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EXHIBIT 10.25

THE FLOWSERVE CORPORATION

AMENDED AND RESTATED

1989 STOCK OPTION PLAN

Section 1. Purposes.

          This Flowserve Corporation Amended and Restated 1989 Stock Option Plan (the “Plan”) has been
adopted to update the Duriron Company, Inc. 1989 Stock Option Plan (the “Prior Plan”), in order to
(i) bring the Prior Plan into compliance with section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”) and (ii) permit the continuation of unexercised options that would otherwise
expire during a period in which exercise is not permitted. The changes reflected in this Plan are
not intended to negatively impact any Holder (as defined below).

     As amended and restated, the purposes of this Plan, like the Prior Plan is to (i) provide
incentives to directors, officers and other key employees of the Company upon whose judgment,
initiative and efforts the long-term growth and success of the Company is largely dependent; (ii)
assist the Company in attracting and retaining directors and key employees of proven ability; and
(iii) increase the identity of interests of such directors and key employees with those of the
Company’s shareholders.

Section 2. Definitions.

     For purposes of the Plan:

	 	(a)	 	“Acquisition Transaction” means a transaction of the type described in Section
8(b)(ii).
	 
	 	(b)	 	“Affiliate” means a person controlling, controlled by or under common control
with the Company.
	 
	 	(c)	 	“Board of Directors” means the board of directors of the Company.
	 
	 	(d)	 	“Change in Composition of the Board” means an event of the type described in
Section 8(b)(iv).
	 
	 	(e)	 	“Change in Control” means a transaction of the type described in Section
8(b)(iii).
	 
	 	(f)	 	“Committee” means the Compensation Committee of the Board of Directors.
	 
	 	(g)	 	“Code” means the Internal Revenue Code of 1986, as amended.
	 
	 	(h)	 	“Company” means Flowserve Corporation, a New York corporation, and its
successors in interest.
	 
	 	(i)	 	“Current Market Value” means the closing price on the New York Stock Exchange
(or such successor reporting system as may be selected by the Committee) on the date
the value of a Share is to be determined or, if there are no sales on such date, the
next preceding date for which a sale is reported..
	 
	 	(j)	 	“Designation of Beneficiary” means the written designation by the Holder of the
person or entity to receive the Holder’s options and any related Stock Appreciation.
Rights and Unlimited Rights upon the Holder’s death, which designation shall be on such
form as prescribed by the Committee and filed with the General Counsel, the Chief
Financial Officer, or the Treasurer of the Company (or such other person as the
Committee may designate).
	 
	 	(k)	 	“Director Option” means the type of stock option described in Section 9.
	 
	 	(l)	 	“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

 

	 	(m)	 	“Fair Market Value” means the average of the closing prices on the New York
Stock Exchange (or such successor reporting system as maybe selected by the Committee)
during the period beginning twenty-one days prior to and ending on the date the value
of a Share is to be determined.
	 
	 	(n)	 	“Family Members” means children, stepchildren, grandchildren, parents,
stepparents, grandparents, spouse, siblings (including half-brother and -sisters),
nephews, nieces and in-laws.
	 
	 	(o)	 	“Grantee” means the person who received the option and any related Stock
Appreciation Right and/or Limited Right from the Company.
	 
	 	(p)	 	“Holder” or “holder” means, except where the context otherwise requires, the
person(s) or entity who owns the option and any related Stock Appreciation Right and/or
Limited Right, whether the Grantee, Transferee, heir or other beneficiary.
	 
	 	(q)	 	“Incentive Stock Option” means an option granted under the Plan which qualifies
as an incentive stock option under section 422 of the Code.
	 
	 	(r)	 	“Limited Right” means an unvested right granted under Section 8(a) that becomes
vested as provided in Section 8(b) of the Plan.
	 
	 	(s)	 	“Mature Shares” means Shares acquired by the Holder which have been held for at
least six months.
	 
	 	(t)	 	“Nonqualified Option” means an option granted and described under the Plan
which does not qualify as an Incentive Stock Option under section 422 of the Code and
which is not a Director Option.
	 
	 	(u)	 	“Plan” means the Flowserve Corporation Amended and Restated 1989 Stock Option
Plan.
	 
	 	(v)	 	“Prior Plan” means the Duriron Company, Inc. 1989 Stock Option Plan, as it
existed prior to its amendment and restatement.
	 
	 	(w)	 	“Qualified Domestic Relations Order” means a qualified domestic relations order
as defined in the Internal Revenue Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder.
	 
	 	(x)	 	“Share” or “Shares” means the shares of Common Stock, $1.25 par value, of the
Company.
	 
	 	(y)	 	“Stock Appreciation Right” means a right granted and described under Section
8(d) of the Plan.
	 
	 	(z)	 	“Subsidiary” means any entity 50% or more of the voting control of which is
owned, directly or indirectly, by the Company.
	 
	 	(aa)	 	“Tender Offer” means a tender offer or a request or invitation for tenders or
an exchange offer subject to regulation under Section 14(d) of the Exchange Act, and
the rules and regulations thereunder, as the same may be amended, modified or
superseded from time to time.
	 
	 	(bb)	 	“Transferee” means the person who received the option and any related Stock
Appreciation Right and/or Limited Right from the Grantee during the Grantee’s lifetime
in accordance with this Plan.

Section 3. Shares Subject to the Plan.

	 	(a)	 	Number of Shares. Subject to the provisions of this Section 3(a) and to
adjustment as provided in Section 11, the maximum number of Shares that may be issued
and/or delivered under the Plan upon the exercise of options is 750,000. Such Shares
may be either authorized and unissued or

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	 	 	 	treasury Shares, if any. Any Shares subject to an option, which for any reason has
(i) terminated, (ii) expired or (iii) has been canceled prior to being fully
exercised or being canceled through payment of either a Limited Right or Stock
Appreciation Right, may again be subject to option under the Plan.
	 
	 	(b)	 	Subject to adjustment as provided in Section 11, the maximum number of Limited
Rights or Stock Appreciation Rights which may be exercised under the Plan is 750,000.
In any case, any Limited Rights or Stock Appreciation Rights granted under the Plan
which for any reason (i) terminate, (ii) expire or (iii) have been canceled prior to
being fully exercised may again be granted under the Plan, provided that the option to
which Limited Rights or Stock Appreciation Rights relate has not been exercised.
	 
	 	(c)	 	The aggregate maximum number of Limited Rights, Stock Appreciation Rights and
options exercised hereunder shall not exceed 750,000.

Section 4. Administration.

     The Plan shall be administered by the Committee which shall be comprised in a manner that
satisfies all applicable legal requirements, including satisfying the Non-Employee Director
standard set forth in Rule 16b-3 promulgated under the Exchange Act, if applicable. In addition, as
applicable, the Committee will be constituted in a manner consistent with the “outside director
standard set forth in the regulations under section 162 (m) of the Code.

     The Committee shall have and exercise all the power and authority granted to it under the
Plan. Subject to Section 9 and other applicable provisions of the Plan, the Committee shall in its
sole discretion determine the persons to whom, and the times at which, Incentive Stock Options,
Nonqualified Options, Director Options, Stock Appreciation Rights and Limited Rights shall be
granted; the number of Shares to be subject to each option; the option price per Share; and the
term of each option. In making such determinations, the Committee may take into consideration each
employee’s present and/or potential contribution to the success of the Company and its Subsidiaries
and any other factors which the Committee may deem relevant and proper. Subject to the provisions
of the Plan, the Committee shall also interpret the Plan; prescribe, amend and rescind rules and
regulations relating to the Plan; correct defects, supply omissions and reconcile any
inconsistencies in the Plan; and make all other determinations necessary or advisable for the
administration of the Plan. Such determinations of the Committee shall be conclusive. A majority of
the Committee shall constitute a quorum for meetings of the Committee, and the act of a majority of
the Committee at a meeting, or an act reduced to or approved in writing by all members of the
Committee, shall be the act of the Committee.

Section 5. Eligibility.

     From time to time during the term of the Plan, the Committee may grant one or more Incentive
Stock Options and/or Nonqualified Options to any person who is then an officer or other key
employee or director of the Company or a Subsidiary.

Section 6. Terms and Conditions of Options.

	 	(a)	 	Written Agreement. The terms of each option granted under the Plan
shall be set forth in a written agreement, the form of which shall be approved by the
Committee.
	 
	 	(b)	 	Terms and Conditions of General Application. The following terms and
provisions shall apply to all options (other than Director Option to which the
provisions of Section 9 shall be applicable) granted under the Plan.

	 	(i)	 	No option may be granted under the Plan at an option price per
Share which, when combined with the value of any consideration provided by the
Grantee of the option, is less than 50% of the Current Market Value of the
underlying Shares on the date of grant.

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	 	(ii)	 	No option may he exercised more than ten years after the date
of grant; provided, however, that the otherwise applicable ten year term of an
option may be extended beyond ten years, thus causing the option to generally
become a Nonqualified Option, if:

	 	(A)	 	the exercise period is extended to a date no
later than the later of:

	 	(I)	 	the 15th day of the third month following the date at which, or
	 
	 	(II)	 	December 31 of the calendar year in which,

	 	 	 	the option would otherwise have expired if the option had not been
extended, based on the terms of the option at the original grant
date, or
	 
	 	(B)	 	the option is unexercisable because an exercise
of the option would violate applicable securities laws, provided that
the period during which the option may be exercised is not extended
more than 30 days after the exercise of the option first would no
longer violate applicable securities laws.

	 	(iii)	 	Except as otherwise provided in the Plan, no option shall be
exercisable within one year after the date of grant. At the time an option is
granted, the Committee may provide that after such one year period, the option
may be exercised with respect to all Shares thereto, or may be exercised with
respect to only a specified number of Shares over a specified period or
periods.
	 
	 	(iv)	 	Except as otherwise provided in the Plan, an option may be
exercised only if the Grantee thereof has been continuously employed by the
Company or a Subsidiary since the date of grant. Whether authorized leave of
absence or absence for military or governmental service shall constitute a
termination of employment shall be determined by the Committee, after
consideration of the provisions of Treas. Reg. § 1.421-7(h), if appropriate.
	 
	 	(v)	 	At the time an option is granted, or at such other time as the
Committee may determine, the Committee may provide that, if the Grantee of the
option ceases to be employed by the Company or a Subsidiary for any reason
(including retirement or disability) other than death, the option will continue
to be exercisable by the Holder (to the extent it was exercisable on the date
the Grantee ceased to be employed) for such additional period (not to exceed
the remaining term of such option) after such termination of employment as the
Committee may provide.
	 
	 	(vi)	 	At the time an option is granted, the Committee may provide
that, if the Grantee of the option dies while employed by the Company or a
Subsidiary or while entitled to the benefits of any additional exercise period
established by the Committee with respect to such option in accordance with
Section 6(b)(v), then the option will continue to be exercisable (to the extent
it was exercisable on the date of death) by the person or persons (including
the Holder’s estate) to whom the Holder’s rights with respect to such option
shall have passed by Designation of Beneficiary, or if none, by will or by the
laws of descent and distribution for such additional period after death (not to
exceed the remaining term of such option) as the Committee may provide.
	 
	 	(vii)	 	At the time an option is granted, the Committee may provide
for any restrictions or limitations on the transferability of the Shares
issuable upon the exercise of such options as it may deem appropriate.

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	 	(c)	 	Additional Provisions Applicable to Incentive Stock Options. The
following additional terms and provisions shall apply to Incentive Stock Options
granted under the Plan, notwithstanding any provision of Section 6(b) to the contrary:

	 	(i)	 	No Incentive Stock Option may be granted at an option price per
Share which is less than the Current Market Value of the Share on the date of
grant.
	 
	 	(ii)	 	No Incentive Stock Option shall be granted to an officer or
other employee who possesses directly or indirectly (within the meaning of
section 424(d) of the Code) at the time of grant more than 10% of the voting
power of all classes of Shares of the Company or of any parent corporation or
any Subsidiary of the Company unless (i) the option price is at least 110% of
the Current Market Value of the Shares subject to the option on the date the
option is granted and (ii) the option is not exercisable after the expiration
of five years from the date of grant.
	 
	 	(iii)	 	The aggregate Current Market Value (determined as of the time
an Incentive Stock Option is granted) of Shares with respect to which Incentive
Stock Options are exercisable for the first time by any individual in any
calendar year (under the Plan and all other plans of the Company and any
Subsidiary) shall not exceed $100,000, or such other maximum amount permitted
by the Code.

	 	(d)	 	Waiver of Terms. The Committee may waive or modify at any time, either
before or after the granting of an option, any condition or restriction with respect to
the exercise of such option imposed by or pursuant to this Section 6 (or Section 9 in
the case of Director Options) in such circumstances as the Committee may, in its
discretion, deem appropriate (including, without limitation, in the event the Grantee
retires with the approval of the Company, or in the event of a proposed Acquisition
Transaction, a Change in Control, Tender Offer for Shares, or other similar transaction
involving the Company).
	 
	 	(e)	 	Acceleration upon Certain Events. In the event of (i) a Tender Offer
(other than an offer by the Company) for Shares, if the offeror acquires Shares
pursuant thereto, (ii) an Acquisition Transaction, (iii) a Change in Control or (iv) a
Change in Composition of the Board, all outstanding options granted hereunder shall
become exercisable in full (whether or not otherwise exercisable), effective on the
date of the first purchase of Shares pursuant to the Tender Offer, or the date of
shareholder approval of the Acquisition Transaction, or the date of filing of the
Schedule 13D reflecting the Change in Control (or, if not made, the date upon which
such filing becomes delinquent), or the date of the Change in Composition of the Board,
as the case may be (the occurrence of any such event is hereinafter referred to as an
“Acceleration”).

Section 7. Exercise of Options.

	 	(a)	 	Notice of Exercise. The Holder of an option granted under the Plan may
exercise all or part of such option by giving written notice of exercise and making
payment of the option price as provided in Section 7(b); provided, however, that an
option may not be exercised for a fraction of a Share. No Holder of an option nor such.
Holder’s legal representatives, legatees or distributees will be, or will be deemed to
be, a holder of any Shares covered by such option unless and until certificates for
such Shares are issued in accordance with the Plan.
	 
	 	(b)	 	Payment of Option Price. The option price for Shares with respect to
which an option is exercised shall be paid in full at the time such notice is given.
An option shall be deemed exercised on the date the Company’s General Counsel, its
Chief Financial Officer or its Treasurer (or such other person as the Committee may
designate) receives written notice of exercise, together with full payment for the
Shares purchased. The option price shall be paid to the Company either in cash or in
Mature Shares having a Current Market Value equal to the option price (or a combination
of cash and Mature Shares such that the sum of the Current Market Value of the Mature
Shares plus the cash equals the option price). Additionally, the Company, at its
discretion, may accept

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	 	 	 	payment for Nonqualified Options by canceling such partial number of Mature Shares,
of the total number of Mature Shares covered under such exercise, as are necessary
to deliver upon such exercise a net number of Mature Shares which have a Current
Market Value on the date of exercise equal to the excess of the aggregate Current
Market Value of all such Mature Shares (prior to such partial cancellation) over the
aggregate purchase price for all such Mature Shares (prior to such partial
cancellation).
	 
	 	(c)	 	Payment in Cancellation of Option. The Committee shall have the
authority in its sole discretion to authorize the payment to the holder of an option
granted under the Plan (with consent of such holder or, in the event of an Acceleration
of options, without such consent), in exchange for the cancellation of all or a part of
such holder’s option, of cash equal to the excess of the aggregate Fair Market Value on
the date of such cancellation of the Shares with respect to which the option is being
canceled over the aggregate option price of such Shares; provided, however, that if an
Acceleration of options granted hereunder has occurred, for purposes of this
subparagraph, “Fair Market Value” on the date of such cancellation shall be calculated
in the same manner as the “exercise value” of a Limited Right would be calculated under
Section 8(c) with respect to such date (whether or not any Limited Rights are actually
outstanding). Notwithstanding the foregoing, in the case of a Director Option, such
payment in exchange for cancellation of the option shall be made only in the event of
an Acceleration of Options.
	 
	 	(d)	 	Special Payment Provisions for Nonqualified Options; Withholding Taxes.
The Grantee of a Nonqualified Option may elect to have the Company retain from the
Shares to be issued upon his exercise of such option Shares having a Current Market
Value on the date of exercise equal to all or any part of the Company’s minimum
statutory withholding for federal, state and local tax payments to be made by the
Grantee with respect to the exercise of the option in lieu of making such payments in
cash.”
	 
	 	(e)	 	Attestation Procedure. If a Holder desires to pay the option price upon
the exercise of an option with already-owned Mature Shares, the Holder may either
physically deliver already-owned Mature Shares or may follow the attestation procedure
set forth in this Section 7(e) (the “Attestation Procedure”) to be deemed to have
delivered such already-owned Mature Shares. To follow the attestation procedure, the
Holder shall submit to the Company’s Chief Financial Officer or its Treasurer (or such
other person as is designated by the Committee) a signed statement at the time of
exercise of an option that (i) sets forth the number of Shares already-owned by the
Holder that are to be used in payment of the option price (the “Payment Shares”), (ii)
confirms that the Holder is the owner of the Payment Shares and the date the Payment
Shares were acquired by the Holder, and (iii) if the Payment Shares are registered in
the Holder’s name, sets forth the certificate number(s) of the Payment Shares. The
Payment Shares shall be treated as having been delivered to the Company by the Holder
on the date of exercise, and the Company shall issue to the Holder a certificate for
the number of Shares subject to the option exercise less the number of Payment Shares.
The Committee shall have the authority to amend the foregoing
Attestation Procedure
from time to time.

Section 8. Limited Rights and Stock Appreciation Rights.

	 	(a)	 	Grant of Limited Rights. The Committee may grant Limited Rights with
respect to any option granted under the Plan at the time the option is granted. The
number of Limited Rights covered by any such grant shall not exceed, but may be less
than, the number of Shares covered by the related option. The term of any Limited Right
shall be the same as the term of the option to which it relates. The right of a Holder
to exercise a Limited Right shall be canceled if and to the extent a related option is
exercised or canceled, and the right of a Holder to exercise an option shall be
canceled if and to the extent a related Limited Right is exercised.
	 
	 	(b)	 	Events Permitting Exercise of Limited Rights. A Limited Right shall be
exercisable only if and to the extent that the related option is exercisable; provided,
however, that notwithstanding the foregoing, a Limited Right issued in connection with
an Incentive Stock Option shall not be

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	 	 	 	exercisable unless the Current Market Value of a Share on the date of exercise
exceeds the exercise price of a Share subject to the related option. A Limited Right
which is otherwise exercisable may be exercised only during the following periods:

	 	(i)	 	during a period of 30 days following the date of expiration of
a Tender Offer (other than an offer by the Company) for Shares, if the offeror
acquires Shares pursuant to such Tender Offer;
	 
	 	(ii)	 	during a period of 30 days following the date of approval by
the shareholders of the Company of a definitive agreement: (x) for the merger
or consolidation of the Company into or with another corporation not controlled
by the Company immediately prior to such merger or consolidation, if the
Company will not be the surviving corporation or will become a subsidiary of
another corporation or (y) for the sale of all or substantially all of the
assets of the Company (each of the foregoing transactions is hereinafter
referred to as an “Acquisition Transaction”);
	 
	 	(iii)	 	during a period of 30 days following the date upon which the
Company is provided a copy of a Schedule 13D (filed pursuant to Section 13(d)
of the Exchange Act and the rules and regulations promulgated thereunder)
indicating that any “person” or “group” (as such terms are defined in Section
13(d)(3) of such act) has become the holder of 20% or more of the outstanding
voting Shares of the Company (the foregoing transaction hereinafter referred to
as a “Change of Control”); and .
	 
	 	(iv)	 	during a period of 30 days following a change in the
composition of the Board of Directors such that individuals who were members of
the Board of Directors on the date two years prior to such change (or who were
elected, or were nominated for election by the Company’s shareholders, with the
affirmative vote of at least two-thirds of the directors then still in office
who were directors at the beginning of such two year period) no longer
constitute a majority of the Board of Directors (such a change in composition
is hereinafter referred to as a “Change in Composition of the Board”).

	 	(c)	 	Exercise of Limited Rights.

	 	(i)	 	Upon exercise of a Limited Right, the Holder thereof shall
receive from the Company a cash payment equal to the excess of: (x) the
aggregate “exercise value” on the date of exercise (determined as provided
below) of that number of Shares as is equal to the number of Limited Rights
being exercised over (y) the aggregate exercise price under the related option
of that number of Shares as is equal to the number of Limited Rights being
exercised. A holder shall exercise a Limited Right by giving written notice of
such exercise to the Company’s General Counsel, its Chief Financial Officer or
its Treasurer (or such other person as the Committee may designate). A Limited
Right shall be deemed exercised on the date the any such officer (or other
person) receives such written notice.
	 
	 	(ii)	 	The “exercise value” of a Limited Right on the date of exercise
shall be:

	 	(A)	 	in the case of an exercise during a period
described in Section 8(b)(i), the highest price per Share paid pursuant
to any Tender Offer which is in effect any time during the 60-day
period prior to the date on which the Limited Right is exercised;
	 
	 	(B)	 	in the case of an exercise during a period
described in Section 8(b)(ii), the greater of: (x) the highest Current
Market Value of a Share during the 30-day period prior to the date of
shareholder approval of the Acquisition Transaction,

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	 	 	 	or (y) the highest fixed or formula per Share price payable pursuant
to the Acquisition Transaction (if determinable on the date of
exercise);
	 
	 	(C)	 	in the case of an exercise during a period
described in Section 8(b)(iii), the greater of (x) the highest Current
Market Value of a Share during the 30-day period prior to the date, the
Company is provided with a copy of the Schedule 13D, or (y) the highest
acquisition price of a Share shown on such Schedule 13D; and
	 
	 	(D)	 	in the case of an exercise during a period
described in Section 8(b)(iv), the highest Current Market Value of a
Share during the 30-day period prior to the date of the Change in
Composition of the Board.

	 	(iii)	 	Notwithstanding Section 8(c)(ii) above, in no event shall the
exercise value of a Limited Right issued in connection with an Incentive Stock
Option exceed the maximum permissible exercise value for such a right under the
Code and the regulations and interpretations issued pursuant thereto. Any
securities or property which form part or all of the consideration paid for
Shares pursuant to a Tender Offer or Acquisition Transaction shall be valued at
the higher of (1) the valuation placed on such securities or property by the
person making such Tender Offer or the other party to such Acquisition
Transaction, or (2) the value placed on such securities or property by the
Committee.

	 	(d)	 	Grant of Stock Appreciation Rights. The Committee may grant Stock
Appreciation Rights with respect to any option granted under the Plan at the time the
option is granted. The aggregate number of Stock Appreciation Rights covered by any
such grant shall not exceed, but may be less than, the number of Shares covered by the
related option. The term of any Stock Appreciation Right shall be the same as the term
of the option to which it relates. The right of a Holder to exercise a Stock
Appreciation Right shall be canceled if and to the extent a related option is exercised
or canceled, and to the extent a related Limited Right is exercised. In no event shall
both a Stock Appreciation Right and Limited Right be both paid in connection with an
option to which they both relate. The exercise, cancellation or termination of a Stock
Appreciation Right covering any Shares shall automatically terminate the Limited Right
corresponding to such Shares with the converse being equally true, and the right of a
Holder to exercise an option shall be canceled if and to the extent a related Stock
Appreciation Right is exercised.
	 
	 	(e)	 	Events Permitting Exercise of Stock Appreciation Rights. A Stock
Appreciation Right shall be exercisable only if and to the extent that the related
option is exercisable; provided, however, that notwithstanding the foregoing, a Stock
Appreciation Right shall not be exercisable unless the Current Market Value of a Share
on the date of exercise exceeds the exercise price of a Share subject to the related
option.
	 
	 	(f)	 	Exercise of Stock Appreciation Rights.

	 	(i)	 	Upon exercise of a Stock Appreciation Right, the holder thereof
shall receive from the Company a cash payment equal to the excess of (x) the
aggregate Current Market Value on the date of exercise of that number of Shares
as is equal to the number of Stock Appreciation Rights being exercised over (y)
the aggregate exercise price under the related option of that number of Shares
as is equal to the number of Stock Appreciation Rights being exercised. A
Holder shall exercise a Stock Appreciation Right by giving written notice of
such exercise to the Company’s General Counsel, its Chief Financial Officer or
its Treasurer or such other person as the Committee may designate. A Stock
Appreciation Right shall be deemed exercised on the date any such officer (or
other person) receives such written notice. If a Stock Appreciation Right or
its corresponding option has not been exercised, canceled, terminated or
expired on the last day of the term of such Stock Appreciation Right, the
Holder of such Stock Appreciation Right will

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	 	 	 	automatically receive a cash payment from the Company in an amount, if any,
that would be payable if the Stock Appreciation Right is exercised on such
date.
	 
	 	(ii)	 	Notwithstanding Section 8(f)(i) above, in no event shall the
exercise value of a Stock Appreciation Right issued in connection with an
Incentive Stock Option exceed the maximum permissible exercise value for such a
right under the Code and the regulations and interpretations issued pursuant
thereto.

Section 9. Director Options.

	 	(a)	 	At least six months prior to the commencement of each calendar year during the
term of the Plan, the Committee shall cause each eligible director to be furnished with
an appropriate form which enables the director to elect to receive payment in the form
of stock options under this plan (“Director Options”) of a minimum of 20% and up to a
maximum of 100% (in increments of 10%) of the annual retainer fee to be earned by such
director for service on the Board of Directors during the following calendar year.
	 
	 	(b)	 	If an eligible director has elected to receive all or a portion of the annual
retainer fee as Director Options as provided in this Section 9(b), then, on January 1
of such year in which such fee would otherwise be earned, the Company shall grant to
such director a Director Option covering that number of Shares determined by dividing
the compensation to be so received by the difference between the Fair Market Value of a
Share on such date and $1.25 (rounded to the nearest whole Share).
	 
	 	(c)	 	The option price of a Director Option shall be $1.25 per Share. The option
price for Shares with respect to which a Director Option is exercised shall be paid in
full at the time notice of exercise of the option is given to the Company’s General
Counsel, its Chief Financial Officer or its Treasurer (or such other person as the
Committee may designate). The option price shall be paid to the Company either in cash
or in Mature Shares having a Current Market Value equal to the option price (or a
combination of cash and Mature Shares such that the sum of the Current Market Value of
the Mature Shares plus the cash equals the option price). In any case in which payment
of the option price is to be made by delivery of already-owned Mature Shares, the
Attestation Procedure set forth in Section 7(e) may be used, subject to the limitations
described in Section 7(e).
	 
	 	(d)	 	All directors of the Company shall be eligible to receive Director Options.
	 
	 	(e)	 	Subject to the limitations hereinafter set forth, a Director Option granted
hereunder shall extend for a term of ten years provided, however, that the otherwise
applicable ten year term of an option may be extended beyond ten years, if:

	 	(i)	 	the exercise period is extended to a date no later than the
later of:

	 	(A)	 	the 15th day of the third month following the
date at which, or
	 
	 	(B)	 	December 31 of the calendar year in which, the
option would otherwise have expired if the option had not been
extended, based on the terms of the option at the original grant date,
or

	 	(ii)	 	the option is unexercisable because an exercise of the option
would violate applicable securities laws, provided that the period during which
the option may be exercised is not extended more than 30 days after the
exercise of the option first would no longer violate applicable securities
laws..

	 	(f)	 	A Director Option shall first become exercisable on January 1 of the year
immediately following the year of grant; provided; however, that a Director Option
shall become exercisable if the Holder ceases to be a director. The exercise of Stock Appreciation Rights relating to any
Director Option is subject to Section 8(e).

9

 

	 
	 	(g)	 	All rights of a director in any Director Option shall expire upon the earlier
of the end of its normal term or five years after the date of his termination as a
director for any reason including the removal, resignation or retirement of the
director; provided, however, that in the event of death of the director, the provisions
of the following paragraph shall govern. In the event a director ceases to be a
director for any reason other than the death of the director or retirement because of
disability, all rights exercisable shall expire to the extent that any portion of such
Director Option is attributable to a portion of the director’s annual retainer which
was not earned due to termination.
	 
	 	(h)	 	Any Director Option granted to a director under the Plan and outstanding on the
date of the Holder’s death may be exercised by the person or persons (including the
Holder’s estate) to whom the Holder’s rights with respect to the Director Option shall
have passed by Designation of Beneficiary; or if none, by the laws of descent and
distribution or pursuant to a Qualified Domestic Relations Order at any time prior to
the specified expiration date of such Director Option or the first anniversary of the
Grantee’s death, whichever is the first to occur. Upon the occurrence of the earlier
event, the Director Option shall then terminate.
	 
	 	(i)	 	No Director Option shall include related Limited Rights and Stock Appreciation
Rights, unless the Company receives a favorable ruling from the Internal Revenue
Service or an opinion from tax counsel (satisfactory to the Company) that the inclusion
of such Limited Rights or Stock Appreciation Rights with a Director Option shall not
cause the recognition of taxable income by the director prior to the exercise of the
Director Option, Limited Right, or Stock Appreciation Right. Upon satisfaction of the
foregoing condition, Director Options thereafter issued shall include Limited Rights
and Stock Appreciation Rights. The number of Limited Rights and Stock Appreciation
Rights included in any such Director Option shall equal the number of Shares covered by
such option at the time the Limited Rights and Stock Appreciation Rights attach.
	 
	 	(j)	 	Director Options shall be subject to the terms and conditions of Nonqualified
Options (and Limited Rights and Stock Appreciation Rights, if applicable) stated in
this Plan.

Section 10. Non-Transferability.

	 	(a)	 	General Rule. Except as otherwise provided in this Section 10, options,
Stock Appreciation Rights and Limited Rights may not be sold, pledged, assigned,
hypothecated, or transferred other than by Designation of Beneficiary, or if none, by
will or the laws of descent and distribution upon the Holder’s death, and may be
exercised during the lifetime of the Grantee only by such Grantee or by his guardian or
legal representative. All grants under the Plan, with the exception of Incentive Stock
Options and any Stock Appreciation Rights and Limited Rights relating thereto, may be
transferred pursuant to a Qualified Domestic Relations Order.
	 
	 	(b)	 	Permitted Transfers. Subject to this Section 10 and except as the
Committee may otherwise prescribe from time to time, the Committee may act to permit
the transfer or assignment of an option (together with any related Stock Appreciation
Right and/or Limited Right) by a Grantee for no consideration to the Grantee’s Family
Members, trusts for the sole benefit of the Grantee’s Family Members, or partnerships
whose only partners are Family Members of the Grantee; provided, however, that any such
permitted transfer or assignment shall not apply to an option that is an Incentive
Stock Option (but only if nontransferability is necessary in order for the option to
qualify as an Incentive Stock Option) and to any Stock Appreciation Rights or Limited
Rights related to an Incentive Stock Option.
	 
	 	(c)	 	Other Permitted Transfers. Unless the Committee otherwise determines at
the time of grant, the following options (together with any related Stock Appreciation
Right and/or Limited Right) may be transferred or assigned by the Grantee thereof for
no consideration to the Grantee’s Family

10

 

	 	 	 	Members, trusts for the sole benefit of the Grantee’s Family Members, or
partnerships whose only partners are Family Members of the Grantee: (i) Director
Options; and (ii) options that both (x) are granted to or held by an individual who
is an officer of the Company, and (y) at the time of grant, are Nonqualified
Options. The provisions of this Section 10(c) shall be applicable to any such option
(described in the preceding sentence) granted prior to July 11, 1998 notwithstanding
that the written agreement evidencing such option does not permit such transfer or
assignment.
	 
	 	(d)	 	Method and Effect of Transfer. Any permitted transfer or assignment of
an option and any Stock Appreciation Right and/or Limited Right related thereto shall
only be effective upon receipt by the General Counsel, the Chief Financial Officer, or
the Treasurer of the Company (or such other person as the Committee may designate) of
an instrument acceptable in form and substance to the Committee that effects the
transfer or assignment and that contains an agreement by the Transferee to accept and
comply with all the terms and conditions of the stock option award and this Plan. A
Transferee shall possess all the same rights and obligations as the Grantee under the
Plan, except that the Transferee can subsequently transfer such option and any related
Stock Appreciation Rights and/or Limited Rights only by (i) Designation of Beneficiary
or, if none, then by will or the laws of descent and distribution, or (ii) a transfer
to a beneficiary or partner if the Transferee is a trust or partnership, respectively.
	 
	 	(e)	 	Satisfaction of Withholding Obligations. Unless the Committee
otherwise prescribes, upon the exercise of a Nonqualified Option or its related Stock
Appreciation Rights or Limited Rights by a Transferee, when and as permitted in
accordance with this Section 10, the Grantee is required to satisfy the applicable
withholding tax obligations by paying cash to the Company with respect to any income
recognized by the Grantee upon the exercise of such option by the Transferee. If the
Grantee does not satisfy the applicable withholding tax obligations on the exercise
date of the option or related Stock Appreciation Right or Limited Right, the Company
shall, in the case of the exercise of an option, retain from the Shares to be issued to
the Transferee upon the exercise of the option a number of Shares having a Current
Market Value on the exercise date equal to the Company’s mandatory statutory
withholding tax payable by the Grantee or, in the case of the exercise of a Stock
Appreciation Right or Limited Right, deduct from the cash to be delivered to the
Transferee such amount as in equal to the Company’s mandatory statutory withholding tax
payable by the Grantee.

Section 11. Adjustments Upon Changes in Capitalization.

     In the event of a change in outstanding Shares by reason of a Share dividend,
recapitalization, merger, consolidation, split-up, combination or exchange of Shares, extraordinary
dividend paid as part of a restructuring plan, or the like, the maximum number of Shares subject to
option during the existence of the Plan, the number of Stock Appreciation Rights and Limited Rights
which may be granted under the Plan, the number of options, Stock Appreciation Rights and Limited
Rights that may be granted to each person under the Plan, the number of Shares subject to, and the
option price of, each outstanding option, the number of Stock Appreciation Rights and Limited
Rights outstanding, the Current Market Value of a Share on the date a Stock Appreciation Right
and/or a Limited Right is granted, and the like shall be appropriately adjusted by the Company, in
a manner consistent with the requirements imposed upon adjustments under section 409A of the Code,
to the extent applicable.

			
	Section 12.	 	Conditions Upon Granting and Exercise of Options, Stock Appreciation Rights and Limited
Rights and Issuance of Shares.

     No option, Stock Appreciation Right or Limited Right shall be granted, and no option, Stock
Appreciation Right or Limited Right shall be exercised and Shares shall not be issued or delivered
upon the exercise of an option unless the grant and exercise thereof, and the issuance and/or
delivery of Shares pursuant thereto, or the payment therefore, shall comply with all relevant
provisions of state and federal law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, as amended, the rules and regulations promulgated thereunder, and the
requirement of any stock exchange upon which the Shares then may be listed. The Company shall use
reasonable efforts to comply with all such requirements.

11

 

Section 13. Amendment and Termination of Plan.

	 	(a)	 	Amendment. Subject to the limitations hereinafter set forth, the
Committee may from time to time amend the Plan or any award granted under the Plan, or
any provision thereof, in such respects as the Committee may deem advisable; provided,
however, that any such amendment shall be approved by the holders of Shares entitling
them to exercise a majority of the voting power of the Company if such approval is
required under applicable law; or:

	 	(i)	 	if such amendment would increase the aggregate number of Shares
which may be issued and/or delivered under the Plan;
	 
	 	(ii)	 	if such amendment would modify the requirements as to the
employees or classes of employees eligible to be granted Incentive Stock
Options under the Plan;
	 
	 	(iii)	 	if such amendment would reprice, replace or otherwise
effectively lower, through a form of option cancellation and regranting or
otherwise, the exercise price of a previously granted option award.

	 	(b)	 	Termination. The Committee may at any time terminate the Plan.
	 
	 	(c)	 	Effect of Amendment or Termination. No amendment or termination of the
Plan or any award granted under the Plan shall adversely affect any option or Limited
Right or Stock Appreciation Right previously granted under the Plan without the consent
of the Holder thereof.

Section 14. Notices.

     Each notice relating to this Plan shall be in writing and delivered in person or by mail to
the proper address. Each notice to the General Counsel, the Chief Financial Officer or the
Treasurer of the Company shall be delivered or sent to his attention at the principal business
office of the Company. Each notice to the Committee shall he delivered or sent to the principal
business office of the Company and addressed as follows: “Attention: Compensation Committee.” Each
notice to the Holder shall be addressed to such person or persons at the Holder’s address as set
forth in the records of the Company. Anyone to whom a notice may be given under this Plan may
designate a new address by written notice to the other party to that effect.

Section 15. Benefit of Plan.

     This Plan shall inure to the benefit of and be binding upon each successor and assign of the
Company. All rights and obligations imposed upon the holder of an option and all rights granted to
the Company under this Plan shall be binding upon such holders heirs, legal representatives and
successors.

Section 16. Pronouns and Plurals.

     All pronouns shall be deemed to refer to the masculine, feminine, singular or plural, as the
identity of the person or persons may require.

Section 17. Shareholder Approval and Term of Plan.

     The Prior Plan became effective upon its approval by the affirmative vote of the holders of a
majority of the Shares at the Company’s 1989 Annual Meeting of Shareholders. This Plan, as amended
and restated shall become effective upon its approval (either in person or by proxy) by the
affirmative vote of the holders of a majority of the Shares at the Company’s 2005 Annual Meeting of
Shareholders. No option shall be granted under the Plan after December 31, 1998.

12exv10w51

 

EXHIBIT 10.51

FLOWSERVE CORPORATION

EXECUTIVE OFFICER LIFE INSURANCE PLAN

 

 

FLOWSERVE CORPORATION

EXECUTIVE OFFICER LIFE INSURANCE PLAN

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	1.	 	NAME AND PURPOSE	 	 	1	 
	 
	 	1.1	 	Name 	 	 	1	 
	 
	 	1.2	 	Purpose 	 	 	1	 
	 
	 	1.3	 	Top Hat Plan 	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	2.	 	DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION	 	 	1	 
	 
	 	2.1	 	General Definitions 	 	 	1	 
	 
	 	 	 	(a)Account Value 	 	 	1	 
	 
	 	 	 	(b)Affiliate 	 	 	1	 
	 
	 	 	 	(c)Beneficiary 	 	 	1	 
	 
	 	 	 	(d)Board 	 	 	1	 
	 
	 	 	 	(e)Code 	 	 	2	 
	 
	 	 	 	(f)Committee 	 	 	2	 
	 
	 	 	 	(g)Company 	 	 	2	 
	 
	 	 	 	(h)Compensation 	 	 	2	 
	 
	 	 	 	(i)Effective Date 	 	 	2	 
	 
	 	 	 	(j)Employee 	 	 	2	 
	 
	 	 	 	(k)ERISA 	 	 	2	 
	 
	 	 	 	(l)Insurer 	 	 	2	 
	 
	 	 	 	(m) Notice	 	 	2	 
	 
	 	 	 	(n) Participant	 	 	2	 
	 
	 	 	 	(o) Participation Agreement	 	 	3	 
	 
	 	 	 	(p) Participant's Death Benefit	 	 	3	 
	 
	 	 	 	(q) Plan	 	 	3	 
	 
	 	 	 	(r) Policy	 	 	3	 
	 
	 	2.2	 	Number and Gender	 	 	3	 
	 
	 	2.3	 	Underscored References	 	 	3	 
	 
	 	2.4	 	Other Definitions	 	 	3	 
	 
	 	 	 	 	 	 	 	 
	3.	 	ELIGIBILITY AND PARTICIPATION	 	 	3	 
	 
	 	3.1	 	Selection of Participants	 	 	3	 
	 
	 	3.2	 	Conditions to Participating	 	 	3	 
	 
	 	 	 	 	 	 	 	 
	4.	 	OPERATIVE INSURANCE POLICY PROVISIONS	 	 	4	 
	 
	 	4.1	 	Insurance Policy	 	 	4	 
	 
	 	4.2	 	Ownership	 	 	4	 
	 
	 	4.3	 	Direction of Policy Account	 	 	4	 

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	4.4	 	Payment of Premiums	 	 	4	 
	 
	 	4.5	 	Designation of Policy Beneficiary/Endorsement	 	 	4	 
	 
	 	4.6	 	Beneficiary Designation	 	 	4	 
	 
	 	4.7	 	Policy Loans	 	 	5	 
	 
	 	4.8	 	Limitations on Corporation’s Rights in Policy	 	 	5	 
	 
	 	4.9	 	Collection and Payment of Death Benefits	 	 	5	 
	 
	 	4.10	 	Limitation on Benefits	 	 	6	 
	 
	 	4.11	 	Liability of Insurer	 	 	6	 
	 
	 	4.12	 	Assignment of Interest	 	 	6	 
	 
	 	4.13	 	Termination of Participation	 	 	6	 
	 
	 	4.14	 	Disposition of Policy Upon Termination of Participation	 	 	6	 
	 
	 	 	 	(a) Release of Rights in Policy	 	 	6	 
	 
	 	 	 	(b) Company’s Rights in Policy After Termination of Participation	 	 	7	 
	 
	 	4.15	 	Disposition to Participant	 	 	7	 
	 
	 	 	 	 	 	 	 	 
	5.	 	ADMINISTRATION	 	 	7	 
	 
	 	5.1	 	Authority	 	 	7	 
	 
	 	5.2	 	Rights and Powers	 	 	7	 
	 
	 	5.3	 	Application of Rules	 	 	8	 
	 
	 	5.4	 	Indemnification	 	 	8	 
	 
	 	 	 	 	 	 	 	 
	6.	 	CLAIMS	 	 	8	 
	 
	 	6.1	 	Adjudication of Claims	 	 	8	 
	 
	 	 	 	(a) Claim	 	 	8	 
	 
	 	 	 	(b) Claim Decision	 	 	9	 
	 
	 	 	 	(c) Request for Review	 	 	9	 
	 
	 	 	 	(d) Review of Decision	 	 	10	 
	 
	 	 	 	(e) Change in Decision Maker	 	 	11	 
	 
	 	 	 	 	 	 	 	 
	7.	 	MISCELLANEOUS	 	 	11	 
	 
	 	7.1	 	Amendments and Terminations	 	 	11	 
	 
	 	7.2	 	Binding Effect	 	 	11	 
	 
	 	7.3	 	Governing Law	 	 	11	 
	 
	 	7.4	 	Necessary Acts	 	 	11	 
	 
	 	7.5	 	No Contract; Other Benefits	 	 	11	 
	 
	 	7.6	 	No Trust Created	 	 	12	 
	 
	 	7.7	 	Notices	 	 	12	 
	 
	 	7.8	 	Plan Year	 	 	12	 

 

 

FLOWSERVE CORPORATION

EXECUTIVE OFFICER LIFE INSURANCE PLAN

1. NAME AND PURPOSE

     1.1 Name.

          The name of the Plan is the “Executive Officer Life Insurance Plan.” The Plan is effective as
of the Effective Date.

     1.2 Purpose.

          The Company has established this Plan to provide equitable, consistent and competitive life
insurance benefits to its Executive Officers.

     1.3 Top Hat Plan.

          The Plan is exempt from all reporting and disclosure requirements under ERISA because all
Participants are members of a select group of management or highly compensated Employees.

2. DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION

     2.1 General Definitions.

          The following words and phrases, when used in the Plan, unless the context clearly otherwise
requires, shall have the following respective meanings:

	 	(a)	 	Account Value.
	 
	 	 	 	As such term is defined in the Policy.
	 
	 	(b)	 	Affiliate.
	 
	 	 	 	A wholly-owned subsidiary of the Company.
	 
	 	(c)	 	Beneficiary.

                 The person or persons designated as the recipient of a benefit in accordance with the terms of
the Plan.

	 	(d)	 	Board.
	 
	 	 	 	The Board of Directors of the Company.

1

 

	 	(e)	 	Code.

                 The Internal Revenue Code of 1986, as amended. Any reference to the Code includes the
regulations promulgated under the Code.

	 	(f)	 	Committee.

                 The individual or group of individuals designated by the Company pursuant to Section 5.1 of
the Plan to perform the duties set forth herein and to manage the operation and administration of
the Plan.

	 	(g)	 	Company.

                 Flowserve Corporation, together with any Affiliate of or successor to the Company.

	 	(h)	 	Compensation.

                 A Participant’s base salary from the Company.

	 	(i)	 	Effective Date.

                 The Effective Date of the Plan is January 1, 2004.

	 	(j)	 	Employee.

                 Any person employed by the Company.

	 	(k)	 	ERISA.

                 The Employee Retirement Income Security Act of 1974, as amended. Any reference to ERISA
includes the regulations promulgated under ERISA.

	 	(l)	 	Insurer.

                 The insurance company that the Company may from time to time utilize to provide insurance
coverage for Beneficiaries under the Plan.

	 	(m)	 	Notice.

                 Notice 2001-10, as modified by Notice 2002-8, both issued by the Internal Revenue Service.

	 	(n)	 	Participant.

                 An Employee selected by the Company to participate in the Plan who has executed a
Participation Agreement.

2

 

	 	(o)	 	Participation Agreement.

                 The agreement which evidences a Participant’s participation in the Plan and an agreement to be
bound by all of its terms.

	 	(p)	 	Participant’s Death Benefit.

                 The Participant’s Death Benefit shall be equal to two times the Executive Officer’s
Compensation, except for the Chief Executive Officer of the Company who shall receive a Death
Benefit equal to $2,500,000.

	 	(q)	 	Plan.

                 The Flowserve Corporation Executive Officer Life Insurance Plan and all subsequent amendments
and supplements thereunder.

	 	(r)	 	Policy.

                 Each policy of life insurance on a Participant’s life acquired by the Company to provide the
life insurance benefits under the Plan.

     2.2 Number and Gender.

          The masculine and neuter, wherever used in the Plan, shall refer to either the masculine,
neuter or feminine; and, unless the context otherwise requires, the singular shall include the
plural and the plural the singular.

     2.3 Underscored References.

          The underscored references contained in the Plan are included only for convenience, and they
shall not be construed as a part of the Plan or in any respect affecting or modifying its
provisions.

     2.4 Other Definitions.

          In addition to Section 2.1, certain terms are defined in other portions of the Plan.

3. ELIGIBILITY AND PARTICIPATION

     3.1 Selection of Participants.

          Participants shall be selected by the Company. In making its decisions, the Company shall
consider past, present and expected future contributions of potential Participants to the success
of the Company.

     3.2 Conditions to Participating.

          Except as hereinafter provided, each Employee who is selected to be a Participant shall become
a Participant upon execution of a Participation Agreement. Each Participant must provide all
necessary medical information and evidence of insurability and execute such documents and perform
such acts required in connection with the application for, and issuance

3

 

of, life insurance. Notwithstanding the foregoing, if a Policy cannot be obtained on an
individual, such individual cannot become a Participant in the Plan.

4. OPERATIVE LIFE INSURANCE PROVISIONS

     4.1 Insurance Policy.

          The Company will purchase a Policy on each Participant from the Insurer. The Company and each
Participant shall take all necessary action to cause the Policy to conform with the provisions of
the Plan. The Policy, including the dollar amount, shall be subject to the terms and conditions of
the Plan and any endorsements to the Policy filed with the Insurer.

     4.2 Ownership.

          The Company shall be the sole and absolute owner of the Policy, and it may exercise all
ownership rights granted to the owner by the terms of the Policy, except as may otherwise be
provided in the Plan.

     4.3 Direction of Policy Account.

          The Company shall have the sole authority to direct the manner in which the Account Value,
established pursuant to the terms of the Policy, shall be allocated among various investment
options from time to time available under the Policy and to change such allocation from time to
time, as provided for in the Policy.

     4.4 Payment of Premiums.

          On or before the due date of each Policy premium, or within the applicable grace period, the
Company shall pay the full amount of the Policy premium to the Insurer, and shall, upon request,
promptly furnish the Participant with evidence of timely payment of such premium. The Company
shall furnish to the Participant an annual statement of the amount of income reportable by the
Participant for federal and state income tax purposes, if any, as a result of the insurance
protection provided the Participant’s Beneficiary under the Plan.

     4.5 Designation of Policy Beneficiary/Endorsement.

          Contemporaneously with the execution of a Participant’s Participation Agreement, the Company
shall execute a beneficiary designation for and/or an endorsement to the Policy insuring such
Participant’s life. No such beneficiary designation or endorsement shall be terminated, altered or
amended by the Company, except with the express written consent of the Participant. The Company
and the Participant shall take all action necessary to cause such beneficiary designation or
endorsement to conform to the provisions of the Plan. In the event that no named Beneficiary
survives the Participant, then his personal representative shall be his Beneficiary.

     4.6 Beneficiary Designation.

          The Participant may select a Beneficiary to receive the portion of Policy proceeds to which
the Participant is entitled under the Plan by signing and delivering the beneficiary form to the
Company. Upon receipt of such form, the Company shall execute and deliver to the Insurer the forms
necessary to designate the requested persons as the Beneficiary to receive the death

4

 

proceeds of the Policy to which they are entitled. The Company and the Participant shall take
all action necessary to cause the beneficiary designation to conform with the terms and conditions
of the Plan. The Company shall not terminate, alter or amend such beneficiary designation without
the express written consent of the Participant.

     4.7 Policy Loans.

          Subject to the terms and conditions of the Plan and the Policy, the Company may, at any time
and from time to time, pledge or assign the Policy insuring any Participant’s life for the purpose
of securing a loan from the Insurer or from a third party. The amount of such loan, including
accumulated interest, shall not exceed the cash surrender value of the Policy (as defined in the
Policy) as of the date to which premiums have been paid. The Company shall have the right to pay
or not pay interest charges on any such Policy loan, and, to the extent such interest is not paid,
it shall constitute an additional Policy loan. If the Company encumbers any Policy, other than by
a Policy loan from the Insurer, then, upon the death of the Participant, the Company shall promptly
take all action necessary to secure the release or discharge of such encumbrance.

     4.8 Limitations on Corporation’s Rights in Policy.

          Except as otherwise provided herein, the Corporation shall not sell, assign, transfer,
surrender or cancel the Policy, or change the settlement option selected by the Participant
pursuant to Section 4.6, without, in any such case, the express written consent of the Participant.
A Participant’s written consent may be provided to the Company electronically via e-mail or
facsimile.

     4.9 Collection and Payment of Death Proceeds.

          (a) Upon the death of a Participant, the Company and the Participant’s Beneficiary shall
promptly take all action necessary to obtain the Death Benefit provided under the Policy insuring
such Participant’s life.

          (b) The Death Benefit shall be paid as follows:

     (i) The Participant’s Beneficiary shall first be paid an amount equal to the
Participant’s Death Benefit in accordance with the terms and conditions as set forth in
the Policy and the Designation of Beneficiary as provided to the Company by the
Participant. The Participant’s Death Benefit shall be paid directly from the Insurer
to the Beneficiary designated by the Company at the direction of the Participant.

     (ii) The Company shall then receive the balance, if any, of the Death Benefit
after the payments provided for in Section 4.9(b)(i).

          (c) The Company and the Participant agree that the Designation of Beneficiary as provided to
the Company by the Participant shall conform to the provisions of this Plan.

     4.10 Limitations on Benefits.

          A Participant’s Death Benefits under the Plan are subject to the limitations described in
paragraph 2.1(p) of Section 2.1.

5

 

     4.11 Liability of Insurer.

          The Insurer shall be fully discharged from its obligations under the Policy by payment of
Death Benefits to the Beneficiary as designated by the Participant and to the Company (if
applicable), subject to the terms and conditions of the Policy. In no event shall the Insurer be
considered a party to the Plan. No provision of the Plan, shall in any way be construed as
enlarged, changing, varying or in any way affecting the obligations of the Insurer as expressly
provided in the Policy, except insofar as the provisions of the Plan are made a part of the Policy
by the beneficiary designation and/or endorsement executed by the Company and filed with the
Insurer. The Insurer may rely exclusively on a statement signed by the Company setting forth the
amounts due to the Company and each Beneficiary designated under the Policy.

     4.12 Assignment of Interest.

          Notwithstanding any provision contained in the Plan to the contrary, a Participant shall have
the right to absolutely and irrevocably assign by gift all of the Participant’s right, title and
interest in and to the life insurance death benefits provided under the Plan to an assignee. This
right shall be exercisable by the execution and delivery of a written assignment to the Company.
Upon receipt of such written assignment executed by the Participant and duly accepted by the
assignee, the Company shall consent in writing, and shall thereafter treat the Participant’s
assignee as the sole owner of all of the Participant’s right, title and interest in and to the
Death Benefits provided under the Plan. Thereafter, the Participant shall have no right, title or
interest in and to any Death Benefits under this Section 4, all such rights being vested in and
exercisable only by such assignee.

     4.13 Termination of Participation.

          (a) The participation of any Participant in the provisions of this Section 4 of the Plan will
be automatically terminated upon the earliest of the following occurrences:

     (i) written notice from the Participant to the Company of a desire to terminate
such participation; or

     (ii) termination of the Participant’s employment with the Company (other than due
to the Participant’s death); or

     (iii) without notice from the Participant, upon the occurrence of the bankruptcy,
receivership, total cessation of business or dissolution of the Company.

     4.14. Disposition of Policy Upon Termination of Participation.

          (a) Release of Rights in Policy.

               Upon termination of a Participant’s participation in the Plan for any reason listed in Section
4.13, the Participant or his assignee shall release to the Company all of his rights and interest
in and to the Policy insuring such Participant’s life; the Participant and his assignee agree to
and shall execute and deliver to the Company an appropriate instrument sufficient to release all
such rights and interests in such Policy.

6

 

          (b) Company’s Rights in Policy After Termination of Participation.

               After a Participant or his assignee releases to the Company all his rights and interest in and
to the Policy insuring such Participant’s life, then the Company may surrender or cancel the Policy
for its cash surrender value, or it may change the beneficiary designation provisions of the
Policy, naming itself or any other person or entity as revocable beneficiary thereof, or exercise
any other ownership rights in and to such Policy, without regard to the provisions hereof.
Thereafter, neither the Participant, his assignee nor their heirs, assigns or Beneficiary shall
have any further interest in and to such Policy, under the terms thereof or under those of the
Plan.

     4.15 Disposition to Participant.

          (a) For 60 days after the date of the termination of the Participant’s participation in the
Plan for any reason listed in Section 4.13, the Participant shall have the assignable option to
purchase the Policy from the Company. The purchase price for the Policy shall be the greater of
the total amount of the premium payments paid by the Company hereunder or the case value of the
Policy, less, in either case, any indebtedness secured by the Policy which remains outstanding as
of such amount, the Company shall transfer all of its right, title and interest in and to the
Policy to the Participant, by the execution and delivery of an appropriate instrument of transfer.

          (b) If the Participant fails to exercise such option within such 60-day period, then the
Company may enforce its right to receive the cash value or be repaid for the premiums which it paid
hereunder by surrendering or canceling the Policy for its cash surrender value, or it may change
the beneficiary designation provisions of the Policy, naming itself or any other person or entity
as revocable beneficiary thereof, or exercise any other ownership rights in and to the Policy,
without regard to the provisions hereof. Thereafter, the Participant shall have no further
interest in and to the Policy, either under the terms thereof or under this Plan.

5. ADMINISTRATION

     5.1 Authority.

          The Company shall designate a Committee to be the Plan Administrator and the named fiduciary
as defined Section 401(a)(1) of ERISA. The Committee shall have authority to control and manage
the operation and administration of the Plan.

     5.2 Rights and Powers.

          The Company shall have such rights and powers as may be necessary or appropriate for it to
discharge the Company’s responsibilities under the Plan, including, without limitation, the
following:

          (a) discretionary authority to interpret and construe the provisions of the Plan;

          (b) to adopt such rules of procedure and regulations as are consistent with the provisions of
the Plan and as it deems necessary and proper;

          (c) discretionary authority to determine and resolve all questions relating to benefits and
other Plan rights of Participants;

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          (d) to maintain and keep adequate records concerning the Plan, its proceedings and acts in
such form and detail as the Committee may decide;

          (e) to employ agents, attorneys, actuaries, accountants or other persons (who may also be
employed by or represent the Company) for such purposes as the Committee considers necessary or
desirable;

          (f) to designate any officer or other Employee of the Company or other individual to carry out
any of the Committee’s duties, including all or any part of its authority to manage and control the
operation and administration of the Plan;

          (g) to determine the content and form of the Participant Agreement, Designation of Beneficiary
and all other documents required to carry out the terms of the Plan; and

          (h) to establish and carry out a funding policy and method consistent with the purposes of the
Plan and the requirements of applicable law as may be deemed necessary and appropriate from time to
time.

     5.3 Application of Rules.

          In operating and administering the Plan, the Committee shall apply all rules of procedure and
regulations adopted by the Committee in a uniform and non-discriminatory manner

     5.4 Indemnification.

          The Company shall indemnify each member of the Committee and each agent or delegee of the
Committee who is a party or is threatened to be made a party to any threatened, pending or
contemplated action, suit or proceeding, whether civil, criminal, administrative or investigative
relating to the Plan, from and against all expenses (including attorneys’ fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person or entity in
connection with such action, suit or proceeding unless it shall be judicially determined that such
Committee member, agent or delegee was guilty of gross negligence or willful misconduct.

6. CLAIMS

     6.1 Adjudication of Claims.

          (a) Claim.

               Any person or entity who believes that it is being denied a benefit to which it is entitled
(hereinafter referred to as “Claimant”), or its duly authorized representative, may file a written
request for such benefit with the Committee (the “First Level Reviewer”) setting forth its claim.
Such claim must be addressed to the First Level Reviewer at the Company’s principal place of
business.

          (b) Claim Decision.

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               Upon receipt of a claim, the First Level Reviewer shall advise the Claimant that a reply will
be forthcoming within a reasonable period of time, but in no event later than 90 days, and shall
deliver such reply within such time period. However, the First Level Reviewer may extend the reply
period for an additional 90 days for reasonable cause. If the reply period will be extended, the
First Level Reviewer shall advise the Claimant in writing during the initial 90-day period
indicating the special circumstances requiring an extension and the date by which the First Level
Reviewer expects to render the benefit determination.

               If the claim is denied in whole or in part, the First Level Reviewer will render a written
opinion, using language calculated to be understood by the Claimant setting forth:

          (i) the specific reason or reasons for the denial;

          (ii) the specific references 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 as to why such material or such
information is necessary;

          (iv) appropriate information as to the steps to be taken If the Claimant wishes to
submit the claim for review, including a statement of the Claimant’s right to bring a
civil action under Section 502(a) of ERISA following an adverse benefit determination
on review; and

          (v) the time limits for requesting a review of the denial under subsection (d)
hereof and for the actual review of the denial under subsection.

          (c) Request for Review.

               Within 60 days after the receipt by the Claimant of the written opinion described above, the
Claimant may request the Secretary of the Company (the “Second Level Reviewer”) to conduct a review
of the First Level Reviewer’s prior determination. Such request must be addressed to the Secretary
of the Company, at its then principal place of business. The Claimant or his or its duly
authorized representative may submit written comments, documents, records or other information
relating to the denied claim, which such information shall be considered in the review under this
subsection without regard to whether or not such information was submitted or considered in the
initial benefit determination.

               The Claimant or his or its duly authorized representative shall be provided, upon request and
free of charge, reasonable access to, and copies of, all documents, records and other information
which:

               (1) was relied upon by the First Level Reviewer in making its initial claims
decision,

               (2) was submitted, considered or generated in the course of the First Level
Reviewer making its initial claims decision, without regard to whether such
instrument was actually relied upon by the First Level Reviewer in making its
decision or

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               (3) demonstrates compliance by the First Level Reviewer with its
administrative processes and safeguards designed to ensure and to verify that
benefit claims determinations are made in accordance with governing Plan
documents and that, where appropriate, the Plan provisions have been applied
consistently with respect to similarly situated claimants. If the Claimant does
not request a review of the First Level Reviewer’s determination within such
60-day period, he shall be barred and estopped from challenging such
determination.

          (d) Review of Decision.

               Within a reasonable period of time, but in no event later than 60 days, after the Second Level
Reviewer’s receipt of a request for review, it will review the First Level Reviewer’s prior
determination. If special circumstances require that the 60-day time period be extended, the
Second Level Reviewer will so notify the Claimant within the initial 60-day period indicating the
special circumstances requiring an extension and the date by which the Second Level Reviewer
expects to render its decision on review, which shall be as soon as possible but not later than
120 days after receipt of the request for review. In the event that the Second Level Reviewer
extends the determination period on review due to a Claimant’s failure to submit information
necessary to decide a claim, the period for making the benefit determination on review shall not
take into account the period beginning on the date on which notification of extension is sent to
the Claimant and ending on the date on which the Claimant responds to the request for additional
information.

               The Second Level Reviewer shall have discretionary authority to determine a Claimant’s
eligibility for benefits and to interpret the terms of this Agreement. The decision of the Second
Level Reviewer shall be final and non-reviewable, unless found to be arbitrary and capricious by a
court of competent review. Such decision will be binding upon the Company and the Claimant.

               If the Second Level Reviewer makes an adverse benefit determination on review, the Second
Level Reviewer will render a written opinion, using language calculated to be understood by the
Claimant, setting forth:

               (i) the specific reason or reasons for the denial,

               (ii) the specific references to pertinent Plan provisions on which the denial is
based;

               (iii) a statement that the Claimant is entitled to receive, upon request and free of charge,
reasonable access to, and copies of, all documents, records and other information which

     (1) was relied upon by the Second Level Reviewer in making its decision,

     (2) was submitted, considered or generated in the course of the Second Level
Reviewer making its decision, without regard to whether such instrument was
actually relied upon by the Second Level Reviewer in making its decision or

10

 

     (3) demonstrates compliance by the Second Level Reviewer with its
administrative processes and safeguards designed to ensure and to verify that
benefit claims determinations are made in accordance with governing Plan
documents and, that, where appropriate, the Plan provisions have been applied
consistently with respect to similarly situated claimants; and

     (iv) statement of the Claimant’s right to bring a civil action under
Section 502(a) of ERISA following the adverse benefit determination on such review.

          (e) Change in Decision Maker.

               In no event may a Participant participate in a decision concerning himself. If the
Participant would otherwise participate in or be the sole decision maker, he shall not participate
in as a member of the Committee and, if under the Plan, he is the sole decision maker, the Company
shall appoint another person to make the decision concerning such Participant.

7. MISCELLANEOUS

     7.1 Amendments and Terminations.

          The Company shall have the right to make amendments to the Plan or to terminate the Plan at
any time. No amendment or termination shall deprive any Participant of any benefit that has been
granted under the Plan or adversely affect any such benefit.

     7.2 Binding Effect.

          This Plan shall be binding upon and inure to the benefit of the Company and its successors and
assigns, the Participant, his successors, assigns or Beneficiary.

     7.3. Governing Law.

          This Plan shall be construed, governed and administered in accordance with the laws of the
State of Texas to the extent not preempted by Federal law.

     7.4 Necessary Acts.

          All persons claiming any interest under the Plan shall perform any and all acts and execute
any and all documents and papers which are necessary or desirable for carrying out any provisions
of the Plan.

     7.5 No Contract; Other Benefits.

          Participation in the Plan shall not constitute a guarantee or contract of employment between a
Participant and the Company. Nothing contained in the Plan shall restrict the right of the Company
to discharge a Participant or the right of a Participant to resign from the Company’s employ. The
Plan is neither intended to be an employment contract, nor shall it be construed as an employment
contract. Participation in the Plan shall not prevent the Participant from receiving, in addition
to any benefits he may be entitled to under the Plan, any other benefits which may be payable to or
with respect to the Participant at any time under any other supplemental compensation, bonus,
severance pay, pension, retirement, profit sharing, group insurance, health or disability plan, or
any other incentive plan or plans of the Company now in effect or which the

11

 

Company may hereafter adopt. However, nothing contained in the Plan shall obligate the Company to
adopt any such plan or plans.

     7.6 No Trust Created.

          The Plan and any action taken pursuant to the Plan shall not be construed as creating any kind
of trust or other fiduciary relationship between the Company, the Participant, his successors,
assign, Beneficiary or any other person or entity.

     7.7. Notices.

          Any notice, consent or demand required under the provisions of this Plan shall be in writing,
and shall be signed by the party giving or making the same. If such notice, consent or demand is
mailed, it shall be delivered by United States first class mail, potage prepaid, addressed to, the
recipient’s last known address as shown on the Company’s records. The date of such mailing shall
be deemed the date of notice, consent or demand.

     7.8 Plan Year.

          The fiscal year on which records of the Plan shall be kept begins on January first of each
year.

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