Contents

Article 1.		Establishment and Purpose			1
Article 2.		Definitions			1
Article 3.		Administration			6
Article 4.		Eligibility and Participation			7
Article 5.		Award Determination			8
Article 6.		Payment of Final Awards			10
Article 7.		Termination of Employment			10
Article 8.		Rights of Participants			10
Article 9.		Change In Control			11
Article 10.		Amendments			11
Article 11.		Miscellaneous			11

Flowserve Corporation
Annual Incentive Plan

Article 1. Establishment and Purpose

     1.1 Establishment of the Plan. Flowserve Corporation, a New York corporation (the Company as defined in Article 2 below), hereby establishes an annual incentive compensation plan to be known as the Flowserve Corporation Annual Incentive Plan (the Plan), pursuant to the terms and conditions as set forth herein. The Plan permits the Company to award annual bonuses to Employees of the Company based on the achievement of pre-established performance goals.

     Upon approval by the Board of Directors of the Company (the Board), the Plan shall be effective until December 31, 2010, or until earlier terminated by the Board.

     1.2 Purpose. The primary purposes of the Plan are to: (a) motivate Participants (as defined in Article 2 below) towards achieving annual goals that are within corporate, divisional, group and/or local facility control, and are considered key to the Companys success; (b) encourage teamwork among Participants in various segments of the Company; and (c) reward performance with pay that varies in relation to the extent to which the pre-established goals are achieved.

Article 2. Definitions

     Whenever used in the Plan, the following terms shall have the meanings set forth below:

(a) Affiliate or Subsidiary means any corporation which is a member of a controlled group of corporations (determined in accordance with Section 414(b) of the Code) of which the Company is a member and any other trade or business (whether or not incorporated) which is controlled by, or under common control (determined in accordance with Section 414(c) of the Code) with the Company.

(b) Award Opportunity means the various levels of incentive award payouts that a Participant may earn under the Plan, as established by the Committee pursuant to Sections 5.1 and 5.2 herein.

(c) Board means the Board of Directors of the Company.

(d) Cause, or the local equivalent, means: (i) the willful and continued failure by a Participant to substantially perform his duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Participant by the Board which specifically identifies the manner in which the Board believes that he has not substantially performed his duties, or (ii) the willful engaging by the Participant in conduct materially and demonstrably injurious to the Company,

monetarily or otherwise; provided, however, that if the Participant has entered into an employment agreement that is binding as of the date of the event or action otherwise determined to be Cause, and if such employment agreement defines Cause, such definition of Cause shall apply. No act, or failure to act, shall be considered willful if, in the Participants sole judgment, the action or omission was done, or omitted to be done, in good faith and with a reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Participant shall not be deemed to have terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire authorized membership of the Board, or, if after a Change In Control, the Incumbent Board, at a meeting of the Board or Incumbent Board, as appropriate, called and held for the purpose (after reasonable notice to the Participant and an opportunity for the Participant, together with counsel, to be heard before the Board or Incumbent Board, as appropriate), finding that in the good faith opinion of the Board or Incumbent Board the Participant was guilty of conduct set forth above in clause (i) or (ii) of this Article 2 Section (d). The Participant may also be heard by a representative appointed by the Board or the Incumbent Board.

(e) 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 Exchange Act (excluding any transaction described in Section (e) (i)-(v) below that is specifically determined to not constitute a change in control), provided that, without limitation, such a change in control shall be deemed to have occurred if: