Document:

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                                                                  Exhibit 10 (k)

(EATON LOGO)

                                Eaton Corporation
                         2006 Annual Report on Form 10-K
                                   Item 15 (b)

                             2007 STOCK OPTION GRANT
                STOCK OPTION AGREEMENT UNDER THE 2004 STOCK PLAN

                                  OPTIONHOLDER:

              DATE  OF GRANT:           February 27, 2007
              DATE OF EXPIRATION:       February 27, 2017

TOTAL NUMBER OF STOCK OPTIONS:
              OPTION PRICE:
              MARKET VALUE:

INCENTIVE STOCK OPTION SHARES:
NON-QUALIFIED STOCK OPTION SHARES:

EATON CORPORATION, an Ohio corporation (the "Company"), hereby grants to the
Optionholder, in consideration of service by him or her to the Company or a
subsidiary of the Company, the option to purchase from the Company the number of
common shares of the Company with a par value of fifty cents each (the "Common
Shares") specified above from time to time during a period which shall end at
the close of business on the tenth anniversary of the date of the granting of
this option (such period being referred to as the "fixed term of the option"),
unless sooner terminated as hereinafter provided. For purposes of the foregoing
sentence, "close of business" shall mean 4:00 p.m. Eastern Time on the day of
the tenth anniversary. However, if that day falls on a Saturday, Sunday or other
day when the principal stock exchange for the Common Shares is closed for
trading, "close of business" shall mean 4:00 p.m. Eastern Time on the nearest
preceding day when that stock exchange is open for trading. This option is
subject to, and is granted in accordance with, the 2004 Stock Plan (the "2004
Plan"), and upon the terms and conditions herein set forth.

I.    TERMS OF EXERCISE OF OPTION

      A.    By the Optionholder While an Employee of the Company or a Subsidiary

The Optionholder may exercise this option only after he or she remains in the
continuous employment of the Company for a period of one year from the date of
granting of this option and only as to the number of shares which become vested
as set forth below. Employment by a subsidiary shall be counted as employment by
the Company.

Subject to Section I. B. hereof, after one year of such continuous employment
following the date of grant of this option, the Optionholder, while still so
employed, may exercise this option as follows:

            1.    At any time after one year of such continuous employment from
                  the date of grant, as to 33% of the Common Shares subject to
                  this option;

            2.    At any time after two years of such continuous employment from
                  the date of grant, as to an additional 33% of the Common
                  Shares subject to this option; and

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2007 STOCK OPTION GRANT

I.    TERMS OF EXERCISE OF OPTION (CONTINUED)

      A.    By the Optionholder While an Employee of the Company or a Subsidiary
            (continued)

            3.    At any time after three years of such continuous employment
                  from the date of grant, as to an additional 34% of the Common
                  Shares subject to this option.

The Compensation and Organization Committee of the Board of Directors of the
Company (the "Committee") reserves the right to decide to what extent leaves of
absence for government or military service, illness, temporary disability, or
other reasons shall not be deemed to be an interruption of continuous
employment.

      B.    By the Optionholder When No Longer Employed by Either the Company or
            a Subsidiary

            1.    Retirement.

            If the Optionholder ceases to be an employee as a result of
            retirement on or after normal retirement age (age 65 for U.S.
            employees), or on or after age 50 and 10 years of service to the
            Company or a subsidiary (early retirement), he or she may exercise
            this option with respect to all Common Shares then subject to this
            option which are vested at the date of such retirement in accordance
            with the schedule set forth in Section I.A above, for a period not
            to exceed the shorter of the remaining term of this option or five
            years after the retirement date.

            2.    Divestiture of a Facility.

            If the Optionholder ceases to be an employee as a result of the
            divestiture of a facility where the Optionholder is employed, he or
            she may exercise this option with respect to all Common Shares then
            subject to this option, both vested and unvested, for a period not
            to exceed 90 days after the effective date of the divestiture. If
            the divestiture results in the retirement of the Optionholder (as
            described in Subsection B.1), then he or she may exercise this
            option with respect to all Common Shares then subject to this option
            (both vested and unvested) for a period not to exceed the shorter of
            the remaining term of the option or five years after the retirement
            date.

            3.    Other Terminations.

            If the Optionholder ceases to be an employee for any reason other
            than those described in Subsections B.1. or B.2., he or she may
            exercise this option only for the number of Common Shares which are
            vested at the time he or she ceased to be an employee, and he or she
            may exercise this option only for a period not to exceed 90 days
            following the termination of employment.

            4.    Company Discretion.

            In the case of a termination of an officer of the Company that is
            subject to Subsections B.1 or B.3, the officer may exercise this
            option for such number of Common Shares that is greater than the
            number provided by those Subsections as the Committee may authorize
            by acceleration of vesting or extension of the exercise period (but
            not beyond the ten year term of this option).

            In the case of the termination of employment of an employee who is
            not an officer of the Company that is subject to Subsections B.1 or
            B.2, the employee may exercise this option for such number of Common
            Shares greater than provided by those Subsections as the Management
            Compensation Committee ("Management Committee") may authorize by
            acceleration of vesting or extension of the exercise period (but not
            beyond the ten year term of this option).

            The Optionholder should have no expectation that the Committee or
            the Management Committee will take any discretionary action
            contemplated by this Subsection B.4.

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2007 STOCK OPTION GRANT

      B.    By the Optionholder When No Longer Employed by Either the Company or
            a Subsidiary (continued)

            5.    Incentive Stock Options

            To receive favorable tax treatment afforded Incentive Stock Options,
            the Incentive Stock Option Shares must be exercised within 90 days
            of retirement or other termination of employment or within one year
            of termination of employment due to permanent and total disability.
            Incentive Stock Option Shares that are not exercised within those
            periods will, for tax purposes, be treated the same as Non-Qualified
            Stock Options.

      C.    By the Optionholder After Change in Position

If the Optionholder should be assigned to any position with the Company or its
subsidiaries which is, in the sole and absolute discretion of the Committee, of
lesser responsibility than that which is held by the Optionholder upon the date
hereof, thereafter the Optionholder may exercise this option (during the term of
the option) only for the number of Common Shares for which the option was
exercisable at the time of such assignment or such greater number of Common
Shares as determined by the Committee in the exercise of its sole and absolute
discretion.

      D.    In Case of the Death of the Optionholder

Upon the death of the Optionholder, this option shall be exercisable by the
Optionholder's estate, or by a person who has acquired the right to exercise
this option by bequest or inheritance, (i) during the period of 12 months after
the date of death (but no later than the end of the fixed term of the option)
for the number of Common Shares for which the option was exercisable upon the
date of death, and (ii) during such period of time, if any (but ending no later
than the end of the fixed term of the option), which the Committee may determine
in its sole and absolute discretion, for the number of Common Shares for which
the Optionholder could have exercised this option in accordance with its terms
prior to the expiration of that period of time if the Optionholder had lived.

      E.    Term

The option shall in no event be exercisable after the expiration of 10 years
from the date of the granting of the option, notwithstanding anything to the
contrary in Sections I. A, B, C or D above. The option hereby granted shall be
considered terminated and cancelled, in whole or in part, to the extent that it
can no longer be exercised under the terms hereof or under the terms of the 2004
Plan, for the Common Shares originally subject to this option, or in the event
the Optionholder shall fail, within 60 days after the granting of this option,
to deliver to the Company an acceptance of such option executed by him or her.

II.   EXERCISING OPTION--RIGHTS AS A SHAREHOLDER

      A.    Exercise and Payment

This option may be exercised only at time when the principal exchange for the
Common Shares is open for business. An exercise of this option will be effective
when the person or estate entitled to exercise it shall indicate the decision to
do so, as to all or any part of the Common Shares for which it may then be
exercised, by any method of communication expressly authorized by the Company
and at the same time tenders or makes available to the Company (by any method
expressly authorized by the Company) payment in full the exercise price in cash
or by delivery to the Company of Common Shares owned by the Optionholder, or by
tender of a combination of cash and Common Shares. A partial exercise of this
option shall not affect the right to exercise it from time to time thereafter as
to the remaining Common Shares subject to the option. The Company shall notify
the Optionholder of the expiration date of the fixed term of this option no less
than 90 days, nor more than 180 days, in advance of such expiration date.

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2007 STOCK OPTION GRANT

II.   EXERCISING OPTION--RIGHTS AS A SHAREHOLDER (CONTINUED)

      B.    Shareholder Rights

No holder of this option shall have any rights as a shareholder with respect to
any Common Shares subject to the option unless and until he or she shall have
received a certificate or certificates for such Common Shares. Subject to
compliance with all the terms and conditions hereof and of the 2004 Plan,
including all rules, regulations and determinations of the Committee, the
Company shall, as promptly as possible after any exercise of this option,
deliver a certificate or certificates for an appropriate number of Common
Shares; provided, however, that no such certificate or certificates shall be so
delivered unless and until adequate provision has, in the judgment of the
Company, been made for any and all withholding taxes in respect of the exercise
of the option.

III.  TRANSFER OF OPTION

This option shall not be transferable otherwise than by will or the law of
descent and distribution or to the extent permitted by rules or regulations
under Section 16(b) under the Securities Exchange Act of 1934 (the "Exchange
Act") and the Committee.

IV.   COMPLIANCE WITH LAWS, REGULATIONS AND RULES

The Company will use its reasonable best efforts to comply with all federal and
state laws and regulations and all rules for domestic stock exchanges on which
its Common Shares may be listed, which apply to the issuance of the Common
Shares subject to this option, and to obtain such consents and approvals to such
issuance which it deems advisable from federal and state bodies having
jurisdiction of such matters. However, anything herein to the contrary
notwithstanding, this option shall not be exercisable, and the Company shall not
be obligated to issue or deliver any certificate for shares subject to this
option, in violation of any such laws, regulations or rules and unless and until
such consents and approvals have been obtained. Any share certificate issued to
evidence Common Shares as to which this option is exercised may bear such
legends and statements as the Committee shall deem advisable to assure
compliance with federal and state laws and regulations.

If a person or an estate purporting to acquire the rights to exercise this
option by bequest or inheritance shall attempt to exercise this option, the
Company may require reasonable evidence as to the ownership of this option and
may request such consents and releases of taxing authorities as it deems
advisable.

V.    ADJUSTMENT UPON CHANGE OF SHARES

In the event of a reorganization, merger, consolidation, reclassification,
recapitalization, combination or exchange of shares, stock split, stock
dividend, rights offering or other event affecting Common Shares, the number and
class of Common Shares subject to this option, the price per share payable upon
exercise of this option and the conditions on which this option shall become
exercisable, shall be equitably adjusted by the Committee so as to reflect such
change. No adjustment provided for in this Section V shall require the Company
to sell or transfer a fractional share.

VI.   EFFECT ON EMPLOYMENT

The granting of this option shall not give the Optionholder any right to be
retained in the employ of the Company or any subsidiary, and shall not affect
the right of the Company to terminate the employment of the Optionholder at any
time with or without assigning a reason therefore to the same extent as the
Company might have done if this option had not been granted.

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2007 STOCK OPTION GRANT

VII.  COMPETITION BY OPTIONHOLDER

In the event that the Optionholder voluntarily leaves employment of the Company
or a subsidiary and within one (1) year after exercise of any portion of this
option enters into an activity as employee, agent, officer, director, principal
or proprietor which, in the sole judgment of the Committee, is in competition
with the Company or a subsidiary, the amount by which the fair market value per
share on the date of exercise of any such portion exceeds the option price per
Common Share hereunder, multiplied by the number of Common Shares subject to
such exercised portion, shall inure to the benefit of the Company and the
Optionholder shall pay the same to the Company, unless the Committee in its sole
discretion shall determine that such action by the Optionholder is not inimical
to the best interest of the Company or its subsidiaries.

VIII. CHANGE OF CONTROL

      A.    Exercise of Option

Notwithstanding anything in Section I.A to the contrary, effective upon a Change
of Control of the Company (as defined below), this option shall become fully
exercisable for 100% of the Common Shares subject to this option.

      B.    Definition

For the purpose of this Agreement, a "Change of Control" shall mean:

            1.    The acquisition by any individual, entity or group (within the
                  meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
                  (a "Person") of beneficial ownership (within the meaning of
                  Rule 13d-3 promulgated under the Exchange Act) of 25% or more
                  of either (i) the then outstanding common shares of the
                  Company (the "Outstanding Common Shares") or (ii) the combined
                  voting power of the then outstanding voting securities of the
                  Company entitled to vote generally in the election of
                  directors (the "Outstanding Company Voting Securities");
                  provided, however, that for purposes of this subsection 1, the
                  following acquisitions shall not constitute a Change of
                  Control: (i) any acquisition directly from the Company, (ii)
                  any acquisition by the Company, or (iii) any acquisition by
                  any employee benefit plan (or related trust) sponsored or
                  maintained by the Company or any corporation controlled by the
                  Company; or

            2.    Individuals who, as of the date hereof, constitute the Board
                  (the "Incumbent Board") cease for any reason to constitute at
                  least a majority of the Board; provided, however, that any
                  individual becoming a director subsequent to the date hereof
                  whose election, or nomination for election by the Company's
                  shareholders, was approved by a vote of at least two-thirds of
                  the directors then comprising the Incumbent Board shall be
                  considered as though such individual were a member of the
                  Incumbent Board, but excluding, for this purpose, any such
                  individual whose initial assumption of office occurs as a
                  result of an actual or threatened election contest with
                  respect to the election or removal of directors or other
                  actual or threatened solicitation of proxies or consents by or
                  on behalf of a Person other than the Board; or

            3.    Consummation by the Company of a reorganization, merger or
                  consolidation or sale or other disposition of all or
                  substantially all of the assets of the Company or the
                  acquisition of assets of another corporation (a "Business
                  Combination"), in each case, unless, following such Business
                  Combination, (i) all or substantially all of the individuals
                  and entities who were the beneficial owners, respectively, of
                  the Outstanding Common Shares and Outstanding Company Voting
                  Securities immediately prior to such Business Combination
                  beneficially own, directly or indirectly, more than 75% of,
                  respectively, the then outstanding common shares and the
                  combined voting power of the then outstanding voting
                  securities entitled to vote generally in the election of
                  directors, as the case may be, of the corporation resulting
                  from such Business Combination (including, without limitation,

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2007 STOCK OPTION GRANT

VIII. CHANGE OF CONTROL (CONTINUED)

      B.    Definition (continued)

            3.    a corporation which as a result of such transaction owns the
                  Company or all or substantially all of the Company's assets
                  either directly or through one or more subsidiaries) in
                  substantially the same proportions as their ownership,
                  immediately prior to such Business Combination of the
                  Outstanding Common Shares and Outstanding Company Voting
                  Securities, as the case may be, (ii) no Person (excluding any
                  employee benefit plan (or related trust) of the Company or
                  such corporation resulting from such Business Combination)
                  beneficially owns, directly or indirectly, 25% or more of,
                  respectively, the then outstanding common shares of the
                  corporation resulting from such Business Combination or the
                  combined voting power of the then outstanding voting
                  securities of such corporation except to the extent that such
                  ownership existed prior to the Business Combination and (iii)
                  at least a majority of the members of the board of directors
                  of the corporation resulting from such Business Combination
                  were members of the Incumbent Board at the time of the
                  execution of the initial agreement, or of the action of the
                  Board, providing for such Business Combination; or

            4.    Approval by the shareholders of the Company of a complete
                  liquidation or dissolution of the Company.

Notwithstanding the foregoing, a "Change of Control" shall not be deemed to have
occurred as a result of any transaction or series of transactions which the
Optionholder, or any entity in which the Optionholder is a partner, officer or
more than 50% owner initiates, if immediately following the transaction or
series of transactions that would otherwise constitute a Change of Control, the
Optionholder, either alone or together with other individuals who are executive
officers of the Company immediately prior thereto, beneficially owns, directly
or indirectly, more than 10% of the then outstanding common shares of the
Company or the corporation resulting from the transaction or series of
transactions, as applicable, or of the combined voting power of the then
outstanding voting securities of the Company or such resulting corporation.

IX. ENFORCEABILITY

This Agreement shall be binding upon and inure to the benefit of the Company,
and its successors and assigns, and upon the personal representatives,
executors, administrators, legatees and distributees of the Optionholder.

X. 2004 PLAN CONTROLS

The terms and conditions of the 2004 Plan, as amended from time to time in
accordance with the provisions of Section 12 thereof, shall control the terms
and conditions of this option, and anything contained in this Agreement
inconsistent with or in violation of the terms and conditions of the 2004 Plan
shall be of no force or effect and shall not be binding upon the Company or the
Optionholder. The 2004 Plan and this Agreement represent the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements, representations and understandings,
whether written or oral.

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2007 STOCK OPTION GRANT

XI.   CONSTRUCTION

It is intended that acquisition of this option by the Optionholder shall qualify
for exemption from the provisions of Section 16(b) of the Exchange Act, and each
and every provision of this Agreement shall be construed, interpreted and
administered so that the grant of this option, whether made to an officer or
director of the Company or to any other employee of the Company or a subsidiary,
shall so qualify. Any provision of this Agreement that cannot be so construed,
interpreted and administered shall be of no force or effect.

XII.  GOVERNING LAW

This Agreement shall be construed in accordance with the laws of the State of
Ohio, except as otherwise specifically provided herein.

                                                     EATON CORPORATION

                                                     By     -s- S. J. Cook
                                                            -------------------

                                                     And By -s- E. R. Franklin
                                                            -------------------

ACCEPTANCE OF OPTION BY OPTIONHOLDER

Accepted by_____________________________
                    Signature

Date____________________________________

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                                                                  Exhibit 10 (s)

                                Eaton Corporation
                         2006 Annual Report on Form 10-K
                                   Item 15 (b)

                  1996 NON-EMPLOYEE DIRECTOR FEE DEFERRAL PLAN

                                   I. PURPOSE

      The 1996 Non-Employee Director Fee Deferral Plan (the "Plan") enables each
Director of Eaton Corporation ("Eaton" or the "Company") who is not employed by
the Company to defer receipt of fees that may be payable to him or her for
future services as a member of the Board of Directors of the Company (the
"Board") or as chairman or as a member of any committee of the Board. The
purpose of the Plan is to help attract and retain highly qualified individuals
to serve as members of the Company's Board of Directors and as members of
committees thereof.

                                 II. ELIGIBILITY

      All members of the Board who are not employed by the Company are eligible
to participate in the Plan with respect to amounts earned as fees for services
as a member of the Board or as chairman or a member of any committee of the
Board.

                                III. DEFINITIONS

      The terms used herein shall have the following meanings:

      Account - A bookkeeping account established by Eaton for a Participant to
which may be credited Deferred Fees and earnings or losses thereon.

      Agreement - A written agreement between Eaton and a Participant deferring
the receipt of Fees and indicating the term of the deferral.

      Beneficiary - The person or entity designated in writing executed and
delivered by the Participant to the Committee. If that person or entity is not
living or in existence at the time any unpaid balance of Deferred Fees becomes
due after the death of a Participant, the term "Beneficiary" shall mean the
Participant's estate or legal representative or any person, trust or
organization designated in such Participant's will.

      Board - The Board of Directors of Eaton Corporation.

This document constitutes part of a prospectus covering securities that have
been registered under the Securities Act of 1933.

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      Change in Control of Eaton - Shall be deemed to occur if (i) a tender
offer shall be consummated for 25% or more of the combined voting power of
Eaton's then outstanding voting securities, (ii) Eaton shall be merged or
consolidated with another corporation and as a result less than 75% of the
outstanding voting securities of the resulting corporation shall be owned by the
former shareholders of Eaton, other than affiliates (within the meaning of the
Securities Exchange Act of 1934 (the "Exchange Act")) of any party to such
merger or consolidation, as the same shall have existed immediately prior to
such merger or consolidation, (iii) Eaton shall sell substantially all of its
assets to another corporation that is not a wholly owned subsidiary of Eaton,
(iv) any "person" (as such term is used in Sections 3(a)(9) and 13(d)(3) of the
Exchange Act) is or becomes the beneficial owner, directly or indirectly, of 25%
or more of the combined voting power of Eaton's then outstanding securities; or
(v) during any period of two consecutive years, individuals who at the beginning
of that period constitute the Board cease to constitute at least a majority
thereof unless the election, or the nomination for election by Eaton's
shareholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period. For purposes of this Plan, ownership of voting securities shall take
into account and include ownership as determined by applying the provisions of
Rule 13d-3(d)(l)(i) of the Exchange Act (as then in effect).

      Committee - The Governance Committee of the Board or such other committee
as the Board may from time to time designate for purposes of administration of
the Plan.

      Common Share Retirement Deferred Fees - Retirement Deferred Fees that are
converted into share units in accordance with Article VI.

      Deferral Plans - This Plan and any other prior plan sponsored by the
Company pursuant to which Fees may be deferred.

      Deferred Fees - That portion of Fees deferred pursuant to the Plan.

      Eaton - Eaton Corporation, an Ohio corporation, and its subsidiaries and
successors and assigns.

      Eaton Common Shares - The common shares of Eaton Corporation with a par
value of $.50 each.

            Failure to Pay - The circumstances described in either (i) or (ii)
      have occurred:(i) Any Participant shall have notified the Company and the
      Trustee in writing that the Company shall have failed to pay to the
      Participant, when due, either directly or by direction to the trustee of
      any trust holding assets for the payment of benefits pursuant to the Plan,
      at least 75% of any and all amounts which the Participant was entitled to
      receive at any time in accordance with the terms of the Plan, and that
      such amounts remain unpaid. Such notice must set forth the amount, if any,
      which was paid to the Participant by the Company, and the amount which the
      Participant believes he or she was entitled to receive under the Plan. The
      failure to make such payment shall have continued for a period of 30 days
      after receipt of such notice by the Company, and during such 30-day period
      the Company shall have failed to prove, by

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      clear and convincing evidence as determined by the Trustee in its sole and
      absolute discretion, that such amount was in fact paid or was not due and
      payable; or

            (ii) More than two Participants shall have notified the Company and
      the Trustee in writing that they have not been paid when due, either
      directly or by direction to the Trustee, amounts to which they are
      entitled under the Plan and that such amounts remain unpaid. Each such
      notice must set forth the amount, if any, which was paid to the
      Participant, and the amount which the Participant believes he or she was
      entitled to receive under the Plan. Within 15 days after receipt of each
      such notice, the Trustee shall determine, on a preliminary basis, whether
      any failure to pay such Participants has resulted in a failure to pay when
      due, directly or by direction, at least 75% of the aggregate amount due to
      all Participants under all the Deferral Plans in any two-year period, and
      that such amounts remain unpaid. If the Trustee determines that such a
      failure has occurred, then it shall so notify the Company and the
      Participants in writing within the same 15 day period. Within a period of
      20 days after receipt of such notice from the Trustee, the Company shall
      have failed to prove by clear and convincing evidence, in the sole and
      absolute discretion of the Trustee, that such amounts were paid or were
      not due and payable.

      Fees - Any amount payable to a Participant for services as a member of the
Board or as chairman or a member of any committee of the Board.

      Funded Amount - With respect to the Account of any Participant, the value
of any assets which have been placed in a grantor trust established by the
Company to pay benefits with respect to that Account, as determined at the time
initial payments are to be made pursuant to the selections made by the
Participants in accordance with Section 10.03.

      Interest Rate Retirement Deferred Fees - Retirement Deferred Fees that are
credited with Treasury Note Based Interest in accordance with Article VII.

      Participant - A member of the Board who is not an employee of Eaton and
who elects to defer receipt of Fees.

      Periodic Installments - Monthly, quarterly, semiannual or annual payments,
over a period not to exceed fifteen years, as determined by the Committee in its
sole discretion, which are substantially equal in amount, or, in the case of
Common Share Retirement Deferred Fees, substantially equal in the number of
share units being valued and paid or the number of Eaton Common Shares being
distributed, except that earnings attributable to periods following Retirement
or Termination of Service as a Director shall be included with each payment.

      Plan - This 1996 Non-Employee Director Fee Deferral Plan pursuant to which
Fees may be deferred for later payment.

      Retirement - The Termination of Service as a Director of a Participant who
is age 55 or older and who has at least ten years of service as a member of the
Board, who is age 68 or older, or who is approved by the Committee to qualify as
a retirement.

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      Retirement Deferred Fees - That portion of Fees deferred for payment at
Retirement, at one year following Retirement, at two years following Retirement
or in Periodic Installments commencing after Retirement.

      Short-Term Deferred Fees - That portion of Fees deferred for payment as
determined by the Committee in accordance with Article V.

      Termination and Change in Control - The Termination of Service as a
Director of a Participant for any reason whatsoever prior to a Change in Control
if there is a subsequent Change in Control or the Termination of Service as a
Director of a Participant for any reason whatsoever during the three-year period
immediately following a Change in Control.

      Termination of Service as a Director - The time when a Participant shall
no longer be a member of the Board, whether by reason of retirement, death,
voluntary resignation, divestiture, removal (with or without cause), or
disability.

      Treasury Bill Interest Equivalent - A rate of interest equal to the
quarterly average yield of 13-week U.S. Government Treasury Bills.

      Treasury Note Based Interest - A rate of interest equal to the average
yield of 10-year U.S. Government Treasury Notes plus 300 basis points.

      Trustee - The trustee of any trust which holds assets for the payment of
the benefits provided by the Plan.

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                              IV. ELECTION TO DEFER

      Section 4.01 Deferral Options. For each calendar year commencing with
1997, a Participant may elect to defer the receipt of all or part of his or her
Fees as Short-Term Deferred Fees or Retirement Deferred Fees. Once a Participant
has made an effective election, he or she may not thereafter change that
election or change any allocation between Short-Term Deferred Fees or Retirement
Deferred Fees.

      Section 4.02 Amount Deferred. Not less than 10% of Fees payable for any
calendar year may be deferred under the Plan. If a Participant elects to
allocate a portion of Fees to both Short-Term Deferred Fees and Retirement
Deferred Fees, the amount allocated to each shall be not less than 10% of the
Fees payable for any calendar year.

      Section 4.03 Election Deadline. To be in effect, a Participant's election
must be completed, signed and filed with the Committee on or before such date as
is necessary to defer inclusion of the Fees in the Director's gross income for
Federal income tax purposes.

      Section 4.04 Transfers. Notwithstanding anything herein to the contrary, a
Participant may elect to have held and distributed in accordance with the terms
and conditions of the Plan all or part of his or her compensation which was
deferred under the 1980 Plan for Deferred Payment of Directors' Fees, and any
such election with respect to amounts to be held and distributed as Retirement
Deferred Fees for any Participant in payment status upon the effective date of
such election may be held only as Interest Rate Deferred Fees if to do otherwise
would be administratively impractical.

                           V. SHORT-TERM DEFERRED FEES

      If elected by a Participant, payment of the amount of Fees allocated to
Short-Term Deferred Fees will be deferred. Short-Term Deferred Fees shall be
credited to the Participant on the date such amount would have been distributed
to him or her if there had been no valid deferral election by establishing an
Account in the Participant's name. Treasury Bill Interest Equivalents shall be
credited quarterly to the Participant's Short-Term Deferred Fees Account until
such compensation is paid to the Participant. Short-Term Deferred Fees, together
with credited Treasury Bill Interest Equivalents, shall be paid to the
Participant in a lump sum or in not more than five annual installments as
determined by the Committee.

                          VI. RETIREMENT DEFERRED FEES

      Section 6.01 Duration. If elected by a Participant, payment of the amount
of Fees allocated to Retirement Deferred Fees will be deferred to Retirement or
to one year after Retirement or to two years after Retirement, but subject to
Committee discretion as to date of payment as provided herein. Retirement
Deferred Fees shall be credited to the Participant on the date such amount would
have been distributed to him or her if there had been no valid deferral election
by establishing an Account in the Participant's name.

                                      - 5 -
<PAGE>

      Section 6.02 Common Share Retirement Deferred Fees. Between 50% and 100%,
as elected by the Participant, of the amount allocated to Retirement Deferred
Fees shall be credited to Common Share Retirement Deferred Fees, and the balance
shall be credited to Interest Rate Retirement Deferred Fees.

      Common Share Retirement Deferred Fees shall be converted into a number of
share units based upon the average of the mean prices for Eaton Common Shares
for the twenty trading days of the New York Stock Exchange during which Eaton
Common Shares were traded immediately preceding the end of the calendar quarter
in which the Fees to be deferred were earned. For purposes of the Plan, "mean
price" shall be the mean of the highest and lowest selling prices for Eaton
Common Shares quoted on the New York Stock Exchange List of Composite
Transactions on the relevant trading day. On each Eaton Common Share dividend
payment date, dividend equivalents equal to the actual Eaton Common Share
dividends paid shall be credited to the share units in the Participant's
Account, and shall in turn be converted into share units utilizing the mean
price for Eaton Common Shares on the dividend payment date.

      Upon payment of Common Share Retirement Deferred Fees in Eaton Common
Shares, the share units standing to the Participant's credit shall be converted
to the same number of Eaton Common Shares for distribution to the Participant.

      Upon payment of Common Share Retirement Deferred Fees in cash, including
any installment thereof in the case of Periodic Installments, the share units
required to make the cash payment shall be converted to an amount equal to the
greater of: (a) the product of the average of the mean prices for an Eaton
Common Share for the last twenty trading days of the New York Stock Exchange
during which Eaton Common Shares were traded in the month immediately preceding
the month in which the date of payment occurs, multiplied by the number of share
units then credited to the Participant's Account, or (b) if a Change in Control
of Eaton shall have occurred at any time within thirty-six months immediately
preceding the payment, the product of the number of share units credited to the
Participant's Account at the time of payment multiplied by the highest of (i)
the highest price paid for an Eaton Common Share in any tender offer in
connection with the Change in Control of Eaton; (ii) the price received for an
Eaton Common Share in any merger, consolidation or similar event in connection
with the Change in Control of Eaton; or (iii) the highest price paid for an
Eaton Common Share as reported in any Schedule 13D within the sixty-day period
immediately preceding the Change in Control of Eaton.

      Section 6.03 Interest Rate Retirement Deferred Fees. Retirement Deferred
Fees not credited to Common Share Retirement Deferred Fees shall be credited to
Interest Rate Retirement Deferred Fees. Interest Rate Retirement Deferred Fees
shall be credited to the Interest Rate Retirement Deferred Fees Account, which
shall earn Treasury Note Based Interest, compounded quarterly, until paid.

      Section 6.04 Periodic Installments. Upon the death of a Participant who
has commenced receiving Periodic Installments, the entire remaining amount of
his or her Retirement Deferred Fees shall be distributed to the Participant's
Beneficiary. Such distributions

                                      - 6 -
<PAGE>

may be made either in a lump sum or in installments in such amounts and over
such periods, not exceeding the remaining number of annual installments from the
date of death of the Participant, as the Committee may direct in its sole
discretion.

      Section 6.05 Termination of Service as a Director. The Retirement Deferred
Fees Account of a Participant whose Termination of Service as a Director occurs
for reasons other than Retirement shall be distributed in a lump sum or in
Periodic Installments, as the Committee may determine in its sole discretion.
The lump sum payment shall be made, or the Periodic Installments shall commence,
when the Committee may determine in its sole discretion, no later than February
1 of the calendar year immediately after the calendar year that includes the
earliest of: (i) the Participant's death, (ii) the Participant's attainment of
age 55 if he or she was credited with at least 10 years of service for Eaton (or
an affiliate of Eaton), (iii) the Participant's attainment of age 68, or (iv)
the fifth anniversary of the Participant's Termination of Service as a Director.

      Earnings shall be credited on undistributed Retirement Deferred Fees
Accounts, and annual installment payments shall be adjusted to reflect such
additional earnings, based on the remaining number of installment payments to be
distributed and based on Treasury Note Based Interest, computed quarterly.

                         VII. AMENDMENT AND TERMINATION

      Eaton fully expects to continue the Plan but it reserves the right, except
as otherwise provided herein, at any time by action of the Committee, to modify,
amend or terminate the Plan for any reason, including adverse changes in the
federal tax laws. Notwithstanding the foregoing, upon the occurrence of a Change
in Control of Eaton, no amendment, modification or termination of the Plan
shall, without the consent of any particular Participant, alter or impair any
rights or obligations under the Plan with respect to that Participant.

                              VIII. ADMINISTRATION

      The Plan shall be administered by the Committee. The Committee shall
interpret the provisions of the Plan where necessary and may adopt procedures
for the administration of the Plan which are consistent with the provisions of
the Plan and any rules adopted by the Committee.

      After Retirement or other Termination of Service as a Director, the
Committee shall determine in its sole discretion (i) whether Retirement Deferred
Fees shall be paid in a lump sum or in Periodic Installments, (ii) the date on
which a lump sum payment will be made or Periodic Installments will commence,
which in the case of Retirement shall be not later than one year following the
date to which the deferral was made, and in the case of Termination of Service
as a Director for reasons other than Retirement shall be in accordance with
Section 6.05, (iii) whether to change the Periodic Installments or the number of
years over which they are to be paid, and (iv) whether Common Share Retirement
Deferred Fees will be paid in cash or in Eaton Common Shares. In making these
determinations, the Committee may consider the wishes and needs of the
Participant or his or her Beneficiary.

                                      - 7 -
<PAGE>

      Each Participant or Beneficiary must claim any benefit to which such
Beneficiary may be entitled under the Plan by a written notification to the
Committee. If a claim is denied, it must be denied within a reasonable period of
time in a written notice stating the specific reasons for the denial. The
claimant may have a review of the denial by the Committee by filing a written
notice with the Committee within sixty days after the notice of the denial of
his or her claim. The written decision by the Committee with respect to the
review must be given within 120 days after receipt of the written request.

      The determinations of the Committee shall be final and conclusive.

             IX. TERMINATION AND CHANGE IN CONTROL - FAILURE TO PAY

      Section 9.01 Termination and Change in Control. Notwithstanding anything
herein to the contrary, upon the occurrence of a Termination and Change in
Control, the Participants shall be entitled to receive from the Company the
payments as provided in Section 9.03.

      Section 9.02 Failure to Pay. Notwithstanding anything herein to the
contrary, upon the occurrence of a Failure to Pay, each Participant covered by
the situation described in clause (i) of the definition of Failure to Pay, or
each of the Participants in the event of a situation described in clause (ii) of
that definition, as the case may be, shall be entitled to receive from the
Company the payments as provided in Section 9.03.

      Section 9.03 Payment Requirement. No later than (i) the first to occur of
six months following the date hereof, a Termination and Change in Control or a
Failure to Pay for any person who is a Participant upon such event or (ii) the
date upon which any person who is not subject to clause (i) becomes a
Participant, each Participant shall select one of the payment alternatives set
forth below with respect to that portion of the Participant's Account equal to
the full amount of the Account minus the Funded Amount, and with respect to that
portion of the Account equal to the Funded Amount. The payment alternatives
selected with respect to the two portions of the Account need not be the same.
The payment alternatives are as follows:

            (a) a Lump Sum Payment within 30 days following the Termination and
      Change in Control or Failure to Pay, as the case may be;

            (b) payment in monthly, quarterly, semiannual or annual payments,
      over a period not to exceed fifteen years, as selected by the Participant
      at the time provided in the first paragraph of this Section 9.03,
      commencing within 30 days following the Termination and Change in Control
      or Failure to Pay, as the case may be, which are substantially equal in
      amount or in the number of share units being valued and paid or in the
      number of Eaton Common Shares being distributed, except that earnings
      attributable to periods following Termination and Change in Control or
      Failure to Pay shall be included with each payment.

Payment of such amounts shall be made to each such Participant in accordance
with his or her selected alternative as provided in Section 9.01 and 9.02.

                                      - 8 -
<PAGE>

                                X. MISCELLANEOUS

      Section 10.01 Adjustments. In the event of a reorganization, merger,
consolidation, reclassification, recapitalization, combination or exchange of
shares, stock split, stock dividend, rights offering or similar event affecting
shares of the Company, the Committee shall equitably adjust the number of share
units previously allocated to the Accounts of Participants as Common Share
Retirement Deferred Fees.

      Section 10.02 Designation of Beneficiaries. Each Participant shall have
the right, by written instruction to the Committee, on a form supplied by the
Committee, to designate one or more primary and contingent Beneficiaries (and
the proportion to be paid to each, if more than one is designated) to receive
his or her Account balance upon his or her death. Any such designation shall be
revocable by the Participant.

      Section 10.03 Committee Actions. All actions of the Committee hereunder
may be taken with or without a meeting, as permitted by law and by the Company's
Amended Regulations.

      Section 10.04 Assignment. No benefit under the Plan shall be subject to
anticipation, alienation, sale, transfer or encumbrance, and any attempt to do
so shall be void. No benefit hereunder shall in any manner be liable for the
debts, contracts, or liabilities of the person entitled to such benefits. If a
Participant or Beneficiary shall become bankrupt, or attempt to anticipate,
alienate, sell, transfer or encumber any benefit hereunder, then such benefit
shall, in the discretion of the Committee, cease and terminate, and the
Committee may hold or apply the same for the benefit of the Participant or his
or her spouse, children, or other dependents, or any of them, in such manner and
in such amounts and proportions as the Committee may deem proper. During a
Participant's lifetime, rights hereunder are exercisable only by the Participant
or the Participant's guardian or legal representative. Notwithstanding the
foregoing, nothing in this Section shall prohibit the transfer of any benefit by
will or by the laws of descent and distribution or (if permitted by applicable
regulations under Section 16(b) of the Securities Exchange Act) pursuant to a
qualified domestic relations order, as defined under the Internal Revenue Code
and the Employee Retirement Income Security Act.

      Section 10.05 No Funding Required. The obligations of Eaton to make
payments shall be a liability of Eaton to the Participant. Eaton shall not be
required to maintain any separate fund or reserve, or purchase or acquire life
insurance on a Participant's life, or otherwise segregate assets to assure that
any particular asset of Eaton is available to make such payments by reason of
Eaton's obligations hereunder. Nothing contained in the Plan shall be construed
as creating a trust or other fiduciary relationship between Eaton and a
Participant or any other person.

      Section 10.06 No Contract for Services. The Plan shall not be deemed to
constitute a contract for services between Eaton and a Participant. Neither the
execution of the Plan nor any action taken by Eaton or the Committee pursuant to
the Plan shall confer on a Participant any legal right to be continued as a
member of the Board or in any other capacity with Eaton whatsoever.

                                      - 9 -
<PAGE>

      Section 10.07 Governing Law. The Plan shall be construed and governed in
accordance with the law of the State of Ohio to the extent not covered by
Federal law.

                                      - 10 -

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