Exhibit 10.1
FLOWSERVE CORPORATION
EMPLOYMENT AGREEMENT
     This Employment Agreement (“Agreement”) is entered into this 28th day of
July, 2005, between Flowserve Corporation (“Company”) and Lewis Kling
(“Executive”).
BACKGROUND
     The Executive is currently employed by the Company as its Chief Operating
Officer. The Company wishes to employ the Executive as President and Chief
Executive Officer on the terms and conditions specified herein, and the
Executive wishes to be employed by the Company on the terms and conditions
specified herein.
AGREEMENT
     In consideration of the premises, and for other valuable consideration, it
is agreed as follows:
     1. General Agreement. The Company agrees to employ the Executive, and the
Executive agrees to accept employment with the Company, as provided in this
Agreement for the period beginning on the Effective Date and ending on July 31,
2008, provided that, subject to Section 6, the term of this Agreement shall
automatically be extended for consecutive additional one-year terms unless, not
later than 90 days prior to each date the Employment Term would otherwise
expire, the Company or the Executive shall have given notice not to extend the
Employment Term.
     2. Definitions. For purposes of this Agreement, the following terms, when
capitalized, shall have the meanings specified below:
     (a) “Accrued Compensation” means the sum of (i) the Executive’s annual base
salary through the date his employment terminates to the extent not previously
paid, (ii) any payments that have become vested or that are otherwise due in
accordance with the terms of any employee benefit, incentive, or compensation
plan or arrangement maintained by the Company that the Executive participated in
at the time of his termination of employment, and (iii) any expenses incurred by
Executive that have not yet been reimbursed in accordance with Section 4(i) at
the time of his termination of employment.
     (b) “Board” means the Company’s Board of Directors.
     (c) “Cause” means (i) the Executive’s continuing substantial failure to
perform his duties for the Company (other than as a result of incapacity due to
mental or physical illness) after a written demand is delivered to the Executive
by the Board; (ii) the Executive’s willful engaging in illegal conduct or gross
misconduct that is materially and demonstrably injurious to the Company;
(iii) the Executive’s conviction of a felony or his plea of guilty or nolo
contendere to a felony, or (iv) the Executive’s willful and material breach of
the confidentiality portion of this Agreement. “Cause” shall be determined as
provided in Section 6(e).

 

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     (d) “Common Stock” means the common stock of the Company, par value $1.25
per share.
     (e) “Compensation Committee” means the Compensation Committee of the Board.
     (f) “Disability” and “Disabled” refer to the Executive’s failure to perform
his duties with the Company on a full-time basis for 180 consecutive days, if an
independent physician selected by the Company or its insurers and acceptable to
the Executive (or, in the case of Executive’s incapacity, his legal
representative) finds that such failure has resulted from the Executive’s
inability to perform such duties because of his physical or mental incapacity.
     (g) “Effective Date” means August 1, 2005.
     (h) “Employment Term” means the period beginning on the Effective Date and
ending upon the expiration of the employment period as provided in Section 1.
     (i) “Good Reason” means (i) the Executive’s Removal from Office without
Cause, (ii) the Company’s (A) assignment of duties to the Executive that are
materially inconsistent with his Office or (B) actions resulting in a material
diminution of the Executive’s position or duties, (iii) the Company’s material
failure to comply with any provision of this Agreement, and (iv) the Company’s
termination of the Executive’s employment, other than as permitted by this
Agreement. “Good Reason” shall be determined as provided in Section 6(c).
     (j) “Office” means the office of President and Chief Executive Officer.
     (k) “Removal from Office” means the Company’s involuntary removal of the
Executive from his Office.
     (l) “Stock Plan” means the Company’s 2004 Stock Compensation Plan.
     (m) “Target Bonus” means, for the fiscal year in which the Executive’s
employment terminates, the annual bonus that would have been payable to
Executive had his employment not terminated and had all applicable performance
targets been satisfied at the target level.
     (n) “Willful” means that the Executive has acted, or failed to act, in bad
faith or without reasonable belief that his act or omission was in the Company’s
best interest. For purposes of the preceding sentence, any act, or failure to
act, based upon authority given pursuant to a resolution duly adopted by the
Board or based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
pursuant to his belief that it is in the best interests of the Company.
     (o) “Welfare Benefit Plan” has the meaning given to such term by 29 U.S.C.
Section 1002(1).

 

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     3. Executive’s Position and Duties. The Executive shall serve as the
Company’s
President and Chief Executive Officer with general responsibility for and
control of the Company’s business and affairs, all in accordance with the
provisions of this Agreement. The Executive shall have such authority, duties,
and responsibilities as are commensurate with his position and as may be
assigned to him from time to time by the Board, and Executive shall report
directly and exclusively to the Board. The Executive shall serve the Company
diligently and faithfully, devoting substantially all of his time and attention
during normal business hours to the business and affairs of the Company and to
the faithful performance of his duties. The Executive shall not perform any
other services for remuneration, unless the performance of such services is
approved by the Corporate Governance and Nominating Committee of the Board as
being in the best interests of the Company. The Executive shall not engage in
any activity that substantially interferes with the performance of his
responsibilities to the Company. The Executive may serve with nonprofit, civic
and educational organizations to the extent that such service does not interfere
with the performance of his responsibilities to the Company.
     4. Executive’s Compensation. During the term of this Agreement, the
Executive shall be entitled to the following compensation:
     (a) Base Salary. The Executive’s initial base salary shall be $850,000 per
year and shall be paid in accordance with the Company’s normal payroll
practices. The Executive’s base salary may be increased but not decreased
throughout the Employment Term and, at least once annually, shall be reviewed by
the Compensation Committee with a recommendation on amount made to the full
Board.
     (b) Bonus. For each fiscal year after 2005, the Executive shall have an
annual bonus opportunity in accordance with the Company’s annual bonus plan
based on the attainment of individual and Company performance targets
established in the discretion of the Compensation Committee, with a target bonus
equal to 100% of the Executive’s base salary for such year and a bonus range
from 0% of base salary for such year (where performance threshholds are not
attained) to 200% of base salary for such year (where maximum performance goals
are attained). For 2005, the Executive’s bonus opportunity shall be 7/12th of
the bonus opportunity previously established for the Executive for 2005 in
accordance with the Company’s annual bonus plan, and the remainder of the
Executive’s bonus opportunity for 2005 shall be determined in accordance with
the foregoing provisions of this Section 4(b) based on individual performance
goals established by the Compensation Committee but based on the same Company
performance goals previously established for Executive for 2005 and based on
5/12th of Executive’s base salary for the period beginning on the Effective
Date.
     (c) Stock Options. On and effective as of the date first set forth above,
the Company shall grant the Executive an option to purchase 69,748 shares of
Common Stock vesting ratably (subject to continuous employment with the Company)
on each of the first three anniversaries of the date of grant with an exercise
price per share equal to the fair market value of a share of Common Stock on the
date of grant (as determined in accordance with the Stock Plan and otherwise in
accordance with the terms and conditions of the Stock Plan).
     (d) Restricted Stock. On and effective as of the date first set forth
above, the Company shall grant the Executive 40,800 shares of restricted Common
Stock in accordance

 

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with the terms and conditions of the Stock Plan. Restrictions on the shares
shall lapse on the third anniversary of the date of grant (subject to continuous
employment with the Company). The grant shall otherwise be made in accordance
with the terms and conditions of the Stock Plan.
     (e) Long-Term Incentive Compensation. The Executive shall participate in
any Company long-term incentive compensation plan on a basis determined by the
Compensation Committee from time to time but on terms no less favorable than
those applicable to other senior executives of the Company. The Company
acknowledges that it is presently expected that the annual value of grants to
the Executive under the Company’s long-term incentive plan will equal
approximately three (3) times the Executive’s annual base salary (allocated
substantially equally among grants of stock options, restricted stock and dollar
denominated performance awards), but in any event such annual value shall not be
less than $2,550,000 (as reasonably determined by the Company to the extent not
denominated in cash).
     (f) Transition Security Plan. The Executive’s participation in the
Company’s Transition Security Plan shall be terminated as of the date hereof and
no payment shall be due to him thereunder. In lieu thereof, effective as of the
Effective Date, the Company shall make a special one-time lump-sum payment to
the Executive of $520,000.
     (g) Certain Other Benefits. The Executive shall participate in the
Company’s other incentive compensation, savings, retirement, fringe benefit and
perquisite programs and Welfare Benefit Plans on a basis no less favorable than
that applicable to other senior executives of the Company. Following three
(3) years of continuous active employment with the Company (taking service prior
to the Effective Date into account), the Executive (or his current spouse, as
the case may be) shall be entitled, upon a termination of the Executive’s
employment for any reason other than Cause, to purchase health benefit coverage
for the Executive and his current spouse substantially similar to that available
under the Company’s health benefit programs in effect from time to time at the
cost to the Company of providing such coverage to its actively employed senior
executives from time to time through, respectively, the period of the
Executive’s and his current spouse’s eligibility for coverage under Medicare. If
the Executive remains employed by the Company through July 31, 2008, 20% of any
nonqualified pension benefit that is not yet then vested shall become vested.
     (h) Vacation. The Executive shall be entitled to at least four weeks of
paid vacation per year in accordance with the Company’s vacation policies as in
effect from time to time.
     (i) Reimbursement of Expenses. The Executive shall be entitled to
reimbursement of reasonable and customary business expenses in accordance with
the Company’s policies. The Company shall reimburse the Executive for his costs
previously incurred in packing for relocation to and relocating to Dallas,
Texas, in an amount not exceeding $10,000.
     5. Location of Services. The Executive’s principal office shall be located
at the Company’s headquarters, and he shall perform services under this
Agreement at that location and at such other locations as may be necessary or
appropriate to fulfill his obligations hereunder.

 

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     6. Termination of Employment.
     (a) Death. The Executive’s employment shall terminate automatically upon
his death during the Employment Term.
     (b) Disability. If the Executive becomes Disabled during the Employment
Term, the Company may notify the Executive of its intention to terminate his
employment pursuant to this Section 6(b). In such event, the Executive’s
employment shall terminate on the 30th day after the Executive receives such
notice, unless he returns to substantially full-time performance of his duties
within such 30-day period.
     (c) Executive’s Termination For Good Reason. To terminate his employment
for Good Reason, the Executive must notify the Board of his intent to terminate
employment for Good Reason and describe all circumstances that he believes in
good faith to constitute Good Reason. If the Company corrects all situations
constituting Good Reason and identified by the Executive within 30 days after
receiving his notice, the Executive shall not be entitled to terminate for Good
Reason. If the Company agrees to the Executive’s termination for Good Reason or
fails to correct the conditions identified by the Executive within 30 days after
receipt of the Executive’s notice, the Executive’s employment shall terminate on
the 30th day after the Company received his notice or such earlier date agreed
to by the Company.
     (d) Executive’s Termination Without Good Reason. If the Executive
terminates his employment without Good Reason, he shall provide the Company at
least 60 days’ notice (which 60-day requirement may be waived by the Company) of
his intent to terminate, state that the termination is without Good Reason, and
identify his termination date. The Executive’s termination date shall be the
date specified in the notice provided pursuant to the preceding sentence or such
earlier date as the Company designates after receiving the notice.
     (e) Company’s Termination For Cause. Before the Board terminates the
Executive’s employment for Cause, it shall provide the Executive an opportunity,
after reasonable notice, to appear before the Board. To terminate the Executive
for Cause, the Board must adopt a resolution terminating the Executive by
affirmative vote of at least 75% of its members, after having given the
Executive the opportunity to present his case to the Board. The Board’s
resolution must state that the Board finds in good faith that (i) the Executive
has engaged in conduct constituting Cause, specifying the details of such
conduct, and (ii) the Executive failed to cure such conduct within 30 days after
receiving written notice from the Company detailing such conduct. The effective
date of the Executive’s termination for Cause shall be the date on which the
Executive receives a copy of the resolution adopted by the Board or such later
date specified in the resolution.
     (f) Company’s Termination Without Cause. Any termination of the Executive’s
employment by the Company not in compliance with Section 6(b) or 6(e) shall
constitute termination without Cause. If the Company terminates the Executive’s
employment without Cause, it shall notify the Executive of its decision and
state that the termination is without Cause. The effective date of the
Executive’s termination shall be the date on which he receives the Company’s
notice or such later date as specified in the notice.

 

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     7. Company’s Obligations on Termination of Employment.
     (a) Death or Disability. If the Executive’s employment is terminated by
reason of his death or Disability during the Employment Term, this Agreement
shall terminate without further obligations to the Executive or his legal
representatives under this Agreement, except that, subject to Sections 4(g) and
11, (i) payment of Accrued Compensation shall be paid to the Executive (or his
estate or beneficiary, as applicable) in cash within 30 days after, as the case
may be, the Executive’s death or Disability (or, if later, in accordance with
any applicable plan, program, or policy of the Company), (ii) all stock-based
awards that have not yet vested or otherwise become unrestricted shall
immediately become vested or otherwise unrestricted in full, (iii) the target
payment under all dollar-denominated, performance-based long-term incentive
compensation programs shall be paid to the Executive (or his estate or
beneficiary, as applicable) in a lump sum in cash within 30 days after the
Executive’s death or Disability, and (iv) the Executive shall become fully
vested in any nonqualified pension benefit that is not yet then vested.
     (b) Termination For Cause, Without Good Reason or After Employment Term..
If the Executive’s employment is terminated for Cause during the Employment
Term, or the Executive terminates his employment without Good Reason during the
Employment Term, or the Executive’s employment terminates upon or following the
expiration of the Employment Term, this Agreement shall terminate without
further obligations to the Executive, other than for the Executive’s rights
under Section 11 or for payment of Accrued Compensation within 30 days after his
employment terminates (or, if later, in accordance with any applicable plan,
program, or policy of the Company).
     (c) Company’s Termination For Reason Other Than Cause, Death, Or Disability
Or Executive’s Termination For Good Reason. If the Company terminates the
Executive’s employment during the Employment Term for a reason other than Cause
or Disability, or if during Employment Term the Executive terminates his
employment for Good Reason, the Company shall pay all Accrued Compensation to
the Executive within 30 days after his employment terminates (or, if later, in
accordance with any applicable plan, program, or policy of the Company), and,
provided the Executive has executed and not revoked a release of claims against
the Company substantially in the form attached hereto as Exhibit A and provided
further that the Executive has materially complied with all obligations imposed
under Sections 9, 10 and 19, (i) the Company shall pay to the Executive within
30 days after his employment terminates a lump-sum cash amount equal to the sum
of (A) (I) the sum of his annual base salary at the time of termination and
(II) the annual bonus earned by him for the bonus year preceding the year in
which his employment terminates and (B) a pro-rata portion of the Target Bonus
based on the number of days of service during the bonus year occurring prior to
termination of employment, (ii) all stock-based awards held by the Executive
that have not yet vested or otherwise become unrestricted shall immediately
become vested or otherwise unrestricted in full, (iii) the target payment under
all dollar-denominated, performance-based long-term incentive compensation
programs shall be paid to the Executive in a lump sum in cash within 30 days,
and (iv) the Executive shall become fully vested in any nonqualified pension
benefit that is not yet then vested. For the avoidance of doubt, no such
severance payments shall be payable if the Executive’s employment terminates at
or after the end of the Employment Term or merely by

 

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reason of the Company or the Executive exercising its or his right not to extend
the Employment Term pursuant to Section 1.
     (d) Non-Exclusivity Of Rights. This Agreement shall not prevent the
Executive from participation in any plan, program, policy, or practice of the
Company according to its terms or affect the Executive’s rights under any
agreement with the Company. Benefits that are vested or that the Executive is
otherwise entitled to receive under any plan, policy, practice, or program of,
or any agreement with, the Company at or after the termination of his employment
shall be payable in accordance with such plan, policy, practice, program, or
agreement, except as expressly modified by this Agreement. Notwithstanding the
foregoing provisions of this Section 7(d), if the Executive’s employment
terminates during the Employment Term but following a change of control (as
defined in the Company’s Executive Officers Change In Control Severance Plan (if
in effect and as it may be amended from time to time)) during the Employment
Term, the Executive shall receive compensation upon such termination pursuant to
the Company’s Executive Officers Change In Control Severance Plan (if in effect
and as it may be amended from time to time) and not pursuant to this Agreement.
     (e) No Mitigation. The Company agrees that, if the Executive’s employment
with the Company terminates during the Employment Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to this Agreement, and no
payment or benefit provided for in this Agreement shall be reduced by any
compensation earned by the Executive as the result of employment by another
employer.
     8. Certain Existing Arrangements. Effective as of the Effective Date, the
letter agreement between the Company and the Executive dated June 25, 2004,
shall cease to be of any further force or effect. Executive shall remain
eligible for participation in the Company’s Executive Officers Change In Control
Severance Plan (if in effect and as it may be amended from time to time) on a
basis no less favorable than that applicable to other senior executives of the
Company.
     9. Non-Competition Agreement. As part of this Agreement, the Executive
shall enter into the Non-Competition Agreement attached hereto as Exhibit B.
Notwithstanding any provision to the contrary hereunder, the Company’s
obligations to the Executive hereunder shall be limited as provided in the
Non-Competition Agreement, which Agreement shall not terminate until the date
provided therein, regardless of the date on which this Agreement terminates.
     10. Confidentiality. The Executive acknowledges that the Confidential
Information (as defined below) obtained by him during the course of his
employment with the Company, concerning the business or affairs of the Company
and its affiliates (the “Business Entities”) are the property of the Company.
Therefore, the Executive will hold in strictest confidence, and not at any time
(whether during or after his employment with the Company) disclose or use for
his own benefit or purposes or the benefit or purposes of any other person,
entity or enterprise, other than a Business Entity, any trade secrets,
non-public information, knowledge or data, or other proprietary or confidential
information, including without limitation, any such information relating to
customers, development programs, costs, marketing, trading, investment, sales

 

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activities, promotion, credit and financial data, inventions, manufacturing or
other processes, technology, designs, financing methods, plans or the business
and affairs of any Business Entity (collectively, “Confidential Information”);
provided that Confidential Information shall not include information which has
become publicly known other than as a result of the Executive’s breach of this
covenant. The Executive agrees that upon termination of his employment with the
Company for any reason, he will return to the Company immediately all property
of the Company including any documents, memoranda, books, papers, plans,
information, letters and other data, and all copies thereof or therefrom, in any
way relating to the business of the Business Entities. In the event of a breach
or threatened breach of this Section 10, the Executive agrees that the Company
shall be entitled to seek injunctive relief in a court of appropriate
jurisdiction to remedy such breach or threatened breach, and the Executive
acknowledges that damages would be inadequate and insufficient.
     11. Indemnification. The Executive shall remain a party to his existing
Indemnification Agreement with the Company dated July 5, 2004, as it may be
amended from time to time, and the Company further agrees that if the Executive
is made a party, or is threatened to be made a party, to any action, suit, or
proceeding, whether civil, criminal, administrative, or investigative, by reason
of the fact that he is or was a director, officer, or employee of the Company or
any other Business Entity, the Executive shall be indemnified and held harmless
by the Company to the fullest extent legally permitted or authorized by the
Company’s certificate of incorporation or bylaws or resolutions of the Board or,
if greater, by the laws of the State of New York, against all cost, expense,
liability, and loss (including, without limitation, attorneys’ fees, judgments,
fines, ERISA excise taxes, or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by the Executive in connection
therewith. The Company agrees to continue and maintain a directors’ and
officers’ liability insurance policy covering the Executive on a basis no less
favorable than that applicable to other senior executives of the Company. The
Company’s obligations under this Section 11 shall survive the termination of
this Agreement.
     12. Notices. All notices or other communications hereunder shall be in
writing and shall be deemed to have been duly given (a) when delivered
personally, (b) upon confirmation of receipt when such notice or other
communication is sent by facsimile, or (c) one day after timely delivery to an
overnight delivery courier. The addresses for such notices shall be as follows:
     If to the Executive:

     
 
  At the most recent address on file in the Company’s records
 
   
 
  with a copy to:
 
   
 
  Stuart Blaugrund
 
  Gardere Wynne Sewell, LLP
 
  3000 Thanksgiving Tower
 
  Dallas, Texas 75201-4761
 
  Fax: (214) 999-3787

 

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     If to the Company or Board:

     
 
  Flowserve Corporation
 
  5215 N. O’Connor Blvd.
 
  Suite 2300
 
  Irving, TX 75039
 
  Attention: Vice President, Secretary and General Counsel
 
  Fax: (972) 443-6843

or to such other address as either party shall have furnished to the other in
writing in accordance herewith.
     13. Severability. Each provision of this Agreement shall be considered
severable. If a court finds any provision to be invalid or unenforceable, the
validity, enforceability, operation, and effect of the remaining provisions
shall not be affected, and this Agreement shall be construed in all respects as
if the invalid or unenforceable provision had been omitted or limited in
accordance with the court’s ruling.
     14. Assignability. This Agreement may not be assigned by the Executive,
because it is personal in nature. The Company may assign, delegate, or transfer
this Agreement and all of its rights and obligations hereunder to any successor
in interest, any purchaser of substantially all of the Company’s assets, or any
entity to which the Company transfers all or substantially all of its assets
before or after the term of this Agreement. The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.
     15. Governing Law. This Agreement shall be interpreted, construed and
governed according to the laws of the State of Texas, without reference to
conflicts of law principles thereof.
     16. Certain Interpretive Rules. Neither the Company nor the Executive shall
be deemed to be the drafter of this Agreement, and, if this Agreement or any
provision thereof is construed in any court or other proceeding, said court or
other adjudicator shall not construe this Agreement or any provision thereof
against either party as the drafter thereof. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect.
     17. No Oral Modifications. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms hereof may be waived,
only by a written instrument executed by the Executive and an officer of the
Company duly authorized by the Board or, in the case of a waiver, by the party
waiving compliance. The failure of either party at any time or times to require
performance of any provision hereof shall in no manner affect the right at a
later time to enforce the same. No waiver by either party of the breach of any
term or covenant contained in this Agreement, whether by conduct or otherwise,
in any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such

 

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breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
     18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same Agreement.
     19. Nondisparagement. The Executive agrees that he will not make or
publish, or cause to be made or published, any statement which is, or may
reasonably be considered to be, disparaging of the Company or its affiliates, or
directors, officers or employees of the businesses of the Company or its
affiliates. Nothing contained in this Section 19 shall preclude the Executive
from providing truthful testimony in response to a valid subpoena, court order,
regulatory request or as may be required by law.
     20. Section 409A of the Internal Revenue Code. It is the intention of the
Company and the Executive that this Agreement not result in unfavorable tax
consequences to the Executive under Section 409A of the Internal Revenue Code of
1986, as amended (the “Code”). The Company and the Executive acknowledge that
Section 409A of the Code was enacted pursuant to the American Jobs Creation Act
of 2004, generally effective with respect to amounts deferred after January 1,
2005, and only limited guidance has been issued by the Internal Revenue Service
with respect to the application of Code Section 409A to certain arrangements,
such as this Agreement. The Internal Revenue Service has indicated that it will
provide further guidance regarding interpretation and application of
Section 409A of the Code during 2005. The Company and the Executive acknowledge
further that the full effect of Section 409A of the Code on potential payments
pursuant to this Agreement cannot be determined at the time that the Company and
Executive are entering into this Agreement. The Company and the Executive agree
to work together in good faith in an effort to comply with Section 409A of the
Code including, if necessary, amending the Agreement based on further guidance
issued by the Internal Revenue Service from time to time, provided that the
Company shall not be required to assume any increased economic burden.
     21. Entire Agreement. This Agreement constitutes the entire understanding
of the Company and the Executive with respect to the subject matter hereof and
supersedes all prior negotiations, discussions, writings and agreements between
them (exclusive of the Indemnification Agreement between the Company and the
Executive dated July 5, 2004, as it may be amended from time to time, and the
terms of the Company’s Executive Officers Change In Control Severance Plan, as
it may be amended from time to time).
     22. Dispute Resolution. Any dispute or controversy arising between the
Company and the Executive including, but not limited to, any claim of
discrimination under state or federal law, shall be resolved by arbitration
proceedings conducted in Dallas, Texas in accordance with the National Rules for
Resolution of Employment Disputes of the American Arbitration Association then
in effect by a panel of three arbitrators, one chosen by each of Executive and
the Company, with the third arbitrator to be chosen by the other two arbitrators
or if the two arbitrators cannot agree upon a third arbitrator, then by the
President of the American Arbitration Association; provided that the Company
shall be entitled to seek preliminary injunctive relief in a court of
appropriate jurisdiction, including, but not limited to, a preliminary
injunction to

 

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enforce the obligations imposed on the Executive under Sections 9, 10, and 19.
Judgment may be entered on the arbitrator’s award in any court having
jurisdiction and attorney fees will be awarded to the prevailing party. Any
dispute or controversy arising out of Executive’s employment or the termination
thereof, including, but not limited to, any claim of discrimination under state
or federal law, that is not subject to arbitration in accordance with the
foregoing provisions of this Section 22 shall be brought exclusively in federal
or state court with venue in Dallas, Texas and the Executive hereby irrevocably
submits to the jurisdiction of such courts. Any reasonable fees or expenses
incurred by the Executive in connection with any proceeding described in this
Section 22 shall be promptly reimbursed by the Company upon receipt of
supporting documentation reasonably satisfactory to the Company if the Executive
finally prevails in such proceeding.
     23. Certain Fees. The Company shall promptly reimburse the Executive for
reasonable and customary attorney’s fees incurred by the Executive in the
negotiation and documentation of this Agreement upon receipt of supporting
documentation reasonably satisfactory to the Company.
     24. Withholding. Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local, and foreign taxes that are required to be withheld by applicable
laws or regulations.
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     IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.

         
 
  FLOWSERVE CORPORATION    
 
       
 
  /s/ Charles M. Rampacek    
 
 
 
By: Charles M. Rampacek    
 
  Title:Chairman of Corporate Governance &    
 
       Nominating Committee    
 
       
 
  EXECUTIVE    
 
       
 
  /s/ Lewis M. Kling    
 
 
 
     

 

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EXHIBIT A
RELEASE OF CLAIMS
GENERAL RELEASE
     In consideration of the severance package described in Section 7 of the
Employment Agreement, dated July 28, 2005 (the “Employment Agreement”), between
you and Flowserve Corporation (the “Company”), you voluntarily, knowingly and
willingly release and forever discharge the Company, its parents, subsidiaries
and their affiliates, together with their respective present or former officers,
directors, partners, shareholders, employees, agents, and each of their
predecessors, successors and assigns, and family members of the aforementioned
(collectively, the “Releasees”) from any and all rights, claims, causes of
action, charges, demands, damages and any and all employee pension or welfare
benefit plans of the Company, including current and former trustees and
administrators of these plans, and liabilities of every kind whatsoever, known
or unknown, suspected or unsuspected, which against them you or your executors,
administrators, successors or assigns ever had, now have or hereafter can, shall
or may have by reason of any matter, cause or thing whatsoever arising from the
beginning of time to the time you sign this general release (the “Release”) or
relating to your Employment Agreement, specifically excluding (i) your right to
receive the severance package described in Section 7 of the Employment Agreement
subject to your execution of this Release and all obligations of the Company
under Section 11 of the Employment Agreement, and (ii) any vested right you have
under any employee benefit plan or program in which you participated in as an
employee of the Company.
     This Release includes, but is not limited to, any rights or claims relating
in any way to your employment relationship with the Company or any of the
Releasees, or the termination of your employment, any rights or claims arising
under any statute or regulation, including the Age Discrimination in Employment
Act of 1967, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of
1991, the Americans with Disabilities Act of 1990, the Family and Medical Leave
Act of 1993, the Employee Retirement Income Security Act of 1974, New York State
and City Human Rights laws, each as amended, or any other federal, state or
local law, regulation, ordinance or common law, or under any policy, agreement,
understanding or promise, written or oral, formal or informal, between the
Company or any of the Releasees and you; provided, however, that this Release
does not release any vested pension plan benefits you may have as of your last
day of employment with the Company. By signing this Release, you represent that
you will not seek or be entitled to any personal recovery in any action or
proceeding that may be commenced on your behalf arising out of the matters
released hereby. You further agree that you will indemnify the Company for any
and all costs and expenses, including, without limitation, any and all
attorneys’ fees that it incurs in defending any action you bring based upon
claims which you have released under this instrument.
     The Company advises you to consult with an attorney of your choice prior to
signing this Release. You understand and agree that you have the right and have
been given the opportunity to review this Release with an attorney of your
choice should you so desire. You also understand and agree that the Company is
under no obligation to offer you the payments set forth in the

 

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Employment Agreement, that you are under no obligation to consent to the Release
and that you have entered into the Release freely and voluntarily.
     You have at least twenty-one (21) days to consider the terms of this
Release, although you may sign it sooner if you wish. Furthermore, once you have
signed this Release, you have seven (7) additional days from the date you sign
it to revoke your consent by delivering (by hand or overnight courier) written
notice of revocation to the Company. The Release will not become effective until
the eighth (8th) day after you have signed it and returned it to the Company
(Attention: [COMPANY REP]), assuming that you have not revoked your consent to
it during such time. Please read this release carefully; it includes a release
of all known and unknown claims.
Understood and Agreed:

         
 
  Subscribed and sworn to before me    
 
Lewis Kling
   this                     day of                     200_    
 
       
 
  Date
 
 
Notary Public    

 

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EXHIBIT B
NONCOMPETITION AGREEMENT
     This Noncompetition Agreement (“Agreement”) is entered into by and between
Flowserve Corporation (“Company”) and Lewis Kling (“Executive”), effective as of
July 28, 2005.
BACKGROUND
     The Company presently employs the Executive as its Chief Operating Officer
and pursuant to an employment agreement dated July 28, 2005 (“Employment
Agreement”), will employ the Executive as its President and Chief Executive
Officer, effective August 1, 2005.
     Because of the Executive’s unique position with the Company, his knowledge
of the Company’s business and goodwill he has developed with the Company’s
clients, he could cause the Company considerable harm by providing his expertise
to a competitor of the Company.
     To protect the legitimate interests of the Company, the Company and the
Executive have agreed to enter into this Agreement in connection with Company’s
employment of the Executive.
     Therefore, the Executive agrees to be bound and restricted as provided for
in this Agreement:
AGREEMENT
     1. The restrictions of this Agreement shall apply while the Executive is
employed by the Company and for a period of twelve months after the termination
of his employment for any reason. If the Executive breaches any provision of
this Agreement, the period during which the restrictions of this Agreement apply
shall be extended for an additional period equal to the period of the breach,
plus an additional three (3) months.
     2. While the restrictions of this Agreement apply, the Executive is
prohibited from engaging in any direct or indirect competition with the Company.
The activities prohibited by this Agreement include but are not limited to:
     (a) Directly or indirectly accepting employment with, consulting with, or
assisting any business that is involved with the sale, design, development,
manufacture, production, repair or servicing of precision-engineered flow
control equipment and the business of any other entity subsequently acquired by
the Company (“Competitive Business”). This prohibition shall apply to any
employment with, involvement in, or control of a Competitive Business, whether
as an employee, owner, manager, sole proprietor, joint venturer, partner,
shareholder, independent contractor, or in any other capacity. This prohibition
shall not prevent the ownership of stock in a Competitive Business that is
publicly traded, provided that (i) the investment is passive, (ii) the Employee
has no other involvement with the corporation, (iii) the Employee’s ownership
interest is less than one percent, and (iv) the Employee makes full disclosure
to the Company of the stock

 

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ownership at the time the Employee acquires it.
     (b) Directly or indirectly diverting or influencing or attempting to divert
or influence any business of the Company to a competitor.
     (c) Directly or indirectly seeking to influence, facilitate, or encourage
any Company employee to leave its employ.
     3. The Executive acknowledges and agrees that the Company conducts business
throughout the world. Accordingly, the restrictions outlined above shall be
applicable and enforceable throughout the entire world where the Company
conducts, has conducted or will conduct business in the future during his
employment with the Company.
     4. The Executive acknowledges that his breach of this Agreement would cause
immediate and irreparable harm to the Company. The Company shall be entitled to
obtain immediate injunctive relief in the form of a temporary restraining order
without notice, preliminary injunction, or permanent injunction against the
Executive to enforce the terms of this Agreement. The Company shall not be
required to post any bond or other security to obtain such injunctive relief
from the courts.
     5. To the extent that any damages are calculable resulting from the breach
of this Agreement by the Executive, the Company shall be entitled to recover
those damages from the Executive, including prejudgment interest at ten percent
(10%) per annum from the date of the breach. Any recovery of damages by the
Company shall be in addition to and not in lieu of the injunctive relief to
which the Company is entitled. In no event shall a damage recovery be considered
a penalty or liquidated damages, but it shall be considered as measurable
compensatory damages for the Executive’s breach of this Agreement.
     6. If the Executive breaches this Agreement, his right to any future
payments pursuant to his employment agreement shall be forfeited as of the date
of the breach, except to the extent that such forfeiture applies to benefits
payable pursuant to a plan of the Company, if the forfeiture would violate the
terms of such plan.
     7. If the Executive breaches this Agreement, the Company shall also be
entitled to recover all costs of enforcement, including reasonable attorneys’
fees, all expenses of litigation, and court costs.
     8. This Agreement shall survive the termination of the Executive’s
employment relationship with the Company and shall not be construed as limiting
the Company’s right to terminate his employment at any time, subject to the
terms of any written employment agreement in effect at the time of termination.
     9. No claim or cause of action that the Executive may have against the
Company, whether for breach of contract or otherwise, shall be a defense to the
enforcement of this Agreement against the Executive.

 

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     10. The Executive acknowledges that all of the restrictions contained in
this Agreement are reasonable and necessary to protect the Company’s legitimate
interests. If a court determines that any provision of this Agreement is too
broad to be enforceable at law or in equity, the remaining terms shall remain
unimpaired, and the unenforceable provision shall be deemed replaced by a
provision that is valid and enforceable and that most clearly approximates the
intention of the parties with respect to the enforceable provision, as evidenced
by the remaining valid enforceable provisions.
     11. This Agreement shall be enforceable by the Company or any successor in
interest.
     12. This Agreement may not be modified orally. Any modification of this
Agreement must reflected in a written agreement approved by the Company’s Board
and signed by the Executive and the members of the Board’s Corporate Governance
and Nominating Committee.
     13. The Executive agrees to inform any prospective competing employer about
the existence of this Agreement before accepting new employment and shall not
agree, as a term of any new employment, that the new employer will defend the
Executive or pay his attorneys’ fees in the event of a lawsuit brought by the
Company to enforce the terms of this Agreement.
     14. This Agreement shall be construed to fulfill the purposes of the
Agreement and shall not be construed in favor of or against either party.
Subject to the preceding sentence, this Agreement shall be governed in all
respects by the laws of the State of Texas.
     15. The Executive acknowledges that, contemporaneously with entering into
his employment as President and Chief Executive Officer of the Company and
executing this Agreement, he is receiving and will continue to receive from the
Company highly confidential information relating to the business of the Company.
     16. To effectuate the provisions of Section 22 of the Employment Agreement,
this Agreement may be enforced in the applicable courts of Dallas County, Texas
or in any court where the Executive has breached or is alleged to have breached
this Agreement. The Executive agrees to submit to the exclusive jurisdiction and
venue of the applicable courts of Dallas County, Texas or in any county elected
by the Company. Any action filed by the Executive shall not affect the
enforceability of this provision, which shall govern.

         
 
  FLOWSERVE CORPORATION    
 
       
 
  /s/ Charles M. Rampacek    
 
 
 
By: Charles M. Rampacek    
 
  Title:Chairman of Corporate Governance &    
 
       Nominating Committee    
 
       
 
  EXECUTIVE    
 
       
 
  /s/ Lewis M. Kling