Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant x

Filed by a Party other than the Registrant ¨

Check the appropriate box:

XERIUM TECHNOLOGIES, INC.

(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

x    No fee required.

¨    Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

¨    Fee paid previously with preliminary materials.

Table of Contents

8537 Six Forks Road

Suite 300

Raleigh, NC 27615

April 29, 2009

Dear Stockholder:

You are cordially invited to attend our 2009 Annual Meeting of Stockholders. The meeting will be held on June 9, 2009 at 9:00 A.M., Eastern Time, at our offices located at 8537 Six Forks Road, Suite 300, Raleigh, NC 27615.

The matters to be acted upon at the meeting are described in the accompanying Notice of Annual 2009 Annual Meeting of Stockholders and Proxy Statement.

Your vote is very important. Whether or not you plan to attend the meeting, please carefully review the enclosed proxy statement and then cast your vote, regardless of the number of shares you hold. Your shares can be represented at the meeting by promptly completing, signing, dating and mailing the accompanying proxy card or voting instruction form.

We hope that you will join us on June 9, 2009. Your continuing interest is very much appreciated.

Sincerely,

Stephen R. Light

President, Chief Executive Officer and Chairman

Table of Contents

NOTICE OF 2009 ANNUAL MEETING OF STOCKHOLDERS

2. To approve Amendment No. 3 to the 2005 Equity Incentive Plan.

3. To ratify the selection of Ernst & Young LLP as Xerium Technologies, Inc.’s independent registered public accounting firm.

4. To transact such other business as may properly come before the meeting and any adjournment or postponement of the meeting.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of the Stockholders to Be Held on June 9, 2009: the Proxy Statement and Annual Report to Stockholders are available in the Investor Relations section of the Company’s website at www.xerium.com.

By order of the Board of Directors,

Stephen R. Light

Table of Contents

TABLE OF CONTENTS

Table of Contents

XERIUM TECHNOLOGIES, INC.

8537 Six Forks Road

Suite 300

Raleigh, NC 27615

PROXY STATEMENT

FOR THE 2009 ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 9, 2009

GENERAL INFORMATION

Why am I receiving this proxy statement?

The Board of Directors (the “Board”) of Xerium Technologies, Inc. (“Xerium” or the “Company”) is soliciting proxies for the 2009 Annual Meeting of Stockholders (the “Annual Meeting”). You are receiving a proxy statement because you own shares of Xerium common stock that entitle you to vote at the Annual Meeting. By use of a proxy, you can vote regardless of whether or not you attend the Annual Meeting. The proxy statement describes the matters on which the Company would like you to vote and provides information on those matters so that you can make an informed decision. The Company will mail the notice of Annual Meeting, proxy statement and proxy card to stockholders beginning on or about April 29, 2009.

What is the purpose of the Annual Meeting?

The purpose of the Annual Meeting is for stockholders of Xerium to address all business that may come before the meeting and to vote on the following matters:

The Board recommends a vote FOR the election of the seven directors, FOR the approval of Amendment No. 3 to the 2005 Plan, and FOR the ratification of the appointment of Ernst &Young LLP as the Company’s independent registered public accounting firm.

What is the difference between holding shares as a stockholder of record and as a beneficial owner?

Many Xerium stockholders hold their shares through a broker, bank or other nominee rather than directly in their own name as the stockholder of record. As summarized below, there are some distinctions between shares held of record and those owned beneficially.

Stockholder of Record. If your shares are registered directly in your name with Xerium’s transfer agent, American Stock Transfer and Trust Company (“AST”), you are considered, with respect to those shares, the stockholder of record, and these proxy materials are being sent directly to you by AST on behalf of Xerium. As the stockholder of record, you have the right to grant your voting proxy directly to Xerium or to vote in person at the Annual Meeting. Xerium has enclosed a proxy card for you to use.

Beneficial Owner. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name and the proxy materials are being sent to you by your broker or nominee who is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker or nominee on how to vote and are also invited to attend the meeting. However, since you are not the stockholder of record, you may not vote these shares in

1

Table of Contents

person at the meeting unless you receive a proxy from your broker or nominee. Your broker or nominee

has enclosed a voting instruction card for you to use. If you wish to attend the Annual Meeting and vote in person, please mark the box on the voting instruction card received from your broker or nominee and return it to them so that you can receive a legal proxy to present at the Annual Meeting.

How can I attend the Annual Meeting?

If you are listed as a stockholder of record as of April 22, 2009 you may attend the Annual Meeting if you bring proof of identification. If you are the beneficial owner of shares held in street name, you will need to bring proof of identification and provide proof of ownership by bringing either a copy of a brokerage statement or a letter from the record holder indicating that you owned the shares as of April 22, 2009.

How can I vote my shares in person at the Annual Meeting?

If you are the stockholder of record you may vote your shares in person at the Annual Meeting. If you choose to do so, please bring the enclosed proxy card and proof of identification. If you are the beneficial owner of shares held in street name you may vote your shares in person at the Annual Meeting if, in addition to proof of identification, you bring both a brokerage statement or a letter from the record holder indicating that you owned the shares as of April 22, 2009 and a legal proxy from the record holder issued in your name, which you will need to obtain in advance. Even if you plan to attend the Annual Meeting, the Company recommends that you also submit your proxy as described below so that your vote will be counted if you later decide not to attend the Annual Meeting.

How can I vote my shares without attending the Annual Meeting?

Whether you hold shares directly as the stockholder of record or beneficially in street name, you may direct your vote without attending the Annual Meeting. For shares you hold directly as the stockholder of record, you may vote by granting a proxy or, for shares you hold beneficially in street name, you may vote by submitting voting instructions to your broker or nominee. You may submit your proxy or voting instruction card by marking, dating and signing it and mailing it in the enclosed, self-addressed, postage prepaid envelope. No postage is required if mailed in the United States. For shares you hold directly as the stockholder of record, please refer to the more detailed instructions included on your proxy card. For shares you hold beneficially in street name, please refer to the more detailed instructions included on the voting instruction card included by your broker or nominee.

Can I change my vote?

You may revoke your signed proxy to management at any time before it is voted by notifying the Secretary in writing, by returning a signed proxy with a later date, or by attending the meeting and voting in person. If your stock is held in street name, you must contact your broker or nominee for instructions as to how to change your vote.

When is the record date for the Annual Meeting?

The Board has fixed the record date for the Annual Meeting as of the close of business on April 22, 2009.

How many votes can be cast by all stockholders?

There were 48,876,182 shares of the Company’s common stock outstanding on the record date and entitled to vote at the Annual Meeting. Each share of common stock is entitled to one vote on each matter.

2

Table of Contents

What is a quorum?

A quorum is the minimum number of shares required to hold a meeting. Under Xerium’s By-Laws, a majority of the outstanding shares of stock entitled to vote at the Annual Meeting, or 24,438,092 shares, must be represented in person or by proxy for a quorum.

What vote is required to approve each item?

For the election of the directors, the seven directors who receive the greatest number of votes cast in person or by proxy will be elected directors.

The approval of Amendment No. 3 to the 2005 Plan requires approval by a majority of the votes cast in person or by proxy.

The proposal to ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm requires approval by a majority of the votes cast in person or by proxy. Although ratification is not required by the Company’s By-Laws or otherwise, the Board is submitting the selection of Ernst & Young LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders do not ratify the appointment, the Audit Committee will reconsider whether or not to retain Ernst & Young LLP, but still may retain them. Even if the selection is ratified, the Audit Committee may change the appointment at any time during the year if it determines that such change would be in the best interests of Xerium and its stockholders.

If there are insufficient votes to approve Amendment No. 3 to the 2005 Plan or the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm, your proxy may be voted by the persons named in the proxy to adjourn the Annual Meeting in order to solicit additional proxies in favor of the approval of such proposals. If the Annual Meeting is adjourned or postponed for any purpose, at any subsequent reconvening of the Annual Meeting your proxy will be voted in the same manner as it would have been voted at the original convening of the Annual Meeting unless you withdraw or revoke your proxy. Your proxy may be voted in this manner even though it may have been voted on the same or any other matter at a previous session of the Annual Meeting.

How is the vote counted?

Votes cast by proxy or in person at the Annual Meeting will be counted by persons appointed by the Company to act as tellers for the meeting. The tellers will count shares represented by proxies that withhold authority to vote for a nominee for election as a director only as shares that are present and entitled to vote for purposes of determining the presence of a quorum. None of the withheld votes will be counted as votes “for” a director. Shares properly voted to “abstain” and broker non-votes on a particular matter are considered as shares that are entitled to vote for the purpose of determining a quorum but are treated as having voted against the matter. A broker non-vote occurs when a broker holding shares for a customer does not vote on a particular proposal because the broker has not received voting instructions on the matter from its customer and is barred by stock exchange rules from exercising discretionary authority to vote on the matter.

What happens if the meeting is postponed or adjourned?

Your proxy to management may be voted at the postponed or adjourned meeting. You will still be able to change your proxy until it is voted.

What does it mean if I receive more than one proxy card or voting instruction form?

It means that you have multiple accounts at the transfer agent or with brokers. Please complete and return all proxy cards or voting instruction forms to ensure that all of your shares are voted.

3

Table of Contents

Who can help answer my questions about the Annual Meeting or how to submit or revoke my proxy?

If you are the stockholder of record, please contact:

Investor Relations

Xerium Technologies, Inc.

8537 Six Forks Road

Suite 300

Raleigh, NC 27615

Telephone: 508-532-1790

If your shares are held in street name, please call the telephone number provided on your voting instruction form or contact your broker directly.

4

Table of Contents

PROPOSAL 1: ELECTION OF DIRECTORS

Information with Respect to Nominees for Directors

Seven directors will be elected at the Annual Meeting. The Board has recommended as nominees for election as directors the persons named in the table below. All of the nominees are currently directors of the Company. All directors elected at the Annual Meeting will serve until the 2010 Annual Meeting of Stockholders, and until their successors are duly elected and qualified, or until their earlier death, resignation or removal.

It is intended that, unless you give contrary instructions, shares represented by proxies solicited by the Board will be voted for the election as directors of the seven nominees listed below. The Company has no reason to believe that any nominee will be unavailable for election at the Annual Meeting. In the event that one or more nominees is unexpectedly not available to serve, proxies may be voted for another person nominated as a substitute by the Board, or the Board may reduce the number of directors to be elected at the Annual Meeting.

The following table sets forth as to each nominee for election at the Annual Meeting: (i) his positions with the Company and his principal occupation during the past five years; (ii) his other directorships with publicly held companies or investment companies; (iii) his age as of April 22, 2009; and (iv) his period of service as a director of the Company.

5

Table of Contents

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE SEVEN NOMINEES FOR DIRECTOR NAMED ABOVE.

6

Table of Contents

CORPORATE GOVERNANCE

“Controlled Company” Exemption under NYSE Rules

Under Section 303A of the New York Stock Exchange Listed Company Manual (the “NYSE Rules”), the Company is considered a “Controlled Company” because Apax Europe IV GP Co. Ltd. (“Apax”) beneficially owns approximately 51.2% of the Company’s voting power as of March 31, 2009. As a Controlled Company, the Company is exempt from certain NYSE Rules requiring a board of directors with a majority of independent members, a compensation committee composed entirely of independent directors and a nominating committee composed entirely of independent directors.

Director Independence

The Board has adopted Corporate Governance Guidelines that include standards for the independence of directors in accordance with the rules and regulations of the NYSE. The standards for the independence of directors are attached to this Proxy Statement as Appendix A and are also included in the Corporate Governance Guidelines available on the Company’s website at www.xerium.com. Using the standards set forth in the Corporate Governance Guidelines, the Board has determined that each of Messrs. Gurandiano, Maffucci, Paquette, and Raos is independent.

Board Meetings and Director Attendance at the Annual Meeting

The Board held 26 meetings during 2008. Each of the directors attended at least 75% of the aggregate of (i) the total number of meetings of the Board, and (ii) the total number of meetings held by all committees of the Board on which that director served during 2008 (in each case, which were held during the period for which he was a director and/or a member of the applicable committee), except that Michael Phillips attended 62% of the meetings held in 2008. The Company encourages the directors to attend Annual Meetings of Stockholders and believes that attendance at Annual Meetings of Stockholders is just as important as attendance at meetings of the Board and its committees. Four directors attended the 2008 Annual Meeting of Stockholders.

Board Committees

The Board has standing Audit, Compensation and Nominating and Corporate Governance Committees, as described more fully below. Each of the Compensation and Nominating and Governance Committees is comprised of three independent directors and one non-independent director, and the Audit Committee is comprised of four independent directors.

Audit Committee. David G. Maffucci is the current chairman and Jay J. Gurandiano, Edward Paquette, and John G. Raos are the other current members of the Company’s Audit Committee. The Company’s Audit Committee met 12 times during 2008. The Board has determined that each member of the Company’s Audit Committee is independent within the meaning of the rules and regulations of the NYSE. Furthermore, as required by the rules and regulations of the Securities and Exchange Commission (the “SEC”), no member of the Audit Committee receives, directly or indirectly, any consulting, advisory, or other compensatory fees from the Company other than Board and committee fees. The Board has determined that each of David G. Maffucci and Edward Paquette is an “audit committee financial expert” within the meaning of the rules and regulations of the SEC. The Audit Committee operates pursuant to a written charter that is available free of charge on the Company’s website at www.xerium.com or by requesting a copy from Investor Relations, Xerium Technologies, Inc., 8537 Six Forks Road, Suite 300, Raleigh, NC 27615.

The principal duties and responsibilities of the Company’s Audit Committee are as follows: (a) to monitor the Company’s financial reporting process and internal control systems; (b) to appoint and replace the Company’s Independent Registered Public Accounting Firm, determine their compensation and other terms of

7

Table of Contents

engagement and oversee their work; (c) to oversee the performance of the Company’s internal audit function; and (d) to oversee the Company’s compliance with legal, ethical and regulatory matters. The Audit Committee and the Board have established procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters and for confidential, anonymous submission by Company employees of concerns regarding questionable accounting or other matters, as described under “Policies on Communicating with Non-Management Directors and Reporting Concerns Regarding Accounting and Other Matters.” The Audit Committee also has the authority to hire independent counsel and other advisors to carry out the Audit Committee’s duties, and the Company is required to provide appropriate funding, as the Audit Committee determines, to compensate any advisors retained by the Audit Committee.

The report of the Audit Committee is included in this Proxy Statement under “Audit Committee Report.”

Compensation Committee. John G. Raos is the current chairman and Jay J. Gurandiano, David G. Maffucci and Michael Phillips are the other current members of the Company’s Compensation Committee. The Compensation Committee met 10 times during 2008. The Board has determined that each of Messrs. Raos, Gurandiano and Maffucci is independent within the meaning of the rules and regulations of the NYSE. The Compensation Committee operates pursuant to a written charter that is available free of charge on the Company’s website at www.xerium.com or by requesting a copy from Investor Relations, Xerium Technologies, Inc., 8537 Six Forks Road, Suite 300, Raleigh, NC 27615.

The principal duties and responsibilities of the Company’s Compensation Committee are as follows: (a) to provide oversight on the development and implementation of the Company’s compensation policies, strategies, plans and programs for its key employees and disclosure relating to these matters; (b) to review and approve the compensation of the Company’s chief executive officer and the other executive officers of the Company and its subsidiaries; (c) to provide oversight concerning the selection of officers, management succession planning, performance of individual executives and related matters.

On March 9, 2009, the Equity and Executive Compensation Subcommittee of the Compensation Committee, composed solely of the independent directors on the Compensation Committee, was formed for the limited purpose of acting on items recommended to it by the full Compensation Committee that require action by independent directors.

The report of the Compensation Committee is included in this Proxy Statement under “Compensation Committee Report.”

Nominating and Corporate Governance Committee. Jay J. Gurandiano is the current chairman and David G. Maffucci, John G. Raos, Edward Paquette and Nico Hansen are the other current members of the Company’s Nominating and Corporate Governance Committee. The Company’s Nominating and Corporate Governance Committee met 5 times during 2008. The Board has determined that each of Messrs. Gurandiano, Maffucci, Raos and Paquette is independent within the meaning of the rules and regulations of the NYSE. The Nominating and Corporate Governance Committee operates pursuant to a written charter that is available free of charge on the Company’s website at www.xerium.com or by requesting a copy from Investor Relations, Xerium Technologies, Inc., 8537 Six Forks Road, Suite 300, Raleigh, NC 27615.

The principal duties and responsibilities of the Nominating and Corporate Governance Committee are as follows: (a) to establish criteria for Board and committee membership and recommend to the Board proposed nominees for election to the Board and for membership on committees of the Board; (b) to make recommendations regarding proposals submitted by the Company’s shareholders; (c) to make recommendations to the Board regarding corporate governance matters and practices, including compensation for outside directors.

8

Table of Contents

In identifying and recommending nominees for positions on the Board, the Nominating and Corporate Governance Committee places primary emphasis on the criteria set forth under “Board Membership Criteria” in the Company’s Corporate Governance Guidelines, namely: (1) broad-based business skills and experiences; (2) prominence and reputation in their profession; (3) global business perspective; (4) concern for the long-term interests of the stockholders; and (5) personal integrity and judgment. The Nominating and Corporate Governance Committee does not set specific, minimum qualifications that nominees must meet in order to be recommended to the Board, but rather the Board believes that each nominee should be evaluated based on his or her individual merits, taking into account the needs of the Company and the composition of the Board. Members of the Nominating and Corporate Governance Committee discuss and evaluate possible candidates in detail and suggest individuals to explore in more depth. Once a candidate is identified whom the Nominating and Corporate Governance Committee wants to seriously consider and move toward nomination, the Chair of the Nominating and Corporate Governance Committee enters into a discussion with that candidate.

The Nominating and Corporate Governance Committee will consider candidates recommended by stockholders. It is the policy of the Nominating and Corporate Governance Committee that candidates recommended by stockholders will be given appropriate consideration in the same manner as other candidates. The procedure for submitting candidates for consideration by the Nominating and Corporate Governance Committee for election at the Company’s 2010 Annual Meeting of Stockholders is described under “Stockholder Proposals.”

Non-Management Director Meetings

In addition to the meetings of the committees of the Board described above, the Company’s non-management directors met 3 times in executive session during 2008; all of such executive sessions were in connection with Board meetings. The Company’s Corporate Governance Guidelines provide that these executive sessions be chaired on a rotating basis by the chairs of the respective standing Committees. The non-management directors are Messrs. Gurandiano, Hansen, Maffucci, Paquette, Phillips and Raos. The Board has established a procedure whereby interested parties may make their concerns known to the non-management directors, which is described under “Policies on Communicating with Non-Management Directors and Reporting of Concerns Regarding Accounting and Other Matters.”

Corporate Code of Business Conduct and Ethics and Corporate Governance Guidelines

The Company has adopted a Corporate Code of Business Conduct and Ethics for its directors, officers and employees, including its chief executive officer, chief financial officer and controller. A copy of the Company’s Corporate Code of Business Conduct and Ethics may be accessed free of charge by visiting the Company’s website at www.xerium.com or by requesting a copy from Investor Relations, Xerium Technologies, Inc., 8537 Six Forks Road, Suite 300, Raleigh, NC 27615. The Company intends to satisfy the disclosure requirement regarding any amendment to, or waiver from, a provision of the Corporate Code of Business Conduct and Ethics that applies to its chief executive officer, chief financial officer or controller by posting the amendment or waiver to its website.

A copy of the Company’s Corporate Governance Guidelines may also be accessed free of charge by visiting the Company’s website at www.xerium.com or by requesting a copy from Investor Relations, Xerium Technologies, Inc., 8537 Six Forks Road, Suite 300, Raleigh, NC 27615.

Policies on Communicating with Non-Management Directors and Reporting of Concerns Regarding Accounting and Other Matters

The Board and the Audit Committee have adopted policies on communicating with the non-management directors and reporting concerns regarding accounting and other matters. Any shareholder or other interested party who wishes to communicate with the Chairman of the Board may do so by writing to Chairman of the

9

Table of Contents

Board, Xerium Technologies, Inc., 8537 Six Forks Road, Suite 300, Raleigh, NC 27615. Shareholders or other interested parties who wish to communicate with the non-management directors may do so by writing to Non-management Directors, c/o Chairman of the Board, Xerium Technologies, Inc., 8537 Six Forks Road, Suite 300, Raleigh, NC 27615. These communications will be handled by the chairman and forwarded to the non-management directors at or prior to the next meeting of the non-management directors. Shareholders or other interested parties who wish to communicate with the Board may do so by writing to: Board of Directors, c/o Chairman of the Board, Xerium Technologies, Inc., 8537 Six Forks Road, Suite 300, Raleigh, NC 27615. These communications will be handled by the chairman and forwarded to directors at or prior to the next meeting of the directors. Any person, whether or not an employee, who has a concern about the conduct of the Company, or any of its people, including with respect to accounting, internal accounting controls or auditing matters, may, in a confidential or anonymous manner, communicate that concern by writing to Xerium Technologies, Inc., 8537 Six Forks Road, Suite 300, Raleigh, NC 27615, attention: Compliance Officer, through the Internet at www.ethicspoint.com or by calling 866-293-2399.

AUDIT COMMITTEE REPORT

The Audit Committee has reviewed the Company’s audited financial statements for 2008, and has discussed these statements with management. The Audit Committee has also discussed with Ernst & Young LLP, the Company’s independent registered public accounting firm during the 2008 fiscal year, the matters required to be discussed by Statement of Auditing Standards No. 61, as amended and as adopted by the Public Company Accounting Oversight Board in Rule 3000T (Communication with Audit and Finance Committees).

The Audit Committee also received from Ernst & Young LLP the written disclosures and the letter required by PCAOB Ethics and Independence Rule 3526 (Communication with Audit Committees Concerning Independence), and discussed with them their independence.

Based on the review and discussions noted above, the Audit Committee recommended to the Board that the 2008 audited financial statements be included in the Company’s Annual Report on Form 10-K for 2008, for filing with the SEC.

With respect to the above matters, the Audit Committee submits this report.

Mr. David G. Maffucci, Chairman

Mr. Jay J. Gurandiano

Mr. Edward Paquette

Mr. John G. Raos

MANAGEMENT AND EXECUTIVE COMPENSATION

Management

The following table sets forth information regarding the Company’s executive officers as of April 22, 2009.

10

Table of Contents

Stephen R. Light has served as the Company’s President, Chief Executive Officer and as a director since February 2008. Beginning in July 2008, he has also served as Chairman. He was previously President and Chief Executive Officer of Flow International Corp., a publicly traded producer of industrial waterjet cutting and cleaning equipment from January 2003 to July 2007. Prior to Flow, Mr. Light was President and Chief Executive Officer of OmniQuip Textron from October 2000 to January 2003. Mr. Light has also held various management positions within General Electric Company, Emerson Electric Co. and Koninklijke Philips N.V.

Michael O’Donnell has served as the Company’s Chief Financial Officer since March 2003 and as the Company’s Executive Vice President and as a director since April 2004. On March 30, 2009, Mr. O’Donnell provided notice of his resignation from these positions effective with his departure in May 2009. He served as President of the Group Services Division of ABB Ltd., a provider of power and automation technologies for utility and other industrial customers, from April 2001 to March 2003. He served as Executive Vice President and Chief Financial Officer for Invensys Power Systems from February 1998 to April 2001.

Joan “John” Badrinas Ardevol has served as the Company’s Chief Technology Officer since February 2008. Mr. Badrinas served as the Company’s President—Clothing Europe since joining the Company in July 2006 until February 2008. He served as President of Trelleborg Automotive Europe from September 2000 until July 2006. From May 1996 until 2000, Mr. Badrinas was Group Technical Director of BTR Anti-Vibrations Systems, which was sold to Trelleborg AB and became Trelleborg Automotive Europe. Previously, from 1984 to 1996, he held a series of positions ranging from Product Development Engineer to Industrial Operations Director with Pendelastica s.a. in Spain, a manufacturer of rubber and metal anti-vibration components used in automotive applications.

Thomas Johnson has served as the Company’s President—Xerium Asia since September 2008. Mr. Johnson served as the Company’s Executive Vice President—Corporate Operations since joining the Company in April 2008 until September 2008. From August 1996 until November 2007, he served as Executive Vice President – Flow Asia of Flow International Corporation, a company that develops and manufactures ultrahigh-pressure (UHP) waterjet technology, and is a provider of robotics and assembly equipment.

Peter Williamson has served as the Company’s President—Xerium Europe since February 2008. Mr. Williamson had served as the Company’s Managing Director—Stowe Woodward Europe since joining the Company in March 2006 until February 2008. He previously served as President of the product area engine group at Trelleborg AB from 2004 to February 2006 and earlier as President—Metzler Automotive Hose Systems from 1999 to 2004.

David Pretty has served as President—Xerium North America since February 2008. He served as President—Weavexx, the Company’s North American clothing operation, from December 2005 until February 2008. From November 2004 to December 2005 he was the Senior Vice President—Sales, Marketing, Technology and Operations for Weavexx. From August 2003 to November 2004 he was the Senior Vice President—Sales, Marketing and Technology for Weavexx. From August 2000 until August 2003 he was the Vice President – Sales and Marketing for Weavexx.

Eduardo Fracasso has served as President—Xerium South America since January 2008. From June 2007 to December 2007 he served as President—Xerium Brazil. Prior to that, he held various operational positions within the Company’s Brazilian subsidiaries over a period of approximately 18 years, most recently as Operational Director.

Compensation Discussion & Analysis

Overview of Compensation Program. The Compensation Committee operates under a written charter adopted by the Board and discharges the responsibilities of the Board relating to the compensation of the Company’s executive officers. In 2008, the executive officers’ compensation had three primary components:

11

Table of Contents

base compensation or salary, short-term incentive compensation and long-term equity based awards. Executive officers also receive a variety of benefits. These include benefits that are available generally to all salaried employees in the geographical location where the executive officer is based as well as benefits available only to executive officers generally or the particular executive officer.

Named Executive Officers. This Compensation Discussion & Analysis provides information regarding the compensation paid to the following individuals, referred to as the Named Executive Officers, in 2008:

Mr. Gutierrez resigned from the Company on February 7, 2008. On February 11, 2008, Stephen Light joined the Company as President and Chief Executive Officer. On June 16, 2008, a notice of termination of employment was delivered to Mr. Mayer, effective June 30, 2009. Mr. Mayer remained employed by the Company, but ceased serving as an executive officer of the Company as of the receipt of the notice of termination. On January 15, 2009, Xerium Germany GmbH, a subsidiary of the Company, entered into a settlement agreement with Mr. Mayer, pursuant to which his employment was formally terminated on January 15, 2009. On March 30, 2009, the Company received notice from Mr. O’Donnell of his resignation from the Company, which is expected to be effective with his departure in May 2009.

Compensation Philosophy and Objectives. The Compensation Committee believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic goals by the Company, and which aligns executives’ interests with those of the stockholders by rewarding performance at and above established goals, with the ultimate objective of improving stockholder value. The Compensation Committee evaluates both performance and compensation in an effort to enhance the Company’s ability to retain and, as necessary, attract superior employees in key positions. The Compensation Committee designs executive compensation packages for its executives, including the Named Executive Officers, that include both cash and stock-based compensation to reward performance as measured against established goals. While the Company has no specific policy or rigid formula regarding the proportion of total compensation that constitutes cash compensation or stock-based compensation, the Compensation Committee balances these compensation elements to reward annual results, motivate long-term performance, strengthen executive retention, and align the interests of executive officers with the interests of stockholders. In determining the appropriate balance of cash and stock-based compensation, the Compensation Committee considers, among other things, the total amount of equity of the Company that the executive officer holds, the motivational value of various components of compensation to the executive officer, the compensation practices of other similarly situated companies, the cost to the company of each compensation element, and the overall balance and reasonableness of the executive officer’s total compensation package. The Compensation Committee also assesses the potential share dilution resulting from “at plan” award levels of equity compensation.

Role of Executive Officers in Compensation Decisions. The Compensation Committee makes all compensation decisions for the executive officers. The Chief Executive Officer makes recommendations to the Compensation Committee regarding compensation, including with respect to salary adjustments, structure of annual awards, annual award amounts and specified performance thresholds at which incentives would be earned for both himself and the other executive officers. The Chief Executive Officer discusses with the Compensation

12

Table of Contents

Committee the Company’s performance and the individual performance of himself and the other executive officers at least annually. In addition to the Chief Executive Officer, the Chief Financial Officer and the Vice President, Human Resources are sometimes present for discussions of the Compensation Committee regarding compensation of executive officers. While the Compensation Committee considers the recommendations of the Chief Executive Officer, the Compensation Committee ultimately decides salary adjustments, the structure of annual awards and annual award amounts for all executive officers.

Setting Executive Compensation. At the request of the Compensation Committee, the Company engaged Watson Wyatt Worldwide, Inc., an internationally recognized compensation consulting firm, to conduct an annual review of its cash and equity compensation program for the Chief Executive Officer and other executive officers in order to assist the Compensation Committee in establishing compensation for 2008. Watson Wyatt Worldwide, Inc. provided the Compensation Committee with relevant market data to consider when making compensation decisions for the executive officers. In connection with its compensation review for the Company, in addition to general survey data, Watson Wyatt Worldwide, Inc. considered the cash and equity compensation practices of 16 publicly held companies in the manufacturing industry. The companies included in the study were the following:

These companies included in the Watson Wyatt Worldwide, Inc. study were chosen based on certain business characteristics similar to those of the Company, including: annual revenues, employee headcount, geographic scope of business, and type of business. In addition to benchmarking studies, the Compensation Committee has historically taken into account input from other sources, including input from other independent members of the Board of Directors, publicly available data relating to the compensation practices and policies of other companies within and outside of the Company’s industry, and targeted publications of independent associations of corporate directors. The Compensation Committee does not view benchmarking as an appropriate stand-alone tool for setting compensation because it believes that there are aspects of each peer company’s business, objectives and particular circumstances that may be unique to that company. The Compensation Committee uses the benchmarking data as a reference point, and gathering this information is an important part of the Compensation Committee’s compensation-related decision-making process.

Watson Wyatt Worldwide, Inc. has provided additional services to the Company, including the provision of actuarial services and consulting services relating to certain pension and post-retirement plans of the Company and its subsidiaries. The Compensation Committee has in the past and may in the future retain the services of third-party executive compensation specialists, as the Committee sees fit, in connection with the establishment of cash and equity compensation and related policies.

2008 Executive Compensation Components. For the fiscal year ended December 31, 2008, the principal components of compensation for the Company’s Named Executive Officers were base salary, short-term incentive compensation and long-term equity based awards.

The Company does not have a formal or informal policy or target for allocating compensation between long-term and short-term compensation, between cash and non-cash compensation or among the different forms

13

Table of Contents

of non-cash compensation. Instead, the Compensation Committee, in consultation with the Chief Executive Officer, determines subjectively what it believes to be the appropriate level and mix of the various compensation components. While the particular compensation objectives that each element of executive compensation serves are set forth below, the Compensation Committee believes that each element of compensation, to a greater or lesser extent, serves each of the objectives of the Company’s executive compensation program. The Company’s policy is to provide its executive officers with compensation opportunities that are based upon the performance of the Company, their individual performance and their contribution to the Company’s performance. The elements of individual performance that are considered by the Compensation Committee include both directly quantifiable metrics, such as achievement of business unit performance goals, in the case of individuals running business units, and factors that are not directly quantifiable, such as demonstrated leadership, responsiveness to unforeseen situations, operation within challenging business environments, teamwork and demonstration of other values and work ethic that the Company believes are critical to its success.

For 2008, the Compensation Committee also considered executive retention in structuring the executive compensation program in light of difficult conditions in the paper industry and their impact on the Company’s ability to achieve performance targets for both cash and equity awards. In addition, the Compensation Committee also considered that cash bonuses were not paid out in the prior two years and previously granted performance based equity awards were not on target to vest due in part to industry performance issues that were beyond the control of the management team.

Base Salary. The Compensation Committee annually reviews and approves the base salary of the chief executive officer and the Company’s other executive officers. In making these determinations, the Compensation Committee considers various factors such as the Company’s performance, the executive’s performance and responsibilities, leadership, years of experience, competitive salaries within the marketplace, and the executive’s total compensation package. The following table sets forth annual base salary rates in effect at December 31, 2008 and December 31, 2007 for each of the Named Executive Officers, as well as percentage increases from 2007 to 2008:

In setting the amount of base salary for 2008 for the Named Executive Officers, other than the new Chief Executive Officer, the Compensation Committee considered that base salary had not increased for some executives for several years. In light of the challenging business environment facing the Company, the Compensation Committee approved a salary increase for the Company’s Chief Financial Officer. The Compensation Committee also approved salary increases for the Presidents of the Company’s North American and European divisions, as they were each promoted in 2008 and took on additional responsibilities.

14

Table of Contents

In setting the amount of base salary of the Company’s new Chief Executive Officer, the Compensation Committee determined that it was in the Company’s best interests to attract and retain a Chief Executive Officer with strong leadership and proven performance abilities, and that the Chief Executive’s base salary should be set at a level that reflects that objective. The Compensation Committee believes that Mr. Light’s base salary is commensurate with his experience, qualifications and scope of responsibilities.

Short-Term Incentive Compensation. In order to reinforce the importance of increasing stockholder value, the Compensation Committee believes that a substantial portion of the potential annual compensation of each executive officer should be in the form of annual performance based incentives. In 2008, the Company adopted its Performance Award Program (the “Performance Award Program for 2008”) for this purpose. The Performance Award Program for 2008 permitted participants to receive up to half of any payouts in cash and the remaining portion in shares of common stock granted under the 2005 Plan. The Compensation Committee chose this combination to balance the desire to provide executives with cash compensation for annual performance with the goal of aligning management with stockholder interests through stock ownership. Participants in the Performance Award Program for 2008 were entitled to receive their award if they were employed with the Company on December 31, 2008.

Five types of awards were made under the Performance Award Program for 2008: corporate awards, North America division awards, South America division awards, Europe division awards and Asia division awards. The total amount paid out under each award was determined by reference to two performance measures: (i) cash, defined as net cash provided by operating activities with certain adjustments, and (ii) Adjusted EBITDA, as defined in the company’s Credit Agreement dated as of May 19, 2005, with certain other adjustments (as applied at the corporate or division level as appropriate). These measures, which were selected from among the list of performance criteria previously approved by stockholders for use with awards under the 2005 Plan, are consistent with the Company’s strategies of debt reduction, new product development, and emphasis on contributions of employees. Cash was weighted at 60% and Adjusted EBITDA was weighted at 40%, as the Company wanted to signal the importance of generating cash and releasing “trapped cash” on the balance sheet to further the strategy of paying down debt. The Company defines “trapped cash” as the amount of working capital on its balance sheet that is in excess of 50 days of outstanding accounts receivable, 6 inventory turns and 48 days of accounts payable outstanding. For each of the five types of awards, the Committee established targets for the performance measures, and determined that the threshold below which no award would be issued for any performance measure would be 95% of each target.

The Compensation Committee selected each of the Company’s executive officers, as well as certain other key employees of the Company, as participants in the Performance Award Program for 2008 after review with the Chief Executive Officer. If the Company’s or Division’s performance, as applicable, achieved one or both thresholds, then, subject to the other requirements of the awards, each Named Executive Officer was to receive a payment based on a specified percentage of his base salary and the amount by which performance exceeded the applicable thresholds, provided that the maximum bonus any Named Executive Officer could receive under his award was his base salary multiplied by two times his specified percentage. For 2008, the Committee selected the Named Executive Officers to receive an award with a specified target percentage set forth opposite each of their names below.

15

Table of Contents

In the case of Mr. Light, his employment agreement with the Company contemplated a guaranteed bonus of 80% of his contractual base salary, $568,000, for 2008. Mr. Light would have been entitled to receive this amount under his employment agreement even if corporate cash and Adjusted EBITDA had not been achieved at the levels they were.

The performance metrics for 2008 exceeded the threshold levels such that our Named Executive Officers received payouts at the following levels: (i) 157.47% with respect to Messrs. Light, O’Donnell, Badrinas and Mayer, (ii) 20.08% with respect to Mr. Pretty, and (iii) 95.17% with respect to Mr. Williamson. The awards were paid consistent with each participant’s prior election. The following table sets forth the number of shares of the Company’s common stock and the cash bonus awarded to each of the Company’s Named Executive Officers under the Performance Award Program for 2008.

Awards for the 2008 performance year were not intended to qualify for the performance-based compensation exception under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) for 2008. In determining whether to structure cash incentive awards to qualify as performance-based compensation within the meaning of Section 162(m) of the Code, the Compensation Committee balanced the benefits of the awards qualifying as performance-based compensation, within the meaning of Section 162(m) of the Code, and the overall goal of structuring awards designed both to incentivize the executives and to increase stockholder value. In the first quarter of 2008 the Company had just employed a new chief executive officer who was addressing financial covenant non-compliance issues under the Company’s senior credit agreement, and the Compensation Committee determined that it did not have adequate visibility regarding the financial outlook for the Company within 90 days of the beginning of 2008 in order to structure a cash based award to appropriately incentivize the executive officers.

Long-Term Compensation. The Company seeks to create long-term performance incentives for its executive officers by aligning their economic interests with the interests of the Company’s stockholders through the 2005 Plan. The 2005 Plan provides for the grant of awards consisting of any or a combination of stock options, stock appreciation rights (“SARs”), restricted stock, unrestricted stock or stock unit awards to key employees, directors and consultants. Awards under the 2005 Plan align the economic interests of the executive officer with those of stockholders because the potential value of the awards is directly related to the future value of the Company’s stock.

The Compensation Committee administers the 2005 Plan and has the power to select participants, determine award terms and conditions and adopt, alter and repeal administrative rules, guidelines and practices applicable to the 2005 Plan.

16

Table of Contents

During 2008, the Company granted time based and shareholder return based restricted stock unit awards as described below. The Company believes that awards of time-based restricted stock units strengthen executive retention at the Company by encouraging the Named Executives Officers to remain employed with the Company for the full vesting term of their awards, while promoting share ownership. The Company believes that shareholder return based restricted stock unit awards closely link compensation to the Company’s performance and promote accountability for performance.

Shareholder Return Based Restricted Stock Unit Awards. In January 2008, the Compensation Committee approved contingent shareholder return based restricted stock units awards for certain of the Company’s Named Executive Officers under the 2005 Plan. These awards were made contingent on stockholder approval of an increase in the number of shares eligible for grants under the 2005 Plan, which was obtained at the 2008 Annual Meeting held on August 6, 2008. The following table sets forth the number of such restricted stock units awarded to the Company’s Named Executive Officers in 2008.

The awards will generally only vest if:

The specific annual targets established by the Compensation Committee are as follows:

In general, the listed percentage of an award will vest only if the cumulative total return on the Company’s common stock on the determination date exceeds the price target. However, in the event that the price target on a determination date is not satisfied, but the price target for a subsequent determination date is satisfied, the previously unvested portion of the award related to the prior determination date will then vest.

17

Table of Contents

These restricted stock units may also vest, in whole or in part, if a “covered transaction” (as defined in the 2005 Plan) occurs and the cumulative total return vesting requirements have previously been satisfied or would be satisfied based on the transaction price. Under the awards, the Company will issue one share of common stock in respect of each fully vested restricted stock unit. The awards granted to Messrs. Gutierrez and Mayer were forfeited in February 2008 and January 2009, respectively, when these individuals ceased to be employed by the Company.

Time-Based Restricted Stock Unit Awards. In January of 2008, the Compensation Committee granted contingent time-based restricted stock unit awards to the Company’s executive officers. Each of the awards made in January 2008 was contingent on stockholder approval of an increase in the number of shares eligible for grants under the 2005 Plan, which was obtained at the 2008 Annual Meeting held on August 6, 2008. In addition, in February 2008, the Compensation Committee granted a time-based restricted stock unit award to the Company’s new chief executive officer, who was appointed in February of 2008. In June of 2008, the Compensation Committee granted time-based restricted stock unit awards to Mr. Light and Mr. Williamson in recognition of Mr. Light’s guiding the Company through its fifth amendment to its credit facility and the Company’s desire to assure Mr. Williamson’s retention. The following table sets forth the number of time based restricted stock units awarded to the Company’s Named Executive Officers in 2008.

While the Compensation Committee’s current expectation is that all long-term equity award grants will be in the form of restricted stock unit awards, the Compensation Committee may determine to grant other types of equity awards in the future.

Ownership Guidelines. The Compensation Committee recognizes that alignment of the interests of executive officers with those of the Company’s stockholders is important. While the Compensation Committee does not believe that it is appropriate to set a particular level of ownership, it believes that equity based awards help to align these incentives and serve as an integral part of the executive officer compensation program.

18

Table of Contents

401(k) Plans. The Company’s Named Executive Officers resident in the United States participated in a tax-qualified defined contribution plan for non-union employees with a cash or deferred arrangement intended to qualify under Section 401(k) of the Code. The Named Executive Officers became eligible to participate in the plan after completing two months of employment with the Company. Each participant in the plan may elect to defer, in the form of contributions to the plan, up to 15% of compensation that would otherwise be paid to the participant in the applicable year, up to the statutorily prescribed annual limit. In 2008, under the plan in which the Company’s Named Executive Officers participate, the Company made a matching contribution with respect to each participant’s elective contributions, up to 4% of such participant’s compensation, subject to certain limitations. Effective February 5, 2009, the Company suspended matching contributions for the plan in which the United States resident Named Executive Officers participate.

Retirement Benefits. The Company maintains a pension plan for U.S. salaried employees, including certain of the Company’s executive officers (the “non-union U.S. pension plan”). The non-union U.S. pension plan is a funded, tax-qualified, noncontributory defined-benefit pension plan and is described in more detail below under the heading “Pension Benefits”. In 2008, Mr. Mayer participated in government pension arrangements in Austria and Germany, respectively, and Messrs. Williamson and Badrinas each participated in government pension arrangements in Germany. On September 24, 2008, the Company announced that it was freezing benefit pension accruals under the non-union U.S. pension plan effective December 31, 2008 so that future service beyond December 31, 2008 will no longer be credited under the non-union U.S. pension plan. Employees who were vested as of December 31, 2008 were entitled to their benefit earned as of December 31, 2008. Each of Messrs. O’Donnell, Gutierrez and Pretty were vested as of December 31, 2008. Because Mr. Light did not satisfy the eligibility requirements of the non-union U.S. pension plan as of December 31, 2008, Mr. Light does not participate in the plan.

The Company has also adopted an unfunded, nonqualified supplemental executive retirement plan (a “SERP”) for each of Messrs. Light, O’Donnell and Gutierrez. Under the SERP, each of Messrs. O’Donnell and Gutierrez will be entitled to receive at age 62, and Mr. Light will be entitled to receive on the first day of the month next following the date of his retirement, annual SERP payments equal to a specified percentage of his average annual base salary during the three years in which his base salary was highest during the ten years immediately prior to termination of employment (not including any compensation earned before January 1, 2004), multiplied by his years of service with the Company, less the amounts to which he is entitled under the Company’s U.S. pension plan. The SERP benefit formula is based on a percentage factor of 3%, 2.5%, and 3% for Messrs. Light, O’Donnell and Gutierrez, respectively.

With respect to SERPs applicable to Messrs. O’Donnell and Gutierrez, if the participant retires after age 55 but before age 62 with at least five years of service, he will be entitled to receive benefits under the SERP immediately following his retirement, but any such benefits will be reduced by one third of one percent for each month prior to age 62. If the participant retires before age 62 and without having completed five years of service, or before age 55 with at least five years of service, he will not be entitled to receive a benefit under the SERP until he turns 62. Mr. Gutierrez resigned from the Company on February 7, 2008 at the age of 59 and with at least five years of service. During 2008, Mr. Gutierrez received benefit payments of $90,161 under the SERP. On March 30, 2009, the Company received notice from Mr. O’Donnell of his resignation from the Company, which is expected to be effective with his departure in May 2009. At the date of resignation, Mr. O’Donnell’s age will be 53 and he will have at least five years of service. Accordingly, he will not be entitled to receive a benefit under the SERP until he turns 62. More detail regarding these SERPs is provided below under the heading “Pension Benefits.”

Perquisites and Other Personal Benefits. The Company provides the Named Executive Officers with perquisites and other personal benefits that the Compensation Committee believes are reasonable and consistent with its overall compensation program to better enable the Company to attract and retain superior executive employees for key positions. These benefits include premiums paid for term life insurance policies, car

19

Table of Contents

allowances or an automobile for personal use, country club dues and relocation expenses. Attributed costs of the personal benefits described above for the Named Executive Officers for the fiscal year ended December 31, 2008, are included in the next to last column of the Summary Compensation Table below.

Relocation Bonus. On August 6, 2008, the Company’s Board of Directors approved a one-time bonus payment of $331,512 to Mr. Light in connection with the relocation of Mr. Light’s principal residence from the Seattle, Washington area to Raleigh, North Carolina. This amount was in addition to the relocation expenses provided to Mr. Light under his employment agreement. The Board determined that the amount of this one-time bonus was appropriate in light of unfavorable real estate market conditions in Seattle, Washington during the period in which Mr. Light was required to relocate his principal residence to Raleigh, North Carolina.

Employment Agreements. The Company has entered into Employment Agreements with certain key employees, including the Named Executive Officers. The employment agreements for the Named Executive Officers are described below under the heading “Employment Agreements and Potential Payments Upon Termination or Change in Control”. These agreements include severance arrangements and, in some cases, the level of severance is dependent upon the proximity of termination to a change of control (as defined in the applicable agreement). We believe that these arrangements support our ability to attract and retain superior executive employees and, if a change in control were to occur, to retain our executives through a period of uncertainty, enhance our value by keeping our management team intact and focused on the best interests of the stockholders, rather than their own job security.

Tax and Accounting Implications.

Deductibility of Executive Compensation. In establishing compensation, the Compensation Committee takes into account the provisions of Section 162(m) of the Code, which exempts some performance-based compensation from the $1 million deduction limit. The Compensation Committee may, however, approve compensation that does not qualify for the exemption to attract and retain executives or for other reasons. For example, the Compensation Committee approved the 2008 Performance Award Program, which does not qualify for the Section 162(m) exemption. For a discussion of the 2008 Performance Award Program, see the section “Short-Term Incentive Compensation” earlier in this Compensation Discussion & Analysis.

Accounting for Stock-Based Compensation. Beginning on January 1, 2006, the Company began accounting for stock-based awards, including its restricted stock unit awards in accordance with the requirements of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment (Revised 2004).”

Summary Compensation Table

The following table sets forth information with respect to the compensation for the Company’s chief executive officer, the Company’s chief financial officer and each of the Company’s three other most highly compensated executive officers during 2008, 2007 and 2006. These individuals are referred to as the “Named Executive Officers.” This table also includes information regarding the Company’s former chief executive officer and a former officer who would have been among the most highly compensated executive officers if he had been serving as an exective officer as of December 31, 2008. Mr. Gutierrez resigned from the Company on February 7, 2008. On June 16, 2008, a notice of termination of employment was delivered to Mr. Mayer, effective June 30, 2009, and his employment was formally terminated on January 15, 2009. On March 30, 2009, the Company received notice from Mr. O’Donnell of his resignation from the Company, which is expected to be effective with his departure in May 2009.

Please see the section “Compensation Philosophy and Objectives” in Compensation Discussion & Analysis for additional information with respect to the proportionate elements of total compensation.

20

Table of Contents

21

Table of Contents

22

Table of Contents

Grant of Plan-Based Awards

In 2008, the principal component of compensation paid to the Named Executive Officers was base salary. The following table sets forth information with respect to plan-based awards granted to Named Executive Officers in 2008.

23

Table of Contents

Outstanding Equity Awards at Fiscal Year-End Table

The following table sets forth information for the Named Executive Officers regarding outstanding equity awards held as of December 31, 2008.

24

Table of Contents

Option Exercises and Stock Vested Table

The following table sets forth information for the Named Executive Officers regarding the value realized during 2008 by such executives pursuant to shares acquired upon vesting of stock awards. None of the Named Executive Officers exercised any stock options during 2008.

25

Table of Contents

Pension Benefits

Pension Plan. The Company’s non-union U.S. pension plan is a funded, tax-qualified, noncontributory defined-benefit pension plan. Benefits under the non-union U.S. pension plan are based upon an employee’s years of service and the average of the employee’s highest five calendar years of compensation in the last ten calendar years of service with the Company and its subsidiaries, the “final average earnings,” and are payable after retirement. Covered employees become vested in the non-union U.S. pension plan after the completion of five years of vesting service. Earnings covered by the non-union U.S. pension plan are total cash compensation, including salary and bonuses, less taxable fringe benefits, as defined in the plan. Benefits under the non-union U.S. pension plan are calculated as an annuity equal to 0.9% to 1.4% of the participant’s final average earnings multiplied by years of service. Credited years of service cannot exceed 30 years. For purposes of the annual pension benefit calculation, final average earnings as of December 31, 2008 could not exceed $230,000. Contributions to the non-union U.S. pension plan were made entirely by the Company and were paid into a trust fund from which the benefits of participants will be paid. The benefits listed in the table below are not subject to any deduction for Social Security, but are subject to offset by accrued benefits under specified predecessor plans.

On September 24, 2008, the Company announced that it was freezing benefit pension accruals under the non-union U.S. pension plan effective December 31, 2008 so that future service beyond December 31, 2008 will no longer be credited under the non-union U.S. pension plan. Employees who were vested as of December 31, 2008 were entitled to their benefit earned as of December 31, 2008. Current employees who were not vested as of December 31, 2008 will be entitled to their benefit earned as of December 31, 2008 upon five years of continuous employment from date of hire.

The Company makes an annual contribution in the amount of $36,750 into a private pension investment plan owned by Mr. Williamson as long as he remains employed by the Company. The Company will have no further contribution obligation with respect to Mr. Williamson’s private pension investment plan following a termination of his employment with the Company.

Supplemental Executive Retirement Plans. The Company adopted a SERP for each of Messrs. Light, O’Donnell and Gutierrez in connection with their employment agreements. The SERPs are unfunded, nonqualified plans. Under the applicable SERP, each of Messrs. Gutierrez and O’Donnell would be entitled to receive, at age 62, and Mr. Light would be entitled to receive on the first day of the month next following the date of his retirement, annual SERP payments equal to a specified percentage of his average annual base salary during the three years in which his base salary was highest during the ten years immediately prior to termination of employment (not including any compensation earned before January 1, 2004), multiplied by the executive’s years of service with the Company, less the amounts to which he is entitled under the Company’s non-union U.S. pension plan. The SERP benefit formula is based on a percentage factor of 3%, 2.5%, and 3% for Messrs. Light, O’Donnell and Gutierrez, respectively. Each of Mr. Gutierrez and Mr. O’Donnell is fully vested in his SERP benefit. The annual payments under the SERP, before offsets, cannot exceed 50% of the three-year average annual base salary.

Although the normal form of payment under the SERP is an annuity, the SERP for Mr. Gutierrez permits him to elect an alternative payment option selected from among actuarially equivalent forms permitted under the non-union U.S. pension plan, provided that any such election must be made at the time and in the manner that the Compensation Committee provides, consistent with Section 409A of the Code.

26

Table of Contents

In the event of a participant’s death before commencement of his benefit, whether or not he is employed by the Company at time of death, the participant’s surviving spouse, if any, is entitled to receive an annual benefit for the remainder of her life equal to 50% of the benefit the participant would have been entitled to receive assuming payment in the form of a 50% joint and survivor annuity. With respect to the SERPs applicable to Messrs. O’Donnell and Gutierrez, if the participant retires after age 55 but before age 62 with at least five years of service, he will be entitled to receive benefits under the SERP immediately following his retirement, but any such benefits will be reduced by one third of one percent for each month prior to age 62. If the participant retires before age 62 and without having completed five years of service, or before age 55 with at least five years of service, he will not be entitled to receive a benefit under the SERP until he turns 62.

Mr. Gutierrez resigned from the Company on February 7, 2008 at the age of 59 and with at least five years of service. During 2008, Mr. Gutierrez received benefit payment of $90,161 under the SERP. On March 30, 2009, the Company received notice from Mr. O’Donnell of his resignation from the Company, which is expected to be effective with his departure in May 2009. At the date of resignation, Mr. O’Donnell’s age will be 53 and he will have at least five years of service. Accordingly, he will not be entitled to receive a benefit under the SERP until he turns 62.

The SERP is unfunded and payable from the Company’s general assets, except that in the event of certain change of control transactions, the Company will establish an irrevocable trust, which is a so called “rabbi trust,” and contribute an amount equal to the actuarial equivalent of the SERP benefit.

The SERP can be amended only by written instrument signed by the Company pursuant to authorization of the Compensation Committee and by the participant (or, following the participant’s death, if benefits remain payable to his spouse, by his spouse).

The following table sets forth information on the present value of accumulated benefits payable to each of the Named Executive Officers, including the number of years of service credited to each such Named Executive Officer, under the non-union U.S. pension plan and his SERP (to the extent that such Named Executive Officer participates in the non-union U.S. pension plan or a SERP) determined using interest rate and mortality rate assumptions consistent with those used in the Company’s financial statements.

Nonqualifed Deferred Compensation

None of the Named Executive Officers received any nonqualified deferred compensation in 2008.

27

Table of Contents

Employment Agreements and Potential Payments Upon Termination or Change in Control

The Company has entered into an employment agreement with each of Stephen R. Light, Thomas Gutierrez, Michael O’Donnell, David Pretty, Peter Williamson, Joan “John” Badrinas Ardevol, and Josef Mayer. The employment period under the agreements will continue until terminated by the Company or the Named Executive Officer. The employment agreements for these executives provide the specific terms set forth below.

For additional information with respect to the employment agreements between the Company and its Named Executive Officers, please see the section “Employment Agreements” in Compensation Discussion & Analysis.

Also set forth below, after the description of the applicable employment agreement, are tables that show the potential amounts payable to each of the Named Executive Officers in accordance with their respective employment agreements and other agreements with the Company in the event of termination of such executive’s employment in the circumstances described in the category headings of the tables, assuming that such termination was effective as of December 31, 2008. The amounts in the tables are estimates of the amounts which would be paid out to the executives in accordance with their respective employment agreements upon their termination, other than in the case of Mr. Gutierrez and Mr. Mayer. The actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company. Regardless of the manner in which a Named Executive Officer’s employment terminates, he may be entitled to receive amounts earned during his term of employment. Such amounts include earned and unpaid base salary, vacation pay, and regular pension benefits (see “Pension Benefits” above). In addition, each of Messrs. Light, O’Donnell, Pretty, Williamson, Badrinas, and Mayer was also a participant in the Performance Award Program for 2008, which provides that participants were entitled to receive their award if they were employed with the Company on December 31, 2008. For additional information with respect to the Performance Award Program for 2008, please see the section “Short-Term Incentive Compensation” in Compensation Discussion & Analysis.

Stephen R. Light. Mr. Light serves as the Company’s President, Chief Executive Officer and Chairman. As of December 31, 2008, under the terms of his employment agreement, Mr. Light receives a base salary of $710,000, which may be increased at the discretion of the Board of Directors of the Company. The employment agreement contains a bonus guarantee for fiscal 2008 equal to 80% of his base salary at the rate in effect on December 31, 2008. Pursuant to an amendment to his employment agreement on February 11, 2008, the Company provides him with life insurance coverage in an amount equal to $2,000,000. If Mr. Light terminates his employment other than for “good reason” (as defined in his employment agreement), he is entitled to his unpaid salary and benefits through his date of termination. If his employment terminates because of his death or disability, then he is entitled to his earned and unpaid salary through his date of termination and the payout he would have earned under the Company’s annual bonus plan for the fiscal year in which the termination occurs, prorated to reflect the number of days that he worked in the fiscal year. In addition, if his employment terminates because of his disability, he is entitled to participate in medical/dental benefit plans for 18 months (or such longer period as may be provided in the Company’s benefit plans). If the Company terminates his employment for any other reason (other than “cause” (as defined in his employment agreement)), or if he terminates his employment for “good reason,” then he is entitled to (i) receive his base salary for two years, (ii) a payment equal to 80% of his base salary (or, if greater and three full fiscal years have been completed since the effectiveness of his employment agreement, 100% of his average annual bonus for the preceding three years), and (iii) participate in medical/dental benefit plans for two years (or such longer period as may be provided in the Company’s benefit plans), provided that the timing of certain payments may be delayed under Section 409A of the Code. If any such termination occurs within three months prior to or two years following certain specified change of control transactions, then the period of base salary and medical/dental benefit continuation shall be three years instead of two. If the Company terminates his employment for “cause,” he is entitled only to payment of his earned and unpaid base salary for the period prior to termination.

The employment agreement provides that the Company will grant Mr. Light 75,000 time based restricted stock units under the Company’s 2005 Equity Incentive Plan. Under the award, the Company shall issue one share of common stock in respect of each fully vested time based restricted stock unit. The time based restricted

28

Table of Contents

stock unit award will vest completely in nearly equal installments on the first, second, and third anniversaries of January 3, 2008 provided that Mr. Light continues to be employed by the Company on such dates and is subject to earlier vesting in certain circumstances. In particular, in the event of a termination of employment as a result of death or disability, termination of employment by the Company without “cause” (as defined in the award) or termination by Mr. Light for “good reason” (as defined in his employment agreement), the entire unvested portion of the time based restricted stock unit award shall vest. Dividends on such time based restricted stock units will be paid at the same rate as dividends on the Company’s common stock, but only in the form of additional restricted stock units.

The employment agreement also provides that on each of January 1, 2009 and January 1, 2010, provided that Mr. Light is employed by the Company on such dates, the Company will grant Mr. Light restricted stock units under the equity incentive plan then in effect in a number equal to that number of shares of the common stock of the Company with a total fair market value of $1,250,000.00 on the last business day prior to the date of grant. Fifty percent of the restricted stock units of each such grant shall be subject to the Company’s time based restricted stock agreement then in effect and the remaining fifty percent of the restricted stock units of each such grant shall be subject the Company’s performance based restricted stock agreement then in effect. Such restricted stock units shall also be subject to the terms and conditions of the equity incentive plan under which they are granted.

Because the amount of restricted stock units to have been granted to Mr. Light on January 1, 2009 exceeded the amount permitted by the 2005 Plan, the Compensation Committee approved restricted stock unit grants to Mr. Light as follows: (i) 341,761 time-based restricted stock units; (ii) 605,209 time-based restricted stock units that are contingent on shareholder approval of an increase in the maximum number of shares that may be granted as stock awards to any one person in any calendar year under the 2005 Plan; and (iii) 946,969 performance-based restricted stock units that are contingent on shareholder approval of the same increase.

The employment agreement also provides, with certain exceptions, that Mr. Light may not participate in any entity or engage in any activity that competes with the Company or any of its subsidiaries during his employment and for a period of two years after his employment terminates. In addition, the employment agreement imposes certain non-solicitation obligations on him during the same period of time.

The employment agreement also provides that he is entitled to participate in the SERP, described above under “Pension Plan Benefits,” which constitutes an attachment to the employment agreement.

If it is determined that any payment or benefit provided to Mr. Light by the Company or any of its subsidiaries will be subject to the excise tax imposed by Section 4999 of the Code, the employment agreement provides that the Company will make an additional lump-sum payment to Mr. Light sufficient, after giving effect to all federal, state and other taxes and charges with respect to such payment, to make Mr. Light whole for all taxes imposed under or as a result of Section 4999.

29

Table of Contents

Potential Payments to Mr. Light Upon Termination or a Change of Control at December 31, 2008:

30

Table of Contents

Thomas Gutierrez. Mr. Gutierrez served as the Company’s President and Chief Executive Officer from January 2002 until his resignation in February 2008. Mr. Gutierrez submitted his resignation on the understanding with the Company that he would receive severance and other benefits in accordance with his employment agreement as if he had been terminated by the Company other than for “cause” (as defined in his employment agreement). Accordingly, under the terms of his employment agreement, Mr. Gutierrez is entitled to (i) receive his base salary for two years, (ii) a payment equal to 100% of his base salary (or, if greater and three full fiscal years have been completed since the effectiveness of the agreement, 100% of his average annual bonus for the preceding three years), (iii) participate in medical/dental benefit plans for two years (or such longer period as may be provided in the Company’s benefit plans), provided that the timing of certain payments may be delayed under Section 409A of the Code and (iv) receive his unpaid salary and benefits through his date of termination. If any such termination were to occur within three months prior to or two years following certain specified change of control transactions, then the period of base salary and medical/dental benefit continuation would be three years instead of two. The employment agreement also provides, with certain exceptions, that Mr. Gutierrez may not participate in any entity or engage in any activity that competes with the Company or any of its subsidiaries during his employment and for a period of two years after his employment terminates. In addition, the employment agreement imposes certain non-solicitation obligations on him during the same period of time.

The employment agreement also provides that he is entitled to participate in the SERP, described above under “Pension Plan Benefits,” which constitutes an attachment to the employment agreement.

If it is determined that any payment or benefit provided to Mr. Gutierrez by the Company or any of its subsidiaries will be subject to the excise tax imposed by Section 4999 of the Code, the employment agreement provides that the Company will make an additional lump-sum payment to Mr. Gutierrez sufficient, after giving effect to all federal, state and other taxes and charges with respect to such payment, to make Mr. Gutierrez whole for all taxes imposed under or as a result of Section 4999.

Under the terms of his employment agreement, Mr. Gutierrez received a base salary of $670,000 per annum for 2006 and 2007. The Company provided him with life insurance coverage in an amount that was two and one-half times his initial base salary.

Actual payments to Mr. Gutierrez during 2008 include (i) $599,135 in respect of severance payments to Mr. Gutierrez during 2008 as a result of the termination of his employment on February 7, 2008, (ii) $431,492 in respect of the issuance of common stock underlying restricted stock units that vested upon the termination of the employment of Mr. Gutierrez on February 7, 2008, (iii) $2,852 in respect of employer contributions to Mr. Gutierrez’ 401(k) account and $15,592 in respect of premiums for term life insurance policies for the benefit of Mr. Gutierrez and (iv) perquisites and other personal benefits in the aggregate amount of $1,239. Additionally, under the SERP, when Mr. Gutierrez resigned from the Company on February 7, 2008 he was 59 years of age and had at least five years of service. Accordingly, during 2008, Mr. Gutierrez received benefit payments of $90,161 under the SERP.

Michael O’Donnell. Mr. O’Donnell serves as the Company’s Chief Financial Officer. As of December 31, 2008, under the terms of his employment agreement, as amended, Mr. O’Donnell receives a base salary of $415,000, which may be increased at the discretion of the Compensation Committee. The Company provides him with life insurance coverage in an amount that is two and one-half times his initial base salary. If his employment terminates because of his death or disability, then he is entitled to his earned and unpaid salary through his date of termination and any payout he would have earned under the Company’s annual cash bonus plans for the fiscal year in which the termination occurs, prorated to reflect the number of days that he worked in the fiscal year. In addition, if his employment terminates because of disability, he is entitled to participate in medical/dental benefit plans for 18 months (or such longer period as may be provided in the Company’s benefit plans). If the Company

31

Table of Contents

terminates his employment for any other reason (other than “cause” (as defined in the employment agreement)), or if he terminates his employment for “good reason,” then he is entitled to (i) receive his base salary for 18 months, (ii) a payment equal to 60% of his base salary (or, if greater and three full fiscal years have been completed since the effectiveness of the agreement, 100% of his average annual bonus for the preceding three years), and (iii) participate in medical/dental benefit plans for 18 months (or such longer period as may be provided in the Company’s benefit plans), provided that the timing of certain payments may be delayed under Section 409A of the Code. If any such termination occurs within three months prior to or two years following certain specified change of control transactions, then the period of base salary and medical/dental benefit continuation shall be two years instead of 18 months. If the Company terminates his employment for “cause,” he is entitled only to payment of his earned and unpaid base salary for the period prior to termination.

The employment agreement also provides, with certain exceptions, that Mr. O’Donnell may not participate in any entity or engage in any activity that competes with the Company or any of its subsidiaries during his employment and for a period of one year after his employment terminates. In addition, the employment agreement imposes certain non-solicitation obligations on him during the same period of time.

The employment agreement also provides that he is entitled to participate in the SERP, described above under “Pension Plan Benefits,” which constitutes an attachment to the employment agreement.

If it is determined that any payment or benefit provided to Mr. O’Donnell by the Company or any of its subsidiaries will be subject to the excise tax imposed by Section 4999 of the Code, the employment agreement provides that the Company will make an additional lump-sum payment to Mr. O’Donnell sufficient, after giving effect to all federal, state and other taxes and charges with respect to such payment, to make Mr. O’Donnell whole for all taxes imposed under or as a result of Section 4999.

On March 30, 2009, the Company received notice from Mr. O’Donnell of his resignation from the Company, which is expected to be effective with his departure in May 2009.

Potential Payments to Mr. O’Donnell Upon Termination or a Change of Control at December 31, 2008: