Document:

<PAGE>   1
                                                                   EXHIBIT 10.29

                               AMENDMENT NO. 2 TO
                              FLOWSERVE CORPORATION
                             1997 STOCK OPTION PLAN

Section 13(a) is hereby amended to add immediately after subsection (ii) the
following:

                "(iii) if such amendment would reprice, replace or otherwise
                effectively lower, through a form of option cancellation and
                regranting or otherwise, the exercise price of a previously
                granted option award."

The remainder of the Plan shall remain unchanged and in full force and effect.

                                  FLOWSERVE CORPORATION

                                  By: /s/ Ronald F. Shuff
                                     -------------------------------------------
                                     Ronald F. Shuff
                                     Vice President, Secretary & General Counsel<PAGE>   1
                                                                   EXHIBIT 10.31

                               AMENDMENT NO. 1 TO
                              FLOWSERVE CORPORATION
                             1999 STOCK OPTION PLAN

Section 13(a) is hereby amended to add immediately after subsection (ii) the
following:

                "(iii) if such amendment would reprice, replace or otherwise
                effectively lower, through a form of option cancellation and
                regranting or otherwise, the exercise price of a previously
                granted option award."

The remainder of the Plan shall remain unchanged and in full force and effect.

                                  FLOWSERVE CORPORATION

                                  By: /s/ Ronald F. Shuff
                                     -------------------------------------------
                                     Ronald F. Shuff
                                     Vice President, Secretary & General Counsel<PAGE>   1
                                                                   EXHIBIT 10.40

                          AMENDED EMPLOYMENT AGREEMENT

         THIS AMENDED EMPLOYMENT AGREEMENT ("Amended Agreement") is entered into
this 24th day of November, 1999, by and between FLOWSERVE CORPORATION
("Company") and Bernard G. Rethore ("Executive").

                                   BACKGROUND

         A. The Executive currently serves as Chief Executive Officer of the
Company and as Chairman of the Company's Board of Directors pursuant to an
Employment Agreement entered into August 1, 1997, effective July 22, 1997
("Agreement").

         B. The Executive and the Company wish to modify the Agreement as
provided herein.

         In consideration of the premises and other valuable consideration, the
receipt of which is hereby acknowledged, the Company and the Executive agree
that the Agreement shall be amended and restated as provided herein, effective
with the execution of this Amended Agreement.

                               AMENDED AGREEMENT

         1. General Agreement. The Company agrees to continue to employ the
Executive, and the Executive agrees to continue employment with the Company, as
provided in this Amended Agreement, for the period beginning on the date of
execution of this Amended Agreement and ending July 21, 2003.

         2. Definitions. For purposes of this Amended Agreement, the following
terms, when capitalized, shall have the meanings specified below:

                  (a) "Accrued Compensation" means the sum of (i) the
         Executive's annual base salary through the date his employment
         terminates to the extent not previously paid and (ii) the Executive's
         Historical Bonus multiplied by a fraction, the numerator of which is
         the number of complete months in the Fiscal Year of termination that
         precede the Executive's termination and the denominator of which is
         twelve.

                  (b) "Average Percentage Adjustment" has the meaning specified
         in Paragraph 6(b).

                  (c) "Board" means the Company's Board of Directors.

                  (d) "Board Chairman" means Chairman of the Company's Board of
         Directors

                  (e) "Cause" means (i) the Executive's continuing substantial
         failure to perform his duties for the Company (other than as a result
         of incapacity due to mental or physical

<PAGE>   2

         illness) after a written demand is delivered to the Executive by the
         Board; (ii) the Executive's Wilful engaging in illegal conduct or gross
         misconduct that is materially and demonstrably injurious to the
         Company; (iii) the Executive's conviction of a felony or his plea of
         guilty or nolo contendere to a felony, or (iv) the Executive's Wilful
         and material breach of the confidentiality or non-competition
         provisions of this Amended Agreement. "Cause" shall be determined as
         provided in Paragraph 7(d).

                  (f) "Contract Year" means the period beginning August 1, 2000,
         and ending July 21, 2001, and the 12 consecutive month periods
         beginning July 22, 2001, and July 22, 2002.

                  (g) "Disability" and "Disabled" refer to the Executive's
         failure to perform his duties with the Company on a full-time basis for
         180 consecutive days, if an independent physician selected by the
         Company or its insurers and acceptable to the Executive (or, in the
         case of Executive's incapacity, his legal representative) finds that
         such failure has resulted from the Executive's inability to perform
         such duties because of his physical or mental incapacity.

                  (h) "Effective Date" means July 22, 1997, the effective date
         of the original Agreement.

                  (i) "Employment Term" means the period beginning on the
         Effective Date and ending on July 21, 2003.

                  (j) "Fiscal Year" means the Company's Fiscal Year.

                  (k) "First Employment Period" means the period beginning on
         the Effective Date and ending on July 31, 2000.

                  (l) "Good Reason" means, during the First Employment Period,
         (i) the Company's removal of the Executive from his position as Board
         Chairman or Chief Executive Officer other than as set forth in
         Paragraph 3 hereof, (ii) the Company's assignment of duties to the
         Executive that are materially inconsistent with his position as Board
         Chairman or Chief Executive Officer, or (iii) the Company's material
         failure to comply with any provision of this Amended Agreement.

                  (m) "Historical Bonus" means, for the Fiscal Year in which the
         Executive's employment terminates, the Executive's highest annual bonus
         for the two Fiscal Years preceding termination, reduced by any annual
         bonus previously paid to him for the Fiscal Year of termination.

                  (n) "Other Benefit" means any accrued compensation or benefit
         of the Executive other than Accrued Compensation that is payable on or
         after termination of employment

                                      -2-
<PAGE>   3
         under a plan, policy, or program of the Company. In case of the
         Executive's death before the end of the Employment Term, "Other
         Benefit" shall include a special death benefit equal to 36 months of
         the Executive's base salary at the rate in effect on the date of his
         death, which benefit shall be reduced by the death benefit payable with
         respect to the Executive under any life insurance program of the
         Company. In the case of the Executive's termination of employment on
         account of Disability, "Other Benefit" shall include a salary
         continuation payment until the sixth anniversary of the Effective Date,
         equal to 70% of the Executive's base salary at the time he terminated
         employment on account of Disability, reduced by any disability payments
         made to the Executive for such period from another disability plan or
         program of the Company or Social Security.

                  (o) "Second Employment Period" means the period beginning on
         August 1, 2000, and ending on July 21, 2003.

                  (p) "Welfare Benefit Plan" has the meaning given to such term
         by 29 U.S.C. Section 1002(1).

                  (q) "Wilful" means that the Executive has acted, or failed to
         act, in bad faith or without reasonable belief that his act or omission
         was in the Company's best interest. For purposes of the preceding
         sentence, any act, or failure to act, based upon authority given
         pursuant to a resolution duly adopted by the Board or based upon the
         advice of counsel for the Company shall be conclusively presumed to be
         done, or omitted to be done, by the Executive in good faith and
         pursuant to his belief that it is in the best interests of the Company.

         3. Executive's Position and Duties During First Employment Period.
During the First Employment Period, the Executive's position and duties shall be
those set out in this Paragraph. From the date of execution of this Amended
Agreement through December 31, 1999, the Executive shall continue to serve as
the Company's Chief Executive Officer and Board Chairman on the same terms and
conditions as set forth in Paragraph 3 of the Agreement, which terms and
conditions are incorporated by reference as if fully set out herein. Effective
January 1, 2000, the Executive shall resign as Chief Executive Officer. From
January 1, 2000, through July 31, 2000, the Executive shall serve as
non-executive Board Chairman and shall be expected to perform services for the
Company up to 10 days a month. He shall continue to be paid $2,500 per month for
the costs associated with temporary living and commuting to and from his
permanent residence in Arizona and the Company's headquarters. Effective August
1, 2000, the Executive shall resign as non-Executive Board Chairman, at which
time he shall be given the honorary title of Board Chairman Emeritus.

         4. Executive's Position and Duties During Second Employment Period.
During the Second Employment Period, the Executive shall serve as a consultant
to the Board and shall provide such consulting and advisory services as may be
reasonably requested by the Board to the extent consistent with the Executive's
other obligations. The Executive shall make himself available for consultation
with the Board at times mutually agreeable to the Board and the Executive,
provided

                                      -3-
<PAGE>   4

that the Executive shall not be required to perform services at the Company's
headquarters or to perform services on more than 20 days per Contract Year.

         5. Executive's Compensation During First Employment Period. During the
First Employment Period, the Executive shall continue to be entitled to
compensation as set out in Paragraph 5 of the Agreement, which Paragraph is
incorporated by reference as if fully set out herein. In addition, the Executive
shall be entitled to his reasonable legal fees in negotiating this Amended
Agreement.

         6. Executive's Compensation During Second Employment Period. During the
Second Employment Period, the Executive shall be entitled to the following
compensation:

                  (a) BASE SALARY. The Executive's base salary shall be equal to
         his base salary as of July 31, 2000, subject to annual increase by the
         current fiscal year's Average Percentage Adjustment.

                  (b) AVERAGE PERCENTAGE ADJUSTMENT. The Average Percentage
         Adjustment is calculated by: (i) measuring the increase in base salary
         awarded to each of the Company's senior officers,

                           (ii) expressing the increase in base salary as a
                  percentage of the prior year's base salary, and

                           (iii) finding the average of the percentage increases
                  awarded to all of the Company's senior officers.

                  (c) BONUS. For each fiscal year, the Executive shall have an
        annual bonus opportunity with a minimum target bonus of no less than 75%
        of his base salary payable pursuant to Subparagraph (a) during such
        fiscal year.

                  (d) LONG-TERM INCENTIVE COMPENSATION PLAN. The Executive shall
        not be eligible to participate in any stock-based or long-term incentive
        compensation plan of the Company; provided, however, the Executive's
        service during the Employment Term shall be taken into account in
        determining the Executive's vested interest in stock-based awards
        granted on or before July 31, 2000.

                  (e) INCENTIVE, SAVINGS, RETIREMENT, AND WELFARE BENEFIT PLANS.
        Except as provided in Subparagraph (d), the Executive shall be entitled
        to participate in all incentive compensation, savings, retirement, and
        Welfare Benefit Plans in which he was a participant on July 31, 2000, on
        a basis at least as favorable as provided to other senior executives. If
        the Executive is no longer eligible to participate in a benefit plan of
        the Company because

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<PAGE>   5

        of his reduced hours of employment, the Company shall provide a benefit
        equivalent to the benefit to which Executive would have been entitled
        under such plan if he had remained a full-time employee; provided
        however, the Executive shall not be reimbursed for the loss of his
        ability to make elective deferrals under any qualified defined
        contribution plan of the Company.

                  (f) TREATMENT OF OUTSTANDING STOCK OPTIONS. The Executive
         shall be entitled to continue to hold, and be credited with vesting
         service respect to, all stock options that were outstanding on July 31,
         2000.

                  (g) FRINGE BENEFITS. The Executive shall be entitled to
        reimbursement of country club initiation fees and dues and automobile
        expenses and other fringe benefits on a basis no less favorable than
        provided to other senior executives of the Company.

                  (h) SERVICE CREDIT AND POST-EMPLOYMENT BENEFITS. The Executive
         shall be given full service credit for his years of service at BW/IP,
         Inc. for purposes of eligibility, vesting, and benefit accrual under
         the employee benefit plans and programs of the Company in which he
         participates, provided that any benefit that the Executive accrued
         under a defined benefit pension plan of BW/IP, Inc. before becoming a
         participant in the Company defined benefit pension plan shall be
         offset. To the extent that the terms of a defined benefit plan do not
         permit compliance with the preceding sentence, the Company shall
         provide such benefit through a supplemental retirement benefit.
         Notwithstanding the foregoing, the Executive shall be entitled to a
         supplemental retirement benefit at least as generous as the
         supplemental retirement benefit that would have been provided under his
         agreement with BW/IP, Inc., a copy of which was attached as Appendix A
         to the Agreement, had such agreement remained in effect throughout the
         Employment Term, taking into account, among other things, the double
         service crediting provided thereunder.

                  (i) Allowance for Office Expenses. In August, 2000, and in the
         first month of each Contract Year beginning thereafter, the Company
         shall pay Executive $36,000 as an allowance for the Executive's
         expenses in maintaining an office.

                  7.       Termination of Employment.

                  (a) DEATH. The Executive's employment shall terminate
         automatically upon his death during the Employment Tenn.

                  (b) DISABILITY. If the Executive becomes Disabled during the
         Employment Term, the Company may notify the Executive of its intention
         to terminate his employment pursuant to this Subparagraph (b). In such
         event, the Executive's employment shall terminate on the 30th day after
         the Executive receives such notice, unless he returns to substantially
         full-time performance of his duties within such 30-day period.

                                      -5-
<PAGE>   6

                  (c) EXECUTIVE'S TERMINATION. If the Executive terminates his
         employment, he shall provide the Company at least 30 days' notice
         (which 30-day requirement may be waived by the Company) of his intent
         to terminate and identify his termination date. The Executive's
         termination date shall be the date specified in the notice provided
         pursuant to the preceding sentence.

                  (d) COMPANY'S TERMINATION FOR CAUSE. Before the Board
         terminates the Executive's employment for Cause, it shall provide the
         Executive an opportunity, after reasonable notice, to appear before the
         Board with counsel. To terminate the Executive for Cause, the Board
         must adopt a resolution terminating the Executive by affirmative vote
         of at least 75% of its members, after having given the Executive the
         opportunity to present his case to the Board. The Board's resolution
         must state that the Board finds in good faith that (i) the Executive is
         guilty of conduct constituting Cause, specifying the details of such
         conduct, and (ii) the Executive failed to cure such conduct within 30
         days after receiving written notice from the Company detailing such
         conduct. The effective date of the Executive's termination for Cause
         shall be the date on which the Executive receives a copy of the
         resolution adopted by the Board or such later date specified in the
         resolution.

                  (e) COMPANY'S TERMINATION WITHOUT CAUSE. If the Company
         terminates the Executive's employment without Cause, it shall notify
         the Executive of its decision and state that the termination is without
         Cause. The effective date of the Executive's termination shall be the
         date on which he receives the Company's notice or such later date as
         specified in the notice.

         8.       Company's Obligations on Termination of Employment.

                  (a) DEATH. If the Executive's employment is terminated by
         reason of his death during the Employment Term, this Amended Agreement
         shall terminate without further obligations to the Executive's legal
         representatives under this Amended Agreement, other than for payment of
         Accrued Compensation and the timely payment or provision of Other
         Benefits. Accrued Compensation shall be paid to the Executive's estate
         or beneficiary, as applicable, in a lump sum in cash within 30 days
         after the Executive's death, and Other Benefits shall be paid pursuant
         to the applicable plan, program, or policy of the Company.

                  (b) DISABILITY. If the Executive's employment is terminated by
         reason of his Disability during the Employment Term, this Amended
         Agreement shall terminate without further obligations to the Executive,
         other than for payment of Accrued Compensation and the timely payment
         or provision of Other Benefits. Accrued Compensation shall be paid to
         the Executive in a lump sum in cash within 30 days after his employment
         terminates, and Other Benefits shall be paid pursuant to the applicable
         plan, program, or policy of the Company. Notwithstanding the preceding
         provisions, all stock-based awards that would have become vested by the
         end of the fiscal year in which the Executive's employment terminates
         on account of Disability shall become vested upon the termination of
         his

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<PAGE>   7

        employment, and any stock options or other exercisable awards shall
        remain exercisable as if the Executive's employment had terminated on
        the sixth anniversary of the Effective Date.

                  (c) COMPANY'S TERMINATION FOR CAUSE. If the Executive's
        employment is terminated for Cause, the Executive terminates his
        employment without Good Reason during the First Employment Term, or the
        Executive terminates his employment during the Second Employment Term,
        this Amended Agreement shall terminate without further obligations to
        the Executive, other than for payment of Accrued Compensation, the
        payment of any compensation previously deferred by the Executive
        pursuant to a non-qualified deferred compensation plan and not
        previously paid, and the timely payment of Other Benefits. Accrued
        Compensation shall be paid to the Executive in a lump sum in cash within
        30 days after his employment terminates, and Other Benefits and deferred
        compensation referred to in the preceding sentence shall be paid
        pursuant to the applicable plan, program, or policy of the Company.

                  (d) COMPANY'S TERMINATION FOR REASON OTHER THAN CAUSE, DEATH,
        OR DISABILITY. If the Company terminates the Executive's employment for
        a reason other than Cause, death, or Disability, or the Executive
        terminates his employment for Good Reason during the First Employment
        Term, the Company shall continue to compensate the Executive hereunder
        as if he had not terminated employment throughout the Employment Term.
        If the Executive is no longer eligible to participate in a benefit plan
        of the Company because he is no longer an employee, the Company shall
        provide a benefit equivalent to the benefit to which Executive would
        have been entitled under such plan if he had remained an employee;
        provided however, the Executive shall not be reimbursed for the loss of
        his ability to make elective deferrals under any qualified defined
        contribution plan of the Company.

                  (e) NON-EXCLUSIVITY OF RIGHTS. Except as expressly provided
        herein, this Amended Agreement shall not prevent the Executive from
        continuing or future participation in any plan, program, policy, or
        practice of the Company according to its terms. Benefits that are vested
        or that the Executive is otherwise entitled to receive under any plan,
        policy, practice, or program of, or any agreement with, the Company at
        or after the termination of his employment shall be payable in
        accordance with such plan, policy, practice, program, or agreement,
        except as expressly modified by this Amended Agreement.

         9. Additional Payments by the Company. If it is determined that any
payment hereunder other than a payment pursuant to this Paragraph or Paragraph
10, is subject to Code Section 4999, or any interest or penalties are incurred
by the Executive with respect to such excise tax on account of such payments,
then the Executive shall be entitled to receive an additional payment sufficient
to compensate him for any such tax, interest, or penalties and any taxes with
respect to payments made pursuant to this Paragraph. The Executive shall
promptly notify the Company of any notice from the Internal Revenue Service with
respect to excise taxes described in this Paragraph.

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<PAGE>   8

         10. Termination following Change of Control. If the Executive's
employment terminates during the Employment Term while a signed change of
control agreement between the Company and Executive ("Change of Control
Agreement") is in effect and following a change of control (as defined in the
Change of Control Agreement) during the Employment Term, the Executive shall
receive compensation upon such termination pursuant to the Change of Control
Agreement and not pursuant to this Agreement.

         11. Confidentiality.

                  (a) The Executive shall hold in a fiduciary capacity for the
         benefit of the Company all secret or confidential information,
         knowledge, or data relating to the Company or any of its affiliated
         companies, and their respective businesses, that has been acquired by
         the Executive during his employment and that has not become public
         knowledge (other than by acts by the Executive or his representatives
         in violation of this Amended Agreement). After termination of the
         Executive's employment with the Company, the Executive shall not,
         without the prior written consent of the Board or as may otherwise be
         required by law or legal process or in order to enforce his rights
         under this Amended Agreement or as necessary to defend himself against
         a claim asserted directly or indirectly by the Company or its
         affiliates, communicate or divulge any such information, knowledge, or
         data that is not otherwise publicly available to anyone other than the
         Company and those designated by it. An asserted violation of this
         Paragraph shall not be a basis for deferring or withholding any amounts
         otherwise payable to the Executive under this Amended Agreement.

                  (b) In the event of a breach or threatened breach of this
         Paragraph, the Executive agrees that the Company shall be entitled to
         seek injunctive relief in a court of appropriate jurisdiction to remedy
         such breach or threatened breach, and the Executive acknowledges that
         damages would be inadequate and insufficient.

                  (c) The Executive's obligations under this Paragraph shall
         continue forever.

         12. Noncompetition. The Company's obligations hereunder are contingent
on the Executive signing the Noncompetition Agreement attached hereto as
Appendix A.

         13. Indemnification. The Company agrees that if Executive is made a
party, or is threatened to be made a party, to any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, by reason of the fact
that he is or was a director, officer, or employee of the Company, Executive
shall be indemnified and held harmless by the Company to the fullest extent
legally permitted or authorized by the Company's certificate of incorporation or
bylaws or resolutions of the Board or, if greater, by the laws of the State of
New York, against all cost, expense, liability, and loss (including, without
limitation, attorneys' fees, judgments, fines, ERISA excise taxes, or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
Executive in connection therewith. The Company agrees to continue and maintain a

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<PAGE>   9

directors' and officers' liability insurance policy covering Executive to the
extent the Company provides such coverage for its other executive officers.

         14. Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:

                    If to the Executive:

                    Bernard G. Rethore
                    6533 E. Maverick Road
                    Paradise Valley, AZ 85253

                    If to the Company or Board:

                    Flowserve, Inc.
                    222 West Las Colinas Blvd., Suite 150
                    Irving, Texas 75039
                    Attention: Vice President, Secretary and General Counsel

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

         15. Severability. Each provision of this Amended Agreement shall be
considered severable. If a court finds any provision to be invalid or
unenforceable, the validity, enforceability, operation, and effect of the
remaining provisions shall not be affected, and this Amended Agreement shall be
construed in all respects as if the invalid or unenforceable provision had been
omitted or limited in accordance with the court's ruling.

         16. Assignability. This Amended Agreement may not be assigned by the
Executive, because it is personal in nature. The Company may assign, delegate,
or transfer this Amended Agreement and all of its rights and obligations
hereunder to any successor in interest, any purchaser of substantially all of
the Company's assets, or any entity to which the Company transfers all or
substantially all of its assets before or after the term of this Amended
Agreement. The Company shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Amended Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place.

         17. Waiver of Claims. The Company shall provide the Executive with a
Release of Claims in the form as attached hereto as Appendix B. The Executive
agrees that the obligations of Company hereunder for periods after 1999 are
contingent on the Executive signing such Release not later than 21 days after
the receipt thereof and such Release becoming effective.

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<PAGE>   10

         18. Governing Law and Waiver. The laws of the State of New York shall
govern the construction, enforceability, and interpretation of this Amended
Agreement. The parties intend this Amended Agreement to supplement, but not
displace, their respective rights and responsibilities under the laws of the
State of New York, as amended from time to time. The failure of either party to
insist upon performance of any provision of this Amended Agreement or to pursue
his or its rights hereunder shall not be construed as a waiver of any such
provision or the relinquishment of any such right.

         19. No Party Deemed Drafter. Neither the Company nor the Executive
shall be deemed to be the drafter of this Amended Agreement, including the
Appendices hereto, and, if this Amended Agreement or any provision thereof is
construed in any court or other proceeding, said court or other adjudicator
shall not construe this Amended Agreement or any provision thereof against
either party as the drafter thereof

         20. No Oral Modifications. This Amended Agreement may not be modified
orally. Any change of this Amended Agreement must be made in writing and signed
by Executive and an officer of Company.

         21. Counterparts. This Amended Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same Amended Agreement.

         IN WITNESS WHEREOF, the parties have executed this Amended Agreement on
the date and year first above written.

<TABLE>
<CAPTION>
ATTEST:                                     FLOWSERVE CORPORATION

<S>                                         <C>
/s/ Ronald F. Shuff                         By:  /s/ Hugh K. Coble
-----------------------                          -----------------------
Signature
                                            Title: Chairman-Executive Committee
                                                   ----------------------------
Vice President
-----------------------
Title
                                            /s/ Bernard G. Rethore
                                            -----------------------------
                                            Bernard G. Rethore
</TABLE>

                                      -10-
<PAGE>   11

                                   APPENDIX A

                            NONCOMPETITION AGREEMENT

         This Noncompetition Agreement is entered into by and between Flowserve
Corporation ("Company") and Bernard G. Rethore ("Executive"), effective as of
November 24, 1999.

                                   BACKGROUND

         The Executive has served as the Company's Board Chairman and Chief
Executive Officer. Contemporaneously herewith, Executive and the Company have
entered into an Amended Employment Agreement.

         Because of the Executive's unique position with the Company and his
knowledge of the Company's business, he could cause the Company considerable
harm by providing his expertise to a competitor of the Company.

         To protect the legitimate interests of the Company, the Company and the
Executive have agreed to enter into this Noncompetition Agreement in connection
with Company's employment of the Executive.

         Therefore, the Executive agrees to be bound and restricted as provided
for in this Agreement:

         1. The restrictions of this Agreement shall apply while the Executive
is employed by the Company and for a period of twenty-four months after the
termination of his employment.

         2. While the restrictions of this Agreement apply, the Executive is
prohibited from engaging in any Competitive Activities. For purposes of this
Agreement, "Competitive Activities" means:

                  (a) Directly or indirectly accepting employment with,
         consulting with, or assisting any business that is involved with the
         sale, design, development, manufacture, or production of products
         competitive with those sold (or anticipated to be sold) by the Company.
         This prohibition shall apply to any employment with, involvement in, or
         control of another business, whether as an employee, owner, manager,
         sole proprietor, joint venturer, partner, shareholder, independent
         contractor, or in any other capacity. This prohibition shall not
         prevent the ownership of stock that is publicly traded, provided that
         (i) the investment is passive, (ii) the Employee has no other
         involvement with the corporation, (iii) the Employee's ownership
         interest is less than one percent, and (iv) the Employee makes full
         disclosure to the Company of the stock ownership at the time the
         Employee acquires it.

<PAGE>   12

                  (b) Directly or indirectly diverting or influencing or
         attempting to divert or influence any business of the Company to a
         competitor.

                  (c) Directly or indirectly seeking to influence, facilitate,
         or encourage any Company employee to leave its employ other than in the
         course of performing his duties hereunder.

         3. The restrictions outlined above shall be applicable and enforceable
throughout the entire world.

         4. The Executive acknowledges that his breach of this Agreement would
cause immediate and irreparable harm to the Company. The Company shall be
entitled to obtain immediate injunctive relief in the form of a temporary
restraining order without notice, preliminary injunction, or permanent
injunction against the Executive to enforce the terms of this Agreement. The
Company shall not be required to post any bond or other security and shall not
be required to demonstrate any actual injury or damage to obtain such injunctive
relief from the courts.

         5. Any recovery of damages by the Company shall be in addition to and
not in lieu of the injunctive relief to which the Company is entitled. In no
event shall a damage recovery be considered a penalty or liquidated damages, but
it shall be considered as measurable compensatory damages for the Executive's
breach of this Agreement.

         6. If the Executive materially breaches this Agreement, his right to
any future payments pursuant to his employment agreement shall be forfeited as
of the date of the breach, except to the extent that such forfeiture applies to
benefits payable pursuant to a plan of the Company, if the forfeiture would
violate the terms of such plan.

         7. If the Executive breaches this Agreement, the Company shall also be
entitled to recover all costs of enforcement, including reasonable attorneys'
fees, all expenses of litigation, and court costs.

         8. This Agreement shall survive the termination of the Executive's
employment relationship with the Company and shall not be construed as limiting
the Company's right to terminate his employment at any time, subject to the
terms of any written employment agreement in effect at the time of termination.

         9. No claim or cause of action that the Executive may have against the
Company, whether for breach of contract or otherwise, shall be a defense to the
enforcement of this Agreement against the Executive.

         10. The Executive acknowledges that all of the restrictions contained
in this Agreement are reasonable and necessary to protect the Company's
legitimate interests. If a court determines that any provision of this Agreement
is too broad to be enforceable at law or in equity, the remaining

                                       -2-
<PAGE>   13

terms shall remain unimpaired, and the unenforceable provision shall be deemed
replaced by a provision that is valid and enforceable and that most clearly
approximates the intention of the parties with respect to the enforceable
provision, as evidenced by the remaining valid enforceable provisions.

         11. This Agreement shall be enforceable by the Company or any successor
in interest.

         12. This Agreement may not be modified orally. Any modification of this
Agreement must reflected in a written agreement approved by the Company's Board
and signed by the Executive and the members of the Board's Executive Committee.

         13. The Executive agrees to inform any prospective competing employer
about the existence of this Agreement before accepting new employment and shall
not agree, as a term of any new employment, that the new employer will defend
the Executive or pay his attorneys' fees in the event of a lawsuit brought by
the Company to enforce the terms of this Agreement.

         14. This Agreement shall be construed to fulfill the purposes of the
Agreement and shall not be construed in favor of or against either party.
Subject to the preceding sentence, this Agreement shall be governed in all
respects by the laws of the State of New York.

         15. This Agreement may be enforced in the applicable courts of Dallas
County, Texas or in any court where the Executive has breached or is alleged to
have breached this Agreement. The Executive agrees to submit to the exclusive
jurisdiction and venue of the applicable courts of Dallas County, Texas. Any
action filed by the Executive shall not affect the enforceability of this
provision, which shall govern.

<TABLE>
<CAPTION>
FLOWSERVE CORPORATION

<S>                                       <C>
By  /s/ Hugh K. Coble                     /s/ Bernard G. Rethore
    --------------------------------      -----------------------------------
    (Signature)                           Bernard G. Rethore

    Hugh K. Coble                         24 November 1999
    --------------------------------      -----------------------------------
    (Printed)                             Date

    Chairman - Executive Committee
    --------------------------------
    (Office)

    24 November 1999
    --------------------------------
    (Date)
</TABLE>

                                      -3-
<PAGE>   14

                                   APPENDIX B

                                RELEASE OF CLAIMS

         This Release of Claims is hereby granted by Bernard G. Rethore.

                                   BACKGROUND

           Bernard G. Rethore ("Executive") and Flowserve Corporation
("Company") are parties to an Amended Employment Agreement ("Amended
Agreement"), dated November 24, 1999. Pursuant to Paragraph 15 of the Amended
Agreement, the Company's obligations after 1999 are contingent on this Release
of Claims becoming effective.

           In consideration of the amounts payable to him under the Amended
Agreement after 1999, the Executive agrees to the following release of claims:

                                     RELEASE

         In consideration of the Company's agreement to continue the Executive's
employment after 1999 pursuant to the terms of the Amended Agreement, the
Executive releases and discharges the Company, its divisions, subsidiaries,
predecessors and successors, and the officers, directors, agents, insurers, and
employees of any of the foregoing (all together, "Released Persons") from any
and all claims or actions of any kind directly or indirectly related to or in
any way connected with his employment with Company or his retirement therefrom
("Released Claims"); provided, however, the Released Claims shall not include
the Executive's rights to retirement or retiree benefits under any employee
benefit plan or his rights under the Amended Agreement, including, without
limitation, his right to indemnification or his right to obtain contribution in
the event of an entry of judgment against him as a result of any act or failure
to act for which he and the Company are jointly responsible. The Executive gives
this release regardless of whether the Released Claims are known or unknown. The
Executive further agrees that he will not initiate or participate as a party in
any lawsuit or claim against a Released Person based on or relating to any of
the Released Claims. The Released Claims include, but are not limited to, those
based on allegations of wrongful discharge and/or breach of contract and those
alleging discrimination on the basis of race, color, sex, religion, national
origin, age, handicap, or disability under Title VII of the Civil Rights Act of
1964, the Age Discrimination in Employment Act of 1967, the Rehabilitation Act
of 1973, the Equal Pay Act of 1963, the Americans with Disabilities Act of 1990,
the Civil Rights Act of 1991, or any other federal, state or local law, rule, or
regulation. The Released Claims do not include claims that arise after the date
on which Executive signs this Release of Claims.

           THE EXECUTIVE ACKNOWLEDGES THAT HE HAS BEEN GIVEN A PERIOD OF
TWENTY-ONE (21) DAYS WITHIN WHICH TO CONSIDER THIS RELEASE OF CLAIMS AND THAT HE
HAS BEEN ADVISED TO CONSULT WITH

                                      -4-
<PAGE>   15

AN ATTORNEY BEFORE SIGNING IT. THE EXECUTIVE UNDERSTANDS THAT HE MAY REVOKE THIS
RELEASE OF CLAIMS BY PROVIDING NOTICE OF REVOCATION TO THE CHAIRMAN OF THE
COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS WITHIN SEVEN (7) DAYS
AFTER THE DATE HE SIGNS THIS RELEASE OF CLAIMS AND THAT THE RELEASE OF CLAIMS
WILL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE SEVEN (7) DAY REVOCATION
PERIOD HAS EXPIRED. IF THE EXECUTIVE DOES NOT NOTIFY THE CHAIRMAN OF THE
COMPENSATION COMMITTEE OF HIS REVOCATION WITHIN SUCH SEVEN (7) DAY REVOCATION
PERIOD, THIS RELEASE OF CLAIMS SHALL BECOME EFFECTIVE.

<TABLE>
<S>                                           <C>
/s/ Bernard G. Rethore                        24 November 1999
------------------------------                -----------------------------
Bernard G. Rethore                            Date
</TABLE>

                                      -5-

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