5215 N. O’Connor Blvd, Suite 2300

Irving, Texas 75039

June 30, 2006

NOTICE OF 2005 ANNUAL MEETING

OF SHAREHOLDERS

The 2005 annual meeting of shareholders of Flowserve Corporation (the “Company”) which normally would have been held in 2005, was delayed by the time required to complete and file with the Securities and Exchange Commission (the “SEC”) the Company’s Annual Reports on Form 10-K for the fiscal years ended December 31, 2004 and 2005, which occurred on February 12, 2006 and June 30, 2006, respectively. The 2005 annual meeting of shareholders will be held on August 24, 2006, at 11:00 a.m., local time, at the Flowserve Corporation Learning Center, 4343 Royal Lane, Irving, Texas 75063. If you were a shareholder of record of the Company’s common stock at the close of business on June 29, 2006, you are entitled to notice of and to vote at the annual meeting.

At this meeting the Company will ask you to:

The compensation information contained in the enclosed proxy statement relates primarily to the fiscal year ended December 31, 2004. For compensation and other information relating to the fiscal year ended December 31, 2005, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed with the SEC on June 30, 2006 and the proxy statement relating to the 2006 annual meeting of shareholders filed with the SEC on June 30, 2006.

The enclosed proxy statement contains information you should read and consider before you vote.

Your vote is important. Whether or not you plan to attend the meeting in person, the Company requests your vote. Please to vote by completing and mailing the proxy card in the enclosed envelope or using the telephone or Internet. Thank you in advance for voting.

TABLE OF CONTENTS

5215 N. O’Connor Blvd., Suite 2300

Irving, Texas 75039

2005 ANNUAL MEETING OF SHAREHOLDERS

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, a New York corporation (the “Company”), of proxies to be voted at the 2005 annual meeting of shareholders, which is being held on August 24, 2006, and at any adjournment or postponement. This proxy statement and form of proxy are first being mailed to shareholders on or about July 17, 2006.

This proxy statement and the enclosed proxy card contain information about the election of directors and amendments to certain former stock option and incentive plans that you may vote on at the annual meeting.

The majority of the information contained in this proxy statement relates primarily to the fiscal year ended December 31, 2004. For information relating to the fiscal year ended December 31, 2005, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission (the “SEC”) on June 30, 2006 and the proxy statement relating to the 2006 annual meeting of shareholders filed with the SEC on June 30, 2006.

Who May Vote and Number of Votes

If you are a shareholder of record at the close of business on June 29, 2006, you may vote on the matters discussed herein. You have one vote for each share you own.

How to Vote

Voting by Proxy Holders for Shares Registered in the Name of a Brokerage Firm or Bank. If your shares are held by a broker, bank or other nominee (i.e., in “street name”), you will receive instructions from your nominee, which you must follow in order to have your shares voted.

Voting by Proxy Holder for Shares Registered Directly in the Name of Shareholder. If you hold your shares in your own name as a holder of record, you must instruct the proxy holders named in the enclosed proxy card how to vote your shares by using the toll-free telephone number or the Internet website set forth below or by signing, dating and mailing the enclosed proxy card to National City Bank in the enclosed envelope. Each of these voting methods is described below:

Changing Your Vote

You may revoke your proxy at any time before it has been exercised by:

Quorum for the Meeting

A majority of the outstanding shares, present or represented by proxy, constitutes 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. Shares as to which the holder abstains from voting on a particular proposal count at the meeting for purposes of determining a quorum.

“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, and withheld votes are not considered “votes cast.” Directors are elected by a plurality of votes cast. The approval of the amendments to certain former stock option and incentive plans described under “Proposal Number Two: Approval of the Amendments to Certain Former Stock Option and Incentive Plans to Extend the Exercise Period of Unexercised Options” requires the affirmative vote of a majority of the votes cast.

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, but it does not include the amendments to certain of our former stock option and incentive plans. “Broker non-votes” on a particular proposal will not constitute votes cast with respect to such proposal.

At the close of business on June 29, 2006, the record date for the annual meeting, the Company had 56,514,546 shares of common stock issued and outstanding (excluding any treasury shares) 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

Shareholder Proposals

The Company will hold its 2006 annual meeting of shareholders on August 24, 2006. As described in the Company’s Current Report on Form 8-K, dated April 25, 2006, advance notice of any nominations for directors and any other items of business for that meeting must have been provided by proposing shareholders to the Company on or before July 5, 2006. Any shareholder proposals must have been submitted in writing to the Company by May 30, 2006, to be considered for inclusion in the Company’s proxy materials for the 2005 and 2006 annual meetings of shareholders. 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 6 of this proxy statement under “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 plan as of the record date for voting at the meeting.

Vote Tabulations

Votes are counted by National City Bank, the Company’s independent transfer agent and registrar. National City Bank is the inspector of elections for the annual meeting.

INFORMATION ABOUT THE BOARD OF DIRECTORS

The Self-Governance Guidelines of the Board contain a formal set of qualification standards with respect to the determination of director independence, which either meet or exceed the independence requirements of the NYSE corporate governance listing standards. Under the Self-Governance Guidelines, only those directors who have no material relationship with the Company (except as a director) are deemed independent. The Self-Governance Guidelines specify the criteria by which the independence of our directors will be determined, including strict guidelines for directors and their immediate families with respect to past employment or affiliation with the Company or its independent registered public accounting firm. See “Board Self-Governance Guidelines” below for more information on these guidelines.

The Board has determined that, other than Lewis M. Kling, each member of the Board, including all persons nominated for re-elections meet the independence standards set forth in the SEC rules and the NYSE corporate governance listing standards. Mr. Kling is not considered independent, as he serves as

Meetings of the Board

The Board held 5 regular meetings and 7 special meetings in 2004. Executive sessions of non-management directors are normally held at least 5 times a year. Any non-management director may request additional executive sessions to be scheduled. Shareholders may communicate with the Company’s non-management directors by following the instructions set forth in “Shareholder Communications with the Board” below.

Board members customarily have attended the Company’s annual meetings of shareholders. In 2004, each director attended at least 90% of the meetings of the Board held during the period for which he or she has been a director and the meetings of the Board committees on which he or she served.

Non-Executive Chairman of the Board

Kevin E. Sheehan, as non-executive Chairman of the Board, presides over both regular sessions of the Board and executive sessions of the Board where only non-employee directors are present. He approves the agendas for Board meetings in advance. He also serves as a member of the Finance Committee and as an alternate member of all other Board committees. Mr. Sheehan generally attends all committee meetings, where possible.

Committees of the Board

Effective January 1, 2005, the Board separated its Audit/ Finance Committee into an Audit Committee and a Finance Committee. Effective January 1, 2005, the Board also renamed its Compensation Committee as the Organization and Compensation Committee. As a result, the Board presently maintains an Audit Committee, a Finance Committee, an Organization and Compensation Committee and a Corporate Governance and Nominating Committee. Only independent directors are eligible to serve on Board committees.

Each committee is governed by a written charter. The charters of the Audit Committee, Finance Committee, Organization and Compensation Committee and Corporate Governance and Nominating Committee are available on the Company’s website at www.flowserve.com under the “Investor Relations — Governance” caption. These documents are also available in print to any shareholder who submits a written request to Michael E. Conley, Vice President, Investor Relations, Flowserve Corporation, 5215 N. O’Connor Blvd., Suite 2300, Irving, Texas 75039.

Audit Committee

The Audit Committee is currently composed of three directors, Charles M. Rampacek, James O. Rollans (Chairman) and William C. Rusnack. During 2004, the members of the committee were Diane M. Harris (Chairman), Charles M. Rampacek, James O. Rollans and William C. Rusnack. The Board has determined that Mr. Rollans, former Chief Financial Officer of Fluor Corporation, is a qualified audit committee financial expert under the SEC rules and has accounting and related financial management expertise for purposes of the NYSE corporate governance listing standards. The Board has also determined that all other committee members are financially literate, within the meaning of the NYSE corporate governance listing standards, and meet the independence standards set forth in the SEC rules and the NYSE corporate governance listing standards.

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

The committee meets periodically with the external and internal auditors in executive session to discuss their reports on a confidential basis. In addition, the committee prepares and issues the Report of the Audit Committee located on page 35 of this proxy statement. The committee (formerly structured as the Audit/ Finance Committee in 2004) met 23 times in 2004.

Organization and Compensation Committee

The Organization and Compensation Committee is currently composed of four directors, Christopher A. Bartlett (Chairman), Hugh K. Coble, Roger L. Fix and George T. Haymaker, Jr. During 2004, the members of the committee were Christopher A. Bartlett, Hugh K. Coble, George T. Haymaker, Jr. (Chairman), Michael F. Johnston and Kevin E. Sheehan. The Board has determined that all members of the committee meet the independence standards set forth in the SEC rules and the NYSE corporate governance listing standards.

The committee is responsible for establishing executive compensation for officers, including the Chief Executive Officer 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 as requested by the committee to provide advice directly to the committee. The committee is also responsible for reviewing the management succession plan and for recommending changes in director compensation to the Board. The committee reviews the organizational design, management development plans and managerial capabilities of the Company. The committee also prepares and issues the Report of the Organization and Compensation Committee on executive compensation beginning on page 29 of this proxy statement. The committee met 6 times in 2004.

Corporate Governance and Nominating Committee

The Corporate Governance and Nominating Committee is currently composed of four directors, Christopher A. Bartlett, Michael F. Johnston, Charles M. Rampacek (Chairman) and James O. Rollans. During 2004, the members of the committee were George T. Haymaker, Jr., James O. Rollans and Kevin M. Sheehan (Chairman). The Board has determined that all members of the Committee meet the independence standards set forth in the SEC rules and the NYSE corporate governance listing standards.

The committee is responsible for making recommendations to the Board for the positions of Chairman of the Board, President and Chief Executive Officer and candidates for director. The committee utilizes a variety of methods for identifying and evaluating nominee director candidates. The committee 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 committee through current Board members, professional search firms, shareholders or other persons. The committee generally retains a national executive recruiting firm to research, screen and contact potential candidates regarding their interest in serving on the Board, although the

All identified candidates, including shareholder-proposed nominees, as applicable, 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 Company’s director nomination process for nominating shareholders and its policy regarding the consideration of such nominations is discussed under “Shareholder Director Nominations” below.

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 and articulate leadership skills, possess a global business perspective and demonstrate relevant and successful career experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to responsibly perform all director duties. Each director must represent the interests of all shareholders.

The committee is also responsible for evaluating the annual Chief Executive Officer’s performance review conducted by the Board. Further, the committee reviews and recommends, as deemed appropriate, changes to corporate governance matters consistent with SEC rules and the NYSE corporate governance listing standards. The committee met 4 times in 2004.

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 a director of the Company at that meeting. You may do this by sending a written notice to the Corporate Secretary, Flowserve Corporation, 5215 N. 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 (the “Exchange Act”); 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 Corporate Governance and Nominating Committee for further consideration. The Corporate Governance and Nominating Committee may require any shareholder-proposed nominee to furnish such other information as may reasonably be required to determine the eligibility of such proposed nominee or to assist in evaluating the proposed

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 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 Chief Executive Officer, individual directors and Board performance. The guidelines also establish targets for director stock ownership.

These guidelines require a director to offer his or her resignation when such director’s principal occupation changes during a term of office. Under such circumstances, the Corporate Governance and 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.

The Board’s Self Governance Guidelines, as well as the Company’s Code of Ethics and Code of Business Conduct, are available on the Company’s website at www.flowserve.com under the “Investor Relations — Governance” caption. These documents are also available in print to any shareholder who submits a written request to Michael E. Conley, Vice President, Investor Relations, Flowserve Corporation, 5215 N. O’Connor Blvd., Suite 2300, Irving, Texas 75039.

Shareholder Communications with the Board

Shareholders and other interested parties may communicate with the Board by writing to Kevin E. Sheehan, Chairman of the Board, c/o Flowserve’s Corporate Secretary, 5215 N. O’Connor Blvd., Suite 2300, Irving, Texas 75039. All such communications are delivered to Mr. Sheehan.

DIRECTORS’ COMPENSATION

Basic Annual Retainer Compensation

2004 Basic Annual Retainer Compensation

During 2004, non-employee directors received an annual retainer with an aggregate target value of $85,000 per year. In addition, the chairman of each committee and each committee member received annual committee service fees as described below. The cash portion of the annual retainer was $35,000 and the equity portion had a target grant valuation of $50,000. The equity portion was provided in the form of restricted common stock of the Company having a $50,000 fair market valuation on the grant date. The equity portion of the director annual retainer is generally granted on the date of the annual meeting of shareholders. Voting rights accompanied such restricted stock, which fully vests after one year. This restricted stock was also subject to a holding period prohibiting resale, which is the shorter of five years from the date of grant or one year after the director ceases service on the Board. Directors may elect to defer all or a portion of their annual compensation. Interest was paid on cash deferrals. Directors who elected to defer the cash portion of their annual compensation and to receive it in the form of Company common stock at a later date received a 15% premium on such deferred amounts. During

2005 Basic Annual Retainer Compensation

During 2005, non-employee directors were approved to receive an annual retainer with an aggregate target value of $85,000 per year. The annual retainer was comprised of a cash portion equal to $35,000 and an equity portion with a target grant valuation of $50,000 which was to be granted at the 2005 annual meeting of shareholders. During 2005, non-employee directors received the cash portion of the annual retainer, but did not receive the equity portion as the 2005 annual meeting of shareholders was not held during 2005. In addition, the chairman of each committee and each committee member received annual committee service fees as described below. Directors will receive an equity grant at the 2005 annual meeting of shareholders to be held August 24, 2006 in the form of restricted common stock of the Company having a fair market value of $100,000 on the date of grant, consistent with the increase in annual director compensation described below under “2006 Director Compensation.” Directors will receive this equity grant in addition to their regular 2006 director compensation. Voting rights will accompany such restricted stock, which will fully vest after one year. This restricted stock will also be subject to a holding period prohibiting resale, which is the shorter of five years from the date of grant or one year after the director ceases service on the Board. Directors may elect to defer all or a portion of their annual retainer compensation. Interest was paid on cash deferrals. Directors who elected to defer the cash portion of their annual retainer compensation and to receive it in the form of Company stock at a later date received a 15% premium on such deferred amounts.

Annual Committee Service Fee Compensation

2004 Committee Service Fee Compensation

During 2004, the chairman of each committee and each committee member received the following annual committee service fee compensation:

2005 Committee Service Fee Compensation

During 2005, the chairman of each committee and each committee member received the following annual committee service fee compensation:

Supplemental Compensation

2004 Supplemental Compensation

In July 2004, the Organization and Compensation Committee approved

2005 Supplemental Compensation

On October 12, 2005, the Organization and Compensation Committee approved supplemental compensation to specified directors for their service on special “ad hoc” subcommittees formed during 2005 for the Company’s search of, and transition to, a new Chief Executive Officer. The supplemental compensation was awarded in recognition of services performed by those directors outside their regular Board and committee duties, responsibilities and expectations. The services performed included the negotiation of the separation agreement for the Company’s former Chief Executive Officer, the development of a special senior management retention plan during the search for the new Chief Executive Officer, special recruiting work related to identifying, interviewing and evaluating new candidates for the Chief Executive Officer position and the negotiation of a new employment agreement with Lewis M. Kling in connection with his appointment as President and Chief Executive Officer. The supplemental compensation was based on the number of days each director performed these services and on a per diem payment of $3,500. For these services, each director named below received the supplemental compensation set forth opposite his name:

The supplemental compensation noted above was paid in addition to the basic annual retainer and committee service fee compensation. Each director listed above deferred this supplemental compensation to be received in the form of Company common stock upon his termination of service, except for William C. Rusnack, who received the payment in cash.

Non-Executive Chairman of the Board Compensation

Kevin E. Sheehan began serving as non-executive Chairman of the Board on August 1, 2005. On October 12, 2005, the Organization and Compensation Committee proposed, and the full Board approved, the payment to Mr. Sheehan of $100,000 annually, which began August 1, 2005, for his service as non-executive Chairman of the Board. This payment is in addition to Mr. Sheehan’s basic annual retainer and committee service fee compensation that he receives for serving as a Board member and a committee member. Mr. Sheehan receives this additional compensation on a quarterly basis, in accordance with the pre-established director compensation cycles.

2006 Director Compensation

On April 27, 2006, the Board approved a recommendation from the Organization and Compensation Committee and the Corporate Governance and Nominating Committee to adjust annual non-employee director

PROPOSAL NUMBER ONE: ELECTION OF DIRECTORS

The Board has nominated Roger L. Fix and Lewis M. Kling for election to terms of office to expire at the 2006 annual meeting of shareholders. The Board has also nominated for re-election Michael F. Johnston, Charles M. Rampacek and Kevin E. Sheehan whose terms of office expire at the 2008 annual meeting of shareholders.

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.

Recommendation

THE BOARD RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH OF THE FOLLOWING NOMINEES.

Nominees to Serve Term Expiring at the 2006 Annual Meeting of Shareholders

Roger L. Fix, age 52, was appointed as director in April 2006 and currently serves as a member of the Organization and Compensation Committee. Mr. Fix is currently the Chief Executive Officer of Standex International Corporation (“Standex”), a publicly traded diversified manufacturing and marketing company. He has been its Chief Executive Officer since 2003, President since 2001, and director since 2001. He was its Chief Operating Officer from 2001 to 2002. Before joining Standex, he was employed by Outboard Marine Corporation, a marine manufacturing company, as Chief Executive Officer and President from 2000 to 2001 and Chief Operating Officer and President from 2000 to 2000. He served as its director from 2000 to 2001. He served as Chief Executive Officer of John Crane, a global manufacturer of mechanical seals for pump and compressor applications in the process industry, from 1988 to 2000 and as its President — North America from 1996 to 1998. He was President of Xomox Corporation, a manufacturer of process control valves and actuators, from 1993 to 1996. He was also employed by Reda Pump Company, a manufacturer of electrical submersible pumping systems for oil production, from 1981 to 1993, most recently as Vice President and General Manager/ Eastern Division. He was also employed by Fisher Controls Company, a manufacturer of process control valves and pneumatic and electronic instrumentation, from 1976 to 1981 most recently as Product Marketing Manager.

Lewis M. Kling, age 61, has served as President, Chief Executive Officer and director since August 2005. Prior to August 2005, he served as Chief Operating Officer from 2004 to 2005. Before joining the Company, he served as Group President and Corporate Vice President of SPX Corporation from 1999 to 2004 and as a member of the Board of Directors of Inrange Technologies Corporation from 2000 to 2003. Mr. Kling also served as President of Dielectric Communications, a division of General Signal Corporation, which was purchased by SPX Corporation, from 1997 to 1999.

Nominees to Serve Term Expiring at the 2008 Annual Meeting of Shareholders

Michael F. Johnston, age 59, has served as a director since 1997. He currently serves as Chairman of the Finance Committee and as a member of the Corporate Governance and Nominating Committee. Mr. Johnston is currently the Chief Executive Officer and Chairman of the Board of Visteon Corporation, an automotive components supplier, and has served as Visteon’s President, Chief Executive Officer and Chief Operating Officer at various times since 2000. 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 other senior management positions since 1991. In addition to serving as a director of Visteon, he is a director of Whirlpool Corporation, an appliance manufacturer.

Charles M. Rampacek, age 63, has served as a director since 1998. He currently serves as the Chairman of the Corporate Governance and Nominating Committee and as a member of the Audit Committee. Mr. Rampacek is currently a business and management consultant in the energy industry. Mr. Rampacek served as the Chairman of the Board, President and Chief Executive Officer of Probex Corporation (“Probex”), an energy technology company providing proprietary oil recovery services, from 2000 to 2003. From 1996 to 2000, Mr. Rampacek served as President and Chief Executive Officer of Lyondell-Citgo Refining, L.P., a manufacturer of petroleum products. From 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. In 2005, two complaints requesting recovery of certain costs were filed against former officers and directors of Probex as a result of the bankruptcy of Probex in 2003. These complaints were defended under Probex’s director and officer insurance by AIG, and settlement was reached and paid by AIG with bankruptcy court approval in the first half of 2006. An additional complaint was filed in 2005 against noteholders of certain Probex debt, of which Mr. Rampacek was one. A settlement of $2,000 was reached and approved in the first half of 2006.

Kevin E. Sheehan, age 61, has served as a director since 1990. He currently serves as non-executive Chairman of the Board of Directors and also serves as a member of the Finance Committee. He served as the Company’s Interim Chairman, President and Chief Executive Officer from April 2005 to August 2005. He is a Managing Director of CID Capital, a venture capital firm that concentrates on early-stage and high-growth entrepreneurial companies. He has been a Managing Director at CID Capital since 1994. Before joining CID Capital, Mr. Sheehan was employed by Cummins Engine Company, a manufacturer of diesel engines and related components, for 22 years. He served at Cummins Engine Company as Vice President, Components Group, from 1986 to 1993, Vice President, Worldwide Parts and Service from 1983 to 1986 and Vice President, Computer Systems and Telecommunications from 1980 to 1983.

Directors to Serve Term Expiring at the 2006 Annual Meeting of Shareholders

Diane C. Harris, age 63, has served as a director since 1993 and currently serves as a member of the Finance Committee. She is President of Hypotenuse Enterprises, Inc., a merger and acquisition service and corporate development outsourcing company. Ms. Harris was Vice President of Corporate Development of Bausch & Lomb Incorporated, an optics and health care products company, from 1981 to 1996, when she left to join Hypotenuse Enterprises, Inc. as its President. She was a director of the Association for Corporate Growth from 1993 to 1998 and its elected President from 1997 to 1998. Ms. Harris is also a director of The Monroe Fund, a private investment company.

James O. Rollans, age 63, has served as a director since 1997. He currently serves as the Chairman of the Audit Committee and as a member of the Corporate Governance and Nominating Committee. He is an independent Corporate Director and Corporate Financial Advisor. Mr. Rollans was President and Chief Executive Officer of Fluor Signature Services, a subsidiary of Fluor Corporation from 1999 to 2001. He served as Senior Vice President of Fluor Corporation from 1992 to 1999, as its Chief Financial Officer from 1998 to 1999 and from 1992 to 1994, as its Chief Administrative Officer from 1994 to 1998 and as its Vice President of Corporate Communications from 1982 to 1992. Mr. Rollans is also a director of Encore Credit Corporation, a mortgage finance company, and Advanced Medical Optics, Inc., a developer and manufacturer of ophthalmic surgical and contact lens care products.

Directors Whose Terms Expire at 2007 Annual Meeting of Shareholders

Christopher A. Bartlett, age 62, has served as a director since 2002. He currently serves as Chairman of the Organization and Compensation Committee and as a member of the Corporate Governance and Nominating Committee. He was formerly a director from 1988 to 1993. Dr. Bartlett is an Emeritus Professor of Business Administration at Harvard University. Prior to his academic career, he was a general manager of Baxter Travenol’s French subsidiary and a consultant at McKinsey & Co. Currently, Dr. Bartlett serves as a Chief Executive Officer advisor and management consultant on international strategic and organizational issues to several major corporations.

Hugh K. Coble, age 71, has served as a director since 1994 and currently serves as a member of the Organization and Compensation Committee. He is Vice Chairman, Emeritus, of Fluor Corporation, a major engineering and construction firm. 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. Mr. Coble is also a director of Beckman Coulter, Inc., a company that sells medical instruments.

George T. Haymaker, Jr., age 68, has served as a director since 1997. He currently serves as a member of the Organization and Compensation Committee. Mr. Haymaker has been the non-executive Chairman of the Board of Kaiser Aluminum Corporation, a company that is principally a producer of semi-fabricated aluminum products, since 2001 and non-executive Chairman of the Board of Safelite Auto Glass, a provider of automobile replacement glass, since 2000. Mr. Haymaker was Chairman of the Board of Kaiser Aluminum Corporation from 1994 until May 2001 (non-executive Chairman after January 2000) and its Chief Executive Officer 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. Mr. Haymaker is also a director of CII Carbon, L.L.C., a supplier of calcined coke for aluminum smelters, a director of Mid-America Holdings, Ltd., an aluminum extruder, a director of 360 Networks Corporation, a provider of telecommunication services, a director of Hayes Lemmerz International, Inc., a global supplier of automotive and commercial wheels, brakes and other auto suspension components, and a director of SCP Pool Corp., a distributor of swimming pool and related products.

William C. Rusnack, age 61, has served as a director since 1997 and currently serves as a member of the Audit Committee. He is currently a private investor and independent corporate director. Mr. Rusnack was President, Chief Executive Officer, Chief Operating Officer and director of Premcor Inc. from 1998 to 2002. Before joining Premcor, Mr. Rusnack served for 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. He is also a director and member of the Audit and Executive Committees as well as Chairman of the Compensation Committee of Sempra Energy, an energy services company, and a director and member of the Executive Committee as well as Chair of the Audit Committee of Peabody Energy, a coal producing company.

COMPANY STOCK OWNERSHIP

Stock Ownership of Directors and Certain Executive Officers

The following table sets forth common stock ownership of members of the Board and each Named Executive Officer of the Company listed in the Summary Compensation Table on page 19, individually and as a group, as of June 23, 2006.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities and Exchange Act of 1934 requires the Company’s directors, executive officers and any person owning more than 10% of the class of the Company’s stock to file reports with the SEC regarding their ownership of Company’s stock and any changes in their beneficial ownership. Based on our records, we believe that the Company’s directors and executive officers timely complied with their filing requirements during 2004 and 2005.

Beneficial Owners of More Than 5% of Company Stock

The following shareholders reported to the SEC that they beneficially own more than 5% of the Company’s common stock. We know of no other shareholder holding 5% or more of the Company’s common stock.

EXECUTIVE OFFICERS AND OTHER CORPORATE OFFICERS

The following information presents names, ages, positions and background summaries of the Company’s executive officers and certain other corporate officers.

Andrew J. Beall, age 49, has served as Vice President and President of Flow Solutions Division since 2003. From 1994 to 2003, Mr. Beall served in a number of key U.S. and international management positions with the Company and its predecessor, The Duriron Company, including as Vice President of Flowserve Pump Division, Flow Solutions Division and Flow Control Division in Latin America from 1999 to 2003.

Deborah K. Bethune, age 47, has served as Vice President, Tax, since 2004. Prior to that, she served with Electronic Data Systems Corporation for 17 years, where she held several tax positions, most recently as the Director of International Taxes for the Americas and Asia Pacific regions.

Mark A. Blinn, age 44, has served as Vice President and Chief Financial Officer since 2004. He served as Chief Financial Officer of FedEx Kinko’s Office and Print Services, Inc. from 2003 to 2004, and as Vice President and Treasurer of Kinko’s, Inc. from 2002 to 2003. Mr. Blinn also served as Vice President and Chief Accounting Officer of Centex Corporation from 2000 to 2002 and as Managing Director of Corporate Finance since 1999.

Mark D. Dailey, age 47, has served as Vice President and Chief Compliance Officer since 2005. He served as Vice President, Supply Chain and Continuous Improvement, from 1999 until 2005. Mr. Dailey was Vice President, Supply Chain, and held other supply chain management positions from 1992 to 1999 for the North American Power Tools Division of The Black and Decker Corporation.

Paul W. Fehlman, age 42, has served as Vice President and Corporate Treasurer since 2005. He served as Director of Financial Services and Assistant Treasurer from 2000 to 2005.

Thomas E. Ferguson, age 49, has served as Vice President and President of Flowserve Pump Division since 2003. He was President of Flow Solutions Division from 2000 to 2002, Vice President and General Manager of Flow Solutions Division North America from 1999 to 2000, and Vice President of Marketing and Technology for Flow Solutions Division from 1997 to 1999.

Richard J. Guiltinan, Jr., age 52, has served as Vice President, Controller and Chief Accounting Officer since 2004. Prior to that, he served as a consultant to Chevron on three multinational restructuring and merger integration projects in 2003 and 2002. From 1985 to 2001, Mr. Guiltinan served in accounting and financial management positions at Caltex Corporation, including as Chief Financial Officer from 2000 to 2001.

John H. Jacko, Jr., age 49, has served as Vice President and Chief Marketing Officer since 2005. He was the Vice President, Strategy Marketing and Communications from 2002 to 2005. He served as Division Vice President of FPD Marketing and Customer Management from 2001 to 2002. Mr. Jacko was Vice President of Customer and Product Support for the Engines and Systems Business and held other management roles at Honeywell Aerospace from 1999 to 2001. He was also Vice President of Sales and Service, Commercial Transport, and held other management roles at Allied Signal Aerospace from 1995 to 1999.

Linda P. Jojo, age 41, has served as Vice President and Chief Information Officer since 2004. Prior to that, she served as Chief Information Officer of GE Silicones Division of General Electric Corporation from 2000 to 2004 and held other management positions at General Electric Corporation from 1991 to 2000.

Thomas L. Pajonas, age 50, has served as Flowserve Corporate Vice President and President of Flow Control Division since 2004. Prior to joining the Company, he served as Managing Director of Alstom Transport from 2003 to 2004 and Senior Vice President from 1999 to 2003 of the Worldwide Power Boiler Business of Alstom, Inc. From 1996 to 1999 he served in various capacities as Senior Vice President and General Manager International Operations and subsequently Senior Vice President and General Manager Standard Boilers Worldwide of Asea Brown Boveri.

Joseph R. Pinkston, III, age 51, has served as Vice President, Human Resources since 2005. Prior to that, he served as Senior Vice President, Human Resources of Unisource Worldwide from 2003 to 2004. Mr. Pinkston also served as Vice President, Human Resources of Russell Corporation from 2001 to 2003 and as Vice President, Human Resources of Hussmann International, Inc. from 1995 to 2001.

Jerry L. Rockstroh, age 50, has served as Vice President of Supply Chain and Continuous Improvement Process since late 2005, and as Vice President of Supply Chain during 2005. From 1983 to 2005, he served in various executive level positions within different business units of AlliedSignal/Honeywell, including as World Wide Vice President of Operations & Integrated Supply Chain.

Ronald F. Shuff, age 54, has served as Vice President since 1990 and Secretary and General Counsel since 1988.

EXECUTIVE COMPENSATION

The following table sets forth compensation information for the years 2004, 2003 and 2002 for the individual who served as Chief Executive Officer of the Company during 2004 and five other individuals who served as the most highly compensated executive officers of the Company during 2004. Such officers are collectively referred to as the “Named Executive Officers” of the Company.

Summary Compensation Table

The restricted shares are eligible to receive dividends; however, the Company currently does not declare or pay dividends on its common stock.

2004 Stock Option Grants

The following table shows the number of stock options granted in 2004 to the Named Executive Officers of the Company.

2004 Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

The following table shows the number and value of stock options, both exercisable and unexercisable, as of December 31, 2004, for each Named Executive Officer of the Company.

Equity Compensation Plan Information

Stock Option Modifications

Effective December 14, 2005, the Organization and Compensation Committee of the Board of Directors took action to effectively extend the exercise period of unexercised options which would otherwise expire during the period from June 1, 2005 through December 31, 2006. These extensions affected options held by employees, including executive officers, qualified retirees and directors and are subject to the Company’s shareholders approving the plan amendments described in Proposal Number Two: Approval of the Amendments to Certain Former Stock Option and Incentive Plans to Extend the Exercise Period of Unexercised Outstanding Options. If shareholders do not approve the plan amendments, these extension actions will become void. If such plan amendments are approved, the extensions will be considered a stock modification for financial reporting purposes subject to the recognition of a non-cash compensation charge in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment”. For an additional discussion of the compensation charge, please see Note 8 to the financial statements contained in the Company’s Annual Report on Form 10K for the year ended December 31, 2005.

The Company also extended the option exercise period available following separation from employment for reasons of death, disability and termination not for cause or certain voluntary separations. These extensions also affected options held by employees, including executive officers, and qualified retirees and are not subject to shareholder approval. These extensions were subsequently partially rescinded at the December 14, 2005 meeting of the Organization and Compensation Committee of the Board, and as so modified are currently effective. The exercise period available following such employment separations has been extended to the later of (i) 30 days after the options first became exercisable when our SEC filings have become current and an effective SEC Form S-8 Registration Statement has been filed with the SEC, or (ii) the period available for exercise following separation from employment under the terms of the option as originally granted. This extension is considered for financial reporting purposes as a stock modification subject to the recognition of a non-cash compensation charge in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” of approximately $1 million in 2005. The extension of the exercise period following separation from employment does not apply to option exercise periods governed by a separate separation contract or agreement. For an additional discussion of the compensation charge, please see Note 8 to the financial statements contained in our Annual Report on Form 10K for the year ended December 31, 2005.

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. Beall, Mr. Greer and Mr. Kling) 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:

EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS

Employment Agreement

Lewis M. Kling

The Company entered into an employment agreement with Lewis M. Kling as of July 28, 2005, whereby Mr. Kling agreed to serve as President and Chief Executive Officer beginning on August 1, 2005, and ending on July 31, 2008, with automatic renewal for one-year periods (the “Employment Agreement”). Prior to his appointment as President and Chief Executive Officer, Mr. Kling served as the Company’s Chief Operating Officer after joining the Company in July 2004. Pursuant to terms of the Employment Agreement, Mr. Kling receives an annual base salary of $850,000, subject to increase based on annual reviews. He is also eligible to receive an annual bonus, based on the attainment of certain performance targets established by the Organization and Compensation Committee of the Board, ranging from 0% to 200% of his base salary, as well as to participate in any benefit and incentive plans of the Company on terms no less favorable than those applicable to other senior executives. Additionally, he is entitled to the vesting of 20% of any nonqualified pension benefit that is not yet then vested, provided that he remains employed through July 31, 2008. Under the Employment Agreement, Mr. Kling’s participation in the Company’s Transitional Executive Security Plan was terminated and no payments are due to him under the plan. In lieu of his participation in the plan, the Company made a special one-time lump-sum payment to Mr. Kling of $520,000.

Additionally, the Employment Agreement included a grant of 69,748 shares of the Company’s common stock at an exercise price of $33.86, the fair market value of the shares on the grant date, July 28, 2005. The options vest in three equal annual installments, with vesting to occur upon the first anniversary of the grant date. Mr. Kling was also granted 40,800 shares of restricted common stock which vest on July 28, 2008.

The Employment Agreement provides that if the Company terminates Mr. Kling’s employment other than for cause, death or disability or Mr. Kling terminates his employment for good reason (as these terms are defined in the Employment Agreement) and Mr. Kling has executed and not revoked a release of claims against the Company: (i) the Company will pay to Mr. Kling within 30 days after his employment terminates a lump-sum cash amount equal to the sum of (A) (I) the sum of his annual base salary at the time of termination and (II) the annual bonus earned by him for the bonus year preceding the year in which his employment terminates and (B) a pro-rata portion of the target bonus based on the number of days of service during the bonus year occurring prior to termination of employment; (ii) all stock-based awards held by Mr. Kling that have not yet vested or otherwise become unrestricted shall immediately vest or become unrestricted in full; (iii) the target payment under all dollar-denominated, performance-based long-term incentive compensation programs shall be paid to Mr. Kling in a lump sum in cash within 30 days; and (iv) Mr. Kling shall become fully vested in any nonqualified pension benefit that is not yet vested. Also, provided that Mr. Kling has been continuously employed by the Company for three years (including service prior to July 28, 2005), Mr. Kling (or his current spouse, as the case may be) shall be entitled to purchase health benefit coverage for Mr. Kling and his current spouse (“Continuing Health Coverage”) substantially similar to that available under the Company’s health benefit programs at the cost to the Company of providing such coverage to its actively employed senior executives through, respectively, the period of Mr. Kling’s and his current spouse’s eligibility for coverage under Medicare. Following any such termination, Mr. Kling will also receive any Accrued Compensation (as described below).

If Mr. Kling’s employment is terminated by reason of his death or disability, the Employment Agreement will terminate without further obligations to Mr. Kling other than (i) the Company’s indemnification obligation to Mr. Kling, (ii) the payment of Accrued Compensation, (iii) all stock-based awards that have not yet vested or otherwise become unrestricted shall immediately become vested or otherwise unrestricted in full, (iv) the target payment under all dollar-denominated, performance-based long-term incentive compensation programs will be paid to Mr. Kling (or his estate or beneficiary, as applicable) and (v) Mr. Kling shall become fully vested in any nonqualified pension benefit that is not yet vested.

Separation and Release Agreements

C. Scott Greer

The Company entered into an employment agreement with C. Scott Greer, the Company’s President, Chief Executive Officer and Chairman of the Board, effective as of July 1, 1999. On April 4, 2005, Mr. Greer resigned as the Company’s President and Chief Executive Officer and as a director (including his capacity as Chairman of the Board). His employment agreement included the following compensation: (i) annual base salary equal to $787,670 for 2004, (ii) minimum annual bonus opportunity of no less than 75% of base salary, (iii) participation in the Company’s Long-Term Incentive Plan and (iv) an interest-free loan of $325,738, which was forgiven after the completion of five years of employment with the Company, in recognition of his willingness to promptly relocate and resulting loss of equity on his prior home.

In connection with Mr. Greer’s resignation, the Company entered into a Separation and Release Agreement with Mr. Greer as of April 4, 2005. Pursuant to the agreement, from April 5, 2005, through June 30, 2005, Mr. Greer continued to be an employee of the Company performing such duties as requested by the Board of Directors. During such time, he was entitled to receive the same compensation as payable under his employment agreement and existing compensation programs of the Company. As a condition for Mr. Greer executing a release of claims against the Company, the Company paid Mr. Greer a $810,000 transition allowance. All options and restricted stock held by Mr. Greer and subject to vesting after June 30, 2005 and on or before July 17, 2005, became vested on June 30, 2005, and the options held by him remain exercisable until the later of (i) December 31, 2006, or (ii) if the Company is unable to sell stock due to securities laws or other restrictions on that date, 90 days after the date when stock can be issued by the Company, but not beyond the expiration of the options. All options and restricted stock held by Mr. Greer that were subject to vesting after July 17, 2005, were forfeited. Mr. Greer was also entitled to a furnished office, with telephone and computer service, and secretarial support for the period beginning April 5, 2005, and ending June 30, 2006, as well as reimbursement for certain transition-related fees in an amount not exceeding $25,000. Pursuant to the agreement, Mr. Greer is restricted from competing with the Company for a one-year period.

The Company entered into a Separation and Release Agreement with Ms. Hornbaker as of August 3, 2004, pursuant to which Ms. Hornbaker resigned as the Company’s Vice President and Chief Financial Officer effective June 15, 2004. Pursuant to the agreement, Ms. Hornbaker received her then current base salary for 12 months totaling $351,800 less applicable withholding taxes. She also received any vested benefits in the Company’s benefit, incentive stock or cash compensation plans.

Change-In-Control Arrangements

The Company maintains change-in-control severance plans 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 target bonus or other annual awards under incentive plans; (ii) immediate vesting of previously 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.

Transitional Executive Security Plan

A search for a new Chief Executive Officer was conducted by a transition committee of the Board following the agreement between the Board and C. Scott Greer, former President and Chief Executive Officer, not to renew Mr. Greer’s employment agreement with the Company. The Board adopted a Transitional Executive Security Plan effective as of March 14, 2005 (the “TES Plan”), to promote continuity in management during this transition period. The Board concluded that the TES Plan was appropriate and desirable to promote management stability while the Company was experiencing increased bookings and stronger business conditions in many of its markets. The Board was optimistic about the Company’s business prospects and decided to adopt the TES Plan as a special incentive to retain and motivate the senior management staff during the Chief Executive Officer search period.

The TES Plan provides for two mutually exclusive benefits. First, the Company will pay a cash lump sum equal to 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 commenced employment with the Company. Lewis M. Kling, the President and Chief Executive Officer of the Company, was appointed on August 1, 2005. Second, the Company will pay a cash lump sum equal to 18 months base pay to any participant whose employment is terminated by the Company without cause (as defined in the TES 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 TES Plan, the Company will provide continued welfare benefits for nine 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 TES Plan: Andrew J. Beall, Mark A. Blinn, Mark D. Dailey, Thomas E. Ferguson, John H. Jacko, Linda P. Jojo, Thomas L. Pajonas and Ronald F. Shuff. Certain other corporate officers of the Company also participate in the TES Plan. Mr. Kling’s participation in the TES Plan ended when he

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 2004, the members of the Organization and Compensation Committee were Christopher A. Bartlett, Hugh H. Coble, George T. Haymaker, Jr., Michael F. Johnston and Kevin E. Sheehan. None of the members of the Organization and Compensation Committee was at any time during 2004 an officer or employee of the Company. No member of the Organization and Compensation Committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company’s Board or Organization and Compensation Committee.

REPORT OF THE ORGANIZATION AND COMPENSATION COMMITTEE

The Organization and Compensation Committee of the Board of Directors of the Company (the “Committee”) is currently comprised of Christopher A. Bartlett, Hugh K. Coble, Roger L. Fix and George T. Haymaker, Jr. Each of the members is independent, as determined the Board, and each meets the independence standards set forth by the SEC rules, NYSE corporate governance listing standards and Section 162(m) of the Internal Revenue Code. Mr. Fix recently joined the Committee in April 2006. During 2004, the Committee consisted of only the other three members. No member of the Committee is, or has been in the past, an officer or employee of the Company.

The roles and responsibilities of the Committee involve, among other things, overseeing and directing development of executive compensation policies and programs consistent with, and explicitly linked to, the strategic objectives of the Company and, in turn, the creation of shareholder value. Specific Committee responsibilities are listed below.

Compensation Philosophy and Principles

The Board and Committee believe that strong links should be forged between executive compensation and management’s achievements in increasing shareholder value. This belief should be reflected in the development of compensation programs that provide competitive compensation that is in line with and reflective of Company performance. Listed below are several fundamental principles to which the Committee adheres in discharging its responsibilities for executive compensation.

Among the key metrics and evaluation criteria considered in designing programs and rewards consistent with these fundamental principles are: share price appreciation, revenue growth, earnings growth, cash flow growth and return on investment. Other performance measures and criteria are considered and used to accomplish specific objectives in such areas as focusing operational and strategic attention, developing organizational and management capabilities and motivating appropriate behavior.

The Committee has retained and regularly meets with an independent compensation consultant who assists the Committee in evaluating how well the Company’s compensation programs adhere to the stated philosophies and principles.

Compensation Program Design

The Company’s total rewards program for the CEO and other executives consists of four principal elements.

1.  Base Salaries. Base salaries are set at levels that reflect the competitive marketplace for companies of similar size and complexity and that would be considered competitors of the Company in attracting and retaining high caliber executives.

2.  Annual Incentives. The Annual Incentive Plan (“AIP”) provides for bonuses to executives based on Company and divisional performance relative to specific goals and objectives established at the beginning of each year. Target bonus opportunities for each executive are set as percentages of base salary. Actual bonuses may range from zero up to two times the targets based on performance. The Committee reviews and approves all AIP target bonuses, performance measures and goals annually.

For 2004 and 2005, the primary performance measures established for the AIP were operating income and cash flow.

3.  Long-term Incentives. The Company’s long-term incentive (“LTI”) program consists of three components: cash-based contingent awards, stock options and restricted stock. It is the belief of the Committee that the three components provide a sound balance among risk, motivation and retention. The total target opportunities for the executives are set as percentages of base salary with each component opportunity representing approximately one-third of the total target opportunity. The number of options and restricted shares granted are based on stock option and restricted stock valuations that are updated every three years. The Committee has established, and the Board has approved, guidelines for executive stock ownership. Officers failing to meet their personal ownership target levels are subject to partial forfeiture of their eligibility for awards under the annual stock compensation programs noted below.

4.  Benefits. Benefits offered to executives provide for retirement income and serve as a safety net against illness, disability or death, and in this regard are similar to those offered to all other employees of the Company, except for programs that allow for retirement benefits in excess of that qualified by the tax code. Additional perquisites, such as car allowances and financial planning allowances, are also provided to executives. There were no unusual departures from this policy in 2004.

Deductibility of Certain Executive Compensation

It is the Company’s practice and intent to qualify incentive compensation for the exemption from the deduction limitations of Section 162(m) of the Internal Revenue Code and to be consistent with providing appropriate compensation to executives. Although it is the Company’s intent to qualify compensation for the exemption from the deduction limitations, the Company’s compensation policies and practices have been, and will continue to be, designed to serve the best interests of the shareholders regardless of whether specific compensation qualifies for the exemption.

CEO Compensation

C. Scott Greer, who was the CEO in 2004, participated in the compensation programs described above for the CEO and other executives. Mr. Greer’s base salary in 2004 was $787,670, which was not increased from the level set in 2003. His AIP target opportunity in 2004 was 90% of base salary. He was awarded 32,000 shares of restricted stock and 54,000 stock options in 2004 and was a participant in the 2002 — 2004 cash-based LTI plan, which was designed to pay out at the end of 2004 provided that certain goals were met.

On April 4, 2005, subsequent to the payment of 2004 AIP awards, Mr. Greer resigned as the Chairman, CEO and President of the Company. In connection with his resignation, the Company entered into a separation agreement with Mr. Greer. Under the terms of the separation agreement, Mr. Greer received a transition allowance in the amount of $810,000. Additionally, all restricted stock and stock options held by Mr. Greer that were scheduled to vest in 2005 became vested on June 30, 2005. Consistent with the terms of the separation agreement, one-third of the restricted stock and stock options granted to Mr. Greer in 2004 vested and the remainder were forfeited.

Lewis M. Kling joined the Company as Chief Operating Officer in July 2004 and became the President and CEO in August 2005. In 2004 Mr. Kling received a prorated base salary of $238,462 ($500,000 annualized). His AIP target opportunity in 2004 was 80% of base

As a result of the Company’s performance in 2004, Mr. Greer and Mr. Kling received AIP awards equal to 131% of their respective target opportunities. These above target awards resulted primarily from strong operating cash flow performance which was well above goal and very supportive of the Company’s key 2004 objective of generating cash flow for debt reduction. The actual award was increased by the accelerated leverage features of the plan, which provide proportionately higher awards than the corresponding percentage goal attainment, a plan feature designed to drive performance. The Committee determined the 2004 operating income goal attainment based on February 2005 estimates of 2004 operating income, which did not include subsequent adjustments determined later as part of the delayed financial closing process.

The three-year cash-based LTI plan that ended in 2004 was based on growth in earnings per share. The goal set at the start of 2002 for the cash-based LTI plan was not met nor was the threshold level of performance achieved. Therefore, no awards were made.

Organization and Management Development Philosophy and Principles

The Board and the Committee believe that the people who work for the Company are a key strategic resource and that management should be held accountable for maintaining a pipeline of top talent that ensures all key positions are filled and secure on an ongoing basis. The Committee and the Board further believe that the Company’s organizational capabilities are vital to its achievement of strategic objectives. In administering its responsibilities for organization and management development, the Committee focuses on the following points:

Organization and Management Development Program Overview

For all key positions, particularly the CEO and executive positions, the Committee will maintain an ongoing overview of management succession plans, executive development plans, and strategic staffing plans and processes. The Committee will also monitor the organizational effectiveness and cultural health of the Company. As part of that overview, the

STOCK PERFORMANCE GRAPH

The following graph compares the 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) from 1999 to 2004. It shows an investment of $100 on December 31, 1999, and the reinvestment of any dividends over the following five years.

TOTAL RETURN TO SHAREHOLDERS

(INCLUDES REINVESTMENT OF DIVIDENDS, IF APPLICABLE)

REPORT OF THE AUDIT COMMITTEE

The Audit Committee of the Board of Directors of the Company (the “Committee”) is currently composed of three independent directors, Charles M. Rampacek, James O. Rollans and William C. Rusnack. Mr. Rollans is the current Chairman. The Committee operates under a written charter adopted by the Board. During 2004, the members of the Committee were Diane C. Harris, Charles M. Rampacek, James O. Rollans and William C. Rusnack, each of whom met the independence standards set forth in the SEC rules and NYSE corporate governance listing standards. Ms. Harris was the Committee Chairman during 2004.

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 detailed 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.

Following the Committee’s discussions with management and the independent auditors, including the Committee’s specific review with management of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, and based upon the representations 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, 2004, and the restated consolidated financial statements for the years ended December 31, 2003 and December 31, 2004.

OTHER AUDIT INFORMATION

Relationship with Independent Registered Public Accounting Firms

The Audit Committee has appointed PricewaterhouseCoopers LLP (“PwC”) to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2005. PwC began serving as the Company’s independent registered public accounting firm in 2000. In this role, PwC audits the financial statements of the Company.

Representatives from PwC are expected to be present at the annual meeting and to be available to respond to appropriate questions from shareholders.

Audit and Non-Audit Fees and Services

The table below summarizes the aggregate fees (excluding value added taxes) for professional services incurred by the Company for the audit of its 2004 and 2003 financial statements and other fees billed to the Company by PwC in 2004 and 2003. In general, the Company retains PwC for services that are logically related to or natural extensions of the annual audit.

			2004					2003
AUDIT FEES			$	31,053,831				$	4,804,088
AUDIT RELATED FEES
	Benefit Plan Audits			220,137					184,000
	Sarbanes-Oxley Readiness			—					80,700
TOTAL AUDIT RELATED FEES				220,137					264,700
TAX FEES
	Compliance			182,079					385,560
	Consulting/ Advisory			304,496					140,250
TOTAL TAX FEES				486,575					525,810
ALL OTHER FEES				10,347					—
	TOTAL FEES		$	31,770,890				$	5,594,598

The Audit Committee pre-approved all of the audit and non-audit fees described above for the year ended December 31, 2004 in accordance with its pre-approval policy discussed below. The significant increase in audit fees for the 2004 audit is affected by the length of time required to complete the 2004 audit and the restatement of certain prior years, with the Company filing its Annual Report on Form 10-K for the year ended December 31, 2004, on February 13, 2006.

Audit Committee Pre-Approval Policy

The Audit Committee pre-approves all services, whether audit or non-audit, provided by the PwC

The Audit Committee may delegate its pre-approval authority to the Chairman of the Audit Committee to the extent allowed by law. In the case of any delegation, the Chairman must disclose all pre-approval determinations to the full Audit Committee as soon as possible after such determinations have been made.

PROPOSAL NUMBER TWO: APPROVAL OF THE AMENDMENTS TO CERTAIN FORMER STOCK OPTION AND INCENTIVE PLANS TO EXTEND THE EXERCISE PERIOD OF UNEXERCISED OPTIONS

Background

In May 2005, the Company decided to suspend the exercise of all stock options granted to retired employees who had attained at least age 55 and completed at least 10 years of service (hereinafter “qualifying retirees”), current employees and certain directors under the Company’s stock option and other stock compensation plans. At the time, this suspension was deemed necessary as the Company had not filed on a timely basis a number of periodic reports required to be filed under the Exchange Act, including its Annual Report on Form 10-K for the year ended December 31, 2004, and certain quarterly reports on Form 10-Q. As a result, the Company was not able to issue shares of its common stock upon the exercise of stock options in reliance on the Registration Statements on Form S-8 covering its stock compensation plans.

In light of the suspension of the exercise of outstanding stock options, the Company believed, and continues to believe, that it was appropriate to extend the exercise period of stock options granted to current and qualifying retired employees, as well as certain directors under certain stock option and incentive plans of the Company that have since expired (such expired plans may no longer be used to grant new stock options and are collectively referred to herein as the “former stock option and incentive plans”), if the period for exercise would expire at any time from June 1, 2005 through December 31, 2006. In the absence of such an extension, stock options granted to current and qualifying retired employees, as well as certain directors which were otherwise scheduled to expire during the period from June 1, 2005 through December 31, 2006, would be forfeited due to the exercise suspension, despite the fact that such options had vested and become exercisable in accordance with their terms. It was also the Company’s belief that its ability to retain high-performing employees, including certain executive officers, who are vital to its competitive success, would be jeopardized, and that the value of options already granted to such employees should be preserved during a period when, for reasons beyond such employees’ and directors’ control, they were unable to exercise options which were previously granted. The Company further believes that the forfeiture of options under such circumstances would unfairly disadvantage employees and directors and cause a divergence between their interests and those of the Company. With respect to qualified retirees, such individuals rendered services during periods of active employment based upon the expectation that they would be compensated through exercisable options. The Company believed these expectations should also be honored. Accordingly, on June 1, 2005 and November 1, 2005, the Company extended

In late 2005, the Internal Revenue Service (the “IRS”) issued proposed regulations under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), which for the first time provided specific guidance regarding the manner in which stock options could be extended. Section 409A is a new provision of the Code, which accelerates the time of taxation of certain deferred compensation, and imposes an additional 20% penalty tax and interest upon noncompliant deferred compensation. The Company has concluded, based upon the advice of counsel, that the original extension of the option exercise period should be modified in order to avoid application of Section 409A. Therefore, in accordance with the proposed regulations, the contemplated extension of the options (the regular term of which would have otherwise expired during the period from June 1, 2005 through December 31, 2006), was partially rescinded on December 14, 2005, and the extension proposed hereunder is consistent with the maximum extension permitted under the Proposed Treasury Regulations that would avoid the penalty tax described above. The option extension, as revised, can be implemented only if shareholders approve the amendments to the former stock option and incentive plans described in this Proposal Number Two.

Option Extensions

After considering the factors previously discussed, effective December 14, 2005, the Organization and Compensation Committee of the Board took action to effectively extend unexercised options which would otherwise expire during the period from June 1, 2005 through December 31, 2006, as follows:

These extensions are subject to the Company’s shareholders approving the plan amendments described in this Proposal Number Two. If shareholders do not approve the plan amendments, these extension actions will become void. If such plan amendments are approved, the extensions will be considered a stock modification for financial reporting purposes subject to the recognition of a non-cash compensation charge in accordance with Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (Revised 2004). Our actual charge will be contingent upon many factors, including future share price volatility, risk free interest rate, option maturity, strike price, share price and dividend yield. For an additional discussion of the compensation charge, please see Note 8 to the financial statements contained in our Annual Report on Form 10K for the year ended December 31, 2005.

The following table summarizes all options that are currently outstanding under the former stock option and incentive plans, including options that are not being extended by the amendments to the plans.

OPTIONS EXTENDED BY THE AMENDMENTS TO THE FORMER PLANS

The following table summarizes the options outstanding under the former stock option and incentive plans that have been amended to permit the extension of the exercise period of unexercised options granted in 1995 and 1996. These amendments are subject to shareholder approval and described in this Proposal Number Two.

The Company believes that the extension of the regular term of such stock options is appropriate for the following reasons:

Plan Amendments Subject to Shareholder Approval

The Company’s extension of the exercise period of outstanding stock options that were previously granted under certain former stock option and incentive plans requires the Company to amend the plans. The specific amendments to these former plans require the approval of the Company’s shareholders based upon either the terms of the plans themselves or the shareholder approval requirements of the NYSE. In particular, shareholder approval is required for the amendments providing for extension of the regular exercise term to each of the following former plans:

Accordingly, we are requesting that the shareholders of the Company approve amendments to each of the three affected former stock option and incentive plans referenced above to permit the option extensions. The text of the respective amendments regarding the extension of the regular exercise term under each of the former plans listed above is set forth in Exhibits A through C to this proxy statement, respectively. In each case, the amendment makes changes to the plan that permit the actions taken by the Organization and Compensation Committee in granting the extensions described above.

Description of Plans

A description of each of the above mentioned plans, as amended and restated, is set forth in Exhibits A through C to this proxy statement immediately following the plan’s corresponding amendment. In each case, the description covers the material terms of the applicable plan, after giving effect to the amendment described above.

Federal Income Tax Consequences

The following is a brief summary of certain federal income tax consequences of awards made under the plans listed above based on existing U.S. federal income tax laws. This summary is general in nature and does not address issues related to the tax circumstances

Because certain of the plans listed above provide for awards of various types, this summary covers each of the principal types of awards authorized by the plans.

Incentive Stock Options

A participant under the plan (“Participant”) will not generally recognize any taxable income for federal income tax purposes upon receipt of an incentive stock option or, generally, at the time of exercise of an incentive stock option, except possibly under the alternative minimum income tax rules. 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 receives long-term capital gains treatment on the difference between the price at which the Participant sells the shares and his or her tax basis in the shares (generally the amount paid upon exercise of such options). 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 non-qualified stock option. Upon the exercise of a non-qualified 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. Any option, which is extended beyond its original expiration date through shareholders’ approval of the requested amendments, will be treated as a non-qualified option.

Stock Appreciation Rights

A Participant will not recognize any taxable income for federal income tax purposes upon receipt of a stock appreciation right. Upon the exercise of a stock appreciation right, the amount paid to the Participant 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.

Limited Rights

A Participant will not recognize any taxable income for federal income tax purposes upon receipt of a limited right, which arises in a Change of Control of the Company. Upon the exercise of a limited right, the amount paid to the Participant, based on the “exercise value” of the right in certain specified circumstances, 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.

Tax Deductibility Cap

Section 162(m) of the Code provides that certain compensation received in any year by a “covered employee” in excess of $1 million is non-deductible by the Company for federal

Tax Consequences Associated with the Extension of the Option Period

Certain incentive stock options, which will cease to be qualified as incentive stock options because the option period will be extended beyond the term in which an incentive stock option may be exercised, will become non-qualified stock options by default. As a result of this change, the Company will be entitled to a deduction equal to the amount of the taxable income incurred by the employees who exercise such options. No other tax consequences will arise from the proposed extension of the option period.

Required Vote

Proposal Number Two must be approved by a majority of the votes cast on the proposal, excluding abstentions and broker non-votes.

Recommendation

THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE AMENDMENTS TO CERTAIN FORMER STOCK OPTION AND INCENTIVE PLANS AS DESCRIBED IN THIS PROPOSAL NUMBER TWO.

AMENDMENT OF THE

DURIRON COMPANY, INC. 1989 STOCK OPTION PLAN

      WHEREAS, Duriron Company, Inc. previously adopted the Duriron Company, Inc. 1989 Stock Option Plan (the “Prior Plan”);

      WHEREAS, subsequent to the Prior Plan’s adoption, Flowserve Corporation (“Flowserve”) assumed sponsorship of the Prior Plan;

      WHEREAS, pursuant to Article 13 of the Prior Plan, Flowserve, by action of the Organization and Compensation Committee of the Board (the “Committee”), was permitted to amend the Prior Plan at any time;

      WHEREAS, on December 22, 2005, the Committee approved the continuation of unexercised options, which were granted under the Prior Plan and would otherwise expire during a period in which exercise is not permitted;

      WHEREAS, Flowserve amended and restated the Prior Plan on December 29, 2005 (the “Adoption Date”) by adopting the Flowserve Corporation Amended and Restated 1989 Stock Option Plan (the “Plan”), which: (i) modified the Prior Plan to the extent necessary to avoid the application of Section 409A of the Internal Revenue Code of 1986, as amended, and (ii) pending shareholder approval at Flowserve’s next annual shareholder’s meeting, provided for the continuation of unexercised options that were previously granted under the Prior Plan and would otherwise expire during a period in which exercise is not permitted, as directed by the Committee (the “Option Extension Amendments”), and

      WHEREAS, this amendment illustrates the Option Extension Amendments that were made to the Prior Plan in connection with the adoption of the Plan.

      NOW THEREFORE, effective as of the Adoption Date, the following Option Extension Amendments were made to the Prior Plan:

      1.  Section 1. of the Prior Plan was deleted in its entirety and replaced with the following:

      3.  The following new Sections 2. (u) and 2. (v) were inserted immediately following the definition of the term “Nonqualified Option,” which was contained in Section 2.(r), and the remainder of the Prior Plan was renumbered accordingly:

      4.  Section 6. (b) (ii) of the Prior Plan was deleted in its entirety and replaced with the following:

      5.  Section 9. (e) of the Prior Plan was deleted in its entirety and replaced with the following:

DURIRON COMPANY, INC. 1989 STOCK OPTION PLAN

Purpose of the Plan

The Duriron Company, Inc. 1989 Stock Option Plan, hereinafter referred to in this Exhibit A as the “Plan”, was designed to provide incentives to directors, officers, and other key employees upon whose judgment, initiative, and efforts the long-term growth and success was largely dependent, assist in attracting and retaining such individuals, and increase the identity of interests of such individuals with those of shareholders.

Key Terms of the Plan

The following is a summary of the key provisions of the Plan, assuming that shareholders approve this Proposal Number Two. This summary does not purport to be a complete description of all the provisions of the Plan, and it is qualified in its entirety by reference to the full text of the Plan. A copy of the Plan is attached as Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed, with the SEC on June 30, 2006, and any shareholder who desires to obtain a copy of the Plan may do so by downloading a copy from the Company’s website at www.flowserve.com under “Investor Relations — Section 16 Filings” caption or by submitting a written request to the Company Secretary at Flowserve’s headquarters in Irving, Texas.