EATON CORP
EX-10(S)
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<TYPE>EX-10.S
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<FILENAME>l24244aexv10ws.txt
<DESCRIPTION>EX-10(S)
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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.

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      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

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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.

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      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.

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                                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.

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      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.

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