Mr. Paul A. Gustafson
January 1, 1997




                                                     January 1, 1997




Mr. Paul A. Gustafson
20 Rogers Road
Hamden, Connecticut  06517

Dear Paul:

         The  Black  &  Decker  Corporation  (the  "Corporation")  considers  it
essential to the best  interests of its  stockholders  to foster the  continuous
employment  of key  management  personnel.  In this  connection,  the  Board  of
Directors of the Corporation (the "Board")  recognizes that, as is the case with
many publicly held  corporations,  the possibility of a change in control of the
Corporation  may  exist  and that  such  possibility,  and the  uncertainty  and
questions  which it may raise among  management,  may result in the departure or
distraction of management  personnel to the detriment of the Corporation and its
stockholders.

         The Board has  determined  that  appropriate  steps  should be taken to
reinforce and encourage the continued attention and dedication of members of the
Corporation's  management,  including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the  Corporation,  although no such change
is now contemplated.

         In order to induce you to remain in the employ of the Corporation,  the
Corporation  agrees that you shall receive the  severance  benefits set forth in
this letter  agreement (the  "Agreement")  in the event your employment with the
Corporation is terminated subsequent to a "change in control of the Corporation"
(as defined in Section 2 hereof) under the circumstances described below.

          1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof
and shall continue in effect through December 31, 2000; provided,  however, that
if a change in control of the Corporation
<PAGE>

shall have occurred prior to December 31, 2000, this Agreement shall continue in
effect  for a period  of 36 months  beyond  the  month in which  such  change in
control occurred, at which time this Agreement shall terminate.  Notwithstanding
the foregoing,  and provided no change in control of the Corporation  shall have
occurred, this Agreement shall automatically terminate upon the earlier to occur
of (i)  your  termination  of  employment  with  the  Corporation,  or (ii)  the
Corporation's  furnishing you with notice of  termination,  irrespective  of the
effective date of such termination.

          2.  CHANGE IN CONTROL. No benefits shall be payable  hereunder  unless
there  shall  have been a change in  control  of the  Corporation,  as set forth
below. For purposes of this Agreement,  a "change in control of the Corporation"
shall mean a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
the Corporation is in fact required to comply therewith,  provided that, without
limitation, such a change in control shall be deemed to have occurred if (A) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act),
other than a trustee or other  fiduciary  holding  securities  under an employee
benefit plan of the  Corporation  or any of its  subsidiaries  or a  corporation
owned,  directly  or  indirectly,  by the  stockholders  of the  Corporation  in
substantially   the  same  proportions  as  their  ownership  of  stock  of  the
Corporation,  is or becomes  the  "beneficial  owner" (as  defined in Rule 13d-3
under  the  Exchange  Act),  directly  or  indirectly,   of  securities  of  the
Corporation  representing  20% or  more  of the  combined  voting  power  of the
Corporation's  then  outstanding  securities;  (B)  during  any  period  of  two
consecutive  years,  individuals who at the beginning of such period  constitute
the Board and any new director (other than a director designated by a person who
has entered  into an  agreement  with the  Corporation  to effect a  transaction
described in clauses (A) or (D) of this Section)  whose election by the Board or
nomination for election by the Corporation's stockholders was approved by a vote
of at least  two-thirds  of the  directors  then still in office who either were
directors at the  beginning of the period or whose  election or  nomination  for
election  was  previously  so  approved,  cease for any reason to  constitute  a
majority thereof; (C) the Corporation enters into an agreement, the consummation
of  which  would  result  in  the  occurrence  of a  change  in  control  of the
Corporation;  or (D) the stockholders of the Corporation approve a merger, share
exchange or consolidation of the Corporation with any other  corporation,  other
than a merger,  share exchange or consolidation which would result in the voting
securities of the Corporation  outstanding  immediately prior thereto continuing
to represent (either by remaining  outstanding or by being converted into voting
securities of the surviving entity) at least 60% of the combined voting power of
the voting  securities of the Corporation or such surviving  entity  outstanding
immediately  after  such  merger,  share  exchange  or  consolidation,   or  the
stockholders  of the Corporation  approve a plan of complete  liquidation of the
Corporation or an agreement for the sale or  disposition  by the  Corporation of
all or substantially all the Corporation's assets.
<PAGE>

          3.  TERMINATION FOLLOWING CHANGE IN CONTROL OF THE CORPORATION. If any
of the events described in Section 2 hereof  constituting a change in control of
the  Corporation  shall have  occurred,  you shall be entitled  to the  benefits
provided in Subsection  4(iii) hereof upon the  subsequent  termination  of your
employment  during the term of this  Agreement  unless such  termination  is (A)
because of your death or Disability, (B) by the Corporation for Cause, or (C) by
you other than for Good Reason.

               (i)  DISABILITY.  If,  as a  result  of  your  incapacity  due to
physical  or mental  illness,  you shall  have been  absent  from the  full-time
performance of your duties with the Corporation for six consecutive  months, and
within 30 days after written  notice of  termination is given you shall not have
returned to the full-time  performance  of your duties,  your  employment may be
terminated for "Disability."

               (ii) CAUSE. Termination by the Corporation of your employment for
"Cause" shall mean termination upon (A) the willful and continued failure by you
to substantially  perform your duties with the Corporation,  other than any such
failure  resulting from your incapacity due to physical or mental illness or any
such  actual or  anticipated  failure  after the  issuance by you of a Notice of
Termination (as defined in Subsection  3(iv) hereof) for Good Reason (as defined
in Subsection 3(iii) hereof), after a written demand for substantial performance
is  delivered  to you by the Board,  which demand  specifically  identifies  the
manner in which the Board  believes  that you have not  substantially  performed
your duties, or (B) the willful engaging by you in conduct which is demonstrably
and  materially  injurious to the  Corporation,  monetarily  or  otherwise.  For
purposes  of this  Subsection,  no act or  failure  to act on your part shall be
deemed  "willful"  unless done,  or omitted to be done, by you not in good faith
and without  reasonable  belief  that your  action or  omission  was in the best
interest of the  Corporation.  Notwithstanding  the foregoing,  you shall not be
deemed to have been  terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative  vote of
not less than  three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose  (after  reasonable  notice to you
and an opportunity for you,  together with your counsel,  to be heard before the
Board),  finding that in the good faith  opinion of the Board you were guilty of
conduct  set forth  above in clauses  (A) or (B) of the first  sentence  of this
Subsection and specifying the particulars thereof in detail.

               (iii)  GOOD  REASON.  You shall be  entitled  to  terminate  your
employment for Good Reason. For purposes of this Agreement,  "Good Reason" shall
mean,  without your express written  consent,  the occurrence  after a change in
<PAGE>

control of the Corporation of any of the following  circumstances unless, in the
case of  paragraphs  (A), (E),  (F), (G) or (H),  such  circumstances  are fully
corrected  prior  to  the  Date  of  Termination  specified  in  the  Notice  of
Termination,  as such terms are defined in  Subsections  3(v) and 3(iv)  hereof,
respectively, given in respect thereof:

                           (A) the assignment to you of any duties  inconsistent
         with  your  current  status as an  executive  of the  Corporation  or a
         substantial  adverse  alteration  in  the  nature  or  status  of  your
         responsibilities  from those in effect  immediately prior to the change
         in control of the Corporation;

                           (B) a  reduction  by the  Corporation  in your annual
         base  salary  as in  effect  on the date  hereof  or as the same may be
         increased  from  time  to  time,  except  for  across-theboard   salary
         reductions similarly affecting all senior executives of the Corporation
         and all senior executives of any person in control of the Corporation;

                           (C) your relocation to a location not within 25 miles
         of your present office or job location,  except for required  travel on
         the Corporation's  business to an extent substantially  consistent with
         your present business travel obligations;

                           (D) the  failure  by the  Corporation,  without  your
         consent, to pay to you any portion of your current compensation,  or to
         pay to you any portion of an installment of deferred compensation under
         any deferred compensation program of the Corporation, within seven days
         of the date such compensation is due;

                           (E) the  failure by the  Corporation  to  continue in
         effect any bonus to which you were entitled,  or any compensation  plan
         in which you participated immediately prior to the change in control of
         the Corporation which is material to your total compensation, including
         but not limited to the  Corporation's  (i) Executive  Annual  Incentive
         Plan  or  other  annual  incentive   compensation  plan  ("AIP");  (ii)
         Performance Equity Plan or other long-term incentive  compensation plan
         ("PEP");  (iii) stock option plans;  (iv) retirement and savings plans;
         (v) Supplemental Executive Retirement Plan ("SERP");  (vi) Supplemental
         Pension Plan; (vii)  Supplemental  Retirement  Savings Plan; and (viii)
         Executive  Deferred  Compensation Plan; or any substitute plan or plans
         adopted  prior to the change in control of the  Corporation,  unless an
         equitable arrangement (embodied in an ongoing substitute or alternative
         plan)  has been  made  with  respect  to such  plan and such  equitable
         arrangement provides  substantially  equivalent benefits not materially
         less favorable to you (both in terms of the amount of benefits provided
         and the
<PAGE>

         level of your  participation  relative to other  participants),  or the
         failure  by the Corporation to continue your participation  therein (or
         in such substitute or  alternative plan) on a basis not materially less
         favorable  (both in terms of  the amount of benefits  provided  and the
         level of your participation  relative to other participants) as existed
         at the time of the change in control of the Corporation;

                           (F) the  failure by the  Corporation  to  continue to
         provide you with benefits substantially similar to those enjoyed by you
         under any of the Corporation's life insurance,  medical, dental, health
         and accident,  or disability  plans in which you were  participating at
         the time of the change in control of the  Corporation,  the  failure to
         continue to provide you with a  Corporation  automobile or allowance in
         lieu thereof, if you were provided with such an automobile or allowance
         in  lieu  thereof  at  the  time  of  the  change  in  control  of  the
         Corporation,  the taking of any action by the  Corporation  which would
         directly  or  indirectly  materially  reduce  any of such  benefits  or
         deprive you of any material  fringe benefit  enjoyed by you at the time
         of the  change in  control of the  Corporation,  or the  failure by the
         Corporation  to provide  you with the number of paid  vacation  days to
         which  you are  entitled  on the  basis of years  of  service  with the
         Corporation in accordance with the Corporation's normal vacation policy
         in effect at the time of the change in control of the Corporation;

                           (G)  the  failure  of the  Corporation  to  obtain  a
         satisfactory  agreement  from any  successor  to  assume  and  agree to
         perform this Agreement, as contemplated in Section 5 hereof; or

                           (H) any  purported  termination  of  your  employment
         which is not effected  pursuant to a Notice of  Termination  satisfying
         the  requirements of Subsection  3(iv) hereof (and, if applicable,  the
         requirements  of  Subsection  3(ii)  hereof);   for  purposes  of  this
         Agreement, no such purported termination shall be effective.

Your rights to terminate your employment  pursuant to this Subsection  shall not
be affected by your incapacity due to physical or mental illness. Your continued
employment  shall not constitute  consent to, or a waiver of rights with respect
to, any circumstance constituting Good Reason hereunder.

               (iv) NOTICE OF  TERMINATION.  Any purported  termination  of your
employment by the  Corporation or by you shall be communicated by written Notice
of  Termination  to the other party hereto in accordance  with Section 6 hereof.
For purposes of this  Agreement, a "Notice of  Termination"  shall mean a notice
<PAGE>

which shall indicate the specific termination provision in this Agreement relied
upon and shall  set  forth in  reasonable  detail  the  facts and  circumstances
claimed  to  provide  a basis  for  termination  of your  employment  under  the
provision so indicated.

               (v) DATE OF TERMINATION,  ETC. "Date of  Termination"  shall mean
(A) if your  employment is terminated  for  Disability,  30 days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance  of  your  duties  during  such  30-day  period),  and  (B) if  your
employment is terminated  pursuant to Subsections  3(ii) or 3(iii) hereof or for
any other reason (other than  Disability),  the date  specified in the Notice of
Termination  (which,  in the case of a termination  pursuant to Subsection 3(ii)
hereof shall not be less than 30 days, and in the case of a termination pursuant
to  Subsection  3(iii)  hereof  shall not be less than 15 nor more than 60 days,
respectively,  from the date such Notice of Termination is given); provided that
if within 15 days after any Notice of Termination is given, or, if later,  prior
to the Date of Termination (as determined  without regard to this proviso),  the
party  receiving  such  Notice of  Termination  notifies  the other party that a
dispute exists concerning the termination,  the Date of Termination shall be the
date on which the  dispute  is  finally  determined,  either  by mutual  written
agreement  of  the  parties,  by a  binding  arbitration  award,  or by a  final
judgment,  order or decree of a court of  competent  jurisdiction  (which is not
appealable  or with respect to which the time for appeal  therefrom  has expired
and no appeal has been perfected); provided further that the Date of Termination
shall be  extended  by a notice of dispute  only if such notice is given in good
faith and the party giving such notice  pursues the  resolution  of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Corporation  will continue to pay you your full  compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, base
salary) and  continue  you as a  participant  in all  compensation,  benefit and
insurance plans in which you were  participating  when the notice giving rise to
the dispute was given,  until the dispute is finally resolved in accordance with
this Subsection. Amounts paid under this Subsection are in addition to all other
amounts due under this  Agreement and shall not be offset  against or reduce any
other amounts due under this Agreement.

          4.  COMPENSATION UPON TERMINATION OR  DURING  DISABILITY.  Following a
change in control  of the  Corporation,  as  defined  by Section 2 hereof,  upon
termination  of your  employment or during a period of  Disability  you shall be
entitled to the following benefits:

               (i)  During any period  that you fail to perform  your  full-time
duties with the  Corporation as a result of incapacity due to physical or mental
illness, you shall  continue
<PAGE>

to receive  your base  salary at the rate in effect at the  commencement  of any
such period,  together  with all amounts  payable to you under any  compensation
plan of the Corporation  during such period,  until this Agreement is terminated
pursuant to Subsection 3(i) hereof.  Thereafter, or in the event your employment
shall be  terminated  by you  other  than for Good  Reason  or by reason of your
death,  your benefits shall be determined  under the  Corporation's  retirement,
insurance and other compensation  programs then in effect in accordance with the
terms of such programs.

               (ii) If your  employment  shall be terminated by the  Corporation
for  Cause,  Disability  or death,  or by you other  than for Good  Reason,  the
Corporation  shall pay you your full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given, plus all other
amounts to which you are  entitled  under any  retirement,  insurance  and other
compensation  programs of the Corporation at the time such payments are due, and
the Corporation shall have no further obligations to you under this Agreement.

               (iii) If your employment by the  Corporation  shall be terminated
(a) by the Corporation  other than for Cause,  Disability or death or (b) by you
for Good Reason, then you shall be entitled to the benefits provided below:

                           (A) The  Corporation  shall  pay you your  full  base
         salary  through  the Date of  Termination  at the rate in effect at the
         time Notice of  Termination  is given,  plus all other amounts to which
         you are entitled under any compensation plan of the Corporation, at the
         time such payments are due, except as otherwise provided below.

                           (B) In lieu of any further salary payments to you for
         periods  subsequent to the Date of Termination,  the Corporation  shall
         pay as severance pay to you a lump sum severance payment (together with
         the  payments  provided in  paragraphs  (C) and (D) of this  Subsection
         4(iii), the "Severance  Payments") equal to three times the sum of your
         (a) annual base salary in effect immediately prior to the occurrence of
         the  circumstance  giving  rise to the Notice of  Termination  given in
         respect thereof,  and (b) AIP Maximum Payment for the year in which the
         Date of Termination  occurs.  AIP Maximum Payment shall mean the higher
         of (1) the award you would be entitled to receive for 1995 based on the
         maximum payout factor for the AIP or (2) any greater award you would be
         entitled  to receive for any  subsequent  year  (including  the year in
         which your employment is terminated) based on the maximum payout factor
         for the AIP for such  subsequent  year.  The provisions of this Section
         4(iii)(B)   shall  not  in  any  way  affect  your  rights   under  the
         Corporation's stock option plans or the PEP.
<PAGE>

                           (C)  In  lieu  of  shares  of  common  stock  of  the
         Corporation  (the  "Shares")  issuable  upon  exercise  of  outstanding
         options,  if any, granted to you under the  Corporation's  stock option
         plans  ("Options"),  which  Options  (and  any  related  limited  stock
         appreciation  rights) shall be cancelled upon the making of the payment
         referred  to below,  you shall  receive  an amount in cash equal to the
         product  of (i) the excess of the  higher of the  closing  price of the
         Shares as reported on the NYSE on or nearest to the Date of Termination
         (or, if not listed on the NYSE, on a nationally  recognized exchange or
         quotation system on which trading volume in the Shares is highest), and
         the highest per share price for the Shares  actually paid in connection
         with any  change  in  control  of the  Corporation,  over the per share
         exercise  price of each Option  held by you  (whether or not then fully
         exercisable)   plus  the  amount,   if  any,  of  any  applicable  cash
         appreciation  rights,  times (ii) the  number of the Shares  covered by
         each such Option.

                           (D) The  Corporation  shall  pay to you any  deferred
         compensation, including but not limited to deferred bonuses and amounts
         deferred under the Executive Deferred  Compensation Plan,  allocated or
         credited to you or your account as of the Date of Termination.

                           (E) The  Corporation  shall also pay to you all legal
         fees  and  expenses  incurred  by you as a result  of such  termination
         (including all such fees and expenses,  if any,  incurred in contesting
         or disputing  any such  termination  or in seeking to obtain or enforce
         any right or benefit  provided by this Agreement or in connection  with
         any  tax  audit  or  proceeding  to  the  extent  attributable  to  the
         application  of  Section  4999 of the Code to any  payment  or  benefit
         provided hereunder).

                           (F) If the payments  provided under  paragraphs  (B),
         (C) and (D) above (the "Contract Payments") or any other portion of the
         Total Payments (as defined below) will be subject to the tax imposed by
         Section 4999 of the Code (the "Excise Tax"), the Corporation  shall pay
         to you at the time  specified in  paragraph  (G) below,  an  additional
         amount (the "Gross-Up  Payment")  such that the net amount  retained by
         you,  after  deduction of any Excise Tax on the  Contract  Payments and
         such other Total  Payments  and any federal and state and local  income
         tax and Excise Tax upon the  payment  provided  for by this  paragraph,
         shall be equal to the Contract  Payments and such other Total Payments.
         For purposes of determining whether any of the payments will be subject
         to the  Excise  Tax and the amount of such  Excise  Tax,  (i) any other
         payments  or benefits  received or to be received by you in  connection
         with  a change in  control of the  Corporation  or your  termination of
         employment  (whether
<PAGE>

         payable  pursuant  to the terms of this  Agreement  or any other  plan,
         arrangement  or agreement with the  Corporation,  its  successors,  any
         person whose actions  result in a change in control of the  Corporation
         or any corporation  affiliated (or which, as a result of the completion
         of a transaction  causing a change in control of the Corporation,  will
         become  affiliated) with the Corporation  within the meaning of Section
         1504 of the Code)  (together  with the  Contract  Payments,  the "Total
         Payments") shall be treated as "parachute  payments" within the meaning
         of Section 280G(b)(2) of the Code, and all "excess parachute  payments"
         within the meaning of Section 280G(b)(1) shall be treated as subject to
         the Excise Tax,  unless in the  opinion of tax counsel  selected by the
         Corporation's  independent  auditors  and  acceptable  to you the Total
         Payments (in whole or in part) do not constitute parachute payments, or
         such  excess  parachute  payments  (in  whole  or  in  part)  represent
         reasonable  compensation  for  services  actually  rendered  within the
         meaning of Section  280G(b)(4)(B) of the Code either to the extent such
         reasonable  compensation  is in excess of the base  amount  within  the
         meaning of Section 280G(b)(3) of the Code, or are otherwise not subject
         to the Excise Tax, (ii) the amount of the Total  Payments that shall be
         treated  as  subject  to the Excise Tax shall be equal to the lesser of
         (A) the total amount of the Total  Payments or (B) the amount of excess
         parachute  payments  within the  meaning of Section  280G(b)(1)  (after
         applying  clause  (i),  above),  and (iii)  the  value of any  non-cash
         benefits or any deferred  payment or benefit  shall be as determined by
         the   Corporation's   independent   auditors  in  accordance  with  the
         principles of Sections  280G(d)(3) and (4) of the Code. For purposes of
         determining the amount of the Gross-Up Payment,  you shall be deemed to
         pay federal income taxes at the highest marginal rate of federal income
         taxation in the calendar  year in which the  Gross-Up  Payment is to be
         made and state and local income taxes at the highest  marginal  rate of
         taxation  in the state and  locality of your  residence  on the Date of
         Termination, net of the maximum reduction in federal income taxes which
         could be obtained from deduction of such state and local taxes.  In the
         event that the Excise Tax is  subsequently  determined  to be less than
         the amount taken into account  hereunder at the time of  termination of
         your  employment,  you shall repay to the  Corporation at the time that
         the amount of such  reduction in Excise Tax is finally  determined  the
         portion of the Gross-Up  Payment  attributable  to such reduction (plus
         the portion of the Gross-Up Payment  attributable to the Excise Tax and
         federal and state and local income tax imposed on the Gross-Up  Payment
         being repaid by you if such repayment  results in a reduction in Excise
         Tax and/or a federal  and state and local  income tax  deduction)  plus
         interest  on the  amount  of such  repayment  at the rate  provided  in
         Section 1274(d) of the Code. In the
<PAGE>

         event that the Excise Tax is determined to exceed the amount taken into
         account  hereunder at the time of the  termination  of your  employment
         (including  by reason of any payment the  existence  or amount of which
         cannot  be  determined  at the  time  of  the  Gross-Up  Payment),  the
         Corporation  shall make an  additional  Gross-Up  Payment in respect of
         such excess (plus any interest  payable with respect to such excess) at
         the time that the amount of such excess is finally determined.

                           (G) The payments provided for in paragraphs (B), (C),
         (D) and (F) above, shall be made not later than the fifth day following
         the Date of Termination, provided, however, that if the amounts of such
         payments  cannot  be  finally  determined  on or before  such day,  the
         Corporation shall pay to you on such day an estimate,  as determined in
         good faith by the  Corporation,  of the minimum amount of such payments
         and shall pay the remainder of such payments (together with interest at
         a rate equal to 120% of the rate  provided  in  Section  1274(d) of the
         Code) as soon as the amount  thereof can be determined  but in no event
         later  than the  thirtieth  day after the Date of  Termination.  In the
         event  that the amount of the  estimated  payments  exceeds  the amount
         subsequently  determined to have been due, such excess shall constitute
         a loan by the  Corporation to you payable on the fifth day after demand
         by the  Corporation  (together with interest at a rate equal to 120% of
         the rate  provided  in  Section  1274(d)  of the  Code).  The  payments
         provided for in paragraph (E) above shall be made from time to time, in
         each instance not later than the fifth day following a written  request
         for payment by you.

               (iv)  If  your   employment   shall  be  terminated  (A)  by  the
Corporation  other  than for Cause,  Disability  or death or (B) by you for Good
Reason, then for a 36-month period after such termination, the Corporation shall
arrange to provide  you with life,  disability,  accident,  medical,  dental and
health insurance benefits  substantially similar to those that you are receiving
immediately prior to the Notice of Termination. Benefits otherwise receivable by
you pursuant to this Subsection 4(iv) shall be reduced to the extent  comparable
benefits are actually  received by you from another employer during the 36-month
period following your  termination,  and any such benefits  actually received by
you shall be reported to the Corporation.

               (v) You shall  not be  required  to  mitigate  the  amount of any
payment provided for in this Section 4 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by another
employer,  by retirement  benefits,  by offset  against any amount claimed to be
owed by you to the Corporation,  or otherwise except as specifically provided in
this Section 4.
<PAGE>

               (vi) In addition to all other  amounts  payable to you under this
Section 4, you shall be entitled to receive  all  benefits  payable to you under
The Black & Decker  Executive  Salary  Continuance  Plan,  the SERP, The Black &
Decker  Supplemental  Pension  Plan,  or any plan or agreement  sponsored by the
Corporation or any of its subsidiaries relating to retirement benefits.

          5.  SUCCESSORS; BINDING AGREEMENT.

               (i) The Corporation will require any successor (whether direct or
indirect,  by purchase,  merger, share exchange,  consolidation or otherwise) to
all or  substantially  all of the business  and/or assets of the  Corporation to
assume  expressly and agree to perform this  Agreement in the same manner and to
the same extent that the Corporation  would be required to perform it if no such
succession had taken place. Failure of the Corporation to obtain such assumption
and  agreement  prior to the  effectiveness  of any such  succession  shall be a
breach  of this  Agreement  and  shall  entitle  you to  compensation  from  the
Corporation in the same amount and on the same terms as you would be entitled to
hereunder if you terminate your employment for Good Reason following a change in
control  of the  Corporation,  except  that for  purposes  of  implementing  the
foregoing,  the date on which any such  succession  becomes  effective  shall be
deemed the Date of Termination.  As used in this Agreement,  "Corporation" shall
mean the Corporation as  hereinbefore  defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.

               (ii)  This  Agreement  shall  inure  to  the  benefit  of  and be
enforceable   by   your   personal   or   legal   representatives,    executors,
administrators,  heirs, distributees,  and legatees. If you should die while any
amount would still be payable to you hereunder if you had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to your legatee or other designee or, if there is no
such designee, to your estate.

               (iii) In the event that you are employed by a  subsidiary  of the
Corporation,  wherever in this Agreement reference is made to the "Corporation,"
unless the context  otherwise  requires,  such reference shall also include such
subsidiary.  The Corporation  shall cause such subsidiary to carry out the terms
of this Agreement insofar as they relate to the employment  relationship between
you and such  subsidiary,  and the Corporation  shall indemnify you and save you
harmless  from  and  against  all  liability  and  damage  you may  suffer  as a
consequence  of such  subsidiary's  failure to perform and carry out such terms.
Wherever  reference  is made to any  benefit  program of the  Corporation,  such
reference shall include, where appropriate, the

<PAGE>

corresponding  benefit  program of such  subsidiary if you were a participant in
such  benefit  program on the date a change in control  of the  Corporation  has
occurred.

          6.  NOTICE. For the purpose of this  Agreement,  notices and all other
communications  provided for in the  Agreement  shall be in writing and shall be
deemed  to have been  duly  given  when  delivered  or  mailed by United  States
registered mail,  return receipt  requested,  postage prepaid,  addressed to the
respective  addresses  set forth on the first page of this  Agreement,  provided
that all notices to the  Corporation  shall be directed to the  attention of the
Board with a copy to the Secretary of the Corporation,  or to such other address
as  either  party  may have  furnished  to the other in  writing  in  accordance
herewith,  except that notice of change of address shall be effective  only upon
receipt.

          7.  MISCELLANEOUS.  This  Agreement  amends and restates the agreement
between the parties dated  October 25, 1995. No provision of this  Agreement may
be modified, waived or discharged unless such waiver,  modification or discharge
is  agreed  to in  writing  and  signed  by  you  and  such  officer  as  may be
specifically  designated  by the Board.  No waiver by either party hereto at any
time of any  breach by the  other  party  hereto  of, or  compliance  with,  any
condition  or  provision  of this  Agreement to be performed by such other party
shall be deemed a waiver of similar or  dissimilar  provisions  or conditions at
the same or at any prior or subsequent  time. No agreements or  representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have  been  made by  either  party  which  are not  expressly  set forth in this
Agreement.  The validity,  interpretation,  construction and performance of this
Agreement shall be governed by the laws of the State of Maryland. All references
to sections of the Exchange Act or the Code shall be deemed also to refer to any
successor provisions to such sections. Any payments provided for hereunder shall
be paid net of any applicable withholding required under federal, state or local
law. The obligations of the Corporation under Section 4 hereof shall survive the
expiration of the term of this Agreement.

          8.  VALIDITY.  The invalidity or unenforceability  of any provision of
this  Agreement  shall not affect the  validity or  enforceability  of any other
provision of this Agreement, which shall remain in full force and effect.

          9.  COUNTERPARTS.   This   Agreement   may   be  executed  in  several
counterparts,  each of which shall be deemed to be an original  but all of which
together will constitute one and the same instrument.

         10.  ARBITRATION.  Any  dispute  or  controversy  arising  under  or in
connection  with this Agreement  shall be settled  exclusively

<PAGE>

by  arbitration  in the State of Maryland,  in accordance  with the rules of the
American Arbitration  Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that you
shall be entitled to seek  specific  performance  of your right to be paid until
the Date of  Termination  during the  pendency  of any  dispute  or  controversy
arising under or in connection with this Agreement.

         If this letter sets forth our agreement on the subject  matter  hereof,
kindly sign and return to the Corporation the enclosed copy of this letter which
will then constitute our agreement on this subject.

                                   Sincerely,

                                   THE BLACK & DECKER CORPORATION


                                   By/s/NOLAN D. ARCHIBALD
                                   Nolan D. Archibald
                                   Chairman, President and
                                   Chief Executive Officer


Agreed to as of the 1st
day of January 1997

/s/PAUL A. GUSTAFSON
-----------------------
Paul A. Gustafson