Document:

exv10w68

 

EXHIBIT
10.68

Effective
Date: January 1, 1992

THE DURIRON COMPANY, INC.

INCENTIVE COMPENSATION PLAN FOR KEY EMPLOYEES AS AMENDED AND RESTATED EFFECTIVE

JANUARY 1, 1992

	I.	 	PURPOSE
	 
	 	 	The purpose of The Duriron Company, Inc.’s Incentive Compensation Plan for Key Employees
(hereinafter referred to as the “Plan”) is to provide an incentive and reward in the form of
additional compensation to those Key Employees whose outstanding performance has
significantly contributed to the management, growth and profitability of the business, the
Company and its Subsidiaries.
	 
	 
	II.	 	DEFINITIONS

	 	A.	 	“Board”  The Company’s Board of Directors.
	 
	 	B.	 	“Committee” — The Compensation
Committee of the Board.
	 
	 	C.	 	“Company” — The Duriron Company, Inc., a New York corporation.
	 
	 	D.	 	“Hurdle Rate” — The financial performance
standards set in accordance with Section IV.
	 
	 	E.	 	“Incentive Award” — A compensation award
determined in accordance with the provisions of Section VII.
	 
	 	F.	 	“Key Employee” — A full-time salaried employee of the Company or a
Subsidiary who serves in executive, administrative, professional or technical
capacities 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.
	 
	 	G.	 	“Participant” — A Key Employee who is selected by the Committee to
participate in the Plan.
	 
	 	H.	 	“Plan Year” — The fiscal year ended December 31.

 

 

	 	I.	 	“Return on Average Shareholder Equity” — The percentage return
reported in the Company’s applicable annual report to shareholders.
	 
	 	J.	 	“Subsidiary” — Any company of which more than 50 percent of the voting
stock is owned, directly or indirectly, by the Company.
	 
	 	K.	 	“Target Incentive Award” — A conditional compensation ward 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.
	 
	 
	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
Corporate unit 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, Subsidiary and the Corporate unit. No Incentive Awards will be paid to any
Participant unless the Division, Subsidiary or Corporate unit in which he is employed has
met or exceeded its Hurdle Rate.
	 
	 
	V.	 	ELIGIBILITY
	 
	 	 	Prior to March 1 of each Plan Year, the CEO and/or the President will propose, and the
Committee will determine, those current Key Employees who will be eligible to participate in
the Plan for that Plan Year. The CEO and/or the President can add participants to the Plan
later during the Plan Year, provided that any individual with a job evaluation of 1292 “Hay
Points” or higher (as determined under the Company’s job evaluation system) shall only be
added with the approval of the Committee. The addition to this Incentive Plan will cause
participation of the newly added participant in other plans to cease, and each plan 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
particular Plan Year only if either (i) he is an employee 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 an employee 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 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 an employee 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. 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 80% of target performance. Actual performance results which
range between 80% and 125% or greater of target performance will receive the percentage of
target percentage shown on Appendix A-l Appendix A-2 sets forth the guideline target
percentages for selected Hay Point levels, which will be subject to modification by the CEO
and/or the President with the approval of the Committee for the applicable Plan Year.

 

 

	VII.	 	DETERMINATION OF INCENTIVE AWARDS

	 	A.	 	Allocation of Target Incentive Awards. Each Division President or
Corporate Unit Manager, with the guidance and direction of the applicable
Corporate Officer and approval of 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. Appendix B
illustrates an example of the manner in which Target Incentive Awards are
to be allocated among objectives for each Plan Year, provided that the
CEO and/or the President, with the approval of the Committee, may
change such allocations from Plan Year to Plan Year.
	 
	 	B.	 	Establishment of Target Performance
Objectives. Prior to the beginning
of
each Plan year, the CEO and/or the President will propose, and the
Committee will determine, Divisional, Subsidiary and Corporate target
performance objectives, with applicable weightings, based upon goals
deemed appropriate for each Division, Subsidiary or Corporate unit
Appendix C illustrates examples of target performance objectives which will
be established for each Participant by the CEO and/or the President or by
persons designated by the CEO and/or the President.
	 
	 	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, Subsidiary and
Corporate unit achieved its objective, and (ii) the extent to which each
Participant achieved his/her individual objectives. 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 Participants’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 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 unit’s 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 VIIC., above. Appendix D illustrates
an example of the calculation.

	VIII.	 	FORM OF PAYMENT AWARDS
	 
	 	Incentive Awards under the Plan may be paid in cash, deferred cash, or a combination
thereof. Unless a Participant elects deferred cash, in accordance with Section VIII B.,
below, his/her Incentive Award will be paid in cash. However, Incentive Awards of less than
$5,000 will be paid only in cash,

	 	A.	 	Cash Awards. Cash awards will be paid in full as soon as practicable
after
the date of the award.
	 
	 	B.	 	Election to Defer. Prior to the beginning of each Plan Year, each
Participant may elect to defer distribution of an Incentive Award or a
portion thereof. Such election may not be changed after the
commencement of the Plan Year with respect to which the Incentive
Award in earned. Appendix E is a copy of the Election to Defer, provided
that the CEO and/or President may accept, in his and/or their discretion,
any other written document of the Participant which states in his and/or
their opinion, the same intended election.
	 
	 	C.	 	Participants’ Accounts. The Company will establish and maintain a
separate account for each Participant who has elected to defer his/her
Incentive 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, that percentage of the amount
then credited to such account, including all previous credits to such account
by operation of this Section, which is equal to the average composite bond
yield for Single A bonds, rounded to the nearest 1/10 of 1%, as published
for the month last preceding the beginning of such calendar quarter in the
Standard & Poor’s Indexes of the Securities Markets.

	 	Any amount credited to the account of a Participant as a deferred cash award or interest paid
on such 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 interests 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/her 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.

 

 

	IX.	 	DISTRIBUTION OF DEFERRED CASH AWARDS
	 
	 	 	Deferred cash awards will be distributed only in accordance with the following
sections:

	 	A.	 	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
prior to the Plan Year in which such termination occurs) and any interest
on such award credited to his/her account will be distributed in a lump sum
payment within 60 days of his/her termination of employment.
	 
	 	B.	 	Retirement. In the event a Participant retires under a retirement plan
of the Company or a Subsidiary, any deferred cash award and the interest on
such award previously or currently credited to his/her account, will be
distributed commencing within 60 calendar days of his/her retirement in
accordance with the method of distribution elected by the Participant. If
the election is a lump sum, interest will be credited to the account pursuant
to Section VIII C. through the date of distribution, and the entire amount
will be paid to the participant within 60 days of his/her retirement. If
installments have been elected, interest will be calculated through the date
of retirement pursuant to Section VIII C. and added to the account. The
resulting account total shall be divided by the number of installments
elected, and the first payment will be made within 60 days of retirement.
The second and all subsequent installment payments shall be made
between January 1 and 15 of each year. Interest will continue to accrue to
the account pursuant to Section VIII C. on the balance remaining in the
Participant’s account until all installments have been paid, and interest will
be paid annually with each installment payment.
	 
	 	C.	 	Death. If any portion of a Participant’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
Participant, or (ii), if the Participant has not designated a beneficiary or if the
beneficiary predeceases the Participant, to the Participant’s estate. Should a
beneficiary die after the Participant but before the entire benefit has been disbursed,
the balance of the benefit will be paid to the beneficiary’s estate in a lump sum.
	 
	 	D.	 	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/her account. Any such distribution will be solely within the
discretion of the Committee and will be limited in amount to that necessary to meet the
emergency.

 

 

	 	 	 	An emergency situation means a bona fide 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 a cash 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 F 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
C 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
	 
	 	 	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 cash awards previously made or the methods of distributing
deferred cash awards which have been elected.
	 
	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
employee 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 CEO and/or the President in his and/or their
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.

 

 

APPENDIX
A-1

Incentive Award Percentages Earned

for Various Levels of Divisional,

Subsidiary and Corporate Unit Performance

	 	 	 	 	 
	Actual Performance as a	 	Percent of Target
	     Percent of Target	 	Incentive Award
	  0 — 79.9%
	 	 	0	%
	 
	 	 	 	 
	  80.0 — 84.9%
	 	 	50	%
	 
	 	 	 	 
	  85.0 — 89.9%
	 	 	65	%
	 
	 	 	 	 
	  90.0 — 94.9%
	 	 	80	%
	 
	 	 	 	 
	  95.0 — 99.9%
	 	 	90	%
	 
	 	 	 	 
	100.0 — 104.9% (Target)
	 	 	100	%
	 
	 	 	 	 
	105.0 — 109.9%
	 	 	110	%
	 
	 	 	 	 
	110.0 — 114.9%
	 	 	120	%
	 
	 	 	 	 
	115.0 — 119.9%
	 	 	130	%
	 
	 	 	 	 
	120.0 — 124.9%
	 	 	140	%
	 
	 	 	 	 
	125.0 & Above % (Maximum)
	 	 	150	%

 

 

APPENDIX A-2

Target Incentive Awards and

Maximum Incentive Awards

As Related to Base Salary Ranges

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Target	 	Maximum
	Base Salary Ranges	 	Incentive	 	Incentive
	Level	 	Hay Points	 	Awards	 	Awards
	A
	 	2540 & Above	 	 	55	%	 	 	82.5	%
	 
	B
	 	 	1990 to 2539	 	 	 	45	%	 	 	67.5	%
	 
	C
	 	 	1628 to 1989	 	 	 	40	%	 	 	60	%
	 
	D
	 	 	1292 to 1627	 	 	 	35	%	 	 	52.5	%
	 
	E
	 	 	1028 to 1291	 	 	 	30	%	 	 	45	%
	 
	F
	 	 	905 to 1027	 	 	 	25	%	 	 	37.5	%
	 
	G
	 	 	789 to 904	 	 	 	20	%	 	 	30	%
	 
	H
	 	 	657 to 788	 	 	 	10	%	 	 	15	%

 

 

Appendix B

Example of Yearly Allocation

for Target Incentive
Awards

	 	 	 	 	 	 	 	 	 
	 	 	Weight
Allocation Range
	 	 	Minimum	 	Maximum
	Divisional and Subsidiary Units
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Division or Subsidiary Quantitative
Measure
	 	 	40	%	 	 	60	%
	 
	 	 	 	 	 	 	 	 
	Division or Subsidiary Qualitative
Objectives
	 	 	20	%	 	 	40	%
	 
	 	 	 	 	 	 	 	 
	Individual Performance
	 	 	20	%	 	 	40	%
	 
	 	 	 	 	 	 	 	 
	CORPORATE
UNITS
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Corporate Quantitative Measurement
	 	 	40	%	 	 	50	%
	 
	 	 	 	 	 	 	 	 
	Corporate Qualitative Objectives
	 	 	20	%	 	 	30	%
	 
	 	 	 	 	 	 	 	 
	Individual Performance
	 	 	30	%	 	 	40	%

 

 

Appendix C

Examples of Yearly Target

Performance Objectives

Quantitative Objectives

Division Return on Net Assets (RONA)

Consolidated Return on Net Assets (RONA)

Earnings Growth (Percent)

Incoming Sales

New Product Introductions (Number of)

On-time Customer Delivery Statistics

Return on Shareholder’s Equity

Debt-to-Equity Ratio

Cash Flow per Share

Qualitative Objectives

Effectiveness of Product Introduction

Employee Morale

Staff Development and Training

Safety Awareness

Compliance with Environmental and other Regulatory Concerns

Community Relations

 

 

Appendix D

Calculation of Incentive Award

(An Example)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Salary Range Midpoint
	 	 	x	 	 	 	Target Percentage 	 	 	 	=	 	 	Target Incentive
Award	 
	 
	$90,000
	 	 	x	 	 	 	.40	 	 	 	=	 	 	$36,000	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Target	 	 	 	 	 	 
	 	 	Objective	 	Incentive	 	Actual	 	Percent	 	Incentive
	Objectives	 	Weight	 	Award	 	Performance	 	Achieved	 	Award
	Quantitative
Measurements
	 	 	50	%	 	$	18,000	 	 	Outstanding	 	 	120	%	 	$	21,600	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Qualitative
Objectives
	 	 	30	%	 	$	10,800	 	 	at Goal	 	 	100	%	 	$	10,800	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Individual
Objectives
	 	 	20	%	 	$	7,200	 	 	at Goal	 	 	100	%	 	$	7,200	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	TOTALS
	 	 	100	%	 	$	36,000	 	 	 	 	 	 	 	 	 	 	$	39,600	 

Percent
of Target Incentive Award — 110%

 

 

Appendix E

THE DURIRON COMPANY, INC.

Incentive Plan for Key Employees

Participant’s Election to Defer

In accordance with the provisions of the Incentive Plan for Key Employees (the “Plan”) of The
Duriron Company, Inc. (the “Company”), I elect:

	1.	 	To defer ___% of my Incentive Award for the fiscal year ended December 31,                
(with the understanding that, once made, an election to defer cannot be changed for that
fiscal year. It is further understood that this election is not valid should the amount to
be deferred be less than $5,000.)
	 
	2.	 	To receive payment of the amount credited to my deferred cash award account in the
following manner (I have initialed the method I have elected):

	 	 	 	 	 
	___

	 	a.
	 	In one lump sum payment upon retirement, or termination.
	 
	 	 	 	 
	___

	 	b.
	 	In ten equal annual installments 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:

 

 

 

	 	 	 
	 
	 	 
	 

	 	 
	Date

	 	Signature of Participant

The undersigned, Senior Vice President of the Company, acknowledges receipt of the above election
on                                         .

                                                                                

 

Appendix F

THE DURIRON COMPANY, INC.

Incentive Compensation Plan for Key Employees

Participant’s Beneficiary Designation

In accordance with the provisions of the Incentive Compensation Plan for Key Employees (the “Plan”)
of The Duriron Company, Inc. (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, Senior Vice President of the Company,
acknowledges receipt of the above election on  __________.

	 	 	 
	 

	 	 

Senior Vice Presidentexv10w70

 

EXHIBIT
10.70

Annual Incentive Plan

Flowserve Corporation

Effective January 1, 2001

 

 

Contents

	 	 	 	 	 	 	 
	Article 1.
	 	Establishment and Purpose	 	 	1	 
	 
	Article 2.
	 	Definitions 	 	 	1	 
	 
	Article 3.
	 	Administration 	 	 	6	 
	 
	Article 4.
	 	Eligibility and Participation 	 	 	7	 
	 
	Article 5.
	 	Award Determination 	 	 	8	 
	 
	Article 6.
	 	Payment of Final Awards 	 	 	10	 
	 
	Article 7.
	 	Termination of Employment 	 	 	10	 
	 
	Article 8.
	 	Rights of Participants 	 	 	10	 
	 
	Article 9.
	 	Change In Control	 	 	11	 
	 
	Article 10.
	 	Amendments 	 	 	11	 
	 
	Article 11.
	 	Miscellaneous 	 	 	11	 

 

 

Flowserve Corporation

Annual Incentive Plan

Article 1. Establishment and Purpose

     1.1 Establishment of the Plan. Flowserve Corporation, a New York
corporation (the “Company” as defined in Article 2 below), hereby establishes an annual
incentive compensation plan to be known as the Flowserve Corporation Annual
Incentive Plan (the “Plan”), pursuant to the terms and conditions as set forth herein. The
Plan permits the Company to award annual bonuses to Employees of the Company
based on the achievement of pre-established performance goals.

     Upon approval by the Board of Directors of the Company (the “Board”), the Plan shall be
effective until December 31, 2010, or until earlier terminated by the Board.

     1.2 Purpose. The primary purposes of the Plan are to: (a) motivate Participants
(as defined in Article 2 below) towards achieving annual goals that are within corporate,
divisional, group and/or local facility control, and are considered key to the Company’s
success; (b) encourage teamwork among Participants in various segments of the
Company; and (c) reward performance with pay that varies in relation to the extent to
which the pre-established goals are achieved.

Article 2. Definitions

     Whenever used in the Plan, the following terms shall have the meanings set forth
below:

(a) “Affiliate” or “Subsidiary” means any corporation which is a member of a
controlled group of corporations (determined in accordance with Section 414(b)
of the Code) of which the Company is a member and any other trade or business
(whether or not incorporated) which is controlled by, or under common control
(determined in accordance with Section 414(c) of the Code) with the Company.

(b) “Award Opportunity” means the various levels of incentive award payouts
that a Participant may earn under the Plan, as established by the Committee
pursuant to Sections 5.1 and 5.2 herein.

(c) “Board” means the Board of Directors of the Company.

(d) “Cause”, or the local equivalent, means: (i) the willful and continued failure
by a Participant to substantially perform his duties with the Company (other than
any such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Participant by
the Board which specifically identifies the manner in which the Board believes
that he has not substantially performed his duties, or (ii) the willful engaging by
the Participant in conduct materially and demonstrably injurious to the Company,

- 1 -

 

monetarily or otherwise; provided, however, that if the Participant has entered into an
employment agreement that is binding as of the date of the event or action otherwise determined to
be “Cause,” and if such employment agreement defines “Cause,” such definition of “Cause” shall
apply. No act, or failure to act, shall be considered “willful” if, in the Participant’s sole
judgment, the action or omission was done, or omitted to be done, in good faith and with a
reasonable belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Participant shall not be deemed to have terminated for “Cause”
unless and until there shall have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire authorized membership of the
Board, or, if after a Change In Control, the Incumbent Board, at a meeting of the Board or
Incumbent Board, as appropriate, called and held for the purpose (after reasonable notice to the
Participant and an opportunity for the Participant, together with counsel, to be heard before the
Board or Incumbent Board, as appropriate), finding that in the good faith opinion of the Board or
Incumbent Board the Participant was guilty of conduct set forth above in clause (i) or (ii) of this
Article 2 Section (d). The Participant may also be heard by a representative appointed by the Board
or the Incumbent Board.

(e) “Change in Control”, means any change in control of a nature that would be required to be
reported, in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act (excluding any transaction described in Section (e) (i)-(v) below that is
specifically determined to not constitute a change in control), provided that, without limitation,
such a change in control shall be deemed to have occurred if:

(i) “Any “Person” (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act),
other than the Company or its Affiliates, becomes the beneficial owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of 20% or more
of either: (A) the then outstanding common shares of the Company (the “Outstanding Shares”)
or (B) the combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the “Voting Securities”);
provided, however, that such beneficial ownership shall not constitute a Change In Control
if it occurs as a result of any of the following acquisitions of securities: (1) any
acquisition directly from the Company, (2) any acquisition by a Subsidiary, (3) any
acquisition by any employee benefit plan (or related trust) sponsored or maintained by the
Company or any Subsidiary or (4) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (A) or (B) of Article 2 Section (e)(iii)
below are satisfied. Notwithstanding the foregoing, a Change In Control shall not be deemed
to occur solely because any Person (the “Subject Person”) became the beneficial owner of
20% or more of the Outstanding Shares or Voting

- 2 -

 

Securities as a result of the acquisition of Outstanding Shares or Voting Securities by the
Company, including any affiliates defined in clauses (B)(2) or (B)(3) above of this Section (e)(i),
which, by reducing the number of Outstanding Shares or Voting Securities, increases the
proportional number of shares beneficially owned by the Subject Person; provided, that if a Change
In Control would be deemed to have occurred (but for the operation of this sentence) as a result of
the acquisition of Outstanding Shares or Voting Securities by the Company, and after such share
acquisition by the Company, the Subject Person becomes the beneficial owner of any additional
Outstanding Shares or Voting Securities which increases the percentage of the Outstanding Shares or
Voting Securities beneficially owned by the Subject Person, then a Change In Control shall then be
deemed to have occurred; or

(ii) Individuals who constitute the Board (the “Incumbent Board”) cease for any reason except for
the death, Disability, or ineligibility of the director to seek re-election to the Board as a
result of term or age limitations, to constitute at least two-thirds (2/3) of the Board within any
consecutive twenty-four (24) month period; provided, however,, that any individual becoming a
director subsequent to the date of the beginning of such twenty-four (24) month period whose
election, or nomination for election by the Company’s shareholders, was approved by a vote of at
least two-thirds (2/3) of the elected directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a result of either an
actual or threatened election contest or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board, including by reason of agreement
intended to avoid or settle any such actual or threatened contest or solicitation; or

(iii) The Consummation of a reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (A) more than 50% of, respectively, the
then outstanding shares of common stock of the corporation resulting from such reorganization,
merger or consolidation (or any parent thereof) and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the Outstanding Shares
and Voting Securities immediately prior to such reorganization, merger or consolidation, in
substantially the same proportions as their ownership immediately prior to such reorganization,
merger or consolidation of such Outstanding Shares and Voting Securities, as the case may be, or
(B) (1) officers of the Company as of the effective date of such reorganization, merger or
consolidation constitute at least three-quarters (3/4) of the

- 3 -

 

officers of the ultimate parent corporation resulting from such reorganization, merger or
consolidation, (2) elected members of the Board of Directors of the Company as of the effective
date of such reorganization, merger or consolidation constitute at least three-quarters (3/4) of
the board of directors of the ultimate parent corporation resulting from such reorganization,
merger or consolidation and (3) the positions of Chairman of the Board of Directors, the Chief
Executive Officer, and the President of the corporation resulting from such reorganization, merger
or consolidation are held by individuals with the same positions at the Company as of the effective
date of such reorganization, merger or consolidation; or

(iv) The consummation of the sale, lease, exchange or other disposition of all or substantially
all of the assets of the Company, unless such assets have been sold, leased, exchanged or disposed
of to a corporation with respect to which following such sale, lease, exchange or other
disposition (A) more than 50% of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding voting securities of such
corporation (or any parent thereof) entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding Shares and Voting
Securities of the Company immediately prior to such sale, lease, exchange or other disposition in
substantially the same proportions as their ownership immediately prior to such sale, lease,
exchange or other disposition of such Outstanding Shares and Voting Securities, as the case may
be, (B) no Person (excluding the Company and any employee benefit plan (or related trust) of the
Company or a Subsidiary of the Company or any Person, beneficially owning, immediately prior to
such sale, lease, exchange or other disposition, directly or indirectly, 20% or more of the
Outstanding Shares or Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such
corporation (or any parent thereof) and the combined voting power of the then outstanding voting
securities of such corporation (or any parent thereof) entitled to vote generally in the election
of directors and (C) at least two-thirds (2/3) of the members of the board of directors of such
corporation (or any parent thereof) were members of the Incumbent Board at the time of the
execution of the initial agreement or action of the Board providing for such sale, lease, exchange
or other disposition of assets of the Company.

(v) Notwithstanding anything to the contrary in Article 2 Section (e) clauses (i) — (iv) above
and without limitation, the Incumbent Board may, in its sole discretion, determine that a Change
In Control has occurred under circumstances other than those contemplated by this Article 2

- 4 -

 

Section (e). In such circumstances, a Change In Control will be deemed to have occurred
through a vote by two-thirds (2/3) of the Incumbent Board to approve a motion declaring such a
Change In Control has occurred.

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

     (g) “Committee” means the Compensation Committee established and
appointed by the Board.

     (h) “Company” means Flowserve Corporation, a New York corporation, and its successors and
assigns.

     (i) “Disability” means a long-term disability as defined in and meeting the terms and
conditions of the Flowserve Corporation Long Term Disability Plan, as amended or, as set forth in
any successor plans, as applicable to the Participant.

     (j) “Discretionary” means the Committee’s sole and exclusive right to determine who
participates in the Plan on an annual basis, and such participation shall only be evidenced by
invitation issued by the Committee.

     (k) “Effective Date” means the date the Plan becomes effective, as set forth in Article 1
Section 1.1.

     (1) “Eligible Earnings” for exempt employees includes the following elements, where
applicable: regular earnings; sick pay; holiday pay; paid leave; short-term disability pay; jury
duty pay; pay for vacation time taken; and retroactive pay. All other earnings shall be excluded,
including, where applicable, Annual Incentive Plan awards for prior years, Long-Term Incentive
Plan awards, commissions, discretionary and non-discretionary bonuses, accrued vacation pay,
long-term disability pay, severance pay, expense reimbursements, car allowances, tax/financial
planning reimbursements, club dues, and foreign service allowances. “Eligible Earnings” for
non-exempt employees include regular earnings, overtime pay, sick pay, holiday pay, shift
differential, lead pay, field premiums, paid leave, short-term disability pay, jury duty pay,
non-discretionary bonuses, pay for vacation time taken, and retroactive pay. All other earnings
shall be excluded, including Annual Incentive Plan awards for prior years, commissions,
discretionary bonuses, accrued vacation pay, long-term disability pay, severance pay, and expense
reimbursements.

     (m) “Employee” means any person paid through the payroll department of the Company or its
Subsidiaries or Affiliates (as opposed to the accounts payable department of the Company);
provided, however, that the term

- 5 -

 

     “Employee” shall not include any person who has entered into an independent
contractor agreement, consulting agreement, franchise agreement or any similar
agreement with the Company, nor the employees of any such person, regardless of whether
that person (including his or her employees) is later found to be an employee of the
Company by any court of law or regulatory authority.

     (n) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time
to time, or any successor act thereto.

     (o) “Final Award” means the actual award earned during a Performance Period by a
Participant, as determined by the Committee following the end of the Performance
Period.

     (p) “Participant” means an Employee chosen by the Committee to participate in the
Plan as provided for in Article 4 herein.

     (q) “Performance Period” means the twelve (12) month period beginning January
1st and ending December 31st over which performance is measured
for purposes of determining Final Awards.

     (r) “Plan” means the Flowserve Corporation Annual Incentive Plan, as set forth
herein.

     (s) “Retirement” shall mean the termination of a Participant’s employment for any
reason other than for Cause on or after the earlier of (i) the Participant’s Early
Retirement Date (as such term is defined in the Company’s tax-qualified retirement
plan; or (ii) the Participant attaining sixty-five (65) years of age.

     (t) “Target Incentive Award” means the award to be paid to Participants when the
Company meets targeted performance results, as established by the Committee. This award
is based on the Employee’s Eligible Earnings and his or her level of responsibility.

Article 3. Administration

     3.1 The Committee. The Plan shall initially be administered by the
Compensation Committee of the Board.

     3.2 Authority of the Committee. Except as limited by law or by the
certificate of incorporation or bylaws of the Company, and subject to the provisions herein, the
Committee shall have full power to select Employees who shall participate in the Plan; determine
the size and types of Award Opportunities and Final Awards; determine the terms and conditions of
Award Opportunities in a manner consistent with the Plan; construe and interpret the Plan and any
agreement or instrument entered into

- 6 -

 

under the Plan; establish, amend, or waive rules and regulations for the Plan’s
administration; and amend the terms and conditions of any outstanding Award Opportunity to the
extent such terms and conditions are within the discretion of the Committee as provided in the
Plan. Further, the Committee shall make all other determinations which may be necessary or
advisable for the administration of the Plan. As permitted by law, the Committee may delegate its
authority as identified hereunder.

     3.3 Decisions Binding. All determinations and decisions of the Committee
as to any disputed question arising under the Plan, including questions of construction
and interpretation, shall be final, binding, and conclusive upon all parties.

     3.4 Indemnification. Each person who is or shall have been a member of the
Committee or the Board, shall be indemnified and held harmless by the Company
against and from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any claim, action,
suit, or proceeding to which he or she may be a party, or in which he or she may be
involved by reason of any action taken or failure to act under the Plan, and against and
from any and all amounts paid by him or her in settlement thereof, with the Company’s
approval, or paid by him or her in satisfaction of any judgment in any such action, suit,
or proceeding against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf.

     The foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company’s certificate of
incorporation or bylaws, as a matter of law, or otherwise, or any power that the Company may have
to indemnify them or hold them harmless.

Article 4. Eligibility and Participation

     4.1 Eligibility. Only Employees shall be eligible to participate in the Plan.
Independent contractors and employees of third parties who are performing work on
behalf of the Company, whether part time, full time, or temporary, shall not be eligible to
participate in the Plan. Employees who participate in a sales incentive plan are
ineligible to participate in this Plan.

     4.2 Participation. Participation in the Plan is Discretionary and shall be
determined on an annual basis by the Committee. Participants shall be notified of their
participation in the Plan in writing and shall be apprised of the terms of the Plan as soon
as practical following the Committee’s Discretionary determination.

     Participation in the Plan and the receipt of an award under the Plan requires that a
Participant be in an employment relationship with the Company or an Affiliate or Subsidiary of the
Company and that no notice of termination regarding such employment relationship has been issued
on or before December 31st of the respective year to which the award or benefit
relates.

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     4.3 Partial Performance Period Participation. An Employee who becomes
eligible after the beginning of a Performance Period may participate on a pro rata basis
in the Plan for that Performance Period. The Committee, in its sole discretion, retains the right to prohibit or allow participation in the initial Performance Period of eligibility
for such Employees.

     \4.4 No Right to Participate. No Employee shall at any time have a right to
 participate in the Plan for any Performance Period, despite having previously
 participated in the Plan. All awards and other benefits granted under the Plan are of
 voluntary nature. The grant of an award or the benefit of participating in the Plan shall
 not create a claim for future awards, benefits or participation in the Plan even if awards
 or benefits have been granted to a Participant repeatedly over previous plan years.

Article 5. Award Determination

     5.1 Performance Measures and Performance Goals. Prior to the beginning
of each Performance Period, or as soon as practicable thereafter, the Committee shall
select performance measures and shall establish performance goals for that
Performance Period. These performance measures may include, but not be limited to,
any of the following:

	(a)	 	Income measures (including, but not limited to, gross profit, operating
income, income before or after taxes, or earnings per share);
	 
	(b)	 	Return measures (including, but not limited to, return on
assets, investment, equity, or sales);
	 
	(c)	 	Cash flow measures (including, but not limited to, operating cash flow and
cash flow return on investments);
	 
	(d)	 	Sales;
	 
	(e)	 	Economic value created;
	 
	(f)	 	Share price (including, but not limited to, growth measures and total
shareholder return);
	 
	(g)	 	Inventory turnover; and
	 
	(h)	 	On-time delivery measures.

     The performance goals may be based on any combination of corporate, divisional, group
and/or local facility measures.

     5.2 Award Opportunities. Prior to the beginning of each Performance Period,
or as soon as practicable thereafter, the Committee shall establish, in writing, Award

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Opportunities (including a Participant’s Target Incentive Award) which correspond to various
levels of achievement of the pre-established performance goals. In the event a Participant changes
job levels during a Performance Period, the Participant’s Award Opportunity may be adjusted to
reflect the amount of time at each job level during the Performance Period.

     5.3 Adjustment of Performance Goals and Award Opportunities. Once
 established, performance goals normally shall not be changed during the Performance
 Period. However, if the Committee determines that external changes or other
 unanticipated business conditions have materially affected the fairness of the goals,
 then the Committee may approve appropriate adjustments to the performance goals
 (either up or down) during the Performance Period as such goals apply to the Award
 Opportunities of specified Participants. In addition, the Committee shall have the
 authority to reduce or eliminate the Final Award determinations, based upon any
 objective or subjective criteria it deems appropriate.

     Notwithstanding any other provision of this Plan, in the event of any change in corporate
capitalization, such as a stock split, or a corporate transaction, such as any merger,
consolidation, separation, including a spin-off, or other distribution of stock or property of the
Company, any reorganization (whether or not such reorganization comes within the definition of
such term in Code Section 368), or any partial or complete liquidation of the Company, such
adjustment shall be made in the Award Opportunities and/or the performance measures or performance
goals related to then-current Performance Periods, as may be determined to be appropriate and
equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights.

     5.4 Final Award Determinations. At the end of each Performance Period,
Final Awards shall be computed for each Participant as determined by the Committee.
Final Award amounts may vary above or below the Target Incentive Award, based on
the level of achievement of any combination of pre-established corporate, divisional,
group and/or local facility performance goals.

     
Management of the Company has the right to deny payment of calculated awards under the Plan
for any Participant who is evaluated by management as having failed to meet expectations as
determined through the annual performance management process.

     5.5 Award Limit. The Committee may establish guidelines governing the
maximum Final Awards that may be earned by Participants (either in the aggregate, by
Employee class, or among individual Participants) in each Performance Period. The
guidelines may be expressed as a percentage of Company-wide goals or financial
measures, or such other measures as the Committee shall from time to time determine.

     5.6 Threshold Levels of Performance. The Committee may establish
minimum levels of performance goal achievement, below which no payouts of Final
Awards shall be made to any Participant.

- 9 -

 

Article 6. Payment of Final Awards

     6.1 Form and Timing of Payment. Each Participant’s Final Award shall be
paid in one lump sum, on or after March 17th, but no later than April 16th.

     6.2 Unsecured Interest. No Participant or any other party claiming an interest
in amounts earned under the Plan shall have any interest whatsoever in any specific
asset of the Company. To the extent that any party acquires a right to receive payments
under the Plan, such right shall be equivalent to that of an unsecured general creditor of
the Company.

Article 7. Termination of Employment

     7.1 Termination of Employment Due to Death, Disability, or Retirement.
In the event a Participant’s employment is terminated within the Performance Period by reason of
death, Disability, or Retirement, the Final Award determined in accordance with Section 5.4 herein
shall be calculated to reflect participation prior to termination only. In the case of a
Participant’s Disability, the employment termination shall be deemed to have occurred on the date
that the Committee determines the definition of Disability to have been satisfied. The Final Award
thus determined shall be paid on or after March 17th, but no later than April 16th in
the year which termination of employment occurs.

     7.2 Termination of Employment for Other Reasons. In the event
Participant’s employment is terminated and therefore a Participant ceases to be an
Employee, within the Performance Period, for any reason other than death, Disability, or
Retirement (of which the Committee shall be the sole judge), all of the Participant’s
rights to a Final Award for the Performance Period then in progress shall be forfeited.
However, except in the event of an involuntary employment termination for Cause, the
Committee, in its sole discretion, may pay an award for the portion of the Performance
Period that the Participant was employed by the Company, computed as determined by
the Committee.

Article 8. Rights of Participants

     8.1 Employment. Nothing in the Plan shall be construed as giving any
Participant the right to be retained in the employ of the Company or any right to any
payment whatsoever, except to the extent of the benefits provided for by the Plan.
Except as otherwise provided for herein, the Company expressly reserves the right,
prior to a Change In Control, to dismiss any Participant at any time and for any reason
without liability for the effect which such dismissal might have upon him as a Participant
of the Plan.

     8.2 Nontransferability. No right or interest of any Participant in the Plan shall
be assignable or transferable, or subject to any lien, directly, by operation of law or

- 10 -

 

otherwise, including, but not limited to, execution, levy, garnishment, attachment,
pledge, and bankruptcy.

Article 9. Change In Control

     In the event of a Change In Control, each Participant shall be entitled to a pro rata payment
of his or her Target Incentive Award for the Performance Period during which such Change In Control
occurs. The pro rata Target incentive Award payment shall be calculated by dividing the number of
months within the Performance Period prior to the effective date of the Change In Control by the
annual twelve (12) month period. In order to prorate a Target Incentive Award pursuant to the
preceding sentence, the month in which the Change In Control occurs will not be considered a month
within the Performance Period prior to the Effective Date of the Change In Control unless the
Change In Control occurred after the fifteenth (15th) day of such month. Such amount
shall be paid to each Participant within forty-five (45) days after the effective date of the
Change In Control and such payment will be made in lieu of any other payment to be made to a
Participant for such Performance Period.

Article 10. Amendments

     The Company reserves the right, at anytime and by action of the Board or the Committee, to
amend or terminate this Plan in whole or in part and from time to time on a prospective basis.

Article 11. Miscellaneous

     11.1 Governing Law and Proper Venue. The Plan, and all provisions
hereunder, shall be governed by and construed in accordance with the laws of the state
of Texas without giving effect to principles of conflict of laws. The proper place of venue
to enforce any terms or conditions of this Plan shall be Dallas County, Texas.
Furthermore, any legal proceeding against the Company arising out of or in connection
with this Plan shall be brought in the district courts of Dallas County, Texas, or the
United States District Court for the Northern District of Texas, Dallas Division.

     11.2 Withholding Taxes. The Company, or the applicable Affiliate or
Subsidiary, shall have the right to deduct from all payments under the Plan any federal,
state, local, or other taxes required by applicable law to be withheld with respect to such
payments.

     11.3 Non-Pensionable Status of Payments under the Plan. Payments
under the Plan are not taken into account for purposes of calculating employees
pension benefits under applicable pension plans.

     11.4 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall include
the singular, and the singular shall include the plural.

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     11.5 Severability. In the event that any provision of the Plan shall be declared
or adjudicated illegal, invalid or unenforceable for any reason whatsoever, then the
illegal, invalid or unenforceable provision shall be deemed excised herefrom, and the
remaining parts of the Plan shall continue and remain in full force and effect and the
Plan shall be construed and enforced as if such illegal, invalid or unenforceable
provision had not been included herein.

     11.6 Costs of the Plan.  All costs of implementing and administering the Plan
shall be borne by the Company.

     11.7 Successors. All obligations of the Company under the Plan shall be
binding upon and inure to the benefit of any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase, merger,
consolidation, or otherwise, of all or substantially all of the business and/or assets of the
Company.

	IN WITNESS WHEREOF, the Company has caused this Plan, as amended and restated to be executed on
December 22, 2004 and effective as of January 1, 2001, except as otherwise stated herein.

	 	 	 	 	 
	 	FLOWSERVE CORPORATION 

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

- 12 -

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