KEY MANAGEMENT CHANGE IN CONTROL SEVERANCE PLAN, AS AMENDED AND RESTATED

Exhibit 10.40

FLOWSERVE CORPORATION
KEY MANAGEMENT CHANGE IN CONTROL SEVERANCE PLAN
AS AMENDED AND RESTATED EFFECTIVE NOVEMBER 12, 2007

ARTICLE 1. ESTABLISHMENT AND PURPOSE

     1.01 Flowserve Corporation, a New York corporation (the “ Company ” or “ Corporation ”), hereby establishes this plan to be known as the “Flowserve Corporation Key Management Change in Control Severance Plan” (the “ Plan ”) as set forth in this document.

     1.02 The Company may from time-to-time become involved in possible Change in Control situations. Should this occur, in addition to their regular duties, Employees may be called upon to assist in the assessment of any third-party or internal proposals, advise management and the Board as to whether such proposals would be in the best interests of the Company and its shareholders, participate in successfully completing such transactions and take such other actions as the Board might determine appropriate.

     1.03 This Plan has been established for the purpose of assuring that the Company will have the continued dedication of the Participants, and the availability of Participants’ advice and counsel as to the best interests of the Company and its shareholders, notwithstanding the possibility, threat, or occurrence of a Change in Control, and to induce Participants to remain in the employ of the Company through the provision of certain protections in the event of a qualifying Change in Control.

     1.04 As approved by the Committee, the Plan shall become effective as of November 12, 2007, and shall remain in effect until terminated by the Committee.

     1.05 Notwithstanding anything to the contrary herein, nothing in this Plan shall adversely affect the rights an individual Employee may have to severance payments under any written agreement executed by and between the Company and that Employee or any under other severance plan sponsored by the Company (an “ Alternate Severance Arrangement ”); provided, however, that in the event any Employee that is a party to or eligible to receive benefits under an Alternate Severance Arrangement suffers a Separation from Service and is entitled to and is receiving the severance benefits intended to be provided under such Alternate Severance Arrangement, such Employee shall not be entitled to receive severance benefits pursuant to this Plan. In addition, once an Employee begins receiving benefits pursuant to this Plan, he or she shall no longer be eligible to receive any benefits under any Alternate Severance Arrangement.

ARTICLE 2. DEFINITIONS

     2.01 “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.

     2.02 “Board” or “Board of Directors” means the Board of Directors of the Company.

     2.03 “Cause” means: (A) the willful and continued failure by a Participant to substantially perform his or her 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 or

she 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. No act, or failure to act, shall be considered “willful” if, in the Participant’s sole judgment, the action or omission was done, or omitted to be done, in good faith and with a reasonable belief that his or her 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 or her 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, at a meeting of the Board 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), finding that in the good faith opinion of the Board the Participant was guilty of conduct set forth above in clause (A) or (B) of this Article 2.03, and specifying the particulars thereof in detail.

     2.04 “Change in Control” shall mean the occurrence of any of the following:

	(A)		On the date any “Person” (as defined in subparagraph (E) below) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person) ownership of stock of the Company possessing thirty percent (30%) or more of the total voting power of the stock of the Company (the “ Voting Stock ”); other than an acquisition (1) directly from the Company; (2) by the Company or any Subsidiary; (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary; (4) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in subparagraph (C)(1) and (2) are satisfied; or (5) by any Person who is considered to own stock of the Company constituting thirty percent (30%) or more of the Voting Stock immediately prior to such additional acquisition. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the “ Subject Person ”) acquired ownership of stock of the Company possessing thirty percent (30%) or more of the Voting Stock as a result of the acquisition of the Voting Stock, which, by reducing the number of shares of Voting Stock, increases the proportional number of shares owned by the Subject Person; provided, however, that if following such acquisition of shares of Voting Stock by the Company, the Subject Person acquires additional Voting Stock which increases the percentage ownership of the Subject Person to an amount that would constitute thirty percent (30%) of the then outstanding Voting Stock (excluding any shares of Voting Stock previously acquired by the Company), then a Change in Control shall then be deemed to have occurred; or
	(B)		On the date a majority of members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of the appointment or election; provided, however, that any such director shall not be considered to be endorsed by the Board if his or her initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation; or

	(C)		On the date of consummation of a reorganization, merger, or consolidation, in each case, immediately following which a Person owns stock of the Company that, together with stock held by such Person prior to such reorganization, merger or consolidation, constitutes more than fifty percent (50%) of the total fair market value of the Company; unless, following such reorganization, merger or consolidation: (1) more than fifty percent (50%) of the then outstanding Voting Stock is owned, directly or indirectly, by all or substantially all of the individuals and entities who were the owners of the Voting Stock immediately prior to such reorganization, merger or consolidation, in substantially the same proportions as their ownership immediately prior to such reorganization, merger or consolidation; or (2) (a) officers of the Company as of the effective date of such reorganization, merger or consolidation constitute at least three-quarters (3/4) of the officers of the ultimate parent company of the corporation resulting from such reorganization, merger or consolidation; (b) elected members of the Board as of the effective date of such reorganization, merger or consolidation constitute at least three quarters (3/4) of the board of directors of the ultimate parent company of the corporation resulting from such reorganization, merger or consolidation; and (c) the positions of Chairman of the board of directors, the Chief Executive Officer and the President of the corporation resulting from such reorganization, merger or consolidation are held by individuals with the same positions at the Company as of the effective date of such reorganization, merger or consolidation.
	(D)		On the date any Person acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person) assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions, unless such assets have been acquired by a corporation with respect to which, following such acquisition, (1) more than fifty percent (50%) of, respectively, the then outstanding shares of stock of such corporation and the combined voting power of the then outstanding voting stock of such corporation (or any parent thereof) entitled to vote generally in the election of directors is then owned, directly or indirectly, by all or substantially all of the individuals and entities who were the owners, respectively, of outstanding stock of the Company and the Voting Stock immediate prior to such acquisition, in substantially the same proportions as their ownership immediately prior to such acquisition; (2) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or a Subsidiary or any Person owning immediately prior to such acquisition, directly or indirectly, twenty percent (20%) or more of all of the outstanding shares of stock of the Company or the Voting Stock, owns, directly or indirectly, twenty percent (20%) or more of all of the then outstanding stock of such corporation or the combined voting power of the then outstanding voting stock of such corporation (or any parent thereof) entitled to vote generally in the election of directors and (3) at least two-thirds (2/3) of the members of the board of directors of such corporation (or any parent thereof) were members of the Company’s Board at the time of the execution of the initial agreement or action of the Board providing for such acquisition of the Company’s assets. For purposes of this subparagraph (D), gross fair market value means the value of the assets of the Company or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. Notwithstanding the foregoing, no Change in Control shall be deemed to occur when there is such a sale or transfer to (1) a shareholder of the Company (immediately before the asset transfer) in exchange for or with respect

to the Company’s then outstanding stock; (2) an entity, at least fifty percent (50%) of the total value or voting power of the stock of which is owned, directly or indirectly, by the Company; (3) a Person that owns directly or indirectly, at least 50% of the total value or voting power of the outstanding stock of the Company; or (4) an entity, at least fifty percent (50%) of the total value or voting power of the stock of which is owned, directly or indirectly, by a Person that owns, directly or indirectly, at least fifty percent (50%) of the total value or voting power of the outstanding stock of the Company. For purposes of the foregoing, a Person’s status is determined immediately after the asset transfer.

(E)

For purposes of subparagraphs (A), (B), (C) and (D) above, “ Person ” shall have the meaning given in Section 7701(a)(1) of the Code. Person shall include more than one Person acting as a group as defined by the Final Treasury Regulations issued under Section 409A of the Code.

     2.05 “Code” means the Internal Revenue Code of 1986, as amended from time to time. References to any Section of the Internal Revenue Code shall include any successor provision thereto.

     2.06 “Company” or “Corporation” means Flowserve Corporation, a New York corporation, its successors and assigns and Affiliates or Subsidiaries of the Company.

     2.07 “Committee” means the Organization and Compensation Committee established and appointed by the Board of Directors.

     2.08 “Constructive Termination” means the termination of a Participant’s employment with the Company within two (2) years after the effective date of a Change in Control, after the occurrence of any or all of the following without the express written consent of the Participant:

	(A)		The assignment to the Participant of any duties inconsistent with his or her position, duties, responsibilities and status with the Company immediately prior to a Change in Control, or a change in his or her reporting responsibilities, titles or offices as in effect immediately prior to a Change in Control, or any removal of the Participant from or any failure to re-elect the Participant to any of such positions, except (i) in connection with the termination of his or her employment for Cause, death or Disability or termination of employment by the Participant for reasons other than Constructive Termination; or (ii) to the extent that such actions do not constitute a material diminution in (1) the Participant’s authority, duties, or responsibilities, (2) the authority, duties, or responsibilities of the supervisor to whom the Participant is required to report, including a requirement that the Participant who solely reports directly to the Board report to a corporate officer or employee instead; or (3) the budget over which the Participant retains authority;
	(B)		A material diminution in the Participant’s base salary (whether deferred or not), based on the annualized base salary measured during the twelve (12) months of the year preceding the date of a Change in Control;
	(C)		The Company’s requiring the Participant to be based anywhere other than either the Company’s offices at which he or she was based immediately prior to a Change in Control or the Company’s offices which are no more than thirty-five (35) miles from the offices at which the Participant was based immediately prior

			to a Change in Control, except for required travel on the Company’s business to an extent substantially consistent with his or her business travel obligations immediately prior to the Change in Control (excluding, however, any travel obligations prior to the Change in Control that are associated with or caused by the Change in Control events or circumstances); or
	(D)		Any other action or inaction that constitutes a material breach by the Company of this Plan, or the terms of any other written agreement between the Participant and the Company under which the Participant provides services to the Company.

Notwithstanding anything to the contrary contained herein, a Constructive Termination shall occur only if the Participant provides written notice to the Company of the occurrence of the event described in this Article 2.08 that constitutes “Constructive Termination” within thirty (30) days of the event’s initial existence, the Company fails to remedy the event within thirty (30) days of its receipt of such notice and the Participant terminates his or her employment no later than thirty (30) days following the end of such cure period.

     2.09 “Defined Termination” means a Separation from Service of an Employee as a result of either (A) an Involuntary Termination or (B) a Constructive Termination.

     2.10 “Disability” means a long-term disability as defined in and meeting the terms and conditions of the Flowserve Corporation Long-Term Disability Plan, as amended, or any successor plans provided such disability definition complies with Section 409A of the Code and the final regulations issued thereunder (the “ 409A Regulations ”). If, at any time during the term of this Agreement, the Company does not maintain a long-term disability plan or maintains a disability plan which has a definition that does not comply with the requirements of Section 409A of the Code and the 409A Regulations, “Disability” shall mean a physical or mental condition which, in the judgment of the Board (excluding the Participant, if applicable) prevents the Participant from performing the essential functions of his/her position with the Company, even with reasonable accommodation, (1) for a period of not less than ninety (90) consecutive days and such condition prevents the Participant from engaging in any substantial, gainful activity and can be expected to last for a continuous period of twelve (12) months or result in death, or (2) such condition can be expected to last for a continuous period of not less than twelve (12) months and the Participant has been receiving income replacement benefits for not less than three (3) months under the Company’s accident and health plan.

     2.11 “Employee” means any person paid through the payroll department of the Company (as opposed to the accounts payable department of the Company) and who receives from the Company an annual IRS Form W-2; provided, however, that the term “Employee” shall not include any person who has entered into an independent contractor agreement, consulting agreement, franchise agreement or any similar agreement with the Company, nor the employees of any such person, regardless of whether that person (including his or her employees) is later found to be an employee by any court of law or regulatory authority.

     2.12 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     2.13 “Involuntary Termination” means any involuntary discontinuance of a Participant’s employment by the Company within two (2) years after a Change in Control, for reasons other than death, Disability or Cause, or any involuntary discontinuance of a Participant’s employment by the Company prior to a Change in Control for reasons other than death, Disability or Cause, provided that such termination (A) occurs within the ninety (90) day period immediately prior to the Change in Control and

after the initiation of discussions leading to a Change in Control, and (B) can be demonstrated to have occurred at the request or initiation of parties to the Change in Control.

     2.14 “Participant” means an Employee chosen by the Committee to participate in the Plan as provided for in Article 3 herein.

     2.15 “Plan” means the Flowserve Corporation Key Management Change in Control Severance Plan, as set forth herein and as hereafter amended from time to time.

     2.16 “Plan Administrator” means the Committee.

     2.17 “Separation from Service” means a termination of services provided by a Participant to the Company whether voluntarily or involuntarily, other than for death or Disability, as determined by the Committee in accordance with Treas. Reg. §1.409A-1(h). In determining whether a Participant has experienced a Separation from Service, the following provisions shall apply:

	(A)		A Separation from Service shall occur when such Participant has experienced a termination of employment with the Company. A Participant shall be considered to have experienced a termination of employment when the facts and circumstances indicate that the Participant and the Company reasonably anticipate that either (i) no further services will be performed for the Company after a certain date, or (ii) that the level of bona fide services the Participant will perform for the Company after such date (whether as an employee or as an independent contractor) will permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed by such Participant (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the Company if the Participant has been providing services to the Company less than thirty-six (36) months).
	(B)		If a Participant is on military leave, sick leave, or other bona fide leave of absence, the employment relationship between the Participant and the Company shall be treated as continuing intact, provided that the period of such leave does not exceed six (6) months, or if longer, so long as the Participant retains a right to reemployment with the Company under an applicable statute or by contract. If the period of a military leave, sick leave, or other bona fide leave of absence exceeds six (6) months and the Participant does not retain a right to reemployment under an applicable statute or by contract, the employment relationship shall be considered to be terminated for purposes of this Plan as of the first day immediately following the end of such six (6) month period. In applying the provisions of this Article 2.17, a leave of absence shall be considered a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for the Company.

     2.18 “Specified Employee” shall mean any Participant who is determined to be a “key employee” (as defined under Code Section 416(i) without regard to paragraph (5) thereof) for the applicable period, as determined annually by the Administrative Committee in accordance with Treas. Reg. §1.409A-1(i). In determining whether a Participant is a Specified Employee, the following provisions shall apply:

	(A)		The Committee’s identification of the individuals who fall within the definition of “key employee” under Section 416(i) of the Code (without regard to paragraph (5) thereof) shall be based upon the twelve (12) month period ending on each December 31st (referred to below as the “identification date”). In applying the applicable provisions of Section 416(i) of the Code to identify such individuals, “compensation” shall be determined in accordance with Treas. Reg. §1.415(c)-2(a) without regard to (i) any safe harbor provided in Treas. Reg. §1.415(c)-2(d), (ii) any of the special timing rules provided in Treas. Reg. §1.415(c)-2(e), and (iii) any of the special rules provided in Treas. Reg. §1.415(c)-2(g); and
	(B)		Each Participant who is among the individuals identified as a “key employee” in accordance with part (a) of this Article shall be treated as a Specified Employee for purposes of this Plan if such Participant experiences a Separation from Service during the twelve (12) month period that begins on the April 1st following the applicable identification date.

     2.19 The masculine pronoun shall be construed to mean the feminine and the singular shall be construed to mean the plural, wherever appropriate herein.

ARTICLE 3. ELIGIBILITY AND PARTICIPATION

     3.01 Only Employees shall be eligible to participate in the Plan. Independent contractors and employees of third parties who are performing work on behalf of the Company, whether part time, full time, or temporary, shall not be eligible to participate in the Plan.

     3.02 Participation in the Plan shall be determined from time to time by the Committee; provided that on or after a Change in Control, the Committee may not exclude any Participant from participation in the Plan. Participants shall be notified of their participation in the Plan in writing, and shall be apprised of the terms of the Plan as soon as is practicable following the Committee’s determination.

     3.03 No Employee shall at any time have a right to participation in the Plan, despite having previously participated in the Plan.

ARTICLE 4. PROTECTIONS PROVIDED UPON A CHANGE IN CONTROL

     4.01 Except as otherwise provided herein, upon the consummation of a Change in Control, all service and other vesting requirements associated with Participants’ then outstanding stock options, restricted stock, restricted stock units, performance shares or other stock-based long-term incentive grants (collectively, the “ Equity Awards ”) will be determined in accordance with the provisions of the applicable plans in effect on the date of the Change in Control governing such Equity Awards; provided that protections provided for under each of the applicable plans in effect on the date of the Change in Control provide at a minimum (A) full vesting of rights to all unvested Equity Awards, including any such awards for which vesting is based upon active and incomplete long-term incentive program performance cycles and (B) credit for satisfaction of other service requirements associated with Participants’ Equity Awards, in the event that such minimum rights are not accorded to Participants determined in accordance with the provisions of the applicable plans, the minimum requirements provided for in this Article 4.01 shall prevail.

     4.02 In making its election, the Board shall have a fiduciary responsibility to consider the tax consequences to Participants of alternative arrangements, but shall not be required to compensate Participants for the tax consequences resulting from the establishment of such arrangements.

ARTICLE 5. PROTECTIONS PROVIDED UPON SEPARATION FROM SERVICE FOLLOWING A CHANGE IN CONTROL

     5.01 Participants terminated in a manner qualifying as a Defined Termination will be entitled to payment of the following:

(A)

For services performed through Separation from Service:

	(i)		base salary, (whether deferred or not), at the Participant’s annual base salary rate, (1) as based on the highest annualized monthly base salary rate measured during the twelve (12) months of the year preceding Separation from Service or (2) if higher, in effect at the time of Separation from Service or (3) if higher, in effect on the date of the Change in Control;
	(ii)		amounts (whether deferred or not), if any, with respect to any completed period or periods which have been earned by or awarded to the Participant pursuant to any bonus or incentive compensation plan or arrangement but which has not yet been paid to the Participant; and
	(iii)		amounts equal to a target bonus or target annual incentive, (whether deferred or not), (1) in effect at the time of Separation from Service or (2) if higher, in effect on the date of the Change in Control; pro-rated based upon the number of calendar days in the performance period during which the Separation from Service occurs.

(B)

In lieu of any further base salary, bonus, or incentive compensation payments for periods subsequent to Separation from Service, an amount equal to 100% of the sum of:

(i)

the Participant’s annual base salary rate, (whether deferred or not), (1) as based on the highest annualized monthly base salary rate measured during the twelve (12) months of the year preceding Separation from Serv