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EXHIBIT 10 (X)
EATON CORPORATION
2008 ANNUAL REPORT ON FORM 10-K
ITEM 15 (B)
CHANGE
OF CONTROL
AGREEMENT
AGREEMENT by
and between Eaton Corporation, an Ohio corporation (the
"Company") and _______________ (the "Executive"), dated as of the
16th day of
December, 2008.
The Board of
Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its
shareholders to assure
that the Company will have the continued dedication of the
Executive,
notwithstanding the possibility, threat or occurrence of a Change
of Control (as
defined below) of the Company. The Board believes it is imperative
to diminish
the inevitable distraction of the Executive by virtue of the
personal
uncertainties and risks created by a pending or threatened Change
of Control and
to encourage the Executive's full attention and dedication to the
Company
currently and in the event of any threatened or pending Change of
Control, and
to provide the Executive with compensation and benefits
arrangements upon a
Change of Control which ensure that the compensation and benefits
expectations
of the Executive will be satisfied and which are competitive with
those of other
corporations. Therefore, in order to accomplish these objectives,
the Board has
caused the Company to enter into this Agreement.
NOW,
THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain
Definitions.
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(a) The
"Effective Date" shall mean the first date during the Change
of Control Period (as defined in Section 1(b)) on which a Change of
Control (as
defined in Section 2) occurs. Anything in this Agreement to the
contrary
notwithstanding, if the Executive's employment with the Company is
terminated
within the six months prior to the date on which the Change of
Control occurs,
and if it is reasonably demonstrated by the Executive that such
termination of
employment (i) was at the request of a third party who has taken
steps
reasonably calculated to effect a Change of Control or (ii)
otherwise arose in
connection with or anticipation of a Change of Control (such a
termination of
employment, an "Anticipatory Termination"), then for all purposes
of this
Agreement the "Effective Date" shall mean the date immediately
prior to the date
of such termination of employment.
(b) The
"Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date
hereof;
provided, however, that commencing on the date one year after the
date hereof,
and on each annual anniversary of such date (such date and each
annual
anniversary thereof shall be hereinafter referred to as the
"Renewal Date"),
unless previously terminated, the Change of Control Period shall
be
automatically extended so as to terminate three years from such
Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall
give notice
to the Executive that the Change of Control Period shall not be so
extended.
2. Change of
Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The
acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934,
as amended (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
Company 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 (a), the following
acquisitions
shall not constitute a Change of Control: (i) any acquisition
directly from the
Company, (ii) any
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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
(b)
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
(c)
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
Company Common
Shares and Outstanding Company Voting Securities immediately prior
to such
Business Combination beneficially own, directly or indirectly, more
than 55% of,
respectively, the then outstanding shares of common stock 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, 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
Company 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
shares of common stock 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
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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
(d) 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 Executive, or any
entity in
which the Executive 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 Executive, 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.
3.
Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain
in the employ
of the Company subject to the terms and conditions of this
Agreement, for the
period commencing on the Effective Date and ending on the third
anniversary of
such date (the "Employment Period").
4. Terms of
Employment.
(a) Position
and Duties. (i) During the Employment Period, (A) the
Executive's position (including status, offices, titles and
reporting
requirements), authority, duties and responsibilities shall be at
least
commensurate in all material respects with the most significant of
those held,
exercised and assigned to the Executive at any time during the
120-day period
immediately preceding the Effective Date and (B) the Executive's
services shall
be performed at the location where the Executive was employed
immediately
preceding the Effective Date or any office or location less than 35
miles from
such location.
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(ii) During
the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees
to devote reasonable attention and time during normal business
hours to the
business and affairs of the Company and, to the extent necessary to
discharge
the responsibilities assigned to the Executive hereunder, to use
the Executive's
reasonable best efforts to perform faithfully and efficiently
such
responsibilities. During the Employment Period it shall not be a
violation of
this Agreement for the Executive to (A) serve on corporate, civic
or charitable
boards or committees, (B) deliver lectures, fulfill speaking
engagements or
teach at educational institutions and (C) manage personal
investments, so long
as such activities do not significantly interfere with the
performance of the
Executive's responsibilities as an employee of the Company in
accordance with
this Agreement. It is expressly understood and agreed that to the
extent that
any such activities have been conducted by the Executive prior to
the Effective
Date, the continued conduct of such activities (or the conduct of
activities
similar in nature and scope thereto) subsequent to the Effective
Date shall not
thereafter be deemed to interfere with the performance of the
Executive's
responsibilities to the Company.
(b)
Compensation.
(i) Base
Salary. During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary"), which shall
be paid at a
monthly rate, at least equal to twelve times the highest monthly
base salary
paid or payable, including any base salary which has been earned
but deferred,
to the Executive by the Company and its affiliated companies in
respect of the
twelve-month period immediately preceding the month in which the
Effective Date
occurs. During the Employment Period, the Annual Base Salary shall
be increased
no more than 12 months after the last salary increase awarded to
the Executive
prior to the Effective Date, and thereafter at least annually, in
each case by a
percentage not less than the average annual percentage merit
increase in the
Executive's base salary during the five (5) full calendar years (or
such lesser
number of years that the Executive has been employed by the Company
and its
affiliated companies) immediately preceding the Effective Date. Any
increase in
Annual Base Salary shall not serve to limit or reduce any other
obligation to
the Executive under this Agreement. Annual Base Salary shall not be
reduced
after any such increase and the term Annual Base Salary as utilized
in this
Agreement shall refer to Annual Base Salary as so
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increased. As used in this Agreement, the term "affiliated
companies" shall
include any company controlled by, controlling or under common
control with the
Company.
(ii) Annual
Bonus. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment
Period, an
annual bonus (the "Annual Bonus") in cash in an amount (the "Annual
Bonus
Amount") at least equal to the Executive's Incentive Potential (as
defined in
the Eaton Incentive Compensation Plan or any successor plan) for
the most recent
year for which an Incentive Potential was established before the
Effective Date
under the Eaton Incentive Compensation Plan or any successor plan,
adjusted by
the average of the Executive's individual performance rating for
each of the
three most recent years ended before the Effective Date, but
eliminating any
Corporate Performance Factor (as defined in the Eaton Incentive
Compensation
Plan or any successor plan). Each such Annual Bonus shall be paid
no later than
March 15th of the fiscal year next following the fiscal year for
which the
Annual Bonus is awarded, unless the Executive shall elect to defer
the receipt
of such Annual Bonus in accordance with the provisions of the Eaton
Deferred
Incentive Compensation Plan II or any successor plan.
(iii)
Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all
incentive, savings
and retirement plans, practices, policies and programs applicable
generally to
other peer executives of the Company and its affiliated companies
(including
without limitation the Company's Deferred Incentive Compensation
Plan, Limited
Eaton Service Supplemental Retirement Income Plan, long-term
Executive Strategic
Incentive Plan and Supplemental and/or Excess Benefits Plans, as
and to the
extent those plans are in effect from time to time), but in no
event shall such
plans, practices, policies and programs provide the Executive with
incentive
opportunities (measured with respect to both regular and special
incentive
opportunities, to the extent, if any, that such distinction is
applicable),
savings opportunities and retirement benefit opportunities, in each
case, less
favorable, in the aggregate, than the most favorable of those
provided by the
Company and its affiliated companies for the Executive under such
plans,
practices, policies and programs as in effect at any time during
the 120-day
period immediately preceding the Effective Date or if more
favorable to the
Executive, those provided generally at any time after the Effective
Date to
other peer executives of the Company and its affiliated
companies.
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(iv) Welfare
Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall
be eligible
for participation in and shall receive all benefits under welfare
benefit plans,
practices, policies and programs provided by the Company and its
affiliated
companies (including, without limitation, medical, prescription,
dental,
disability, salary continuance, employee life, group life,
accidental death and
travel accident insurance plans and programs) to the extent
applicable generally
to other peer executives of the Company and its affiliated
companies, but in no
event shall such plans, practices, policies and programs provide
the Executive
with benefits which are less favorable, in the aggregate, than the
most
favorable of such plans, practices, policies and programs in effect
for the
Executive at any time during the 120-day period immediately
preceding the
Effective Date or, if more favorable to the Executive, those
provided generally
at any time after the Effective Date to other peer executives of
the Company and
its affiliated companies.
(v)
Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable
expenses incurred by
the Executive in accordance with the most favorable policies,
practices and
procedures of the Company and its affiliated companies in effect
for the
Executive at any time during the 120-day period immediately
preceding the
Effective Date or, if more favorable to the Executive, as in effect
generally at
any time thereafter with respect to other peer executives of the
Company and its
affiliated companies.
(vi) Fringe
Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without
limitation, tax and
financial planning services, payment of club dues, and, if
applicable, use of an
automobile and payment of related expenses, in accordance with the
most
favorable plans, practices, programs and policies of the Company
and its
affiliated companies in effect for the Executive at any time during
the 120-day
period immediately preceding the Effective Date or, if more
favorable to the
Executive, as in effect generally at any time thereafter with
respect to other
peer executives of the Company and its affiliated companies.
(vii) Office
and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and
with
furnishings and other appointments, and to exclusive personal
secretarial and
other assistance, at least equal to the most favorable of the
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foregoing provided to the Executive by the Company and its
affiliated companies
at any time during the 120-day period immediately preceding the
Effective Date
or, if more favorable to the Executive, as provided generally at
any time
thereafter with respect to other peer executives of the Company and
its
affiliated companies.
(viii)
Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable
plans, policies,
programs and practices of the Company and its affiliated companies
as in effect
for the Executive at any time during the 120-day period immediately
preceding
the Effective Date or, if more favorable to the Executive, as in
effect
generally at any time thereafter with respect to other peer
executives of the
Company and its affiliated companies.
5.
Termination of Employment.
(a) Death or
Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment
Period. If the
Company determines in good faith that the Disability of the
Executive has
occurred during the Employment Period (pursuant to the definition
of Disability
set forth below), it may give to the Executive written notice in
accordance with
Section 14(b) of this Agreement of its intention to terminate the
Executive's
employment. In such event, the Executive's employment with the
Company shall
terminate effective on the 30th day after receipt of such notice by
the
Executive (the "Disability Effective Date"), provided that, within
the 30 days
after such receipt, the Executive shall not have returned to
full-time
performance of the Executive's duties. For purposes of this
Agreement,
"Disability" shall mean the absence of the Executive from the
Executive's duties
with the Company on a full-time basis for 180 consecutive business
days as a
result of incapacity due to mental or physical illness which is
determined to be
total and permanent by a physician selected by the Company or its
insurers and
acceptable to the Executive or the Executive's legal
representative.
(b) Cause.
The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall
mean:
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(i) the
willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates
(other than any such failure resulting from incapacity due to
physical or mental
illness), after a written demand for substantial performance is
delivered to the
Executive by the Board or the Chief Executive Officer of the
Company which
specifically identifies the manner in which the Board or Chief
Executive Officer
believes that the Executive has not substantially performed the
Executive's
duties, or
(ii) the
willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the
part of the
Executive, shall be considered "willful" unless it is done, or
omitted to be
done, by the Executive in bad faith or without reasonable belief
that the
Executive's action or omission was in the best interests of the
Company. Any
act, or failure to act, based upon authority given pursuant to a
resolution duly
adopted by the Board or upon the instructions of the Chief
Executive Officer or
a senior officer of the Company or based upon the advice of counsel
for the
Company shall be conclusively presumed to be done, or omitted to be
done, by the
Executive in good faith and in the best interests of the Company.
The cessation
of employment of the Executive shall not be deemed to be for Cause
unless and
until there shall have been delivered to the Executive 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 is provided to the Executive
and the
Executive is given an opportunity, together with counsel, to be
heard before the
Board), finding that, in the good faith opinion of the Board, the
Executive is
guilty of the conduct described in subparagraph (i) or (ii) above,
and
specifying the particulars thereof in detail.
(c) Good
Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good
Reason" shall
mean:
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(i) the
assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices,
titles and
reporting requirements), authority, duties or responsibilities as
contemplated
by Section 4(a) of this Agreement, or any other action by the
Company which
results in a diminution in such position, authority, duties or
responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not
taken in bad faith and which is remedied by the Company promptly
after receipt
of notice thereof given by the Executive;
(ii) any
failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement, other than an isolated,
insubstantial and
inadvertent failure not occurring in bad faith and which is
remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
(iii) the
Company's requiring the Executive to be based at any office
or location other than as provided in Section 4(a)(i)(B) hereof or
the Company's
requiring the Executive to travel on Company business to a
substantially greater
extent than required immediately prior to the Effective Date;
(iv) any
purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement;
or
(v) any
failure by the Company to comply with and satisfy Section
12(c) of this Agreement. For purposes of this Section 5(c), any
good faith
determination of "Good Reason" made by the Executive shall be
conclusive.
(d) Notice
of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by
Notice of
Termination to the other party hereto given in accordance with
Section 14(b) of
this Agreement. For purposes of this Agreement, a "Notice of
Termination" means
a written notice which (i) indicates the specific termination
provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable
detail the facts and circumstances claimed to provide a basis for
termination of
the
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