<PAGE>

                                                                    Exhibit 10.7
                                                                       EXHIBIT H
                                                                       ---------



                 EMPLOYEE BENEFITS AND COMPENSATION AGREEMENT



                                    Between

                              APPLIED POWER INC.

                                      and

                                   APW LTD.



                            Dated __________, 2000
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                        <C>
EMPLOYEE BENEFITS AND COMPENSATION........................................ 1

RECITALS.................................................................. 1

ARTICLE I - Additional Definitions........................................ 2

ARTICLE II - Identification of Benefit Plans.............................. 3

ARTICLE III - Employees and Employee Benefits............................. 3
3.1  Employees............................................................ 3
3.2  Allocation of Benefit Payment Responsibility......................... 4
3.3  APW to Indemnify API................................................. 5
3.4  Retirees............................................................. 5
3.5  COBRA................................................................ 5
3.6  Personnel and Medical Records........................................ 6
3.7  International Retirement Plan........................................ 6

ARTICLE IV - Savings Plan Spinoff......................................... 6
4.1  Spinoff.............................................................. 6

ARTICLE V - Deferred Compensation Benefits................................ 7

ARTICLE VI - Dispute Resolution........................................... 7
6.1  General.............................................................. 7
6.2  Arbitration.......................................................... 7
6.3  Legal Proceedings.................................................... 7

ARTICLE VII - Notices..................................................... 7
7.1  General.............................................................. 7
7.2  Change in Address.................................................... 8

ARTICLE VIII - Written Amendment and Non-Waiver........................... 8
8.1  Written Amendment and Waiver......................................... 8
8.2  Limited Amendment or Waiver.......................................... 8

ARTICLE IX - Miscellaneous................................................ 8
9.1  Governing Law........................................................ 8
9.2  Entire Agreement..................................................... 8
9.3  Parties In Interest.................................................. 9
9.4  Effectiveness........................................................ 9
</TABLE>
<PAGE>

<TABLE>
<S>                                                                        <C>
9.5  Reformation and Severability......................................... 9
9.6  Titles and Headings.................................................. 9
9.7  No Reliance.......................................................... 9
</TABLE>
<PAGE>

                      EMPLOYEE BENEFITS AND COMPENSATION


     This Agreement dated as of __________, 2000 between APPLIED POWER INC., a
Wisconsin corporation with offices at 6101 N. Baker Road, Milwaukee, Wisconsin
53209 ("API"), and APW LTD., a Bermuda corporation with offices at N22 W23685
Ridgeview Parkway West, Waukesha, Wisconsin 53188-1013 ("APW"), shall govern the
rights and obligations of API and its subsidiaries listed on Schedule 1 and APW
and its subsidiaries listed on Schedule 2 with respect to the employees
(including their compensation and benefits) in connection with the transactions
effected by the Contribution Agreement as defined below.  The term "API" when
used in this Agreement shall not be construed to include APW and its
subsidiaries where such construction would have the effect of negating any
obligation of APW and its subsidiaries or API and its subsidiaries hereunder.
The term APW when used shall not be construed to include API and its
subsidiaries where such construction would have the effect of negating any
obligation of API and its subsidiaries (exclusive of APW and its subsidiaries)
or APW and its subsidiaries hereunder.  After the spin-off (described below),
API will continue to own and operate its industrial business.

                                   RECITALS

     WHEREAS, API hereby and by certain other instruments of even date herewith
transfers or will transfer to APW effective as of 12:01 a.m., Central Standard
Time, __________, 2000 or such other date as specified in the Contribution
Agreement, Plan and Agreement of Reorganization and Distribution ("Contribution
Agreement") dated as of __________, 2000 as the effective date ("Effective
Date"), those assets of API related to API's electronics and related enclosure
products as conducted by those businesses listed on Schedule 2 in accordance
with the Contribution Agreement between the parties, and including, without
limitation, assets associated with the past, present and future development,
production, manufacture, marketing, use, storage, distribution, disposal and
sale of certain enclosures and related products manufactured by the electronics
solutions business throughout the world and certain API corporate assets.

     WHEREAS, the assets, business and operations formerly and currently used
and conducted by the Electronics Business are herein referred to collectively as
the "Electronics Business."

     WHEREAS, the parties hereto intend, by this Agreement and the other
agreements and instruments provided for in the Contribution Agreement, to convey
to APW substantially all of the business and assets of the Electronics Business.

     NOW THEREFORE, in consideration of the premises and the mutual promises
contained in this Agreement, the Contribution Agreement and in the other
agreements and instruments provided for in the Contribution Agreement, the
parties hereto agree as follows:

                                      H-1
<PAGE>

                                   ARTICLE I

                            Additional Definitions
                            ----------------------

     "Active Electronics Business Employees" means employees of API and its
subsidiaries who are actively working for the Electronics Business immediately
prior to the Effective Date, including those employees listed on Exhibit H-1.

     "Benefit Plans" means, collectively, all Pension Plans, Welfare Plans and
Other Benefit Plans maintained by API and its subsidiaries and covering
Electronics Business Employees or their dependents or beneficiaries.

     "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

     "Hired Electronics Business Employees" means all Active Electronics
Business Employees and Inactive Electronics Business Employees described in
Section 3.1(a).

     "Inactive Electronics Business Employees" means employees of API and its
subsidiaries who would have been Active Electronics Business Employees except
that they are not actively working for the Electronics Business immediately
prior to the Effective Date solely by reason of vacation, sick leave, family or
medical leave, military leave, short-term disability leave, long-term disability
leave, leave compensated by workers' compensation or other leave of absence or
layoff or strike, but excluding persons for whom the employment relationship has
been finally terminated whether by retirement, discharge, quit or death, and
excluding persons who prior to the Effective Date have, pursuant to procedures
established by API and its subsidiaries, elected to transfer to employment with
API and its subsidiaries other than Electronics Business employment.

     "Other Benefit Plans" means any written or oral plan, contract or other
arrangement of benefits or advantage to any group of employees, including
without limitation bonus, profit sharing, deferred compensation, stock purchase,
stock option, severance plan, salary continuation, vacation, sick leave, fringe
benefit, incentive, insurance, training program, apprenticeship program, welfare
or similar arrangement (other than a Pension Plan or Welfare Plan) maintained by
API and covering Electronics Business Employees or their beneficiaries or
dependents.

     "Pension Plan" means any employee pension benefit plan, as defined in
Section 3(2) of ERISA, maintained by API and covering Electronics Business
Employees or their beneficiaries.

     "Welfare Plan" means any employee welfare benefit plan, as defined in
Section 3(1) of ERISA, maintained by API and covering Electronics Business
Employees or dependents or beneficiaries of Electronics Business Employees.

                                      H-2
<PAGE>

                                  ARTICLE II

                        Identification of Benefit Plans
                        -------------------------------

     Schedule H-2 sets forth a list of the Benefit Plans maintained by API and
its subsidiaries with respect to Electronics Business Employees.  APW
acknowledges that it has been furnished with descriptions of all Benefit Plans
described on Schedule H-2.  In the event another benefit plan is offered to
Hired Electronics Business Employees which is not listed on Schedule H-2, the
parties agree to allocate financial responsibility between themselves consistent
with the approach taken for similar benefits listed under Schedule H-2.  The
parties agree to resolve any disputes in accordance with the procedures set
forth at Article VI.

     The parties agree that all matters concerning the Worker's Compensation
Plans listed on Schedule H-2, will be treated as set forth in the General
Assignment, Assumption and Agreement regarding Litigation, Claims and Other
Liabilities, dated __________, 2000 ("Exhibit D").

     The parties further agree that all matters concerning the API stock option
plan will be governed by the Release and Settlement Agreement, dated __________,
2000 by and among the employees listed on Schedule H-3.

                                  ARTICLE III

                        Employees and Employee Benefits
                        -------------------------------

      3.1  Employees.  (a)  As of the Effective Date, APW shall offer employment
           ---------
to all persons who are Active Electronics Business Employees.  APW shall on the
Effective Date assume the employment responsibilities for each Inactive
Electronics Business Employee and shall offer to return each such employee to a
position with job responsibilities comparable to such employee's prior position
of employment in the Electronics Business if such position is available or if
required by law, or otherwise to any other open position for which such employee
is qualified.

     (b)   All Electronics Business Employees (and their dependents and
beneficiaries) shall be provided compensation and benefits by APW comparable to
compensation and benefits being provided to them by API immediately prior to the
Effective Date.

     (c)   Hired Electronics Business Employees shall be given credit for API
service under APW's benefit plans.

     (d)   (i) API, in good faith, will calculate the estimated liability amount
related to unpaid and accrued vacation and sick day expense earned for the
period __________, _____ through __________, 2000 for those employees listed on
Schedule H-1.  By __________, 2000, API will remit to APW cash equal to 1.0765
times this liability amount.  This remitted amount will be in addition to the
cash APW receives pursuant to Section 1.1 of Exhibit D.

                                      H-3
<PAGE>

          (ii)  APW hereby assumes any and all obligations owed under the API
bonus plan to the Hired Electronics Business Employees listed on Schedule H-1.
API will calculate the liability amount related to the Bonus Plan, utilizing its
unaudited accounting records, (including APW's results from September 1, 1999
through __________, _____) for the fiscal period ending August 31, 2000 assuming
100% of the target amounts met for the Bonus Plan.  After calculating this
liability, API will prorate the amounts owed to reflect the fact that the
Electronics Business' operations were owned for only part of its 2000 fiscal
year.  For purposes of prorating this liability, API and APW will assume ____
and ____, respectively, of this liability.  By _____________, 2000 API will
remit cash to APW equal to 1.0765 times API's liability amount.

          (iii) APW will assume all liability related to Hired Electronics
Business Employees' payroll taxes listed on Schedule H-1.  APW will remit the
payroll taxes to the appropriate regulatory authorities.  API will not be
responsible for any of the payroll taxes relating to Hired Electronics Business
Employees.

          (iv)  APW hereby assumes the obligation to pay any and all benefits
accrued by Hired Electronics Business Employees under the non-qualified
executive deferred compensation plan and the stock deferral plan.  On
__________, 2000 API will remit cash to APW in the amount of $__________ in
consideration of its assumption of this liability.

          (v)   Any disputes concerning the calculation of the liability will be
resolved by the dispute resolution provisions of this Agreement.

     (e)  Both before and after the Effective Date, API and APW shall coordinate
with each other and shall take all actions necessary to effect the smooth
transfer of Hired Electronics Business Employees and continuing benefit coverage
and administration.

     3.2  Allocation of Benefit Payment Responsibility.  Except as provided in
          --------------------------------------------
this Agreement, APW is not assuming any benefit or compensation program
maintained by API and API is not assigning any such program to APW.  APW's
obligations with respect to such benefit and compensation programs shall be as
described therein.  As to all other Benefit Plans, from and after the Effective
Date APW shall provide Hired Electronics Business Employees with all benefits
and payments which would have been provided to them under the Benefit Plans
(other than stock option or stock purchase plans) with respect to claims for
benefits incurred prior to the Effective Date so long as API would not
ordinarily have paid such benefits in accordance with its ordinary benefit
payment practices prior to the Effective Date.  However, notwithstanding the
foregoing, with respect to (a) health benefits, (b) dental benefits, (c) vision
benefits, (d) life insurance, (e) travel accident insurance and (f) such other
benefits for which an insurance carrier or some party other than API is
responsible, API shall remain responsible, subject to and in accordance with the
terms of the applicable Benefits Plan, for all claims incurred by Hired
Electronics Business Employees prior to the Effective Date even if such claims
are not filed until after the Effective Date.  Further, if any Hired Electronics
Business Employee or dependent is not actively at work by reason of
hospitalization on the Effective Date, API shall retain responsibility for the
payment of health care

                                      H-4
<PAGE>

claims until the end of such hospitalization, subject to and in accordance with
the terms and conditions of the applicable health benefits plan as in effect on
the Effective Date.

     3.3  APW to Indemnify API.  APW shall indemnify, hold harmless and defend
          --------------------
API from and against any damages, claims (including, but not limited to, unfair
labor practice claims), liabilities, obligations, costs of defense (including
attorney fees), expenses, fines, levies, assessments, charges, penalties,
damages, settlements or awards asserted against API associated with Benefit
Plans or compensation applicable to Hired Electronics Business Employees
(including dependents or beneficiaries, if any) except to the extent liability
has been specifically retained by API in this Agreement, provided that APW's
obligation to indemnify, hold harmless, and defend shall not apply to the extent
(a) an insurance carrier or (b) any party other than API or APW is responsible.
Without limiting the foregoing, it is specifically contemplated that APW's
indemnity shall extend to any claims (except to the extent (a) liability has
been specifically retained by API in this Agreement, (b) an insurance carrier is
responsible, or (c) any party other than API or APW is responsible) made against
API for benefits which would have been provided by API to the Hired Electronics
Business Employees under its Benefit Plans had the Hired Electronics Business
Employees remained API employees throughout the remainder of their careers but
are not provided by APW which would have been applicable to them had they
continued to be covered under the API Benefit Plans.  The parties agree to
generally follow the procedure for notification of a claim for defense or
indemnification and the procedures for obtaining indemnification or defense as
set forth in Articles V and VI of Exhibit D.

     3.4  Retirees.  Those individuals who were employees of the Electronics
          --------
Business who retired prior to the Effective Date and were eligible for benefits
available to retired employees of the Electronics Business under a plan
maintained by API shall continue to be the responsibility of API after the
Effective Date.

     3.5  COBRA.  (a) This paragraph (a) applies to (i) those individuals who
          -----
are Hired Electronics Business Employees (and their dependents) and (ii) those
individuals who are not Hired Electronics Business Employees but who had been
employees of the Electronics Business (in this circumstance meaning an
individual who for over 50% of the time in the most recent 2 years of his
employment or if employed less than 2 years, 50% of his total employment was an
employee of the Electronics Business) prior to the Effective Date (or their
dependents).  If an election for any such person of continuing coverage under a
health, dental and/or vision benefits plan sponsored by API as a result of the
requirements of ERISA Sections 601-608 is in effect on the Effective Date or if
such an election for any such person is made on or after the Effective Date, APW
shall at its option either (i) reimburse API for the amount of health, dental
and vision benefit claims paid by API for such persons for claims incurred after
the Effective Date less the amount of any premiums paid by such persons to API
with respect to periods after the Effective Date for the right to receive such
continuing coverage or (ii) provide replacement coverage with no applicable pre-
existing condition exclusion.

                                      H-5
<PAGE>

     (b)  Notwithstanding any other provision of this agreement to the contrary,
API shall retain all liabilities for the provision of continuing coverage under
a health, dental and/or vision benefits plan sponsored by API as a result of the
requirements of ERISA Section 601-608 for those individuals who had been
employees of the Electronics Business (or their dependents) for whom the
employment relationship with the Electronics Business and API ended prior to the
Effective Date and who are not otherwise described in paragraph (a) above.

     3.6  Personnel and Medical Records.  API shall transfer or make available
          -----------------------------
to APW the personnel and medical records of Hired Electronics Business
Employees.  APW shall indemnify, hold harmless, and defend API from and against
any damages, claims, liabilities, obligations, costs of defense (including
attorney fees), expenses, fines, levies, assessments, charges, penalties,
damages, settlements or awards asserted against API resulting from the release
of any personnel and medical records under this Section 3.6.

     3.7  International Retirement Plan.  API and its subsidiaries have
          -----------------------------
maintained certain Retirement Plan assets and those Retirement Plans for
employees at subsidiaries that are part of APW shall be transferred to APW and
be the sole responsibility of APW for no additional payment by API.

                                  ARTICLE IV

                             Savings Plan Spinoff
                             --------------------

     4.1  Spinoff.  API maintains the APW 401(k) Plan (the "APW 401(k) Plan").
          -------
The assets of the APW 401(k) Plan are held by Fidelity Management Trust Company
("Fidelity"), as trustee. By virtue of the fact that the employment of Hired
Electronics Business Employees is terminated on the Effective Date, no
contributions shall be made to the APW 401(k) Plan on their behalf for periods
from and after the Effective Date.   API agrees to transfer 100% of the account
balances of all Hired Electronics Business Employees in the APW 401(k) Plan plus
100% of the prefunded employer contribution to the APW 401(k) Plan for the plan
year (the "Prefunding") to a new plan created by APW on the Effective Date (the
"New Plan").  The transfer of accounts of Hired Electronics Business Employees
and the transfer of the Prefunding from the APW 401(k) Plan to the New Plan
shall be made by transfer of the assets of those accounts in kind from the APW
401(k) Plan to the New Plan.  To the extent that all contributions due to the
APW 401(k) Plan for Hired Electronics Business Employees have not been made by
the Effective Date, API will make those contributions to the APW 401(k) Plan in
accordance with its normal payment practices and when it deposits such amounts
in the APW  401(k) Plan, API shall instruct Fidelity to immediately transfer
such amounts in cash to the New Plan.  API and APW shall cooperate with one
another and with Fidelity in facilitating such transfer of final contributions.
In addition, and without regard to the Prefunding, API shall remit to APW an
amount equal to its share of any employer contributions that would have been
made to the APW 401(k) Plan based upon the employees' employment through the
Effective Date.  APW further agrees to take all actions necessary to obtain, as
soon as practicable, an Internal Revenue Service determination that the New Plan
meets the requirements

                                      H-6
<PAGE>

of Section 401(a) of the Internal Revenue Code and that the Trust which
implements such Plan meets the requirements of Section 401(a) and is exempt from
tax under Section 501 of the Code.

                                   ARTICLE V

                        Deferred Compensation Benefits
                        ------------------------------

          5.1    General.   As of the Effective Date, APW assumes all
                 -------
liabilities and obligations under the API deferred compensation plans and stock
option deferral programs for Hired Electronic Business Employees consistent with
Section 3.1 hereof.

                                  ARTICLE VI

                              Dispute Resolution
                              ------------------

     6.1  General.  In an effort to resolve informally and amicably any claim or
          -------
controversy arising out of or related to the interpretation or performance of
this Agreement without resorting to litigation, a party shall first notify the
other of any difference or dispute hereunder that requires resolution.  API and
APW each shall designate an employee to investigate, discuss and seek to settle
the matter between them.  If the two are unable to settle the matter within 30
days after such notification (or such longer period as may be agreed upon),
the matter shall be submitted to a senior officer of API and APW, respectively,
for consideration.

     6.2  Arbitration.  If settlement cannot be reached through the efforts of
          -----------
the senior officers within an additional 30 days or such longer period as may be
agreed upon, the parties shall consider arbitration or other alternative means
to resolve the dispute.

     6.3  Legal Proceedings.  If the parties are unable to agree on an
          -----------------
alternative dispute resolution mechanism within 30 days, either party may
initiate legal proceedings to resolve such matter.

                                  ARTICLE VII

                                    Notices
                                    -------

     7.1  General.  All notices and communications required or permitted under
          -------
this Agreement shall be in writing and any communication or delivery hereunder
shall be deemed to have been duly made if actually delivered, or if mailed by
first class mail, postage prepaid, or by air express service, with charges
prepaid and addressed as follows:

                                      H-7
<PAGE>

          If to API:             Applied Power Inc.
                                 6101 N. Baker Road
                                 Milwaukee, Wisconsin  53209
                                 Attention: __________

          If to APW:             APW LTD.
                                 N22 W23685 Ridgeview Parkway West
                                 Waukesha, Wisconsin 53188-1013
                                 Attention:  __________

     7.2  Change in Address.  Either party may, by written notice so delivered
          -----------------
to the other, change the address to which future delivery shall be made.

                                 ARTICLE VIII

                       Written Amendment and Non-Waiver
                       --------------------------------

     8.1  Written Amendment and Waiver.  This Agreement may not be altered or
          ----------------------------
amended nor any rights hereunder be waived, except by an instrument in writing
executed by the party or parties to be charged with such amendment or waiver.

     8.2  Limited Amendment or Waiver.  No waiver of any term, provision or
          ---------------------------
condition of this Agreement or failure to exercise any right, power or remedy or
failure to enforce any provision of this Agreement, in any one or more
instances, shall be deemed to be a further or continuing waiver of any such
term, provision or condition or as a waiver of any other term, provision or
condition or enforcement right of this Agreement or deemed to be an impairment
of any right, power or remedy or acquiescence to any breach.

                                  ARTICLE IX

                                 Miscellaneous
                                 -------------

     9.1  Governing Law.  This Agreement and the transactions contemplated
          -------------
hereby shall be construed in accordance with and governed by the internal laws
of the State of Wisconsin.

     9.2  Entire Agreement.  This Agreement constitutes the entire understanding
          ----------------
of the parties hereto with respect to the subject matter hereof, superseding all
negotiations, prior discussions and prior agreements.  To the extent a subject
is specifically covered in this Agreement and to the extent any other agreement
(other than the Release and Settlement Agreement and General Assignment
Agreement provision on Worker's Compensation described in Article II) is in
conflict herewith, this Agreement, if specific, shall control.

                                      H-8
<PAGE>

     9.3  Parties In Interest.  Neither party may assign its rights or delegate
          -------------------
any of its duties under this Agreement without prior written consent of the
other.  This Agreement shall be binding upon, and shall inure to the benefit of,
the parties hereto and their respective successors and assigns. Nothing
contained in this Agreement, express or implied, is intended to confer upon any
third party any benefits, rights or remedies.

     9.4  Effectiveness.  This Agreement shall become effective at the Effective
          -------------
Date and may be terminated by API at any time prior thereto without any
liability on API's part.

     9.5  Reformation and Severability.  If any provision of this Agreement
          ----------------------------
shall be held to be invalid, unenforceable or illegal in any jurisdiction under
any circumstances for any reason, (i) such provision shall be reformed to the
minimum extent necessary to cause such provision to be valid, enforceable and
legal and preserve the original intent of the parties, or (ii) if such provision
cannot be so reformed, such provision shall be severed from this Agreement.
Such holding shall not affect or impair the validity, enforceability or legality
of such provision in any other jurisdiction or under any other circumstances.
Neither such holding nor such reformation or severance shall affect or impair
the legality, validity or enforceability of any other provisions of this
Agreement to the extent that such other provision is not itself actually in
conflict with any applicable law.

     9.6  Titles and Headings.  All titles and headings have been inserted
          -------------------
solely for the convenience of the parties and are not intended to be a part of
this Agreement or to affect its meaning or interpretation.

     9.7  No Reliance.  No third party is entitled to rely on any of the
          -----------
representations, warranties and agreements of the parties contained in this
Agreement.  The parties assume no liability to any third party because of any
reliance on the representation, warranties and agreements of the parties
contained in this Agreement.

                                      H-9
<PAGE>

     IN WITNESS WHEREOF the Parties have caused this Agreement to be executed by
their duly authorized officers as of this _____ day of __________, 2000.

                              APPLIED POWER INC.


                              By:  __________________________________________
                                   President and Chief Operating Officer


                              APW LTD.


                              By:  __________________________________________
                                   President and Chief Executive Officer



                                     H-10