QuickLinks -- Click here to rapidly navigate through this document

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.           )

Filed by the Registrant ý

Filed by a Party other than the Registrant o

Check the appropriate box:

o
 
Preliminary Proxy Statement

o
 
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

ý
 
Definitive Proxy Statement

o
 
Definitive Additional Materials

o
 
Soliciting Material Pursuant to §240.14a-12

FLOWSERVE CORPORATION
(Name of Registrant as Specified In Its Charter)

 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
         
Payment of Filing Fee (Check the appropriate box):

ý
 
No fee required

o
 
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
    (1)   Title of each class of securities to which transaction applies:
        
    (2)   Aggregate number of securities to which transaction applies:
        
    (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
        
    (4)   Proposed maximum aggregate value of transaction:
        
    (5)   Total fee paid:
        

o
 
Fee paid previously with preliminary materials.

o
 
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 
 
(1)
 
Amount Previously Paid:
        
    (2)   Form, Schedule or Registration Statement No.:
        
    (3)   Filing Party:
        
    (4)   Date Filed:
        

 
 
 
 
Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

LOGO

Irving, Texas 75039
May 10, 2004


NOTICE OF THE 2004 ANNUAL MEETING
OF SHAREHOLDERS

Flowserve Corporation's Annual Meeting of Shareholders will be held on Tuesday, June 22, 2004, at 11:00 a.m., local time, at the Flowserve Corporation Learning Center, 4343 Royal Lane, Irving, Texas 75063. If you owned shares of Flowserve common stock at the close of business on April 29, 2004, you may vote at this meeting.

At the meeting we plan to:

This notice of the 2004 Annual Meeting of Shareholders and the proxy statement contain information you should read and consider when you vote your shares. Flowserve's Board of Directors is not aware of any other proposals for the annual meeting.

Your vote is important. Whether or not you plan to attend the meeting in person, we request your vote. We ask you to vote by completing and mailing the proxy card in the enclosed envelope. Thank you in advance for voting.

    On behalf of Flowserve's Board of Directors,
     
    /s/ Ronald F. Shuff
Vice President, Secretary and General Counsel


FLOWSERVE CORPORATION
5215 N. O'Connor Blvd., Suite 2300
Irving, Texas 75039


PROXY STATEMENT

THE ANNUAL MEETING AND VOTING

We are providing these proxy materials in connection with the solicitation by the Board of Directors (the "Board") of Flowserve Corporation (the "Company"), a New York corporation, of proxies to be voted at our 2004 Annual Meeting of Shareholders and at any adjournment or postponement. This proxy statement and form of proxy are first being mailed to shareholders on or about May 10, 2004.

This proxy statement and the enclosed proxy card contain information about the election of directors and the proposed 2004 Stock Compensation Plan you will vote on at the annual meeting.


Who May Vote and Number of Votes

If you are a shareholder of record at the close of business on April 29, 2004, you may vote on the matters discussed herein. You have one vote for each share you own.


How to Vote

You may vote in person by attending the meeting or by completing and returning the enclosed proxy card by mail. To vote your proxy, mark your vote on the enclosed proxy card; then follow the instructions on the card. Your shares will then be voted according to your directions. If you sign and return your proxy card without marking voting directions, then your shares will be voted as recommended by the Board. Whether you plan to attend the meeting or not, we encourage you to vote by proxy as soon as possible.


Changing Your Vote

You can revoke your proxy before the time of the meeting by:

You may also revoke your proxy by voting in person at the annual meeting.


A Quorum for the Meeting

A majority of the outstanding shares, present or represented by proxy, is a quorum. A quorum is necessary to conduct business at the annual meeting. You are part of the quorum if you have voted by proxy. Votes withheld from director nominees count at the meeting for purposes of determining a quorum.

Abstentions and "broker non-votes" are counted as present and entitled to vote for purposes of determining a quorum. A "broker non-vote" occurs when a broker holding shares in "street name" for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting power for that particular proposal and has not received instructions from the beneficial owner.


Counting of Votes

Only "votes cast" count in the voting results of the election of directors. Withheld votes will not be considered "votes cast." Directors are elected by a plurality of votes cast. Approval of the 2004 Stock Compensation Plan requires the affirmative vote of a majority of the votes cast in favor of or against the proposal; provided that the total vote cast on the proposal to approve the plan represents over 50% of the shares entitled to vote.

Under the rules of the New York Stock Exchange ("NYSE"), brokers may, at their discretion with respect to certain routine matters, vote shares they hold in "street name" on behalf of beneficial owners who have not returned voting instructions to the brokers. Routine matters include the election of Directors. However, brokers will be prohibited by the NYSE requirements from exercising discretionary authority with respect to the proposal to approve the 2004 Stock Compensation Plan. "Broker non-votes," and abstentions will not constitute votes cast. Broker non-votes and abstentions will have no effect on the selection of directors.

2

At the close of business on April 29, 2004, the record date for the annual meeting, the Company had 55,248,133 shares of common stock which may be voted.


Cost of Proxy Solicitation

The Company pays the cost of soliciting proxies. Brokerage firms and other custodians, nominees and fiduciaries are reimbursed by the Company for the reasonable out-of-pocket expenses they incur to send proxy materials to shareholders and solicit their votes. We hired Georgeson Shareholder to solicit proxies. We will pay Georgeson Shareholder a fee of $8,000 for these services.


Shareholder Proposals

The Company currently plans to hold its next annual meeting on or about April 21, 2005. If the meeting is held on that date, advance notice of any nominations for directors and any other items of business for that meeting must be given by a proposing shareholder by March 2, 2005 based on April 21, 2005 data. You must submit shareholder proposals in writing by January 10, 2005, for them to be considered for the 2005 proxy statement. All shareholder proposals submitted to the Corporate Secretary of the Company must be in accordance with the Company's By-Laws, where applicable, and delivered to the Company's address noted below:

See the discussion on page 5 of this proxy statement titled "Shareholder Director Nominations" for information regarding nominating a person to serve on the Board.


Voting by Participants in the Flowserve Corporation Retirement Savings Plan

If you are a participant in the Flowserve Corporation Retirement Savings Plan, the proxy card serves as a voting instruction to the trustee for the plan. The proxy card indicates the number of shares of common stock credited to your account under the Retirement Savings Plan as of the record date for voting at the meeting.


Vote Tabulations

Votes are counted by employees of National City Bank, the Company's independent transfer agent and registrar. National City Bank is the inspector of elections for the Annual Meeting of Shareholders.


BOARD OF DIRECTORS

Under the Self-Governance Guidelines of the Company's Board, only those directors who have no material relationship with the Company (except as a director) are deemed independent. Directors are not deemed independent until five years after they terminate (a) employment with the Company, (b) service with the Company's independent auditors and (c) employment with a company where the Company's Chief Executive Officer (the "CEO") or Chief Operating Officer is on the board of directors of the director's own company. Directors who have immediate family members in the foregoing categories are subject to the same five-year "cooling off" period. The Board has determined that each member of the Board, including all persons nominated for re-election, meet these independence standards, with the exception of Mr. C. Scott Greer. Mr. Greer is not considered independent as he serves as President and CEO of the Company. A copy of the Board's Self Governance Guidelines is available at the Company's website at www.flowserve.com.


Committees and Meetings of the Board

The Board is consulted on and approves all major decisions of the Company. The Board met eight times in 2003. Executive sessions of non-management directors are held at least five times a year. These sessions are scheduled and chaired by Mr. Kevin E. Sheehan, the Chairman of the Corporate Governance & Nominating Committee. Mr. Sheehan has been designated to preside over these executive sessions without management present. Any non-management director may request additional executive sessions to be scheduled.

Under Board policy, Board members customarily attend the Company's annual meetings of shareholders. All directors attended the 2003 Annual Meeting of Shareholders and at least

3

75% of the meetings of the Board and the Board committees on which they served last year.

Only independent directors are eligible to serve on Board committees. The Board maintained the following committees in 2003:


Audit/Finance Committee

The Audit/Finance Committee is composed of four directors, all of whom meet the independence standards set forth in the Securities and Exchange Commission ("SEC") rules and regulations and the NYSE listing requirements. The members of the committee are Diane C. Harris, William C. Rusnack, James O. Rollans and Charles M. Rampacek. The Board has determined that Mr. Rollans, former Chief Financial Officer of Fluor Corporation, is a qualified audit committee financial expert under SEC rules and regulations and the NYSE listing requirements. The Board plans to elect Mr. Rollans as the new Chairman of the Audit/Finance Committee immediately following the annual meeting.

The committee advises the Board on strategic financial matters, including making recommendations on acquisitions, divestitures, major financing, pension fund performance, capital structure and risk management. The committee directly engages the Company's independent auditors; preapproves the scope of the annual external audit; and preapproves all audit and non-audit services to be provided by the independent auditor. The committee further approves and directly reviews the results of the internal audit plan. The committee also meets with management and the independent auditors to review the quality and integrity of the annual and quarterly financial statements and considers the reports and recommendations of independent internal and external auditors pertaining to audit results, accounting practices, policies and procedures, and overall internal controls. The committee approves major capital expenditures made in the ordinary course of business. The committee meets periodically with the external and internal auditors in executive session to discuss their reports on a confidential basis. The committee met 11 times in 2003.

In addition, this committee prepares and issues the report of the Audit/Finance Committee located on page 21 of this proxy statement.

The committee is governed by a written charter, a copy of which was attached to the Company's 2003 proxy statement as Exhibit A.


Compensation Committee

The Compensation Committee is composed of five directors, all of whom meet the independence standards set forth in the SEC rules and regulations and the NYSE listing requirements. The members are Christopher A. Bartlett, Hugh K. Coble, George T. Haymaker, Jr., Michael F. Johnston and Kevin E. Sheehan.

The committee is responsible for establishing executive compensation for officers and key management personnel. Decisions regarding compensation are made by the committee in a manner that is intended to be internally equitable, externally competitive and an incentive for effective performance in the best interests of shareholders. The committee has retained an independent compensation consultant to attend committee meetings and provide advice directly to the committee. The committee has the delegated authority from the Board to set compensation for the Company's officers who are elected by the Board, including the CEO. The committee also is responsible for reviewing the management succession plan and for recommending changes in director compensation to the Board. The committee also prepares and issues the report of the Compensation Committee on executive compensation beginning on page 18 of this proxy statement. The committee met four times in 2003.


Corporate Governance & Nominating Committee

The Corporate Governance & Nominating Committee is composed of three directors, all of whom meet the independence standards set forth in the SEC rules and regulations and the NYSE listing requirements for nominating committee members of the NYSE listing standards. The members are Diane C. Harris, George T. Haymaker, Jr. and Kevin E. Sheehan.

The committee is responsible for making recommendations to the Board for the positions of Chairman of the Board, President, CEO and candidates for director. The committee utilizes a variety of methods for identifying and evaluating nominee director candidates. The committee regularly assesses the appropriateness of the Board's size, and whether any vacancies on the Board are expected due to retirement or other factors. In the event that vacancies are anticipated, or otherwise arise, the committee considers various potential candidates for director who may come to the attention of the

4

committee through current Board members, professional search firms, shareholders or other persons. When necessary, the committee retains a well-known national executive recruiting firm to research, screen and contact potential candidates regarding their interest in serving on the Board. The firm also arranges for the interested candidates to interview directly with the committee.

All identified candidates, including shareholder-proposed nominees, are evaluated by the committee using generally the same methods and criteria, although those methods and criteria are not standardized and may vary from time to time. The Board's Self-Governance Guidelines contain Board membership criteria. Generally, the Board believes that its members should have the highest professional and personal ethics and a diversity of backgrounds. All existing and prospective new members must have a broad strategic view, articulate leadership skills, possess a global business perspective and demonstrate relevant and successful experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties. Each director must represent the interests of all shareholders.

The committee also is responsible for evaluating the annual CEO's performance review conducted by the Board. Further, the committee has review and recommendation duties regarding corporate governance matters as required by law, regulation or NYSE listing standards. The committee met three times in 2003.

The committee is governed by a written charter, a copy of which is available under the Investor Relations—Corporate Governance section of the Company's website www.flowserve.com or by submitting a written request to Michael E. Conley, Director, Investor Relations, Flowserve Corporation, 5215 N. O'Connor Blvd., Suite 2300, Irving, Texas 75039.


Shareholder Director Nominations

In accordance with the Company's By-Laws, if you are a shareholder entitled to vote at an annual meeting, you may nominate one or more persons for election as director of the Company at that meeting. You may do this by sending a written notice to Corporate Secretary, Flowserve Corporation, 5215 North O'Connor Blvd., Suite 2300, Irving, Texas 75039. The Company must receive your notice not less than 50 days before the annual meeting date (provided, however, that in the event that less than 60 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, the notice by the shareholder in order to be considered timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting is mailed or such public disclosure of the date of the annual meeting is made). The shareholder's notice must set forth:

        (a)   as to each shareholder-proposed nominee (i) the name, age, business address and residence address of such person, (ii) the principal occupation of such person, (iii) the class and number of any shares of the Company or any subsidiary of the Company which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations for proxies for election of directors pursuant to the rules and regulations promulgated under the Securities Exchange Act of 1934, as amended; and

        (b)   as to the shareholder giving the notice (i) the name and record address of such shareholder and (ii) the class and number of Company shares beneficially owned by such shareholder.

After submission, in accordance with the Company's policy on considering director nominations by shareholders, the notice will be referred to the committee for further consideration. The committee requires any shareholder-proposed nominee to furnish such other information as may reasonably be required by the committee to determine the eligibility of such proposed nominee or to assist in evaluating the proposed nominee. The committee may require the submission of a fully completed and signed Questionnaire for Directors and Officers on the Company's standard form and a written consent by the shareholder-proposed nominee to serve as a director if so elected. Shareholder nominations that comply with these procedures and that meet the criteria outlined above will receive the same consideration that the committee's nominees receive.

5


BOARD SELF-GOVERNANCE GUIDELINES

In addition to the corporate governance duties noted for each committee above, the Board continuously monitors and updates, as deemed appropriate, internal self-governance guidelines designed to promote superior oversight of the Company. The guidelines set parameters for the director recruiting process and the composition of Board committees. They also determine the formal process for Board review and evaluation of the CEO, individual directors and Board performance. The guidelines also establish targets for director stock ownership which state directors should own Company common stock with a value of at least $100,000 by the end of his or her fifth year of service on the Board.

These guidelines require a director to offer his or her resignation when such director's principal occupation has changed during a term of office. Under such circumstances, the Corporate Governance & Nominating Committee will review whether it is appropriate for the director to continue serving on the Board. Finally, these guidelines establish maximum term and age limits for directors which may be waived by the Board if deemed appropriate.


SHAREHOLDER COMMUNICATIONS WITH THE BOARD

Shareholders and other interested parties may communicate with the Board by writing to Kevin E. Sheehan, c/o Flowserve's Corporate Secretary, 5215 N. O'Connor Blvd., Suite 2300, Irving, Texas 75039. Inquiries delivered by mail will be reviewed by the Corporate Secretary and if they are relevant to, and consistent with, Flowserve's operations, policies and philosophies, they will be forwarded to Mr. Sheehan.


DIRECTORS' COMPENSATION

Effective January 1, 2004, non-employee directors receive an annual retainer with an aggregate target value of $85,000 per year, excluding chairman and committee service retainers. The cash portion of the annual retainer is $35,000 and the equity portion has a target grant valuation of $50,000. The equity portion will be provided in the form of restricted common stock having a $50,000 fair market valuation at the time of grant, assuming shareholder approval of the Flowserve Corporation 2004 Stock Compensation Plan discussed on pages 23-27. Voting rights accompany such restricted stock, which fully vests after one year. This restricted stock also is subject to a holding period prohibiting resale which is the shorter of five years from date of grant or one year after the director ceases service on the Board.

Committee chairmen and committee members also receive supplemental service retainers. The payout amounts are presented below.

Board
Committee
   Supplemental
Service
Retainer
   Supplemental
Chairman
Retainer

Audit/Finance
 
$
10,000
 
$
10,000

Compensation
 
$
7,500
 
$
7,500

Corporate Governance & Nominating
 
$
2,500
 
$
7,500

Directors may elect to defer all or part of their annual compensation. Interest is paid on cash deferrals. Directors who elect to defer the cash portion of their annual compensation in the form of Company stock receive a 15% premium on deferred amounts.

6


PROPOSAL NUMBER ONE: ELECTION OF DIRECTORS

The Company's Board has 10 members who are divided into three classes. Directors are elected for three-year terms. The terms for members of each class end in successive years.

The Board has nominated for re-election four members of the class of directors whose terms of office are expiring. Each of those persons is nominated to serve for a new three-year term that will end in 2007. The nominees are Christopher A. Bartlett, Hugh K. Coble, George T. Haymaker, Jr. and William C. Rusnack.

The individuals named as proxies on the enclosed proxy card will vote your proxy for the election of these nominees unless you withhold authority to vote for any one or more of them. If any director is unable to stand for re-election, the Board may reduce the number of directors or choose a substitute.

The Board recommends that you vote FOR the election of each of the nominees noted on the following pages.

7


NOMINEES TO SERVE A THREE-YEAR TERM EXPIRING IN 2007

Christopher A. Bartlett    

Age:
 
60

Director since:
 
2002, former director of the Company from 1988 to 1993

Board committee:
 
Compensation Committee

Principal occupation:
 
Professor of Business Administration at Harvard University.

Recent business experience:
 
Prior to his academic career, Dr. Bartlett was a general manager of Baxter Travenol's French subsidiary and a consultant at McKinsey & Co. Currently he serves as a management consultant on international strategic and organizational issues to several major corporations.

Other directorships:
 
ResMed, Inc., a medical equipment company.
   

Hugh K. Coble
 
 

Age:
 
69

Director since:
 
1994

Board committee:
 
Compensation Committee

Principal occupation:
 
Vice Chairman, Emeritus of Fluor Corporation, a major engineering and construction firm.

Recent business experience:
 
Mr. Coble was a director of Fluor Corporation from 1984 and Vice Chairman from 1994 until his retirement in 1997. He joined Fluor Corporation in 1966 and was Group President of Fluor Daniel, Inc., a subsidiary of Fluor Corporation, from 1986 to 1994.

Other directorships:
 
Beckman Coulter, Inc., a company that sells medical instruments.
   

George T. Haymaker, Jr.
 
 

Age:
 
66

Director since:
 
1997

Board committees:
 
Compensation Committee (Chairman) and Corporate Governance & Nominating Committee

Principal occupation:
 
Non-executive Chairman of the Board of Kaiser Aluminum Corporation, a company that operates in all principal aspects of the aluminum industry, since 2001. Non-executive Chairman of the Board of Safelite Auto Glass, a provider of automobile replacement glass, since 2000.

Recent business experience:
 
Mr. Haymaker was Chairman of the Board of Kaiser Aluminum Corporation from 1994 until May 2001 (non-executive Chairman after January 2000) and its CEO from 1994 to 1999. Before joining Kaiser Aluminum in 1993 as its President and Chief Operating Officer, Mr. Haymaker worked with a private partner in the acquisition and redirection of several metal fabricating companies. He was Executive Vice President of Alumax, Inc. from 1984 to 1986 and was Vice President—International Operations for Alcoa, Inc. from 1982 to 1984.

Other directorships:
 
CII Carbon, L.L.C., a supplier for aluminum smelters; Mid-America Holdings, Ltd., an aluminum extruder; 360 Networks Corporation, a provider of telecommunication network services; and Haynes Lemmerz International, Inc., a global supplier of automotive and commercial wheels, brakes and other auto suspension components.

8


NOMINEES TO SERVE A THREE-YEAR TERM EXPIRING IN 2007

William C. Rusnack    

Age:
 
59

Director since:
 
1997

Board committee:
 
Audit/Finance Committee

Principal occupation:
 
Advisor to and former President, CEO, Chief Operating Officer and director of Premcor Inc., a company which refines crude oil to manufacture petroleum products, since 1998.

Recent business experience:
 
Before joining Premcor Inc., Mr. Rusnack served 31 years with Atlantic Richfield Company, or ARCO, an integrated petroleum company, most recently as Senior Vice President of ARCO from 1990 to 1998 and President of ARCO Products Company from 1993 to 1998.

Other directorships:
 
Sempra Energy, an energy services company, and Peabody Energy, a coal producing company.

9


DIRECTORS WHOSE TERMS EXPIRE IN 2005

Michael F. Johnston    

Age:
 
56

Director since:
 
1997

Board committee:
 
Compensation Committee

Principal occupation:
 
President and Chief Operating Officer of Visteon Corporation, an automotive components supplier, since 2000.

Recent business experience:
 
Before joining Visteon, Mr. Johnston was employed by Johnson Controls, Inc., a company serving the automotive and building services industry, as President of North America/Asia Pacific, Automotive Systems Group, from 1999 to 2000, President of Americas Automotive Group from 1997 to 1999 and in prior senior management positions since 1991.

Other directorships:
 
Visteon Corporation and Whirlpool Corporation, an appliance manufacturer.
   

Charles M. Rampacek
 
 

Age:
 
60

Director since:
 
1998

Board committee:
 
Audit/Finance Committee

Principal occupation:
 
Former Chairman of the Board, President and Chief Executive Officer of Probex Corporation, an energy technology company providing proprietary oil recovery services.

Recent business experience:
 
Mr. Rampacek was President and CEO of Probex Corporation from 2000 to 2003. From 1996 to 2000, Mr. Rampacek served as President and CEO of Lyondell-Citgo Refining, L.P., a manufacturer of petroleum products. During 1982 to 1995, he held various executive positions with Tenneco Inc. and its energy related subsidiaries, including President of Tenneco Gas Transportation Company, Executive Vice President of Tenneco Gas Operations and Senior Vice President of Refining.

Other directorships:
 
Orion Refining Corporation, a refiner of crude oil.
   

Kevin E. Sheehan
 
 

Age:
 
58

Director since:
 
1990

Board committees:
 
Corporate Governance & Nominating Committee (Chairman) and Compensation Committee

Principal occupation:
 
Managing General Partner of CID Equity Partners, a venture capital firm, concentrating on early-stage and high-growth entrepreneurial companies; partner since January 1994.

Recent business experience:
 
Before joining CID Equity Partners, Mr. Sheehan was employed by Cummins Engine Company, a manufacturer of diesel engines and related components, for 22 years. He served there as Vice President-Computer Systems and Telecommunications from 1980 to 1983; Vice President-Worldwide Parts and Service from 1983 to 1986; and Vice President-Components Group from 1986 to 1993.

Other directorships:
 
Maxon Corporation, a worldwide manufacturer of industrial combustion equipment and shut-off valves.

10


DIRECTORS WHOSE TERMS EXPIRE IN 2006


C. Scott Greer
 
 

Age:
 
53

Director since:
 
1999

Principal occupation:
 
President of the Company since 1999, CEO and Chairman of the Board since 2000.

Recent business experience:
 
Before joining the Company, Mr. Greer was President of UT Automotive, a subsidiary of United Technologies Corporation, a supplier of automotive systems and components, from 1997 to 1999. He was President and a director of Echlin, Inc., an automotive parts supplier, from 1990 to 1997, and its Chief Operating Officer from 1994 to 1997.

Other directorships:
 
FMC Corporation, a chemical manufacturing company; Washington Group International, an engineering and construction firm.
   
Diane C. Harris    

Age:
 
61

Director since:
 
1993

Board committees:
 
Audit/Finance Committee (Chairman) and Corporate Governance & Nominating Committee

Principal occupation:
 
President of Hypotenuse Enterprises, Inc., a merger and acquisition service and corporate development outsourcing company.

Recent business experience:
 
Ms. Harris was Vice President of Corporate Development of Bausch & Lomb, an optics and health care products company, from 1981 to 1996, when she left to lead Hypotenuse Enterprises, Inc. She was a director of the Association for Corporate Growth from 1993 to 1998 and its elected President from 1997 to 1998.

Other directorships:
 
The Monroe Fund, an investment company.
   

James O. Rollans
 
 

Age:
 
61

Director since:
 
1997

Board committee:
 
Audit/Finance Committee (incoming Chairman)

Principal occupation:
 
Former CFO, advisor and Group Executive of Fluor Corporation, a major engineering and construction firm.

Recent business experience:
 
Mr. Rollans was President and CEO of Fluor Signature Services, a subsidiary of Fluor Corporation ("Fluor Signature") from 1999 to 2001. He was Senior Vice President of Fluor Signature from 1992 to 1999. He was also Fluor Signature's Chief Financial Officer from 1998 to 1999 and from 1992 to 1994, Chief Administrative Officer from 1994 to 1998 and Vice President of Corporate Communications from 1982 to 1992.

Other directorships:
 
Cupertino Electric, an electrical contractor, and Advanced Medical Optics, Inc., a developer and manufacturer of ophthalmic surgical and contact lens care products.

11


COMPANY STOCK OWNERSHIP

This table shows beneficial ownership of Company common stock by directors and executive officers as of April 21, 2004. The named executive officers are the current CEO, and the four other most highly compensated executive officers in 2003. No individual director, nominee or executive officer owned more than 1% of the outstanding shares of Company common stock. The total ownership shown for directors and executive officers as a group (including shares that could be purchased by exercise of stock options within 60 days after April 21, 2004) represents approximately 2.4% of outstanding shares. Unless otherwise indicated, voting power and investment power are exercised solely by the named individual or are shared by the individual and his or her family members.


STOCK OWNERSHIP OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS

 
Name

   Exercisable Stock
Options(1)

   Number of Shares
Owned(2)(3)
Christopher A. Bartlett   1,500   9,755
Hugh K. Coble   6,500   26,090
Thomas E. Ferguson   13,801   21,968
C. Scott Greer   484,952   679,818
Diane C. Harris   7,494   32,308
George T. Haymaker, Jr.   7,300   29,715
Renée J. Hornbaker   52,384   88,290
Michael F. Johnston   11,203   28,947
Charles M. Rampacek   6,500   31,198
James O. Rollans   12,491   63,596
William C. Rusnack   12,272   28,047
George A. Shedlarski   112,460   142,023
Kevin E. Sheehan   7,300   35,415
Ronald F. Shuff   53,740   108,692
Directors and executive officers as a group (14 individuals)   776,110   1,325,862

12


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities and Exchange Act of 1934 requires directors and executive officers to file reports with the SEC regarding their ownership of Company stock and any changes in their beneficial ownership. Based on our records, we believe that all of these reports were filed on a timely basis in 2003.


OWNERS OF MORE THAN 5% OF COMPANY STOCK

The following shareholders reported to the SEC their ownership of more than 5% of Company common stock. We know of no other shareholder holding 5% or more of Company common stock.

Name and Address of
Beneficial Owner
   Number of
Shares Owned
   Percent of
Company
Common Stock(1)
  

 
 
 
 
 
 

Gabelli Asset Management, Inc.(2)
One Corporate Center
Rye, NY 10580
 
5,015,225
 
9.08
%

Barclays Global Investors, N.A.(3)
45 Fremont Street
San Francisco, CA 94105
 
4,177,927
 
7.6
%

Mellon Financial Corporation(4)
c/o Mellon Financial Corporation
One Mellon Center
Pittsburgh, PA 15258
 
3,501,589
 
6.3
%

Franklin Resources, Inc.(5)
One Franklin Parkway
San Mateo, CA 94403-1906
 
3,217,807
 
5.8
%

13


EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

This table summarizes the compensation for the CEO and the four most highly compensated executive officers in 2003.

 
    
    
    
    
   Long-Term Compensation(1)
    
 
    
  
Annual Compensation(1)
    
    
 
    
  
Awards

  
Payouts

    
Name and
Principal Position
   Year
   Salary
   Bonus
   Other
Annual
Compensation(2)
   Restricted
Stock
Awards
   Number of
Securities
Underlying
Options
   LTIP
Payouts
   All Other
Compensation(4)
C. Scott Greer
Chairman of the Board,
President and Chief
Executive Officer(5)
 		  2003
2002
2001		   $776,901
  710,439
  662,978		   $

 0
114,000
186,000		   $

 0
0
55,927		   0
0
0		   55,000
55,000
0		   0
0
0		     $3,570
3,330
2,699

Thomas E. Ferguson
Vice President and
President, Flowserve
Pump Division
 
2003
2002
2001
 
$296,692
  232,542
  167,348
 
$
0
103,616
48,345
 
$
0
0
0
 
15,000
0
0
(3)
15,000
3,200
4,000
 
0
0
0
 
 
$6,440
6,361
5,100

Renée J. Hornbaker
Vice President and
Chief Financial Officer
 
2003
2002
2001
 
$345,538
  317,769
  296,308
 
$
0
76,000
62,000
 
$
0
0
0
 
0
0
0
 
11,000
11,000
11,000
 
0
0
0
 
$
7,545
  7,497
  6,810

George A. Shedlarski
Vice President and
President, Flow Control
Division(6)
 
2003
2002
2001
 
$360,000
  357,846
  346,000
 
$
0
0
73,000
 
$
0
0
0
 
0
0
0
 
15,000
15,000
15,000
 
0
0
0
 
$
8,100
8,203
8,355

Ronald F. Shuff
Vice President, Secretary
and General Counsel
 
2003
2002
2001
 
$277,692
  262,477
  245,123
 
$
0
52,000
43,000
 
$
0
0
0
 
0
0
0
 
  9,000
  9,000
  9,000
 
0
0
0
 
$
6,413
  6,492
  6,340

14


2003 STOCK OPTION GRANTS

This chart shows the number of stock options granted in 2003 to the CEO and the other four most highly compensated executive officers in 2003.

 
    
   Percentage
of Total
Options to
Employees in
Fiscal Year

    
    
   Potential Realizable Value at
Assumed Annual Rates of Stock Price Appreciation
For Option Term(4)
 
   Number of Securities
Underlying Options
Granted(1)(2)(3)

    
    
 
   Exercise Price
Per Share

   Expiration
Date
Name

   5%

   10%

C. Scott Greer
 
55,000
 
13.3
%
$
19.15
 
07/17/13
 
$
722,223
 
$
1,830,254

Thomas E. Ferguson
 
15,000
 
3.6
%
 
19.15
 
07/17/13
 
 
196,970
 
 
499,160

Renée J. Hornbaker
 
11,000
 
2.7
%
 
19.15
 
07/17/13
 
 
144,445
 
 
366,051

George A. Shedlarski
 
15,000
 
3.6
%
 
19.15
 
07/17/13
 
 
196,970
 
 
499,160

Ronald F. Shuff
 
9,000
 
2.2
%
 
19.15
 
07/17/13
 
 
118,182
 
 
299,496


2003 AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES

This chart shows the number and value of stock options, both exercisable and unexercisable, for the CEO and the other four most highly compensated executive officers in 2003.

 
    
    
   Number of Securities Underlying Unexercised Options at Fiscal Year End

   Value of Unexercised
In-the-Money Options
at Fiscal Year End(1)
 
   Shares
Acquired on
Exercise


   Realized
Value
Name

   Exercisable

   Unexercisable

   Exercisable

   Unexercisable

C. Scott Greer
 
0
 
$
0
 
484,952
 
325,048
 
$
1,081,387
 
$
636,013

Thomas E. Ferguson
 
0
 
 
0
 
13,801
 
18,466
 
 
21,490
 
 
25,950

Renée J. Hornbaker
 
0
 
 
0
 
52,384
 
22,000
 
 
26,788
 
 
19,030

George A. Shedlarski
 
0
 
 
0
 
112,460
 
30,000
 
 
232,734
 
 
25,950

Ronald F. Shuff
 
0
 
 
0
 
53,740
 
18,000
 
 
65,504
 
 
15,570

15

EQUITY COMPENSATION PLAN INFORMATION

Plan Category
   Number of Securities to
be issued upon exercise
of outstanding options,
warrants and rights
   Weighted-averaged
exercise price of
outstanding options,
warrants and rights
   Number of securities remaining available
for future issuance under equity
compensation plans (excluding securities
reflected in the first column)
  
Equity compensation plans approved by shareholders   3,111,922 (1) $ 21.71   186,177  

Equity compensation plans not approved by shareholders
 
22,500
 
$
0
(2)
N/A
(3)
   
 
 
 
Total   3,134,422   $ 21.71   186,177  


PENSION PLANS

The Company provides pension benefits to executive officers under the Company's qualified "cash balance" defined benefit pension plan (the "Qualified Plan") and its non-qualified supplemental executive retirement plans (the "Non-qualified Plans"). The Non-qualified Plans provide benefits that plan participants cannot receive under the Qualified Plan due to Internal Revenue Code (the "Code") limits. Since July 1, 1999, when the Company's pension plan was converted to the cash balance design, Qualified Plan participants accrue contribution credits based on age and years of service at the rate of 3% to 7% for qualified earnings up to the Social Security wage base and at the rate of 6% to 12% for qualified earnings in excess of the Social Security wage base. Qualified earnings include salary and annual incentive payments. For executive officers, including the executives listed below, contribution percentages are increased by 5% under provisions of the Non-qualified Plan. Non-qualified Plan participants also earn interest on the accrued cash benefit amount in their plan accounts. The following executives (except Mr. Greer) also received certain transitional benefits in their Qualified Plan account balances when the Company converted to the cash balance plan. The estimated annual retirement annuities for the following officers at age 65 are as follows:

Executive Officer
   Year Reaching
Age 65
   Age 65
Annual Annuity(1)
           
C. Scott Greer   2015   $ 651,677

Thomas E. Ferguson
 
2021
 
$
557,699

Renée J. Hornbaker
 
2017
 
$
350,357

George A. Shedlarski(2)
 
2009
 
$
296,004

Ronald F. Shuff
 
2017
 
$
275,449

16


EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS

EMPLOYMENT AGREEMENT

The Company entered into an employment agreement with Mr. Greer as of July 1, 1999, for him to join the Company as President and Chief Operating Officer. Mr. Greer became CEO on January 1, 2000 and Chairman of the Board on April 20, 2000. Mr. Greer's employment agreement includes the following compensation: (i) annual base salary equal to $776,901 for 2003, subject to increase based on annual reviews; (ii) minimum annual bonus opportunity of no less than 75% of base salary and participation in the Company's Long-Term Incentive Plan; and (iii) an interest-free loan of $325,738, forgiven after five year's employment with the Company (or pro rata for shorter periods), in recognition of his willingness to promptly relocate and resulting loss of equity on his prior home.


CHANGE-IN-CONTROL ARRANGEMENTS

The Company maintains an executive severance plan covering key management, officers and executive officers of the Company, providing certain employment termination benefits. These benefits become irrevocable and are paid in the event that covered employment is terminated immediately prior to or within two years after a change-in-control of the Company. These termination benefits include the following payments: (i) three times the sum of the manager's or officer's base salary and the average of target awards under incentive plans; (ii) immediate vesting of non-exercisable stock-based compensation; (iii) continuation of participation in certain employee benefit plans for up to three years; and (iv) full reimbursement for certain potential excise tax liabilities.

17


REPORT OF THE COMPENSATION COMMITTEE

The Compensation Committee of the Board consists of five directors, none of whom is a present or former officer or employee of the Company. The Board-adopted charter of purposes and responsibilities of the Compensation Committee states that the committee is charged with the broad responsibility of seeing that officers and employees are effectively compensated in terms of salaries, supplemental compensation and benefits which are externally competitive and which encourage high levels of performance.


Committee Compensation Philosophy

Following the guidelines in its charter, and in order to tie compensation directly to performance, the committee has adopted an incentive-leveraged compensation policy. This policy offers the Company's officers, including the CEO, the opportunity to supplement their base salaries with substantial cash and stock-based incentives when Company financial objectives are achieved.


Compensation Benchmark Evaluation Process

The committee has established a compensation policy for all officers, including the CEO, which would place the officers' total annual cash compensation (consisting of salary and annual incentive plan awards) at the fiftieth percentile of industrial companies of comparable size, if the Company attains its target financial goals under its incentive plans. The committee has also established total compensation targets, which include long-term incentive targets in addition to annual cash compensation targets, which it believes represent the fiftieth percentile of total compensation for industrial companies of comparable size. The committee established these benchmarks based on data received by the committee from Towers Perrin and Hewitt Associates to allow the committee to consider overall executive compensation trends.


Independent Consultant

The committee has directly selected and engaged an independent consultant, with expertise in executive compensation matters, to advise the committee on all compensation matters and other topics covered under the committee's charter. As part of this work, the consultant attends all committee meetings, reviews all materials presented to the committee by management and also provides his own independently derived data on relevant topics to the committee for further analysis.


Incentive Plans—Overview

In 2003, the Company continued to maintain an annual incentive plan and long-term incentive plan covering three years. For 2003, the Company's CEO's target annual and long-term incentives were set, when combined, to be 280% of his individual salary if all goals were met.

In comparison, the total target combined annual and long-term incentives were set within a band of 150% to 190% of salary for other officers listed in the Summary Compensation Table on page 14.


Incentive Plans—2003 and 2004 Goals

The committee approved an earnings per share goal and an operating cash flow goal for the 2003 Annual Incentive Plan. This goal was then used to establish an aggregate incentive award pool for the Company which is designed to reinforce the direct linkage between corporate performance and officer awards. The committee has also asked the CEO to recommend the amount of any actual award to be delivered from this award pool for subsequent committee approval. The committee retained sole direct authority to set the CEO target and approve any CEO awards under this plan.

The committee intends to keep this basic plan design in effect for the 2004 Annual Incentive Plan, except for the following adjustments to the plan's target goals. The target goals for 2004 relate to operating earnings and cash flow goals, instead of earnings per share and cash flow goals.

The committee approved the design of the Long-Term Incentive Plan for the 2001-2003 plan cycle by establishing goals based on a target of 15% annual growth in Company earnings per share before special items over the three-year period. The Company also used this design for cycles of the Long-Term Incentive Plan covering the 2002-04 and 2003-05 periods.

For the Long-Term Incentive Plan cycle of 2004-06, the committee changed the target goals to be based on "return on invested capital" and "net operating profit after tax" metrics.

18


Incentive Plans—2003 Results

For 2003, neither the CEO nor any other officers received Annual Incentive Plan awards since the earnings per share and operating cash goals were not met.

The committee authorized no awards under the Long-Term Incentive Plan cycle for the three-year period ending December 31, 2003, since the applicable three-year growth goal in earnings per share was not attained.


Stock-Based Compensation

Stock Options.     With regard to stock options, the committee has adopted a stock option plan administration policy under which options are granted to officers and selected key employees on an annual basis, as a part of their long-term incentive compensation targets, to better link the objectives of management and shareholders. The committee granted stock options representing 55,000 shares of common stock to Mr. Greer in 2003 after considering data from independent consultants regarding competitive corporate practices in this area. If the proposed 2004 Stock Compensation Plan is approved as proposed in the proxy statement, the committee intends to use stock options in providing stock-based incentive compensation to executive management of the Company in 2004.


Restricted Stock.     Mr. Ferguson received a grant of 15,000 shares of restricted stock in 2003 in connection with his promotion to Vice President of the Company and President of Flowserve Pump Division during the year. No other executive officer listed in the Summary Compensation Table received any restricted stock awards in 2003. If the 2004 Stock Compensation Plan is approved by shareholders, the committee intends to use restricted stock in providing stock-based incentive compensation to executive management of the Company in 2004.


Stock Ownership Guidelines

The committee, as part of its review of stock-based compensation, approved personal Company stock ownership guidelines for all Company officers. Officers failing to meet their personal ownership target are subject to partial forfeiture of their eligibility for awards under the annual stock compensation granting programs noted above.


Succession Planning & Organization Development

The committee also reviews, on at least an annual basis, succession plans for the CEO and key officers, plus management's organizational assessment and development processes, to assess the depth of management talent available to achieve the Company's strategies.


Tax Deductibility of Executive Compensation

The committee has not formally adopted a policy with regard to qualifying executive compensation plans for tax deductibility under Internal Revenue Code Section 162(m). The committee currently believes that the Company should be able to continue to manage the executive compensation program so as to preserve the related federal income tax deductions, although individual exceptions may occur.


 
George T. Haymaker, Jr. (Chairman)
Christopher A. Bartlett
Hugh K. Coble
Michael F. Johnston
Kevin E. Sheehan

19


STOCK PERFORMANCE GRAPHS


 
 
 
This graph compares the most recent five-year performance of the Company's common stock with the S&P 500 Index and S&P 500 Industrial Machinery (formerly referred to as Machinery (Diversified) —500 Index). It shows an investment of $100 on December 31, 1998, and the reinvestment of any dividends over the following five years.   LOGO
     
     
     
This graph compares the 2003 performance of the Company's common stock with the S&P 500 Index and S&P 500 Industrial Machinery (formerly referred to as S&P Machinery (Diversified)—500 Index). It shows an investment of $100 on December 31, 2002, and the reinvestment of any dividends, over the following year.   LOGO

20


REPORT OF THE AUDIT/FINANCE COMMITTEE

The Audit/Finance Committee of the Company's Board is composed of four independent directors. The members of the committee are listed at the end of this report. The committee operates under a written charter adopted by the Board of Directors. The committee met 11 times in 2003.

Management has primary responsibility for the Company's internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of the Company's consolidated financial statements in accordance with generally accepted auditing standards and issuing a report on this audit. The committee's responsibility is to monitor and oversee this process, including the engagement of the independent auditors, the pre-approval of their annual audit plan and the review of their annual audit report.

In this context, the committee has met and held discussions with management on the Company's consolidated financial statements. Management represented to the committee that the Company's consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and that these statements fairly present the financial condition and results of operations of the Company for the period described. The committee has relied upon this representation without any independent verification, except for the work of the independent auditors. The committee also discussed these statements with the Company's independent auditors, both with and without management present, and has relied upon their reported opinion on these financial statements.

The committee further discussed, with the independent auditors, matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees) and No. 90 (Audit Committee Communications), including the independence of the auditors. During this review, the Company's independent auditors also provided to the committee the written letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). The committee has also considered whether the principal auditor's provision of non-audit services was compatible with maintaining the auditor's independence in conducting the annual audit. Towards that end, the committee continues to pre-approve any audit related and non-audit fees and services before they are commenced.

Based upon the committee's discussion with management and the independent auditors, and the committee's review of the representation of management and the report of the independent auditors to the committee, the committee recommended that the Board include the audited consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2003 and the restated consolidated financial statements for 2002, 2001 and 2000 set forth in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2002.


 
 
Diane C. Harris (Chairman)
William C. Rusnack
James O. Rollans
Charles M. Rampacek

21


OTHER AUDIT INFORMATION


Relationship with Independent Accountants

PricewaterhouseCoopers LLP ("PwC") began serving as the Company's independent accounting firm in 2000. In this role, PwC audits the financial statements of the Company. The Audit/Finance Committee pre-approves all audit and non-audit related fees and services provided by PwC. This committee also continuously monitors any factors that could impact the independence of PwC in conducting the audit and receives certain representations from PwC towards that end.

The chart below summarizes the fees for professional services incurred by the Company for the audits of its 2003 and 2002 financial statements and other fees billed to the Company by PwC in 2003 and 2002. In general, the Company typically retains PwC for additional services which are logically related to or natural extensions of the annual audit.

AUDIT AND NON-AUDIT FEES
   2003
   2002
AUDIT FEES   $ 4,804,088   $ 2,519,656

AUDIT RELATED FEES
 
 
 
 
 
 
  Benefit Plan Audits     184,000     50,700
  Financial Due Diligence     —     245,281
  Sarbanes-Oxley Readiness     80,700     —
   
 

TOTAL AUDIT RELATED FEES
 
 
264,700
 
 
295,981
   
 

TAX FEES
 
 
 
 
 
 
  Compliance     385,560     501,318
  Consulting/Advisory     140,250     354,438

TOTAL TAX FEES
 
 
525,810
 
 
855,756

OTHER FEES
 
 
—
 
 
—
   
 
 
TOTAL FEES
 
$
5,594,598
 
$
3,671,393
   
 

Representatives from PwC will be at the annual meeting to make a statement, if they desire to do so, and will be available to respond to appropriate questions from shareholders.

22



PROPOSAL NUMBER TWO: APPROVAL AND ADOPTION OF THE FLOWSERVE CORPORATION 2004 STOCK COMPENSATION PLAN

General

On April 21, 2004, the Board adopted the Flowserve Corporation 2004 Stock Compensation Plan (the "Plan"), subject to shareholder approval. The Board hereby submits to the Company's shareholders this proposal to approve the Plan.

The principal provisions of the Plan are summarized below. However, the summary is not complete and is qualified in its entirety by the terms of the Plan. A copy of the Plan is attached hereto as Exhibit A and incorporated herein by reference.


Plan Purpose and Description

The purpose of the Plan is to promote the Company's long-term financial success and to materially increase the Company's value by:


Eligibility

Participants in the Plan (each, a "Participant") include the Company's and its wholly-owned subsidiaries' employees, consultants and outside directors whose judgment, initiative and efforts contributed, or may be expected to contribute, to the Company's success. Participants are eligible to be granted awards under the Plan at the discretion of the Compensation Committee of the Board (referred to throughout this Proposal Number Two as the "Committee"), which will administer the Plan. To the extent necessary or desirable, the Committee shall consist of at least two or more "non-employee directors" under Section 16b of the 1934 Securities and Exchange Act or two or more "outside directors" under Section 162(m) of the Code.

In determining the eligibility of a Participant to receive an award under the Plan, as well as the amount and types of awards to be granted, the Committee may consider the Participant's position, responsibilities and importance to the Company or its subsidiaries and such other factors as the Committee, in its sole discretion, deems relevant. Only employees and outside directors of the Company or its subsidiaries' may be granted incentive stock options under the Plan.


Shares Subject to the Plan

Subject to the amendment and adjustment provisions described below, the aggregate number of shares of Company common stock that may be issued under the Plan may not exceed 3,500,000, and during the term of the Plan, the Company must at all times reserve sufficient shares of the Company's authorized common stock to satisfy the requirements of the Plan. Except as stated in the Section entitled "Director Awards", the Plan does not impose time requirements regarding when awards exercisable for shares of Company common stock may be made. Therefore, the date of any such grants shall be determined solely at the discretion of the Committee, except as set forth in such section. Subject to the adjustment provisions of the Plan, no individual may receive in any single calendar year (i) stock options or stock appreciation rights relating to more than 200,000 shares of Company common stock or (ii) restricted stock or restricted stock units relating to more than 200,000 shares of Company common stock.

Shares of Company common stock that are no longer subject to purchase by reason of the expiration or termination of an unexercised stock option granted under the Plan or by reason of forfeiture of restricted stock as described in the Plan may be reoffered under the Plan. Awards that may be satisfied either by the issuance of shares of Company common stock or by cash or other consideration shall be counted against the maximum number of shares of Company common stock that may be issued under this Plan only during the period that the award is outstanding or to the extent the award is

23

ultimately satisfied by the issuance of shares of Company common stock. Moreover, awards will not reduce the number of shares of Company common stock that may be issued pursuant to the Plan if the settlement of the award will not require the issuance of shares of Company common stock, such as in connection with a stock appreciation right that can only be satisfied by the payment of cash.

To date, the Company has not granted any awards pursuant to the Plan.

Under the Plan, the fair market value of Company common stock for a particular date will generally be the closing price per share of Company common stock as quoted on the NYSE

The closing price of the Company's common stock on April 28, 2004 was $21.83.


Types of Awards under the Plan

Stock Options.    The Committee may grant incentive stock options or nonqualified stock options under the Plan. Stock options may be granted to a Participant for such number of shares of Company common stock as the Committee deems appropriate, except that no Participant may be granted incentive stock options that would permit the aggregate fair market value of the Company common stock with respect to which such incentive stock options are exercisable for the first time during any calendar year to exceed $100,000.

The exercise price for each stock option granted will equal the fair market value of a share of Company common stock on the date the stock option is granted.

No stock option may be exercised after the expiration of ten years from the date of its grant. Generally, termination of a Participant's employment with the Company will cause any exercise period applicable to such Participant's stock options to be reduced in accordance with their terms.

A stock option may be exercised in whole or in part according to the terms of the applicable stock option agreement by delivery of notice of exercise to the Company specifying the number of shares to be purchased. The exercise price for each stock option may be paid by the Participant (i) in cash, (ii) by delivery to the Company of mature shares of Company common stock of equivalent value, or (iii) by any other means that the Committee determines in its sole discretion to be desirable and consistent with applicable law.

Subject to the foregoing and the other provisions of the Plan, stock options granted under the Plan may be exercised at such times and in such amounts and be subject to such restrictions and other terms and conditions, if any, as determined by the Committee.

Although the terms of the Plan generally prohibit transfers of stock options and stock appreciation rights other than by will or laws of descent and distribution, the Committee may, in its discretion, authorize a Participant to transfer all or a portion of any nonqualified stock options or stock appreciation rights under certain limited circumstances.

Stock Appreciation Rights.    The Committee may in its discretion grant stock appreciation rights to Participants under the Plan. Stock appreciation rights entitle their holder, upon exercise of the right, to receive cash, Company common stock or a combination of both from the Company equal to the amount by which the fair market value of a share of Company common stock on the date of exercise exceeds the exercise price of the stock appreciation right, multiplied by the number of shares of Company common stock covered by the stock appreciation right which is exercised.

Restricted Stock and Restricted Stock Units.    Restricted stock and restricted stock units may be awarded by the Committee subject to such terms, conditions and restrictions as the Committee deems appropriate. Restrictions may include, among others, (i) limitations on the right to sell, assign, transfer or dispose of the restricted stock until certain holding periods or specific Company performance goals are satisfied and (ii) forfeiture of the restricted stock upon termination of employment.

Other than with respect to the applicable restrictions and vesting requirements, a Participant will have all the rights of a shareholder with respect to such shares, including the right to vote the shares and to receive all dividends and other distributions paid with respect to the shares.

24


Director Awards

Under the Plan, outside directors will receive, as approximately 60% of their annual retainer compensation, a grant of shares of restricted stock which have a target fair market value of $50,000 on the date of each Annual Meeting of Shareholders. This valuation is subject to change prospectively by the Board, subject to the Plan's maximum limits on award to individual participants. Such restricted stock will have a one-year vesting period. It will also be subject to a holding period where resale is prohibited. This period ends on the earlier of the fifth anniversary of the date of grant or the first anniversary after the outside director ceases to serve on the Board. In addition to or in replacement of this annual retainer award, outside directors may also receive grants of nonqualified stock options at such Annual Meetings, subject to the same limits. At present, no such stock option awards are contemplated, although the Board may change this policy in the future.


Administration

The Plan will be interpreted and administered by the Committee. The Committee will have full authority, in its discretion to (i) grant to Participants awards under the Plan; (ii) interpret the Plan; (iii) implement, amend and rescind any rules and regulations necessary or appropriate for the administration of the Plan; and (iv) make such other determinations or certifications and take such other action as the Committee deems necessary or advisable in the administration of the Plan. Notwithstanding the foregoing, (i) the Committee may not reprice outstanding stock options by canceling and regranting stock options or by lowering the exercise price, except as provided in the section entitled "Adjustment" below.


Change in Control

Except with respect to director awards, in the event of change in control, each outstanding award will be assumed or substituted for by the successor corporation or a parent or subsidiary of the successor corporation. If the successor corporation refuses to assume or substitute for the award, the award will become fully vested and exercisable. The Committee will notify each participant that his or her award will become fully vested and exercisable for a period of thirty (30) days from the date such notice is given and that any unexercised award will terminate on the expiration of such a period.

In the event of a change in control, director awards will become fully vested and exercisable. The Committee will notify the directors that their awards will become fully vested and exercisable for a period of thirty (30) days from the date such notice is given. Any unexercised award will terminate on the expiration of such a period.

A specific award agreement may provide that any portion of the award outstanding that has not previously vested or become exercisable will become fully vested and exercisable at the time of a change in control.

Notwithstanding the above paragraphs, in the event of a change in control, the applicable change in control provisions of the Flowserve Corporation Key Management Change in Control Severance Plan, the Flowserve Corporation Executive Officer Change in Control Severance Plan and the Flowserve Corporation Officer Change in Control Severance Plan (the "Change in Control Plans") will apply to the awards that are granted under this Plan with respect to individuals who are participants in such Change in Control Plans.


Adjustment

In general, in the case of a stock dividend or other distribution, recapitalization, stock split, reverse stock split, rights offering, reorganization, merger, consolidation, split-up, spin-off or other similar event or occurrence, of or by the Company, the Committee will make proportionate and appropriate adjustments to the number of shares reserved for issuance under the Plan, the limitations on the number of shares that may be issued to any individual, the number and/or kind of shares subject to purchase or award and the purchase price under outstanding awards to prevent the dilution or enlargement of any rights relating to any such awards, except to the extent prohibited by Section 422 of the Code.


Plan Benefits

Future benefits under the Plan are not currently determinable. However, current benefits granted to executive officers and all other employees would not have been increased if they had been made under the proposed Plan.

25


Federal Income Tax Consequences

The following is a brief summary of the principal federal income tax consequences of the grant and exercise of awards under present law. This summary is not intended to be exhaustive and does not describe foreign, state or local tax consequences.

Incentive Stock Options.    A Participant will not generally recognize any taxable income for federal income tax purposes upon receipt of a stock option or, generally, at the time of exercise of an incentive stock option, except possibly under the alternative minimum income tax rule.

If a Participant exercises an incentive stock option and does not dispose of the shares received in a subsequent "disqualifying disposition" (generally, a sale, gift or other transfer within two years after the date of grant of the stock option or within one year after the shares are transferred to the Participant), the Participant, in general, receives long-term capital gains treatment on the difference between the price at which the Participant sells the shares and the difference between the price at which the Participant sells the shares and his or her tax basis in the shares. In the event of a disqualifying disposition, the difference between the fair market value of the shares received on the date of exercise and the exercise price will generally be treated as compensation received by the Participant in the year of disposition.

The Company will not be entitled to a deduction with respect to shares received by a Participant upon exercise of an incentive stock option and not disposed of in a disqualifying disposition. If an amount is treated as compensation received by a Participant due to a disqualifying disposition, the Company will be entitled to a corresponding deduction in the same amount for compensation paid.

Nonqualified Stock Options.    A Participant will not recognize any taxable income for federal income tax purposes upon receipt of a nonqualified stock option. Upon the exercise of a nonqualified stock option, the amount by which the fair market value of the shares received, determined as of the date of exercise, exceeds the exercise price will be treated as compensation received by the Participant in the year of exercise. Generally, the Company will be entitled to a deduction for compensation paid in the same amount treated as compensation received by the Participant.

Restricted Stock and Restricted Stock Units.    A recipient of restricted stock or restricted stock units will not recognize any taxable income for federal income tax purposes in the year of the award, provided the shares are subject to restrictions (that is, they are non-transferable and subject to a substantial risk of forfeiture). However, the recipient may elect under Section 83(b) of the Code to recognize compensation income in the year of the award in an amount equal to the fair market value of the shares on the date of the award, determined without regard to the restrictions. If the recipient does not make a Section 83(b) election, the fair market value of the shares on the date the restrictions lapse will be treated as compensation income to the recipient and will be taxable in the year the restrictions lapse. A recipient of restricted stock units will not recognize any taxable income for federal income tax purposes in the year of the award, but upon issuance of shares of stock pursuant to the award, will recognize compensation income in an amount equal to the fair market value of the shares. Under the Plan, a recipient of restricted stock may defer receipt and taxability of the applicable award until termination of employment. Either the Company or one of the Company's subsidiaries generally will be entitled to a deduction for compensation paid in the same amount treated as compensation income to the recipient.


Other Tax Matters

After a Change of Control of the Company, special tax rules, including a potential 20% federal excise tax in addition to regular federal income tax, may apply if a Participant exercises a stock option or has a lapse of restriction on restricted shares granted under the Plan.

The Company is submitting the Plan for shareholder approval in part due to Section 162(m) of the Code. Shareholder approval is necessary for the Company to deduct certain payments made under the Plan for federal income tax purposes. Section 162(m) of the Code imposes a $1 million limit on the deductibility of compensation paid to certain executive officers. However, if the Plan is approved by our shareholders, awards made under the Plan will not count towards the Section 162(m) $1 million limitation.

26


Amendment and Termination of the Plan

The Plan terminates on the tenth (10th) anniversary of the date of shareholders' approval. The Plan provides that the Board may, from time to time, alter, amend, revise, suspend or terminate the Plan without the consent of the Company's shareholders. However, the Board must seek shareholder approval to the extent it deems necessary to comply with any applicable laws. The Committee may at any time alter or amend any or all award agreements under the Plan to comply with any amendment of the Plan made by the Board or any applicable laws that govern such agreements.

The Board recommends that you vote FOR the approval of the Plan.

27


EXHIBIT A

FLOWSERVE CORPORATION

2004 STOCK COMPENSATION PLAN



Table of Contents

 
    
   Page
ARTICLE 1          INTRODUCTION   1
 
1.1.
 
History
 
1
  1.2.   Purpose   1

ARTICLE 2          DEFINITIONS
 
1
 
2.1.
 
"Applicable Laws"
 
1
  2.2.   "Award"   1
  2.3.   "Award Agreement"   1
  2.4.   "Award Period"   1
  2.5.   "Board"   1
  2.6.   "Change in Control"   1
  2.7.   "Code"   4
  2.8.   "Committee"   4
  2.9.   "Common Stock"   4
  2.10.   "Company"   4
  2.11.   "Consultant"   4
  2.12.   "Date of Grant"   4
  2.13.   "Employee"   4
  2.14.   "Exercise Date"   4
  2.15.   "Fair Market Value"   4
  2.16.   "Incentive Stock Option"   5
  2.17.   "Nonqualified Stock Option"   5
  2.18.   "Option Price"   5
  2.19.   "Outside Director"   5
  2.20.   "Parent"   5
  2.21.   "Participant"   5
  2.22.   "Performance Criteria"   5
  2.23.   "Plan"   5
  2.24.   "Performance Goal"   5
  2.25.   "Restricted Stock"   5
  2.26.   "Restricted Stock Units"   5
  2.27.   "SAR" or "stock appreciation right"   5
  2.28.   "SAR Price"   5
  2.29.   "Stock Option"   5
  2.30.   "Subsidiary"   5
  2.31.   "Total and Permanent Disability"   6

i


ARTICLE 3          ADMINISTRATION
 
6
 
3.1.
 
Administration by the Compensation Committee
 
6
  3.2.   Duties of the Committee   6
  3.3.   Delegation of Duties and Authority by the Committee   7

ARTICLE 4          ELIGIBILITY
 
7

ARTICLE 5          SHARES SUBJECT TO PLAN
 
7
 
5.1.
 
Number Available for Awards
 
7
  5.2.   Reuse of Shares   8

ARTICLE 6          GRANT OF AWARDS
 
8
 
6.1.
 
In General
 
8
  6.2.   Stock Option Price   8
  6.3.   Maximum ISO Grants   8
  6.4.   Restricted Stock   9
  6.5.   SARs   10
  6.6.   Restricted Stock Units   11
  6.7.   Performance Goals   11
  6.8.   Tandem Awards   12
  6.9.   Award Program for Outside Directors.   12

ARTICLE 7          AWARD PERIOD; VESTING
 
13
 
7.1.
 
Award Period
 
13
  7.2.   Vesting   13

ARTICLE 8          EXERCISE OF AWARD
 
13
 
8.1.
 
In General
 
13
  8.2.   Applicable Law   13
  8.3.   Exercise of Stock Option   13
  8.4.   Disqualifying Disposition of Incentive Stock Option   14
  8.5.   SARs   14

ARTICLE 9          AMENDMENT OR DISCONTINUANCE
 
15

ARTICLE 10        TERM
 
15

ARTICLE 11        ADJUSTMENTS, DISSOLUTION OR LIQUIDATION
 
15

ARTICLE 12        EFFECT OF CHANGE IN CONTROL
 
16

ii


ARTICLE 13        PARTICIPANT DEFERRAL OF RESTRICTED STOCK
 
16
 
13.1.
 
Forms of Deferral.
 
16
  13.2.   Accounts for Deferred Shares.   17
  13.3.   Distribution of Deferred Shares.   18

ARTICLE 14        LIQUIDATION OR DISSOLUTION
 
19

ARTICLE 15        MISCELLANEOUS PROVISIONS
 
19
 
15.1.
 
Investment Intent
 
19
  15.2.   No Right to Continued Employment   20
  15.3.   Indemnification of Board and Committee   20
  15.4.   Effect of the Plan   20
  15.5.   Compliance With Other Laws and Regulations   20
  15.6.   Tax Requirements   20
  15.7.   Assignability   21
  15.8.   Use of Proceeds   21
  15.9.   Legend   22
  15.10.   Company Records   22
  15.11.   Choice of Law   22

iii


Article 1

Introduction

        1.1.    History.    The Flowserve Corporation 2004 Stock Compensation Plan (the "Plan") was adopted by the Board of Directors of Flowserve Corporation, a New York corporation (the "Company"), effective as of April 21, 2004, subject to approval by the Company's shareholders.

        1.2.    Purpose.    The purpose of the Plan is to attract and retain the services of Employees, Consultants, and Outside Directors and to provide such persons with a proprietary interest in the Company through the granting of Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock and Restricted Stock Units, whether granted singly, in combination, or in tandem, that will:


Article 2

Definitions

        For the purpose of the Plan, unless the context requires otherwise, the following terms shall have the meanings indicated:

        2.1.    "Applicable Laws"    means the Federal, state, local and foreign tax, securities, labor, corporate, and exchange laws or regulations governing the grant of Awards under the Plan.

        2.2.    "Award"    means an Incentive Stock Option, Nonqualified Stock Option, Restricted Stock, SAR, or Restricted Stock Units, whether granted singly, in combination or in tandem.

        2.3.    "Award Agreement"    means a written agreement between a Participant and the Company which sets out the terms of an Award.

        2.4.    "Award Period"    means the period set forth in the Award Agreement during which an Award may be exercised.

        2.5.    "Board"    means the board of directors of the Company.

        2.6.    "Change in Control"    means any Change in Control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the 1934 Act (excluding any transaction described below that is specifically determined thereunder to

A-1

not constitute a Change in Control). Without limitation, such a Change in Control shall be deemed to have occurred upon the occurrence of any of the following:

A-2

A-3

        Notwithstanding anything to the contrary in this definition and without limitation, the Incumbent Board may, in its sole discretion, determine that a Change in Control has occurred under circumstances other than those contemplated by this definition. In such circumstances, a Change in Control will be deemed to have occurred through a vote by two-thirds (2/3) of the Incumbent Board to approve a motion declaring such a Change in Control has occurred.

        2.7.    "Code"    means the Internal Revenue Code of 1986, as amended.

        2.8.    "Committee"    means the committee appointed or designated by the Board to administer the Plan in accordance with Article 3 of this Plan.

        2.9.    "Common Stock"    means the Company's common stock, par value $1.25 per share, as adjusted pursuant to Article 11.

        2.10.    "Company"    means Flowserve Corporation, a New York corporation and any successor entity.

        2.11.    "Consultant"    means a natural person who provides bona fide services to the Company, Parent or Subsidiary as an independent contractor.

        2.12.    "Date of Grant"    means the effective date on which an Award is made to a Participant as set forth in the applicable Award Agreement; provided that all corporate actions necessary to grant such an Award have been taken on or prior to the date set forth in the applicable Award Agreement.

        2.13.    "Employee"    means a common law employee of the Company or any Subsidiary or Parent of the Company.

        2.14.    "Exercise Date"    means the date on which an Award is exercised.

        2.15.    "Fair Market Value"    means, as of any date:

A-4

        2.16.    "Incentive Stock Option"    means an incentive stock option within the meaning of Section 422 of the Code.

        2.17.    "Nonqualified Stock Option"    means any Stock Option that is not an Incentive Stock Option.

        2.18.    "Option Price"    means the price which must be paid by a Participant upon exercise of a Stock Option to purchase the shares of Common Stock underlying the option.

        2.19.    "Outside Director"    means a director of the Company who is not an Employee.

        2.20.    "Parent"    means a parent corporation as defined in Section 424 of the Code.

        2.21.    "Participant"    means an Employee, Consultant or Outside Director to whom an Award is granted under this Plan.

        2.22.    "Performance Criteria"    shall have the meaning reflected in Section 6.7(a).

        2.23.    "Plan"    means this Flowserve Corporation 2004 Stock Compensation Plan, as amended from time to time.

        2.24.    "Performance Goal"    means any of the goals set forth in Section 6.7 hereof.

        2.25.    "Restricted Stock"    means shares of Common Stock issued or transferred to a Participant pursuant to Section 6.4 of this Plan which are subject to restrictions or limitations set forth in this Plan and in the related Award Agreement.

        2.26.    "Restricted Stock Units"    means units awarded to Participants pursuant to Section 6.6 hereof, which are convertible into Common Stock at such time as such units are no longer subject to restrictions as established by the Committee.

        2.27.    "SAR" or "stock appreciation right"    means the right to receive a payment, in cash and/or Common Stock, equal to the excess of the Fair Market Value of a specified number of shares of Common Stock on the date the SAR is exercised over the SAR Price for such shares.

        2.28.    "SAR Price"    means the Fair Market Value of the shares of Common Stock covered by a SAR, determined on the Date of Grant of the SAR.

        2.29.    "Stock Option"    means a Nonqualified Stock Option or an Incentive Stock Option.

        2.30.    "Subsidiary"    means a subsidiary corporation as defined in Section 424 of the Code.

A-5

        2.31.    "Total and Permanent Disability"    means a Participant is qualified for long-term disability benefits under the Company's, Parent's or Subsidiary's (as applicable) disability plan or insurance policy; or, if no such plan or policy is then in existence or if the Participant is not eligible to participate in such plan or policy, that the Participant, because of a physical or mental condition resulting from bodily injury, disease, or mental disorder which prevents the Participant from performing his or her duties of employment for a period of six (6) continuous months, as determined in good faith by the Committee, based upon medical reports or other evidence satisfactory to the Committee; provided that, with respect to any Incentive Stock Option, total and permanent disability shall have the meaning given it under Section 22(e) of the Code.


Article 3

Administration

        3.1.    Administration by the Compensation Committee    

        3.2.    Duties of the Committee    

A-6

        3.3.    Delegation of Duties and Authority by the Committee.    The Committee may delegate to officers of the Company, pursuant to a written delegation, the authority to perform specified functions under the Plan.


Article 4

Eligibility

        The Committee, in its sole and absolute discretion, shall determine the Employees or Consultants to whom Awards may be granted under this Plan. Outside Directors are eligible to participate in the Award Program for Outside Directors as further described in Section 6.9 of the Plan. Awards granted at different times need not contain similar provisions. The Committee's determinations under the Plan (including without limitation determinations of which Employees or Consultants, if any, are to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the agreements evidencing same) need not be uniform and may be made by it selectively among Participants who receive, or are eligible to receive, Awards under the Plan.


Article 5

Shares Subject to Plan

        5.1.    Number Available for Awards.    

A-7

        5.2.    Reuse of Shares.    To the extent that any Award under this Plan shall be forfeited, shall expire or be canceled, in whole or in part, then the number of shares of Common Stock covered by the Award so forfeited, expired or canceled may again be awarded pursuant to the provisions of this Plan. Awards that may be satisfied either by the issuance of shares of Common Stock or by cash or other consideration shall be counted against the maximum number of shares of Common Stock that may be issued under this Plan only during the period that the Award is outstanding or to the extent the Award is ultimately satisfied by the issuance of shares of Common Stock. Awards will not reduce the number of shares of Common Stock that may be issued pursuant to this Plan if the settlement of the Award will not require the issuance of shares of Common Stock, as, for example, a SAR that can be satisfied only by the payment of cash.


Article 6

Grant of Awards

        6.1.    In General.    The grant of an Award shall be authorized by the Committee and shall be evidenced by an Award Agreement setting forth the Award being granted, the total number of shares of Common Stock subject to the Award, the Option Price (if applicable), the Award Period, the Date of Grant, and such other terms, provisions, limitations, and Performance Goals, as are approved by the Committee, but not inconsistent with the Plan. The Company shall execute an Award Agreement with a Participant after the Committee approves the issuance of an Award. Any Award granted pursuant to this Plan must be granted within ten (10) years of the date of adoption of this Plan. The grant of an Award to a Participant shall not be deemed either to entitle the Participant to, or to disqualify the Participant from, receipt of any other Award under the Plan.

        6.2.    Stock Option Price.    The per share Option Price shall not be less than the Fair Market Value of the share covered by the Stock Option on the Date of Grant. If an Incentive Stock Option is granted to an Employee who is more than a ten percent (10%) owner of the Company or any Parent or Subsidiary as determined under Section 424 of the Code, the Option Price shall be at least 110% of the Fair Market Value of the Common Stock on the Date of Grant.

        6.3.    Maximum ISO Grants.    The Committee may not grant Incentive Stock Options under the Plan to any Employee which would permit the aggregate Fair Market Value (determined on the Date of Grant) of the Common Stock with respect to which Incentive Stock Options (under this and any other plan of the Company and its Subsidiaries) are exercisable for the first time by such Employee during any calendar year to exceed $100,000. To the extent any Stock Option granted under this Plan which is designated as an Incentive Stock Option exceeds this limit or otherwise fails to qualify as an Incentive Stock Option, such Stock Option (or any such portion thereof) shall be a Nonqualified Stock Option. In such case, the Committee shall designate which stock will be treated

A-8

as Incentive Stock Option stock by causing the issuance of a separate stock certificate and identifying such stock as Incentive Stock Option stock on the Company's stock transfer records.

        6.4.    Restricted Stock    

A-9

        6.5.    SARs    

A-10

        A cash settlement to be made for any fractional shares of Common Stock.

        6.6.    Restricted Stock Units    

        6.7.    Performance Goals    

A-11

        6.8.    Tandem Awards.    The Committee may grant two or more Awards in the form of a "tandem Award," so that the right of the Participant to exercise one Award shall be canceled if, and to the extent, the other Award is exercised.

        6.9.    Award Program for Outside Directors.    

A-12


Article 7

Award Period; Vesting

        7.1.    Award Period    

        7.2.    Vesting.    The vesting schedule of an Award shall be provided in the applicable Award Agreement. The Committee, in its sole discretion, may determine that an Award shall be immediately vested in whole or in part, or that all or any portion may not be vested until a date, or dates, subsequent to its Date of Grant, or until the occurrence of one or more specified events or attainment of Performance Goals, subject in any case to the terms of the Plan. If the Committee imposes conditions upon vesting, then, subsequent to the Date of Grant, the Committee may, in its sole discretion, accelerate the date on which all or any portion of the Award may be vested.


Article 8

Exercise of Award

        8.1.    In General.    An Award may be exercised during its Award Period only to the extent that it is vested and, subject to limitations and restrictions set forth in the Award Agreement.

        8.2.    Applicable Law.    In no event may an Award be exercised if the exercise of such an Award would violate Applicable Laws (as determined by the Committee in its sole discretion).

        8.3.    Exercise of Stock Option    

A-13

        8.4.    Disqualifying Disposition of Incentive Stock Option.    If shares of Common Stock acquired upon exercise of an Incentive Stock Option are disposed of by a Participant prior to the expiration of either two (2) years from the Date of Grant of such Stock Option or one (1) year from the Exercise Date of such Stock Option, such Participant shall notify the Company in writing of the date and terms of such disposition.

        8.5.    SARs.    Subject to the conditions of this Section 8.5 and such administrative regulations as the Committee may from time to time adopt, an SAR may be exercised by the delivery (including by FAX) of written notice to the Committee setting forth the number of shares of Common Stock with respect to which the SAR is to be exercised and the Exercise Date, which shall be at least three (3) days after giving such notice unless an earlier time shall have been mutually

A-14

agreed upon. Subject to the terms of the Award Agreement, on the Exercise Date, the Participant shall receive from the Company in exchange therefor cash in an amount equal to the excess (if any) of the Fair Market Value (as of the date of the exercise of the SAR) per share of Common Stock over the SAR Price per share specified in the Award Agreement, multiplied by the total number of shares of Common Stock covered by the SAR that are being exercised. In the discretion of the Committee, and subject to the terms of the Award Agreement, the Company may satisfy its obligation upon exercise of an SAR by the distribution of that number of shares of Common Stock having an aggregate Fair Market Value (as of the date of the exercise of the SAR) equal to the amount of cash otherwise payable to the Participant, with a cash settlement to be made for any fractional shares, or the Company may settle such obligation in part with shares of Common Stock and in part with cash.


Article 9

Amendment or Discontinuance

        Subject to the limitations set forth in this Article 9, the Board may at any time and from time to time, without the consent of the Participants, alter, amend, revise, suspend, or discontinue the Plan in whole or in part; provided, however, that no amendment which requires shareholder approval under Applicable Laws shall be effective unless such amendment shall be approved by the requisite vote of the shareholders of the Company entitled to vote thereon. Any such amendment shall, to the extent deemed necessary or advisable by the Committee, be applicable to any outstanding Awards theretofore granted under the Plan, notwithstanding any contrary provisions contained in any Award Agreement. In the event of any such amendment to the Plan, the holder of any Award outstanding under the Plan shall, upon request of the Committee and as a condition to the exercisability thereof, execute a conforming amendment in the form prescribed by the Committee to any Award Agreement relating thereto. Notwithstanding anything contained in this Plan to the contrary, unless required by Applicable Law, no action contemplated or permitted by this Article 9 shall adversely affect any rights of Participants or obligations of the Company to Participants with respect to any Award theretofore granted under the Plan without the consent of the affected Participant.


Article 10

Term

        The Plan shall be effective from the date that this Plan is approved by the shareholders. Unless sooner terminated by action of the Board, the Plan will terminate on the tenth (10th) anniversary of the date of shareholders' approval, but Awards granted before such termination date will continue to be effective in accordance with their terms and conditions.


Article 11

Adjustments, Dissolution or Liquidation

        In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, stock-split, reverse stock split, rights offering, reorganization, merger, consolidation, split-up, spin-off, split off, combination, subdivision, repurchase, or exchange of Common Stock or other securities of the Company, or other change in the corporate structure of the Company affecting the

A-15

Common Stock such that an adjustment is determined by the Committee (in its sole discretion) to be appropriate in order to prevent dilution or enlargement of benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it deems equitable, adjust the number and class of Common Stock which are reserved for issuance under the Plan, the Option Price or SAR Price of any outstanding Award, and the numerical limits in Sections 5.1 and 6.9 of the Plan.

        In the event of the proposed dissolution or liquidation of the Company, the Committee shall notify each recipient of an Award as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised or settled, Awards shall terminate immediately prior to the dissolution or liquidation of the Company.


Article 12

Effect of Change in Control

        In the event of a Change in Control, each outstanding Award shall be assumed or an equivalent Award substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Award, the Award shall be fully vested and the recipient of such Award shall have the right to exercise the Award as to all of the Common Shares underlying the Award, including that portion of the Award which would not otherwise be vested or exercisable. If an Award becomes fully vested and exercisable in lieu of assumption or substitution in the event of a Change in Control, the Committee shall notify the recipient of an Award in writing or electronically that the Award shall be fully vested and exercisable (subject to the consummation of the Change of Control) for a period of thirty (30) days from the date of such notice, and the Award shall terminate upon the expiration of such period.

        Notwithstanding the above paragraph, in the event of a Change in Control, the provisions of the Flowserve Corporation Key Management Change in Control Severance Plan, the Flowserve Corporation Executive Officer Change in Control Severance Plan and the Flowserve Corporation Officer Change in Control Severance Plan (collectively the "Change in Control Plans") shall apply to Awards granted hereunder with respect to individuals covered under such Change in Control Plans.


Article 13

PARTICIPANT DEFERRAL OF RESTRICTED STOCK

        13.1.    Forms of Deferral.    

A-16

        13.2.    Accounts for Deferred Shares.    

A-17

        13.3.    Distribution of Deferred Shares.    

A-18


Article 14

Liquidation or Dissolution

        In the event of the proposed dissolution or liquidation of the Company, the Committee shall notify each recipient of an Award as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised or settled, Awards shall terminate immediately prior to the dissolution or liquidation of the Company.


Article 15

Miscellaneous Provisions

        15.1.    Investment Intent.    The Company may require that there be presented to and filed with it by any Participant under the Plan, such evidence as it may deem necessary to establish that the Awards granted or the shares of Common Stock to be purchased or transferred are being acquired for investment and not with a view to their distribution.

A-19

        15.2.    No Right to Continued Employment.    Neither the Plan nor any Awards granted under the Plan shall confer upon any Participant any right with respect to continuance of employment by the Company, any Subsidiary or Parent.

        15.3.    Indemnification of Board and Committee.    No member of the Board or the Committee, nor any officer or Employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board and the Committee, each officer of the Company, and each Employee of the Company acting on behalf of the Board or the Committee shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination, or interpretation.

        15.4.    Effect of the Plan.    Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any person any right to be granted an Award or any other rights except as may be evidenced by an Award Agreement, or any amendment thereto, duly authorized by the Committee and executed on behalf of the Company, and then only to the extent and upon the terms and conditions expressly set forth therein.

        15.5.    Compliance With Other Laws and Regulations.    Notwithstanding anything contained herein to the contrary, the Company shall not be required to sell or issue shares of Common Stock under any Award if the issuance thereof would constitute a violation by the Participant or the Company of any provisions of Applicable Laws (as determined by the Committee in its sole discretion).

        15.6.    Tax Requirements    

A-20

        15.7.    Assignability    

        15.8.    Use of Proceeds.    Proceeds from the sale of shares of Common Stock pursuant to Awards granted under this Plan shall constitute general funds of the Company.

A-21

        15.9.    Legend    

        15.10.    Company Records.    A copy of this Plan shall be kept on file in the principal office of the Company in Irving, Texas.

        15.11.    Choice of Law.    Except to the extent that New York business corporation law applies, this Plan and any Award or Award Agreement granted pursuant to this Plan shall be interpreted under the substantive laws of the State of Texas without regard to its choice of law rules.

A-22

        IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of April 21, 2004, by its Vice President, Secretary and General Counsel pursuant to prior action taken by the Board.

    FLOWSERVE CORPORATION

 
 
By:
/s/  RONALD F. SHUFF      
    Name: Ron Shuff
Title: Vice President, Secretary and General Counsel

A-23

DETACH HERE

FLOWSERVE CORPORATION
PROXY FOR ANNUAL SHAREHOLDERS' MEETING—JUNE 22, 2004
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY

The undersigned hereby appoints C. SCOTT GREER and KEVIN E. SHEEHAN, and each of them, with full power to act without the other, as proxies with full power of substitution, to represent and to vote on behalf of the undersigned all of the shares of common stock of Flowserve Corporation which the undersigned is entitled in any capacity to vote if personally present at the 2004 Annual Meeting of Shareholders of Flowserve Corporation to be held at 11:00 a.m. on Tuesday, June 22, 2004, at the Flowserve Corporation Learning Center, 4343 Royal Lane, Irving, Texas 75063, and at any adjournment thereof, upon the election of directors as listed on the reverse side of this proxy and the approval of the Flowserve Corporation 2004 Stock Compensation Plan as more fully described in the Notice of 2004 Annual Meeting of Shareholders and Proxy Statement, dated May 10, 2004, and upon all matters properly presented at the Annual Meeting.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED BY THE PROXIES FOR THE ELECTION OF ALL NOMINEES FOR DIRECTOR, FOR APPROVAL OF THE FLOWSERVE CORPORATION 2004 STOCK COMPENSATION PLAN AND, IN THEIR DISCRETION, UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.

(Continued, and to be dated and signed, on other side)

DETACH HERE

(Continued from the other side)

1. Election of four directors each for a three-year term.            
    [    ]   FOR all nominees listed below
 (except as marked to the contrary below)		       [    ]   WITHHOLD AUTHORITY
to vote for all nominees listed below

 
 
INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through the nominee's name below:

 
 
 
 
Christopher A. Bartlett
 
Hugh K. Coble
 
 
 
George T. Haymaker, Jr.
 
William C. Rusnack

2. Approval and adoption of the Flowserve Corporation 2004 Stock Compensation Plan.
 
 
    [    ]

[    ]		   FOR the Compensation Plan listed above

 AGAINST the Compensation Plan listed above		   [    ]   ABSTAIN
from voting for the Compensation Plan listed above

 
Date:
 
 
 
, 2004
       
   

 
Print Full Name of Shareholder

 
Signature of Shareholder

 
Insert Title of Above Signatory if Shareholder is not an Individual

 
Please sign as name appears above. Executors, administrators, trustees, guardians and others signing in a representative capacity should indicate the capacity in which they sign. An authorized officer may sign on behalf of a corporation and should indicate the name of the corporation and his or her capacity.



QuickLinks

NOTICE OF THE 2004 ANNUAL MEETING OF SHAREHOLDERS
FLOWSERVE CORPORATION 5215 N. O'Connor Blvd., Suite 2300 Irving, Texas 75039
PROXY STATEMENT
NOMINEES TO SERVE A THREE-YEAR TERM EXPIRING IN 2007
NOMINEES TO SERVE A THREE-YEAR TERM EXPIRING IN 2007
DIRECTORS WHOSE TERMS EXPIRE IN 2005
DIRECTORS WHOSE TERMS EXPIRE IN 2006
COMPANY STOCK OWNERSHIP
STOCK OWNERSHIP OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
OWNERS OF MORE THAN 5% OF COMPANY STOCK
EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE
2003 STOCK OPTION GRANTS
2003 AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
PENSION PLANS
EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
REPORT OF THE COMPENSATION COMMITTEE
STOCK PERFORMANCE GRAPHS
REPORT OF THE AUDIT/FINANCE COMMITTEE
OTHER AUDIT INFORMATION
EXHIBIT A FLOWSERVE CORPORATION 2004 STOCK COMPENSATION PLAN
Table of Contents
Article 1 Introduction
Article 2 Definitions
Article 3 Administration
Article 4 Eligibility
Article 5 Shares Subject to Plan
Article 6 Grant of Awards
Article 7 Award Period; Vesting
Article 8 Exercise of Award
Article 9 Amendment or Discontinuance
Article 10 Term
Article 11 Adjustments, Dissolution or Liquidation
Article 12 Effect of Change in Control
Article 13 PARTICIPANT DEFERRAL OF RESTRICTED STOCK
Article 14 Liquidation or Dissolution
Article 15 Miscellaneous Provisions