Exhibit 10.7

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.

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(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.

 

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(p) “Entitlement Date” has the meaning ascribed thereto in Section 3.1.

(q) “Fair Market Value” means, with respect to any particular date, the simple
average closing price of the Common Stock as traded on the stock exchange on
which the highest aggregate volume of Common Stock has traded on each of the
five trading days immediately preceding the particular 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 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 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

 

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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 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.

 

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).

 

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(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 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 Termination 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.

 

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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

 

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(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, an Eligible Director’s Entitlement Date shall be the
date that is six months after his or her Termination Date, and all vested
Deferred Stock Units credited to such Eligible Director’s Account on such date
shall be redeemed in return for Common Stock.

 

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 Termination 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.

 

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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.

 

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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.

 

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SCHEDULE A

Deferred Stock Unit Plan for Eligible Directors of

Xerium Technologies, Inc. (the “Plan”)

ELECTION NOTICE

 

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 November 1, 2010 to December 31, 2010, I hereby elect to
receive the following percentage of my remaining Annual Retainer (“Elective
Annual Retainer”) by way of Deferred Stock Units (“DSUs”):

 

     Amount      Percentage in DSUs     Percentage in Cash  

Elective Annual Retainer

   $             %        % 

 

II. Acknowledgement

I confirm and acknowledge that:

 

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

 

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

 

  3. I will not be able to cause the Company or any Affiliate thereof to redeem
DSUs granted under the Plan until the date specified in the Plan following my
Termination Date.

 

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

 

  5. The value of DSUs are based on the value of the Common Stock of the Company
and therefore are not guaranteed.

 

  6. 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.

 

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  7. This election is irrevocable.

 

  8. 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

 

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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

 

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