EXHIBIT 10.8

 

XERIUM TECHNOLOGIES, INC.

SENIOR EXECUTIVE ANNUAL INCENTIVE PLAN

 

The following sets forth the terms and conditions of the Xerium Technologies,
Inc. Senior Executive Annual Incentive Plan (the “Plan”) for specified executive
officers and other senior employees of Xerium Technologies, Inc. (the “Company”)
and its Subsidiaries (as defined below).

 

1. Purpose

 

The purpose of this Plan is to advance the interests of the Company by enhancing
the ability of the Company and its Subsidiaries to attract and retain management
and employees who are in a position to make significant contributions to the
success of the Company and its Subsidiaries and to reward such individuals for
their contributions.

 

2. Defined Terms

 

In this Plan, the following terms have the following meanings:

 

(a) “Actual Operating Cash” means, for a fiscal year, (i) net cash provided by
operating activities of the Company and its Subsidiaries determined on a
consolidated basis plus (ii) Consolidated Transaction Costs, as such term is
defined in the Credit Agreement as in effect on the Effective Date, but only to
the extent such amounts reduce net cash provided by operating activities for
such year, minus (iii) gross capital expenditures of the Company and its
Subsidiaries for such year other than capital expenditures relating to
restructuring; plus (iv) cash restructuring costs incurred by the Company and
its Subsidiaries for such year; plus (v) net cash proceeds from disposals of
property and equipment received by the Company and its Subsidiaries for such
year; plus (vi) interest payments of the Company and its Subsidiaries for such
years plus (vii) income tax payments of the Company and its Subsidiaries for
such year plus or minus (viii) such other amounts as the Committee shall
determine no later than 90 days after the commencement of the applicable fiscal
year (or such earlier time as is required to qualify the Awards as
performance-based under Code Section 162(m)), in order to make the calculations
of Actual Operating Cash appropriately consistent with the calculations used by
the Committee in determining the amount of Target Operating Cash for such year.
For avoidance of doubt, Actual Operating Cash shall be determined without regard
to Awards granted under this Plan and the Company’s Executive Annual Incentive
Plan (the “Executive Plan”) and Incentive Compensation Plan (the “Incentive
Plan”) for a fiscal year, but shall be reduced by the amount of Awards paid
under this Plan during such fiscal year or for any awards paid in respect the
Company’s Executive Plan and Incentive Plan during such fiscal year. The
Committee shall calculate the amount of Actual Operating Cash in a manner which
is consistent with the audited financial statements of the Company for the
applicable fiscal year, including without limitation the consolidated statement
of cash flows.

 

(b) “Adjusted EBITDA” means, for a fiscal year, Adjusted EBITDA as such term is
defined in the Credit Agreement as in effect on the Effective Date, provided,
however,

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that the Committee may, for any fiscal year, further adjust the computation of
Adjusted EBITDA no later than 90 days after the commencement of the applicable
fiscal year in order to make such computation consistent with the terms of the
Credit Agreement, as it may be amended from time to time, or any substituted
credit facility, or to take into account such other financial criteria as the
Committee may determine. For avoidance of doubt, Awards paid with respect to
this plan and awards paid under the Executive Plan and the Incentive Plan shall
reduce Adjusted EBITDA for such fiscal year.

 

(c) “Affiliate” 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.

 

(d) “Award” means, for a given fiscal year, as to each Participant, an award of
cash under this Plan with respect to such year.

 

(e) “Applicable Law” means all applicable provisions of law, domestic or
foreign, (including, without limitation, the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
together with all regulations promulgated thereunder) and Stock Exchange Rules.

 

(f) “Board” means the board of directors of the Company or any committee thereof
designated by the full board of directors of the Company, in each case as
constituted from time to time.

 

(g) “Business Day” means a day on which the NYSE is open for trading.

 

(h) “Code” means the Internal Revenue Code of 1986, as amended from time to
time.

 

(i) “Committee” means the compensation committee of the Board, as such committee
is from time to time constituted and which, for purposes of meeting certain
requirements of Section 162(m) of Code and any regulations promulgated
thereunder, may be deemed to be any subcommittee of the Committee to which the
Committee has delegated its duties and authority under this Plan consisting
solely of at least two “outside directors,” as defined under Section 162(m) of
the Code and the regulations promulgated thereunder.

 

(j) “Company” means Xerium Technologies, Inc. and its successors.

 

(k) “Credit Agreement” means the Credit and Guaranty Agreement, dated as of May
18, 2005, entered into by and among the Company, certain subsidiaries of the
Company, Citigroup Global Markets, Inc., CIBC World Markets Corp. and other
agents and banks party thereto.

 

(o) “Effective Date” means the closing date of the Company’s initial public
offering of common stock of the Company, $0.01 par value, as described in the
Company’s Registration Statement on Form S-1 relating thereto, as declared
effective by the Securities and Exchange Commission, including any amendment or
amendments thereto.

 

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(p) “NYSE” means the New York Stock Exchange.

 

(q) “Participant” means each executive officer and other senior employee of the
Company or any of its Subsidiaries selected by the Committee from time to time
to participate in this Plan.

 

(r) “Person” means any individual, partnership, limited liability company,
corporation, association, trust, joint venture, unincorporated organization, or
other entity or group.

 

(s) “Plan” means this Xerium Technologies, Inc. Senior Executive Annual
Incentive Plan, as an “employee benefit plan” (within the meaning of the
Exchange Act), as amended from time to time.

 

(t) “Specified Percentage” means, with respect to a Participant, a percentage
determined by the Committee, in its sole discretion, not later than 90 days
after the commencement of the fiscal year to which it relates.

 

(u) “Stock Exchange Rules” means the applicable rules of the NYSE, or any other
principal stock exchange or market upon which the shares of common stock are
listed for trading.

 

(v) “Subsidiary” means any Person of which the Company at the time (i) owns,
directly or indirectly, at least a majority of the outstanding capital stock (or
other shares of beneficial interest) entitled to vote generally or (ii)
controls, directly or indirectly, the board of directors or managers (or
equivalent governing body) of such Person.

 

(w) “Target Adjusted EBITDA” means, for a fiscal year, a target dollar amount,
established by the Committee, of Adjusted EBITDA for such year.

 

(x) “Target Operating Cash” means, for a fiscal year, a target dollar amount,
established by the Committee, of Actual Operating Cash to be generated by the
Company and its Subsidiaries on a consolidated basis for such year.

 

3. Administration and Amendment

 

3.1. Administration. The Plan shall be administered by the Committee. The
Committee shall have the authority to: (a) determine the Participants in the
Plan for any fiscal year, (b) determine the amount of Actual Operating Cash and
Target Operating Cash for any fiscal year; (c) determine the amount of the
Adjusted EBITDA and Target Adjusted EBITDA for any fiscal year, (d) determine,
modify or waive the terms and conditions of each Award; and (e) interpret the
Plan and any terms and conditions associated with any Award granted under the
Plan and to decide any questions and settle all controversies and disputes that
may arise in connection with the Plan or any Award granted under the Plan. In
the case of any Award intended to be eligible for the performance-based
compensation exception under Section 162(m) of the Code, the Committee will
exercise its discretion consistent with qualifying Awards for that exception.
Determinations of the Committee made under the Plan shall be conclusive and
shall bind all parties.

 

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3.2. Amendment. The Committee may amend, suspend or discontinue the Plan at any
time or times, subject to Applicable Law and the receipt of any required
regulatory approvals and, where required by Applicable Law (whether pursuant to
Stock Exchange Rules or in order to cause the Awards payable under this Plan to
be fully deductible by the Company and its Subsidiaries pursuant to Section
162(m) of the Code or otherwise), subject to approval by the stockholders of the
Company. No such amendment shall adversely affect the rights of any Participant
as to any Award previously granted under the Plan without the consent of the
Participant who was granted such Award.

 

4. Establishment of Target and Grant of Awards

 

4.1. Establishment of Target Adjusted EBITDA and Target Operating Cash. The
Committee shall establish the amount of the Target Adjusted EBITDA and Target
Operating Cash for any fiscal year not later than 90 days after the commencement
of such year (provided that for 2005, such amounts shall instead be established
prior to the Effective Date) (or such earlier time as is required to qualify
Awards as performance-based under Code Section 162(m)); provided, however, that
the amount so established by the Committee may be adjusted by the Committee
after the initial determination of the amount to reflect any significant change
of circumstance, including without limitation, the acquisition or disposition of
any business by the Company or any of its Subsidiaries. The amount of the Target
Operating Cash and Target Adjusted EBITDA for any fiscal year shall be
determined by the Committee at the same time and in the same manner as under the
Executive Plan and the Incentive Plan.

 

4.2. Grant of Awards. If Adjusted EBITDA equals Target Adjusted EBITDA in
respect of a fiscal year, each Participant shall receive an Award equal to a
Specified Percentage of such Participant’s base salary for such fiscal year,
subject to the provisions of Section 4.3. If Adjusted EBITDA equals 110% percent
of Target Adjusted EBITDA in respect of a fiscal year, each Participant shall
receive an Award of 200% of such Participant’s Specified Percentage for such
fiscal year, subject to the provisions of Section 4.3. In the event Adjusted
EBITDA is greater than Target Adjusted EBITDA but less than 110% of Target
Adjusted EBITDA, each Participant shall receive an Award equal to the Specified
Percentage of base salary paid plus an additional percentage of the Specified
Percentage equal to 10 times the percentage (including fractions thereof) by
which Adjusted EBITDA exceeds Target Adjusted EBITDA (subject to the 200%
maximum), subject to the provisions of Section 4.3. By way of example, if
Adjusted EBITDA is equal to 105% of Target Adjusted EBITDA and the Participant’s
Specified Percentage is 75%, the Award shall be 150% of the Specified Percentage
(i.e., 112.5% of the Participant’s base salary).

 

4.3. Adjustment of Awards; Operating Cash and Target Adjusted EBITDA Hurdles.

 

4.3.1. Hurdles. Notwithstanding the provisions of Section 4.2, Awards shall be
payable under the Plan in respect of a fiscal year only if (1) Actual Operating
Cash exceeds the Target Operating Cash, and (2) Adjusted EBITDA, before
reduction for payments under the Plan, the Executive Plan and the Incentive
Plan, exceeds Target Adjusted EBITDA. In no event shall payments under the Plan,
the Executive Plan or the Incentive Plan cause Adjusted EBITDA to be less than
Target Adjusted EBITDA.

 

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4.3.2. Adjustments. As used herein, “Base Amount,” with respect to a fiscal
year, means the sum of (i) Awards under the Plan at a level equal to the
Specified Percentage of the base salary of all Plan participants for such fiscal
year (“Base Award”), plus (ii) awards under the Executive Plan at a level equal
to the Specified Percentage (with respect to the participants in the Executive
Plan, as defined in the Executive Plan) of all of the participants in such plan
for such fiscal year (“Executive Base Award”), plus (iii) awards under the
Incentive Plan to all participants with respect to which Performance Targets (as
defined in the Incentive Plan) are satisfied for a fiscal year, but determined
without regard to the level of Adjusted EBITDA and Actual Operating Cash for
such year (each an “Unadjusted Incentive Award”). If the requirements of the
first sentence of Section 4.3.1 are satisfied and the excess (such excess, the
“Bonus Pool”) of (x) Adjusted EBITDA, before reduction for payments under the
Plan, the Executive Plan and the Incentive Plan over (y) Target Adjusted EBITDA
is less than the Base Amount, each of the Awards under the Plan for the
applicable fiscal year shall equal the applicable Base Award for such year
multiplied by a ratio, the numerator of which is the Bonus Pool and the
denominator of which is the Base Amount. If the requirements of the first
sentence of Section 4.3.1 are satisfied for a fiscal year and the Bonus Pool for
such fiscal year is equal to or greater than the Base Amount, the Unadjusted
Incentive Awards will be paid in accordance with the Incentive Plan and each of
the Awards under this Plan and the awards under the Executive Plan for the
applicable fiscal year shall equal (1) the applicable Base Award or Executive
Base Award, plus (2) a pro rata portion, based on the relative Base Awards and
Executive Base Awards under the Plan and the Executive Plan respectively, of an
additional amount such that actual Adjusted EBITDA represents a percentage of
Target Adjusted EBITDA equal to (x) a ratio, the numerator of which is the
percentage of the applicable Base Award or Executive Base Award represented by
the Award (or award under the Executive Plan) as finally determined, minus 100%,
and the denominator of which is 10, plus (y) 100%, provided that no Award shall
exceed 200% of the applicable Base Award (and no award under the Executive Plan
shall exceed 200% of the applicable Executive Base Award). Reductions of Awards
hereunder shall not be carried over into subsequent fiscal years.

 

4.4. Application of 162(m). This Section 4.4 applies to any Award intended to
qualify as performance-based for purposes of Code Section 162(m). In the case of
any Award to which this Section 4.4 applies, the Plan and such Award will be
construed to the maximum extent permitted by law in a manner consistent with
qualifying the Award for such exception. No Award to which this Section 4.4
applies may be granted if the Committee determines that in order for such Award
to qualify as performance-based for purposes of Code Section 162(m), 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 Code Section
162(m), unless such grant is made contingent upon such approval. The maximum per
Participant Award under the Plan for any fiscal year shall not exceed
$2,500,000.

 

4.5. No Right to Participate. Nothing in the Plan shall be deemed to create any
obligation on the part of the Committee to select any executive officer or
senior employee as a Participant, nor confer upon any Participant in the Plan
the right to remain a Participant in the Plan on the same terms or conditions,
or at all, for any subsequent fiscal year.

 

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5. Payment of Awards

 

Payment of any Award under the Plan with respect to a fiscal year shall be made
on or before March 15 of the fiscal year following the fiscal year with respect
to which the Award is made.

 

6. Operation of the Plan

 

6.1. Compliance with Applicable Law. As a condition of participating in the
Plan, each Participant agrees to comply with all Applicable Laws and agrees to
furnish to the Company all information and undertakings as may be required to
permit compliance by the Company with Applicable Law.

 

6.2. Withholding. The Company may withhold from the payment of each
Participant’s Award all taxes and other assessments, if any, required by
Applicable Law to be withheld.

 

7. Merger or Combination.

 

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 Affiliate 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
Affiliate of any such Person or any member of such group), then, unless the
Committee provides for the continuation or assumption of some or all unpaid
Awards or for the grant of new awards in substitution therefor (which need not
be payable in cash) 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 any Award that is not so assumed or continued (i) the then current
fiscal year shall be deemed to end on the last day which is the last day of a
fiscal quarter occurring on or prior to the effective date of the merger,
combination or sale (or if the Committee in its sole discretion determines that
it can make a reasonable determination of Adjusted EBITDA and Actual Operating
Cash through such effective date, the current fiscal year shall be deemed to end
on such effective date); (ii) the Target Adjusted EBITDA and Target Operating
Cash shall be prorated for the number of days in such shortened fiscal year; and
(iii) the amount of the prorated Awards for such shortened fiscal year shall be
determined and the Company shall pay, within twelve months following the
effective date of such transaction, such prorated Award to each Participant in
respect of such shortened fiscal year.

 

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8. Termination of Employment

 

8.1. Resignation or Termination by the Company. If a Participant ceases to be
employed by the Company or any of its Subsidiaries prior to the end of any
fiscal year as a result of resignation, dismissal or any other reason, such
Participant shall cease to be a Participant in the Plan on the date employment
ceases and shall not receive any Award under the Plan in respect of such fiscal
year.

 

8.2. Rights upon Termination Pursuant to Agreement. The Company may provide
rights to a Participant in respect of such Participant’s Awards upon termination
of such Participant’s employment that differ from those set forth in Section 8.1
pursuant to an agreement with such Participant. Except to the extent otherwise
addressed in any such agreement, the provisions of this Plan, including Section
8.1, shall control.

 

9. Rights of Participants

 

9.1. No Right to Continue as Officer or Employee. Neither the adoption of the
Plan nor the selection of any Participant as a Participant shall confer any
right to continue as an officer or employee of the Company or any of its
Subsidiaries, or affect in any way the right of the Company or any of its
Subsidiaries to terminate such Participant’s employment at any time. Neither any
period of notice, nor any payment in lieu thereof, upon termination of
employment shall be considered as extending the period of employment for the
purposes of the Plan.

 

9.2. No Trust or Fiduciary Relationship. Nothing contained herein shall be
deemed to create a trust of any kind or any fiduciary relationship between the
Company and any Participant or be construed as requiring the Company or any
Subsidiary or Affiliate of the Company to establish a trust or otherwise to set
aside assets to fund the payment of Awards hereunder. A Participant’s right to
receive payment from the Company in respect of any Award shall be no greater
than the right of any unsecured general creditor of the Company.

 

9.3. No Assignment by Participants. The interest of any Participant under the
Plan or in any Award shall not be transferable or alienable by such Participant
either by pledge, assignment or in any other manner, except that in the event of
a Participant’s death following the completion of a fiscal year but prior to the
payment of an Award with respect to such fiscal year it shall inure to the
benefit of and be binding upon the Participant’s estate (or beneficiary if one
has been designated to the Company in writing prior to such death).

 

10. Miscellaneous

 

10.1. Severability. Any term or provision of this Plan 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, it is the intent of
the Company that 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.

 

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10.2. Governing Law. This Plan 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.

 

11. Effective Date of Plan and Term of Plan

 

11.1. Effective Date. The Plan shall take effect on the Effective Date, subject
to its prior approval by the Company’s shareholders. For avoidance of doubt,
this Plan shall apply with respect to the full fiscal year in which the
Effective Date occurs.

 

11.2. Term. No Awards shall be made under the Plan in respect of any fiscal year
commencing after the tenth anniversary of the Effective Date.

 

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