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EXHIBIT 10.2
Flowserve Corporation Executive Equity Incentive Plan
amended and restated effective July 21, 1999
I. PURPOSE
The purpose of the Flowserve Corporation Executive Equity Incentive
Plan ("Plan") is as follows:
A. To provide a significant incentive to executive officers to remain
in key leadership roles in Flowserve Corporation (the "Company") by
more closely tying the interests of such officers to the creation of
increased share value and meeting shareholder goals.
B. To require each executive officer to make a personal capital
investment in the Company's common stock.
C. To ensure that each executive officer has a significant personal
stake in the performance of the Company's stock both for the "downside
risk" and the "upside potential" as do other shareholders.
D. To encourage each executive officer to work with his or her peers to
create an effective leadership team benefiting the Company through
leveraging their collective understanding of the business and know-how
to meet the requirements for its success.
II. ELIGIBILITY
A. Executive officers of the Company shall normally be invited to
participate in the Plan upon their appointment by the Board of
Directors to a position rated at least 1600 Hay points or the
equivalent level in another management evaluation system.
In addition, notwithstanding current position level, the following
executive officers shall retain their prior status as Plan participants
as long as they remain active employees in Flowserve.
1. W.M. Jordan. Plan participation effective February 1991.
2. G. A. Shedlarski. Plan participation effective February
1991.
3. R.F. Shuff. Plan participation effective February 1991.
B. Officers recommended for inclusion in the Plan must be confirmed and
approved by the Compensation Committee before any Plan benefit may be
accrued by them.
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III. SUMMARY OF PLAN TERMS AND CONDITIONS
The Plan contains three basic components which apply to executive
officers based on their position.
A. Personal Investment Requirement
1. Plan participants must acquire shares of Flowserve common
stock equal to 10% of the restricted stock granted to them
prior to the first anniversary of their grants noted below.
2. Plan participants must receive at least one-half of any
earnings from the Company's long-term incentive plan in the
form of Flowserve common stock during the 10 years after their
grants noted below.
B. Stock Option Grant
1. Plan participants will receive a stock option grant in the
amount of shares applicable to their position, as shown in the
chart below, under the stock option plan in effect at the time
of their joining the Plan.
2. These grants will be subject to all applicable terms and
conditions described in greater detail in this document.
C. Restricted Stock Grant
1. Plan participants will receive a grant of restricted stock
in the amount of shares applicable to their position, as shown
in the chart below, under the restricted stock plan in effect
at the time of their joining the Plan.
2. These grants will be subject to all applicable terms and
conditions described in greater detail in this document.
D. Grant Chart
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POSITION DESCRIPTION RESTRICTED STOCK INVESTMENT
SHARES OPTIONS REQUIREMENT
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Senior Executive Officer Minimum 2500 Hay points or 15,000 15,000 1,500 shares
equivalent
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Executive Officer Direct Minimum 1800 Hay points or 7,500 7,500 750 shares
Report equivalent
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All Other Board-Appointed Minimum 1600 Hay points or 5,000 5,000 500 Shares
Executive Officers equivalent
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IV. PURCHASE AND PAYMENT OF SHARES
A. As a condition of Plan participation, participants must acquire
shares of Flowserve common stock for themselves or immediate family
members within one year of entry into the Plan equal to 10% of their
restricted stock grant. This acquisition may be made on the open market
or from existing stock options, at the participant's election.
B. All payments from any long-term incentive plan are made to Plan
participants in the following form for ten years after initial
participation in the Plan.
1. Participants must take one-half of any payout from the
long-term incentive plan in the form of Flowserve common
stock, which may be deferred by the Plan participant until
retirement.
2. Participants may elect to take the other half as cash,
stock, deferred cash, or deferred stock.
3. The Compensation Committee may elect, in any year, to
provide the portion of the long-term incentive award payable
that year, which would otherwise be required to be paid out in
stock, as payment in cash to any designated Plan participant
or Plan participants.
C. The one-half long-term incentive payout which is awarded in common
stock as a requirement of the Plan will be valued as follows:
1. The fair market value of Company stock at the time of
issuance will be equal to the amount of cash value of one-half
of the long-term incentive payout.
2. The number of shares due to the Plan participants will not
be determined until the payout date.
3. These shares will not be registered at issuance and may not
be resold for at least two years after issuance and only then
under Rule 144.
D. If a Plan participant sells any of the common stock received as
payment under the long-term incentive plan or sells any of his or her
holdings of common stock, except when approved in advance by the
Compensation Committee, he or she will forfeit an equal amount of
unexercised stock options and restricted stock granted under the Plan
as described hereafter. This forfeiture does not apply to the bonafide
gift of common stock; the use of stock to pay the exercise price or
withholding tax of exercised stock options; or the use of stock to
otherwise increase the net holdings of common stock by the participant.
All of these actions are permitted to continue without penalty.
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V. STOCK OPTION GRANT
A. Plan participants will receive a stock option grant from the Company
in the amount of shares shown on the Grant Chart at the time they enter
the Plan. The option shares will be granted under the stock option
program in place at the time the participants enter the Plan.
B. The options are priced at their current market value on the date of
the grant.
C. The options are not exercisable for one year, but are then
exercisable only to the extent that the Plan participant has acquired
beneficial ownership of shares of common stock subsequent to this
grant.
D. The options granted are nonqualified, with the accompanying tax
consequences, including deductibility of the "spread" (between current
value and purchase price at exercise) for the Company and corresponding
income to the participant.
E. The options are for a 10 year term and expire at that date to the
extent unexercised.
F. Any option is forfeited within 30 days after the participant leaves
the Company for any reason except death, disability, normal retirement
at age 65 or early retirement with the consent of the Compensation
Committee. In such cases, the non-forfeited options shall be prorated
based upon the number of full calendar quarters of participation in the
Plan.
G. Except for certain transfers that may be permitted to immediate
family members pursuant to terms of the stock option plan, all options
are personal to the participant and non-assignable other than by
designation of beneficiary, or if none, by will or the laws of descent
and distribution upon the participant's death.
H. The options are granted without any accompanying stock appreciation
rights.
I. Any other applicable general terms and conditions of the stock
option plan in effect at the time of the grant will apply.
VI. RESTRICTED STOCK GRANT
A. Plan participants will receive a grant of restricted stock from the
Company in the amount of shares shown on the Grant Chart at the time
they enter the Plan. The restricted stock will be granted under the
restricted stock program in place at the time the participants enter
the Plan.
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B. One-half of the shares of this restricted stock grant (2,500, 3,750,
or 7,500 shares, as the case may be) will vest on the fifth anniversary
of the restricted stock grant. The remaining half of the shares will
vest on the tenth anniversary of the restricted stock grant.
C. The restricted shares are forfeited if the Plan participant leaves
the employment of the Company prior to the vesting date for any reason
other than death, disability, normal retirement at age 65 or early
retirement with the consent of the Compensation Committee. If a Plan
participant leaves the Plan for any of the reasons just stated, the
restricted shares will vest on a pro rata basis using actual service in
increments no less than a full calendar quarter.
D. The Restricted Stock will be nonassignable. The Company will retain
the certificate covering the shares until the vesting date, except as
it applies to "deferred shares," as defined in Section VI. H below.
E. Pursuant to the restricted stock plan, the Plan participant will
have dividend and voting rights, regardless of his or her vesting
status, except for any restricted stock deferred under Section VI. H
below. Applicable restrictions will automatically lapse in the event of
a change of control of the Company, notwithstanding the deferral status
of any shares.
F. Except for deferred shares, the taxes resulting from the restricted
stock grant will apply upon the vesting of the stock. If a tax
liability does occur upon vesting of the undeferred restricted stock
granted under the Plan, the Company will provide the Plan participant
sufficient money to pay federal, state, and local taxes arising from
the vesting through a five-year loan, assuming the maximum net
statutory federal, state and local income tax rates apply to the
participant. In addition, to help offset this tax liability Plan
participants will receive an annual bonus equal to the principal and
interest due on the loan that year. This bonus will be payable for a
period of five years provided the participant is still actively
employed by the Company.
G. If the Equity Incentive Plan restricted stock grant vests on a pro
rata basis for any of the reasons outlined in Section VI (c), the
Company will pay a one-time bonus to the affected Plan participant (or
the Plan participant's estate) which is equivalent to the tax liability
for the vested restricted shares, notwithstanding the deferral status
of those shares. This payment will be made at or around the end of the
calendar year of such pro rata vesting.
H. Plan participants may elect to defer receipt and payment of the
restricted shares granted through this Plan until their active service
with the Company has terminated. This restricted stock will be treated
as "deferred shares" in accordance with the provisions of the
restricted stock plan in effect at the time of the participants' entry
into the Plan. As a condition for electing deferral, Plan participants
must take all required actions deemed to be necessary by the
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Company's General Counsel to effect the deferral including, but not
limited to, completion of deferral election forms satisfactory to the
Company and complying with the provisions of the restricted stock plan
governing deferred shares. In order to be valid, all deferral elections
must be appropriately filed with the Secretary of the Company on or
before August 31 of the year preceding the vesting of the restricted
shares.
I. In order to assist the Plan participants in the payment of taxes
arising from the distribution of deferred shares after their active
employment has ended with the Company, the Company will make the
following payment to the Plan participant as determined through the
following procedure.
1. The Company will calculate the total federal, state, and
local income taxes that the Plan participant would have owed
upon the vesting of the restricted shares if they had not been
deferred shares, assuming the maximum net federal, state and
local income tax rates apply to the participant.
2. The Company will accrue an amount equal to one-fifth of
this tax liability calculation.
3. The benefit, equal to this one-fifth calculation, will be
accrued to the Plan participant's account on each anniversary
of the vesting (not to exceed five), provided the Plan
participant is still actively employed by the Company on each
of these anniversary dates.
4. The Company, simultaneous with each accrual, will also
accrue an amount equal to the interest which would be accrued
to a participant's account under the Rabbi Trust if such total
tax liability amount were funded into the participant's cash
account in the Trust on the day of the restricted share
vesting. The amount of the aforementioned cash payment to the
Plan participant electing deferred shares is the amount of
this accrual including the applicable interest credits. This
payment is also to be made within thirty (30) days after the
Plan participant terminates service with the Company. However,
the Plan participant will have no further accrual nor
resulting rights to payment after he or she leaves the service
of the Company.
VII. MISCELLANEOUS
A. The commitment of the Company to enter an eligible executive officer
into this Plan is only effective upon Compensation Committee`s approval
of the executive officer's participation. No other employee of the
Company may participate in any benefit of this Plan without
Compensation Committee approval.
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B. The stock option grant and restricted stock grant are effective
within one full working day after the date of approval by the
Compensation Committee to become a Plan participant.
C. Appropriate legal documentation will be prepared and executed by the
Company and the Plan participants to affirm their respective rights and
obligations. This legal documentation is subject to ratification by
either the Chairman of the Compensation Committee or by the Company's
Chief Executive Officer, where applicable.
D. The Plan is administered by the Compensation Committee of the Board.
E. All applicable legal requirements governing the Plan are also to be
met, including applicable proxy statement disclosures, SEC filings and
other matters.
F. The Plan participants' participation in other Company compensation
programs is not affected by the Plan, provided that an officer shall
not be eligible to receive any other stock option or restricted stock
grants during the calendar year in which he or she begins Plan
participation, unless otherwise specially approved by the Compensation
Committee.
G. A participant's exercise of stock appreciation rights, which were
granted with options outside the Plan, shall have no effect on the
Plan.
H. The number of shares granted under the stock option and restricted
stock provisions of the Plan, or which are required to be purchased by
the participant under Section III. A shall be automatically adjusted
for any stock dividends, stock splits, or similar recapitalizations
affecting the common stock in general.
I. All duties and obligations of a participant under the Plan expire on
the tenth anniversary of his or her initial participation in the Plan,
except with regard to the officer's need to maintain continued
employment with the Company to receive the tax reimbursement funding
described in Section VI. F or its functional equivalent covering
deferred shares described in Section VI. I, whichever is applicable.
J. This amendment and restatement of the Plan supercedes and controls
the prior version of the Plan. However, the Plan rights of any
participant who terminated employment prior to September 1, 1999 shall
be governed by the terms of the Plan in effect prior to this
restatement.
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