Information” means any and all information of the Company and its Subsidiaries that is not generally known by others with whom they compete or do business, or with whom they plan to compete or do business and any and all information which, if disclosed by the Company or its Subsidiaries, would assist in competition against them. Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its Subsidiaries, (ii) the Products, (iii) the costs, sources of supply, financial performance and strategic plans of the Company and its Subsidiaries, (iv) the identity and special needs of the customers of the Company and its Subsidiaries and (v) the people and organizations with whom the Company and its Subsidiaries have business relationships and those relationships. Confidential Information also includes any information that the Company or any of its Subsidiaries have received, or may receive hereafter, from others which was received by the

Company or any of its Subsidiaries with any understanding, express or implied, that the information would not be disclosed.

(d) “Continuing Director” means, with respect to any event referred to in the definition of “Change of Control,” each individual who was a director of the Company immediately prior to the event in question and each individual whose election as a director by the Board or whose nomination for election by the stockholders of the Company was approved by a vote of two-thirds of the directors then still in office who were directors immediately prior to such event or whose election or nomination was previously so approved.

(e) “Intellectual Property” means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by the Executive (whether alone or with others and whether or not during normal business hours or on or off the premises of the Company or any of its Subsidiaries) during the Executive’s employment with the Company or any of its Subsidiaries (including prior to the Effective Date if applicable) that relate to either the Products or any prospective activity of the Company or any of its Subsidiaries or that make use of Confidential Information or any of the equipment or facilities of the Company or any of its Subsidiaries.

(f) “Person” means an individual, a corporation, a limited liability company, an association, a partnership, an estate, a trust and any other entity or organization.

(g) “Products” mean all products planned, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its Subsidiaries, together with all services provided or planned by the Company or any of its Subsidiaries, during the Executive’s employment with the Company or any of its Subsidiaries (including prior to the Effective Date if applicable).

(h) “Subsidiary” shall mean any Person of which the Company (or other specified Person) shall, directly or indirectly, own beneficially or control the voting of at least a majority of the outstanding capital stock (or other shares of beneficial interest) entitled to vote generally or at least a majority of the partnership, membership, joint venture or similar interests, or in which the Company (or other specified Person) or a Subsidiary thereof shall be a general partner or joint venturer without limited liability.

(i) All references in this Agreement to termination of employment, separation from service, retirement and similar or correlative terms, when used in a context that bears upon the vesting, payment or timing of payment of any amounts or benefits that constitute or could constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code, shall be construed to require a “separation from service” (as that term is defined in Section 1.409A-1(h) of the Treasury Regulations) from the Company and from all other corporations and trades or businesses, if any, that would be treated as a single “service recipient” with the Company under Section 1.409A-l(h)(3) of the Treasury Regulations. Each installment payment required under this Agreement shall be considered a separate payment for purposes of Section 409A. The Company may, but need not, elect in writing, subject to the applicable limitations under Section 409A of the Code, any of the special elective rules prescribed in Section 1.409A-

1(h) of the Treasury Regulations for purposes of determining whether a “separation from service” has occurred. Any such written election shall be deemed part of this Agreement.

15. Survival . The provisions of this Agreement shall survive following the Termination Date if so provided herein or desirable to accomplish the purposes of other surviving provisions, including without limitation the provisions of Sections 6, 7, 8, 9, 10 and 11.

16. Withholding . All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law.

17. Assignment . Neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other; provided, however, that the Company may assign its rights and obligations under this Agreement without the consent of the Executive in the event that the Company shall hereafter effect a reorganization, consolidation or merger or to whom the Company transfers all or substantially all of its properties or assets. This Agreement shall inure to the benefit of and be binding upon the Company and the Executive, their respective successors, executors, administrators, heirs and permitted assigns.

18. Severability . If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

19. Waiver . No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

20. Notices . Any and all notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be effective when delivered in person, when delivered by courier at the Executive’s last known address on the books of the Company, or five (5) business days following deposit in the United States mail, postage prepaid, registered or certified, and addressed to the Executive at his last known address on the books of the Company or, in the case of the Company, at its principal place of business, attention of the Chairman of the Board or to such other address as either party may specify by notice to the other actually received.

21. Entire Agreement . This Agreement and the other plans and documents specifically referred to herein constitute the entire agreement between the parties regarding the subject matter of this Agreement and such other plans and documents and supersede all prior communications, agreements and understandings, written or oral, with respect to such subject matter.

22. Amendment . This Agreement may be amended or modified only by a written instrument signed by the Executive and by an expressly authorized representative of the Company.

23. Headings . The headings and captions in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement.

24. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.

25. Governing Law . This is a North Carolina contract and shall be construed and enforced under and be governed in all respects by the laws of the State of North Carolina, without regard to the conflict of laws principles thereof.

26. Seal . The Executive warrants and represents that he hereby adopts the word/symbol (SEAL) as his seal with the intent that this Agreement be signed by the Executive under seal and treated as a sealed instrument.

27. Consideration . The parties expressly waive any defense either may now or hereafter have as to the lack of inadequacy of consideration for this Agreement.

THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK

IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Executive, and by the Company, through its duly authorized representative, as the date first above written.

THE EXECUTIVE:


/s/ Clifford E. Pietrafitta	(SEAL)	By:	/s/ Stephen R. Light
Name: Clifford E. Pietrafitta		Title:	Chairman and CEO

Exhibit 10.2

XERIUM TECHNOLOGIES, INC.

MANAGEMENT INCENTIVE COMPENSATION PROGRAM

This Xerium Technologies, Inc. Management Incentive Compensation (“MIC”) Program contains rules supplemental to those set forth in the Xerium Technologies, Inc. 2010 Equity Incentive Plan (the “EIP”). The MIC provides for the grant of the incentive award opportunities (each, an “Award”) under and subject to the terms of the EIP, which is incorporated herein by reference. In the event of any inconsistency between the MIC and applicable provisions of the EIP, the EIP shall control. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the EIP.

1. Administration; Eligibility; Features of Awards . The MIC shall be administered by the Committee as described in the EIP. The Committee may in its discretion consult with outside advisors or internal Company resources for purposes of making any determinations in connection with its administration of the MIC. Eligibility to participate in the MIC shall be limited to individuals who are selected in accordance with the terms of the EIP to participate in the MIC from among those individuals who are eligible to participate in the EIP (each, a “Participant”). Participation in any Award shall not entitle a Participant to share in any future Awards or in any other future awards of the Company or its subsidiaries. Each Award shall entitle the holder, subject to satisfaction of the performance conditions under the Award (and, to the extent the Award is intended to qualify for the performance-based compensation exception under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), to the further limitations of the EIP with respect thereto), to a benefit determined under Section 2 below and Exhibit A (the “Performance-Based Benefit Amount”) that shall be payable in cash or shares of the Company’s Common Stock (“Shares”) in accordance with Exhibit A , subject to tax withholding as described in Section 4 below. The number of Shares deliverable in respect of all or part of an Award shall be determined as described in Section 3 below.

2. Determination of Performance-Based Benefit Amount . The determination of each Participant’s Performance-Based Benefit Amount under an Award for the performance year shall be made in accordance with the provisions of Exhibit A applicable to such Participant for such performance year.

3. Determination of Number of Shares Payable . The number of Shares payable under any Award shall be the quotient determined by dividing (x) by (y), where (x) is that portion of the Total Benefit Amount, if any, payable in Shares and (y) is the average of the per-share closing prices of the Common Stock (adjusted as appropriate to reflect any stock splits, stock dividends or similar events) for the last twenty (20) trading days of the performance year, rounded down to the nearest whole number.

4. Latest Payment Date; Tax Withholding . All payments, if any, under an Award shall be made not later than by March 31 of the calendar year following the performance year. The minimum tax withholding amount with respect to any payments being made in cash shall be withheld from such payments. The minimum tax withholding amount with respect to any payments being made in Shares shall be satisfied by means of share withholding.

5. Intent to be Exempt from Section 162(m) . Awards for the 2011 performance year are intended to qualify for the performance-based compensation exception under Section 162(m) of the Code. In the case of any Award for a subsequent performance year that is intended to so qualify, (i) the Exhibit A performance goals with respect to such Award shall be established by the Committee not later than ninety (90) days after the commencement of the performance year (or by such earlier date as is required by Section 1.162-27(e)(2)(i) of the Treasury Regulations), (ii) the Exhibit A performance goals, as so established, shall be consistent with the eligible performance measures, if any, approved by the shareholders of the Company for use in respect of performance awards under the EIP and shall be objectively determinable in compliance with Section 1.162-27(e)(2) of the Treasury Regulations, and (iii) no portion of the Award shall be paid unless and until the Committee has certified (as required by Section 1.162-27(e)(5) of the Treasury Regulations) that the performance goals have been achieved (or, if the performance goals are expressed in terms that admit of varying payout levels for different levels of performance, have been achieved at a level sufficient to support the payment).

6. Nature of Awards . Awards hereunder are intended to qualify as Stock Unit Awards under the EIP, with any cash portion payable pursuant to Section 9(d) of the EIP. The MIC is unfunded and any cash payments by the Company hereunder shall be made from the general assets of the Company.

7. Termination of Employment . No Award shall be payable to or in respect of a Participant, except as the Committee shall otherwise expressly determine, unless the Participant is employed by the Company or a subsidiary on December 31 of the performance year.

8. Availability of Common Stock . If, when Awards become payable in respect of any performance year, the number of shares of Common Stock needed to grant any Shares under the Awards exceeds the number of shares then available under the EIP, the Shares shall be delivered when the shareholders approve an increase in the number of shares available under the EIP. If the shareholders do not approve such an increase so that all or part of the Shares are not delivered, the Company will pay out the value of any Shares that were not delivered in cash and determine their value by reversing the calculation under Section 3 above used to determine the number of such Shares.

9. Treatment of Awards Upon a Change of Control . If (a) the Company merges into or combines with any other entity and, immediately following such merger or combination, any Person or group of Persons acting in concert holds 50% or more of the voting power of the entity surviving such merger or combination (other than any Person or group of Persons which held 50% or more of the Company’s voting power immediately prior to such merger or combination or any Affiliated Person of any such Person or member of such group) (each of (a), (b) or (c) a “Change of Control”); (b) any Person or group of Persons acting in concert acquires 50% or more of the Company’s voting power; or (c) the Company sells all or substantially all of its assets or business for cash or for securities of another Person or group of Persons (other than to any Person or group of Persons which held 50% or more of the Company’s total voting power immediately prior to such sale or to any Affiliated Person of any such Person or any member of such group), then, unless the Committee provides for the continuation or assumption of Awards or for the grant of new awards in substitution therefor (which substitute awards, if any, may be payable in cash or other property or a combination thereof) by the surviving entity or acquiror, in each case on such terms and subject to such conditions as the Committee may determine, with respect to each Award not so assumed or continued:

(a) In the event such transaction occurs on or after the close of the performance year with respect to the Award, the Committee shall determine, acting in its sole and reasonable discretion, prior to the occurrence of the transaction, the extent to which the applicable performance metrics specified in Exhibit A have been satisfied. If financial statements or other relevant data are not available prior to the time of such determination, the Committee shall make such determination based upon the financial information and data then available to the Company.

(b) In the event such transaction occurs prior to the close of the performance year with respect to the Award, the applicable performance metrics specified in Exhibit A shall be determined as follows: (i) the performance year shall be deemed to end on the effective date of such transaction; and (ii) the extent to which the applicable performance metrics specified in Exhibit A for the shortened performance year described in clause (i) above have been achieved shall be determined by the Committee based upon the financial information available to the Company (it being understood that the Committee may, to the extent it deems necessary, extrapolate performance through the effective date of the transaction based upon available data); (iii) the performance determined pursuant to clause (ii) shall then be adjusted by multiplying it by fraction, the numerator of which is the number of days in the shortened performance year and the denominator of which is 365, and the performance as so adjusted shall be the basis for determining the Performance-Based Benefit Amount with respect to the Award, subject to proration in accordance with Section 9(c) below.

(c) If subsection (b) above applies, the Performance-Based Benefit Amount initially determined under subsection (b) with respect to an Award shall be prorated by multiplying such initially determined amount by a fraction, the numerator of which is the number of days in the shortened performance year and the denominator of which is 365.

For purposes of this Section 9, “Person” means any individual, partnership, limited liability company, corporation, association, trust, joint venture, unincorporated organization, or other entity or group, and “Affiliated Person” means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or is under common control with such Person.

10. Clawback . If a participant receives an Award payout under the MIC based on financial statements that are subsequently required to be restated in a way that would decrease the amount of the Award to which the Participant was entitled, the Participant will refund to the Company the difference between what the Participant received and what the Participant should have received; provided that no refund will be required for Awards paid more than three years prior to the date on which the Company is required to prepare the applicable restatement. The value of any difference to be refunded will be determined in a manner consistent with regulations the Securities and Exchange Commission may adopt pursuant to Section 945 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

11. Amendment . The Committee may amend the MIC at any time and from time to time, and may terminate the MIC, in each case subject only to such limitations, if any, as the EIP may impose.

12. 409A . This MIC and the Awards granted thereunder shall be construed and administered consistent with the intent that they at all times be in compliance with or exempt from the requirements of Section 409A of the Code and the regulations promulgated thereunder.

XERIUM TECHNOLOGIES, INC.

MANAGEMENT INCENTIVE COMPENSATION PROGRAM

Exhibit A (Applicable to 2011 Performance Year)

There is one type of Award under the MIC for the 2011 performance year. Except as otherwise expressly provided herein, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with U.S. generally accepted accounting principles (“GAAP”) .

Awards

Metrics

Two measures of performance will be used in determining the Performance-Based Benefit Amount, if any, under an Award: (i) Xerium 2011 Bank Adjusted EBITDA (weighted at 80%) and (ii) Xerium 2011 Net Sales (weighted at 20%) (collectively, the “Metrics”).

(1)

Bank Adjusted EBITDA Metric

The “Bank Adjusted EBITDA Metric” means “Adjusted EBITDA,” as such term is defined in the first sentence of the definition of such term in the Second Amended and Restated Credit and Guaranty Agreement (the “Credit Agreement”), dated as of May 25, 2010, entered into by and among the Company, certain subsidiaries of the Company, Citigroup Global Markets Inc., and other agents and banks party thereto, as in effect for Xerium Technologies, Inc. for the year ended December 31, 2011. The Committee shall determine the Bank Adjusted EBITDA Metric relative to the target for such metric set forth below.

(2)

Net Sales Metric

The “Net Sales Metric” means “Net Sales,” as defined under GAAP and as reported in the Consolidated Statement of Operations as set forth in the Company’s Form 10-K. The Committee shall determine the Net Sales Metric relative to the target for such metric set forth below.

ii.	Currency Adjustments

Both Metrics will be adjusted at the end of the year to reflect currency fluctuations relative to the US$ in all markets. Any adjustments made will be based on the following budgeted rates:


Foreign Exchange Rates
ARS	$	0.254
AUD	$	0.906
BRL	$	0.568
CAD	$	0.972
CHF	$	0.960
CNY	$	0.148
EUR	$	1.307
GBP	$	1.571
JPY	$	0.012
MXN	$	0.079
SEK	$	0.165
VND	$	0.000052

iii.

Targets

The targets for the Metrics for 2011 are (1) “Target Bank Adjusted EBITDA Metric” at $126.3 million and (2) “Target Net Sales Metric” at $576.6 million respectively; provided , however , that the amounts may be adjusted by the Committee after the initial determination of the amounts to reflect any material change of circumstance, including without limitation, the acquisition or disposition of any business by the Company or any of its subsidiaries.

iv.	Determination of Performance-Based Benefit Amount

The Performance-Based Benefit Amount payable with respect to an Award shall be the sum of the amounts determined pursuant to Section iv(1) and iv(2) below.

(1)

Bank Adjusted EBITDA Metric

“X” below refers to the portion of the target award for a Participant that is based on the Bank Adjusted EBITDA Metric.

“Y” refers to the Target Bank Adjusted EBITDA Metric set forth above.

The portion of the Performance-Based Benefit Amount payable with respect to the Bank Adjusted EBITDA Metric shall be determined as follows:

Bank Adjusted EBITDA Metric below .95Y: no payment

Bank Adjusted EBITDA Metric at .95Y: bonus = .35X

Bank Adjusted EBITDA Metric at Y: bonus = X

Bank Adjusted EBITDA Metric at 1.20Y or above: bonus = 2X

The amount payable between the levels of Bank Adjusted EBITDA Metric identified above shall be determined on the basis of straight line interpolation between points.

(2)

Net Sales Metric

“X” below refers to the portion of the target award for a Participant that is based on the Net Sales Metric.

“Y” refers to the Target Net Sales EBITDA Metric set forth above.

The portion of the Performance-Based Benefit Amount payable with respect to the Net Sales Metric shall be determined as follows:

Net Sales Metric below .95Y: no payment

Net Sales Metric at .95Y: bonus = .35X

Net Sales Metric at Y: bonus = X

Net Sales Metric at 1.10Y or above: bonus = 2X

The amount payable between the levels of Net Sales Metric identified above shall be determined on the basis of straight line interpolation between points.

Payout

The Performance-Based Benefit Amount with respect to an Award shall be payable to a Participant in the following manner:

50% Cash

50% Shares

Exhibit 10.3

XERIUM TECHNOLOGIES, INC.

LONG TERM INCENTIVE PLAN

This Xerium Technologies, Inc. Long Term Incentive Plan (the “LTIP”) contains rules supplemental to those set forth in the Xerium Technologies, Inc. 2010 Equity Incentive Plan (the “EIP”). The LTIP provides for the grant of incentive award opportunities (each, an “Award”) under and subject to the terms of the EIP, which is incorporated herein by reference. In the event of any inconsistency between the LTIP and applicable provisions of the EIP, the EIP shall control. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the EIP.

1. Administration; Eligibility . The LTIP shall be administered by the Committee as described in the EIP. The Committee may in its discretion consult with outside advisors or internal Company resources for purposes of making any determinations in connection with its administration of the Program. Eligibility to participate in the LTIP shall be limited to individuals who are selected in accordance with the terms of the EIP to participate in the LTIP from among those individuals who are eligible to participate in the EIP (each, a “Participant”). Participation in any Award shall not entitle a Participant to share in any future Awards or in any other future awards of the Company or its subsidiaries.

2. Denomination of Awards; Determination of Number of Shares . Awards will initially be denominated in dollars. The number of shares of Common Stock covered by an Award (the “LTIP Shares”) shall be the quotient determined by dividing (x) by (y), where (x) is the dollar amount of the Award and (y) is $21.50.

3. Determination of Time-Based Versus Performance-Based LTIP Shares . Participants will receive thirty-five percent (35%) of their LTIP Shares, rounded down to the nearest whole number, in the form of time-based Restricted Stock Units as described in Section 4 below (“Time-Based RSUs”) and have the remainder of their LTIP Shares (approximately sixty-five percent (65%)) credited to them as Stock Units on the books of the Company on a one-for-one basis to be earned and vested subject to satisfaction of certain performance conditions (and to the extent the Award is intended to qualify for the performance-based compensation exception under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), to the further limitations of the EIP with respect thereto) as described in Section 5 below and Exhibit A (“Performance Units”).

4. Terms of Time-Based RSUs . Any LTIP Shares that are to be conveyed in the form of Time-Based RSUs will be granted as of March 14, 2011, substantially in the form of the Restricted Stock Units Agreement attached as Exhibit B hereto (the “Time-Based RSU Agreement”), which provides that the RSUs shall vest in three equal annual installments on March 31 ^st of 2012, 2013 and 2014 and settle in shares of Common Stock as soon as administratively possible after they vest.

5. Determination of Number of Performance Shares . The determination of the number of shares of Common Stock to be delivered at the end of the three-year performance period with respect to the Performance Units (the “Performance Shares”) shall be made in accordance with the provisions of Exhibit A applicable for such three-year performance period. Performance Shares will be delivered following the filing of the Form 10-K audited results for the last fiscal year of the three-year performance period but in no case later than March 31 of the calendar year following the close of the three-year performance period.

6. Tax Withholding . The minimum tax withholding amount with respect to any payments being made in RSUs shall be satisfied by means of share withholding at the time the RSUs are settled as provided in the Restricted Stock Units Agreement. The minimum tax withholding amount with respect to any payments being made in Performance Shares shall be satisfied by means of share withholding at the time Performance Shares are delivered.

7. Intent to be Exempt from Section 162(m) . Awards for the three-year performance period beginning in 2011 are intended to qualify for the performance-based compensation exception under Section 162(m) of the Code. In the case of any Award for a subsequent three-year performance period that is intended to so qualify, (i) the Exhibit B performance goals with respect to such Award shall be established by the Committee not later than ninety (90) days after the commencement of the three-year performance period (or by such earlier date as is required by Section 1.162-27(e)(2)(i) of the Treasury Regulations), (ii) the Exhibit B performance goals, as so established, shall be consistent with the eligible performance measures, if any, approved by the shareholders of the Company for use in respect of performance awards under the EIP and shall be objectively determinable in compliance with Section 1.162-27(e)(2) of the Treasury Regulations, and (iii) no portion of the Award shall be paid unless and until the Committee has certified (as required by Section 1.162-27(e)(5) of the Treasury Regulations) that the performance goals have been achieved (or, if the performance goals are expressed in terms that admit of varying payout levels for different levels of performance, have been achieved at a level sufficient to support the payment).

8. Nature of Awards . Awards hereunder are intended to qualify as Stock Unit Awards under the EIP. The LTIP is unfunded.

9. Termination of Employment . No Performance Shares shall be payable to or in respect of a Participant, except as the Committee shall otherwise expressly determine, unless the Participant is employed by the Company or a subsidiary on December 31 of the last year of the three-year performance period.

10. Availability of Stock . If, when Performance Shares become payable in respect of any three-year performance period, the number of shares of Stock needed exceeds the number of shares then available under the EIP, the Performance Shares shall be delivered when the shareholders approve an increase in the number of shares available under the EIP. If the shareholders do not approve such an increase so that all or part of the Performance Shares are not delivered, the Company will pay out the value of any Performance Shares that were not delivered in cash and determine their value by using the average of the per-share closing price of the Common Stock for the last twenty (20) trading days preceding the date the Performance Shares would have been delivered had there been a sufficient number available under the EIP.

11. Clawback . If a participant receives an Award payout under the LTIP based on financial statements that are subsequently required to be restated in a way that would decrease the number of Performance Shares to which the Participant was entitled, the Participant will refund to the Company the difference between what the Participant received and what the Participant should have received; provided that no refund will be required for Performance Shares delivered more than three years prior to the date on which the Company is required to prepare the applicable restatement. The value of any difference to be refunded will be determined in a manner consistent with regulations the Securities and Exchange Commission may adopt pursuant to Section 945 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

12. Treatment of Awards Upon a Change of Control . If (a) the Company merges into or combines with any other entity and, immediately following such merger or combination, any Person or group of Persons acting in concert holds 50% or more of the voting power of the entity surviving such merger or combination (other than any Person or group of Persons which held 50% or more of the Company’s voting power immediately prior to such merger or combination or any Affiliated Person of any such Person or member of such group); (b) any Person or group of Persons acting in concert acquires 50% or more of the Company’s voting power; or (c) the Company sells all or substantially all of its assets or business for cash or for securities of another Person or group of Persons (other than to any Person or group of Persons which held 50% or more of the Company’s total voting power immediately prior to such sale or to any Affiliated Person of any such Person or any member of such group) (each of (a), (b), or (c) a “Change of Control”), then, unless the Committee provides for the continuation or assumption of Performance Units or for the grant of new awards in substitution therefore (which substitute awards, if any, may be payable in cash or other property or a combination thereof) by the surviving entity or acquirer, in each case on such terms and subject to such conditions as the Committee may determine, with respect to each Performance Unit not so assumed or continued:

(a) In the event such transaction occurs on or after the close of the three-year performance period with respect to the Performance Units, the Committee shall determine, acting in its sole and reasonable discretion, prior to the occurrence of the transaction, the extent to which the applicable performance metrics specified in Exhibit A have been satisfied. If financial statements or other relevant data are not available prior to the time of such determination, the Committee shall make such determination based upon the financial information and data then available to the Company.

(b) In the event such transaction occurs prior to the close of the three-year performance period with respect to the Performance Units, the applicable performance metrics specified in Exhibit A shall be determined as follows: (i) the three-year performance period shall be deemed to end on the effective date of such transaction; and (ii) the extent to which the applicable performance metrics specified in Exhibit A for the shortened three-year performance period described in clause (i) above have been achieved shall be determined by the Committee based upon the financial information available to the Company (it being understood that the Committee may, to the extent it deems necessary, extrapolate performance through the effective date of the transaction based upon available data); (iii) the performance determined pursuant to clause (ii) shall then be adjusted by multiplying it by fraction, the numerator of which is the number of days in the shortened three-year performance period and the denominator of which is 1,095, and the performance as so adjusted shall be the basis for determining the number of Performance Shares to be paid out with respect to the Performance Units, subject to proration in accordance with Section 12(c) below.

(c) If subsection (b) above applies, the number of Performance Shares initially determined under subsection (b) with respect to an Award shall be prorated by multiplying such initially determined amount by a fraction, the numerator of which is the number of days in the shortened three-year performance period and the denominator of which is 1,095.

For purposes of this Section 12, “Person” means any individual, partnership, limited liability company, corporation, association, trust, joint venture, unincorporated organization, or other entity or group, and “Affiliated Person” means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or is under common control with such Person.

13. Amendment . The Committee may amend the LTIP at any time and from time to time, and may terminate the Program, in each case subject only to such limitations, if any, as the EIP may impose.

14. 409A . This LTIP and the Time-Based RSUs and Performance Units granted thereunder shall be construed and administered consistent with the intent that they at all times be in compliance with or exempt from the requirements of Section 409A of the Code and the regulations promulgated thereunder.

XERIUM TECHNOLOGIES, INC.

LONG TERM INCENTIVE PLAN

Exhibit A (Applicable to 2011-2013 Performance Period)

Except as otherwise expressly provided herein, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with U.S. generally accepted accounting principles.

Performance Shares

One measure of performance will be used in determining the number of Performance Shares to be delivered, if any, with respect to Performance Units: Xerium Cumulative Bank Adjusted EBITDA.

i.	Bank Adjusted EBITDA Metric and Cumulative Bank Adjusted EBITDA Metric

“Bank Adjusted EBITDA Metric” means “Adjusted EBITDA,” as such term is defined in the first sentence of the definition of such term in the Second Amended and Restated Credit and Guaranty Agreement (the “Credit Agreement”), dated as of May 25, 2010, entered into by and among the Company, certain subsidiaries of the Company, Citigroup Global Markets Inc., and other agents and banks party thereto, as in effect for Xerium Technologies, Inc. for the year ended December 31, 2011.

“Cumulative Bank Adjusted EBITDA Metric” means the sum of Bank Adjusted EBITDA Metric for fiscal years 2011 through 2013. Cumulative Bank Adjusted EBITDA Metric will be determined once following the close of the three-year performance period. The Committee shall determine Cumulative Bank Adjusted EBITDA Metric relative to the target for such metric set forth below.

ii.	Annual Currency Adjustments .

The final Bank Adjusted EBITDA Metric for each year in the three-year performance period will be adjusted to reflect currency fluctuations relative to the US$ in all markets. Any adjustments made for any year in the three-year performance period under the 2011-2013 LTIP will be based on the following budgeted rates:


Foreign Exchange Rates
ARS	$	0.260
AUD	$	0.882
BRL	$	0.563
CAD	$	0.933
CHF	$	0.964
CNY	$	0.146
EUR	$	1.463
GBP	$	1.600
JPY	$	0.011
MXN	$	0.074
SEK	$	0.143
VND	$	0.000056

iii.	Cumulative Target Bank Adjusted EBITDA Metric

The target for Cumulative Bank Adjusted EBITDA Metric for the 2011-2013 performance period (the “Target Cumulative Bank Adjusted EBITDA Metric”) shall be $411.6 million; provided , however , that the amount may be adjusted by the Committee after the initial determination of the amount to reflect any material change of circumstance, including without limitation, the acquisition or disposition of any business by the Company or any of its subsidiaries.

iv.	Determination of Number of Performance Shares

“X” below refers to the number of Performance Units credited to a Participant under an Award.

“Y” below refers to the Cumulative Target Bank Adjusted EBITDA Metric set forth above.

The number of Performance Shares payable with respect to an Award shall be determined after the close of the last year in the three-year performance period as follows:

Cumulative Bank Adjusted EBITDA Metric at or below .80Y: no payment

Cumulative Bank Adjusted EBITDA Metric above .80Y: bonus = percentage of X determined based on straight line interpolation between no payment at .80Y and X at Y

Cumulative Bank Adjusted EBITDA Metric at Y: bonus = X

Cumulative Bank Adjusted EBITDA Metric above Y: bonus = percentage of X determined based on straight line interpolation between X at Y and 1.10X at 1.10Y

The number of Performance Shares payable with respect to Performance Units shall in all cases be capped at 1.10 times a Participant’s Performance Units (1.10X).

Exhibit B

XERIUM TECHNOLOGIES, INC.

TIME-BASED RESTRICTED STOCK UNITS AGREEMENT

(2011-2013 LTIP)

Dated as of

Pursuant to the terms of the Xerium Technologies, Inc. Long Term Incentive Plan effective for fiscal years 2011 through 2013 (the “2011-2013 LTIP”) and the Xerium Technologies, Inc. 2010 Equity Incentive Plan (the “Plan”), Xerium Technologies, Inc. (the “Company”) hereby grants to (the “Employee”) the Restricted Stock Units Award described below.

The Restricted Stock Units Award. The Company hereby grants to the Employee Units, subject to the terms and conditions of this Agreement and the Plan. An Award shall be paid hereunder, only to the extent that such Award is Vested, as provided in this Agreement. The Employee’s rights to the Units are subject to the restrictions described in this Agreement and the Plan in addition to such other restrictions, if any, as may be imposed by law.

2.	Definitions. The following definitions will apply for purposes of this Agreement. Capitalized terms not defined in the Agreement are used as defined in the Plan, including without limitation the following terms: “Affiliate”; “Committee”; and “Covered Transaction”.

(a)

“ Agreement ” means this Restricted Stock Units Agreement granted by the Company and agreed to by the Employee.

(b)

“ Award ” means the grant of Units in accordance with this Agreement.

(c)

“ Cause ” has the meaning ascribed to it in the written employment agreement between the Company and the Employee (as in effect on the date hereof). If the Employee has no written employment agreement with the Company, “Cause” shall mean (i) the Employee’s conviction of or plea of nolo contendere to a felony or other crime involving moral turpitude; (ii) the Employee’s fraud, theft or embezzlement committed with respect to the Company or any of its subsidiaries; or (iii) the Employee’s willful and continued failure to perform his material duties to the Company and its Subsidiaries, where the Company has provided written notice to the Employee of the failure and the Employee shall not have remedied such failure within then (10) business days following the effectiveness of such notice.

(d)

“ Change of Control ” has the meaning ascribed to it in Section 12 of the 2011-2013 LTIP.

(e)

“ Change of Control Termination ” means a termination of the Employee’s employment with the Company or a member of the Company Group that occurs within three (3) months prior to or two (2) years following a Change of Control as a result of (x) termination by a member of the Company Group without Cause or (y) a Good Reason Termination.

(f)

“ Common Stock ” means the common stock of the Company, $0.01 par value.

(g)

“ Company Group ” means the Company together with its Affiliates.

(h)

“ Fair Market Value ” means, on the applicable date, or if the applicable date is not a date on which the NYSE is open the next preceding date on which the NYSE was open, the last sale price with respect to such Common Stock reported on the NYSE or, if on any such date such Common Stock is not quoted by NYSE, the average of the closing bid and asked prices with respect to such Common Stock, as furnished by a professional market maker making a market in such Common Stock selected by the Committee in good faith; or, if no such market maker is available, the fair market value of such Common Stock as of such day as determined in good faith by the Committee.

(i)

“ Good Reason Termination ” shall mean a termination of employment by the Employee with “Good Reason,” as such term is defined in the written employment agreement between the Company and the Employee (as in effect on the date hereof), where the Employee provides notice of the Good Reason event within 90 days of its occurrence and provides the Company at least 30 days to cure such matter. If the Employee has no written employment agreement with the Company, “Good Reason” shall mean a requirement that the Employee relocate more than fifty (50) miles from his then-current principal residence, it being understood that the Employee may be required to travel frequently and that prolonged periods spent away from Employee’s principal residence shall not constitute Good Reason.

(j)

“ Grant Date ” means March 14, 2011.

(k)

“ NYSE ” means the New York Stock Exchange.

(l)

“ Payment Date ” means, as to Vested Units, within 30 days of the date on which the Units become Vested, provided that to the extent practicable such Payment Date shall be immediately preceding the Change of Control transaction with respect to Units that become Vested in connection with a Change of Control.

(m)

“ Pro Rata Portion ” shall mean the product of (x) a fraction, the numerator of which is, as of the time of measurement, the number of months (rounded down to the nearest whole number) occurring since the most recently occurring annual anniversary of the Grant Date (or the Grant Date if such an anniversary has not yet occurred) and the denominator of which is 12 and (y) (i) if the time of measurement is prior to the first annual anniversary of the Grant Date, 33.33% of the Units not previously Vested; (ii) if the time of measurement is between the first and second annual anniversary of the Grant Date, 50% of the Units not previously Vested; or (iii) if the time of measurement is between the second and third annual anniversary of the Grant Date, 100% of the Units not previously Vested.

(n)

“ Unit ” means a notional unit which is equivalent to a single share of Common Stock on the Grant Date, subject to Section 8(a).

(o)

“ Vested ” means that portion of the Award to which the Employee has a nonforfeitable right.

(p)

“ Vesting Dates ” means the dates set forth in Section 3(a) of this Agreement.

3.	Vesting.

(a)

The Award shall become Vested based on the following schedule:


Vesting Date		Percentage of Units (including any Units then credited to the Employee pursuant to Section 7) Vested on Vesting Date
March 31, 2012		33.33%
March 31, 2013		33.33%
March 31, 2014		33.34%

4.	Payment of Award. Subject to Section 8(d) below, on the Payment Date, the Company shall issue to the Employee that number of shares of Common Stock as equals that number of Units which have become Vested.

5.	Change of Control.

In the event of a Change of Control unless the Committee determines, in its sole discretion, to accelerate the vesting of the entire portion of the Award that is not then Vested, the Pro Rata Percentage shall become Vested upon the Change of Control and that portion of the Award that is not then Vested or and has not become Vested in accordance with this Section 5 or Section 6 shall be forfeited automatically and the Committee shall arrange for new rights of comparable value, granted by the Company or another entity, to be substituted for the portion of the Award that is not Vested after giving effect to the Change of Control (such rights being referred to herein as a “Replacement Award”). Notwithstanding the foregoing, if the Company is the surviving entity following the Change of Control, the Committee may elect to continue the portion of this Award that is not then Vested and does not become Vested upon the Change of Control in lieu of providing a Replacement Award.

6.	Termination of Employment.

(a)

Resignation or Termination by the Company . If the Employee ceases to be employed by the Company Group prior to a Vesting Date as a result of resignation, dismissal or any other reason, then the portion of the Award that has not previously Vested shall be forfeited automatically; provided that (i) in the event of a termination by a member of the Company Group without Cause or a Good Reason Termination, a portion of the Award equal to the Pro Rata Portion as of the time of termination shall Vest immediately prior to such termination and (ii) in the event that the Employee’s employment termination is a Change of Control Termination, then the entire portion of the Award (or any Replacement Award) that is then not Vested shall become Vested on the date of termination.

(b)

Meaning of termination of employment. If the Company or a member of the Company Group provides Employee a written notice of termination of employment but the termination of employment is not effective for a period of more than thirty (30) days due to applicable law or contractual arrangements between a member of the Company Group and the Employee, for the purposes of this Award, including without limitation Section 6(a) hereof, the Employee’s employment shall be deemed terminated and the Employee shall be deemed ceased to be employed by the Company Group on the date that is thirty (30) days from the date of such notice instead of the actual date of termination.

Dividends. On each date on which dividends are paid by the Company, the Employee shall be credited with that number of additional Units (including fractional Units) as is equal to the amount of the dividend that would have been paid on the Units then credited to the Employee under this Agreement (which shall not include any Vested Units following the Payment Date in respect of such Vested Units) had they been held in Common Stock on such date divided by the Fair Market Value of a share of Common Stock on such date.

8.	Miscellaneous.

(a)

Adjustments Based on Certain Changes in the Common Stock. In the event of any stock split, reverse stock split, stock dividend, recapitalization or similar change affecting the Common Stock, the Award shall be equitably adjusted.

(b)

No Voting Rights . The Award shall not be interpreted to bestow upon the Employee any equity interest or ownership in the Company or any Affiliate prior to the applicable Payment Date, and then only with respect to the shares of Common Stock issued on such Payment Date.

(c)

No Assignment . No right or benefit or payment under the Plan shall be subject to assignment or other transfer nor shall it be liable or subject in any manner to attachment, garnishment or execution.

(d)

Withholding . The Employee is responsible for payment of any taxes required by law to be withheld by the Company with respect to an Award. To facilitate that payment, the Company will, to the extent permitted by law, retain from the number of shares of Common Stock issued to the Employee on the Payment Date that number of shares necessary for payment of the minimum tax withholding amount, valued at their Fair Market Value on the business day most immediately preceding the date of retention. To the extent the Company’s withholding obligation cannot be satisfied by means of share withholding, the Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind due to the Employee.

(e)

Employment Rights . This Agreement shall not create any right of the Employee to continued employment with the Company or its Affiliates or limit the right of Company or its Affiliates to terminate the Employee’s employment at any time and shall not create any right of the Employee to employment with the Company or any of its Affiliates. Except to the extent required by applicable law that cannot be waived, the loss of the Award shall not constitute an element of damages in the event of termination of the Employee’s employment even if the termination is determined to be in violation of an obligation of the Company or its Affiliates to the Employee by contract or otherwise.

(f)

Unfunded Status . The obligations of the Company hereunder shall be contractual only. The Employee shall rely solely on the unsecured promise of the Company and nothing herein shall be construed to give the Employee or any other person or persons any right, title, interest or claim in or to any specific asset, fund, reserve, account or property of any kind whatsoever owned by the Company or any Affiliate.

(g)

Severability . Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction will not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. In the event that any provision hereof would, under applicable law, be invalid or unenforceable in any respect, such provision will be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable law.

(h)

Governing Law. This Agreement and all actions arising in whole or in part under or in connection herewith, will be governed by and construed in accordance with the domestic substantive laws of the State of Delaware, without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any other jurisdiction.

(i)

409A. The Award shall be construed and administered consistent with the intent that it be at all times in compliance with, or exempt from, the requirements of Section 409A of the Internal Revenue Code and the regulations thereunder.

(j)

Section 162(m). The Award shall be construed and administered consistent with the intent that it qualify to the maximum extent possible as qualifying performance-based compensation within the meaning of Section 162(m) of the Internal Revenue Code and the regulations thereunder.

(k)

Amendment . This Agreement may be amended only by mutual written agreement of the parties.

IN WITNESS WHEREOF, Xerium Technologies, Inc. has executed this Restricted Stock Units Agreement as of the date first written above.


Xerium Technologies, Inc.

By:
Name: Stephen R. Light
Title: Chairman, CEO

Acknowledged and agreed:


EMPLOYEE

By:
Name:

Exhibit 10.4

[AMENDED AND RESTATED EMPLOYMENT AGREEMENT]

This Amendment to Amended and Restated Employment Agreement (“Amendment”) is made and entered into as of the 14 ^th day of March, 2011, by and between Xerium Technologies, Inc. (the “Company”) and David J. Pretty (the “Executive”).

WITNESSETH:

WHEREAS, the Company and the Executive entered into an Amended and Restated Employment Agreement effective as of February 11, 2008 (the “Employment Agreement”); and

WHEREAS, the parties desire to amend the Employment Agreement as set forth herein.

NOW THEREFORE, in consideration of the mutual terms and conditions set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree that the Employment Agreement shall be amended as follows:

1. Section 6(b) (Compensation Upon Termination for Disability) is amended by deleting from the first clause of the first sentence thereof the words, “Termination Date,” and inserting in lieu thereof, “date of the notice required by Section 5(b).”

2. Section 6(b) (Compensation Upon Termination for Disability) is amended by adding a new second sentence which shall read:

“For the purpose of insuring that the Executive receives the full benefit of the Company’s short-term disability insurance plan, the Termination Date under Section 5(b) (Termination for Disability) shall be that date that corresponds with the date the Executive exhausts his eligibility for short-term disability insurance benefits under the Company’s then-existing short-term disability insurance plan.”

3. Section 6(b) (Compensation Upon Termination for Disability) is further amended by adding the following sentence to the end of that Section:

“For the avoidance of doubt, nothing in this Agreement is intended to affect any rights Executive may have under any long-term disability plan the Company may have and in which Executive is entitled to participate.”

4. Except as herein amended, the Employment Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects.

IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year set forth above.


XERIUM TECHNOLOGIES, INC.

By:		/s/ Stephen R. Light
		Name: Stephen R. Light
		Title: Chairman, CEO and President

EXECUTIVE:

By:		/s/ David J. Pretty
		Name: David J. Pretty

Exhibit 10.5

AMENDMENT TO [EMPLOYMENT AGREEMENT]

This Amendment to Employment Agreement (“Amendment”) is made and entered into as of the 14 ^th day of March 2011, by and between Xerium Technologies, Inc. (the “Company”) and Thomas C. Johnson (the “Executive”).

WITNESSETH:

WHEREAS, the Company and the Executive entered into an Employment Agreement effective as of September 4, 2008 (the “Employment Agreement”); and

WHEREAS, the parties desire to amend the Employment Agreement as set forth herein.

2. Section 6(b) (Compensation Upon Termination for Disability) is amended by adding a new second sentence which shall read:

3. Section 6(b) (Compensation Upon Termination for Disability) is further amended by adding the following sentence to the end of that Section:

4. Except as herein amended, the Employment Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects.

IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year set forth above.


XERIUM TECHNOLOGIES, INC.

By:		/s/ Stephen R. Light
Name: Stephen R. Light
Title: Chairman, CEO and President

EXECUTIVE:

By:		/s/ Thomas C. Johnson
Name: Thomas C. Johnson

Exhibit 10.6

AMENDMENT TO [EMPLOYMENT AGREEMENT]

WITNESSETH:

WHEREAS, the Company and the Executive entered into an Employment Agreement effective as of April 6, 2010 (the “Employment Agreement”); and

WHEREAS, the parties desire to amend the Employment Agreement as set forth herein.

2. Section 6(b) (Compensation Upon Termination for Disability) is amended by adding a new second sentence which shall read:

3. Section 6(b) (Compensation Upon Termination for Disability) is further amended by adding the following sentence to the end of that Section:

4. Except as herein amended, the Employment Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects.

IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year set forth above.


XERIUM TECHNOLOGIES, INC.

By:		/s/ Stephen R. Light
		Name: Stephen R. Light
		Title: Chairman, CEO and President

EXECUTIVE:

By:		/s/ Kevin McDougall
		Name: Kevin McDougall

Exhibit 10.7

Xerium Technologies, Inc.

Description of Compensation for Non-Management Directors

Non-management directors receive an annual retainer of $112,000, which will be paid pursuant to the Xerium Technologies, Inc. Directors’ Deferred Stock Unit Plan. Under the plan, 50% of the retainer will be paid in the form of a grant of deferred stock units. Non-management directors will be given the opportunity to elect to receive the remainder of such retainer in deferred stock units or in cash. Please see the Directors’ Deferred Stock Unit Plan for additional information.

The chair of the Audit Committee also receive additional cash compensation at an annual rate of $10,000 per year, and the chair of the Compensation Committee, the chair on of the Nominating and Governance Committee, and the Lead Independent Director each receive additional cash compensation at an annual rate of $5,000 per year. Directors are also reimbursed for out-of-pocket expenses for attending board and committee meetings.

Exhibit 10.8

XERIUM TECHNOLOGIES, INC.

DIRECTORS’ DEFERRED STOCK UNIT PLAN

Section 1 Interpretation

1.1

Purpose

This Plan contains rules that are supplemental to those set forth in the Xerium Technologies, Inc. 2010 Equity Incentive Plan (the “EIP”). The Plan provides for the payment of 50% of an Eligible Director’s Annual Retainer in the form of Deferred Stock Units (“DSUs”) and the ability to receive the remainder of the retainer, which would otherwise be paid in cash, in DSUs. In the event of any inconsistency between the Plan and the applicable provisions of the EIP, the EIP shall control. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the EIP.

The purposes of the Plan are:

(a) to promote a greater alignment of long-term interests between directors of the Company and the shareholders of the Company; and

(b) to provide a compensation system for directors that, together with the other director compensation mechanisms of the Company, is reflective of the responsibility, commitment and risk accompanying Board membership and the performance of the duties required of the various committees of the Board.

1.2

Definitions

As used in the Plan, the following terms have the following meanings:

(a) “Account” means the account maintained by the Company in its books for each Eligible Director to record the DSUs credited to such Eligible Director under the Plan;

(b) “Affiliate” means any business entity in which the Company owns directly or indirectly 50% or more of the total voting power or has significant financial interest, as determined by the Committee.

(c) “Annual Retainer” means the base retainer fee payable to an Eligible Director by the Company in respect of the services provided by the Eligible Director to the Company in connection with such Eligible Director’s service on the Board in a fiscal year. The Annual Retainer shall, unless otherwise determined by the Board, be payable Quarterly in arrears. “Annual Retainer” does not include (i) the annual retainer fee for serving as a member of a Board committee, (ii) the annual retainer fee for chairing a Board committee, or (iii) any amounts received by an Eligible Director as a reimbursement for expenses incurred in attending meetings.

(d) “Applicable Law” means any applicable provision of law, domestic or foreign, including, without limitation, applicable securities legislation, together with all regulations, rules, policy statements, rulings, notices, orders or other instruments promulgated thereunder and Stock Exchange Rules.

(e) “Beneficiary” means an individual who, on the date of an Eligible Director’s death, is the person who has been designated in accordance with Section 4.6 and the laws applying to the Plan, or where no such individual has been validly designated by the Eligible Director, or where the individual does not survive the Eligible Director, the Eligible Director’s legal representative.

(f) “Board” means those individuals who serve from time to time as the directors of the Company.

(g) “Code” means the United States Internal Revenue Code of 1986, as amended.

(h) “Committee” means the Nominating and Governance Committee of the Board, or such other persons designated by the Board.

(i) “Common Stock” means a share of the common stock, $0.001 par value, of the Company and includes any shares of the Company into which such shares may be converted, reclassified, subdivided, consolidated, exchanged or otherwise changed, whether pursuant to a reorganization, amalgamation, merger, arrangement or other form of reorganization.

(j) “Company” means Xerium Technologies, Inc. and includes any successor corporation thereof, and any reference in the Plan to action by the Company means action by or under the authority of the Board or the Committee.

(k) “Credit Date” means the date used to determine the Fair Market Value of a Deferred Stock Unit for purposes of determining the number of Deferred Stock Units to be credited to an Eligible Director under Section 2.3.1, which date shall correspond to the Quarterly date that 50% of the Annual Retainer would be paid in cash under Section 2.1, in the absence of an election to defer.

(l) “Deferred Stock Unit” or “DSU” means a unit credited by the Company to an Eligible Director by way of a bookkeeping entry in the books of the Company, as determined by the Board, pursuant to the Plan, the value of which at any particular date shall be the Fair Market Value at that date.

(m) “Election Notice” means the written election under Section 2.2 to receive Deferred Stock Units in the form of Schedule A hereto.

(n) “Elective Annual Retainer” has the meaning ascribed thereto in Section 2.1.

(o) “Eligible Director” means all directors of the Company who are not employees of the Company or any Affiliate, and including any non-executive Chair of the Board.

(p) “Entitlement Date” has the meaning ascribed thereto in Section 2.1.

(q) “Fair Market Value” means, with respect to any particular date, the closing price of the Common Stock on that date. In the event that the Common Stock is not listed and posted for trading on any stock exchange, the Fair Market Value shall be the fair market value of the Common Stock as determined by the Company in its sole discretion, acting reasonably and in good faith.

(r) “Plan” means this Xerium Technologies, Inc. Directors’ Deferred Stock Unit Plan, as amended from time to time.

(s) “Quarter” means a fiscal quarter of the Company, which, until changed by the Company, shall be the three month period ending September 30, December 31, March 31 or June 30 in any year and “Quarterly” means each “Quarter.”

(t) “Stock Exchange Rules” means the applicable rules of any stock exchange upon which shares of the Company are listed.

(u) “Termination Date” means the date of a separation from service or loss of office or employment of the Eligible Director, including (i) the voluntary resignation or retirement of an Eligible Director from the Board; (ii) the death of an Eligible Director; or (iii) the removal of an Eligible Director from the Board whether by shareholder resolution or failure to achieve re-election; provided that the Eligible Director is not then an employee of the Company or an employee or director of an Affiliate.

1.3

Effective Date

The Plan shall be effective as of September 22, 2010 (the “Effective Date”).

1.4

Eligibility

If an Eligible Director should become an officer or employee of the Company while remaining as a director, his or her eligibility for the Plan shall be suspended effective as of the date of the commencement of his employment and shall resume upon termination of such employment provided he or she continues as a director of the Company. During the period of such ineligibility, such individual shall not be entitled to receive or be credited with any Deferred Stock Units under the Plan, other than dividend allocations under Section 2.4.

1.5

Construction

In this Plan, all references to the masculine include the feminine; references to the singular shall include the plural and vice versa, as the context shall require. If any provision of the Plan or part hereof is determined to be void or unenforceable in whole or in part, such determination shall not affect the validity or enforcement of any other provision or part thereof. Headings wherever used herein are for reference purposes only and do not limit or extend the

meaning of the provisions contained herein. References to “Section” or “Sections” mean a section or sections contained in the Plan unless expressly stated otherwise.

1.6

Administration

The Committee shall, in its sole and absolute discretion: (i) interpret and administer the Plan; (ii) establish, amend and rescind any rules and regulations relating to the Plan; (iii) have the power to delegate, on such terms as the Committee deems appropriate, any or all of its powers hereunder to any officer of the Company, including without limitation the Chief Financial Officer or Secretary of the Company; and (iv) make any other determinations that the Committee deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems, in its sole and absolute discretion, necessary or desirable. Any decision of the Committee with respect to the administration and interpretation of the Plan shall be conclusive and binding on the Eligible Director and any other person claiming an entitlement or benefit through the Eligible Director. All expenses of administration of the Plan shall be borne by the Company as determined by the Committee.

1.7

Governing Law

The Plan shall be governed by and construed in accordance with the laws of the State of Delaware.

Section 2 Election Under the Plan

2.1

Payment of Annual Retainer

Subject to Section 2.2 and such rules, regulations, approvals and conditions as the Committee may impose, an Eligible Director will receive 50% of his or her Annual Retainer in the form of Deferred Stock Units and may elect to receive any or all of the remainder of his Annual Retainer (“Elective Annual Retainer”) in the form of Deferred Stock Units. Any portion of the Eligible Director’s Elective Annual Retainer that is not so-elected will be paid in cash in Quarterly installments. Further, as part of the election with regard to the form or forms of payment of his or her Elective Annual Retainer, an Eligible Director may elect to have the portion of his or her Annual Retainer being paid in the form of Deferred Stock Units redeemed in return for Common Stock (i) immediately at the end of each Quarter or (ii) six months after his or her Termination Date (in either case, the “Entitlement Date.”)

2.2

Election Process

(a) A person who is an Eligible Director on the effective date of the Plan may elect a form or forms of payment of his or her Elective Annual Retainer payable for services provided after such effective date of the Plan by completing and delivering to the Secretary of the Company an initial Election Notice by no later than 30 days after the effective date of the Plan, which shall apply to the Eligible Director’s Elective Annual Retainer payable for services provided after the effective date of such election, subject to the provisions of Section 2.2(c).

(b) An individual who becomes an Eligible Director during a year may elect the form or forms of payment of his or her Elective Annual Retainer earned in Quarters that commence after the date the election is made by completing and delivering to the Secretary of the Company an Election Notice. Such Election Notice shall not be effective if (i) such Election Notice is not completed and delivered to the Secretary of the Company within 30 days after the individual becomes an Eligible Director; or (ii) the individual previously participated in this Plan or any other plan that is required to be aggregated with this Plan for purposes of Section 409A of the Code.

(c) An Eligible Director who has made an election under Section 2.2(a) or 2.2(b), or who has never made any such election, may elect the form or forms of payment of his or her Elective Annual Retainer for a subsequent fiscal year by completing and delivering to the Secretary of the Company a new Election Notice on or before December 31 immediately preceding the first day of such subsequent fiscal year.

(d) For greater certainty, if the Company establishes a policy for members of the Board with respect to the acquisition and/or holding of Common Stock and/or DSUs, each Director shall ensure that any election he or she makes under this Section 2.2 complies with such policy.

2.3

Deferred Stock Units

2.3.1 Deferred Stock Units shall be credited to the Eligible Director’s Account as of the applicable Credit Date. The number of Deferred Stock Units (including fractional Deferred Stock Units) to be credited to an Eligible Director’s Account as of a particular Credit Date pursuant to this Section 2.3.1 shall be determined by dividing the portion of that Eligible Director’s Annual Retainer for the applicable period to be satisfied by Deferred Stock Units by the Fair Market Value on the particular Credit Date.

2.3.2 Deferred Stock Units credited to an Eligible Director’s Account under Section 2.3.1, together with any additional Deferred Stock Units granted in respect thereof under Section 2.4, will be fully vested upon being credited to an Eligible Director’s Account and the Eligible Director’s entitlement to payment of such Deferred Stock Units at his or her Entitlement Date shall not thereafter be subject to satisfaction of any requirements as to any minimum period of membership on the Board.

2.4

Dividends

On any payment date for dividends paid on Common Stock, an Eligible Director shall be credited with dividend equivalents in respect of Deferred Stock Units credited to the Eligible Director’s Account as of the record date for payment of dividends. Such dividend equivalents shall be converted into additional Deferred Stock Units (including fractional Deferred Stock Units) based on the Fair Market Value as of the date on which the dividends on the Common Stock are paid.

2.5

Eligible Director’s Account

An Eligible Director’s Account shall record at all times the number of Deferred Stock Units standing to the credit of the Eligible Director. Upon payment or delivery of Common Stock in satisfaction of Deferred Stock Units credited to an Eligible Director in the manner described herein, such Deferred Stock Units shall be cancelled. A written confirmation of the balance in each Eligible Director’s Account shall be provided by the Company to the Eligible Director at least annually.

2.6

Adjustments and Reorganizations

Notwithstanding any other provision of the Plan, in the event of any change in the Common Stock by reason of any stock dividend, split, recapitalization, reclassification, amalgamation, arrangement, merger, consolidation, combination or exchange of Common Stock or distribution of rights to holders of Common Stock or any other form of corporate reorganization whatsoever, an equitable adjustment shall be made to any Deferred Stock Units then outstanding. Such adjustment shall be made by the Committee, subject to Applicable Law, shall be conclusive and binding for all purposes of the Plan.

2.7

Change in Control

Upon the occurrence of a Covered Transaction, as that term is defined in Section 9(f) of the EIP, the following shall apply:

(a) Unless otherwise determined by the Board, such fractional portion of an Eligible Director’s Annual Retainer earned in the current Quarter but not yet paid shall be immediately paid in accordance with Section 2.1, and the Credit Date shall be immediately prior to the effective date of the Covered Transaction.

(b) The Committee, in its discretion, may take one or more of the following actions:

(1) Provide for the acceleration of any time period relating to the redemption of the Deferred Stock Units (provided that acceleration is only permitted to the extent permitted by Section 409A of the Code, as applicable);

(2) Provide for the cancellation of the Deferred Stock Units (without the consent of the Eligible Director) in exchange for the payment to the Eligible Director of cash or other property with a Fair Market Value equal to the amount that would have been received (net of any taxes required to be withheld) upon the redemption of the Deferred Stock Units had the Deferred Stock Units been redeemed immediately prior to the Covered Transaction;

(3) Adjust the terms of the Deferred Stock Units in a manner determined by the Committee to reflect the Covered Transaction;

(4) Cause the Deferred Stock Units or the Plan to be assumed, or new rights substituted therefore, by any other entity; or

(5) Make such other provision as the Committee may consider equitable to the Eligible Directors and in the best interests of the Company.

Section 3 Redemptions

3.1

Redemption of Deferred Stock Units

Subject to Section 3.3, all vested Deferred Stock Units credited to an Eligible Director’s Account on his or her Entitlement Date shall be redeemed in return for Common Stock on such date.

3.2

Extended Entitlement Date

In the event that the Committee is unable, by an Eligible Director’s Entitlement Date, to compute the final value of the Deferred Stock Units recorded in such Eligible Director’s Account by reason of the fact that any data required in order to compute the market value of a Stock has not been made available to the Committee and such delay is not caused by the Eligible Director, then the Entitlement Date shall be the next following trading day on which such data is made available to the Committee.

3.3

Limitation on Extension of Entitlement Date

Notwithstanding any other provision of the Plan, all amounts payable to, or in respect of, an Eligible Director hereunder shall be paid on or before December 31 of the calendar year commencing immediately after the Eligible Director’s Entitlement Date.

Section 4 General

4.1

Unfunded Plan

Unless otherwise determined by the Committee, the Plan shall be unfunded. To the extent any individual holds any rights by virtue of an election under the Plan, such rights (unless otherwise determined by the Committee) shall be no greater than the rights of an unsecured general creditor of the Company.

4.2

Successors and Assigns

The Plan shall be binding on all successors and permitted assigns of the Company and an Eligible Director, including without limitation, the estate of such Eligible Director and the legal representative of such estate, or any receiver or trustee in bankruptcy or representative of the Company’s or the Eligible Director’s creditors.

4.3

Plan Amendment and Termination

The Board may amend or terminate the Plan at any time it deems necessary or appropriate, but no such amendment or termination shall, without the consent of the Eligible Director or unless required by law, adversely affect the rights of an Eligible Director with respect to any amount of his or her Annual Retainer in respect of which an Eligible Director has then received or elected to receive Deferred Stock Units. Notwithstanding the foregoing, any amendment or termination of the Plan shall be such that the Plan continuously meets the requirements of Section 409A of the Code.

4.4

Section 409A

For avoidance of doubt, if any provision of the Plan contravenes any regulations or U.S. Treasury guidance promulgated under Section 409A of the Code or would cause the Deferred Stock Units to be subject to the interest and penalties under Section 409A of the Code, such provision of the Plan shall be modified, without the consent of any Eligible Director, to maintain, to the maximum extent practicable, the original intent of the applicable provision without violating the provisions of Section 409A of the Code.

4.5

Applicable Trading Policies and Reporting Requirements

The Committee and each Eligible Director will ensure that all actions taken and decisions made by the Committee or an Eligible Director, as the case may be, pursuant to the Plan, comply with applicable securities regulations and policies of the Company relating to insider trading and “black out” periods. All Deferred Stock Units shall be considered a “security” of the Company solely for reporting purposes under the insider trading policy and pre-clearance procedures of the Company.

4.6

Designation of Beneficiary

Subject to the requirements of Applicable Law, an Eligible Director may designate in writing a person who is a dependant or relation of the Eligible Director as a beneficiary to receive any benefits that are payable under the Plan upon the death of such Eligible Director. The Eligible Director may, subject to Applicable Law, change such designation from time to time. Such designation or change shall be in the form of Schedule B. The initial designation of each Eligible Director shall be executed and filed with the Secretary of the Company within sixty (60) days following the Effective Date of the Plan. Changes to such designation may be filed from time to time thereafter.

4.7

Death of Eligible Director

In the event of an Eligible Director’s death, any and all Deferred Stock Units then credited to the Eligible Director’s Account shall become payable to the Eligible Director’s Beneficiary in accordance with Section 3 and the date of death shall be deemed to be the Termination Date.

4.8

Rights of Eligible Directors

4.8.1 Except as specifically set out in the Plan, no Eligible Director or any other person shall have any claim or right to any benefit in respect of Deferred Stock Units granted or Annual Retainers payable pursuant to the Plan.

4.8.2 Rights of Eligible Directors respecting Deferred Stock Units and other benefits under the Plan shall not be transferable or assignable other than by will or the laws of descent and distribution.

4.8.3 The Plan shall not be construed as granting an Eligible Director a right to be retained as a member of the Board or a claim or right to any future grants of Deferred Stock Units, future Annual Retainers or other benefits under the Plan.

4.8.4 Under no circumstances shall Deferred Stock Units be considered Common Stock nor shall they entitle any Eligible Director or other person to exercise voting rights or any other rights attaching to the ownership of Common Stock.

4.9

Compliance with Law

Any obligation of the Company pursuant to the terms of the Plan is subject to compliance with Applicable Law. The Eligible Directors shall comply with Applicable Law and furnish the Company with any and all information and undertakings as may be required to ensure compliance therewith.

4.10

Withholding

For greater certainty, and without derogation from any rights the Company may have with respect to the withholding of taxes, source deductions or other amounts pursuant to Applicable Law, the Company shall be entitled to deduct any amount of withholding taxes and other withholdings from any amount paid or credited hereunder for purposes of compliance or intended compliance with Applicable Law.

Schedule A

Deferred Stock Unit Plan for Eligible Directors of

Xerium Technologies, Inc. (the “Plan”)

ELECTION NOTICE

(For the Period January 1 to December 31, 2012)

I.	Election

I understand that 50% of my Annual Retainer will automatically be delivered via Quarterly crediting as Deferred Stock Units (“DSUs”). Subject to Part II of this Notice, for the period January 1, 2012 to December 31, 2012, I hereby elect to receive the following percentage of my remaining Annual Retainer (my “Elective Annual Retainer”) in the form of DSUs:

Amount of My Elective

Annual Retainer

Percentage I Elect to

Receive in DSUs

Percentage I Elect to

Receive in Cash

$[50% of Annual Retainer]

Further, I hereby elect to have the portion of my Annual Retainer being paid to me in the form of DSUs redeemed in return for Common Stock (choose one) :

Immediately at the end of each Quarter OR

Six months after my Termination Date.

II.

Acknowledgement

I confirm and acknowledge that:

I have received and reviewed a copy of the terms of the Plan and agree to be bound by them.

Cash payments and DSU crediting will be made Quarterly in arrears.

I will not be able to cause the Company or any Affiliate thereof to redeem DSUs granted under the Plan at a time other than the time elected by me above.

When DSUs credited to my account pursuant to this election are redeemed in accordance with the terms of the Plan, it is possible that income tax and other withholdings will arise at that time. Upon redemption of the DSUs, the Company will make all appropriate withholdings as required by law at that time.

The value of my DSUs is based on the value of the Common Stock of the Company and therefore is not guaranteed.

No funds will be set aside to guarantee the payment of DSUs. Future payment of DSUs will remain an unfunded and unsecured liability recorded on the books of the Company.

This election is irrevocable.

The foregoing is only a brief outline of certain key provisions of the Plan. In the event of any discrepancy between the terms of the Plan and the terms of this Election Notice, the terms of the Plan shall prevail. All capitalized expressions used herein shall have the same meaning as in the Plan unless otherwise defined herein.



Date				Name of Eligible Director


				Signature

Schedule B

BENEFICIARY DESIGNATION

To: Xerium Technologies, Inc.

I, , being an Eligible Director in the Xerium Technologies, Inc. Directors’ Deferred Stock Unit Plan (the “Plan”) hereby designate the following person as my Beneficiary for purposes of the Plan:


Name of Beneficiary:

Address of Beneficiary:

This designation revokes any previous beneficiary designation made by me under the Plan. Under the terms of the Plan, I reserve the right to revoke this designation and to designate another person as my Beneficiary.



Date				Name (Please Print)


				Signature

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 5, 2011

/s/ Stephen R. Light

Stephen R. Light

President, Chief Executive Officer and Chairman

(Principal Executive Officer)

Exhibit 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Clifford E. Pietrafitta, 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 5, 2011

/s/ Clifford E. Pietrafitta

Clifford E. Pietrafitta

Executive Vice President and CFO

(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, 2011, 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, 2011, 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 5, 2011

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, 2011, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

/s/ Clifford E. Pietrafitta

Clifford E. Pietrafitta

Executive Vice President and CFO

(Principal Financial Officer)

May 5, 2011

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