UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 11, 2005
FLOWSERVE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
New York 1-13179 31-0267900
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
5215 N. O'Connor Blvd., Suite 2300, Irving, Texas 75039
(Address of Principal Executive Offices) (Zip Code)
(972) 443-6500
(Registrant's telephone number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 Entry into a Material Definitive Agreement.
Transitional Executive Security Plan
------------------------------------
A search for a new chief executive officer is being conducted by a
transition committee of Flowserve Corporation's (the "Company") Board of
Directors following the previously announced joint agreement between the Board
and C. Scott Greer, President and Chief Executive Officer, not to renew Mr.
Greer's employment agreement with the Company. The Board of Directors has
adopted a Transitional Executive Security Plan (the "Plan"), effective as of
March 14, 2005, to promote continuity in management during this transition
period. The Board concluded that the Plan is appropriate and desirable to
promote management stability while the Company is experiencing increased
bookings and stronger business conditions in many of its markets. The Board is
optimistic about the Company's business prospects and decided to adopt the
Plan as a special incentive to retain and motivate the senior management staff
during the chief executive officer search period.
The Plan provides for two mutually exclusive benefits. First, the
Company will pay a cash lump sum equal to twelve (12) months base pay to any
participant who remains employed by the Company through the first anniversary
of the date as of which a new Chief Executive Officer commences employment
with the Company. Second, the Company will pay a cash lump sum equal to
eighteen (18) months base pay to any participant whose employment is
terminated by the Company without cause (as defined in the Plan) before such
date (unless such participant is entitled to benefits under a change in
control severance plan maintained by the Company). In addition, for any
participant who is eligible for such a severance payment under the Plan, the
Company will provide continued welfare benefits for nine (9) months (reduced
by benefits from any subsequent employer), and all outstanding equity awards
granted to the Participant will immediately vest in full and generally remain
exercisable (if applicable) for a period of 180 days following termination of
employment. In either case, the payment of benefits is conditioned upon a
customary release of claims by the Participant.
The following executive officers of the Company participate in the
Plan: Lew Kling, Ron Shuff, Mark Blinn, Cheryl Thompson, Linda Jojo, and John
Jacko. Certain other officers of the Company also participate in the Plan, and
the Company's Organization and Compensation Committee (which administers the
Plan) may name additional participants from time to time.
The foregoing brief summary of the Plan is qualified in its entirety
by the copy of the Plan that is attached hereto as Exhibit 10.1 and
incorporated herein by reference.
2004 Annual Incentive Plan Awards and 2005 Salary Adjustments
-------------------------------------------------------------
Effective March 11, 2005, the Company's Organization and Compensation
Committee approved 2004 Annual Incentive Plan ("AIP") awards to certain
executive officers in the amounts set forth in the chart below. The chart also
sets out the base salaries of those executives as adjusted for 2005.
Executive Salary AIP Award
- --------- ------ ---------
Scott Greer $810,000.00 $917,700.00
Lew Kling $520,000.00 $256,468.85
Ron Shuff $310,500.00 $194,683.50
Mark Blinn $406,500.00 $42,983.60
Cheryl Thompson $264,500.00 $154,698.00
Linda Jojo $258,500.00 $61,968.03
John Jacko $253,000.00 $145,521.00
The AIP awards noted above were calculated and granted pursuant to
the AIP formula which was established and approved by the Organization and
Compensation Committee in early 2004. This formula contained target metrics
for corporate cash flow and operating income. The Company announced on
February 7, 2005 that it had generated sufficient cash to repay debt totaling
$210 million, which was far above the AIP target. In calculating operating
income under the AIP formula, certain special compliance costs relating to the
Sarbanes-Oxley Act of 2002 were excluded, since these were deemed to be, for
the purposes of the AIP, unusual expenses outside the AIP formula. The Company
also announced on February 7, 2005 that it had incurred approximately $16
million of increased costs for Sarbanes-Oxley compliance in 2004.
The AIP awards for Mr. Kling, Mr. Blinn and Ms. Jojo noted above were
reduced on a pro-rata basis to reflect the fact that they joined the Company
during 2004 and thus reflect their actual months of Company service during the
year.
ITEM 9.01. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit No. Description
- ----------- -----------
Exhibit 10.1 Flowserve Corporation Transitional Executive Security Plan
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FLOWSERVE CORPORATION
Dated: March 17, 2005 By: /s/ Ronald F. Shuff
------------------------
Ronald F. Shuff
Vice President, Secretary and
General Counsel
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
Exhibit 10.1 Flowserve Corporation Transitional Executive Security Plan
Exhibit 10.1
FLOWSERVE CORPORATION
TRANSITIONAL EXECUTIVE SECURITY PLAN
1. Purpose. In recognition that the transition to a new Chief
Executive Officer creates a period of unusual uncertainty for employees, the
Company has adopted this Transitional Executive Security Plan to provide
certain employees additional security and incentive to remain with the Company
through the period of transition.
2. Definitions. For purposes of the Plan:
(a) "Affiliate" shall mean any company that controls, is controlled
by, or is under common control with the Company.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean (A) 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 the Participant has not substantially performed his or her
duties, or (B) the willful engaging by the Participant in conduct materially
and demonstrably injurious to the Company, monetarily or otherwise; provided,
however, that if the Participant has entered into an employment agreement that
is binding as of the date of the event or action otherwise determined to be
"Cause," and if such employment agreement defines "Cause," such definition of
"Cause" shall apply for purposes of this Plan.
(d) "Company" shall mean Flowserve Corporation and any successor
thereto.
(e) "Committee" shall mean the Organization and Compensation
Committee of the Board.
(f) "Effective Date" shall mean March 14, 2005.
(g) "Participant" shall mean those individuals identified on Exhibit
A hereto and such other individuals as the Committee may designate from time
to time.
(h) "Plan" shall mean this Flowserve Corporation Transitional
Executive Security Plan, as set forth herein and as it may be amended from
time to time.
(i) "Retention Payment" shall mean, with respect to each Participant,
a cash lump sum payment equal to twelve (12) months base pay (determined as of
the Retention Payment Date).
(j) "Retention Payment Date" shall mean the first anniversary of the
date as of which a new Chief Executive Officer commences employment with the
Company after the Effective Date.
(k) "Severance Payment" shall mean, with respect to each Participant,
a cash lump sum payment equal to eighteen (18) months base pay (determined as
of the date of the Participant's termination of employment).
2. Effective Date; Termination Date. The Plan was adopted by the
Company effective as of the Effective Date. The Plan shall automatically
terminate as of the Retention Payment Date, provided that any Retention
Payments or Severance Payments that are then payable but which have not yet
been paid shall be paid in accordance with the terms of the Plan as in effect
immediately before its termination.
3. Administration. The Plan shall be administered by the Committee.
The Committee shall have the sole and discretionary authority to interpret the
Plan and to make all determinations that it deems necessary or desirable for
the administration of the Plan. The determinations of the Committee with
respect to the Plan shall be binding on all parties. Neither the Board, the
Committee, any member thereof or any other person to whom any duty or power
relating to this Plan has been delegated shall be personally liable for any
action, determination or interpretation made in good faith with respect to the
Plan, and the Company shall indemnify and hold harmless each such individual
with respect to any such authorized action, determination or interpretation.
4. Retention Payment. Provided that a Participant has remained in the
continuous employment of the Company or its Affiliates from the Effective Date
until the Retention Payment Date, the Company shall pay a Retention Payment to
the Participant on or as soon as practicable after the Retention Payment Date
(but not earlier than would be required to cause such payment to satisfy the
requirements of Section 409A of the Internal Revenue Code of 1986, as amended
("Section 409A"), if applicable).
5. Severance Benefits.
(a) Except as provided in subsection (b), below, if the
Participant's employment is terminated by the Company without Cause
before the Retention Payment Date, then (i) in lieu of any other
severance to which the Participant may be entitled from the Company
or its Affiliates under any other plan, program, agreement or
arrangement, the Company shall pay a Severance Payment to such
Participant on or as soon as practicable following the date of such
termination of employment (but not earlier than would be required to
cause such payment to satisfy the requirements of Section 409A, if
applicable), (ii) all unvested stock options, stock appreciation
rights, restricted stock awards and all other outstanding equity
awards granted to the Participant shall immediately vest in full and,
in the case of options, stock appreciation rights or other similar
awards with a maximum period of exercise, be exercisable for a period
of 180 days following such termination (or such longer period as may
apply under the terms of such option, stock appreciation right or
similar award), provided that in no event shall such post-termination
exercise right extend after the latest date on which such option,
stock appreciation right or similar award would have expired pursuant
to its original terms, and provided further that the post-termination
exercise right shall not be extended pursuant to this clause (ii) to
the extent such extension would cause such option, stock appreciation
right or similar award to be treated as deferred compensation within
the meaning of Section 409A.
(b) No Severance Payment or other benefits otherwise payable
or to be provided in accordance with subsection (a), above, shall be
payable or provided if the Participant terminates employment under
circumstances that entitle the Participant to the payment of
severance benefits under the Flowserve Corporation Executive Officer
Change in Control Severance Plan, the Flowserve Corporation Officer
Change in Control Severance Plan, or the Flowserve Corporation Key
Management Change in Control Severance Plan, each as amended from
time to time and any successors thereto.
(c) If a Participant becomes entitled to a Severance Payment
in accordance with subsections (a) and (b), above, then, for the nine
(9) month period beginning upon the Participant's termination of
employment by the Company, the Company shall arrange to provide the
Participant and his or her dependents (at the Company's discretion,
through a third-party insurer) with medical, dental, life and other
welfare benefits substantially similar to those provided to similarly
situated employees of the Company from time to time during such
period and at no greater cost to the Participant than the cost to
such similarly situated employees from time to time. To the extent
that the Participant (or his or her dependents, as the case may be)
may be entitled to continuation coverage under the Consolidated
Budget Omnibus Budget Reconciliation Act of 1985, as amended, or
similar state or local law ("COBRA"), such benefits shall be in
addition to and not in substitution for such continuation coverage
under COBRA (such that the period of continuation coverage available
under COBRA shall be extended by the period of any coverage provided
in accordance with this subsection (c)), and to the extent that
benefits of the same type are received by or made available to the
Participant or his or her dependents during such nine (9) month
period (which such benefits received by or made available in respect
of the Participant shall be reported by the Participant to the
insurance company or other appropriate party in accordance with any
applicable coordination of benefits provisions), the benefits
otherwise receivable in respect of the Participant pursuant to this
subsection (c) shall be made secondary to such benefits; provided
that the Company shall reimburse the Participant for the excess, if
any, of the cost of such benefits to the Participant over the cost
otherwise to be borne by him or her in accordance with this
subsection (c).
6. Release of Claims. Notwithstanding any other provision of this
Plan, no Retention Payment, Severance Payment, or other benefits shall be
provided to a Participant pursuant to the provisions of Sections 5 and 6
hereof unless and until the Participant executes (and does not revoke) a
customary release of claims in a form and manner reasonably satisfactory to
the Company.
7. Withholding. The Company shall be entitled to withhold from
amounts to be paid to any Participant hereunder any federal, state or local
withholding or other taxes or charges which it is from time to time required
to withhold, and the provision of payments and benefits under the Plan shall
be subject to the satisfaction by the Participant of any such withholding or
other taxes or charges.
8. Amendment and Termination. The Plan may not be amended or
terminated prior to the payment of all amounts that may become due hereunder
without the prior written consent of any affected Participant.
9. Not Compensation for Benefit Plan Purposes. Benefits paid under
this Plan shall not be used to determine benefit amounts under any of the
Company's other benefit programs or the benefit programs of its Affiliates.
10. Assignment or Transfer. Except as otherwise provided herein or by
law, no right or interest of any Participant under the Plan shall be
assignable or transferable, in whole or in part, either directly or by
operation of law or otherwise, including without limitation by execution,
levy, garnishment, attachment, pledge or in any manner; no attempted
assignment or transfer thereof shall be effective; and no right or interest of
any Participant under the Plan shall be liable for, or subject to, any
obligation or liability of such Participant.
11. No Right of Employment. Neither the establishment of the Plan,
nor any modification thereof, nor the creation of any fund, trust or account,
nor the payment of any benefits shall be construed as giving any Participant,
or any person whomsoever, the right to be retained in the service of the
Company or its Affiliates, and all Participants shall remain subject to
discharge to the same extent as if the Plan had never been adopted.
12. Severability. If any provision of the Plan shall be held invalid
or unenforceable, such invalidity or unenforceability shall not affect any
other provisions hereof, and the Plan shall be construed and enforced as if
such provision had not been included.
13. Successors. The Plan shall be binding upon the heirs, executors,
administrators, successors and assigns of the parties, including each
Participant, present and future, and any successor to the Company.
14. Funding Status. The Plan shall be unfunded. No Participant shall
have a right to, or any interest in, any assets of the Company which may be
applied by the Company to the payment of benefits or other rights under the
Plan.
15. Headings. The headings and captions herein are provided for
reference and convenience only, shall not be considered part of the Plan, and
shall not be employed in the construction of the Plan.
16. Governing Law. The Plan shall be construed and enforced according
to the laws of the State of New York, to the extent not preempted by federal
law, which shall otherwise control.