AMENDED AND RESTATED CREDIT AND GUARANTY AGREEMENT

Exhibit 10.1

AMENDED AND RESTATED CREDIT AND GUARANTY AGREEMENT

dated as of May 30, 2008

among

XERIUM TECHNOLOGIES, INC., XTI LLC, XERIUM ITALIA S.P.A., XERIUM

CANADA, INC.

HUYCK WANGNER AUSTRIA GMBH and XERIUM GERMANY HOLDING GMBH

as Borrowers,

CERTAIN SUBSIDIARIES OF THE BORROWERS,

as Guarantors,

VARIOUS BANKS,

CITIGROUP GLOBAL MARKETS, INC.

as Lead Arranger and Bookrunner,

CITICORP NORTH AMERICA, INC.,

as Collateral Agent,

and

CITICORP NORTH AMERICA, INC.,

as Administrative Agent

 

U.S. Dollars 450,170,019.92

EUR 189,986,646.72

Canadian Dollars 76,188,596.86

 

“NOTE: THIS AGREEMENT, ANY CERTIFIED COPY OF THIS AGREEMENT AND ANY SUBSTITUTE DOCUMENT IS TO BE RETAINED OUTSIDE THE REPUBLIC OF AUSTRIA. TAKING THIS AGREEMENT, ANY CERTIFIED COPY OF THIS AGREEMENT OR ANY DOCUMENT REFERRING TO ANY OF THE AFOREMENTIONED INTO THE REPUBLIC OF AUSTRIA MAY GIVE RISE TO A CHARGE OF STAMP DUTY UNDER THE LAWS OF AUSTRIA.”

TABLE OF CONTENTS

 

 

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AMENDED AND RESTATED CREDIT AND GUARANTY AGREEMENT

This AMENDED AND RESTATED CREDIT AND GUARANTY AGREEMENT , dated as of May 30, 2008, is entered into by and among XERIUM TECHNOLOGIES, INC. (“ XERIUM ”), a Delaware corporation, XTI LLC (“ XTI ”), a Delaware limited liability company, XERIUM ITALIA S.P.A. (“ ITALIA SPA ”), an Italian società per azioni, XERIUM CANADA, INC. (“ XERIUM CANADA ”), a New Brunswick (Canada) corporation resulting from the amalgamation of Stowe-Woodward/Mount Hope Inc. and Weavexx Corporation, HUYCK WANGNER AUSTRIA GMBH (“ HUYCK AUSTRIA ”), an Austrian limited liability company (formerly known as Huyck Austria GmbH), and XERIUM GERMANY HOLDING GMBH (“ GERMANY HOLDINGS ”), a German limited liability company (each of Xerium, Italia SpA, Xerium Canada, Huyck Austria and Germany Holdings, individually, a “ Borrower ” and, collectively, the “ Borrowers ”), CERTAIN SUBSIDIARIES OF THE BORROWERS , as Guarantors, the Banks party hereto from time to time, CITIGROUP GLOBAL MARKETS, INC. , as Lead Arranger and Bookrunner (in such capacity, “ Lead Arranger ”), CITICORP NORTH AMERICA, INC. , as Administrative Agent (together with its permitted successors, in such capacity, “ Administrative Agent ”) and CITICORP NORTH AMERICA, INC. , as Collateral Agent (together with its permitted successors, in such capacity, “ Collateral Agent ”).

RECITALS:

WHEREAS , capitalized terms used in these Recitals and not otherwise defined herein shall have the respective meanings set forth for such terms in Section 1.1 hereof;

WHEREAS , the Borrowers, the Guarantors, the Banks party hereto and the Agents are party to that certain Credit and Guaranty Agreement dated as of May 18, 2005 (as amended by Amendment No. 1 dated as of February 8, 2006, by Amendment No. 2 dated as of December 22, 2006, by Amendment No. 3 dated as of May 2, 2007 and by Amendment No. 4 and Waiver (“ Amendment No. 4 ”) dated as of April 8, 2008 (the “ Existing Credit Agreement ”);

WHEREAS , the Credit Parties have requested that the Banks (as defined in the Existing Credit Agreement) amend and restate the Existing Credit Agreement in its entirety;

WHEREAS , the Requisite Banks and the Agents have agreed to amend and restate the Existing Credit Agreement in its entirety as set forth below;

NOW, THEREFORE , in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:

SECTION 1. DEFINITIONS AND INTERPRETATION

1.1 Definitions . The following terms used herein, including in the preamble, recitals, exhibits and schedules hereto, shall have the following meanings:

“ Adjusted EBITDA ” means, with respect to any Person for any period, the total of (A) the Consolidated Net Income of such Person and its Subsidiaries for such period, plus (B), without duplication, to the extent that any of the following were deducted in computing such Consolidated Net Income for such period: (i) provision for taxes based on income or profits, (ii) Consolidated Interest Expense, (iii) Consolidated Depreciation and Amortization Expense, (iv) reserves for inventory in connection with plant closures, (v) Consolidated Restructuring Costs, (vi) [intentionally omitted], (vii) [intentionally omitted], (viii) [intentionally omitted], (ix) Consolidated Transaction Costs, (x) Consolidated Amendment/Termination Costs, (xi) non-cash charges resulting from the application of purchase accounting, (xii) non-cash compensation charges, including any such charges arising from stock options, restricted stock grants or other equity-incentive programs or from the forgiveness of loans made to employees in connection with the purchase of equity and related tax gross-up payments made in cash in connection with the IPO or on or prior to the Closing Date, (xiii) non-cash expenses resulting from the granting of stock options, restricted stock or restricted stock unit awards under equity compensation programs solely with respect to Common Stock, and (xiv) expenses incurred as a result of the repurchase, redemption or retention by Xerium of Common Stock earned under equity compensation programs solely in order to make withholding tax payments. Notwithstanding the foregoing, taxes paid and provision for taxes based on the income or profits of, and the Consolidated Depreciation and Amortization Expense of, a Subsidiary of such Person shall be added to Consolidated Net Income of such Person to compute Adjusted EBITDA only to the extent (and in the same proportion) that the Consolidated Net Income of such Subsidiary was included in calculating Consolidated Net Income of such Person. Notwithstanding the foregoing, Adjusted EBITDA for the Fiscal Quarter ended (A) September 30, 2007 shall be $38,431,000, (B) December 31, 2007 shall be $36,514,000 and (C) March 31, 2008 shall be $35,610,000.

“ Administrative Agent ” as defined in the preamble hereto.

“ Adverse Proceeding ” means any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration (whether or not purportedly on behalf of Xerium or any of its Subsidiaries) at law or in equity, or before or by any Governmental Authority, domestic or foreign (including any Environmental Claims), whether pending or, to the knowledge of Xerium or any of its Subsidiaries, threatened against or affecting Xerium or any of its Subsidiaries or any property of Xerium or any of its Subsidiaries.

“ Affected Bank ” as defined in Section 2.18(b).

“ Affected Loans ” as defined in Section 2.18(b).

“ Affiliate ” means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power (i) to vote 10% or more of the Securities having ordinary voting power for the election of directors of such Person or (ii) to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise.

 

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“ Affiliate Subordination Agreement ” means the Affiliate Subordination Agreement, dated the date hereof, among the Credit Parties and the Administrative Agent, substantially in the form of Exhibit L, as amended, supplemented or otherwise modified from time to time.

“ Agent ” means each of the Administrative Agent, the Collateral Agent and the Lead Arranger.

“ Agent Parties ” as defined in Section 5.1(o)(iii).

“ Agent’s Spot Rate of Exchange ” means the Administrative Agent’s spot rate of exchange for the purchase of the relevant currency with the Base Currency in the foreign exchange market at or about 11:00 a.m. (New York City time) on a particular day.

“ Aggregate Amounts Due ” as defined in Section 2.17.

“ Agreement ” means this Amended and Restated Credit and Guaranty Agreement, as it may be amended, restated, supplemented or otherwise modified from time to time.

“ Amendment No. 4 ” as defined in the Recitals.

“ Apax Partners ” means Apax Europe IV GP, L.P., a Delaware limited partnership, and its Affiliates.

“ Applicable EC Percentage ” means with respect to Fiscal Year 2008 and each other Fiscal Year thereafter an amount equal to 75% of the Excess Cash for such Fiscal Year.

“ Applicable Margin ” means with respect to the B Term Loans and the Revolving Loans (a) on each day commencing on the Restatement Effective Date and ending on December 31, 2008, 4.75% and (b) after December 31, 2008, for any day, the Applicable Margin set forth below next to the highest Rating Level that is then applicable to the corporate credit rating of Xerium:

 

“ Applicable Revolving Commitment Fee Percentage ” means 0.75%.

 

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“ Asset Sale ” means a sale, lease or sublease (as lessor or sub-lessor), sale and leaseback, assignment, conveyance, transfer or other disposition to, or any exchange of property with, any Person (other than Xerium or any of its Subsidiaries), in one transaction or a series of transactions, of all or any part of Xerium’s or any of its Subsidiaries’ businesses, assets or properties of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, including, without limitation, the Capital Stock of any of Xerium’s Subsidiaries, other than (i) inventory (or other assets) sold or leased in the Ordinary Course (excluding any such sales by operations or divisions discontinued or to be discontinued), and (ii) sales of other assets for gross consideration of less than $100,000 with respect to any transaction or series of related transactions.

“ Assignment Agreement ” means an Assignment and Assumption Agreement substantially in the form of Exhibit E, with such amendments or modifications as may be approved by Administrative Agent.

“ Austria B Term Loan ” means an Austria B Term Loan made by a Bank to Huyck Austria pursuant to Section 2.1(a)(vi).

“ Austria B Term Loan Commitment ” means the commitment of a Bank to make or otherwise fund an Austria B Term Loan and “Austria B Term Loan Commitments” means such commitments of all Banks in the aggregate. The amount in Base Currency of each Bank’s Austria B Term Loan Commitment, if any, is set forth on Appendix A-6 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount in Base Currency of the Austria B Term Loan Commitments as of the Closing Date is set forth on Appendix A-6.

“ Austria B Term Loan Exposure ” means, with respect to any Bank, as of any date of determination, the outstanding principal amount in Base Currency of the Austria B Term Loans of such Bank; provided , at any time prior to the making of the Austria B Term Loans, the Austria B Term Loan Exposure of any Bank shall be equal to such Bank’s Austria B Term Loan Commitment.

“ Austria B Term Loan Maturity Date ” means the earlier of (i) the date that is seven years after the Closing Date, and (ii) the date that all Austria B Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise.

“ Authorized Officer ” means, as applied to any Person, any individual holding the position of chairman of the board (if an officer), chief executive officer, president or one of its vice presidents (or the equivalent thereof), and such Person’s chief financial officer or treasurer.

“ B Term Loan ” means a Xerium B Term Loan, an XTI B Term Loan, an Italia B Term Loan, a Xerium Canada SW B Term Loan, a Xerium Canada Wxx B Term Loan, an Austria B Term Loan or a German B Term Loan.

“ B Term Loan Commitment ” means a Xerium B Term Loan Commitment, an XTI B Term Loan Commitment, an Italia B Term Loan Commitment, a Xerium Canada SW B Term Loan Commitment, a Xerium Canada Wxx B Term Loan Commitment, an Austria B Term Loan Commitment or a German B Term Loan Commitment, and “B Term Loan Commitments” means such commitments of all Banks.

 

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“ B Term Loan Maturity Date ” means the Xerium B Term Loan Maturity Date, the XTI B Term Loan Maturity Date, the Italia B Term Loan Maturity Date, the Xerium Canada SW B Term Loan Maturity Date, the Xerium Canada Wxx B Term Loan Maturity Date, the Austria B Term Loan Maturity Date or the German B Term Loan Maturity Date.

“ BA Loan ” means a Loan or any portion thereof bearing interest by reference to the BA Rate.

“ BA Rate ” means, in relation to any Loan denominated in Canadian Dollars, CDOR as of approximately 11:00 a.m. (New York City time) on the Interest Rate Determination Date.

“ Bank ” means each financial institution listed on the signature pages hereto as a Bank, and any other Person that becomes a party hereto pursuant to an Assignment Agreement.

“ Bank Counterparty ” means each Bank, or any Affiliate of a Bank, counterparty to the applicable documentation creating Hedging Obligations (including any Person who is a Bank (and any Affiliate thereof) as of the Closing Date but subsequently, after entering into the applicable documentation creating Hedging Obligations, ceases to be a Bank) including, without limitation, each such Affiliate that enters into a joinder agreement with Collateral Agent.

“ Bankruptcy Code ” means Title 11 of the United States Code entitled “Bankruptcy,” as now and hereafter in effect, or any successor statute.

“ Base Currency ” means Dollars.

“ Base Currency Amount ” means in relation to a Credit Extension, the amount specified in the Funding Notice delivered by a Borrower for that Credit Extension (or, if the amount requested is not denominated in the Base Currency, that amount converted into the Base Currency at the Agent’s Spot Rate of Exchange on the date which is three Business Days before the Credit Date or, if later, on the date the Administrative Agent receives the Funding Notice in accordance with the terms of this Agreement), as adjusted to reflect any repayment, prepayment, consolidation or division of a Loan.

“ Beneficiary ” means each Agent, Issuing Bank, Bank and Bank Counterparty.

“ Borrower ” as defined in the preamble hereto.

“ Brazilian Reorganization ” means the legal reorganization of the Subsidiaries of Xerium organized under law of Brazil and the transactions contemplated thereby.

“ Budget ” as defined in Section 5.1(q).

“ Business Day ” means (i) with respect to all matters except those addressed in clause (ii), any day, excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state or jurisdiction are authorized or required by law or other governmental action to close and (ii) with respect to all notices,

 

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determinations, fundings and payments in connection with LIBOR Loans, Euribor Loans or BA Loans, means any such day that is a Business Day described in clause (i) and (A) in connection with LIBOR Loans, that is also a day on which banks in the City of London are generally open for interbank or foreign exchange, (B) in connection with Euribor Loans, that is also a TARGET Day and (C) in connection with BA Loans, that is also not a day on which banks in the City of Toronto are authorized or required by applicable law to remain closed.

“ Canadian Dollars ” means the lawful currency of Canada.

“ Canadian Guarantor ” as defined in 7.14(e).

“ Canadian Pension Plan Event ” means (i) the failure by Xerium Canada, or any Affiliate of Xerium Canada to make any required contribution or premium payment to a Canadian Registered Pension Plan in a timely manner in accordance with the terms of the applicable Canadian Registered Pension Plan and all applicable laws; (ii) the withdrawal by Xerium Canada or any Affiliate of Xerium Canada as a participating employer under any multi-employer pension plan, as defined under applicable laws; (iii) the termination, in whole or in part, of any Canadian Registered Pension Plan; (iv) the institution of proceedings by a pension regulator which has jurisdiction over a Canadian Registered Pension Plan to terminate the Canadian Registered Pension Plan in whole or in part; or (v) the occurrence of any event or condition which could reasonably be expected to result in the institution of proceedings by the applicable pension regulator to terminate a Canadian Registered Pension Plan, in whole or in part.

“ Canadian Registered Pension Plan ” means a “registered pension plan”, as defined in subsection 248(1) of the Income Tax Act (Canada) which is or, within the preceding six years, was sponsored, maintained or contributed to by, or required to be contributed to by, Xerium Canada or any Affiliate of Canada.

“ Capital Expenditures ” means, with respect to any Person, all expenditures that, in accordance with GAAP, are or should be included in “purchase of property and equipment” or similar items reflected in the cash flows of such Person.

“ Capitalized Lease Obligation ” means, as applied to any Person, any obligation incurred or arising out of in connection with a Capital Lease.

“ Capital Lease ” means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person.

“ Capital Stock ” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests, membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing.

“ Cash ” means money, currency or a credit balance in any Deposit Account.

 

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“ Cash Collateral Account ” means a deposit account maintained by the Borrowers with the Administrative Agent for the purpose of holding deposits of Net Asset Sale Proceeds and Net Insurance/Condemnation Proceeds that are allowed to be reinvested by the Borrowers in accordance with Sections 2.14(a) and 2.14(b), respectively; provided that the Administrative Agent shall require any such deposits remaining in such deposit account for three hundred sixty-one (361) days to be applied by the Borrowers to repay Loans, in each case, to the extent required by and in a manner consistent with Section 2.15(b).

“ Cash Equivalents ” means (i) Dollars or any foreign currency freely exchangeable into Dollars and, in the case of any Foreign Subsidiary, such local currencies held by it from time to time in the Ordinary Course, (ii) securities issued or directly and fully guaranteed or insured by the US government or any agency or instrumentality thereof, (iii) certificates of deposit, time deposits and Eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any commercial bank having capital and surplus in excess of $500.0 million and whose long-term debt is rated at least “A” or the equivalent thereof by Moody’s or S&P, (iv) repurchase obligations for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in the immediately preceding clause, (v) commercial paper issued by a corporation (other than an Affiliate of Xerium) rated at least “A-2” or the equivalent thereof by Moody’s or S&P and in each case maturing within one year after the date of acquisition, (vi) investment funds investing substantially all of their assets in securities of the types described in clauses (i) through (v) above, (vii) readily marketable direct obligations issued by any state of the United States or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody’s or S&P and (viii) instruments equivalent to those referred to above denominated in Euros or any other foreign currency that are comparable in credit quality and tenor to those referred to above and customarily used by corporations for cash management purposes in any jurisdiction outside the United States.

“ CDOR ” means, on any date and with respect to any Loan, the annual rate of interest which is the rate based on the average rate applicable to Canadian Dollar bankers’ acceptances for the applicable Interest Period appearing on the “Reuters Screen CDOR Page” (as defined in the International Swaps and Derivatives Association, Inc. 1991 definitions, as modified and amended from time to time), rounded to the nearest 1/100 ^th of 1% (with .005% being rounded up), at approximately 11:00 a.m. (New York City time), on such date, or if such date is not a Business Day, then on the immediately preceding Business Day; provided , that if such rate does not appear on the Reuters Screen CDOR Page on such date as contemplated, then the CDOR on such date shall be calculated as the arithmetic mean of the rates for the Interest Period referred to above applicable to Canadian Dollar bankers’ acceptances quoted by the banks listed in Schedule 1 of the Bank Act (Canada) that are Banks as of 11:00 a.m. (Toronto time) on such date or, if such date is not a Business Day, then on the immediately preceding Business Day.

“ Certificate re Non-Bank Status ” means a certificate substantially in the form of Exhibit F.

“ Change of Control ” means, at any time, (i) any Person or “group” (within the meaning of Section 13(d) and 14(d) under the Exchange Act), other than Apax Partners and its Affiliates and holders of Common Stock as of the Closing Date who are also officers

 

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or employees of Xerium as of the Closing Date, shall have acquired beneficial ownership (as defined in Rule13d-3 under the Exchange Act), directly or indirectly, of 35% or more on a fully diluted basis of the voting and/or economic interest in the Capital Stock of Xerium; (ii) Xerium shall cease to directly or indirectly beneficially own and control 100% on a fully diluted basis of the economic and voting interest in the Capital Stock of the Borrowers (other than Xerium) including, but not limited to, if a Person shall attain the right, even if not exercised, by contract, share ownership or otherwise, to appoint the majority of the board of directors of any such Borrower or to direct the manner in which the board of directors of any such Borrower conducts its affairs; (iii) the majority of the seats (other than vacant seats) on the board of directors (or similar governing body) of Xerium cease to be occupied by Persons who either (a) were members of the board of directors of Xerium on the Closing Date or (b) were nominated for election by the board of directors of Xerium, a majority of whom were directors on the Closing Date or whose election or nomination for election was previously approved by a majority of such directors; or (iv) any “change of control” or similar event under the documents governing Subordinated Debt, if any, shall occur.

“ Class ” means (i) with respect to Banks, each of the following classes of Banks: (a) Banks having Xerium B Term Loan Exposure, (b) Banks having XTI B Term Loan Exposure, (c) Banks having Italia B Term Loan Exposure, (d) Banks having Xerium Canada SW B Term Loan Exposure, (e) Banks having Xerium Canada Wxx B Term Loan Exposure, (f) Banks having Austria B Term Loan Exposure, (g) Banks having German B Term Loan Exposure and (h) Banks having Revolving Exposure, and (ii) with respect to Loans, each of the following classes of Loans: (a) Xerium B Term Loans, (b) XTI B Term Loans, (c) Italia B Term Loans, (d) Xerium Canada SW B Term Loans, (e) Xerium Canada Wxx B Term Loans, (f) Austria B Term Loans, (g) German B Term Loans and (h) Tranche 1 Revolving Loans.

“ Closing Date ” means the date on which the B Term Loans were made.

“ Closing Date Certificate ” means a Closing Date Certificate substantially in the form of Exhibit G 1.

“ Closing Date Mortgaged Property ” means, each Real Estate Asset listed in Schedule 3.1(i) and which has been encumbered by fully executed and notarized Mortgages, and recorded in all appropriate places in all applicable jurisdictions.

“ Collateral ” means, collectively, all of the real, personal and mixed property (including Capital Stock) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Obligations.

“ Collateral Agent ” as defined in the preamble hereto.

“ Collateral Documents ” means the Pledge and Security Agreements, the Mortgages, the Landlord Personal Property Collateral Access Agreements, if any, the Memorandum of Agreed Security and Guarantee Principles, and all other instruments, documents and agreements delivered by any Credit Party pursuant to this Agreement or any of the other Credit Documents in order to grant to Collateral Agent, for the benefit of Banks, a Lien on any real, personal or mixed property of that Credit Party as security for the Obligations.

 

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“ Collateral Questionnaire ” means a certificate in form satisfactory to Collateral Agent that provides information with respect to the personal or mixed property of each Credit Party.

“ Commitment ” means any Revolving Commitment or B Term Loan Commitment.

“ Common Stock ” means the common stock of Xerium, par value 0.01 per share.

“ Communications ” as defined in Section 5.1(p)(i).

“ Compliance Certificate ” means a Compliance Certificate substantially in the form of Exhibit C.

“ Consolidated Amendment/Termination Costs ” means costs incurred by Xerium and its Subsidiaries in Fiscal Year 2008 in connection with the consummation of Amendment No. 4, the potential issuance of new equity by Xerium and this Agreement and the termination of the employment contract of the former Chief Executive Officer and transition to the new Chief Executive Officer in an amount not to collectively exceed $8.0 million in the aggregate.

“ Consolidated Capital Expenditures ” means, with respect to any Person for any period, the aggregate of all Capital Expenditures of such Person and its Subsidiaries during such period determined on a consolidated basis.

“ Consolidated Depreciation and Amortization Expense ” means, with respect to any Person for any period, the total amount of depreciation and amortization expense of such Person and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including without limitation non-cash impairment charges resulting from the application of Statements of Financial Accounting Standards No. 142 and No. 144 and any amortization of intangibles arising pursuant to Statement of Financial Accounting Standards No. 141.

“ Consolidated Fixed Charges ” means, for any period, the sum, without duplication, of the amounts determined for Xerium and its Subsidiaries on a consolidated basis equal to (i) Consolidated Interest Expense, (ii) scheduled payments of principal on Debt and (iii) the portion of taxes based on income actually paid or to be paid in cash.

“ Consolidated Interest Expense ” means, with respect to any Person for any period, consolidated interest expense of such Person and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided , however , that for the purpose of calculating the Interest Coverage Ratio only, amortization of deferred financing fees shall be excluded from the calculation of Consolidated Interest Expense. The calculation of Consolidated Interest Expense shall be net of interest income and the effect of all payments made or received pursuant to interest rate Hedging Obligations and shall exclude payments or receipts made or received in connection with closing out interest rate hedges, in whole or in part, as a result of the prepayment of Indebtedness outstanding under this Agreement. For purposes of clarifying the intention of the parties, notwithstanding any other provision of this Agreement, any non-cash gains and losses resulting from marking to market Hedging Obligations shall not be included in Consolidated Interest Expense and Letters of Credit expenses shall not be included in Consolidated Interest Expense to the extent they are classified by Xerium as SG&A costs.

 

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“ Consolidated Net Income ” means, with respect to any Person for any period, the aggregate of the net income (loss) of such Person and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided , however , that the following, without duplication, shall be excluded in determining Consolidated Net Income: (i) any net after-tax extraordinary or non-recurring gains, losses or expenses (less all fees and expenses relating thereto), (ii) the cumulative effect of changes in accounting principles, (iii) [intentionally omitted] and (iv) any gains resulting from the returned surplus assets of any Pension Plan or Canadian Registered Pension Plan; and provided , further that, without duplication, (x) the net income for such period of any Person that is not a Subsidiary of such Person or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions or other payments paid in cash (or to the extent converted into cash) to such Person or a wholly-owned Subsidiary thereof in respect of such period (and if such net income is a loss it will be included only to the extent such loss has been funded with cash by such Person or a wholly-owned Subsidiary thereof in respect of such period), and (y) the net income (loss) for such period of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of its net income is not at the date of determination permitted without any prior governmental approval (which has not been obtained and which is not expected by Xerium to be obtained in the Ordinary Course) or, directly or indirectly, by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders (other than any loan agreement or similar agreement which restricts the payment of dividends or similar distributions upon the occurrence of or during the existence or continuance of a default or event of default), unless such restrictions with respect to the payment of dividends or in similar distributions have been legally waived and except that this clause (y) shall not apply to any Subsidiary that is also a Guarantor in the calculation of Xerium’s Leverage Ratio.

“ Consolidated Restructuring Costs ” means, with respect to any Person for any period, any restructuring or related impairment costs for such Person and its Subsidiaries resulting from the restructuring activities of such Person and its Subsidiaries, provided , that the amount of such costs for Fiscal Year 2008 and any Fiscal Year thereafter shall not exceed $5.0 million in the aggregate.

“ Consolidated Transaction Costs ” means costs incurred by Xerium and its Subsidiaries in connection with the consummation of the IPO, the preparation and closing of the Existing Credit Agreement, the preparation of the Brazilian Reorganization and related compensation charges associated with the termination of the incentive plans.

“ Constitutional Documents ” means the constitutional documents of the Credit Parties as amended from time to time in accordance with the terms of this Agreement.

“ Continuation Date ” means the effective date of a continuation as set forth in the applicable Continuation Notice.

 

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“ Continuation Notice ” means a Continuation Notice substantially in the form of Exhibit A 2 or the modification or extension of an outstanding Letter of Credit.

“ Contractual Obligation ” means, as applied to any Person, any provision of any Security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject.

“ Counterpart Agreement ” means a Counterpart Agreement substantially in the form of Exhibit H delivered by a Credit Party pursuant to Section 5.10.

“ Credit Date ” means the date of a Credit Extension.

“ Credit Document ” means any of this Agreement, the Collateral Documents, the Affiliate Subordination Agreement, any documents or certificates executed by any Borrower in favor of Issuing Bank relating to Letters of Credit, and all other documents, instruments or agreements executed and delivered by a Credit Party for the benefit of any Agent, Issuing Bank or any Bank in connection herewith.

“ Credit Extension ” means the making of a Loan or the issuing of a Letter of Credit.

“ Credit Party ” means each US Credit Party and Non-US Credit Party.

“ Debt ” means, with respect to Xerium, on a consolidated basis on any date, the actual outstanding amount of funded indebtedness of Xerium and its Subsidiaries, plus , without duplication, the principal component of all Capitalized Lease Obligations and, without duplication, other Indebtedness of Xerium and its Subsidiaries on such date. For purposes of computing Debt, Indebtedness which is payable in Canadian Dollars or Euros shall be converted into Dollars using the average exchange rate for the period of four consecutive Fiscal Quarters ended March 31, 2008 and Indebtedness which is payable in currencies other than Canadian Dollars, Euros and Dollars shall be converted into Dollars using the average exchange rate for the most recently ended four Fiscal Quarters for which internal financial statements are available.

“ Default ” means a condition or event that, after notice or expiry of an applicable grace period, or the making of any determination under the Credit Documents, or any combination of any of the foregoing, would constitute an Event of Default.

“ Default Excess ” means, with respect to any Defaulting Bank, the excess, if any, of such Defaulting Bank’s Pro Rata Share of the aggregate outstanding principal amount of Loans of all Banks (calculated as if all Defaulting Banks (other than such Defaulting Bank) had funded all of their respective Defaulted Loans) over the aggregate outstanding principal amount of all Loans of such Defaulting Bank.

“ Default Period ” means, with respect to any Defaulting Bank, the period commencing on the date of the applicable Funding Default and ending on the earliest of the following dates: (i) the date on which all Commitments are cancelled or terminated and/or the Obligations are declared or become immediately due and payable, (ii) the date on which (a) the Default Excess with respect to such Defaulting Bank shall have been reduced to zero (whether by the funding by such Defaulting Bank of any Defaulted Loans of

 

11

such Defaulting Bank or by the non-pro rata application of any voluntary or mandatory prepayments of the Loans in accordance with the terms of Section 2.13 or Section 2.14 or by a combination thereof) and (b) such Defaulting Bank shall have delivered to each Borrower and Administrative Agent a written reaffirmation of its intention to honor its obligations hereunder with respect to its Commitments, and (iii) the date on which each Borrower, Administrative Agent and Requisite Banks waive all Funding Defaults of such Defaulting Bank in writing.

“ Defaulted Loan ” as defined in Section 2.23.

“ Defaulting Bank ” as defined in Section 2.23.

“ Deposit Account ” means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit.

“ Dollars ” and the sign “ $ ” mean the lawful money of the United States of America.

“ Domestic Subsidiary ” means any Subsidiary organized under the laws of the United States of America, any State thereof or the District of Columbia.

“ Eligible Assignee ” means (i) any Bank, any Affiliate of any Bank and any Related Fund (any two or more Related Funds being treated as a single Eligible Assignee for all purposes hereof), and (ii) any commercial bank, financial institution, trust fund, insurance company, investment or mutual fund or other entity that is an “accredited investor” (as defined in Regulation D under the Securities Act) and which extends credit or buys loans as one of its businesses or in the ordinary course or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets; provided , no Affiliate of Xerium or Apax Partners shall be an Eligible Assignee.

“ Employee Benefit Plan ” means any “employee benefit plan” as defined in Section 3(3) of ERISA which is or, within the preceding six years, was sponsored, maintained or contributed to by, or required to be contributed by, Xerium, any of its Subsidiaries or any of their respective ERISA Affiliates.

“ Environmental Claim ” means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any Governmental Authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law; (ii) in connection with any Hazardous Material or any actual or alleged Hazardous Materials Activity; or (iii) in connection with any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment.

“ Environmental Laws ” means any and all current or future foreign or domestic, federal, provincial or state (or any subdivision of either of them), statutes, ordinances, orders, rules, regulations, judgments, Governmental Authorizations, or any other requirements of Governmental Authorities relating to (i) environmental matters, including those relating to any Hazardous Materials Activity; (ii) the generation, use, storage, transportation or disposal of Hazardous Materials; or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Xerium or any of its Subsidiaries or any Facility.

 

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“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto.

“ ERISA Affiliate ” means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. Any former ERISA Affiliate of Xerium or any of its Subsidiaries shall continue to be considered an ERISA Affiliate of Xerium or any such Subsidiary within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of Xerium or such Subsidiary and with respect to liabilities arising after such period for which Xerium or such Subsidiary could be liable under the Internal Revenue Code or ERISA.

“ ERISA Event ” means (i) a “reportable event” within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30 day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Xerium, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability to Xerium, any of its Subsidiaries or any of their respective Affiliates pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which could reasonably be expected to constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Xerium, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of Xerium, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefor, or the receipt by Xerium, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; or (viii) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan.

 

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“ Euribor ” means, in relation to any Loan in euro:

 

(a)

the applicable Screen Rate; or

 

(b)

(if no Screen Rate is available for the Interest Period of that Loan) the arithmetic mean of the rates (rounded upwards to four decimal places) as supplied to the Administrative Agent at its request quoted by the Reference Banks to leading banks in the European interbank market,

as of approximately 11:00 a.m. (Brussels time) on the Interest Rate Determination Date for the offering of deposits in EUROS for a period comparable to the Interest Period of the relevant Loan.

“ Euribor Loan ” means a Loan or any portion thereof bearing interest by reference to the Euribor Rate.

“ Euribor Rate ” means the rate of interest for each Interest Period that is equal to the interest rate per annum which is the aggregate of the applicable Euribor determined interest rate and Mandatory Cost, if any.

“ EUROS ” “ Euro ”, “ euro ”, “ EUR ”, “ € ” or “ euros ” means the single currency of Participating Member States.

“ Event of Default ” means each of the conditions or events set forth in Section 8.1.

“ Excess Cash ” means commencing with Fiscal Year 2008, with respect to any period, the total of (A) Adjusted EBITDA for such period minus (B) the sum, without duplication, for such period of: (i) Consolidated Interest Expense paid in cash, (ii) cash income tax expense, net of cash income tax refunds and cash income tax rebates received by Xerium and its Subsidiaries, (iii) Consolidated Capital Expenditures (except to the extent (I) financed or refinanced with an incurrence of Indebtedness, until such Indebtedness is repaid (other than through the refinancing thereof), (II) financed with insurance or condemnation proceeds or (III) financed with the cash proceeds from any Asset Sale) permitted under Section 6.8(d), (iv) Consolidated Restructuring Costs paid in cash and (v) cash payments of withholding taxes from proceeds of the repurchase, redemption or retention of Common Stock permitted under Section 6.5(c).

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

“ Excluded Sale Proceeds ” means Net Asset Sale Proceeds which arise from sales or other dispositions of Xerium’s manufacturing facilities in Wake Forest, North Carolina, Farmville, Virginia, Spartanburg, South Carolina, and Kimberly, Wisconsin but only to the extent that such Net Asset Sale Proceeds do not exceed, in the aggregate, $10,000,000.

“ Existing Credit Agreement ” as defined in the Recitals.

 

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“ Facility ” means any real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by Xerium or any of its Subsidiaries or any of their respective predecessors or Affiliates.

“ Facility Office ” means the office or offices notified by a Bank or the Issuing Bank to the Administrative Agent in writing on or before the date it becomes a Bank or the Issuing Bank (or, following that date, by not less than five Business Days’ written notice) as the office or offices through which it will perform its obligations under this Agreement.

“ Factoring Agreements ” means those certain agreements set forth on Schedule 1.1(b) and provided to the Lead Arranger and Administrative Agent and its counsel, providing for Xerium or any of its Subsidiaries to sell or otherwise dispose of any receivable:

(A) on arm’s length terms for cash payable at the time of disposal in accordance with the terms of the Japanese Promissory Note Discounting Facilities as in effect on May 18, 2005, provided that the maximum aggregate amount of receivables which have been so sold or disposed of and which remain outstanding (other than as a result of a default by the relevant debtor) does not exceed ¥1,500,000,000 at any time; or

(B) on non-recourse (as regards default by the relevant debtor(s)) and arm’s length terms for cash payable at the time of disposal by Huyck Australia Pty. Ltd in respect of customer-provided letters of credit, provided that the maximum aggregate amount of receivables which have been so sold or disposed of and which remain outstanding (other than as a result of a default by the relevant debtor) does not exceed AUD 7,500,000 at any time.

“ Financial Officer Certification ” means, with respect to the financial statements for which such certification is required, the certification of the chief financial officer of Xerium that such financial statements fairly present, in all material respects, the financial condition of Xerium and its Subsidiaries as of the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year end adjustments.

“ First Currency ” as defined in Section 10.4(b).

“ First Priority ” means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that such Lien is the only Lien to which such Collateral is subject, other than Permitted Liens set forth in clauses (b), (c), (e), (f), (i), (j), (k), (l), (m) and (n) of Section 6.2.

“ Fiscal Quarter ” means a fiscal quarter of any Fiscal Year.

“ Fiscal Year ” means the fiscal year of Xerium and its Subsidiaries ending on December 31 of each calendar year.

“ Fixed Charge Coverage Ratio ” means the ratio as of the last day of any Fiscal Quarter of (i) Adjusted EBITDA for the four-Fiscal Quarter period then ending, to (ii) Consolidated Fixed Charges for such four-Fiscal Quarter period; provided , that in computing Consolidated Fixed Charges for any period commencing on or prior to the Closing Date and ending as of the close of any Fiscal

 

15

Quarter on or prior to the first anniversary of the Closing Date, Consolidated Fixed Charges for such period shall equal the product of (x) Consolidated Fixed Charges for the period commencing on the first day of the first full calendar month following the Closing Date and ending on the last day of such Fiscal Quarter multiplied by (y) a fraction, the numerator of which is equal to 365 and the denominator of which is equal to the number of days that have elapsed in such period commencing on the first day of the first full calendar month following the Closing Date and ending on the last day of such Fiscal Quarter.

“ Flood Hazard Property ” means any Real Estate Asset subject to a mortgage in favor of Collateral Agent, for the benefit of the Banks, and located in an area designated by the Federal Emergency Management Agency or other Governmental Authority as having special flood or mud slide hazards.

“ Foreign Subsidiary ” means any Subsidiary that is not a Domestic Subsidiary.

“ Formalities Certificate ” means a Formalities Certificate substantially in the form of Exhibit N.

“ Fraudulent Transfer Laws ” as defined in Section 2.25(a).

“ French Guarantor ” as defined in Section 7.14(d).

“ Funding Borrower ” as defined in Section 2.25(b).

“ Funding Default ” as defined in Section 2.23.

“ Funding Notice ” means a notice substantially in the form of Exhibit A 1.

“ GAAP ” means, subject to the limitations on the application thereof set forth in Section 1.2, for Xerium and its Subsidiaries, United States generally accepted accounting principles in effect as of the date of determination thereof.

“ German B Term Loan ” means a German B Term Loan made by a Bank to Germany Holdings pursuant to Section 2.1(a)(vii).

“ German B Term Loan Commitment ” means the commitment of a Bank to make or otherwise fund a German B Term Loan and “ German B Term Loan Commitments ” means such commitments of all Banks in the aggregate. The amount in Base Currency of each Bank’s German B Term Loan Commitment, if any, is set forth on Appendix A-7 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount in Base Currency of the German B Term Loan Commitments as of the Closing Date is set forth on Appendix A-7.

“ German B Term Loan Exposure ” means, with respect to any Bank, as of any date of determination, the outstanding principal amount in Base Currency of the German B Term Loans of such Bank; provided , at any time prior to the making of the German B Term Loans, the German B Term Loan Exposure of any Bank shall be equal to such Bank’s German B Term Loan Commitment.

 

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“ German B Term Loan Maturity Date ” means the earlier of (i) the date that is seven years after the Closing Date, and (ii) the date that all German B Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise.

“ German Guarantors ” means Robec Walzen GmbH, formerly known as Stowe Woodward Forschungs- und Entwicklungs GmbH (also as universal successor of Robec GmbH), Stowe Woodward AG, Huyck. Wangner Germany GmbH, formerly known as Wangner Beteiligungsgesellschaft mbH (also as universal successor of Wangner Service GmbH, Wangner Verwaltungsgesellschaft mbH and Wangner Finckh GmbH & Co. KG).

“ Governmental Acts ” means any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority.

“ Governmental Authority ” means any federal, provincial, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or any foreign entity or government.

“ Governmental Authorization ” means any permit, license, authorization, plan, directive, consent order or consent decree of or from any Governmental Authority.

“ Grantor ” as defined in the Pledge and Security Agreement.

“ Guaranteed Obligations ” as defined in Section 7.1(b).

“ Guarantor ” means each Non-US Guarantor and each US Guarantor.

“ Guarantor Subsidiary ” means each Guarantor other than Xerium.

“ Guaranty ” means the guaranty of each Guarantor set forth in Section 7 or any other guaranty which purports to guaranty all or a portion of the Obligations.

“ Hazardous Materials ” means any chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Authority or which may or could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment.

“ Hazardous Materials Activity ” means any past, current, proposed or threatened activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, presence, existence, location, Release, threatened Release, discharge, placement, generation, transportation, processing, construction, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing.

“ Hedging Obligations ” means, with respect to any Person, the obligations of such Person under (i) currency exchange, interest rate or commodity swap agreements, currency exchange, interest rate or commodity cap agreements and currency exchange, interest

 

17

rate or commodity collar agreements entered into with a Bank Counterparty in order to satisfy the requirements of this Agreement or otherwise in Xerium’s or any of its Subsidiaries’ Ordinary Course and not for speculative purposes and (ii) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange, interest rates or commodity prices entered into with a Bank Counterparty in order to satisfy the requirements of this Agreement or otherwise in Xerium’s or any of its Subsidiaries’ Ordinary Course and not for speculative purposes.

“ Highest Lawful Rate ” means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to any Bank which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow.

“ Historical Financial Statements ” means as of the Closing Date, (i) the audited financial statements of Xerium and its Subsidiaries, for the immediately preceding three Fiscal Years, consisting of balance sheets and the related consolidated statements of income, stockholders’ equity and cash flows for such Fiscal Years, and (ii) the unaudited financial statements of Xerium and its Subsidiaries as at the most recently ended Fiscal Quarter, consisting of a balance sheet and the related consolidated statements of income, stockholders’ equity and cash flows for the three , six or nine month period, as applicable, ending on such date, and, in the case of clauses (i) and (ii), certified by the chief financial officer of Xerium that they fairly present, in all material respects, the financial condition of Xerium and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year end adjustments.

“ Increased Cost Banks ” as defined in Section 2.24.

“ Indebtedness ” means, with respect to any Person, the principal and premium (if any) of any indebtedness of such Person, whether or not contingent: (i) in respect of borrowed money, (ii) evidenced by bonds, notes, debentures or similar instruments or letters of credit or bankers’ acceptances (or, without duplication, reimbursement agreements in respect thereof), (iii) representing the deferred and unpaid purchase price of any property, other than trade payables incurred in the Ordinary Course, (iv) in respect of Capitalized Lease Obligations, or (v) representing any Hedging Obligations, if and to the extent that any of the foregoing Indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability on a balance sheet (excluding the footnotes thereto) of such Person prepared in accordance with GAAP. To the extent not otherwise included, Indebtedness shall include (a) any obligation of such Person to be liable for, or to pay, as obligor, guarantor or otherwise, on the Indebtedness of another Person (other than by endorsement of negotiable instruments for collection in the Ordinary Course), and (b) Indebtedness of another Person secured by a Lien on any asset owned by such Person (whether or not such Indebtedness is assumed by such Person); provided, however, that the amount of such Indebtedness will be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Person. Notwithstanding the foregoing, any obligation of such Person or any of its Subsidiaries in respect of (x) minimum guaranteed commissions, or other similar payments, to clients, minimum returns to clients or stop loss limits in favor of clients or indemnification obligations to clients, in each case pursuant to contracts to provide services to clients entered into in the Ordinary Course, and (y) account credits to participants under any compensation plan, shall be deemed not to constitute Indebtedness.

 

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“ Indemnified Liabilities ” means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, claims (including Environmental Claims), costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any Hazardous Materials Activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, provincial, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Credit Documents or the transactions contemplated hereby or thereby (including the Banks’ agreement to make Credit Extensions (including Credit Extensions that were Tranche 2 Revolving Loans) or the use or intended use of the proceeds thereof, or any enforcement of any of the Credit Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranty)); or (ii) any Environmental Claim or any Hazardous Materials Activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of Xerium or any of its Subsidiaries.

“ Indemnitee ” as defined in Section 10.4.

“ Information ” as defined in Section 10.18.

“ Information Memorandum ” means the Confidential Information Memorandum dated February 2005 in respect of Xerium Technologies, Inc.

“ Interest Coverage Ratio ” means, with respect to Xerium for any period, the ratio of (A) the Adjusted EBITDA for the four-Fiscal Quarters period then ending to (B) the Consolidated Interest Expense for the four-Fiscal Quarters then ending; provided , that in computing Consolidated Interest Expense for any period commencing on or prior to the Closing Date and ending as of the close of any Fiscal Quarter on or prior to the first anniversary of the Closing Date, Consolidated Interest Expense for such period shall equal the product of (x) Consolidated Interest Expense for the period commencing on the first day of the first full calendar month following the Closing Date and ending on the last day of such Fiscal Quarter multiplied by (y) a fraction, the numerator of which is equal to 365 and the denominator of which is equal to the number of days that have elapsed in such period commencing on the first day of the first full calendar month following the Closing Date and ending on the last day of such Fiscal Quarter.

 

19

“ Interest Payment Date ” means with respect to any LIBOR Loan, Euribor Loan or BA Loan, the last day of each Interest Period applicable to such Loan; provided , in the case of each Interest Period of longer than three months “Interest Payment Date” shall also include each date that is three months, or an integral multiple thereof, after the commencement of such Interest Period.

“ Interest Period ” means, in connection with a Euribor Loan, a LIBOR Loan or a BA Loan, an interest period of one, two, three or six months, or, with respect to a Euribor Loan or a LIBOR Loan only, nine or twelve months if consented to in writing by all Banks making such Loan, as selected by each Borrower in the applicable Funding Notice or Continuation Notice ( provided , that until the earlier to occur of (i) the 90th day following the Closing Date or (ii) the date upon which the Lead Arranger determines in its sole discretion that the primary syndication of the Revolving Loans and B Term Loans has been completed, Euribor Loans, LIBOR Loans and BA Loans shall be restricted to a single one month interest period at all times, with the first such interest period to begin on the Closing Date and with any subsequent interest periods to begin on the last day of the prior one month interest period theretofore in effect), (i) initially, commencing on the Credit Date or Continuation Date thereof, as the case may be; and (ii) thereafter, commencing on the day on which the immediately preceding Interest Period expires; provided , (a) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day unless no further Business Day occurs in such month, in which case such Interest Period shall expire on the immediately preceding Business Day; (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clauses (c) and (d), of this definition, end on the last Business Day of a calendar month; (c) no Interest Period with respect to any portion of any Class of B Term Loans shall extend beyond such Class’ B Term Loan Maturity Date; (d) no Interest Period with respect to any portion of any Class of Revolving Loans shall extend beyond such Class’ Revolving Commitment Termination Date; and (e) all interest periods of the same currency having the same commencing date and expiration date shall be considered one Interest Period.

“ Interest Rate Agreement ” means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedging agreement or other similar agreement or arrangement, each of which is for the purpose of hedging the interest rate exposure associated with Xerium’s and its Subsidiaries’ operations and not for speculative purposes.

“ Interest Rate Determination Date ” means, with respect to any Interest Period (i) for any currency other than Sterling, the date that is two Business Days prior to the first day of such Interest Period and (ii) for Sterling, the date that is the first day of such Interest Period.

“ Internal Revenue Code ” means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute.

“ Investment ” means (i) any direct or indirect purchase or other acquisition by Xerium or any of its Subsidiaries of, or of a beneficial interest in, any of the Securities of any other Person (other than Xerium, any other Borrower or a Guarantor Subsidiary); (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, by any Subsidiary of Xerium from any

 

20

Person (other than Xerium, any other Borrower or a Guarantor Subsidiary), of any Capital Stock of such Person; and (iii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the Ordinary Course) or capital contribution by Xerium or any of its Subsidiaries to any other Person (other than Xerium, any other Borrower or a Guarantor Subsidiary), including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the Ordinary Course. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write ups, write downs or write offs with respect to such Investment.

“ IPO ” means the initial public offering of Common Stock.

“ IPO Documents ” means the Prospectus, the Underwriting Agreement, and the Registration Statement on Form S-1, as amended.

“ Issuance Notice ” means an Issuance Notice substantially in the form of Exhibit A 3.

“ Issuing Bank ” means, in respect of the Letters of Credit in existence on the Closing Date, CIBC World Markets plc, and, in respect of all other Letters of Credit, Citicorp. North America, Inc., each as Issuing Bank hereunder, and each together with their respective permitted successors and assigns in such capacity.

“ Italia B Term Loan ” means an Italia B Term Loan made by a Bank to Italia SpA pursuant to Section 2.1(a)(iii).

“ Italia B Term Loan Commitment ” means the commitment of a Bank to make or otherwise fund an Italia B Term Loan and “ Italia B Term Loan Commitments ” means such commitments of all Banks in the aggregate. The Base Currency of each Bank’s Italia B Term Loan Commitment, if any, is set forth on Appendix A-3 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount in Base Currency of the Italia B Term Loan Commitments as of the Closing Date is set forth on Appendix A-3.

“ Italia B Term Loan Exposure ” means, with respect to any Bank, as of any date of determination, the outstanding principal in Base Currency of the Italia B Term Loans of such Bank; provided , at any time prior to the making of the Italia B Term Loans, the Italia B Term Loan Exposure of any Bank shall be equal to such Bank’s Italia B Term Loan Commitment.

“ Italia B Term Loan Maturity Date ” means the earlier of (i) the date that is seven years after the Closing Date, and (ii) the date that all Italia B Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise.

“ Japanese Yen ” or “ ¥ ” means the lawful currency of Japan.

“ Joint Venture ” means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided , in no event shall any corporate Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party.

 

21

“ Landlord Personal Property Collateral Access Agreement ” means a Landlord Waiver and Consent Agreement substantially in the form of Exhibit K with such amendments or modifications as may be approved by Collateral Agent.

“ Lead Arranger ” as defined in the preamble hereto.

“ Leasehold Property ” means any leasehold interest of any Credit Party as lessee under any lease of real property, other than any such leasehold interest designated from time to time by Collateral Agent in its sole discretion as not being required to be included in the Collateral.

“ Letter of Credit ” means a commercial or standby letter of credit issued or to be issued by Issuing Bank pursuant to this Agreement substantially in the form of Exhibit M or otherwise acceptable to Issuing Bank and Administrative Agent.

“ Letter of Credit Sublimit ” means the lesser of (i) the Base Currency Amount of $50,000,000 and (ii) the remainder of the Tranche 1 Revolving Commitments then in effect less the aggregate principal amount of the Tranche 1 Revolving Loans then outstanding.

“ Letter of Credit Usage ” means, as at any date of determination, the sum of (i) the maximum aggregate Base Currency Amount which is, or at any time thereafter may become, available for drawing under all Letters of Credit then outstanding, and (ii) the aggregate Base Currency Amount of all drawings under Letters of Credit honored by Issuing Bank and not theretofore reimbursed by or on behalf of each Borrower.

“ Leverage Ratio ” means, with respect to Xerium on any date, the ratio of (A) the Debt of Xerium and its Subsidiaries as of such date to (B) the Adjusted EBITDA of Xerium and its Subsidiaries for the period of four consecutive Fiscal Quarters ending on such date (or if such date is not the last day of a Fiscal Quarter of Xerium, for the period of four consecutive Fiscal Quarters most recently ended).

“ LIBOR ” means, in relation to any Loan (other than a Loan denominated in EUROS or Canadian Dollars):

 

(a)

the applicable Screen Rate; or

 

(b)

(if no Screen Rate is available for the currency or Interest Period of that Loan) the arithmetic mean of the rates (rounded upwards to four decimal places) as supplied to the Administrative Agent at its request quoted by the Reference Banks to leading banks in the London interbank market,

as of approximately 11:00 a.m. (London time) on the Interest Rate Determination Date for the offering of deposits in the currency of that Loan and for a period comparable to the Interest Period for that Loan.

“ LIBOR Loan ” means a Loan or any portion thereof bearing interest by reference to the LIBOR Rate.

 

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“ LIBOR Rate ” means the rate of interest for each Interest Period that is equal to the interest rate per annum which is the aggregate of the applicable LIBOR determined interest rate and Mandatory Cost, if any.

“ Lien ” means (i) any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing and (ii) in the case of Securities, any purchase option, call or similar right of a third party with respect to such Securities.

“ Loan ” means a Xerium B Term Loan, an XTI B Term Loan, an Italia B Term Loan, a Xerium Canada SW B Term Loan, a Xerium Canada Wxx B Term Loan, an Austria B Term Loan, a German B Term Loan and a Tranche 1 Revolving Loan.

“ Mandatory Cost ” means the percentage rate per annum calculated by the Agent in accordance with Appendix C (Mandatory Cost Formula).

“ Margin Stock ” as defined in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time.

“ Material Adverse Effect ” means any effect, event, matter or circumstance: (a) which in the reasonable opinion of the Requisite Banks is materially adverse to the: (i) business, assets or financial condition of Xerium and its Subsidiaries taken as a whole; or (ii) ability of any Credit Party to perform any of its Obligations in accordance with their terms under any of the Credit Documents; or (b) which in the reasonable opinion of the Requisite Banks results in any (i) Credit Document not being legal, valid and binding on and, subject to reservations contained in the legal opinions provided as conditions precedent thereto, enforceable against any party thereto and/or (ii) Collateral Document not being a valid and effective security interest, and in the case of (b), in each case in a manner or to an extent materially prejudicial to the interest of any Bank under the Credit Documents.

“ Material Contract ” means any contract or other arrangement to which Xerium or any of its Subsidiaries is a party (other than the Credit Documents) for which breach, non-performance, cancellation or failure to renew could reasonably be expected to have a Material Adverse Effect.

“ Material Real Estate Asset ” means (i) (a) any fee-owned Real Estate Asset having a fair market value in excess of $1,000,000 as of the date of the acquisition thereof and (b) all Leasehold Properties other than those with respect to which the aggregate payments under the terms of the lease are less than $500,000 per annum, in each case located in the United States, Canada and the United Kingdom or (ii) any Real Estate Asset that the Requisite Banks have reasonably determined is material to the business, operations, properties, assets, condition (financial or otherwise) or prospects of Xerium or any Subsidiary thereof, including each Borrower.

“ Material Subsidiary ” means (i) each Borrower and Guarantor; (ii) any other direct or indirect Subsidiary of Xerium’s the profit from ordinary activities before interest, goodwill, amortization, taxation and exceptional items or gross assets of which exceeds

 

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4% of the consolidated profit from ordinary activities before interest, goodwill, amortization, taxation and exceptional items or gross assets of Xerium and its Subsidiaries on a consolidated basis, and for this purpose the calculation of profit from ordinary activities before interest, goodwill, amortization, taxation and exceptional items or gross assets shall: (a) be made in accordance with GAAP; (b) in the case of a company which itself has Subsidiaries, be made by using the consolidated profit from ordinary activities before interest, goodwill, amortization, taxation and exceptional items or gross assets, as the case may be, of it and its Subsidiaries; and (c) be made by reference to the latest available quarterly financial information of the relevant Subsidiary of Xerium and its Subsidiaries on a consolidated basis; and (iii) any other direct or indirect Subsidiary of Xerium’s in which Xerium or any of its Subsidiaries has made Investments, singly or in the aggregate, totaling in excess of $5,000,000.

“ Maximum Consolidated Capital Expenditures ” as defined in Section 6.8(d).

“ Memorandum of Agreed Security and Guarantee Principles ” means the Memorandum of Agreed Security and Guarantee Principles, dated the date hereof, by and between Xerium and the Collateral Agent, as the same may be amended, supplemented or otherwise modified from time to time.

“ Moody’s ” means Moody’s Investors Service, Inc.

“ Mortgage ” means a Mortgage substantially in the form of Exhibit J, as it may be amended, supplemented or otherwise modified from time to time.

“ Multiemployer Plan ” means any Employee Benefit Plan which is a “multiemployer plan” as defined in Section 3(37) or 4001(a)(3) of ERISA.

“ NAIC ” means The National Association of Insurance Commissioners, and any successor thereto.

“ Net Asset Sale Proceeds ” means, with respect to any Asset Sale, an amount equal to: (i) Cash payments (including any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received by Xerium or any of its Subsidiaries from such Asset Sale, minus (ii) any bona fide direct costs (including, without limitation, reasonable transaction costs) incurred in connection with such Asset Sale, including (a) income or gains taxes payable by the seller as a result of any gain recognized in connection with such Asset Sale, (b) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale and (c) a reasonable reserve for any indemnification payments (fixed or contingent) attributable to seller’s indemnities and representations and warranties to purchaser in respect of such Asset Sale undertaken by Xerium or any of its Subsidiaries in connection with such Asset Sale.

“ Net Insurance/Condemnation Proceeds ” means an amount equal to: (i) any Cash payments or proceeds received by Xerium or any of its Subsidiaries (a) under any casualty insurance policy in respect of a covered loss thereunder (excluding proceeds of business interruption insurance) or (b) as a result of the taking of any assets of Xerium or any of its Subsidiaries by any Person

 

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pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, minus (ii) (a) any actual and reasonable costs incurred by Xerium or any of its Subsidiaries in connection with the adjustment or settlement of any claims of Xerium or such Subsidiary in respect thereof, and (b) any bona fide direct costs incurred in connection with any sale of such assets as referred to in clause (i)(b) of this definition, including income taxes payable as a result of any gain recognized in connection therewith.

“ Non-Consenting Bank ” as defined in Section 2.24.

“ Non-US Aggregate Payments ” as defined in 7.2(a).

“ Non-US Bank ” as defined in Section 2.20(c).

“ Non-US Borrower ” means each Borrower other than Xerium and XTI.

“ Non-US Credit Party ” means each Non-US Borrower and each Non-US Guarantor.

“ Non-US Contributing Guarantor ” as defined in Section 7.2(a).

“ Non-US Fair Share ” as defined in Section 7.2(a).

“ Non-US Fair Share Contribution Amount ” as defined in Section 7.2(a).

“ Non-US Funding Guarantor ” as defined in Section 7.2(a).

“ Non-US Guaranteed Obligations ” as defined in Section 7.1(a).

“ Non-US Guarantor ” means each Guarantor listed as a Non-US guarantor in Schedule 1.1(c) and any other Foreign Subsidiary that becomes a party to the Guaranty.

“ Non-US Obligations ” means the Obligations of the Non-US Borrowers and the Non-US Guarantors.

“ Notice ” means a Funding Notice, an Issuance Notice, or a Continuation Notice.

“ Obligation Aggregate Payments ” as defined in Section 2.25(b).

“ Obligation Fair Share ” as defined in Section 2.25(b).

“ Obligation Fair Share Contribution Amount ” as defined in Section 2.25(b).

“ Obligation Fair Share Shortfall ” as defined in Section 2.25(b).

“ Obligations ” means all obligations of every nature of a US Credit Party or a Non-US Credit Party, as the case may be, from time to time owed to the Agents (including former Agents), the Banks, or any of them, any Issuing Bank and Bank Counterparties, including Hedging Obligations, under any Credit Document or the applicable documents creating the Hedging Obligations (including,

 

25

without limitation, with respect to Hedging Obligations, obligations owed to any person who was a Bank or an Affiliate of a Bank at the time such Hedging Obligation was incurred), whether for principal, interest (including interest which, but for the filing of a petition in bankruptcy with respect to such Credit Party, would have accrued on any Obligation, whether or not a claim is allowed against such Credit Party for such interest in the related bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit, payments for early termination of Hedging Obligations, fees, expenses, indemnification or otherwise.

“ Obligee Guarantor ” as defined in Section 7.7.

“ Officers’ Certificate ” means a certificate signed on behalf of Xerium by two officers of Xerium, one of whom must the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of Xerium.

“ Optional Currency ” means a currency (i) denominated in EUROS, Canadian Dollars, Sterling, Japanese Yen and any other currency approved by the Administrative Agent and (ii) which complies with the conditions set out in Section 2.26.

“ Ordinary Course ” means ordinary course of business or ordinary trade activities that are customary, typical and carried out in a manner consistent with past practice.

“ Organizational Documents ” means (i) with respect to any corporation, its certificate or articles of incorporation or organization, as amended, and its bylaws, as amended, (ii) with respect to any limited partnership, its certificate of limited partnership, as amended, and its partnership agreement, as amended, (iii) with respect to any general partnership, its partnership agreement, as amended, (iv) with respect to any limited liability company, its articles of organization, as amended, and its operating agreement, as amended, and (v) with respect to any other Foreign Subsidiary or entity, its memorandum or articles of association or other constitutional documents. In the event any term or condition of this Agreement or any other Credit Document requires any Organizational Document to be certified by a secretary of state or similar governmental official, the reference to any such “Organizational Document” shall only be to a document of a type customarily certified by such governmental official.

“ Participating Member State ” means any member state of the European Communities that adopts or has adopted the euro as its lawful currency in accordance with legislation of the European Community relating to Economic and Monetary Union.

“ PBGC ” means the Pension Benefit Guaranty Corporation or any successor thereto.

“ Pension Plan ” means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA which is or, within the preceding six years, was sponsored, maintained or contributed to by, or required to be contributed by, Xerium, any of its Subsidiaries or any of its ERISA Affiliates.

“ Permitted Acquisition ” means any acquisition by a Borrower or any of its wholly owned Subsidiaries, whether by purchase, merger or otherwise, of all or substantially all of the assets of, all or substantially all of the Capital Stock of, or a business line or unit or a division of, any Person; provided ,

 

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(i)

immediately prior to, and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or would result therefrom;

 

(ii)

all transactions in connection therewith shall be consummated, in all material respects, in accordance with all applicable laws and in conformity with all applicable Governmental Authorizations;

 

(iii)

in the case of the acquisition of Capital Stock, all of the Capital Stock (except for any such Securities in the nature of directors’ qualifying shares required pursuant to applicable law) acquired or otherwise issued by such Person or any newly formed Subsidiary of a Borrower in connection with such acquisition shall be owned (directly or indirectly) 100% by a Borrower or a Guarantor Subsidiary thereof; provided such Guarantor Subsidiary shall not have any limitations in respect of its guaranty of the Obligation similar to those set forth in Section 7.14, and each Borrower shall have taken, or caused to be taken, as of the date such Person becomes a Subsidiary of each Borrower, each of the actions set forth in Sections 5.10 and/or 5.11, as applicable;

 

(iv)

Xerium and its Subsidiaries shall be in compliance with the financial covenants set forth in Section 6.8 on a pro forma basis after giving effect to such acquisition as of the last day of the Fiscal Quarter most recently ended (as determined in accordance with Section 6.8(e));

 

(v)

there are no material contingent liabilities (including, without limitation, Environmental Claims, but excluding for this purpose Ordinary Course Tax liabilities) relating to the company or business acquired;

 

(vi)

Xerium shall have delivered to Administrative Agent at least fifteen (15) Business Days prior to such proposed acquisition, a Compliance Certificate evidencing compliance with Section 6.8 as required under clause (iv) above, together with all relevant financial information with respect to such acquired assets, including, without limitation, the aggregate consideration for such acquisition and any other information required to demonstrate compliance with Section 6.8; and

 

(vii)

any Person or assets or division as acquired in accordance herewith (x) shall be in the same business or lines of business in which Xerium and/or any of its Subsidiaries are engaged as of the Closing Date and (y) shall have generated positive cash flow for the four quarter period most recently ended prior to the date of such acquisition adjusted on a pro forma basis as certified by the Chief Financial Officer of Xerium.

“ Permitted Liens ” means each of the Liens permitted pursuant to Section 6.2.

 

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“ Person ” means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and Governmental Authorities.

“ Phase I Report ” means, with respect to any Facility, a report that (i) conforms to the ASTM Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, E 1527, (ii) includes an assessment of asbestos containing materials at such Facility, (iii) is accompanied by (a) an estimate of the reasonable worst case cost of investigating and remediating any Hazardous Materials Activity identified in the Phase I Report as giving rise to an actual or potential material violation of any Environmental Law or as presenting a material risk of giving rise to a material Environmental Claim, and (b) a current compliance audit setting forth an assessment of Xerium’s, its Subsidiaries’ and such Facility’s current and past compliance with Environmental Laws and an estimate of the cost of rectifying any non-compliance with current Environmental Laws identified therein and the cost of compliance with reasonably anticipated future Environmental Laws identified therein.

“ Platform ” as defined in Section 5.1(p)(ii).

“ Pledge and Security Agreements ” mean the Pledge and Security Agreement to be executed by each U.S. Credit Party substantially in the form of Exhibit I-A and each functionally similar agreement executed by any Non-U.S. Credit Party, as each may be amended, supplemented or otherwise modified from time to time.

“ Principal Office ” means, for each of Administrative Agent and Issuing Bank, such Person’s “Principal Office” as set forth on Appendix B, or such other office as such Person may from time to time designate in writing to each Borrower, Administrative Agent and each Bank.

“ Projections ” as defined in Section 4.8.

“ Pro Rata Share ” means (i) with respect to all payments, computations and other matters relating to the Xerium B Term Loan of any Bank, the percentage obtained by dividing (a) the Xerium B Term Loan Exposure of that Bank by (b) the aggregate Xerium B Term Loan Exposure of all Banks; (ii) with respect to all payments, computations and other matters relating to the XTI B Term Loan of any Bank, the percentage obtained by dividing (a) the XTI B Term Loan Exposure of that Bank by (b) the aggregate XTI B Term Loan Exposure of all Banks; (iii) with respect to all payments, computations and other matters relating to the Italia B Term Loan of any Bank, the percentage obtained by dividing (a) the Italia B Term Loan Exposure of that Bank by (b) the aggregate Italia B Term Loan Exposure of all Banks; (iv) with respect to all payments, computations and other matters relating to the Xerium Canada SW B Term Loan of any Bank, the percentage obtained by dividing (a) the Xerium Canada SW B Term Loan Exposure of that Bank by (b) the aggregate Xerium Canada SW B Term Loan Exposure of all Banks; (v) with respect to all payments, computations and other matters relating to the Xerium Canada Wxx B Term Loan of any Bank, the percentage obtained by dividing (a) the Xerium Canada Wxx B Term Loan Exposure of that Bank by (b) the aggregate Xerium Canada Wxx B Term Loan Exposure of all Banks; (vi) with respect to all payments, computations and other matters relating to the Austria B Term Loan of any Bank, the percentage obtained by dividing (a) the Austria B Term Loan Exposure of that Bank by (b) the aggregate Austria B Term Loan Exposure of all Banks; (vii)

 

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with respect to all payments, computations and other matters relating to the German B Term Loan of any Bank, the percentage obtained by dividing (a) the German B Term Loan Exposure of that Bank by (b) the aggregate German B Term Loan Exposure of all Banks; and (viii) with respect to all payments, computations and other matters relating to the Tranche 1 Revolving Commitment or Tranche 1 Revolving Loans of any Bank or any Letters of Credit issued or participations purchased therein by any Bank, the percentage obtained by dividing (a) the Tranche 1 Revolving Exposure of that Bank by (b) the aggregate Tranche 1 Revolving Exposure of all Banks. For all other purposes with respect to each Bank, “Pro Rata Share” means the percentage obtained by dividing (A) an amount equal to the sum of the Xerium B Term Loan Exposure, the XTI B Term Loan Exposure, the Italia B Term Loan Exposure, the Xerium Canada SW B Term Loan Exposure, the Xerium Canada Wxx B Term Loan Exposure, the Austria B Term Loan Exposure, the German B Term Loan Exposure and the Revolving Exposure of that Bank, by (B) an amount equal to the sum of the aggregate Xerium B Term Loan Exposure, the aggregate XTI B Term Loan Exposure, the aggregate Italia B Term Loan Exposure, the aggregate Xerium Canada SW B Term Loan Exposure, the aggregate Xerium Canada Wxx B Term Loan Exposure, the aggregate Austria B Term Loan Exposure, the aggregate German B Term Loan Exposure and the aggregate Revolving Exposure of all Banks.

“ Prospectus ” means the Registration Statement on Form S-1 filed with the U.S. Securities and Exchange Commission by Xerium, as amended.

“ Qualifying Lender ” means:

 

(a)

a Bank which is a bank as defined in Section 840A of the Income and Corporation Taxes Act of 1988 of the United Kingdom, beneficially entitled to all amounts payable to it by a Credit Party under the Credit Documents and within the charge to United Kingdom corporation tax as respects such amounts; or

 

(b)

a bank in respect of which an order under Section 840A(1)(d) designating it as a bank for the purposes of Section 349(3)(a) of the Income and Corporation Taxes Act of 1988 of the United Kingdom provides that Section 349(3)(a) shall apply to it as if the words from “if” to the end in that section were omitted; or

 

(c)

a Treaty Lender.

“ Quotation Day ” means, in relation to any period for which an interest rate is to be determined:

 

(a)

(if the currency is Sterling) the first day of that period;

 

(b)

(if the currency is euro) two TARGET Days before the first day of that period; or

 

(c)

(for any other currency) two Business Days before the first day of that period,

 

29

unless market practice differs in the Relevant Interbank Market for a currency, in which case the Quotation Day for that currency will be determined by the Agent in accordance with market practice in the Relevant Interbank Market (and if quotations would normally be given by Reference Banks in the Relevant Interbank Market on more than one day, the Quotation Day will be the last of those days).

“ R&W Material Adverse Effect ” means any effect, event, matter or circumstance: (a) is materially adverse to the: (i) business, assets or financial condition of Xerium and its Subsidiaries taken as a whole; or (ii) the ability of any Credit Party to perform any of its Obligations in accordance with their terms under any of the Credit Documents; or (b) results in any (i) Credit Document not being legal, valid and binding on and, subject to reservations contained in the legal opinions provided as conditions precedent thereto, enforceable against any party thereto and/or (ii) Collateral Document not being a valid and effective security interest, and in the case of (b), in each case in a manner or to an extent materially prejudicial to the interest of any Bank under the Credit Documents.

“ Real Estate Asset ” means, at any time of determination, any interest (fee, leasehold or otherwise) then owned by any Credit Party in any real property.

“ Record Document ” means, with respect to any Leasehold Property, (i) the lease evidencing such Leasehold Property or a memorandum thereof, executed and acknowledged by the owner of the affected real property, as lessor, or (ii) if such Leasehold Property was acquired or subleased from the holder of a Recorded Leasehold Interest, the applicable assignment or sublease document, executed and acknowledged by such holder, in each case in form sufficient to give such constructive notice upon recordation and otherwise in form reasonably satisfactory to Collateral Agent.

“ Recorded Leasehold Interest ” means a Leasehold Property with respect to which a Record Document has been recorded in all places necessary or desirable, in Administrative Agent’s reasonable judgment, to give constructive notice of such Leasehold Property to third party purchasers and encumbrancers of the affected real property.

“ Reference Banks ” means, in relation to LIBOR, Euribor and Mandatory Cost, the principal London offices of Citibank, N.A. and such two other banks as may be appointed by the Administrative Agent in consultation with Xerium.

“ Register ” as defined in Section 2.7(b).

“ Reimbursement Date ” as defined in Section 2.4(e).

“ Related Agreements ” means, collectively, the Information Memorandum and the IPO Documents.

“ Related Fund ” means, with respect to any Bank that is an investment fund, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Bank or by an Affiliate of such investment advisor.

 

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“ Release ” means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of any Hazardous Material into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Material), including the movement of any Hazardous Material through the air, soil, surface water or groundwater.

“ Relevant Interbank Market ” means in relation to EUROS, the European interbank market and, in relation to any other currency, the London interbank market.

“ Replacement Bank ” as defined in Section 2.24.

“ Replacement Rate ” means the rate notified to the Administrative Agent by a Bank, as soon as practicable and in any event no later than 11:00 a.m. (New York City time) on the date that interest is due to be paid in respect of the applicable Interest Period, to be that interest rate which expresses as a percentage rate per annum the cost to that Bank of funding its participation in the applicable Loan from whatever source such Bank may reasonably select.

“ Required Prepayment Date ” as defined in Section 2.15(c).

“ Requisite Banks ” means one or more Banks having or holding Xerium B Term Loan Exposure, XTI B Term Loan Exposure, Italia B Term Loan Exposure, Xerium Canada SW B Term Loan Exposure, Xerium Canada Wxx B Term Loan Exposure, Austria B Term Loan Exposure, German B Term Loan Exposure and/or any Revolving Exposure and representing more than 66.7% of the sum of the (i) aggregate Xerium B Term Loan Exposure of all Banks, (ii) aggregate XTI B Term Loan Exposure of all Banks, (iii) aggregate Italia B Term Loan Exposure of all Banks, (iv) aggregate Xerium Canada SW B Term Loan Exposure of all Banks, (v) aggregate Xerium Canada Wxx B Term Loan Exposure of all Banks, (vi) aggregate Austria B Term Loan Exposure of all Banks, (vii) aggregate German B Term Loan Exposure of all Banks and (viii) aggregate Revolving Exposure of all Banks.

“ Requisite Class Banks ” means, at any time of determination, (i) for the Class of Banks having Xerium B Term Loan Exposure, Banks holding more than 66.7% of the aggregate Xerium B Term Loan Exposure of all Banks; (ii) for the Class of Banks having XTI B Term Loan Exposure, Banks holding more than 66.7% of the aggregate XTI B Term Loan Exposure of all Banks; (iii) for the Class of Banks having Italia B Term Loan Exposure, Banks holding more than 66.7% of the aggregate Italia B Term Loan Exposure of all Banks; (iv) for the Class of Banks having Xerium Canada SW B Term Loan Exposure, Banks holding more than 66.7% of the aggregate Xerium Canada SW B Term Loan Exposure of all Banks; (v) for the Class of Banks having Xerium Canada Wxx B Term Loan Exposure, Banks holding more than 66.7% of the aggregate Xerium Canada Wxx B Term Loan Exposure of all Banks; (vi) for the Class of Banks having Austria B Term Loan Exposure, Banks holding more than 66.7% of the aggregate Austria B Term Loan Exposure of all Banks; (vii) for the Class of Banks having German B Term Loan Exposure, Banks holding more than 66.7% of the aggregate German B Term Loan Exposure of all Banks; and (viii) for the Class of Banks having Tranche 1 Revolving Exposure, Banks holding more than 66.7% of the aggregate Tranche 1 Revolving Exposure of all Banks.

 

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“ Restatement Effective Date ” as defined in Section 10.21.

“ Restatement Fee ” as defined in Section 3.1(o).

“ Restricted Junior Payment ” means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Xerium now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class; (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Xerium now or hereafter outstanding, except any payment made solely in shares of that class of stock to the holders of that class; (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Xerium now or hereafter outstanding; and (iv) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Debt, excluding, in respect of this clause (iv), payments in kind.

“ Revolving Commitment ” means the commitment of a Bank to make or otherwise fund any Tranche 1 Revolving Loan including the commitment to acquire participations in Letters of Credit hereunder and “ Revolving Commitments ” means such commitments of all Banks in the aggregate. The aggregate Base Currency Amount of the Revolving Commitments is $50,000,000.

“ Revolving Commitment Period ” means the Tranche 1 Revolving Commitment Period.

“ Revolving Commitment Termination Date ” means the Tranche 1 Revolving Commitment Termination Date.

“ Revolving Exposure ” means the Tranche 1 Revolving Exposure.

“ Revolving Loan ” means a Tranche 1 Revolving Loan.

“ Roll-Over Amount ” as defined in Section 6.8(d).

“ S&P ” means Standard & Poor’s Ratings Group, a division of The McGraw Hill Companies.

“ Screen Rate ” means:

 

(a)

in relation to LIBOR, the British Bankers Association Interest Settlement Rate for the relevant currency and period; and

 

(b)

in relation to Euribor, the percentage rate per annum determined by the Banking Federation of the European Union for the relevant period,

displayed on the appropriate page of the Telerate screen. If the agreed page is replaced or service ceases to be available, the Administrative Agent may specify another page or service displaying the appropriate rate after consultation with the Borrowers and the Banks.

 

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“ Second Currency ” as defined in Section 10.4(b).

“ Secured Parties ” has the meaning assigned to that term in the Collateral Documents.

“ Securities ” means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.

“ Securities Act ” means the Securities Act of 1933, as amended from time to time, and any successor statute.

“ Solvency Certificate ” means a Solvency Certificate of the chief financial officer of Xerium substantially in the form of Exhibit G 2.

“ Solvent ” means, with respect to any Credit Party, that as of the date of determination, both (i) (a) the sum of such Credit Party’s debt (including contingent liabilities) does not exceed the present fair saleable value of such Credit Party’s present assets; (b) such Credit Party’s capital is not unreasonably small in relation to its business as contemplated on the Closing Date and reflected in the Projections or with respect to any transaction contemplated or undertaken after the Closing Date; and (c) such Person has not incurred and does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due (whether at maturity or otherwise); and (ii) such Person is “solvent” within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances and by the laws of the jurisdiction where such Credit Party is incorporated, formed or organized. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No. 5).

“ Sterling ” means the lawful currency of the United Kingdom.

“ Subject Transaction ” as defined in Section 6.8(e).

“ Subordinated Debt ” means unsecured Indebtedness that is subordinated pursuant to a written agreement to the Obligations on terms and conditions reasonably satisfactory to the Requisite Lenders.

“ Subsidiary ” means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of

 

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that Person or a combination thereof; provided , in determining the percentage of ownership interests of any Person controlled by another Person, no ownership interest in the nature of a “qualifying share” of the former Person shall be deemed to be outstanding.

“ Sum ” as defined in Section 10.4(b).

“ Swiss Guarantor ” means each Guarantor incorporated in Switzerland.

“ Swiss Obligee Guarantor ” as defined in Section 7.14(c).

“ TARGET ” means Trans-European Automated Real-Time Gross Settlement Express Transfer payment system.

“ TARGET Day ” means a day in which TARGET is open for the settlement of payments in Euro.

“ Tax ” means any present or future tax, levy, impost, duty, assessment, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed, whether disputed or not, including any interest, penalties or additions thereto and any installments in respect thereof; provided , “Tax on the overall net income” of a Person shall be construed as a reference to a Tax imposed by the jurisdiction in which that Person is organized or in which that Person’s applicable principal office (and/or, in the case of a Bank, its lending office) is located or in which that Person (and/or, in the case of a Bank, its lending office) is deemed to be doing business on all or part of the net income, profits, or gains (whether worldwide, or only insofar as such income, profits, or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Bank, its applicable lending office).

“ Tax Confirmation ” means a confirmation by a Bank that it is an 840A Bank.

“ Tax Credit ” means a credit against, relief or remission for or repayment of any Tax.

“ Terminated Bank ” as defined in Section 2.24.

“ Total Utilization of Tranche 1 Revolving Commitments ” means, as at any date of determination, the sum of (i) the aggregate principal Base Currency Amount of all outstanding Tranche 1 Revolving Loans (other than Tranche 1 Revolving Loans made for the purpose of reimbursing Issuing Bank for any amount drawn under any Letter of Credit, but not yet so applied) and (ii) the Letter of Credit Usage.

“ Tranche 1 Revolving Commitment ” means the commitment of a Bank to make or otherwise fund any Tranche 1 Revolving Loan and to acquire participations in Letters of Credit hereunder and “ Tranche 1 Revolving Commitments ” means such commitments of all Banks in the aggregate. The Base Currency Amount of each Bank’s Tranche 1 Revolving Commitment, if any, is set forth on Appendix A-8 or in the applicable Assignment Agreement subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate Base Currency Amount of the Tranche 1 Revolving Commitments is $50,000,000.

 

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“ Tranche 1 Revolving Commitment Period ” means the period from the Closing Date to but excluding the Tranche 1 Revolving Commitment Termination Date.

“ Tranche 1 Revolving Commitment Termination Date ” means the earliest to occur of (i) May 21, 2005, if the B Term Loans are not made on or before that date, (ii) the date that is six and one half years after the Closing Date, (iii) the date the Tranche 1 Revolving Commitments are permanently reduced to zero pursuant to Section 2.13(b) or 2.14, and (iv) the date of the termination of the Tranche 1 Revolving Commitments pursuant to Section 8.1.

“ Tranche 1 Revolving Exposure ” means, with respect to any Bank as of any date of determination, (i) prior to the termination of the Tranche 1 Revolving Commitments, that Bank’s Tranche 1 Revolving Commitment; and (ii) after the termination of the Tranche 1 Revolving Commitments, the sum of (a) the aggregate outstanding principal amount of the Tranche 1 Revolving Loans of that Bank, (b) in the case of Issuing Bank, the aggregate Letter of Credit Usage in respect of all Letters of Credit issued by that Bank (net of any participations by Banks in such Letters of Credit), and (c) the aggregate amount of all participations by that Bank in any outstanding Letters of Credit or any unreimbursed drawing under any Letter of Credit.

“ Tranche 1 Revolving Loan ” means a Loan made by a Bank to a Borrower pursuant to Section 2.2(a)(i).

“ Tranche 2 Revolving Loan ” means a Loan made by a Bank to a Borrower pursuant to Section 2.2(a)(ii) of the Existing Credit Agreement.

“ Treaty Lender ” means a Bank which at the time the payment is made is beneficially entitled to all amounts payable to it under the Credit Documents and is entitled pursuant to the interpretation of the taxation authorities of the jurisdiction from which the payment is made or deemed to be made under a double taxation agreement in force at that date (subject only to the completion of any necessary formalities or administrative procedures, (including, without limitation, the matters referred to in Section 2.20(e)) to receive any payments of interest under the Credit Documents without deduction or withholding for or on account of Tax.

“ Type of Loan ” means with respect to either B Term Loans or Revolving Loans, a LIBOR Loan, Euribor Loan or BA Loan.

“ UCC ” means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.

“ Underwriting Agreement ” means that certain Underwriting Agreement dated May 16, 2005 among Xerium, Citigroup Global Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and CIBC World Markets Corp, as representatives of the several underwriters.

“ Unpaid Sum ” means any sum due and payable but unpaid by a Credit Party under the Credit Documents.

“ US Aggregate Payments ” as defined in 7.2(b).

“ US Credit Party ” means Xerium, XTI, and each US Guarantor.

 

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“ US Contributing Guarantors ” as defined in 7.2(b).

“ US Funding Guarantor ” as defined in Section 7.2(b).

“ US Fair Share ” as defined in 7.2(b).

“ US Fair Share Contribution Amount ” as defined in 7.2(b).

“ US Guarantor ” means (i) each Guarantor listed in Schedule 1.1(c) as a US Guarantor and (ii) each other Domestic Subsidiary that becomes a party to the Guaranty.

“ VAT ” means value added tax, goods and services tax and any similar sales or turnover tax.

“ Waivable Mandatory Prepayment ” as defined in Section 2.15(c).

“ Xerium ” as defined in the preamble hereto.

“ Xerium B Term Loan ” means a Xerium B Term Loan made by a Bank to Xerium pursuant to Section 2.1(a)(i).

“ Xerium B Term Loan Commitment ” means the commitment of a Bank to make or otherwise fund a Xerium B Term Loan and “ Xerium B Term Loan Commitments ” means such commitments of all Banks in the aggregate. The amount of each Bank’s Xerium B Term Loan Commitment, if any, is set forth on Appendix A-1 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Xerium B Term Loan Commitments as of the Closing Date is set forth on Appendix A-1.

“ Xerium B Term Loan Exposure ” means, with respect to any Bank, as of any date of determination, the outstanding principal amount of the Xerium B Term Loans of such Bank; provided , at any time prior to the making of the Xerium B Term Loans, the Xerium B Term Loan Exposure of any Bank shall be equal to such Bank’s Xerium B Term Loan Commitment.

“ Xerium B Term Loan Maturity Date ” means the earlier of (i) the date that is seven years after the Closing Date, and (ii) the date that all Xerium B Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise.

“ Xerium Canada SW B Term Loan ” means a Xerium Canada SW B Term Loan made by a Bank to Stowe-Woodward/Mount Hope Inc. pursuant to Section 2.1(a)(iv).

“ Xerium Canada Wxx B Term Loan ” means a Xerium Canada Wxx B Term Loan made by a Bank to Weavexx Corporation pursuant to Section 2.1(a)(v).

“ Xerium Canada SW B Term Loan Commitment ” means the commitment of a Bank to make or otherwise fund a Xerium Canada SW B Term Loan and “ Xerium Canada SW B Term Loan Commitments ” means such commitments of all Banks in the aggregate. The amount in Base Currency of each Bank’s Xerium Canada SW B Term Loan Commitment, if any, is set forth on

 

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Appendix A-4 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount in Base Currency of the Xerium Canada SW B Term Loan Commitments as of the Closing Date is set forth on Appendix A-4.

“ Xerium Canada Wxx B Term Loan Commitment ” means the commitment of a Bank to make or otherwise fund a Xerium Canada Wxx B Term Loan and “ Xerium Canada Wxx B Term Loan Commitments ” means such commitments of all Banks in the aggregate. The amount in Base Currency of each Bank’s Xerium Canada Wxx B Term Loan Commitment, if any, is set forth on Appendix A-5 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount in Base Currency of the Xerium Canada Wxx B Term Loan Commitments as of the Closing Date is set forth on Appendix A-5.

“ Xerium Canada SW B Term Loan Exposure ” means, with respect to any Bank, as of any date of determination, the outstanding principal amount in Base Currency of the Xerium Canada SW B Term Loans of such Bank; provided , at any time prior to the making of the Xerium Canada SW B Term Loans, the Xerium Canada SW B Term Loan Exposure of any Bank shall be equal to such Bank’s Xerium Canada SW B Term Loan Commitment.

“ Xerium Canada Wxx B Term Loan Exposure ” means, with respect to any Bank, as of any date of determination, the outstanding principal amount in Base Currency of the Xerium Canada Wxx B Term Loans of such Bank; provided , at any time prior to the making of the Xerium Canada Wxx B Term Loans, the Xerium Canada Wxx B Term Loan Exposure of any Bank shall be equal to such Bank’s Xerium Canada Wxx B Term Loan Commitment.

“ Xerium Canada SW B Term Loan Maturity Date ” means the earlier of (i) the seventh anniversary of the Closing Date, and (ii) the date that all Xerium Canada SW B Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise.

“ Xerium Canada Wxx B Term Loan Maturity Date ” means the earlier of (i) the seventh anniversary of the Closing Date, and (ii) the date that all Xerium Canada Wxx B Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise.

“ XTI ” as defined in the preamble hereto.

“ XTI B Term Loan ” means an XTI B Term Loan made by a Bank to XTI pursuant to Section 2.1(a)(ii).

“ XTI B Term Loan Commitment ” means the commitment of a Bank to make or otherwise fund an XTI B Term Loan and “ XTI B Term Loan Commitments ” means such commitments of all Banks in the aggregate. The amount of each Bank’s XTI B Term Loan Commitment, if any, is set forth on Appendix A-2 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the XTI B Term Loan Commitments as of the Closing Date is set forth on Appendix A-2.

 

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“ XTI B Term Loan Exposure ” means, with respect to any Bank, as of any date of determination, the outstanding principal amount of the XTI B Term Loans of such Bank; provided , at any time prior to the making of the XTI B Term Loans, the XTI B Term Loan Exposure of any Bank shall be equal to such Bank’s XTI B Term Loan Commitment.

“ XTI B Term Loan Maturity Date ” means the earlier of (i) the date that is seven years after the Closing Date, and (ii) the date that all XTI B Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise.

“ 840A Bank ” means a Bank falling within paragraph (a) or (b) of the definition of Qualifying Lender.

1.2 Accounting Terms . Except as otherwise expressly provided herein, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial statements and other information required to be delivered by Xerium to Banks pursuant to Section 5.1(b) and 5.1(c) shall be prepared in accordance with GAAP as in effect at the time of such preparation. Notwithstanding the foregoing, calculations in connection with the definitions, covenants and other provisions hereof shall utilize accounting principles and policies in conformity with those used to prepare the Historical Financial Statements for the Fiscal Year ended December 31, 2004 only.

Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. References herein to any Section, Appendix, Schedule or Exhibit shall be to a Section, an Appendix, a Schedule or an Exhibit, as the case may be, hereof unless otherwise specifically provided. The use herein of the word “include” or “including”, when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not limiting language (such as “without limitation” or “but not limited to” or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter.

SECTION 2. LOANS AND LETTERS OF CREDIT

2.1 B Term Loans Loan Commitments . Subject to the terms and conditions hereof,

(i) each Bank made, on the Closing Date, a Xerium B Term Loan to Xerium in Dollars in an amount equal to such Bank’s Xerium B Term Loan Commitment on such date;

(ii) each Bank made, on the Closing Date, an XTI B Term Loan to XTI in Euros in an amount equal to such Bank’s XTI B Term Loan Commitment on such date;

 

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(iii) each Bank made, on the Closing Date, an Italia B Term Loan to Italia SpA in EUROS in an amount equal to such Bank’s Italia B Term Loan Commitment on such date;

(iv) each Bank made, on the Closing Date, a Xerium Canada SW B Term Loan to Stowe-Woodward/Mount Hope, Inc. in Canadian Dollars in an amount equal to such Bank’s Xerium Canada SW B Term Loan Commitment on such date;

(v) each Bank made, on the Closing Date, a Xerium Canada Wxx B Term Loan to Weavexx Corporation in Canadian Dollars in an amount equal to such Bank’s Xerium Canada Wxx B Term Loan Commitment on such date;

(vi) each Bank made, on the Closing Date, an Austria B Term Loan to Huyck Austria in EUROS in an amount equal to such Bank’s Austria B Term Loan Commitment on such date; and

(vii) each Bank made, on the Closing Date, a German B Term Loan to Germany Holdings in EUROS in an amount equal to such Bank’s German B Term Loan Commitment on such date.

Any amount borrowed under this Section 2.1(a) and subsequently repaid or prepaid may not be reborrowed. Subject to Sections 2.13(a) and 2.14, all amounts owed hereunder with respect to the Xerium B Term Loans, XTI B Term Loans, Italia B Term Loans, Xerium Canada SW B Term Loans, Xerium Canada Wxx B Term Loans, Austria B Term Loans and German B Term Loans shall be paid in full no later than the Xerium B Term Loan Maturity Date, XTI B Term Loan Maturity Date, Italia B Term Loan Maturity Date, Xerium Canada SW B Term Loan Maturity Date, Xerium Canada Wxx B Term Loan Maturity Date, Austria B Term Loan Maturity Date and German B Term Loan Maturity Date, respectively. Each Bank’s Xerium B Term Loan Commitment, XTI B Term Loan Commitment, Italia B Term Loan Commitment, Xerium Canada SW B Term Loan Commitment, Xerium Canada Wxx B Term Loan Commitment, Austria B Term Loan Commitment and German B Term Loan Commitment terminated on the Closing Date after giving effect to the funding of such Bank’s Xerium B Term Loan Commitment, XTI B Term Loan Commitment, Italia B Term Loan Commitment, Xerium Canada SW B Term Loan Commitment, Xerium Canada Wxx B Term Loan Commitment, Austria B Term Loan Commitment and German B Term Loan Commitment on such date.

(b) [Intentionally Omitted].

2.2 Revolving Loans

(a) Revolving Commitments .

(i) During the Tranche 1 Revolving Commitment Period, subject to the terms and conditions hereof, each Bank severally agrees to make Tranche 1 Revolving Loans to each of Xerium, XTI, Xerium Canada in an aggregate amount up to but not exceeding such Bank’s Tranche 1 Revolving Commitment; provided , that after giving effect to the making of

 

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any Revolving Loans in no event shall the Total Utilization of Tranche 1 Revolving Commitments exceed the Tranche 1 Revolving Commitments then in effect; and provided , further , that for a period of at least 30 consecutive days during each Fiscal Year, commencing with the Fiscal Year ended December 31, 2005, the outstanding principal amount of Tranche 1 Revolving Loans (other than the aggregate amount available for drawing under all Letters of Credit then outstanding) shall be no more than $20,000,000.

(ii) [Intentionally Omitted].

(b) Borrowing Mechanics for Revolving Loans.

(i) Except pursuant to Section 2.4(d), Revolving Loans that are LIBOR Loans, Euribor Loans or BA Loans shall be in an aggregate minimum Base Currency Amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount.

(ii) Whenever a Borrower desires that Banks make Revolving Loans, such Borrower shall deliver to Administrative Agent a fully executed and delivered Funding Notice no later than 9:30 a.m. (New York City time) at least three Business Days in advance of the proposed Credit Date in the case of a LIBOR Loan, a Euribor Loan or a BA Loan. Except as otherwise provided herein, a Funding Notice for a Revolving Loan that is a LIBOR Loan or a Euribor Loan shall be irrevocable on and after the related Interest Rate Determination Date, and such Borrower shall be bound to make a borrowing in accordance therewith.

(iii) Notice of receipt of each Funding Notice in respect of Revolving Loans, together with the amount of each Bank’s Pro Rata Share thereof, if any, together with the applicable interest rate, shall be provided by Administrative Agent to each applicable Bank by telefacsimile with reasonable promptness, but (provided Administrative Agent shall have received such notice by 9:30 a.m. (New York City time)) not later than 3:00 p.m. (New York City time) on the same day as Administrative Agent’s receipt of such Notice from the applicable Borrower. In addition, the Administrative Agent shall determine the Base Currency Amount of each Revolving Loan which is to be made in an Optional Currency and notify each Bank of the amount, currency and the Base Currency Amount of each Loan.

(iv) Each Bank shall make the amount of its Revolving Loan available to Administrative Agent not later than 12:00 p.m. (New York City time) on the applicable Credit Date by wire transfer of same day funds in Base Currency (or the Optional Currency if requested), at Administrative Agent’s Principal Office. Except as provided herein, upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of such Revolving Loans available to the applicable Borrower on the applicable Credit Date by causing an amount of same day funds in Base Currency (or the Optional Currency if requested) equal to the proceeds of all such Revolving Loans received

 

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by Administrative Agent from Banks to be credited to the account of such Borrower at Administrative Agent’s Principal Office or such other account as may be reasonably designated in writing no later than 3 days before to Administrative Agent by such Borrower.

2.3 [Intentionally Omitted.]

2.4 Issuance of Letters of Credit and Purchase of Participations Therein.

(a) [Intentionally Omitted.]

(b) Letters of Credit . During the Revolving Commitment Period, subject to the terms and conditions hereof, Issuing Bank agrees to issue Letters of Credit for the account of each Borrower in the aggregate Base Currency Amount up to but not exceeding the Letter of Credit Sublimit; provided , (i) each Letter of Credit shall be denominated in Base Currency (or the Optional Currency if requested); (ii) the stated amount of each Letter of Credit shall not be less than a Base Currency Amount of $500,000 or such lesser amount as is acceptable to Issuing Bank; (iii) after giving effect to such issuance, in no event shall the Total Utilization of Tranche 1 Revolving Commitments exceed the Tranche 1 Revolving Commitments then in effect; (iv) after giving effect to such issuance, in no event shall the Letter of Credit Usage exceed the Letter of Credit Sublimit then in effect; (v) in no event shall any standby Letter of Credit have an expiration date later than the earlier of (1) the Tranche 1 Revolving Commitment Termination Date and (2) the date which is one year from the date of issuance of such standby Letter of Credit; (vi) in no event shall any commercial Letter of Credit have an expiration date later than the earlier of (1) the Tranche 1 Revolving Commitment Termination Date and (2) the date which is 180 days from the date of issuance of such commercial Letter of Credit; and (vii) in no event shall a commercial Letter of Credit be issued if such commercial Letter of Credit is not substantially in the form of Exhibit M or otherwise acceptable to Issuing Bank in its reasonable discretion. Subject to the foregoing, Issuing Bank may agree that a standby Letter of Credit will automatically be extended for one or more successive periods not to exceed one year each, unless Issuing Bank elects not to extend for any such additional period; provided , Issuing Bank shall not extend any such Letter of Credit if it has received written notice from the Administrative Agent, acting on behalf of the Requisite Banks, that an Event of Default has occurred and is continuing; provided , further , in the event (x) a Funding Default exists or (y) a determination pursuant to Section 2.18 or 2.19 occurs, Issuing Bank shall not be required to issue any Letter of Credit unless Issuing Bank has entered into arrangements satisfactory to it and each Borrower to eliminate Issuing Bank’s risk with respect to the participation in Letters of Credit of the Defaulting Bank, including by cash collateralizing such Defaulting Bank’s Pro Rata Share of the Letter of Credit Usage.

(c) Notice of Issuance . Whenever a Borrower desires the issuance of a Letter of Credit, it shall deliver to Administrative Agent an Issuance Notice no later than 9:30 a.m. (New York City time) at least three Business Days (in the case of standby letters of credit) or five Business Days (in the case of commercial letters of credit), or in each case such shorter

 

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period as may be agreed to by Issuing Bank in any particular instance, in advance of the proposed date of issuance. Upon satisfaction or waiver of the conditions set forth in Section 3.2, Issuing Bank shall issue the requested Letter of Credit only in accordance with Issuing Bank’s standard operating procedures. The Agent shall determine the Base Currency Amount of each Letter of Credit which is to be issued in an Optional Currency. Upon the issuance of any Letter of Credit or amendment or modification to a Letter of Credit, Issuing Bank shall promptly notify each Bank of such issuance, which notice shall be accompanied by a copy of such Letter of Credit or amendment or modification to a Letter of Credit and the amount of such Bank’s respective participation in such Letter of Credit pursuant to Section 2.4(f).

(d) Responsibility of Issuing Bank With Respect to Requests for Drawings and Payments . In determining whether to honor any drawing under any Letter of Credit by the beneficiary thereof, Issuing Bank shall be responsible only to examine the documents delivered under such Letter of Credit with reasonable care so as to ascertain whether they appear on their face to be in accordance with the terms and conditions of such Letter of Credit. As between each Borrower and Issuing Bank, each Borrower assumes all risks of the acts and omissions of, or misuse of, the Letters of Credit issued by Issuing Bank by the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, Issuing Bank shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any such Letter of Credit to comply fully with any conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of Issuing Bank, including any Governmental Acts; none of the above shall affect or impair, or prevent the vesting of, any of Issuing Bank’s rights or powers hereunder. Without limiting the foregoing and in furtherance thereof, any action taken or omitted by Issuing Bank under or in connection with the Letters of Credit or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not give rise to any liability on the part of Issuing Bank to any Borrower. Notwithstanding anything to the contrary contained in this Section 2.4(d), each Borrower shall retain any and all rights it may have against Issuing Bank for any liability arising solely out of the gross negligence or willful misconduct of Issuing Bank.

(e) Reimbursement by a Borrower of Amounts Drawn or Paid Under Letters of Credit . In the event Issuing Bank has determined to honor a drawing under a Letter of Credit, it shall immediately notify the applicable Borrower and Administrative

 

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Agent, and such Borrower shall reimburse Issuing Bank on or before the Business Day immediately following the date on which such drawing is honored (the “ Reimbursement Date ”) in the same amount and currency as the Issuing Bank honored and in same day funds equal to the amount of such honored drawing; provided , anything contained herein to the contrary notwithstanding, (i) unless such Borrower shall have notified Administrative Agent and Issuing Bank prior to 9:30 a.m. (New York City time) on the date three (3) Business Days prior to the date such drawing is honored that such Borrower intends to reimburse Issuing Bank for the amount of such honored drawing with funds other than the proceeds of Tranche 1 Revolving Loans, such Borrower shall be deemed to have given a timely Funding Notice to Administrative Agent requesting Banks to make Tranche 1 Revolving Loans that are LIBOR Loans or BA Loans on the Reimbursement Date in the same amount and currency of such honored drawing, and (ii) subject to satisfaction or waiver of the conditions specified in Section 3.2, Banks having a Tranche 1 Revolving Commitment shall, on the Reimbursement Date, make Revolving Loans that are LIBOR Loans or BA Loans, as applicable, in the amount of such honored drawing, the proceeds of which shall be applied directly by Administrative Agent to reimburse Issuing Bank for the amount of such honored drawing; and provided further , if for any reason proceeds of Tranche 1 Revolving Loans are not received by Issuing Bank on the Reimbursement Date in an amount equal to the amount of such honored drawing, such Borrower shall reimburse Issuing Bank, on demand, in an amount in same day funds equal to the excess of the amount of such honored drawing over the aggregate amount of such Tranche 1 Revolving Loans, if any, which are so received. Nothing in this Section 2.4(e) shall be deemed to relieve any Bank from its obligation to make Tranche 1 Revolving Loans on the terms and conditions set forth herein, and each Borrower shall retain any and all rights it may have against any Bank resulting from the failure of such Bank to make such Tranche 1 Revolving Loans under this Section 2.4(e).

(f) Banks’ Purchase of Participations in Letters of Credit . Immediately upon the issuance of each Letter of Credit, each Bank having a Tranche 1 Revolving Commitment shall be deemed to have purchased, and hereby agrees to irrevocably purchase, from Issuing Bank a participation in such Letter of Credit and any drawings honored thereunder in an amount equal to such Bank’s Pro Rata Share (with respect to the Tranche 1 Revolving Commitments) of the maximum amount which is or at any time may become available to be drawn thereunder. In the event that a Borrower shall fail for any reason to reimburse Issuing Bank as provided in Section 2.4(e), Issuing Bank shall promptly notify each Bank of the unreimbursed amount of such honored drawing and of such Bank’s respective participation therein based on such Bank’s Pro Rata Share of the Tranche 1 Revolving Commitments. Each Bank shall make available to Issuing Bank an amount equal to the Base Currency Amount of its respective participation, in same day funds, at the office of Issuing Bank specified in such notice, not later than 12:00 p.m. (New York City time) on the first business day (under the laws of the jurisdiction in which such office of Issuing Bank is located) after the date notified by Issuing Bank. In the event that any Bank fails to make available to Issuing Bank on such business day the amount of such Bank’s participation in such Letter of Credit as provided in this Section 2.4(f), Issuing Bank shall be entitled to recover such amount on demand from such Bank together with interest thereon for three Business Days at the rate customarily used by

 

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Issuing Bank for the correction of errors among banks and thereafter at the LIBOR Rate or Euribor Rate, as applicable. Nothing in this Section 2.4(f) shall be deemed to prejudice the right of any Bank to recover from Issuing Bank any amounts made available by such Bank to Issuing Bank pursuant to this Section in the event that it is determined that the payment with respect to a Letter of Credit in respect of which payment was made by such Bank constituted gross negligence or willful misconduct on the part of Issuing Bank. In the event Issuing Bank shall have been reimbursed by other Banks pursuant to this Section 2.4(f) for all or any portion of any drawing honored by Issuing Bank under a Letter of Credit, such Issuing Bank shall distribute to each Bank which has paid all amounts payable by it under this Section 2.4(f) with respect to such honored drawing such Bank’s Pro Rata Share of all payments subsequently received by Issuing Bank from such Borrower in reimbursement of such honored drawing when such payments are received. Any such distribution shall be made to a Bank at its primary address set forth below its name on Appendix B or at such other address as such Bank may request.

(g) Obligations Absolute . The obligation of each Borrower to reimburse Issuing Bank for drawings honored under the Letters of Credit issued by it and to repay any Tranche 1 Revolving Loans made by Banks pursuant to Section 2.4(e) and the obligations of Banks under Section 2.4(f) shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms hereof under all circumstances including any of the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set off, defense or other right which any Borrower or any Bank may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), Issuing Bank, Bank or any other Person or, in the case of a Bank, against any Borrower, whether in connection herewith, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between such Borrower or one of its Subsidiaries and the beneficiary for which any Letter of Credit was procured); (iii) any draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by Issuing Bank under any Letter of Credit against presentation of a draft or other document which does not substantially comply with the terms of such Letter of Credit; (v) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Xerium or any of its Subsidiaries; (vi) any breach hereof or any other Credit Document by any party thereto; (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or (viii) the fact that an Event of Default or a Default shall have occurred and be continuing; provided , in each case, that payment by Issuing Bank under the applicable Letter of Credit shall not have constituted gross negligence or willful misconduct of Issuing Bank under the circumstances in question.

(h) Indemnification . Without duplication of any obligation of each Borrower under Section 10.2, 10.3 or 10.4, in addition to amounts payable as provided herein, each Borrower hereby agrees to protect, indemnify, pay and save harmless Issuing Bank from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which Issuing Bank may incur

 

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or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by Issuing Bank, other than as a result of (1) the gross negligence or willful misconduct of Issuing Bank or (2) the wrongful dishonor by Issuing Bank of a proper demand for payment made under any Letter of Credit issued by it, or (ii) the failure of Issuing Bank to honor a drawing under any such Letter of Credit as a result of any Governmental Act.

(i) Revaluation of Letters of Credit . (i) If any Letters of Credit are denominated in an Optional Currency, the Administrative Agent shall, at the end of each Fiscal Quarter, recalculate the Base Currency Amount of each Letter of Credit by notionally converting into the Base Currency the outstanding amount of that Letter of Credit on the basis of the Agent’s Spot Rate of Exchange on the date of calculation.

(ii) Xerium shall, if requested by the Administrative Agent within two (2) Business Days of any calculation under paragraph (i) above, ensure that within three Business Days sufficient Revolving Loan Credit Extensions are prepaid to prevent the Base Currency Amount of the aggregate Revolving Exposure from exceeding the Tranche 1 Revolving Commitments following any adjustment to a Base Currency Amount under paragraph (i) of this Section 2.4(i).

2.5 Pro Rata Shares; Availability of Funds.

(a) Pro Rata Shares . All Loans shall be made, and all participations purchased, by Banks simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Bank shall be responsible for any default by any other Bank in such other Bank’s obligation to make a Loan requested hereunder or purchase a participation required hereby nor shall any B Term Loan Commitment or any Revolving Commitment of any Bank be increased or decreased as a result of a default by any other Bank in such other Bank’s obligation to make a Loan requested hereunder or purchase a participation required hereby.

(b) Availability of Funds . Unless Administrative Agent shall have been notified by any Bank prior to the applicable Credit Date that such Bank does not intend to make available to Administrative Agent the amount of such Bank’s Loan requested on such Credit Date, Administrative Agent may assume that such Bank has made such amount available to Administrative Agent on such Credit Date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to each Borrower a corresponding amount on such Credit Date. If such corresponding amount is not in fact made available to Administrative Agent by such Bank, Administrative Agent shall be entitled to recover the corresponding Base Currency Amount on demand from such Bank together with interest thereon, for each day from such Credit Date until the date such amount is paid to Administrative Agent, at the customary rate set by Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the LIBOR Rate or Euribor Rate, as applicable. If such Bank does not pay such corresponding amount forthwith upon Administrative Agent’s demand therefor, Administrative Agent shall promptly notify the applicable Borrower and the applicable Borrower shall immediately pay such corresponding Base Currency Amount

 

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to Administrative Agent together with interest thereon, for each day from such Credit Date until the date such amount is paid to Administrative Agent, at the rate payable hereunder for LIBOR Rate Loans or Euribor Loans, as applicable, for such Class of Loans. Nothing in this Section 2.5(b) shall be deemed to relieve any Bank from its obligation to fulfill its B Term Loan Commitments and Revolving Commitments hereunder or to prejudice any rights that any Borrower may have against any Bank as a result of any default by such Bank hereunder.

2.6 Use of Proceeds . The proceeds of the B Term Loans made on the Closing Date shall be applied by each Borrower to fund the Refinancing and to pay fees and expenses in connection with the Transaction. On the Closing Date, the Tranche 1 Revolving Loans shall be available only for the issuance of Letters of Credit. The proceeds of the Tranche 1 Revolving Loans and Letters of Credit made after the Closing Date shall be applied by each Borrower for working capital and general corporate purposes of Xerium and its Subsidiaries; provided , that no proceeds of the Revolving Loans shall be utilized to pay amounts owing immediately prior to the Closing Date to effect the Refinancing or to pay any fees and expenses incurred in connection with the Transaction, and, that in no event will the proceeds of Revolving Loans be used for the purposes of repurchasing Loans as permitted under Section 2.13 hereof. No portion of the proceeds of any Credit Extension shall be used in any manner that causes or might cause such Credit Extension or the application of such proceeds to violate Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation thereof or to violate the Exchange Act.

2.7 Evidence of Debt; Register; Banks’ Books and Records; Promissory Notes.

(a) Banks’ Evidence of Debt . Each Bank may maintain on its internal records an account or accounts evidencing the Obligations of each Borrower to such Bank, including the amounts of the Loans made by it and each repayment and prepayment in respect thereof. Any such recordation shall be conclusive and binding on such Borrower, absent manifest error; provided , that the failure to make any such recordation, or any error in such recordation, shall not affect any Bank’s Revolving Commitments or such Borrower’s Obligations in respect of any applicable Loans; and provided further , in the event of any inconsistency between the Register and any Bank’s records, the recordations in the Register shall govern.

(b) Register . Administrative Agent may maintain at its Principal Office a register for the recordation of the names and addresses of Banks and the Revolving Commitments and Loans of each Bank from time to time (the “ Register ”). Administrative Agent may record in the Register the Revolving Commitments and the Loans, and each repayment or prepayment in respect of the principal amount of the Loans, and any such recordation shall be conclusive and binding on such Borrower and each Bank, absent manifest error; provided , failure to make any such recordation, or any error in such recordation, shall not affect any Bank’s Revolving Commitments or such Borrower’s Obligations in respect of any Loan. Each Borrower hereby designates the Administrative Agent to serve as each Borrower’s agent solely for purposes of maintaining the Register as provided in this Section 2.7, and each Borrower hereby agrees that, to the extent the Administrative Agent serves in such capacity, the Administrative Agent and its officers, directors, employees, agents and affiliates shall constitute “Indemnitees.”

 

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(c) Notes . If so requested by any Bank by written notice to Xerium (with a copy to Administrative Agent) at least two Business Days prior to the Closing Date, or at any time thereafter, each Borrower shall execute and deliver to such Bank (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Bank pursuant to Section 10.7) on the Closing Date (or, if such notice is delivered after the Closing Date, promptly after Company’s receipt of such notice) a promissory note or promissory notes, in a form reasonably acceptable to the Administrative Agent and Xerium, to evidence such Bank’s B Term Loans or Revolving Loans, as the case may be.

2.8 Interest on Loans.

(a) Except as otherwise set forth herein, each Class of Loan shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof as follows:

(i) in the case of Xerium Canada SW B Term Loans and Xerium Canada Wxx B Term Loans at the BA Rate plus Applicable Margin;

(ii) in the case of Xerium B Term Loans at the LIBOR Rate plus the Applicable Margin; or

(iii) in the case of Xerium B Loans, XTI B Term Loans, Italia B Term Loans, Austria B Term Loans and German B Term Loans, if a Euribor Loan at the Euribor Rate plus the Applicable Margin;

(iv) in the case of Revolving Loans:

(1) if a LIBOR Loan, at the LIBOR Rate plus the Applicable Margin;

(2) if a Euribor Loan, at the Euribor Rate plus the Applicable Margin; or

(3) if a BA Loan, at the BA Rate plus the Applicable Margin.

(b) The basis for determining the rate of interest with respect to any Loan, and the Interest Period with respect to any LIBOR Loan, Euribor Loan or BA Loan, shall be selected by each Borrower and notified to Administrative Agent and Banks pursuant to the applicable Funding Notice or Continuation Notice, as the case may be; provided , until the date that the Lead Arranger notifies Xerium that the primary syndication of the Loans and Revolving Commitments has been completed, as determined by the Lead Arranger, in its sole discretion, the B Term Loans shall be maintained as LIBOR Loans, Euribor Loans or BA Loans having an Interest Period of no longer than one month.

 

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(c) In connection with LIBOR Loans, Euribor Loans and BA Loans there shall be no more than fifteen (15) Interest Periods in the aggregate outstanding at any time. In the event a Borrower fails to specify an Interest Period for any LIBOR Loan, Euribor Loan or BA Loan in the applicable Funding Notice or Continuation Notice, such Borrower shall be deemed to have selected an Interest Period of one month. As soon as practicable after 11:00 a.m. (London time) on each Interest Rate Determination Date, Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the LIBOR Loans, the Euribor Loans or the BA Loans, as the case may be, for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to each Borrower and each Bank.

(d) Interest payable pursuant to Section 2.8(a) and any other interest, commission or fee accruing under a Credit Document (other than interest payable pursuant to Section 2.8(f)) will accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days or, in any case where the practice in the Relevant Interbank Market differs, in accordance with that market practice. For the purposes of the Interest Act (Canada) and disclosure thereunder, whenever any interest or any fee to be paid under a Credit Document or in connection therewith is to be calculated on the basis of any period of time that is less than a calendar year, the yearly rate of interest to which the rate used in such calculatio