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                                                                    EXHIBIT 10.1

                              FLOWSERVE CORPORATION
                     ANNUAL INCENTIVE COMPENSATION PLAN FOR
                                SENIOR EXECUTIVES
                AS AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 2000

Flowserve Corporation (the "Company") established the Flowserve Corporation
Annual Compensation Plan for Senior Executives (the "Plan") as amended and
restated January 1, 1994 and has been operating thereunder. Effective October 1,
2000, the Plan has been amended and restated into two separate plans:

               1)   Flowserve Corporation Annual Stock
                    Incentive Compensation Plan for Senior
                    Executives ("Stock Incentive Plan").

               2.   Flowserve Corporation Annual Cash
                    Incentive Compensation Plan for Senior
                    Executives ("Cash Incentive Plan").

Each Senior Executive in any Plan Year may participate in the Stock Incentive
Plan or the Cash Incentive Plan, or both the Stock Incentive Plan and the Cash
Incentive Plan. Participation in the Plans is permitted on a pro rata basis so
that participation in both plans equals 100%.

As of the Effective Date, all deferred stock awards from the predecessor Plan
are transferred to the Stock Incentive Plan and all deferred cash awards are
transferred to the Cash Incentive Plan. The distribution of any stock
transferred to the Stock Incentive Plan shall only be made in kind.

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                                             Effective Date: October 1, 2000

                              FLOWSERVE CORPORATION
                    ANNUAL STOCK INCENTIVE COMPENSATION PLAN
                              FOR SENIOR EXECUTIVES

I.       PURPOSE

         The purpose of the Flowserve Corporation Annual Stock Incentive
         Compensation Plan for Senior Executives (hereinafter referred to as the
         "Plan") is to provide an incentive and reward, in the form of an
         additional compensation opportunity if certain desired performance
         results are achieved, to those Senior Executives whose performance may
         significantly contribute to the management, growth and profitability of
         the business of the Company and its Subsidiaries and Divisions.

II.      DEFINITIONS

         A.       "BOARD" - The Company's Board of Directors.

         B.       "COMMITTEE" - The Compensation Committee of the Board.

         C.       "COMPANY" - Flowserve Corporation, a New York corporation, and
                  its successors in interest.

         D.       "DIVISION" - An unincorporated separate business unit of the
                  Company.

         E.       "HURDLE RATE" - The financial performance standards set in
                  accordance with Section IV.

         F.       "INCENTIVE AWARD" OR "AWARD" - A compensation award determined
                  in accordance with the provisions of Section VII.

         G.       "SENIOR EXECUTIVE" - A full-time salaried employee of the
                  Company or a Subsidiary who serves as a Company officer,
                  Company Division President, Subsidiary President or other high
                  level position with the Company or a Subsidiary and, in the
                  opinion of the Committee, is in a position to make a
                  significant contribution to the successful operation of the
                  Company or a Subsidiary.

         H.       "PARTICIPANT" - A Senior Executive who is selected by the
                  Committee to participate in the Plan.

         I.       "PLAN YEAR" - The fiscal year ended December 31.

         J.       "RETURN ON AVERAGE SHAREHOLDER EQUITY" - The percentage return
                  reported in the Company's applicable annual report to
                  shareholders.

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         K.       "SUBSIDIARY" - Any entity of which more than 50 percent of the
                  voting control is owned, directly or indirectly, by the
                  Company.

         L.       "TARGET INCENTIVE AWARD" - A conditional compensation award
                  determined in accordance with the provisions of Section VI.

III.     ADMINISTRATION

         The Plan will be administered by the Committee. No member of the
         Committee will be eligible to receive a Target Incentive Award while he
         is a member of the Committee or with respect to any Plan Year during
         which he was a member of the Committee. The Committee will also have
         authority to approve amendments to the Plan which do not affect the
         Awards which may be earned by or payable to the Company's Chief
         Executive Officer hereunder, provided that no such amendment shall
         affect any deferred Awards previously earned or any elections
         previously made by a Participant nor retroactively eliminate nor reduce
         any benefit hereunder of any participant.

IV.      LIMITATIONS ON INCENTIVE AWARDS

         Prior to the beginning of each Plan Year, the Committee will establish
         a Hurdle Rate based on a Return on Average Shareholders' Equity. For
         any Plan Year in which the Return on Average Shareholders' Equity falls
         below the previously established Hurdle Rate, no Incentive Awards will
         be paid regardless of the performance of any Division, Subsidiary or
         Participant. An additional Hurdle Rate will be proposed by the Chief
         Executive Officer (CEO) and/or the President and approved by the
         Committee for each Division and Subsidiary unit. No Incentive Awards
         will be paid to any Participant unless the Division or Subsidiary in
         which he is employed has met or exceeded its Hurdle Rate.

V.       ELIGIBILITY AND ELECTION TO PARTICIPATE

         Prior to March 1 of each Plan Year, the CEO and/or the President will
         propose, and the Committee will determine, those current Senior
         Executives who will be eligible to participate in the Plan for that
         Plan Year, provided that all Participants who were included in the Plan
         for the 1993 Plan year will maintain their eligibility for
         participation, regardless of whether they are a Senior Executive. New
         Participants may be added to the Plan later during the Plan Year with
         the approval of the Committee. The addition to this Plan will cause
         participation of the newly added Participant in other similar incentive
         plans to cease, and each such plan's target incentive award will be
         appropriately prorated in that year in a manner satisfactory to the CEO
         and/or the President in their/his discretion. A Participant may be paid
         an Incentive Award with respect to a Plan Year after 1993 only if
         either (i) he is a Senior Executive of the Company or a Subsidiary on
         the last day of such Plan Year or (ii) subject to the approval of the
         Committee, he was a Senior Executive of the Company or a Subsidiary on
         the first day of such Plan Year and termination of his/her employment
         has taken place (a) as a result of his/her permanent disability or
         death, (b) as a result of his/her retirement under a retirement plan of
         the

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         Company or a Subsidiary, or (c) as a result of military or other
         service with the United States Government. Notwithstanding the
         foregoing, the Committee may, in its absolute discretion, authorize
         payment of an Incentive Award to an individual who is not a Senior
         Executive of the Company or a Subsidiary on the last day of the Plan
         Year to which such Award relates. No Participant will be eligible to
         receive an Incentive Award with respect to a particular Plan Year if he
         was eligible to receive an award under any other cash incentive
         compensation plan of the Company or a Subsidiary other than the
         Company's Long-Term Stock and/or Cash Incentive Plans or any other Plan
         so designated by the Committee, except as provided above with regard to
         the addition of a Participant to the Plan during the Plan Year. For
         purposes of the foregoing, the Company's CEO Discretionary Bonus Plan
         and Equity Incentive Plan are not to be considered an incentive
         compensation plan. If the Participant elects to participate in the
         Plan, the Participant must so elect on a form ("Appendix B") to be
         delivered to, and to be subject to acceptance by the Committee, or the
         Chief Executive Officer, Chief Administrative Officer or other person
         designated by the Committee prior to the end of the Plan Year with such
         election irrevocable after the completion of the Plan Year. If a
         Participant dies, becomes permanently disabled, retires, or enters
         military service prior to the payment of an Incentive Award with
         respect to a particular Plan Year, the amount of the payment of such
         Incentive Award (whether none, in part, or in full) shall be at the
         absolute discretion of the Committee. In the case of the death of a
         Participant, payment of an Incentive Award (if and to the extent
         authorized by the Committee) shall be made to the Participant's
         beneficiary. Should a beneficiary die after the Participant but before
         the benefit has been disbursed, the benefit will be paid to the
         beneficiary's estate.

VI.      TARGET INCENTIVE AWARDS

         A Target Incentive Award means for each Participant the amount
         determined by multiplying the midpoint of the Participant's salary
         range at the beginning of the Plan Year (or in the event a
         Participant's salary range is changed during the Plan Year, the salary
         range which was in effect during the majority of the Plan Year) by a
         target percentage of midpoint salary approved by the Committee prior to
         the beginning of the Plan Year. In any Plan Year in which actual
         performance exceeds the target performance objectives established in
         accordance with Section VII. B., a Participant's Incentive Award may be
         an amount up to 150% of his/her Target Incentive Award. Conversely, in
         any Plan Year in which actual performance falls below these target
         performance objectives, a Participant may receive a reduced Incentive
         Award, if the actual performance is at least 75% or such other
         percentage as may be approved by the Committee of target performance
         for any Plan Year after 1993. Unless otherwise determined by the
         Committee, actual performance results which range between 75% and 125%
         or greater of target performance will receive the percentage of target
         percentage shown on Appendix A-1 for any Plan Year after 1993, as
         prorated appropriately to reflect actual percentage of attainment.
         Appendix A-2 sets forth the guideline target percentages for selected
         Hay Point levels for any Plan Year after 1993, which will be subject to
         modification by the approval of the Committee for the applicable Plan
         Year.

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VII.     DETERMINATION OF INCENTIVE AWARDS

         A.       ALLOCATION OF TARGET INCENTIVE AWARDS. The CEO and/or the
                  President will, based on the nature and content of each
                  Participant's position, determine, before March 1 of the Plan
                  Year, the portion of a Participant's Target Incentive Award
                  which may be earned in each of the following categories:
                  quantitative objectives, qualitative objectives and individual
                  performance objectives. The Committee will make such
                  determination with respect to the CEO and/or the President if
                  they/he is/are a Participant.

         B.       ESTABLISHMENT OF TARGET PERFORMANCE OBJECTIVES. Prior to or
                  within two (2) months of the beginning of each Plan Year, the
                  CEO and/or the President will propose, and the Committee will
                  determine, Division, Subsidiary and Company target performance
                  objectives, with applicable weightings, based upon goals
                  deemed appropriate for each Division, Subsidiary or the
                  Company.

         C.       DETERMINATION OF ACTUAL PERFORMANCE. At the end of each Plan
                  Year, the CEO and/or the President or their/his/her
                  designates, will determine on a percentage basis (i) the
                  extent to which each Division, each Subsidiary and the Company
                  achieved its objectives, and (ii) the extent to which each
                  Participant achieved his/her individual objectives, if any. No
                  Incentive Award will be paid to any Participant who has not
                  received at least a "meets all expectations" or equivalent
                  rating for his/her individual performance review during the
                  Plan Year, provided that the CEO and/or President may
                  establish a higher minimum rating for any Plan Year in his
                  and/or their discretion. The Committee will make such
                  determination with respect to the CEO if he is a Participant.

         D.       COMPUTATION OF INCENTIVE AWARDS. A Participant's Incentive
                  Award for any Plan Year will be the sum of the portions of the
                  Target Incentive Award which is earned, as set forth in
                  Section VII. C., above. If proposed by the CEO and/or the
                  President and approved by the Committee, the quantitative
                  objective, the Hurdle Rate, the Target Incentive Award and the
                  Return on Shareholders' Equity may be adjusted up or down
                  when, in the CEO's and/or the President's judgment, any
                  unusual and/or unforeseen events occurred which affected the
                  applicable quantitative results.

                  In calculating an Incentive Award, the amount earned is
                  arrived at by multiplying the portion of the Target Incentive
                  Award allocated to each objective by the percentage of
                  achievement as outlined in Section VII. C., above.

VIII.    FORM OF PAYMENT AWARDS

         Incentive Awards under the Plan may be paid in shares of common stock
         of the Company ("Shares") or deferred Shares, or in some combination
         thereof in not less than 10% increments of a total Award. Unless
         properly deferred under Section IX., all Awards shall be paid as soon
         as practical after the completion of the applicable Plan Year and the
         determination of the amount of the applicable Award. All Awards under
         this Plan shall be increased by fifteen per cent (15%). Except as may
         be

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         provided for such "deferred Shares", any issuance of Shares as such
         payment shall be based upon a determination of the Share's "Average
         Market Value" on the February 1 next following the end of the
         applicable Performance Cycle or such other date as is selected by the
         Committee. "Average Market Value" shall mean the average of the last
         sale prices of a Share during the period beginning thirty-one days
         prior to and ending on the date that the value of the Share is to be
         determined, as reported by the National Association of Securities
         Dealers, Inc. through NASDAQ, or, in the event that the Shares are
         listed on an exchange, the average of the last sale prices of a Share
         on such exchange during such period. The issuance or delivery of Shares
         pursuant to the Plan shall be subject to, and shall comply with, any
         applicable requirements of federal and state securities laws, rules and
         regulations (including, without limitation, the provisions of the
         Securities Act of 1933, the Securities Exchange Act of 1934 and the
         rules and regulations promulgated thereunder), any securities exchange
         upon which the Shares may be listed and any other law or regulation
         applicable thereto. The Company shall not be obligated to issue or
         deliver any Shares pursuant to the Plan if such issuance or delivery
         would, in the opinion of the Committee, violate any such requirements.
         The foregoing shall not, however, be deemed to require the Company to
         effect any registration of Shares under any such law or regulation,
         although the Company may elect to do so.

IX.      DISTRIBUTION OF AWARDS

         A.       SHARE AWARDS. Share Awards will be paid in full as soon as
                  practicable after the end of the Plan Year.

         B.       ELECTION TO DEFER. Each Participant may elect to defer
                  distribution of a Share Award or a portion thereof. The
                  Participant's election to defer must be made either at or
                  before August 31 of the applicable Plan Year. Such election
                  may not be changed after August 31 of the applicable Plan
                  Year. Appendix C is a copy of the election to defer, although
                  the Committee may elect to honor any written communication
                  statement from a Participant which communicates substantially
                  the same election intention. The Committee, in its absolute
                  discretion, may elect to accept any such election applicable
                  to the Plan Year beginning January 1, 1990, January 1, 1991,
                  January 1, 1992 or January 1, 1993 where the Committee (or the
                  Chief Administrative Officer on behalf of the Committee,
                  except in cases involving the Chief Administrative Officer)
                  determines in its absolute discretion that the Participant
                  submitted in good faith an irrevocable election to defer a
                  possible award prior to the commencement of the applicable
                  Plan Year, regardless of the content of any election form or
                  notice.

         C.       PARTICIPANTS' ACCOUNTS FOR DEFERRED SHARES AWARD. The Company
                  will establish a separate account for each Participant who has
                  elected to defer his Shares Award, in which the number of
                  Shares of the Participant's deferred

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                  Shares Award will be maintained. The Company will create this
                  account through a trust established by the Company with the
                  applicable trustee maintaining such Shares pursuant to the
                  trust. The Company reserves the right to fund such account by
                  providing the then cash equivalent of the applicable Share
                  Award (including, if applicable, the fifteen per cent (15%)
                  premium noted in Section VIII.) to such trustee with
                  instructions to such trustee to purchase such Shares for this
                  account on the open market with the Company paying or
                  reimbursing the trustee for any brokerage or other transaction
                  fees. Any dividends paid on the Shares in this account will be
                  credited to a deferred cash award account of the Participant
                  established pursuant to the Flowserve Corporation Annual Cash
                  Incentive Compensation Plan for Senior Executives ("Annual
                  Cash Incentive Plan"). The trustee will have voting rights on
                  all deferred Shares prior to distribution.

         D.       UNSECURED ACCOUNT. Any amount credited to the account of a
                  Participant as a deferred Award will represent only an
                  unsecured promise of the Company to pay the amount so credited
                  in accordance with the terms of the Plan. Neither a
                  Participant nor any beneficiary of a Participant will acquire
                  any right, title, or interest in any asset of the Company as a
                  result of any amount credited to a Participant's account. At
                  all times, a Participant's rights with respect to the amount
                  credited to his account will be only those of an unsecured
                  creditor of the Company. The Company will not be obligated or
                  required in any manner to restrict the use of any of its
                  assets as a result of any amount credited to a Participant's
                  account.

         E.       DEFERRED PAYMENTS. Deferred Awards will be distributed only in
                  accordance with the following sections.

                  (i)      Termination of Employment. In the event a Participant
                           ceases to be employed by the Company or a Subsidiary
                           for any reason other than death or retirement, any
                           deferred Shares Award (earned in respect of any Plan
                           Year ending prior to the Plan Year in which such
                           termination occurs), credited to his account will be
                           distributed in kind in a lump sum payment within 60
                           days of his termination of employment.

                  (ii)     Retirement. In the event a Participant retires under
                           a retirement plan of the Company or a Subsidiary, any
                           deferred Shares Award will be distributed commencing
                           within 60 calendar days of his retirement in
                           accordance with the method of distribution elected by
                           the Participant. If the election is a lump sum, the
                           entire deferred Shares Award will be transferred in
                           kind to the Participant within 60 days of his
                           retirement. If installments have been elected, the
                           aggregate number of Shares held in the separate
                           account for deferred Shares Awards will be divided by
                           the number of installments elected and allocated in
                           equal whole number proportions to be distributed with
                           each installment payment (with any remainder after
                           such equal division to be included in the first
                           installment). All deferred Shares Awards so allocated
                           will be distributed in kind the first payment made
                           within 60 days of retirement and the second and all
                           subsequent installment payments made between January
                           1 and 15 of each following year. Dividends from any
                           undistributed deferred Shares

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                           Awards will be credited to the deferred cash award
                           account of the Participant established under the
                           Annual Cash Incentive Plan.

                  (iii)    Death. If any portion of a Participant's account
                           remains unpaid at his death, then after his death
                           such amount will be paid (i) to his beneficiary(ies)
                           in accordance with the method of distribution elected
                           by the Participant (following the procedure for lump
                           sum and installment payments set forth above), or
                           (ii) if the Participant has not designated a
                           beneficiary or if the beneficiary predeceases the
                           Participant, to the Participant's estate in a lump
                           sum. Should a beneficiary die after the Participant
                           but before the entire benefit has been disbursed, the
                           Shares benefit will be paid to the beneficiary's
                           estate in a lump sum in kind.

                  (iv)     Emergency Distribution. In the event an emergency
                           situation occurs (as defined below) while a
                           Participant is in the employ of the Company or a
                           Subsidiary, the Participant may request the Committee
                           to make an immediate distribution to him from his
                           account. Any such distribution will be solely within
                           the discretion of the Committee and will be limited
                           in an amount to that necessary to meet the emergency
                           and will only be made as an in kind distribution of
                           shares.

                           An emergency situation means a bona fide unexpected
                           financial emergency that is caused by an event beyond
                           the control of the Participant (e.g., a serious
                           family illness or disaster) and would result in
                           severe financial hardship to the Participant if early
                           distribution were not permitted.

X.       DESIGNATION OF BENEFICIARY

         Each Participant, at the time of filing an election to defer an
         Incentive Award, will designate one or more beneficiaries to whom the
         Company will make any distribution to be made after the Participant's
         death. This designation will be made in writing on a form filed with
         the Company's Senior Vice President and Chief Administrative Officer or
         other officer designated by the CEO and/or the President. Appendix D is
         a copy of the Beneficiary Designation to be used for designations under
         Section V. Designations under Section IX. will be made on the Election
         to defer. If a Participant does not designate a beneficiary, or if no
         beneficiary is living at the time of distribution, then, except as
         provided in Section IX. above, the distribution shall be made to a
         Participant's estate. A Participant may change his/her designated
         beneficiary(ies) at any time.

XI.      AMENDMENT, SUSPENSION OR TERMINATION OF PLAN

         In addition to the limited power of Plan amendment of the Committee,
         the Board may at any time amend, suspend or terminate this Plan for any
         Plan Year prior to the commencement of the Plan year; provided,
         however, that no such amendment, suspension, or termination will affect
         the rights of Participants or beneficiaries to receive distributions of
         deferred Share Awards previously made or the methods of

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         distributing deferred Share Awards which have been elected, nor
         retroactively eliminate or reduce any benefit hereunder of any
         Participant.

XII.     GENERAL

         A.       All expenses of administering the Plan, including reasonable
                  compensation to the members of the Committee, will be borne by
                  the Company.

         B.       No rights under the Plan, contingent or otherwise, will be
                  transferable, assignable or subject to any encumbrance, pledge
                  or charge of any nature.

         C.       Neither the adoption of the Plan nor its operation will in any
                  way affect the right and power of the Company or a Subsidiary
                  to dismiss or discharge any Senior Executive at any time, nor
                  shall any Participant who is dismissed or discharged by the
                  Company have any rights or benefits hereunder, except as
                  determined by the Committee at its discretion.

         D.       The Board, the Committee and the CEO and/or the President may
                  rely upon any information supplied to them by any officer of
                  the Company or by the Company's independent public accountants
                  and may rely upon the advice of such accountants or of counsel
                  in connection with the administration of this Plan and will be
                  fully protected in relying upon such information or advice.

XIII.    CLAIMS PROCEDURE

         In the event a Participant has been granted an Incentive Award and such
         Incentive Award is not paid for any reason, the Participant may file
         with the Committee a written claim for any payment to which he
         considers himself entitled. The Committee will review the claim fully
         and respond in writing as soon as possible following receipt of the
         Participant's written claim. Appeals of denial of claims shall also be
         handled by the Committee in a timely manner.

IN WITNESS HEREOF, the Company has caused this restatement to be executed as of
the 19th day of January, 2001.

                                   FLOWSERVE CORPORATION

                                   By: /s/ Ronald F. Shuff
                                       --------------------------------------
                                        Ronald F. Shuff
                                        Vice President, Secretary and General
                                        Counsel

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                                                                    APPENDIX A-1

<TABLE>
<CAPTION>
PERCENTAGE OF TARGET                  PERCENTAGE OF TARGET
PERFORMANCE ACHIEVED                  PERCENTAGE EARNED
<S>                                   <C>
     Under 75                                   0
       75                                      40
       85                                      65
       90                                      82
       95                                      92
      100                                     100
      105                                     120
      110                                     135
      115                                     140
      120                                     145
   125 and over                               150
</TABLE>

Note:    If actual performance achieved falls between two levels noted in first
         column above, the percentage of target percentage earned will be
         appropriately prorated.

<PAGE>   11

                                                                    APPENDIX A-2

                                TARGET INCENTIVES

<TABLE>
<CAPTION>
                                  TARGET
HAY POINTS                    INCENTIVE AS %
(JOB SIZE)                     OF MIDPOINT
<S>                           <C>
  960                              30%
 1074                              30%
 1124                              30%
 1292                              35%
 1360                              35%
 1628                              40%
 1688                              45%
 1860                              45%
 2448                              50%
 2540                              55%
 4112                              65%
</TABLE>

If a Participant's Hay Points fall between any two Hay Point levels set forth
above, the Participant's Target Incentive will be based on the lesser Hay Point
level.

<PAGE>   12

                                                                      APPENDIX B

                              FLOWSERVE CORPORATION
                ANNUAL STOCK INCENTIVE PLAN FOR SENIOR EXECUTIVES

                      PARTICIPANT'S ELECTION TO PARTICIPATE

In accordance with the provisions of the Annual Stock Incentive Plan for Senior
Executives (the "Plan") of Flowserve Corporation (the "Company"), I elect to
participate in the Plan for the Plan Year ended December 31, 200__.
Participation in this Plan is on a pro rata basis with the Flowserve Annual Cash
Incentive Plan for Senior Executives and represents ___% of my total (100%)
participation in both plans.

In making this election, I understand that:

1.   My election may not be changed or revoked after the end of the Plan Year.

2.   The number of Shares to be received pursuant to this election will be
     calculated pursuant to the Plan and, accordingly, will be the equivalent of
     115% of the value of the award, based upon the Plan's specified timing of
     the computation of the cash value of a Share as provided in the Plan.

3.   My election is otherwise subject to the terms of the Plan.

4.   The Shares have not been registered under the Securities Act of 1933.
     Rather, the Shares will be issued in reliance upon the so-called private
     placement exemption set forth in the Act. I may not sell the Shares unless
     either they are registered under the Act or unless an exemption from
     registration is available.

----------------------             ---------------------------------------------
DATE                               SIGNATURE OF PARTICIPANT

Receipt and acceptance acknowledged on behalf of the Compensation Committee.

----------------------             ---------------------------------------------
DATE                               RONALD F. SHUFF
                                   Vice President, Secretary and General Counsel

<PAGE>   13

                                                                      APPENDIX C

                              FLOWSERVE CORPORATION
                ANNUAL STOCK INCENTIVE PLAN FOR SENIOR EXECUTIVES

                         PARTICIPANT'S ELECTION TO DEFER

In accordance with the provisions of the Annual Stock Incentive Plan for Senior
Executives (the "Plan") of Flowserve Corporation (the "Company"), I elect:

1.   To defer ____% of my payment of Award payable in Shares in the Plan Year
     ending December 31, 200__.

2.   To receive payment of the amount of Shares credited to my deferred award
     account in the following manner (I have initialed the method I have
     elected):

               A.   In one lump sum payment in kind distribution of "Shares" (as
     -----          defined in the Plan) upon retirement.

               B.   In ten (10) equal annual installments of Shares commencing
     -----          within 60 calendar days of my retirement.

3.   To have any payments required by paragraph 2 above which have not been made
     to me prior to my death, paid after my death to the following designated
     person in the same manner as would have been paid to me:

              ----------------------------------------------------

              ----------------------------------------------------

              ----------------------------------------------------

In making this election, I understand that:

1.   My election may not be changed after the beginning of the Plan Year with
     respect to which my award is earned.

2.   My election is subject to the terms of the Plan, which, among other things,
     requires a lump sum payout in the event of my employment termination for
     reasons other than retirement or death.

-------------------------              --------------------------------------
DATE                                   SIGNATURE OF PARTICIPANT

The undersigned acknowledges receipt of the above election on                 .
                                                              ----------------

                                       --------------------------------------
                                       RONALD F. SHUFF
                                       VICE PRESIDENT, SECRETARY AND
                                       GENERAL COUNSEL

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                                                                      APPENDIX D

                              FLOWSERVE CORPORATION
                ANNUAL STOCK INCENTIVE PLAN FOR SENIOR EXECUTIVES

                      PARTICIPANT'S BENEFICIARY DESIGNATION

In accordance with the provisions of the Annual Stock Incentive Plan for Senior
Executives (the "Plan") of Flowserve Corporation (the "Company"), I elect to
have any payments which have not been made to me prior to my death, paid after
my death to:

              ----------------------------------------------------

              ----------------------------------------------------

              ----------------------------------------------------

-------------------------              --------------------------------------
DATE                                   SIGNATURE OF PARTICIPANT

The undersigned acknowledges receipt of the above election on                 .
                                                              ----------------

                                       --------------------------------------
                                       RONALD F. SHUFF
                                       VICE PRESIDENT, SECRETARY AND
                                       GENERAL COUNSEL
<PAGE>   15
                                                 Effective Date: October 1, 2000

                              FLOWSERVE CORPORATION
                     ANNUAL CASH INCENTIVE COMPENSATION PLAN
                              FOR SENIOR EXECUTIVES

I.       PURPOSE

         The purpose of the Flowserve Corporation Annual Cash Incentive
         Compensation Plan for Senior Executives (hereinafter referred to as the
         "Plan") is to provide an incentive and reward, in the form of an
         additional compensation opportunity if certain desired performance
         results are achieved, to those Senior Executives whose performance may
         significantly contribute to the management, growth and profitability of
         the business of the Company and its Subsidiaries and Divisions.

II.      DEFINITIONS

         A.       "BOARD" - The Company's Board of Directors.

         B.       "COMMITTEE" - The Compensation Committee of the Board.

         C.       "COMPANY" - Flowserve Corporation, a New York corporation, and
                  its successors in interest.

         D.       "DIVISION" - An unincorporated separate business unit of the
                  Company.

         E.       "HURDLE RATE" - The financial performance standards set in
                  accordance with Section IV.

         F.       "INCENTIVE AWARD" OR "AWARD" - A compensation award determined
                  in accordance with the provisions of Section VII.

         G.       "SENIOR EXECUTIVE" - A full-time salaried employee of the
                  Company or a Subsidiary who serves as a Company officer,
                  Company Division President, Subsidiary President or other high
                  level position with the Company or a Subsidiary and, in the
                  opinion of the Committee, is in a position to make a
                  significant contribution to the successful operation of the
                  Company or a Subsidiary.

         H.       "PARTICIPANT" - A Senior Executive who is selected by the
                  Committee to participate in the Plan.

         I.       "PLAN YEAR" - The fiscal year ended December 31.

         J.       "RETURN ON AVERAGE SHAREHOLDER EQUITY" - The percentage return
                  reported in the Company's applicable annual report to
                  shareholders.

<PAGE>   16
         K.       "SUBSIDIARY" - Any entity of which more than 50 percent of the
                  voting control is owned, directly or indirectly, by the
                  Company.

         L.       "TARGET INCENTIVE AWARD" - A conditional compensation award
                  determined in accordance with the provisions of Section VI.

III.     ADMINISTRATION

         The Plan will be administered by the Committee. No member of the
         Committee will be eligible to receive a Target Incentive Award while he
         is a member of the Committee or with respect to any Plan Year during
         which he was a member of the Committee. The Committee will also have
         authority to approve amendments to the Plan which do not affect the
         Awards which may be earned by or payable to the Company's Chief
         Executive Officer hereunder, provided that no such amendment shall
         affect any deferred Awards previously earned or any elections
         previously made by a Participant nor retroactively eliminate nor reduce
         any benefit hereunder of any participant.

IV.      LIMITATIONS ON INCENTIVE AWARDS

         Prior to the beginning of each Plan Year, the Committee will establish
         a Hurdle Rate based on a Return on Average Shareholders' Equity. For
         any Plan Year in which the Return on Average Shareholders' Equity falls
         below the previously established Hurdle Rate, no Incentive Awards will
         be paid regardless of the performance of any Division, Subsidiary or
         Participant. An additional Hurdle Rate will be proposed by the Chief
         Executive Officer (CEO) and/or the President and approved by the
         Committee for each Division and Subsidiary unit. No Incentive Awards
         will be paid to any Participant unless the Division or Subsidiary in
         which he is employed has met or exceeded its Hurdle Rate.

V.       ELIGIBILITY AND ELECTION TO PARTICIPATE

         Prior to March 1 of each Plan Year, the CEO and/or the President will
         propose, and the Committee will determine, those current Senior
         Executives who will be eligible to participate in the Plan for that
         Plan Year, provided that all Participants who were included in the Plan
         for the 1993 Plan year will maintain their eligibility for
         participation, regardless of whether they are a Senior Executive. New
         Participants may be added to the Plan later during the Plan Year with
         the approval of the Committee. The addition to this Plan will cause
         participation of the newly added Participant in other similar incentive
         plans to cease, and each such plan's target incentive award will be
         appropriately prorated in that year in a manner satisfactory to the CEO
         and/or the President in their/his discretion. A Participant may be paid
         an Incentive Award with respect to a Plan Year after 1993 only if
         either (i) he is a Senior Executive of the Company or a Subsidiary on
         the last day of such Plan Year or (ii) subject to the approval of the
         Committee, he was a Senior Executive of the Company or a Subsidiary on
         the first day of such Plan Year and termination of

                                       2
<PAGE>   17

         his/her employment has taken place (a) as a result of his/her permanent
         disability or death, (b) as a result of his/her retirement under a
         retirement plan of the Company or a Subsidiary, or (c) as a result of
         military or other service with the United States Government.
         Notwithstanding the foregoing, the Committee may, in its absolute
         discretion, authorize payment of an Incentive Award to an individual
         who is not a Senior Executive of the Company or a Subsidiary on the
         last day of the Plan Year to which such Award relates. No Participant
         will be eligible to receive an Incentive Award with respect to a
         particular Plan Year if he was eligible to receive an award under any
         other cash incentive compensation plan of the Company or a Subsidiary
         other than the Company's Long-Term Incentive Plan or any other Plan so
         designated by the Committee, except as provided above with regard to
         the addition of a Participant to the Plan during the Plan Year. For
         purposes of the foregoing, the Company's CEO Discretionary Bonus Plan
         and Equity Incentive Plan are not to be considered an incentive
         compensation plan. Unless electing to the contrary to participate in
         the Flowserve Corporation Annual Stock Incentive Compensation Plan for
         Senior Executives ("Stock Incentive Plan"), all Eligible Participants
         shall participate in this Plan. If a Participant dies, becomes
         permanently disabled, retires, or enters military service prior to the
         payment of an Incentive Award with respect to a particular Plan Year,
         the amount of the payment of such Incentive Award (whether none, in
         part, or in full) shall be at the absolute discretion of the Committee.
         In the case of the death of a Participant, payment of an Incentive
         Award (if and to the extent authorized by the Committee) shall be made
         to the Participant's beneficiary. Should a beneficiary die after the
         Participant but before the benefit has been disbursed, the benefit will
         be paid to the beneficiary's estate.

VI.      TARGET INCENTIVE AWARDS

         A Target Incentive Award means for each Participant the amount
         determined by multiplying the midpoint of the Participant's salary
         range at the beginning of the Plan Year (or in the event a
         Participant's salary range is changed during the Plan Year, the salary
         range which was in effect during the majority of the Plan Year) by a
         target percentage of midpoint salary approved by the Committee prior to
         the beginning of the Plan Year. In any Plan Year in which actual
         performance exceeds the target performance objectives established in
         accordance with Section VII. B., a Participant's Incentive Award may be
         an amount up to 150% of his/her Target Incentive Award. Conversely, in
         any Plan Year in which actual performance falls below these target
         performance objectives, a Participant may receive a reduced Incentive
         Award, if the actual performance is at least 75% or such other
         percentage as may be approved by the Committee of target performance
         for any Plan Year after 1993. Unless otherwise determined by the
         Committee, actual performance results which range between 75% and 125%
         or greater of target performance will receive the percentage of target
         percentage shown on Appendix A-1 for any Plan Year after 1993, as
         prorated appropriately to reflect actual percentage of attainment.
         Appendix A-2 sets forth the guideline target percentages for

                                       3
<PAGE>   18

         Selected Hay Point levels for any Plan Year after 1993, which will be
         subject to modification by the approval of the Committee for the
         applicable Plan Year.

VII.     DETERMINATION OF INCENTIVE AWARDS

         A.       ALLOCATION OF TARGET INCENTIVE AWARDS. The CEO and/or the
                  President will, based on the nature and content of each
                  Participant's position, determine, before March 1 of the Plan
                  Year, the portion of a Participant's Target Incentive Award
                  which may be earned in each of the following categories:
                  quantitative objectives, qualitative objectives and individual
                  performance objectives. The Committee will make such
                  determination with respect to the CEO and/or the President if
                  they/he is/are a Participant.

         B.       ESTABLISHMENT OF TARGET PERFORMANCE OBJECTIVES. Prior to or
                  within two (2) months of the beginning of each Plan Year, the
                  CEO and/or the President will propose, and the Committee will
                  determine, Division, Subsidiary and Company target performance
                  objectives, with applicable weightings, based upon goals
                  deemed appropriate for each Division, Subsidiary or the
                  Company.

         C.       DETERMINATION OF ACTUAL PERFORMANCE. At the end of each Plan
                  Year, the CEO and/or the President or their/his/her
                  designates, will determine on a percentage basis (i) the
                  extent to which each Division, each Subsidiary and the Company
                  achieved its objectives, and (ii) the extent to which each
                  Participant achieved his/her individual objectives, if any. No
                  Incentive Award will be paid to any Participant who has not
                  received at least a "meets all expectations" or equivalent
                  rating for his/her individual performance review during the
                  Plan Year, provided that the CEO and/or President may
                  establish a higher minimum rating for any Plan Year in his
                  and/or their discretion. The Committee will make such
                  determination with respect to the CEO if he is a Participant.

         D.       COMPUTATION OF INCENTIVE AWARDS. A Participant's Incentive
                  Award for any Plan Year will be the sum of the portions of the
                  Target Incentive Award which is earned, as set forth in
                  Section VII. C., above. If proposed by the CEO and/or the
                  President and approved by the Committee, the quantitative
                  objective, the Hurdle Rate, the Target Incentive Award and the
                  Return on Shareholders' Equity may be adjusted up or down
                  when, in the CEO's and/or the President's judgment, any
                  unusual and/or unforeseen events occurred which affected the
                  applicable quantitative results.

                  In calculating an Incentive Award, the amount earned is
                  arrived at by multiplying the portion of the Target Incentive
                  Award allocated to each objective by the percentage of
                  achievement as outlined in Section VII. C., above.

VIII.    FORM OF PAYMENT AWARDS

         Incentive Awards under the Plan may be paid in cash or deferred cash,
         or in some combination thereof in not less than 10% increments of a
         total Award. Unless

                                       4
<PAGE>   19

         properly deferred under Section IX., all Awards shall be paid as soon
         as practical after the completion of the applicable Plan Year and the
         determination of the amount of the applicable Award. Deferred cash
         Awards will be paid in accordance with Section IX.

IX.      DISTRIBUTION OF AWARDS

         A.       CASH AWARDS. Cash Awards will be paid in full as soon as
                  practicable after the end of the Plan Year.

         B.       ELECTION TO DEFER. Each Participant may elect to defer
                  distribution of a cash Award or a portion thereof. The
                  Participant's election to defer must be made either at or
                  before August 31 of the applicable Plan Year. Such election
                  may not be changed after August 31 of the applicable Plan
                  Year. Appendix B is a copy of the election to defer, although
                  the Committee may elect to honor any written communication
                  statement from a Participant which communicates substantially
                  the same election intention. The Committee, in its absolute
                  discretion, may elect to accept any such election applicable
                  to the Plan Year beginning January 1, 1990, January 1, 1991,
                  January 1, 1992 or January 1, 1993 where the Committee (or the
                  Chief Administrative Officer on behalf of the Committee,
                  except in cases involving the Chief Administrative Officer)
                  determines in its absolute discretion that the Participant
                  submitted in good faith an irrevocable election to defer a
                  possible award prior to the commencement of the applicable
                  Plan Year, regardless of the content of any election form or
                  notice.

         C.       PARTICIPANTS' ACCOUNTS FOR DEFERRED CASH AWARD. The Company
                  will establish a separate account for each Participant who has
                  elected to defer his cash Award, in which the amount of the
                  Participant's deferred cash Award will be recorded. The
                  Company will credit to each such account, as of the first day
                  of each calendar quarter, interest on the amount then credited
                  to such account, including all previous credits to such
                  account by operation of this Section, computed at an annual
                  rate equal to 120% of the long-term applicable federal rate
                  compounded quarterly as published by the Internal Revenue
                  Service for the beginning month of each calendar quarter. Any
                  dividends paid on shares in the deferred stock account
                  established pursuant to the Annual Stock Incentive Plan will
                  be credited to the aforementioned deferred cash Award account,
                  with interest to be credited to such dividends in the same
                  manner as credited to deferred cash Awards.

         D.       UNSECURED ACCOUNT. Any amount credited to the account of a
                  Participant as a deferred cash Award, or as interest paid on
                  such deferred Award, or as dividends paid on shares in a
                  deferred stock account established pursuant to the Annual
                  Stock Incentive Plan with interest, will represent only an
                  unsecured promise of the Company to pay the amount so credited
                  in accordance with the terms of the Plan. Neither a
                  Participant nor any beneficiary of a Participant will acquire
                  any right, title, or interest in any asset of the Company as a
                  result of any amount credited to a Participant's account. At
                  all times, a Participant's rights

                                       5
<PAGE>   20

                  with respect to the amount credited to his account will be
                  only those of an unsecured creditor of the Company. The
                  Company will not be obligated or required in any manner to
                  restrict the use of any of its assets as a result of any
                  amount credited to a Participant's account.

         E.       DEFERRED PAYMENTS. Deferred Awards will be distributed only in
                  accordance with the following sections.

                  (i)      Termination of Employment. In the event a Participant
                           ceases to be employed by the Company or a Subsidiary
                           for any reason other than death or retirement, any
                           deferred cash Award (earned in respect of any Plan
                           Year ending prior to the Plan Year in which such
                           termination occurs), and any interest on such Award
                           and any dividends with interest as described in
                           Section IX. C. ("Dividends') credited to his account
                           will be distributed in a lump sum payment within 60
                           days of his termination of employment.

                  (ii)     Retirement. In the event a Participant retires under
                           a retirement plan of the Company or a Subsidiary, any
                           deferred cash Award, and the interest and Dividends
                           on such Award previously or currently credited to his
                           account will be distributed commencing within 60
                           calendar days of his retirement in accordance with
                           the method of distribution elected by the
                           Participant. If the election is a lump sum, interest
                           and Dividends will be credited to the account
                           pursuant to Section IX. C. through the date of
                           distribution, and the entire deferred cash amount
                           will be paid to the Participant within 60 days of his
                           retirement. If installments have been elected,
                           interest and Dividends will be calculated through the
                           date of retirement pursuant to Section IX. C. and
                           added to the account. The resulting deferred cash
                           Award account total shall be divided equally by the
                           number of installments elected and the first payment
                           made within 60 days of retirement. The second and all
                           subsequent installment payments shall be made between
                           January 1 and 15 of each following year. Interest
                           will continue to accrue to the account pursuant to
                           Section IX. C. on the balance remaining in the
                           Participant's deferred cash Award account until all
                           installments have been paid and will be paid annually
                           with each installment payment.

                  (iii)    Death. If any portion of a Participant's account
                           remains unpaid at his death, then after his death
                           such amount will be paid (i) to his beneficiary(ies)
                           in accordance with the method of distribution elected
                           by the Participant (following the procedure for lump
                           sum and installment payments set forth above), or
                           (ii) if the Participant has not designated a
                           beneficiary or if the beneficiary predeceases the
                           Participant, to the Participant's estate in a lump
                           sum. Should a beneficiary die after the Participant
                           but before the entire benefit has been disbursed, the
                           balance of the cash benefit will be paid to the
                           beneficiary's estate in a lump sum.

                  (iv)     Emergency Distribution. In the event an emergency
                           situation occurs (as defined below) while a
                           Participant is in the employ of the Company or a

                                        6
<PAGE>   21
                           Subsidiary, the Participant may request the Committee
                           to make an immediate distribution to him from his
                           account. Any such distribution will be solely within
                           the discretion of the Committee and will be limited
                           in an amount to that necessary to meet the emergency.

                           An emergency situation means a bona fide unexpected
                           financial emergency that is caused by an event beyond
                           the control of the Participant (e.g., a serious
                           family illness or disaster) and would result in
                           severe financial hardship to the Participant if early
                           distribution were not permitted.

X.       DESIGNATION OF BENEFICIARY

         Each Participant, at the time of filing an election to defer an
         Incentive Award, will designate one or more beneficiaries to whom the
         Company will make any distribution to be made after the Participant's
         death. This designation will be made in writing on a form filed with
         the Company's Senior Vice President and Chief Administrative Officer or
         other officer designated by the CEO and/or the President. Appendix C is
         a copy of the Beneficiary Designation to be used for designations under
         Section V. Designations under Section IX. will be made on the Election
         to defer. If a Participant does not designate a beneficiary, or if no
         beneficiary is living at the time of distribution, then, except as
         provided in Section IX. above, the distribution shall be made to a
         Participant's estate. A Participant may change his/her designated
         beneficiary(ies) at any time.

XI.      AMENDMENT, SUSPENSION OR TERMINATION OF PLAN

         In addition to the limited power of Plan amendment of the Committee,
         the Board may at any time amend, suspend or terminate this Plan for any
         Plan Year prior to the commencement of the Plan year; provided,
         however, that no such amendment, suspension, or termination will affect
         the rights of Participants or beneficiaries to receive distributions of
         deferred Awards previously made or the methods of distributing deferred
         Awards which have been elected, nor retroactively eliminate or reduce
         any benefit hereunder of any Participant.

XII.     GENERAL

         A.       All expenses of administering the Plan, including reasonable
                  compensation to the members of the Committee, will be borne by
                  the Company.

         B.       No rights under the Plan, contingent or otherwise, will be
                  transferable, assignable or subject to any encumbrance, pledge
                  or charge of any nature.

         C.       Neither the adoption of the Plan nor its operation will in any
                  way affect the right and power of the Company or a Subsidiary
                  to dismiss or discharge any Senior Executive at any time, nor
                  shall any Participant who is dismissed or discharged by the
                  Company have any rights or benefits hereunder, except as
                  determined by the Committee at its discretion.

                                       7
<PAGE>   22

         D.       The Board, the Committee and the CEO and/or the President may
                  rely upon any information supplied to them by any officer of
                  the Company or by the Company's independent public accountants
                  and may rely upon the advice of such accountants or of counsel
                  in connection with the administration of this Plan and will be
                  fully protected in relying upon such information or advice.

XIII.    CLAIMS PROCEDURE

         In the event a Participant has been granted an Incentive Award and such
         Incentive Award is not paid for any reason, the Participant may file
         with the Committee a written claim for any payment to which he
         considers himself entitled. The Committee will review the claim fully
         and respond in writing as soon as possible following receipt of the
         Participant's written claim. Appeals of denial of claims shall also be
         handled by the Committee in a timely manner.

IN WITNESS HEREOF, the Company has caused this restatement to be executed as of
the 19th day of January, 2001.

                               FLOWSERVE CORPORATION

                               By:  /s/ Ronald F. Shuff
                                   ------------------------------------------
                                   Ronald F. Shuff
                                   Vice President, Secretary and General Counsel

                                       8
<PAGE>   23

                                                                    APPENDIX A-1

<TABLE>
<CAPTION>
PERCENTAGE OF TARGET          PERCENTAGE OF TARGET
PERFORMANCE ACHIEVED           PERCENTAGE EARNED
<S>                           <C>
       Under 75                        0
         75                           40
         85                           65
         90                           82
         95                           92
        100                          100
        105                          120
        110                          135
        115                          140
        120                          145
     125 and over                    150
</TABLE>

Note:    If actual performance achieved falls between two levels noted in first
         column above, the percentage of target percentage earned will be
         appropriately prorated.

<PAGE>   24

                                                                    APPENDIX A-2

                                TARGET INCENTIVES

<TABLE>
<CAPTION>
                            TARGET
 HAY POINTS             INCENTIVE AS %
 (JOB SIZE)              OF MIDPOINT
<S>                     <C>
   960                       30%
  1074                       30%
  1124                       30%
  1292                       35%
  1360                       35%
  1628                       40%
  1688                       45%
  1860                       45%
  2448                       50%
  2540                       55%
  4112                       65%
</TABLE>

If a Participant's Hay Points fall between any two Hay Point levels set forth
above, the Participant's Target Incentive will be based on the lesser Hay Point
level.

<PAGE>   25

                                                                      APPENDIX B

                              FLOWSERVE CORPORATION
                ANNUAL CASH INCENTIVE PLAN FOR SENIOR EXECUTIVES

                         PARTICIPANT'S ELECTION TO DEFER

In accordance with the provisions of the Annual Cash Incentive Plan for Senior
Executives (the "Plan") of Flowserve Corporation (the "Company"), I elect:

1.   To defer _____% of my payment of Award payable in cash for the Plan Year
     ending December 31, 200__.

2.   To receive payment of the amount credited to my deferred award account in
     the following manner (I have initiated the method I have elected):

               A.   In one lump sum payment of cash.
     -----
     -----     B.   In ten (10) equal annual installments of cash commencing
                    within 60 calendar days of my retirement.

3.   To have any payments required by paragraph 2 above which have not been made
     to me prior to my death, paid after my death to the following designated
     person in the same manner as would have been paid to me:

              ----------------------------------------------------

              ----------------------------------------------------

              ----------------------------------------------------

In making this election, I understand that:

1.   My election may not be changed after the beginning of the Plan Year with
     respect to which my award is earned.

2.   My election is subject to the terms of the Plan, which, among other things,
     requires a lump sum payout in the event of my employment termination for
     reasons other than retirement or death.

-------------------------               --------------------------------------
DATE                                    SIGNATURE OF PARTICIPANT

The undersigned acknowledges receipt of the above election on                 .
                                                              ----------------

                                        ---------------------------------------
                                        RONALD F. SHUFF
                                        VICE PRESIDENT, SECRETARY AND
                                        GENERAL COUNSEL

<PAGE>   26

                                                                      APPENDIX C

                              FLOWSERVE CORPORATION
                ANNUAL CASH INCENTIVE PLAN FOR SENIOR EXECUTIVES

                      PARTICIPANT'S BENEFICIARY DESIGNATION

In accordance with the provisions of the Annual Cash Incentive Plan for Senior
Executives (the "Plan") of Flowserve Corporation (the "Company"), I elect to
have any payments which have not been made to me prior to my death, paid after
my death to:

              ----------------------------------------------------

              ----------------------------------------------------

              ----------------------------------------------------

-------------------------               --------------------------------------
DATE                                    SIGNATURE OF PARTICIPANT

The undersigned acknowledges receipt of the above election on                 .
                                                              ----------------

                                        ---------------------------------------
                                        RONALD F. SHUFF
                                        VICE PRESIDENT, SECRETARY AND
                                        GENERAL COUNSEL<PAGE>   1
                                                                    EXHIBIT 10.3

                  FLOWSERVE CORPORATION DIRECTOR DEFERRAL PLAN
                AS AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 2000

Flowserve Corporation (the "Company") established the Flowserve Corporation
Director Deferral Plan (the "Plan) and has been operating thereunder. Effective
October 1, 2000 ("Effective Date"), the Plan has been amended and restated into
two separate plans:

               1)   Flowserve Corporation Director Stock Deferral Plan
                    ("Director Stock Deferral Plan").

               2.   Flowserve Corporation Director Cash Deferral Plan
                    ("Director Cash Deferral Plan").

Each Director in any Plan Year may participate in the Director Stock Deferral
Plan or the Director Cash Deferral Plan [or both the Director Stock Deferral
Plan and the Director Cash Deferral Plan]. Participation in the Plans is
permitted on a pro rata basis so that total participation in both Plans equals
100%.

As of the Effective Date, all deferred stock awards from the predecessor Plan
are transferred to the Director Stock Deferral Plan and all deferred cash awards
are transferred to the Director Cash Deferral Plan. Any distribution of stock
transferred to this Plan shall only be made in kind.

<PAGE>   2
                              FLOWSERVE CORPORATION
                              AMENDED AND RESTATED
                          DIRECTOR STOCK DEFERRAL PLAN

                           (EFFECTIVE OCTOBER 1, 2000)

         1. PURPOSE OF THE RESTATEMENT. The purpose of this amendment and
restatement ("Restatement") to the Director Deferral Plan (the "Plan") is to
continue to provide the opportunity for a member (a "Director") of the Board of
Directors to elect to defer all or a specified part of the "Compensation" (as
defined hereafter) in the form of deferred Company Common Stock, $1.25 per share
par value ("Deferred Shares") and to limit distribution of Plan assets to in
kind distributions of shares of Flowserve Corporation common stock.

         2. COMPENSATION UNCHANGED. The amount of Compensation payable to
Directors shall remain unchanged as the result of the adoption of this
Restatement. "Compensation," for the purpose of the Plan, shall mean the
payments to the Directors for services rendered and shall include the annual
retainer, cash compensation for services as a member of a Committee of the Board
of Directors, meeting attendance fees, Committee chairmanship fees and board
Chairmanship fees.

         3. SHAREHOLDER APPROVAL REQUIREMENT. The prior Restatement effective
July 1, 1995 was approved by the shareholders of the Company at the 1995 Annual
Meeting of Shareholders.

         4. ELECTION TO DEFER.

         (a) A Director may execute an election with the Company to defer the
payment of all, or a specified part in an increment of 10%, of the Compensation
payable for services as a Director through completion of a form (Exhibit "A") or
any substantially similar document to be delivered to and subject to acceptance
by the Secretary of the Company. An election to defer Compensation shall be
effective as of the day specified on the election form or, if not stated, on the
first day of the next succeeding calendar quarter. In the case, however, of a
person who has been elected to serve as a Director but whose term has not yet
commenced, the election to defer shall be effective as of such date as may be
specified in the election form. In either case, the election shall apply only to
Compensation payable for services rendered on or after the effective date of the
election to defer. The election to defer shall remain in effect until terminated
or changed as provided in this Plan.

         (b) A Director may terminate any election to defer the payment of the
Compensation relating to future services by giving notice of termination to the
Company. A director may change any election to defer the payment of Compensation
relating to future services either in the manner provided in the election or by
executing a new election with the Company. Any such termination or change in the
amount to be deferred shall be effective only with respect to Compensation
payable for services as a Director on or after the first day of the next
succeeding calendar quarter, subject to Section 4(d) below.

<PAGE>   3

         (c) Election forms received prior to October 1, 2000 which were
submitted under the Plan prior to this Restatement shall continue to be valid
until and unless revoked.

         (d) If the Director makes an initial election of Deferred Shares or
elects to increase the percentage of the amount deferred in the form of Deferred
Shares, such deferral shall take effect, unless otherwise specified for a later
time, for the next following calendar quarter.

5.       FORM OF DEFERRAL.

         (a) A Director may elect to defer his or her Compensation in the form
of Deferred Shares and must so designate on his/her aforementioned election
("Exhibit A") to be delivered to the Secretary of the Company.

         (b) The issuance or delivery of Deferred Shares pursuant to the Plan
shall be subject to, and shall comply with, any applicable requirements of
federal and state securities laws, rules and regulations (including, without
limitation, the provisions of the Securities Act of 1933, the Securities
Exchange Act of 1934 and the rules and regulations promulgated thereunder), any
securities exchange upon which the Deferred shares may be listed and any other
law or regulation applicable thereto. The Company shall not be obligated to
issue or deliver any Deferred Shares pursuant to the Plan if such issuance or
delivery would, in the opinion of the Committee, violate any such requirements.
The foregoing shall not, however, be deemed to require the Company to effect any
registration of Shares under any such law or regulation, although the Company
may elect to do so.

         (c) Notwithstanding a Director's election to defer his/her Compensation
in the form of Deferred Shares, the deferral for any particular calendar quarter
shall not be permitted under this Director Stock Deferral Plan if, in the
opinion of counsel for the Company, such a deferral in the form of Deferred
Shares could give rise to liability to the Director and/or Company under
applicable laws governing "insider trading" by directors in public companies.
Additionally, any election by a Director of Deferred Shares shall be invalid
where the Director has disposed of any shares of the Company's Common Stock
within six months of the calendar quarter applicable to the deferral, if the
Company is advised by counsel that such deferral does not qualify as being
"exempt" under Section 16 of the Securities Exchange Act.

6.       DIRECTORS' ACCOUNTS FOR DEFERRED SHARES AWARD.

         (a) The Company will establish a separate account for each Director who
has elected Deferred Shares, in which the Director's Deferred Shares will be
maintained. The Company will create this account through a trust (the "Trust")
established by the Company, with the applicable trustee (the "Trustee")
maintaining such Deferred Shares pursuant to the Trust. The Company shall fund
such account by providing the applicable deferred cash to the Trustee during the
first month of the calendar quarter at approximately the same time that the cash
would otherwise be paid to the director with instructions to the Trustee to
purchase such Deferred Shares for this account on the open market, and with the
Company paying or reimbursing the Trustee for any brokerage or other transaction
fees. Any dividends paid on the Deferred Shares in this account ("Dividends")
will be credited to a deferred cash account of the Director established pursuant
to the Flowserve Corporation

                                       2
<PAGE>   4

Director Cash Deferral Plan. The Trustee will have voting rights on all Deferred
Shares prior to distribution.

         (b) UNSECURED ACCOUNT. Any amount credited to the Deferred Shares
accounts of a Director as deferred Compensation will represent only an unfunded
and unsecured promise of the Company to pay the amount so credited in accordance
with the terms of the Plan. Neither a Director, nor any beneficiary of a
Director, will acquire any right, title or interest in any asset of the Company
as a result of any amount of Deferred Shares credited to a Director's account or
accounts. At all times, a director's rights with respect to the amount credited
to his/her account or accounts will be only those of an unsecured creditor of
the Company. The Company will not be obligated or required in any manner to
restrict the use of any of its assets as a result of any amount credited to a
Director's account or accounts. No right or benefit under the Plan shall be
subject to anticipation, alienation, sale, assignment, pledge, encumbrance or
charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber
or charge the same shall be void.

         7. PAYMENT OF DEFERRED COMPENSATION. Deferred Compensation will be
distributed only in accordance with the following sections.

         (a) TERMINATION OF SERVICE. In the event a Director leaves service from
the Company's Board of Directors for any reason, any Deferred Shares will be
distributed commencing within 60 calendar days or his/her termination in
accordance with the method of distribution elected by the Director. The Director
may elect to receive such distribution in a lump sum, in equal annual
installments (not exceeding ten) or some designated combination thereof. If the
election is a lump sum, the entire Deferred Shares account balance will be
transferred in kind to the director within 60 days of his/her termination. If
installments have been elected, the aggregate number of Deferred Shares, held in
the separate account for Deferred Shares will be divided by the number of
installments elected and allocated in equal whole number proportions to be
distributed with each such installment payment (with any remainder after such
equal division to be included in the first installment). All Deferred Shares so
allocated will be distributed in kind, the first payment made within 60 days of
retirement and the second and all subsequent installment payments made between
January 1 and 15 of each following year. Certificates representing the
applicable amount of Deferred Shares held for the then longest time in the
Deferred Shares account of the Trust will be delivered with each installment.

         (b) DEATH. If any portion of a Director's account remains unpaid at
his/her death, then after his/her death such amount will be paid (i) to his/her
beneficiary(ies) in accordance with the method of distribution elected by the
Director (following the procedure for lump sum and installment payments set
forth above), or (ii) if the Director has not designated a beneficiary or if the
beneficiary predeceases the Director, to the Director's estate in a lump sum.
Should a beneficiary die after the Director has terminated service but before
the entire benefit has been disbursed, the Deferred Shares benefit will be
transferred to such estate in kind.

       (c) MANDATORY LUMP SUM. Notwithstanding the above, if the value of the
deferred Compensation (including Compensation deferred by the Director under
prior Company Director optional deferral plans) is less than $10,000 at the time
of termination of service by resignation or death, or if the Director has failed
to elect a form of distribution on Exhibit A,

                                       3
<PAGE>   5

then the balance of the deferred Compensation shall be paid in a lump sum, at
the Company's discretion, regardless of the Director's prior distribution
election.

         8. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee (the "Committee") of the Board of Directors. The decision of the
Committee shall be final and binding with respect to the interpretation,
construction or application of the Plan.

         9. AMENDMENT OR TERMINATION. The Committee may amend or terminate the
Plan at any time. No amendment or termination of the Plan shall void an election
already in effect for the then current calendar quarter or any preceding
calendar quarter, nor adversely affect the right of a former Director, his/her
account prior to such amendment or termination, together with amounts credited
thereto subsequent to such amendment or termination pursuant to Section 6.

         IN WITNESS WHEREOF, the Company has caused this restatement to be
executed as of the 19th day of January, 2001.

                               FLOWSERVE CORPORATION

                               By: /s/ Ronald F. Shuff
                                   -------------------------------------------
                                   Ronald F. Shuff
                                   Vice President, Secretary and General Counsel

                                       4
<PAGE>   6

                                                                       EXHIBIT A

                              FLOWSERVE CORPORATION
                          DIRECTOR STOCK DEFERRAL PLAN

                          DIRECTOR'S ELECTION TO DEFER

         In accordance with the provisions of the amended and restated Director
Stock Deferral Plan (the "Plan") of Flowserve Corporation (the "Company"), I
elect to participate in the Plan. Participation in this Plan is on a pro rata
basis with the Flowserve Corporation Director Cash Deferral Plan and represents
____% of my total (100%) participation in both plans. I elect:

1.       To defer ____% (increments of 10%) of the payment of the Compensation
         (as defined in the Plan) to be paid to me in Shares of Company Common
         Stock for services as a Director for calendar quarters beginning
         ________________, 200__ and succeeding calendar quarters until I notify
         you to end this deferral.

2.       To receive payment of the amount credited to my deferred Compensation
         account in the following manner:

           [ ]  In one lump sum payment in kind distribution of Deferred Shares.

           [ ]  In ______ equal annual installments (not to exceed ten) of
                Deferred Shares commencing within 60 calendar days of my
                termination.

           [ ]  In the following percentage combination (totaling 100%).

               % Lump Sum               % in      Equal Annual Installments
           ----                     ----     ---- (not to exceed ten)

3.       To have any payments above, which have not been made to me prior to my
         death, paid after my death to the following designation person(s) in
         the same manner as would have been paid to me:

              ---------------------------------------------------

              ---------------------------------------------------

              ---------------------------------------------------

                                      1-A
<PAGE>   7

In making this election, I understand that:

         1.       My election may not be changed after the beginning of the
                  calendar quarter with respect to which my Compensation is
                  paid.

         2.       My election is otherwise subject to the terms of the Plan and
                  applicable securities laws.

         3.       My election to defer compensation in the form of Deferred
                  Shares will not be honored for any particular quarter if the
                  Company is advised by legal counsel of any legal liabilities
                  to the Company or to me which may arise from such Deferred
                  Shares deferral.

         4.       The crediting of the Deferred Shares to my account will not
                  constitute a "purchase" for the purposes of Section 16 of the
                  Securities Act of 1933.

         5.       The delivery of the Deferred Shares to me upon payment of my
                  Deferred Compensation Account will be subject to then
                  applicable SEC requirements, including, without limitation,
                  possible time restrictions on resale.

------------------                          -----------------------------------
Date                                        Signature of Participant

The undersigned acknowledges receipt of the above election on                 .
                                                              ----------------

                                               ---------------------------------
                                               Ronald F. Shuff
                                               Vice President, Secretary and
                                               General Counsel

                                      2-A
<PAGE>   8
                              FLOWSERVE CORPORATION
                              AMENDED AND RESTATED
                           DIRECTOR CASH DEFERRAL PLAN

                           (EFFECTIVE OCTOBER 1, 2000)

         1. PURPOSE OF THE RESTATEMENT. The purpose of this amendment and
restatement ("Restatement") to the Director Deferral Plan (the "Plan") is to
continue to provide the opportunity for a member (a "Director") of the Board of
Directors to elect to defer all or a specified part of the "Compensation" (as
defined hereafter) in the form of cash.

         2. COMPENSATION UNCHANGED. The amount of Compensation payable to
Directors shall remain unchanged as the result of the adoption of this
Restatement. "Compensation," for the purpose of the Plan, shall mean the
payments to the Directors for services rendered and shall include the annual
retainer, cash compensation for services as a member of a Committee of the Board
of Directors, meeting attendance fees, Committee chairmanship fees and board
Chairmanship fees.

         3. SHAREHOLDER APPROVAL REQUIREMENT. The prior Restatement effective
July 1, 1995 was approved by the shareholders of the Company at the 1995 Annual
Meeting of Shareholders.

         4. ELECTION TO DEFER.

         (a) A Director may execute an election with the Company to defer the
payment of all, or a specified part in an increment of 10%, of the Compensation
payable for services as a Director through completion of a form (Exhibit "A") or
any substantially similar document to be delivered to and subject to acceptance
by the Secretary of the Company. An election to defer Compensation shall be
effective as of the day specified on the election form or, if not stated, on the
first day of the next succeeding calendar quarter. In the case, however, of a
person who has been elected to serve as a Director but whose term has not yet
commenced, the election to defer shall be effective as of such date as may be
specified in the election form. In either case, the election shall apply only to
Compensation payable for services rendered on or after the effective date of the
election to defer. The election to defer shall remain in effect until terminated
or changed as provided in this Plan.

         (b) A Director may terminate any election to defer the payment of the
Compensation relating to future services by giving notice of termination to the
Company. A director may change any election to defer the payment of Compensation
relating to future services either in the manner provided in the election or by
executing a new election with the Company. Any such termination or change in the
amount to be deferred shall be effective only with respect to Compensation
payable for services as a Director on or after the first day of the next
succeeding calendar quarter.

         (c) Election forms received prior to October 1, 2000 which were
submitted under the Plan prior to this Restatement shall continue to be valid
until and unless revoked.

<PAGE>   9

         5. FORM OF DEFERRAL. A Director may elect to defer his or her
Compensation in the form of cash and must so designate on his/her aforementioned
election ("Exhibit A") to be delivered to the Secretary of the Company.

         6. DIRECTORS' ACCOUNTS FOR DEFERRED CASH.

         (a) The Company will establish and maintain a separate account for each
Director who has elected to defer his/her compensation in cash, in which the
amount of the Director's deferred cash will be recorded. The Company will credit
to each such cash account, as of the first day of each calendar quarter,
interest on the amount then credited to such account, including all previous
credits to such account by operation of this Section, computed at an annual rate
equal to 120% of the long-term applicable federal rate compounded quarterly as
published by the Internal Revenue Service for the beginning of the month of each
calendar quarter. Any dividends paid on the shares deferred pursuant to the
Flowserve Corporation Directors' Stock Deferral Plan will be credited to a
deferred cash account of the Director, with interest to be credited to such
dividends in the same manner as credited to deferred cash.

         (b) UNSECURED ACCOUNT. Any amount credited to the cash accounts of a
Director as deferred Compensation or as interest or dividends paid on shares in
a deferred stock account established pursuant to the Directors' Stock Deferral
Plan will represent only an unfunded and unsecured promise of the Company to pay
the amount so credited in accordance with the terms of the Plan. Neither a
Director, nor any beneficiary of a Director, will acquire any right, title or
interest in any asset of the Company as a result of any amount of cash credited
to a Director's account or accounts. At all times, a Director's rights with
respect to the amount credited to his/her account or accounts will be only those
of an unsecured creditor of the Company. The Company will not be obligated or
required in any manner to restrict the use of any of its assets as a result of
any amount credited to a Director's account or accounts. No right or benefit
under the Plan shall be subject to anticipation, alienation, sale, assignment,
pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell,
assign, pledge, encumber or charge the same shall be void.

         7. PAYMENT OF DEFERRED COMPENSATION. Deferred Compensation will be
distributed only in accordance with the following sections.

         (a) TERMINATION OF SERVICE. In the event a Director leaves service from
the Company's Board of Directors for any reason, any deferred cash will be
distributed commencing within 60 calendar days or his/her termination in
accordance with the method of distribution elected by the Director. The Director
may elect to receive such distribution in a lump sum, in equal annual
installments (not exceeding ten) or some designated combination thereof. If the
election is a lump sum, the entire cash account balance will be transferred in
kind to the director within 60 days of his/her termination. If installments have
been elected, interest and dividends will be calculated through the date of
termination pursuant to Section 6 and added to the account. The resulting
deferred cash account total shall be divided equally by the number of
installments elected and the first payment made within 60 days of termination.
The second and all subsequent installment payments shall be made between January
1 and 30 of each following year. Interest will continue to accrue to the account
pursuant to Section 6 on the balance remaining in the directors' deferred cash
account until all installments have been paid and will be paid annually with
each

                                       2
<PAGE>   10

installment payment. Dividends from any undistributed shares in a deferred stock
account established pursuant to the Directors' Stock Deferral Plan will continue
to accrue to the Director's deferred cash account under this Plan, receive
applicable interest credit and will be paid with the next applicable installment
payment of deferred cash.

         (b) DEATH. If any portion of a Director's account remains unpaid at
his/her death, then after his/her death such amount will be paid (i) to his/her
beneficiary(ies) in accordance with the method of distribution elected by the
Director (following the procedure for lump sum and installment payments set
forth above), or (ii) if the Director has not designated a beneficiary or if the
beneficiary predeceases the Director, to the Director's estate in a lump sum.
Should a beneficiary die after the Director has terminated service but before
the entire benefit has been disbursed, the balance of the cash benefit will be
paid to the beneficiary's estate in a lump sum.

         (c) MANDATORY LUMP SUM. Notwithstanding the above, if the value of the
deferred Compensation (including Compensation deferred by the Director under
prior Company Director optional deferral plans) is less than $10,000 at the time
of termination of service by resignation or death, or if the Director has failed
to elect a form of distribution on Exhibit A, then the balance of the deferred
Compensation shall be paid in a lump sum, at the Company's discretion,
regardless of the Director's prior distribution election.

         8. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee (the "Committee") of the Board of Directors. The decision of the
Committee shall be final and binding with respect to the interpretation,
construction or application of the Plan.

         9. AMENDMENT OR TERMINATION. The Committee may amend or terminate the
Plan at any time. No amendment or termination of the Plan shall void an election
already in effect for the then current calendar quarter or any preceding
calendar quarter, nor adversely affect the right of a former Director, his/her
account prior to such amendment or termination, together with amounts credited
thereto subsequent to such amendment or termination pursuant to Section 6.

         IN WITNESS WHEREOF, the Company has caused this restatement to be
executed as of the 19th day of January, 2001.

                              FLOWSERVE CORPORATION

                              By: /s/ Ronald F. Shuff
                                  --------------------------------------------
                                  Ronald F. Shuff
                                  Vice President, Secretary and General Counsel

                                       3
<PAGE>   11

                                                                       EXHIBIT A

                              FLOWSERVE CORPORATION
                           DIRECTOR CASH DEFERRAL PLAN

                          DIRECTOR'S ELECTION TO DEFER

         In accordance with the provisions of the amended and restated Director
Cash Deferral Plan (the "Plan") of Flowserve Corporation (the "Company"), I
elect to participate in the Plan. Participation in this Plan is on a pro rata
basis with the Flowserve Corporation Director Stock Deferral Plan and represents
____% of my total (100%) participation in both plans. I elect:

1.       To defer ____% (increments of 10%) of the payment of the Compensation
         (as defined in the Plan) to be paid to me in cash for services as a
         Director for calendar quarters beginning ________________, 200__ and
         succeeding calendar quarters until I notify you to end this deferral.

2.       To receive payment of the amount credited to my deferred Compensation
         account in the following manner:

           [ ]  In one lump sum payment in cash.

           [ ]  In ______ equal annual installments (not to exceed ten) of
                cash commencing within 60 calendar days of my termination.

           [ ]  In the following percentage combination (totaling 100%).

               % Lump Sum               % in      Equal Annual Installments
           ----                     ----     ----
                                          (not to exceed ten)

3.       To have any payments above, which have not been made to me prior to my
         death, paid after my death to the following designation person(s) in
         the same manner as would have been paid to me:

                 ----------------------------------------------

                 ----------------------------------------------

                 ----------------------------------------------

                                      1-A
<PAGE>   12

In making this election, I understand that:

         1.       My election may not be changed after the beginning of the
                  calendar quarter with respect to which my Compensation is
                  paid.

         2.       My election is otherwise subject to the terms of the Plan.

------------------                          ----------------------------------
Date                                        Signature of Participant

The undersigned acknowledges receipt of the above election on                 .
                                                              ----------------

                                            -----------------------------------
                                            Ronald F. Shuff
                                            Vice President, Secretary and
                                            General Counsel

                                      2-A

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