Document:

exv10w40

 

Exhibit 10.40

FLOWSERVE CORPORATION

KEY MANAGEMENT CHANGE IN CONTROL SEVERANCE PLAN

AS AMENDED AND RESTATED EFFECTIVE NOVEMBER 12, 2007

ARTICLE 1. ESTABLISHMENT AND PURPOSE

     1.01 Flowserve Corporation, a New York corporation (the “Company” or “Corporation”), hereby
establishes this plan to be known as the “Flowserve Corporation Key Management Change in Control
Severance Plan” (the “Plan”) as set forth in this document.

     1.02 The Company may from time-to-time become involved in possible Change in Control
situations. Should this occur, in addition to their regular duties, Employees may be called upon
to assist in the assessment of any third-party or internal proposals, advise management and the
Board as to whether such proposals would be in the best interests of the Company and its
shareholders, participate in successfully completing such transactions and take such other actions
as the Board might determine appropriate.

     1.03 This Plan has been established for the purpose of assuring that the Company will have the
continued dedication of the Participants, and the availability of Participants’ advice and counsel
as to the best interests of the Company and its shareholders, notwithstanding the possibility,
threat, or occurrence of a Change in Control, and to induce Participants to remain in the employ of
the Company through the provision of certain protections in the event of a qualifying Change in
Control.

     1.04 As approved by the Committee, the Plan shall become effective as of November 12, 2007,
and shall remain in effect until terminated by the Committee.

     1.05 Notwithstanding anything to the contrary herein, nothing in this Plan shall adversely
affect the rights an individual Employee may have to severance payments under any written agreement
executed by and between the Company and that Employee or any under other severance plan sponsored
by the Company (an “Alternate Severance Arrangement ”); provided, however, that in the event any
Employee that is a party to or eligible to receive benefits under an Alternate Severance
Arrangement suffers a Separation from Service and is entitled to and is receiving the severance
benefits intended to be provided under such Alternate Severance Arrangement, such Employee shall
not be entitled to receive severance benefits pursuant to this Plan. In addition, once an Employee
begins receiving benefits pursuant to this Plan, he or she shall no longer be eligible to receive
any benefits under any Alternate Severance Arrangement.

ARTICLE 2. DEFINITIONS

     2.01 “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.

     2.02 “Board” or “Board of Directors” means the Board of Directors of the Company.

     2.03 “Cause” means: (A) the willful and continued failure by a Participant to substantially
perform his or her 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 or

 

 

she has not substantially performed his or her duties, or (B) the willful engaging by
the Participant in conduct materially and demonstrably injurious to the Company, 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 or
her 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 or her 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, at a meeting of the
Board 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), finding that
in the good faith opinion of the Board the Participant was guilty of conduct set forth above in
clause (A) or (B) of this Article 2.03, and specifying the particulars thereof in detail.

     2.04 “Change in Control” shall mean the occurrence of any of the following:

	 	(A)	 	On the date any “Person” (as defined in subparagraph (E) below)
acquires (or has acquired during the 12-month period ending on the date of the
most recent acquisition by such Person) ownership of stock of the Company
possessing thirty percent (30%) or more of the total voting power of the stock
of the Company (the “Voting Stock”); other than an acquisition (1) directly
from the Company; (2) by the Company or any Subsidiary; (3) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any Subsidiary; (4) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in subparagraph (C)(1) and
(2) are satisfied; or (5) by any Person who is considered to own stock of the
Company constituting thirty percent (30%) or more of the Voting Stock
immediately prior to such additional acquisition. Notwithstanding the
foregoing, a Change in Control shall not be deemed to occur solely because any
Person (the “Subject Person”) acquired ownership of stock of the Company
possessing thirty percent (30%) or more of the Voting Stock as a result of the
acquisition of the Voting Stock, which, by reducing the number of shares of
Voting Stock, increases the proportional number of shares owned by the Subject
Person; provided, however, that if following such acquisition of shares of
Voting Stock by the Company, the Subject Person acquires additional Voting
Stock which increases the percentage ownership of the Subject Person to an
amount that would constitute thirty percent (30%) of the then outstanding
Voting Stock (excluding any shares of Voting Stock previously acquired by the
Company), then a Change in Control shall then be deemed to have occurred; or
	 
	 	(B)	 	On the date a majority of members of the Board is replaced
during any 12-month period by directors whose appointment or election is not
endorsed by a majority of the Board before the date of the appointment or
election; provided, however, that any such director shall not be considered to
be endorsed by the Board if his or her 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

2

 

	 	(C)	 	On the date of consummation of a reorganization, merger, or
consolidation, in each case, immediately following which a Person owns stock of
the Company that, together with stock held by such Person prior to such
reorganization, merger or consolidation, constitutes more than fifty percent
(50%) of the total fair market value of the Company; unless, following such
reorganization, merger or consolidation: (1) more than fifty percent (50%) of
the then outstanding Voting Stock is owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the owners of the
Voting Stock immediately prior to such reorganization, merger or consolidation,
in substantially the same proportions as their ownership immediately prior to
such reorganization, merger or consolidation; or (2) (a) officers of the
Company as of the effective date of such reorganization, merger or
consolidation constitute at least three-quarters (3/4) of the officers of the
ultimate parent company of the corporation resulting from such reorganization,
merger or consolidation; (b) elected members of the Board 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 company of the
corporation resulting from such reorganization, merger or consolidation; and
(c) 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.
	 
	 	(D)	 	On the date any Person acquires (or has acquired during the
12-month period ending on the date of the most recent acquisition by such
Person) assets from the Company that have a total gross fair market value equal
to or more than 50% of the total gross fair market value of all of the assets
of the Company immediately before such acquisition or acquisitions, unless such
assets have been acquired by a corporation with respect to which, following
such acquisition, (1) more than fifty percent (50%) of, respectively, the then
outstanding shares of stock of such corporation and the combined voting power
of the then outstanding voting stock of such corporation (or any parent
thereof) entitled to vote generally in the election of directors is then owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were the owners, respectively, of outstanding stock of the Company
and the Voting Stock immediate prior to such acquisition, in substantially the
same proportions as their ownership immediately prior to such acquisition; (2)
no Person (excluding the Company and any employee benefit plan (or related
trust) of the Company or a Subsidiary or any Person owning immediately prior to
such acquisition, directly or indirectly, twenty percent (20%) or more of all
of the outstanding shares of stock of the Company or the Voting Stock, owns,
directly or indirectly, twenty percent (20%) or more of all of the then
outstanding stock of such corporation or the combined voting power of the then
outstanding voting stock of such corporation (or any parent thereof) entitled
to vote generally in the election of directors and (3) 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 Company’s Board at the time of the
execution of the initial agreement or action of the Board providing for such
acquisition of the Company’s assets. For purposes of this subparagraph (D),
gross fair market value means the value of the assets of the Company or the
value of the assets being disposed of, determined without regard to any
liabilities associated with such assets. Notwithstanding the foregoing, no
Change in Control shall be deemed to occur when there is such a sale or
transfer to (1) a shareholder of the Company (immediately before the asset
transfer) in exchange for or with respect

3

 

	 	 	 	to the Company’s then outstanding stock; (2) an entity, at least fifty
percent (50%) of the total value or voting power of the stock of which is
owned, directly or indirectly, by the Company; (3) a Person that owns
directly or indirectly, at least 50% of the total value or voting power of
the outstanding stock of the Company; or (4) an entity, at least fifty
percent (50%) of the total value or voting power of the stock of which is
owned, directly or indirectly, by a Person that owns, directly or
indirectly, at least fifty percent (50%) of the total value or voting power
of the outstanding stock of the Company. For purposes of the foregoing, a
Person’s status is determined immediately after the asset transfer.

	 	(E)	 	For purposes of subparagraphs (A), (B), (C) and (D) above,
“Person” shall have the meaning given in Section 7701(a)(1) of the Code.
Person shall include more than one Person acting as a group as defined by the
Final Treasury Regulations issued under Section 409A of the Code.

     2.05 “Code” means the Internal Revenue Code of 1986, as amended from time to time. References
to any Section of the Internal Revenue Code shall include any successor provision thereto.

     2.06 “Company” or “Corporation” means Flowserve Corporation, a New York corporation, its
successors and assigns and Affiliates or Subsidiaries of the Company.

     2.07 “Committee” means the Organization and Compensation Committee established and appointed
by the Board of Directors.

     2.08 “Constructive Termination” means the termination of a Participant’s employment with the
Company within two (2) years after the effective date of a Change in Control, after the occurrence
of any or all of the following without the express written consent of the Participant:

	 	(A)	 	The assignment to the Participant of any duties inconsistent
with his or her position, duties, responsibilities and status with the Company
immediately prior to a Change in Control, or a change in his or her reporting
responsibilities, titles or offices as in effect immediately prior to a Change
in Control, or any removal of the Participant from or any failure to re-elect
the Participant to any of such positions, except (i) in connection with the
termination of his or her employment for Cause, death or Disability or
termination of employment by the Participant for reasons other than
Constructive Termination; or (ii) to the extent that such actions do not
constitute a material diminution in (1) the Participant’s authority, duties, or
responsibilities, (2) the authority, duties, or responsibilities of the
supervisor to whom the Participant is required to report, including a
requirement that the Participant who solely reports directly to the Board
report to a corporate officer or employee instead; or (3) the budget over which
the Participant retains authority;
	 
	 	(B)	 	A material diminution in the Participant’s base salary (whether
deferred or not), based on the annualized base salary measured during the
twelve (12) months of the year preceding the date of a Change in Control;
	 
	 	(C)	 	The Company’s requiring the Participant to be based anywhere
other than either the Company’s offices at which he or she was based
immediately prior to a Change in Control or the Company’s offices which are no
more than thirty-five (35) miles from the offices at which the Participant was
based immediately prior

4

 

	 	 	 	to a Change in Control, except for required travel on the Company’s business
to an extent substantially consistent with his or her business travel
obligations immediately prior to the Change in Control (excluding, however,
any travel obligations prior to the Change in Control that are associated
with or caused by the Change in Control events or circumstances); or
	 
	 	(D)	 	Any other action or inaction that constitutes a material breach
by the Company of this Plan, or the terms of any other written agreement
between the Participant and the Company under which the Participant provides
services to the Company.

Notwithstanding anything to the contrary contained herein, a Constructive Termination shall occur
only if the Participant provides written notice to the Company of the occurrence of the event
described in this Article 2.08 that constitutes “Constructive Termination” within thirty (30) days
of the event’s initial existence, the Company fails to remedy the event within thirty (30) days of
its receipt of such notice and the Participant terminates his or her employment no later than
thirty (30) days following the end of such cure period.

     2.09 “Defined Termination” means a Separation from Service of an Employee as a result of
either (A) an Involuntary Termination or (B) a Constructive Termination.

     2.10 “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 any successor
plans provided such disability definition complies with Section 409A of the Code and the final
regulations issued thereunder (the “409A Regulations”). If, at any time during the term of this
Agreement, the Company does not maintain a long-term disability plan or maintains a disability plan
which has a definition that does not comply with the requirements of Section 409A of the Code and
the 409A Regulations, “Disability” shall mean a physical or mental condition which, in the judgment
of the Board (excluding the Participant, if applicable) prevents the Participant from performing
the essential functions of his/her position with the Company, even with reasonable accommodation,
(1) for a period of not less than ninety (90) consecutive days and such condition prevents the
Participant from engaging in any substantial, gainful activity and can be expected to last for a
continuous period of twelve (12) months or result in death, or (2) such condition can be expected
to last for a continuous period of not less than twelve (12) months and the Participant has been
receiving income replacement benefits for not less than three (3) months under the Company’s
accident and health plan.

     2.11 “Employee” means any person paid through the payroll department of the Company (as
opposed to the accounts payable department of the Company) and who receives from the Company an
annual IRS Form W-2; provided, however, that the term “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 by any court of law
or regulatory authority.

     2.12 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     2.13 “Involuntary Termination” means any involuntary discontinuance of a Participant’s
employment by the Company within two (2) years after a Change in Control, for reasons other than
death, Disability or Cause, or any involuntary discontinuance of a Participant’s employment by the
Company prior to a Change in Control for reasons other than death, Disability or Cause, provided
that such termination (A) occurs within the ninety (90) day period immediately prior to the Change
in Control and

5

 

after the initiation of discussions leading to a Change in Control, and (B) can be
demonstrated to have occurred at the request or initiation of parties to the Change in Control.

     2.14 “Participant” means an Employee chosen by the Committee to participate in the Plan as
provided for in Article 3 herein.

     2.15 “Plan” means the Flowserve Corporation Key Management Change in Control Severance Plan,
as set forth herein and as hereafter amended from time to time.

     2.16 “Plan Administrator” means the Committee.

     2.17 “Separation from Service” means a termination of services provided by a Participant to
the Company whether voluntarily or involuntarily, other than for death or Disability, as determined
by the Committee in accordance with Treas. Reg. §1.409A-1(h). In determining whether a Participant
has experienced a Separation from Service, the following provisions shall apply:

	 	(A)	 	A Separation from Service shall occur when such Participant has
experienced a termination of employment with the Company. A Participant shall
be considered to have experienced a termination of employment when the facts
and circumstances indicate that the Participant and the Company reasonably
anticipate that either (i) no further services will be performed for the
Company after a certain date, or (ii) that the level of bona fide services the
Participant will perform for the Company after such date (whether as an
employee or as an independent contractor) will permanently decrease to no more
than twenty percent (20%) of the average level of bona fide services performed
by such Participant (whether as an employee or an independent contractor) over
the immediately preceding thirty-six (36) month period (or the full period of
services to the Company if the Participant has been providing services to the
Company less than thirty-six (36) months).
	 
	 	(B)	 	If a Participant is on military leave, sick leave, or other
bona fide leave of absence, the employment relationship between the Participant
and the Company shall be treated as continuing intact, provided that the period
of such leave does not exceed six (6) months, or if longer, so long as the
Participant retains a right to reemployment with the Company under an
applicable statute or by contract. If the period of a military leave, sick
leave, or other bona fide leave of absence exceeds six (6) months and the
Participant does not retain a right to reemployment under an applicable statute
or by contract, the employment relationship shall be considered to be
terminated for purposes of this Plan as of the first day immediately following
the end of such six (6) month period. In applying the provisions of this
Article 2.17, a leave of absence shall be considered a bona fide leave of
absence only if there is a reasonable expectation that the Participant will
return to perform services for the Company.

     2.18 “Specified Employee” shall mean any Participant who is determined to be a “key employee”
(as defined under Code Section 416(i) without regard to paragraph (5) thereof) for the applicable
period, as determined annually by the Administrative Committee in accordance with Treas. Reg.
§1.409A-1(i). In determining whether a Participant is a Specified Employee, the following
provisions shall apply:

6

 

	 	(A)	 	The Committee’s identification of the individuals who fall
within the definition of “key employee” under Section 416(i) of the Code
(without regard to paragraph (5) thereof) shall be based upon the twelve (12)
month period ending on each December 31st (referred to below as the
“identification date”). In applying the applicable provisions of Section
416(i) of the Code to identify such individuals, “compensation” shall be
determined in accordance with Treas. Reg. §1.415(c)-2(a) without regard to (i)
any safe harbor provided in Treas. Reg. §1.415(c)-2(d), (ii) any of the special
timing rules provided in Treas. Reg. §1.415(c)-2(e), and (iii) any of the
special rules provided in Treas. Reg. §1.415(c)-2(g); and
	 
	 	(B)	 	Each Participant who is among the individuals identified as a
“key employee” in accordance with part (a) of this Article shall be treated as
a Specified Employee for purposes of this Plan if such Participant experiences
a Separation from Service during the twelve (12) month period that begins on
the April 1st following the applicable identification date.

     2.19 The masculine pronoun shall be construed to mean the feminine and the singular shall be
construed to mean the plural, wherever appropriate herein.

ARTICLE 3. ELIGIBILITY AND PARTICIPATION

     3.01 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.

     3.02 Participation in the Plan shall be determined from time to time by the Committee;
provided that on or after a Change in Control, the Committee may not exclude any Participant from
participation in the Plan. 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 is practicable following the
Committee’s determination.

     3.03 No Employee shall at any time have a right to participation in the Plan, despite having
previously participated in the Plan.

ARTICLE 4. PROTECTIONS PROVIDED UPON A CHANGE IN CONTROL

     4.01 Except as otherwise provided herein, upon the consummation of a Change in Control, all
service and other vesting requirements associated with Participants’ then outstanding stock
options, restricted stock, restricted stock units, performance shares or other stock-based
long-term incentive grants (collectively, the “Equity Awards”) will be determined in accordance
with the provisions of the applicable plans in effect on the date of the Change in Control
governing such Equity Awards; provided that protections provided for under each of the applicable
plans in effect on the date of the Change in Control provide at a minimum (A) full vesting of
rights to all unvested Equity Awards, including any such awards for which vesting is based upon
active and incomplete long-term incentive program performance cycles and (B) credit for
satisfaction of other service requirements associated with Participants’ Equity Awards, in the
event that such minimum rights are not accorded to Participants determined in accordance with the
provisions of the applicable plans, the minimum requirements provided for in this Article 4.01
shall prevail.

7

 

     4.02 In making its election, the Board shall have a fiduciary responsibility to consider the
tax consequences to Participants of alternative arrangements, but shall not be required to
compensate Participants for the tax consequences resulting from the establishment of such
arrangements.

ARTICLE 5. PROTECTIONS PROVIDED UPON SEPARATION FROM SERVICE FOLLOWING A CHANGE IN CONTROL

     5.01 Participants terminated in a manner qualifying as a Defined Termination will be entitled
to payment of the following:

	 	(A)	 	For services performed through Separation from Service:

	 	(i)	 	base salary, (whether deferred or not), at the
Participant’s annual base salary rate, (1) as based on the highest
annualized monthly base salary rate measured during the twelve (12)
months of the year preceding Separation from Service or (2) if higher,
in effect at the time of Separation from Service or (3) if higher, in
effect on the date of the Change in Control;
	 
	 	(ii)	 	amounts (whether deferred or not), if any, with
respect to any completed period or periods which have been earned by or
awarded to the Participant pursuant to any bonus or incentive
compensation plan or arrangement but which has not yet been paid to the
Participant; and
	 
	 	(iii)	 	amounts equal to a target bonus or target
annual incentive, (whether deferred or not), (1) in effect at the time
of Separation from Service or (2) if higher, in effect on the date of
the Change in Control; pro-rated based upon the number of calendar days
in the performance period during which the Separation from Service
occurs.

	 	(B)	 	In lieu of any further base salary, bonus, or incentive
compensation payments for periods subsequent to Separation from Service, an
amount equal to 100% of the sum of:

	 	(i)	 	the Participant’s annual base salary rate,
(whether deferred or not), (1) as based on the highest annualized
monthly base salary rate measured during the twelve (12) months of the
year preceding Separation from Service or (2) if higher, in effect at
the time of Separation from Service or (3) if higher, in effect on the
date of the Change in Control; and
	 
	 	(ii)	 	the Participant’s current target bonus or other
annual incentive (1) in effect at the time of Separation from Service
or (2) if higher, in effect on the date of the Change in Control.

     5.02 Each award granted under the Company’s Long-Term Incentive Plan (cash or stock-based) and
any other stock option or other stock-based long-term incentive grant made to Participants, and not
otherwise addressed in this Article 5, under a plan adopted or assumed by the Company which is then
outstanding and to which the Participant has full rights, shall be treated in accordance with the
provisions of the applicable plans in effect at the time of Separation from Service, provided that
protections provided for under each of the applicable plans in effect on the date of the Change in
Control provide at a minimum that (A) such awards earned but not paid shall be paid pursuant to the
terms of this

8

 

Plan at a rate as specified by the relevant plan provisions and (B) with respect to stock
options or other awards for which Participants must exercise those rights accorded to them by
virtue of their holding such award, a period of not less than ninety (90) days following Separation
from Service during which Participants may exercise such rights. In the event that such minimum
rights are not accorded to Participants determined in accordance with the provisions of the
applicable plans, the minimum requirements provided for in this Article 5.02 shall prevail.
Notwithstanding the foregoing, if a Participant gives to the Company prior to receipt of payment
written instructions not to make a payment for option(s) or other stock-based long-term incentive
grants as provided herein, such option(s) and grant(s) shall remain in effect in accordance with
its (their) terms.

     5.03 Each stock option or other stock-based long-term incentive grant made to Participants,
and not otherwise addressed in this Article 5, under a plan adopted or assumed by the Company which
is then outstanding and to which the Participant does not have full rights shall be treated in
accordance with the provisions of the applicable plans in effect at the time of Separation from
Service, provided that protections provided for under each of the applicable plans in effect on the
date of the Change in Control provide at a minimum (A) full vesting of rights to the award or grant
which would have otherwise been conveyed to the Participant, without encumbrances, upon the lapse
of time, attainment of performance goals, or for other reasons; (B) amounts payable through such
rights to awards or grants provided by Article 5.03(A) represent an amount equal to one hundred
percent (100%) of the target bonus or amount that otherwise could have been earned and shall not be
subject to reduction, adjustment or modification for any reason; and (C) a period of not less than
ninety (90) days following Separation from Service during which to exercise rights with respect to
stock options or other awards for which Participants must exercise the rights accorded to them by
virtue of their holding of the award. In the event that such minimum rights are not accorded to
Participants determined in accordance with the provisions of the applicable plans, the minimum
requirements provided for under Article 5.03(B) hereof shall prevail. Notwithstanding the
foregoing, if a Participant gives to the Company, prior to receipt of payment, written instructions
not to make a payment for option(s) or other stock-based long-term incentive grant(s) as provided
herein, such option(s) and grant(s) shall remain in effect in accordance with its (their) terms.

     5.04 The Company shall, at its expense, maintain in full force and effect all life insurance,
medical, health and accident plans, programs and arrangements in which each Participant is entitled
to participate at the time of Separation from Service, provided that continued participation is
possible under the terms of such plans, programs and arrangements. In the event that the terms of
any such plan, program or arrangement do not permit continued participation or that any such plan,
program or arrangement has been or is discontinued or the benefits thereunder have been or are
materially reduced, the Company shall arrange to provide, at a cost to Participants no greater than
that prior to Separation from Service, benefits which are substantially similar to those which
Participants were entitled to receive under such plan, program or arrangement at the time of the
Change in Control. The Company’s obligation under this Article 5.04 shall terminate on the first
(1st) anniversary of Separation from Service. All rights to continuation of group
health plan coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act (COBRA) shall
run concurrently with the coverage provided under this Article 5.04. At the end of the applicable
period of coverage set forth above, Participants shall have the option to have assigned to them, at
no cost and with no apportionment of prepaid premiums, any assignable insurance owned by the
Company which relates specifically to them. To the extent any benefits provided under this Article
are otherwise taxable to the Participant, such benefits shall be provided as separate monthly
in-kind payments of those benefits, and, to the extent those benefits are subject to and not
otherwise excepted from Section 409A of the Code, the provision of the in-kind benefits during one
calendar year shall not affect the in-kind benefits to be provided in any other calendar year.

     5.05 In the event that because of their relationship to Participants, members of Participants’
families or other individuals are covered by any plan, program, or arrangement described in Article
5.04

9

 

above immediately prior to Separation from Service, the provisions set forth in Article 5.04
above shall apply equally to require the continued coverage of such persons; provided, however,
that if under the terms of any such plan, program or arrangements, any such person would have
ceased to be eligible for coverage during the period in which the Company is obligated to continue
coverage, nothing set forth herein shall obligate the Company to continue to provide coverage for
such person beyond the date such coverage would have ceased even had Participants remained an
Employee of the Company.

     5.06 The Company shall pay a supplemental retirement benefit (“Supplemental Pension Benefit”)
to Participants which is equal to the excess, if any, of (A) the aggregate amount which would have
been payable to them monthly under all noncontributory pension and retirement plans, agreements,
and other arrangements of the Company had the Participant remained an Employee of the Company at an
annual compensation rate pursuant to the sum of the amounts described in Articles 5.01(B)(i) and
5.01(B)(ii) herein until twelve (12) months after Separation from Service, over (B) the aggregate
amount payable to the Participant monthly under such plans, agreements or arrangements as of
Separation from Service had the Participant’s employment not been terminated. Calculation of the
amounts described in (A) and (B) above shall be made assuming the same form of payment under the
defined benefit pension plan of the Company or a successor plan (the “Qualified Plan”) in which the
Participant participates. Payment of any Supplemental Pension Benefit may be made to the
Participant in the same form and at the same time as payment of benefits under the Qualified Plan
or in such other manner as may be determined by the Committee.

     5.07 Participants terminated in a manner qualifying as a Defined Termination will be entitled
to reimbursement for all legal fees and expenses reasonably incurred in good faith as a result of
their Separation from Service (including all such fees and expenses, if any, incurred in contesting
or disputing any such termination or in seeking to obtain or enforce any right or benefit provided
by this Plan). Notwithstanding anything to the contrary contained herein, to the extent required
to comply with Section 409A of the Code, any reimbursement provided under this Article 5.07 shall
only be for costs, damages and expenses arising from “bona fide claims” within the meaning of
Section 409A of the Code and the regulations promulgated thereunder.

     5.08 Receipt of amounts payable pursuant to this Article 5 is conditioned upon Participants’
execution and delivery to the Company of (i) the confidentiality and non-compete agreement
delivered to Employees upon notification of their eligibility to participate in the Plan, and (ii)
a release form provided to the Participant upon his or her Separation from Service, in accordance
with the instructions set forth on such release form on or before the date specified on the release
form or any document accompanying the release form.

     5.09 Notwithstanding anything to the contrary contained herein, a Participant shall not be
entitled to any amount pursuant to this Plan in the event the Participant agrees to work for the
Company or provide future services to the Company, in any form, subsequent to the Participant’s
termination from the Company as set forth in a consulting arrangement or other employment-related
arrangement between the Company and the Participant.

ARTICLE 6. DETERMINATION AND ADJUSTMENT OF PAYMENTS

     6.01 Following a Change in Control of the Company, one or more payments or distributions to be
made by the Company to or for the benefit of Participants (whether paid or payable or distributed
or distributable pursuant to the terms of this Plan, under some other plan, agreement, arrangement
or otherwise) (a “Payment”) may be determined to be an “excess parachute payment” that is not
deductible by the Company for federal income tax purposes and with respect to which Participants
would be subject to an excise tax because of Sections 280G and 4999, respectively, of the Internal
Revenue Code

10

 

(hereinafter referred to respectively as “Section 280G” and “Section 4999”). To the extent a
Payment or portion thereof subjects Participants to an excise tax liability, the Company shall
reduce the amount of Payments to the minimum extent necessary so that no portion of any Payment, as
so reduced, would result in an excise tax liability on the part of the Participant, unless the net
after-tax benefit to the Participant after receipt of additional Payments to offset a specified
portion of any excise taxes due on the part of the Participant (“Gross-Up Payments”) and payment of
any applicable excise taxes due by the Participant pursuant to Section 4999 were to exceed the net
after-tax benefit to the Participant were such Gross-Up Payments not made.

     6.02 For purposes of this Article 6, “net after-tax benefit” shall mean (A) the total amount
of payments and benefits to be paid or provided under this Plan that would constitute “parachute
payments” within the meaning of Section 280G, less (B) the total amount of any and all excise taxes
imposed on the payments and benefits to be paid or provided to the Participant under (A) above
(including any and all penalties and interest with respect to any such excise tax), less (C) the
total amount of any and all income and other taxes payable on the foregoing by the Participant,
with Participants deemed to pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year that the payment is to be made, and state and local income taxes at
the highest marginal rate of taxation in the state and locality of residence, net of the maximum
reduction in federal income taxes that could be obtained by deducting such state and local taxes.

     6.03 Payments to Participants terminated in a manner qualifying as a Defined Termination
following a Change in Control shall be determined pursuant to the following provisions:

	 	(A)	 	The Company’s independent auditor shall make an initial
determination whether any Payment would constitute an excess parachute payment
and shall communicate its determination, together with detailed supporting
calculations, to affected Participants within twenty (20) days after Separation
from Service. The Company’s determination and calculations will be final and
binding upon the Participant unless the Participant notifies the Company within
twenty-one (21) days after the Participant receives the Company’s determination
and calculations that the Participant disputes the same. If, within ten (10)
days after the Participant so notifies the Company (or within such longer
period as the Participant and the Company may agree), the Company and the
Participant are unable to agree upon the determination and calculations, then
the Company and the Participant shall, within three (3) days thereafter, choose
a nationally recognized accounting firm (the “Accounting Firm”) to deliver its
determination (and supporting calculations) concerning the matter(s) in
dispute. The Accounting Firm’s determination shall be delivered to the Company
and the Participant within twenty (20) days after such Accounting Firm’s
appointment and shall be final and binding on all parties. With respect to the
Participant’s costs incurred in contesting the Company’s determination and
calculations, if the final determination by the Accounting Firm is more than 2%
different from the determination proposed by the Company, then the Company
shall pay or reimburse all costs incurred by the Participant with respect to
such determination. In all other cases, the Participant shall pay all such
costs. All costs incurred by the Company in connection with such determination
and contest, and the costs of the Accounting Firm’s determination, shall be
borne by the Company. The Company and the Participant shall cooperate with
each other and the Accounting Firm, and shall provide necessary information so
that the Company, the Participant and the Accounting Firm may make all
appropriate determinations and calculations.

11

 

	 	(B)	 	If it is determined (pursuant to Article 6.03(A) or otherwise)
that any Payment may give rise, directly or indirectly, to Participant
liability for excise tax under Section 4999 (and/or any penalties and/or
interest with respect to any such excise tax), the Committee shall reduce the
amount of payments and benefits to be paid or provided under this Plan to the
minimum extent necessary (but in no event to less than zero) so that no portion
of any payment or benefit to Participants, as so reduced, would result in an
excise tax liability on the part of those Participants, but only if, by reason
of such reduction, the net after-tax benefit received by the Participant shall
exceed the net after-tax benefit received by the Participant if no such
reduction was made. In the event any reduction in the amount of payments and
benefits pursuant to the foregoing were to result in a reduction in the net
after-tax benefit to the Participant, the Company shall make Gross-Up Payments
to Participants to offset one-half (1/2) of any excise tax due on the part of
Participants as a result of Payments. The amount of any such Gross-Up Payments
to be made by the Company will be determined without consideration of any
federal, state and local taxes (whether income taxes, excise taxes under
Section 4999 or otherwise, or other taxes) which may be due on the part of the
Participant as a result of any such Gross-Up Payment. Gross-Up Payments shall
be made from time to time and at the same time as any Payment constituting an
excess parachute payment is paid or provided to Participants (or as promptly
thereafter as is possible).

     6.04 If the Internal Revenue Service determines that any payment gives rise, directly or
indirectly, to liability on the part of Participants for excise tax under Section 4999 (and/or any
penalties and/or interest with respect to any such excise tax) in excess of the amount, if any,
previously determined by the Company or the Accounting Firm (an “Additional Liability”), as the
case may be, the Company shall make further additional cash payments to Participants not later than
the due date of any payment indicated by the Internal Revenue Service with respect to such matters,
in such amounts that are necessary to put Participants in the same position, after payment of all
federal, state and local taxes (whether income taxes, excise taxes under Section 4999 or otherwise,
or other taxes, and taking into account all such taxes payable with respect to the Gross-Up
Payments) and any and all penalties and interest with respect to any such excise tax, as
Participants would have been in after payment of all federal, state and local income taxes if the
Payments had not given rise to the Additional Liability.

     6.05 If the Company desires to contest any determination by the Internal Revenue Service with
respect to the amount of excise tax under Section 4999, Participants shall, upon receipt from the
Company of an unconditional written undertaking to indemnify and hold Participants harmless (on an
after-tax basis) from any and all adverse consequences that might arise from the contesting of that
determination, cooperate with the Company in that contest at the Company’s sole expense. Nothing
in this Article 6.05 shall require Participants to incur any expense other than expenses with
respect to which the Company has paid sufficient sums so that after payment of the expense by
Participants and taking into account the payment by the Company with respect to that expense and
any and all taxes that may be imposed upon Participants as a result of their receipt of that
payment, the net effect is no cost to Participants. Nothing in this Article 6.05 shall require
Participants to extend the statute of limitations with respect to any item or issue in their tax
returns other than, exclusively, the excise tax under Section 4999. If, as a result of the contest
of an assertion by the Internal Revenue Service with respect to excise tax under Section 4999,
Participants receive a refund of a Section 4999 excise tax previously paid and/or any interest with
respect thereto, Participants shall promptly pay to the Company such amount as will leave them, net
of the repayment and all tax effects, in the same position, after all taxes and interest, that
would have been in if the refunded excise tax had never been paid.

12

 

     6.06 Pending a final determination of the amount of any Gross-Up Payment payable, Participants
shall have the right to require the Company to pay to all or any portion of such amount as
preliminarily determined and calculated by the Company. Such payment shall be made by the Company
within five (5) days after receipt of notice from the Participant requiring the same.
Notwithstanding anything to the contrary contained herein, in no event shall any payment be made
pursuant to this Article 6 after the end of the Participant’s taxable year next following the
Participant’s taxable year in which the he or she remits any related taxes to the Internal Revenue
Service.

ARTICLE 7. METHOD OF PAYMENT

     7.01 Except as otherwise provided herein, all amounts payable pursuant to Article 5 under this
Plan shall be paid to each Participant terminated in a manner qualifying as a Defined Termination
by the Company in a lump sum within thirty (30) days following the Participant’s Separation from
Service. Notwithstanding any provision in the Plan to the contrary, if a Participant is a
Specified Employee, to the extent any amount payable pursuant to this Plan is subject to, and not
otherwise exempt from, the requirements of Section 409A of the Code, no payment of such amount
shall be made before the first day after the end of the six (6) month period immediately following
the date on which the Participant experiences a Separation from Service, or if earlier, on the date
of the Participant’s death.

     7.02 Notwithstanding anything in this Plan to the contrary, Participants shall continue to be
eligible to receive benefits under the Company’s benefit plans for the applicable period as if the
Participant remained in the employment of the Company for the period and subject to the provisions
of Article 5.04 herein.

     7.03 Reimbursement of all legal fees and expenses described in Article 5.07 herein shall be
made by the Company in a lump sum within thirty (30) days following Participants’ submission of
such fees and expenses to the Company.

     7.04 In the event a Participant dies before full receipt of benefits payable under the Plan,
the remaining benefits will be paid to the legal representative of such Employee’s estate in a lump
sum as soon as practicable after receipt of notice of such death and evidence satisfactory to the
Company of the payment or provision for the payment of any estate, transfer, inheritance or death
taxes which may be payable with respect thereto.

     7.05 Participants shall not be required to mitigate the amount of any payment provided for
under this Plan by seeking other employment or otherwise, nor shall the amount of any payment
provided for under this Plan be reduced by any compensation earned by Participants following
Separation from Service as the result of employment by another employer or otherwise.

ARTICLE 8. FINANCIAL PROVISIONS

     8.01 All benefits payable under this Plan shall be payable and provided for solely from the
general assets of the Company in accordance with the Plan, at the time such severance benefits are
payable, unless otherwise determined by the Company. The Company shall not be required to, but may
in its discretion, establish any special or separate fund or make any other segregation of assets
to assure the payment of any severance benefits under the Plan.

     8.02 The expenses of establishment and administration of the Plan shall be paid by the
Company. Any expenses paid by the Company pursuant to this Article 8 and indemnification under
Article 10 shall be subject to reimbursement by Affiliates of the Company of their proportionate
shares of such expenses and indemnification, as determined by the Committee in its sole discretion.

13

 

ARTICLE 9. ADMINISTRATION OF THE PLAN

     9.01 The Committee shall be responsible for the general administration and interpretation of
the Plan and the proper execution of its provisions and shall have full discretion to carry out its
duties. In addition to the powers of the Committee specified elsewhere in the Plan, the Committee
shall have all discretionary powers necessary to discharge its duties under the Plan, including,
but not limited to, the following discretionary powers and duties: (A) to interpret or construe
the Plan, and resolve ambiguities, inconsistencies and omissions; (B) to make and enforce such
rules and regulations and prescribe the use of such forms as it deems necessary or appropriate for
the efficient administration of the Plan; and (C) to decide all questions on appeal concerning the
Plan and the eligibility of any person to participate in the Plan.

     9.02 The determination of the Committee as to any question involving the general
administration and interpretation or construction of the Plan shall be within its sole discretion
and shall be final, conclusive and binding on all persons, except as otherwise provided herein or
by law.

     9.03 The Company reserves the right, by action of the Board of Directors or the Committee, to
amend or terminate this Plan in whole or in part at any time and from time to time on a prospective
basis. The foregoing sentence to the contrary notwithstanding, for a period of three (3) years and
one (1) day after the date of a Change in Control, neither the Board nor the Committee may
terminate or amend this Plan in a manner that is detrimental to the rights of any Participant of
the Plan without his or her written consent. Prior to a Change in Control, the Company or the
Committee shall give each Participant at least one (1) year’s notice before taking any action to
amend or terminate the Plan in any way detrimental to the Participant.

ARTICLE 10. LIABILITY AND INDEMNIFICATION

     10.01 To the extent permitted by law, no member of the Board shall be liable for any act or
omission of an act by him or her in connection with the Plan, unless the member failed to act (1)
in good faith and (2) for a purpose which such member reasonably believed to be in accordance with
the intent of the Plan. The Company hereby indemnifies each person made, or threatened to be made,
a party to an action or proceeding, whether civil or criminal, or against whom any claim or demand
is made, by reason of the fact that he or she, his or her testator or intestate, was or is a member
of the Board, against judgments, fines, amounts paid in settlement and reasonable expenses
(including attorney’s fees) actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, or as a result of such claim or demand, if such member of the
Board acted in good faith for a purpose which he or she reasonably believed to be in accordance
with the intent of the Plan and, in criminal actions or proceedings, in addition, had no reasonable
cause to believe that his or her conduct was unlawful.

     10.02 The termination of any such civil or criminal action or proceeding or the disposition of
any such claim or demand, by judgment, settlement, conviction or upon a plea of nolo contendere, or
its equivalent, shall not in itself create a presumption that any such member of the Board did not
act (1) in good faith and (2) for a purpose which he or she reasonably believed to be in accordance
with the intent of the Plan.

     10.03 Any indemnification under this Article 10, unless ordered by a court of competent
jurisdiction, shall be made by the Company only if authorized in the specific case:

	 	(A)	 	By the Board of Directors acting by a quorum consisting of
directors who are not parties to such action, proceeding, claim or demand, upon
a finding that the

14

 

	 	 	 	member of the Board has met the standard of conduct set forth in Article
10.01 above; or
	 
	 	(B)	 	If a quorum under Article 10.03(A) above is not obtainable with
due diligence: (i) by the Board of Directors upon the opinion in writing of
independent legal counsel (who may be counsel to the Company) that
indemnification is proper in the circumstances because the standard of conduct
set forth in Article 10.01 above has been met by such member of the Board; or
(ii) by the shareholders of the Company upon a finding that the member of the
Board has met the standard of conduct set forth in such Article 10.01 above.

     10.04 Notwithstanding the failure of the Company to provide indemnification in the manner set
forth in Article 10.01 above, and despite any contrary resolution of the Board or of the
shareholders in the specific case, if the member of the Board has met the standard of conduct set
forth in Article 10.01 above, the person made or threatened to be made a party to the action or
proceeding or against whom the claim or demand has been made, shall have the legal right to
indemnification from the Company as a matter of contract by virtue of this Plan, it being the
intention that each such person shall have the right to enforce such right of indemnification
against the Company in any court of competent jurisdiction.

     10.05 Nothing herein shall be deemed to supersede or conflict with any agreement between a
member of the Board and the Company regarding the Company’s obligations to indemnify such member
from and against certain liabilities arising from the performance of the member’s duties. Any such
agreement shall govern any inconsistencies with Article 12 of the Plan.

ARTICLE 11. CLAIMS PROCEDURES

     11.01 Any Participant or his or her authorized representative (collectively, the “claimant”)
must file a claim for a benefit to which he or she believes that he or she is entitled. All
claims must be in writing and delivered to the Plan Administrator by postage-prepaid certified
mail. Within ninety (90) days after receipt of a claim, the Plan Administrator shall send the
claimant by certified mail, postage prepaid, notice of the granting or denying, in whole or in
part, of the claim, unless special circumstances require an extension of time for processing the
claim. If such extension is necessary, the Plan Administrator will give the claimant a written
notice to this effect prior to the expiration of the initial 90-day period. In no event shall such
extension exceed a period of ninety (90) days from the end of the initial 90-day period. The
extension notice shall indicate the special circumstances requiring an extension of time and the
date by which the Plan Administrator expects to render the benefit determination. The Plan
Administrator shall have full discretion to deny or grant a claim in whole or in part. If notice
of the denial of a claim is not furnished, the claim shall be deemed denied and the claimant shall
be permitted to exercise his or her right to review as discussed below.

     11.02 If the Plan Administrator denies a claim for benefits in whole or in part, then the Plan
Administrator shall provide the claimant with written notice setting forth: (i) the specific reason
or reasons for the denial; (ii) specific reference to pertinent Plan provisions on which the denial
is based; (iii) a description of any additional material or information necessary for the claimant
to perfect the claim and an explanation of why such material is necessary; and (iv) a description
of the Plan’s claims review procedure and the time limits applicable to such procedures, including
a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following
a denial of the claim on review.

     11.03 If a claimant receives written notification of the denial in whole or in part of his or
her claim, or if a claimant is not otherwise eligible for benefits under this Plan, within sixty
(60) days of his or her receipt of claim denial or the date a
claimant becomes aware that he or she is not eligible for

15

 

benefits under this Plan, if a
claimant disagrees with such action, the claimant must file a written request with the Plan
Administrator that it conduct a full and fair review of the denial of the claim for benefits. In
connection with any request for a review of the denial of a claim for benefits, a claimant shall
have the opportunity to submit written comments, documents, records, and other information relating
to the claim for benefits. The Plan Administrator shall provide a claimant, upon request and free
of charge, reasonable access to, and copies of, all documents, records, and other information
relevant to his or her claim for benefits. A document, record, or other information shall be
considered “relevant” to a claimant’s claim for benefits if that document, record or other
information: (i) was relied upon in making the benefit determination; (ii) was submitted,
considered, or generated in the course of making the benefit determination, without regard to
whether such document, record or other information was relied upon in making the benefit
determination; or (iii) demonstrates compliance with the administrative process and safeguards
required by ERISA in making the benefit determination. The review of a denial shall take into
account all comments, documents, records, and other information submitted by the claimant, without
regard to whether such information was submitted or considered in the initial benefit
determination.

     11.04 Upon receipt of the request for review, the Plan Administrator shall review the claim
and shall deliver to a claimant a written decision on the claim for benefits within sixty (60) days
after the receipt of his or her request for review, except that if there are special circumstances
(such as the need to hold a hearing, if necessary) that require an extension of time for
processing, the sixty (60) day period shall be extended to one hundred twenty (120) days and a
claimant will be given written notice of the extension prior to the expiration of the initial
60-day period. In no event shall such extension exceed a period of sixty (60) days from the end of
the initial 60-day period. The extension notice shall indicate the special circumstances requiring
an extension of time and the date by which the Plan expects to render the determination on review.
If notice of the denial of a claim on review is not furnished, the claim shall be deemed denied and
a claimant shall be permitted to exercise a claimant’s right to review as discussed below.

     11.05 If the Plan Administrator denies a claimant’s claim for benefits on review, in whole or
in part, then the Plan Administrator shall provide a claimant with written notice setting forth:
(i) the specific reason or reasons for the denial; (ii) specific reference to pertinent Plan
provisions on which the denial is based; (iii) a statement that a claimant are entitled to receive,
upon request and free of charge reasonable access to, and copies of all records and other
information relevant to a claimant’s claim for benefits; and (iv) a statement describing any
voluntary appeal procedures offered by the Plan and a claimant’s right to obtain information about
such procedures, and a statement of a claimant’s right to bring a civil action under Section 502(a)
of ERISA.

ARTICLE 12. MISCELLANEOUS

     12.01 Prior to a Change in Control, nothing contained in the Plan shall be deemed to qualify,
limit or alter in any manner the Company’s sole and complete authority and discretion to establish,
regulate, determine or modify at any time, the terms and conditions of employment, including, but
not limited to, levels of employment, hours of work, the extent of hiring and employment
termination, when and where work shall be done, or any other matter related to the conduct of its
business or the manner in which its business is to be maintained or carried on, in the same manner
and to the same extent as if the Plan were not in existence.

     12.02 The Company will require any successor (whether direct or indirect, by purchase, merger,
acquisition of assets, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to assume and agree to perform the duties and obligations of the
Company under this Plan in the same manner and to the same extent that the Company would be
required to perform if no such
succession had taken place. As used in this Agreement, “Company” shall mean the Company as

16

 

hereinbefore defined and any successor to its business and/or assets which becomes bound by all the
terms and provisions of this Plan by operation of law or contract.

     12.03 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 or her
as a Participant of the Plan.

     12.04 To the extent not preempted by ERISA, this Plan shall be governed by, administered
under, and construed in accordance with the substantive laws but not the choice of law rules of the
state of Texas without giving effect to principles of conflicts of laws.

     12.05 In the event any provision of the Plan shall be held illegal or invalid for any reason,
the illegality or invalidity of such provision shall not affect the remaining parts of the Plan,
and the Plan shall be construed and enforced as if the illegal or invalid provision had not been
included herein.

     12.06 All notices under this Plan shall be in writing and shall be mailed (postage prepaid by
either registered or certified mail) and shall be deemed to have been given upon the date of actual
receipt by the recipient party.

ARTICLE 13. ERISA RIGHTS STATEMENT

As a Participant in this Plan, you are entitled to certain rights and protections under ERISA.
ERISA provides that all plan participants shall be entitled to:

Receive Information About Your Plan and Benefits

Examine, without charge, at the plan administrator’s office and at other specified locations, such
as worksites and union halls, all documents governing the plan, including insurance contracts and
collective bargaining agreements, and a copy of the latest annual report (Form 5500 Series) filed
by the plan with the U.S. Department of Labor and available at the Public Disclosure Room of the
Employee Benefits Security Administration.

Obtain, upon written request to the plan administrator, copies of documents governing the operation
of the plan, including insurance contracts and collective bargaining agreements, and copies of the
latest annual report (Form 5500 Series) and updated summary plan description. The administrator may
make a reasonable charge for the copies.

Receive a summary of the plan’s annual financial report. The plan administrator is required by law
to furnish each participant with a copy of this summary annual report.

Prudent Actions by Plan Fiduciaries

In addition to creating rights for plan participants ERISA imposes duties upon the people who are
responsible for the operation of the employee benefit plan. The people who operate your plan,
called “fiduciaries” of the plan, have a duty to do so prudently and in the interest of you and
other plan participants and beneficiaries. No one, including your employer, your union, or any
other person, may fire you or otherwise discriminate against you in any way to prevent you from
obtaining a benefit or exercising your rights under ERISA.

17

 

Enforce Your Rights

If your claim for a benefit is denied or ignored, in whole or in part, you have a right to know why
this was done, to obtain copies of documents relating to the decision without charge, and to appeal
any denial, all within certain time schedules.

Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request
a copy of plan documents or the latest annual report from the plan and do not receive them within
30 days, you may file suit in a Federal court. In such a case, the court may require the plan
administrator to provide the materials and pay you up to $110 a day until you receive the
materials, unless the materials were not sent because of reasons beyond the control of the
administrator. If you have a claim for benefits which is denied or ignored, in whole or in part,
and you disagree with that denial, you must file an appeal of that denial in accordance with the
claims procedures described in Article 11 above. After your appeal is denied in accordance with
the claims procedures, you may file suit in a state or Federal court. In addition, if you disagree
with the plan’s decision or lack thereof concerning the qualified status of a domestic relations
order or a medical child support order, you may file suit in Federal court. If it should happen
that plan fiduciaries misuse the plan’s money, or if you are discriminated against for asserting
your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a
Federal court. The court will decide who should pay court costs and legal fees. If you are
successful the court may order the person you have sued to pay these costs and fees. If you lose,
the court may order you to pay these costs and fees, for example, if it finds your claim is
frivolous.

Assistance with Your Questions

If you have any questions about your plan, you should contact the plan administrator. If you have
any questions about this statement or about your rights under ERISA, or if you need assistance in
obtaining documents from the plan administrator, you should contact the nearest office of the
Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone
directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security
Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You
may also obtain certain publications about your rights and responsibilities under ERISA by calling
the publications hotline of the Employee Benefits Security Administration.

ARTICLE 14. IMPORTANT INFORMATION ABOUT THE PLAN

	 	 	 
	Name of the Plan
	 	Flowserve Corporation Key
	 
	 	Management Change in Control
	 
	 	Severance Plan
	 
	 	 
	Name and Address of the Plan Sponsor
	 	Flowserve Corporation
	 
	 	5215 N. O’Connor Blvd., Suite 2300
	 
	 	Irving, TX  75039
	 
	 	 
	Plan Sponsor Identification Number
	 	31-0267900
	 
	 	 
	Plan Number
	 	507
	 
	 	 
	Type of Plan
	 	Change in Control Severance Plan
	 
	 	 
	Name, Address, and Telephone Number of
	 	The Organization & Compensation
	the Plan Administrator
	 	Committee of the Board of
	 
	 	Directors of Flowserve
	 
	 	Corporation
	 
	 	 

18

 

	 	 	 
	 
	 	c/o Sr. Vice President,
	 
	 	Secretary and General Counsel
	 
	 	5215 N. O’Connor Blvd., Suite 2300
	 
	 	Irving, TX  75039
	 
	 	(972) 443-6500
	 
	 	 
	Agent for Service of Legal Process
	 	Plan Administrator
	 
	 	 
	12-Month period on which the Plan records
	 	Begins January 1 and ends on
	are kept
	 	December 31 each calendar year
	 
	 	 
	Plan’s Original Effective Date
	 	January 1, 2002
	 
	 	 
	Plan’s Amended and Restated Effective Date
	 	November 12, 2007

     IN WITNESS WHEREOF, the Corporation has caused this instrument as amended and restated to be
executed effective as of November 12, 2007, except as otherwise stated herein.

	 	 	 	 	 
	 	FLOWSERVE CORPORATION

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

19exv10w42

 

Exhibit 10.42

FLOWSERVE CORPORATION SENIOR MANAGER RETIREMENT PLAN

Amended and Restated Effective as of January 1, 2008

The Flowserve Corporation Senior Manager Retirement Plan, as amended and restated effective as of
January 1, 2008, (the “Plan”) is set forth below. The Plan is sponsored by Flowserve Corporation
for certain eligible highly compensated and management employees and is exempt from the
participation, vesting, funding and fiduciary requirements of Title I of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”).

ARTICLE I

PURPOSE AND EFFECTIVE DATE

1.1 Purpose of the Plan. The primary purpose of the Company in establishing this Plan is to
make up the benefits lost by Eligible Employees under the Qualified Plan as a result of the maximum
individual benefit limitations and restrictions imposed upon includable compensation in qualified
plans under ERISA and the Internal Revenue Code of 1986, as amended (the “Code”).

1.2 Effective Date. The Plan, which is effective January 1, 2008, is an amendment and
restatement of the Flowserve Corporation Senior Manager Retirement Plan, which was originally
adopted July 1, 1999 (the “Prior Plan”). The Plan shall apply generally to any Participant who did
not terminate employment prior to January 1, 2008. Except as otherwise provided herein, any
Eligible Employee who is a Participant and who terminated employment prior to January 1, 2008,
shall be entitled to those benefits, if any, provided by the Prior Plan, as modified, where
appropriate, to comply with the requirements of Section 409A of the Code and the guidance issued
thereunder as then in effect.

ARTICLE II

DEFINITIONS

2.1 Definitions. Whenever used in the Plan, the following terms shall have the respective
meanings set forth below:

	(a)	 	“Beneficiary” means one or more persons, trusts, estates or other entities, designated in
accordance with the procedures established by the Committee, that are entitled to receive
benefits under this Plan upon the death of a Participant.
	 
	(b)	 	“Board” or “Board of Directors” means the Board of Directors of the Company.
	 
	(c)	 	“Change in Control” shall mean the occurrence of any of the following:

	 	(i)	 	On the date any “Person” (as defined in subparagraph (v) below) acquires (or
has acquired during the 12-month period ending on the date of the most recent
acquisition by such Person) ownership of stock of the Company possessing thirty percent
(30%) or more of the total voting power of the stock of the Company (the “Voting
Stock”); other than an acquisition (1) directly from the Company; (2) by the Company or
any corporation, partnership, trust or other entity controlled by the

- 1 -

 

	 	 	 	Company (a “Subsidiary”); (3) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any Subsidiary; (4) any
acquisition by any corporation pursuant to a reorganization, merger or consolidation,
if, following such reorganization, merger or consolidation, the conditions described
in subparagraph (iii)(1) and (2) are satisfied; or (5) by any Person who is
considered to own stock of the Company constituting thirty percent (30%) or more of
the Voting Stock immediately prior to such additional acquisition. Notwithstanding
the foregoing, a Change in Control shall not be deemed to occur solely because any
Person (the “Subject Person”) acquired ownership of stock of the Company possessing
thirty percent (30%) or more of the Voting Stock as a result of the acquisition of
the Voting Stock, which, by reducing the number of shares of Voting Stock, increases
the proportional number of shares owned by the Subject Person; provided, however,
that if following such acquisition of shares of Voting Stock by the Company, the
Subject Person acquires additional Voting Stock which increases the percentage
ownership of the Subject Person to an amount that would constitute thirty percent
(30%) of the then outstanding Voting Stock (excluding any shares of Voting Stock
previously acquired by the Company), then a Change in Control shall then be deemed to
have occurred; or
	 
	 	(ii)	 	On the date a majority of members of the Board is replaced during any 12-month
period by directors whose appointment or election is not endorsed by a majority of the
Board before the date of the appointment or election; provided, however, that any such
director shall not be considered to be endorsed by the Board if his or her 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)	 	On the date of consummation of a reorganization, merger, or consolidation, in
each case, immediately following which a Person owns stock of the Company that,
together with stock held by such Person prior to such reorganization, merger or
consolidation, constitutes more than fifty percent (50%) of the total fair market value
of the Company; unless, following such reorganization, merger or consolidation: (1)
more than fifty percent (50%) of the then outstanding Voting Stock is owned, directly
or indirectly, by all or substantially all of the individuals and entities who were the
owners of the Voting Stock immediately prior to such reorganization, merger or
consolidation, in substantially the same proportions as their ownership immediately
prior to such reorganization, merger or consolidation; or (2) (A) officers of the
Company as of the effective date of such reorganization, merger or consolidation
constitute at least three-quarters (3/4) of the officers of the ultimate parent company
of the corporation resulting from such reorganization, merger or consolidation; (B)
elected members of the Board 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 company of the corporation resulting from such reorganization, merger
or consolidation; and (C) 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

- 2 -

 

	 	 	 	consolidation are held by individuals with the same positions at the Company as of
the effective date of such reorganization, merger or consolidation.
	 
	 	(iv)	 	On the date any Person acquires (or has acquired during the 12-month period
ending on the date of the most recent acquisition by such Person) assets from the
Company that have a total gross fair market value equal to or more than 50% of the
total gross fair market value of all of the assets of the Company immediately before
such acquisition or acquisitions, unless such assets have been acquired by a
corporation with respect to which, following such acquisition, (a) more than fifty
percent (50%) of, respectively, the then outstanding shares of stock of such
corporation and the combined voting power of the then outstanding voting stock of such
corporation (or any parent thereof) entitled to vote generally in the election of
directors is then owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the owners, respectively, of outstanding stock of the
Company and the Voting Stock immediate prior to such acquisition, in substantially the
same proportions as their ownership immediately prior to such acquisition; (b) no
Person (excluding the Company and any employee benefit plan (or related trust) of the
Company or a Subsidiary or any Person owning immediately prior to such acquisition,
directly or indirectly, twenty percent (20%) or more of all of the outstanding shares
of stock of the Company or the Voting Stock, owns, directly or indirectly, twenty
percent (20%) or more of all of the then outstanding stock of such corporation or the
combined voting power of the then outstanding voting stock 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 Company’s Board at the time of the execution of
the initial agreement or action of the Board providing for such acquisition of the
Company’s assets. For purposes of this subparagraph (iv), gross fair market value
means the value of the assets of the Company or the value of the assets being disposed
of, determined without regard to any liabilities associated with such assets.
Notwithstanding the foregoing, no Change in Control shall be deemed to occur when there
is such a sale or transfer to (1) a shareholder of the Company (immediately before the
asset transfer) in exchange for or with respect to the Company’s then outstanding
stock; (2) an entity, at least fifty percent (50%) of the total value or voting power
of the stock of which is owned, directly or indirectly, by the Company; (3) a Person
that owns directly or indirectly, at least 50% of the total value or voting power of
the outstanding stock of the Company; or (4) an entity, at least fifty percent (50%) of
the total value or voting power of the stock of which is owned, directly or indirectly,
by a Person that owns, directly or indirectly, at least fifty percent (50%) of the
total value or voting power of the outstanding stock of the Company. For purposes of
the foregoing, a Person’s status is determined immediately after the asset transfer.
	 
	 	(v)	 	For purposes of subparagraphs (i), (ii), (iii) and (iv) above, “Person” shall
have the meaning given in Section 7701(a)(1) of the Code. Person shall include more
than one Person acting as a group as defined by the Final Treasury Regulations issued
under Section 409A of the Code.

- 3 -

 

	(d)	 	“Code” means the Internal Revenue Code of 1986, as amended, and any successor provision
thereto.
	 
	(e)	 	“Committee” means the Pension and Investment Committee of the Company.
	 
	(f)	 	“Company” means Flowserve Corporation and any subsidiary participating in the Qualified Plan.
	 
	(g)	 	“Effective Date” means January 1, 2008, the effective date of the Plan as amended and
restated.
	 
	(h)	 	“Eligible Employee” means any person who is (i) a participant in the Qualified Plan; (ii) a
highly compensated or management employee whose compensation exceeds the maximum individual
benefit limitations and restrictions imposed upon includable compensation in qualified plans
under ERISA and the Internal Revenue Code; and (iii) designated by the Committee to
participate in the Plan.
	 
	(i)	 	“Participant” means any Eligible Employee who is designated by the Committee as a participant
in this Plan.
	 
	(j)	 	“Qualified Plan” means the Flowserve Corporation Pension Plan, as amended from time to time,
or any successor to this Plan, and any other qualified pension plan that may be designated by
the Committee.
	 
	(k)	 	“Separation from Service” means a Participant dies, retires, or otherwise suffers a
termination of employment, as determined in accordance with the requirements of Section 409A
of the Code and the final regulations issued thereunder. For purposes of the Plan, a
Participant shall not be considered to have separated from service while the Participant is on
military leave, sick leave or other bona fide leave of absence if the period of such leave of
absence does not exceed six months, or, if longer, so long as the Participant retains the
right to reemployment with the Company or its subsidiaries under an applicable statute or by
contract. A leave of absence constitutes a bona fide leave of absence only if there is a
reasonable expectation that the Participant will return to perform services for the Company or
any of its subsidiaries. If the period of leave exceeds six months and the Participant does
not retain a right to reemployment under an applicable statute or by contract, the employment
relationship is deemed to terminate on the first date immediately following such six-month
period. Notwithstanding the foregoing, where a leave of absence is due to any medically
determinable physical or mental impairment that can be expected to result in death or can be
expected to last for a continuous period of not less than six months, where such impairment
causes the Participant to be unable to perform the duties of his or her position of employment
or any substantially similar position of employment, a 29-month period of absence shall be
substituted for the six-month period in the immediately preceding sentence.

Any other term used in this Plan which is defined in the Qualified Plan shall have the meaning set
forth therein.

- 4 -

 

ARTICLE III

PARTICIPATION

3.1 Participation. An employee shall become a Participant as of the first day of the
calendar month coincident with or next following the date he or she first becomes an Eligible
Employee (the “Entry Date”), provided that he or she is still an Eligible Employee on his or her
Entry Date. Once eligible for participation in the Plan, an Eligible Employee shall be entitled to
accrue benefits for the remainder of the Plan Year, provided that he or she remains a member of the
select group of highly compensated or management employees for whom this Plan is designed.

ARTICLE IV

BENEFITS FOR PARTICIPANTS

4.1 Eligibility. A Participant or the Beneficiary of a Participant shall be eligible to
receive benefits under this Plan; provided, however, the Company may in its discretion restrict on
a prospective basis the classification of persons who are eligible to receive benefits under this
Plan.

4.2 Amount of Benefits. The amount of benefits payable under the Plan to a Participant who
is eligible for benefits under the Qualified Plan shall be the amount computed under Section 4.2(a)
minus the amount computed under Section 4.2(b).

	(a)	 	The amount of benefits that would be payable under the Qualified Plan to such Participant or
Beneficiary without regard to any restrictions (“Restrictions”) imposed by ERISA and the Code
upon (i) the maximum amount of benefits which may be paid out of a qualified plan, or (ii) the
compensation which may be recognized by a qualified plan;
	 
	(b)	 	The amount of benefits actually payable under the applicable Qualified Plan to such
Participant or Beneficiary.

4.3 Commencement and Form. Subject to the provisions of this Article IV, a Participant will
receive benefits under the Plan in the form of a lump sum payment on the date of his or her
Separation from Service or as soon as administratively practicable thereafter, Notwithstanding the
foregoing or any other provision of this Plan to the contrary, if a Participant who is entitled to
payments under this Plan is a “specified employee”, as defined in Section 1.409A-1(i) of the final
regulations issued under Section 409A of the Code, any payment under this Plan shall be made in a
lump sum on the date which is six (6) months following the date of the Participant’s Separation
from Service, or if earlier, on the date of the Participant’s death. All payments that are delayed
for six (6) months as provided in this Section 4.3 shall continue to accrue interest under the
terms of the Plan for the period from the Participant’s Separation from Service until the date such
payment is actually made.

ARTICLE V

VESTING

5.1 Vesting Schedule. A Participant shall vest in any benefit under this Plan in the same
manner and to the same extent as under the vesting provisions of the Qualified Plan. Once a

- 5 -

 

Participant is vested, all of such Participant’s rights to receive benefits under this Plan shall
be nonforfeitable but shall be subject to any rights of the Company’s creditors.

5.2 Change in Control Vesting. In the event of a Change in Control, the Eligible Employee
shall immediately be fully vested in his or her benefit under the Plan.

ARTICLE VI

ADMINISTRATION

6.1 Administration. The Committee shall be responsible for the general administration of
the Plan and the carrying out of the provisions thereof, and shall have all rights and powers
required in connection therewith, including the right to establish rules for the administration of
the Plan and the methods to be used in calculating benefits. The Committee shall have the
discretionary power and authority to interpret and administer the Plan according to its terms,
including the power to construe and interpret the Plan, to supply any omissions therein, to
reconcile and correct any errors or inconsistencies, to decide any questions in the administration
and application of the Plan, and to make equitable adjustments for any mistakes or errors in the
administration and application of the Plan. The Committee shall have such additional powers as may
be necessary to discharge its duties and responsibilities hereunder.

6.2 Application for Benefits. The Committee shall determine a Participant’s or
Beneficiary’s eligibility for benefits. Each Eligible Employee or Beneficiary claiming a benefit
under the Plan shall complete an application form and file it with the Committee or an
administrator designated by the Committee. The Committee shall take action on all applications for
benefits within ninety (90) days of receipt. If an application is approved, the Committee shall
determine, or cause to be determined, the applicant’s benefits under the Plan.

6.3 Claims Procedure. If an application for benefits is denied or benefits are forfeited,
in whole or in part, the following claims procedure shall be applicable:

	(a)	 	The Committee will provide the claimant with a written notice of denial, setting forth (i) an
explanation as to why the claim was denied or benefit forfeited, (ii) the provisions of the
Plan upon which the denial or forfeiture was based, and (iii) an explanation of the Plan’s
claims procedure. If the Committee does not deny a claim on its merits, but rejects the
application for failure to furnish certain necessary material or information, the written
notice to the claimant will explain what additional material is needed and why, and advise the
claimant that he or she may refile a proper application.
	 
	(b)	 	Within sixty (60) days after the receipt of the Committee’s notice of denial or forfeiture,
the claimant must file a written notice of appeal of the denial or forfeiture of benefits with
the Committee. In addition, within such appeal period, the claimant may review pertinent
documents at such reasonable times and places as the Committee may specify and may submit any
additional written material pertinent to the appeal, and the claimant shall be entitled to
appear before the Committee to present his or her claim.
	 
	(c)	 	The Committee will make a written decision on the appeal not later than sixty (60) days after
its receipt of the notice of appeal, unless special circumstances require an extension of
time, in which case a decision will be given as soon as possible, but not later than one

- 6 -

 

	 	 	hundred-twenty (120) days after receipt of the notice of appeal. The decision on the appeal
will be in writing and shall include specific reasons for the decision, making specific
reference to the provisions of the Plan upon which the decision was based.

In the event the Committee fails to take any action on the claimant’s initial application for
benefits within ninety (90) day after receipt, the application will be deemed denied, and the
applicant’s appeal rights under this Section 6.3 will be in effect as of the end of such period.

ARTICLE VII

FINANCING

7.1 Financing of Benefits. No Participant shall be required or permitted to make any
contribution under the Plan. The Company may provide security for payment of benefits using any
method approved by the Committee for this purpose that is subject to the claims of the Company’s
general unsecured creditors. As an alternative to and notwithstanding the above, the Company may
elect to directly pay such benefits to a Participant, subject to the approval of the Committee.
For a Participant terminating employment as a result of a Change in Control, vested benefits shall
be funded in such manner as shall be determined by the Committee, provided that at all times such
funding method shall be subject to the claims of the Company’s general unsecured creditors.

7.2 Unsecured General Creditor. Notwithstanding anything to the contrary contained herein,
no Participant or Beneficiary (or any of their heirs, successors, or assigns) shall have any legal
or equitable rights, interests or claims in any property or assets of the Company or its
subsidiaries. For purposes of the payment of benefits under this Plan, any and all assets of the
Company and its subsidiaries shall be, and shall remain, the general, unpledged, unrestricted
assets of the Company and its subsidiaries, as applicable. The Company and its subsidiaries
obligations under this Plan shall be merely that of an unfunded and unsecured promise to pay money
in the future.

ARTICLE VIII

GENERAL PROVISIONS

8.1 Non-Alienation of Benefits. No benefit which shall be payable under this Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, garnishment,
encumbrance, or charge by a Participant, Beneficiary, or survivor or anyone claiming under any of
them except pursuant to a “Qualified Domestic Relations Order”, as such term is defined under
ERISA. If a Participant, Beneficiary or survivor or anyone claiming under any of them shall
attempt to or shall subject in any manner any benefit which shall be payable under this Plan to
anticipation, alienation, sale, transfer, assignment, pledge, garnishment, encumbrance, or charge,
his or her interest in any such benefit shall terminate and the Committee shall hold or apply it to
or for the benefit of such person, his or her spouse, children or other dependents, or any of them
as the Committee may decide.

8.2 Incompetency. Every person receiving or claiming benefits under the Plan shall be
conclusively presumed to be mentally competent and of age until the Committee receives written
notice, in a form and manner acceptable to it, that such person is incompetent, and that a
guardian, conservator, statutory committee, or other person legally vested with the care of his or

- 7 -

 

her estate has been appointed. In the event that the Committee finds that any person to whom a
benefit is payable under the Plan is unable to properly care for his or her affairs, then any
payment due (unless a prior claim therefore shall have been made by a duly appointed legal
representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any
person deemed by the Committee to have incurred expense for such person otherwise entitled to
payment. In the event a guardian or conservator or statutory committee of the estate of any person
receiving or claiming benefits under the Plan shall be appointed by a court of competent
jurisdiction, payment shall be made to such guardian or conservator or statutory committee,
provided that proper proof of appointment is furnished in a form and manner suitable to the
Committee. Any payment made under the provision of this Section 8.2 shall be a complete discharge
of liability therefore under the Plan.

8.3 Employment Rights. The establishment of the Plan shall not be construed as conferring
any legal rights upon any Eligible Employee or any other person for a continuation of employment,
nor shall it interfere with the rights of the Company to discharge any person or to treat him or
her without regard to the effect which such treatment might have upon him or her as a person
covered by this Plan.

8.4 Notices. Any notice required or permitted to be given hereunder to an Eligible
Employee, a Participant, or Beneficiary will be properly given if delivered or mailed, postage
prepaid, to the Eligible Employee or Beneficiary at the last post office address as shown on the
Company’s records. Any notice to the Company shall be properly given or filed if delivered or
mailed, postage prepaid, to the Corporate Secretary of the Company at its principal place of
business.

8.5 Waiver of Notice. Any notice required hereunder may be waived by the person entitled
thereto.

8.6 Action by Company. Any action required or permitted to be taken hereunder by the
Company shall be taken by the Committee, or by any person or persons or committee otherwise
authorized by its Board of Directors.

8.7 Uniform Rules. In administrating the Plan, the Committee will apply uniform rules to
all Eligible Employees similarly situated.

8.8 Notice of Address. Any payment to a Participant, or in case of his or her death to his
or her Beneficiary or survivor, at the last known post office address of the distributee on file
with the Company, shall constitute a complete acquittance and discharge to the Company with respect
thereto unless the Company shall have received prior written notice of any change in the condition,
status or location of the distributee. The Company shall have no duty or obligation to search for
or ascertain the whereabouts of any Eligible Employee or Beneficiary.

8.9 Record. The records of the Company with respect to the Plan shall be conclusive on all
Eligible Employees, beneficiaries and survivors, and all other persons whomsoever.

8.10 No Individual Liability. It is declared to be the express purpose and intention of the
Plan that no liability whatever shall attach to or be incurred by the shareholders, officers, or
directors of the Company, or any representatives appointed hereunder by the Company, under or by
reason of any of the terms or conditions of the Plan.

- 8 -

 

8.11 Illegality of Particular Provision. If any particular provision of this Plan shall be
found to be illegal or unenforceable, such provision shall not affect the other provisions thereof,
but the Plan shall be construed in all respects as if such invalid provision were omitted.

8.12 Status of Plan. The Plan is intended to be a plan that is not qualified within the
meaning of Section 401(a) of the Code and that “is unfunded and is maintained by an employer
primarily for the purpose of providing deferred compensation for a select group of management or
highly compensated employees” within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1),
and as such it is intended that the Plan be exempt from the participation, vesting, funding, and
fiduciary responsibility requirements of Title I of ERISA. This Plan is also intended to qualify
for simplified reporting under U.S. Department of Labor Regulation Section 2530.104-23, which
provides for an alternative method of compliance for plans described in such regulation. The Plan
shall be administered and interpreted to the extent possible in a manner consistent with that
intent.

8.13 Tax Withholding. The Company and its subsidiaries shall have the right to deduct from
all amounts paid in cash or other form under this Plan any Federal, state, local or other taxes
required by law to be withheld.

ARTICLE IX

AMENDMENT AND TERMINATION

9.1 Amendment and Termination. The Company expects the Plan to be permanent, but since
future conditions affecting the Company cannot be anticipated or foreseen, the Company must
necessarily and does hereby reserve the right to amend or terminate the Plan at any time by action
of its Board of Directors, provided, however, that no amendment or termination may change the time
and form of payment to be made under the provisions of the Plan as in effect before such amendment
or termination, except as otherwise permitted under Section 409A of the Code and the regulations
issued thereunder. Notwithstanding any of the foregoing provisions of this Section 9.1 or any
other terms and conditions of the Plan to the contrary, the Committee reserves the right, in its
sole discretion, to amend the Plan in any manner it deems necessary or desirable in order to comply
with or otherwise address issues resulting from Section 409A of the Code.

9.2 Contingencies Affecting the Company. In the event of a merger or consolidation of the
Company, or the transfer of substantially all of the assets of the Company to another corporation,
such successor corporation shall be substituted for the Company under the terms and provisions of
the Plan.

9.3 Protected Benefits. If the Plan is amended or terminated, the full benefits payable to
each retired Eligible Employee, Beneficiary or survivor shall not be reduced. a Participant who is
in active service at the time of Plan amendment or termination shall be entitled to no less than
the benefits he or she has accrued under the Plan to the date of such amendment or termination. The
time and manner of payment of benefits subsequent to such date shall remain subject to the terms
and conditions of the Plan, as they may have been amended. Subject to the foregoing provision, the
Eligible Employee shall have a contractual right to all benefits applicable to him or her under the
Plan.

- 9 -

 

9.4 Reimbursement of Legal Fees and Expenses. In the event that a Participant brings a
legal action after a “Change in Control” as defined in Section 2.l(c) to enforce any of his or her
rights hereunder, the Company shall reimburse the Eligible Employee for his or her actual
documented legal fees and expenses in bringing such action, provided that (i) such action is based
upon an actual bona fide claim for damages under applicable law, as determined by the Committee
based on the facts and circumstances and in accordance with the requirements of Section 409A of the
Code (and the regulations issued thereunder); (ii) the Participant provides written documentation
to the Company of such legal fees and expenses no later than one hundred eight (180) days following
the close of the taxable year in which such expenses were incurred; and (iii) it is judicially
determined that such action was not frivolous or brought in bad faith. Any reimbursement of legal
fees and expenses made pursuant to the immediately preceding sentence in one taxable year shall not
affect the legal fees and expenses eligible for reimbursement pursuant to this Section 9.4 in any
other taxable year. Reimbursement of legal fees and expenses pursuant to this Section 9.4 shall be
made by the Company no later than the last day of the Participant’s taxable year following the
taxable year in which the fees or expenses were incurred.

ARTICLE X

APPLICABLE LAW

10.1 Applicable Law. The Plan shall be governed by and construed according to the law of
the State of Texas, except to the extent otherwise preempted by ERISA, or any other Federal law.

IN WITNESS WHEREOF, Flowserve Corporation has caused this instrument to be executed by its duly
authorized officer, this 27th day of November, 2007.

	 	 	 	 	 
	 	FLOWSERVE CORPORATION

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

- 10 -

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00137-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00137-of-00352.parquet"}]]