Exhibit 10.7

XERIUM TECHNOLOGIES, INC.

2010 EQUITY INCENTIVE PLAN

 

  1. Purpose; Term.

This Xerium Technologies, Inc. 2010 Equity Incentive Plan (the “Plan”) provides
for the grant of incentive awards consisting of or based on the Common Stock of
the Company. The purpose of the Plan is to attract and retain key employees,
directors and consultants of the Company and its Affiliates, to provide an
incentive for them to achieve performance goals, and to enable them to
participate in the growth of the Company by granting Awards with respect to the
Company’s Common Stock. No Awards may be granted under the Plan after the tenth
anniversary of the Effective Date, but Awards granted prior to that date may
continue in accordance with their terms. Certain capitalized terms used herein
are defined in Section 3 below.

 

  2. Administration.

The Plan shall be administered by the Committee. Except to the extent action by
the Committee is required under Section 162(m) of the Code in the case of Awards
intended to qualify for exemption thereunder, the Board may in any instance
perform any of the functions of the Committee hereunder. The Committee shall
select the Participants to receive Awards and shall determine the terms and
conditions of the Awards. The Committee shall have authority to adopt, alter and
repeal such administrative rules, guidelines and practices governing the
operation of the Plan as it shall from time to time consider advisable, and to
interpret the provisions of the Plan. The Committee’s decisions shall be final
and binding. The Committee may delegate (i) to one or more of its members such
of its duties, powers and responsibilities as it may determine; (ii) to one or
more officers of the Company the power to grant rights or options to the extent
permitted by Section 157(c) of the Delaware General Corporation Law; (iii) to
one or more officers of the Company the authority to allocate other Awards among
such persons (other than officers of the Company) eligible to receive Awards
under the Plan as such delegated officer or officers determine consistent with
such delegation; provided, that with respect to any delegation described in this
clause (iii) the Committee (or a properly delegated member or members of such
Committee) shall have authorized the issuance of a specified number of shares of
Stock under such Awards and shall have specified the consideration, if any, to
be paid therefor; and (iv) to such employees or other persons as it determines
such ministerial tasks as it deems appropriate. In the event of any delegation
described in the preceding sentence, references herein to the Committee shall
include the person or persons so delegated to the extent of such delegation.

 

  3. Certain Definitions.

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

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“Award” means any Option, SAR, Restricted Stock, Unrestricted Stock or Stock
Unit Award granted under the Plan.

“Board” means the Board of Directors of the Company.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, or
any successor law.

“Committee” means one or more committees each comprised of not less than two
members of the Board appointed by the Board to administer the Plan or a
specified portion thereof. Unless otherwise determined by the Board, if a
Committee is authorized to grant Awards to a Reporting Person or a Covered
Employee, each member shall be a “non-employee director” within the meaning of
Rule 16b-3 under the Exchange Act or an “outside director” within the meaning of
Section 162(m) of the Code, respectively.

“Common Stock” or “Stock” means the Common Stock, $0.001 par value, of the
Company.

“Company” means Xerium Technologies, Inc., a Delaware corporation.

“Covered Employee” means a “covered employee” within the meaning of
Section 162(m) of the Code.

“Designated Beneficiary” means the beneficiary designated by a Participant, in a
manner determined by the Committee, to receive amounts due or exercise rights of
the Participant in the event of the Participant’s death. In the absence of an
effective designation by a Participant, “Designated Beneficiary” means the
Participant’s estate.

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time
to time, or any successor law.

“Fair Market Value” means, with respect to Common Stock or any other property,
the fair market value of such property as determined by the Committee in good
faith or in the manner established by the Committee from time to time.

“Participant” means a person selected by the Committee to receive an Award under
the Plan.

“Reporting Person” means a person subject to Section 16 of the Exchange Act.

“Section 409A” means Section 409A of the Code and the Department of Treasury
regulations and other interpretive guidance issued thereunder, including without
limitation any such regulation or other guidance that may be issued after the
Effective Date.

 

  4. Eligibility.

All key employees, all directors and all consultants of the Company or of any
Affiliate whom the Committee considers to be capable of contributing to the
successful performance of the Company are eligible to be Participants in the
Plan. Incentive Stock Options may be granted only to employees of the Company or
of any parent or subsidiary corporation of the Company, as those terms are used
in Section 424 of the Code.

 

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  5. Stock Available for Awards.

a. Amount. Subject to adjustment under subsection (b), no more than 463,525
shares of Common Stock in the aggregate may be delivered under or in
satisfaction of Awards, provided, however, that to the extent that equity
incentive awards granted prior to the Effective Date pursuant to the Company’s
2005 Equity Incentive Plan, as amended, do not vest on or after the Effective
Date in accordance with their terms, the number of shares of Common Stock
subject to such unvested awards shall be added to the number of shares that may
be delivered hereunder. For the avoidance of doubt, the termination,
cancellation or expiration of an Award or any portion thereof without the
delivery of shares of Common Stock, or the satisfaction of an Award or any
portion thereof by the delivery of cash or other property other than shares of
Common Stock, shall not be treated as the delivery of shares of Common Stock for
purposes of this subsection (a). Common Stock issued under awards granted by
another company (“other company awards”) and assumed by the Company in
connection with a merger, consolidation, stock purchase or similar transaction,
or issued by the Company under awards substituted for other company awards in
connection with a merger, consolidation, stock purchase or similar transaction,
shall not reduce the shares available for Awards under the Plan; provided, that
the maximum number of shares that may be issued pursuant to ISOs (as defined
below) shall be determined in a manner consistent with Section 422 of the Code
and the rules thereunder. Shares issued under the Plan may consist of authorized
but unissued shares or treasury shares.

b. Adjustment. In the event that the Committee determines that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares or other
transaction affects the Common Stock such that an adjustment is required or
appropriate to preserve the benefits intended to be provided by the Plan, then
the Committee (subject in the case of ISOs, or in the case of Awards intended to
qualify for exemption under Section 162(m) of the Code, to any limitation
required under the Code) shall make such adjustment as it determines to be
equitable to any or all of (i) the number and kind of shares in respect of which
Awards may be made under the Plan, (ii) the number and kind of shares subject to
outstanding Awards and (iii) the exercise price with respect to any of the
foregoing; provided, that the number of shares subject to any Award shall always
be a whole number.

c. Limit on Individual Grants. The maximum number of shares of Common Stock
subject to Options and Stock Appreciation Rights that may be granted to any
Participant in the aggregate in any calendar year shall not exceed, in each
case, 150,000, and the maximum number of shares of Common Stock that may be
granted as Stock Awards pursuant to Section 8 to any Participant in the
aggregate in any calendar year shall not exceed 150,000, subject in each case to
adjustment under subsection (b).

 

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  6. Stock Options.

a. Grant of Options. Subject to the provisions of the Plan, the Committee may
grant both (i) options (“Options”) to purchase shares of Common Stock that are
intended to comply with the requirements of Section 422 of the Code and the
rules thereunder (“ISOs”) and (ii) Options that are not intended to comply with
such requirements (“NSOs”). The Committee shall determine the number of shares
subject to each Option and the exercise price therefor, which shall not be less
than 100% of the Fair Market Value of the Common Stock on the date of grant.

b. Terms and Conditions. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Committee may specify in the
applicable grant or thereafter. The Committee may impose such conditions with
respect to the exercise of Options, including conditions relating to applicable
federal or state securities laws, as it considers necessary or advisable.

c. Payment. No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the exercise price therefor is received by the Company.
Such payment may be made in whole or in part in cash or, to the extent legally
permissible and permitted by the Committee at or after the grant of the Option,
by delivery of a note or other commitment satisfactory to the Committee; shares
of Common Stock that have been owned by the optionee for at least six months (or
such other period as the Committee may determine), valued at their Fair Market
Value on the date of delivery; such other lawful consideration, including a
payment commitment of a financial or brokerage institution, as the Committee may
determine; or any combination of the foregoing permitted forms of payment.

 

  7. Stock Appreciation Rights.

a. Grant of SARs. Subject to the provisions of the Plan, the Committee may grant
rights to receive any excess in value of shares of Common Stock over the
exercise price (“Stock Appreciation Rights” or “SARs”). The Committee shall
determine at the time of grant or thereafter whether SARs are settled in cash,
Common Stock or other securities of the Company, Awards or other property, and
may define the manner of determining the excess in value of the shares of Common
Stock.

b. Exercise Price. The Committee shall fix the exercise price of each SAR, which
shall not be less than 100% of the Fair Market Value of the Common Stock at the
date of grant.

 

  8. Stock Awards.

a. Restricted or Unrestricted Stock Awards. The Committee may grant shares of
Common Stock subject to forfeiture (“Restricted Stock”) and determine the
duration of the period (the “Restricted Period”) during which, and the
conditions under which, the shares may be forfeited to the Company and the other
terms and conditions of such Awards. Shares of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as permitted by
the Committee, during the Restricted Period. Shares of Restricted Stock shall be
evidenced in such manner as the Committee

 

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may determine. Any certificates issued in respect of shares of Restricted Stock
shall be registered in the name of the Participant and unless otherwise
determined by the Committee, deposited by the Participant, together with a stock
power endorsed in blank, with the Company. At the expiration of the Restricted
Period, the Company shall deliver such certificates to the Participant or if the
Participant has died, to the Participant’s Designated Beneficiary. The Committee
also may make Awards of shares of Common Stock that are not subject to
restrictions or forfeiture, on such terms and conditions as the Committee may
determine from time to time (“Unrestricted Stock”). Shares of Restricted Stock
or Unrestricted Stock may be issued for such consideration, if any, as the
Committee may determine consistent with applicable law.

b. Stock Unit Awards. The Committee may grant Awards (“Stock Unit Awards”)
consisting of units representing shares of Common Stock. Each Stock Unit Award
shall represent the unfunded and unsecured commitment of the Company to deliver
to the Participant at a specified future date or dates one or more shares of
Common Stock (including, if so provided with respect to the Award, shares of
Restricted Stock), subject to the satisfaction of any vesting or other terms and
conditions established with respect to the Award as the Committee may determine.
No Participant or Designated Beneficiary holding a Stock Unit Award shall be
treated as a stockholder with respect to the shares of Common Stock subject to
the Award unless and until such shares are actually delivered under the Award.
Stock Unit Awards may not be sold, assigned, transferred, pledged or otherwise
encumbered except as permitted by the Committee.

c. Performance Goals. The Committee may establish performance goals on which the
granting of Restricted Stock, Unrestricted Stock, or Stock Unit Awards, or the
vesting of Restricted Stock or Stock Unit Awards, will be subject. Such
performance goals may be based on such corporate or other business criteria as
the Committee may determine. The Committee shall determine whether any
performance goals so established have been achieved, and if so to what extent,
and its determination shall be binding on all persons. Notwithstanding anything
herein to the contrary, the performance criteria terms set forth on Appendix A
hereto shall apply to any Award for which performance goals are established
pursuant to this Section 8(c) that is intended to satisfy the exception for
qualified performance-based compensation under Section 162(m) of the Code.

 

  9. General Provisions Applicable to Awards.

a. Documentation. Each Award shall be evidenced by a writing delivered to the
Participant or agreement executed by the Participant specifying the terms and
conditions thereof and containing such other terms and conditions not
inconsistent with the provisions of the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or to comply with
applicable tax and regulatory laws and accounting principles.

b. Application of Code Section 409A. Notwithstanding anything in this Plan to
the contrary, it is intended that any grant of an Award shall satisfy the
requirements for compliance with or exemption from Section 409A of the Code, to
the extent applicable. The Plan and any Award shall be interpreted in a manner
that is

 

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consistent with compliance with or exemption from Section 409A. In the event
that any Award is subject to Section 409A and is otherwise payable upon a Change
of Control, no such payment shall be made unless such Change of Control
constitutes a “Change in Control Event” as defined in Section 1.409A-3(i)(5)(i)
of the Treasury Regulations, and as set forth in Section 1.409A-3(i)(5)(v)
through (vii). In the event that any Award is subject to Section 409A and is
payable upon termination of employment or service, such Award shall not be
payable upon a termination of employment or service unless such termination of
employment or service constitutes a “separation from service” within the meaning
of Section 1.409A-1(h) of the Treasury Regulations.

c. Committee Discretion. Awards may be made alone or in combination with other
Awards, including Awards of other types. The terms of Awards of the same type
need not be identical, and the Committee need not treat Participants uniformly
(subject to the requirements of applicable law). Except as otherwise provided by
the Plan or a particular Award, any determination with respect to an Award may
be made by the Committee at the time of grant or at any time thereafter.

d. Dividends and Cash Awards. In the discretion of the Committee, any Award
under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable (in cash or in the form of Awards under the Plan) currently
or deferred with or without interest and (ii) cash payments in lieu of or in
addition to an Award.

e. Termination of Service. Unless the Committee expressly provides otherwise,
the following rules shall apply in connection with the cessation of a
Participant’s employment or other service relationship with the Company and its
Affiliates. Immediately upon the cessation of the Participant’s employment or
other service relationship with the Company and its Affiliates an Award
requiring exercise will cease to be exercisable and all Awards to the extent not
already fully vested will be forfeited, except that:

(i) All Stock Options and SARs held by a Participant immediately prior to his or
her death, to the extent then exercisable, will remain exercisable by such
Participant’s executor or administrator or the person or persons to whom the
Stock Option or SAR is transferred by will or the applicable laws of descent and
distribution, in each case for the lesser of (i) the one year period ending with
the first anniversary of the Participant’s death or (ii) the period ending on
the latest date on which such Stock Option or SAR could have been exercised
without regard to this subsection (e), and shall thereupon terminate; and

(ii) all Stock Options and SARs held by the Participant immediately prior to the
cessation of the Participant’s employment or other service relationship for
reasons other than death and except as provided in (iii) below, to the extent
then exercisable, will remain exercisable for the lesser of (1) a period of
three months or (2) the period ending on the latest date on which such Stock
Option or SAR could have been exercised without regard to this subsection (e),
and shall thereupon terminate.

 

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(iii) Unless the Committee expressly provides otherwise, a Participant’s
“employment or other service relationship with the Company and its Affiliates”
will be deemed to have ceased, in the case of an employee Participant, upon
termination of the Participant’s employment with the Company and its Affiliates
(whether or not the Participant continues in the service of the Company or its
Affiliates in some capacity other than that of an employee of the Company or its
Affiliates), and in the case of any other Participant, when the service
relationship in respect of which the Award was granted terminates (whether or
not the Participant continues in the service of the Company or its Affiliates in
some other capacity).

f. Change in Control. If (i) any Person or “group,” within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange 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) 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), (iii) 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), or (iv) a dissolution or liquidation of the Company
(any of (i), (ii), (iii) or (iv) being herein referred to as a “Covered
Transaction”), then, without further action by the Committee, (A) all
outstanding Options and SARs shall immediately become fully vested and
exercisable, and (B) all outstanding Restricted Stock Awards and Stock Unit
Awards shall immediately become fully earned and vested and, in the case of
Restricted Stock, the Restricted Period with respect thereto shall immediately
lapse; provided, however, that: (1) any such Restricted Stock Awards and Stock
Unit Awards that are conditioned upon the attainment of specified price targets
with respect to the Common Stock shall only become earned and vested to the
extent that the transaction price per share in the Covered Transaction or, if
not discernable due to the nature of the Covered Transaction, the Fair Market
Value of a share of Common Stock, in each case as determined by the Committee,
exceeds the applicable price targets under such Awards, and (2) any such
Restricted Stock Awards and Stock Unit Awards that are conditioned upon the
attainment of performance-based conditions (other than performance-based Awards
covered by subsection (1) above) shall only become earned and vested in respect
of that portion of the Award that would become earned and vested upon
target-level achievement of the performance goals applicable thereto, as
determined by the Committee. Without limiting the foregoing (but solely after
giving full effect to the provisions of the preceding sentence), in the event of
a Covered Transaction, the Committee in its discretion may, with respect to any
Award, at the time the Award is made or at any time thereafter, take

 

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one or more of the following actions: (A) provide for the acceleration of any
time period relating to the exercise or payment of the Award (provided that the
payment of any Award that constitutes a deferral of compensation subject to
Section 409A may not be accelerated except to the extent permitted by
Section 409A of the Code), (B) provide for the cancellation of the Award
(without the consent of the Participant) in exchange for the payment to the
Participant of cash or other property with a Fair Market Value equal to the
amount that would have been received (net of any exercise price) upon the
exercise or payment of the Award had the Award been exercised or paid
immediately prior to the Covered Transaction, (C) adjust the terms of the Award
in a manner determined by the Committee to reflect the covered transaction,
(D) cause the Award to be assumed, or new rights substituted therefor, by
another entity, or (E) make such other provision as the Committee may consider
equitable to Participants and in the best interests of the Company.

g. Transferability. No Award may be transferred other than by will or the laws
of descent and distribution and may be exercised, during the life of the
Participant, only by the Participant, except that, as to Awards other than ISOs,
the Committee may permit certain transfers to the Participant’s family members
or to certain entities controlled by the Participant or his or her family
members.

h. Withholding Taxes. The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of, any taxes or social
insurance contributions required by law to be withheld in respect of Awards
under the Plan no later than the date of the event creating the tax liability.
The Company and its Affiliates may, to the extent permitted by law, deduct any
such tax (or social insurance) obligations from any payment of any kind due to
the Participant hereunder or otherwise. In the Committee’s discretion, the
minimum tax (or social insurance) obligations required by law to be withheld in
respect of Awards may be paid in whole or in part in shares of Common Stock,
including shares retained from the Award creating the obligation, valued at
their Fair Market Value on the date of retention or delivery.

i. Amendment of Award. The Committee may amend, modify, or terminate any
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option. Any such action shall
require the Participant’s consent unless the Committee determines that the
action, taking into account any related action, would not materially and
adversely affect the Participant.

j. Foreign Nationals. The Committee may take any action consistent with the
terms of the Plan, either before or after an Award has been granted, which the
Committee deems necessary or advisable to comply with government laws or
regulatory requirements of any foreign jurisdiction, including but not limited
to modifying or amending the terms and conditions governing any Awards,
establishing sub-plans under the Plan, or adopting such procedures as the
Committee may determine to be appropriate in response to differences in laws,
rules, regulations or customs of such foreign jurisdictions with respect to tax,
securities, currency, employment, accounting or other matters.

 

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  10. Miscellaneous.

a. No Right To Employment. No person shall have any claim or right to be granted
an Award. Neither the adoption, maintenance, nor operation of the Plan nor any
Award hereunder shall constitute a contract of employment or confer upon any
employee, director or consultant of the Company or of any Affiliate any right
with respect to the continuance of his/her employment by or other service with
the Company or any such Affiliate nor shall it or they be construed as affecting
the rights of the Company (or Affiliate) to terminate the service of any person
at any time or otherwise change the terms of such service, including, without
limitation, the right to promote, demote or otherwise re-assign any employee or
other service provider from one position to another within the Company or any
Affiliate.

b. No Rights As Stockholder. Subject to the provisions of the applicable Award,
no Participant or Designated Beneficiary shall have any rights as a stockholder
with respect to any shares of Common Stock to be issued under the Plan until he
or she becomes the holder thereof. A Participant to whom Restricted Stock or
Unrestricted Stock is awarded shall be considered a stockholder of the Company
at the time of the Award except as otherwise provided in the applicable Award.

c. Effective Date. The date on which the Joint Prepackaged Plan of
Reorganization Plan of the Company (and the other Debtors listed therein)
becomes effective.

d. Amendment of Plan. The Board may amend, suspend, or terminate the Plan or any
portion thereof at any time, subject to such stockholder approval as the Board
determines to be necessary or advisable. Further, under all circumstances, the
Committee may make non-substantive administrative changes to the Plan as to
conform with or take advantage of governmental requirements, statutes or
regulations.

e. Repricing. Without the approval of stockholders, the Committee will not amend
or replace previously granted Options or SARs in a transaction that constitutes
a “repricing,” which for this purpose means any of the following or any other
action that has the same effect: (i) lowering the exercise price of an Option or
SAR after it is granted; (ii) any other action that is treated as a repricing
under generally accepted accounting principles; or (iii) canceling an Option or
SAR at a time when its exercise price exceeds the Fair Market Value of the
underlying Common Stock, in exchange for another Option or SAR or other equity,
cash or other property; provided, however, that the foregoing transactions shall
not be deemed a repricing if pursuant to an adjustment authorized under
Section 5(b).

f. Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the State of Delaware.

 

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APPENDIX A

PERFORMANCE CRITERIA TERMS

A Performance Criterion must be an objectively determinable measure of
performance relating to any or any combination of the following (measured either
absolutely or by reference to an index or indices and determined either on a
consolidated basis or, as the context permits, on a divisional, subsidiary, line
of business, project or geographical basis or in combinations thereof): sales;
revenues; assets; expenses; earnings before or after deduction for all or any
portion of interest, taxes, depreciation, or amortization, whether or not on a
continuing operations or an aggregate or per share basis, including, without
limitation, EBITDA or adjusted EBITDA as determined for purposes of any credit
agreement or other agreement to which the Company is a party; return on equity,
investment, capital or assets; one or more operating ratios; borrowing levels,
leverage ratios or credit rating; market share; capital expenditures; cash flow;
net cash from operations plus or minus such expenditures, expenses, cash
proceeds from dispositions (whether or not of operating assets) and other
objectively determinable adjustments, if any, as the Committee may determine;
stock price; stockholder return; sales of particular products or services;
customer acquisition or retention; acquisitions and divestitures (in whole or in
part); joint ventures and strategic alliances; spin-offs, split-ups and the
like; reorganizations; or recapitalizations, restructurings, financings
(issuance of debt or equity) or re-financings. A Performance Criterion and any
targets with respect thereto determined by the Committee need not be based upon
an increase, a positive or improved result or avoidance of loss. The Committee
may provide that any or any combination, or all, of the Performance Criteria
applicable to an award will be adjusted in an objectively determinable manner to
reflect events (for example, but without limitation, acquisitions or
dispositions) occurring during the performance period that affect the applicable
Performance Criterion or Criteria, to the extent consistent with the
requirements for satisfying the performance-based compensation exception under
Section 162(m) of the Code.

 

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